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A post-pandemic recovery stock that is in pole position

•4-Catapult

Catapult Group (ASX: CAT), the Melbourne based sports performance technology company has released its financial results for the year ending March 31, 2021 (FY21).

Catapult has been around since the early 2000’s developing sports technology for elite sports athletes to measure and analyse performance. The last year has been a challenging one for the company due to the pandemic forced lockdown and border closures which forced the cancellation of sporting events on a global level.

One of the major setbacks was the postponing of Tokyo 2020 Olympics and possible cancellation of the already postponed event. In the world of sports, this would have to be the worst period since World War II. Despite all this, Catapult has survived surprisingly well.

According to its financial results FY21 result, the company managed to grow its Software as a Service or SaaS revenue, i.e., software that is licenced on a subscription based model but centrally hosted. The company’s main metric is annualized contract revenue (ACV). This key subscription metric, accelerated in H2 to an annualised rate of 35 per cent.

Here are a few other key metrics:

  • Growth in ACV of 16.5 per cent FY21 (annualised 35 per cent)
  • ACV growth in Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC) was 57 per cent and 34 per cent
  • ACV in Performance & Health grew 32 per cent in FY21, far exceeding pre-COVID FY20 growth of 12 per cent
  • FY21 ACV Churn of 5.5 per cent, a 14.1 per cent improvement from FY20, despite COVID challenges
  • Customers with two or more solutions grew 17 per cent, highlighting the value of Catapult’s platform

ACV subscription revenue accounts for 79 per cent of total revenue. This figure was up from 71 per cent in FY20 and reflects the strategic focus on high-quality recurring SaaS revenue over one-time capital sales.

The company also recorded a positive and growing Free Cash Flow ($2.9m to $4.9m) emphasising the company’s recovery and cash generation. What it shows, is that the negative impacts from the pandemic are abating and the sports industry is recovering.

The acceleration of growth in regions less impacted by COVID also highlights the significant growth potential of the Americas once COVID impacts subside i.e. ACV growth of 55 per cent globally. Another highlight mentioned in its results, was that ACV growth in the Performance & Health vertical was almost 3x faster in FY21 than in FY20, despite the pandemic impact. Catapult delivered Q4 subscription revenue growth of 12.5 per cent against the previous corresponding quarter (which was not COVID impacted).

Subscription revenue in Q4 hit 87 per cent of total revenue, as one-time capital deals were moved to higher-quality, and higher-margin, subscription deals.

Catapult’s results, whilst didn’t shoot the lights out, were impressive given the challenges presented. The company operates in one of the worst pandemic affected industry’s as world-wide sporting events were postponed or cancelled i.e., the US collegiate sports (NCAA) was hit hard with most events cancelled or played with no spectators. Despite all this, Catapult retained its customer base, introduced new solutions to help its customers deal with pandemic related impacts. To highlight this, we use Catapult’s acquisition of Science for Sport.

The platform is a profitable subscription online sport learning platform, which is the number one source of content, online courses, and community engagement, in the global sports science industry. With an organic social audience of hundreds of thousands of followers, Catapult was able to empowers athletes and teams with easily-consumable answers to their performance-related questions, train athletes remotely, addressing key sports issues such as athlete’s agility, mitigation of soft tissue injuries, and enhanced recovery methods – all via the platform.

This led to Catapult launching the Catapult Community, an online platform that builds connections between Catapult’s users and improves knowledge sharing across the sports performance industry. It’s basically an interactive space where users access and share content, collaborate and participate in discussion. The community helps athletes and members primarily through difficult times such as Covid.

Catapult has done it hard, but there have been some key wins as well. According to Morningstar, “In the first half of the year, the company completed its 100 per cent penetration of teams in the NFL by signing the Atlanta Falcons. It also signed a contract with the US Army Special Forces to help with soldier training. And it delivered 69 per cent growth in free cash flow—a second consecutive year in of positive free cash flow.”

All in all, Catapult is a pandemic recovery stock that is pole position to run post-covid. It has done remarkably well during an extremely challenging period, and was able to maintain, transition and grow its SaaS model. It no longer sells devices outright, as recurring revenue is king.

The stock is trading at roughly its pre-pandemic levels of around $2.18.

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