Aerial mapping business Nearmap Ltd (ASX: NEA) notified the market its chief executive had left the company last week in a shock announcement that saw the share price crash 13% in a single day.
An unplanned CEO exit for a small-cap tech stock is generally a negative and infers all was not well amongst management at an organisation aiming to sell its innovative aerial mapping technology in the giant US market.
Ambitions
The former chief executive helped build a successful business in Australia with total revenues for the last financial year hitting $26.1 million and the board forecasting a revenue run rate of $28 million to $32 million come December 2015.
Thanks to its high profit margins the standalone Australian business would turn a substantial profit if it were not for the company's development expenditures aimed at hitting the jackpot in the US market.
Nearmap entered North America in October 2014 and since then has been investing heavily with retained cash to map the country, market itself, sign-up clients and drive revenues like it has done in Australia.
Nearmap's financials also remain strong, even after an $11.3 million investment in the US for the period until June 30 2015, the business still returned a slim profit before tax for the last financial year.
Looking ahead the financials also remains healthy for a small-cap tech stock investing in an attempt to generate sustainable long-term growth.
The business was operating cash flow positive for the year ending June 2015, although negative cash flows from investing activities (primarily related to camera systems and mapping the US) of around $7.1 million were incurred.
However, growth for investment is necessary and the business was still left with $17.1 million in cash on its balance sheet to fund its US expansion in FY16 and beyond.
US Opportunity
The company seemingly has the building blocks in place, but the big question remains whether Nearmap can deliver on its US expansion plans while generating growth in its Australian business?
For the year to June 30 2015, Nearmap stated it generated around $100,000 in US sales having started operations there in October 2014. If you provide a period of grace to get going operationally and physically map the country that appears a reasonable result for the approximate first nine-month period.
However, the dumping of the CEO suggests everything has not gone to plan in the US and a work environment of sales targets and pressure to succeed may have contributed to a poor company culture that requires reversing.
The company also updated the market that in the US "sales growth by the outbound sales team is gathering good momentum, while sales by the enterprise team should accelerate under (the new CEO's) focused leadership". Reading between the lines this may be a parting shot at the former CEO's success (or lack of) in developing a team to win clients in the big-ticket enterprise segment, with SME growth progressing reasonably well.
Should you buy?
Thanks to its scalability and high margins Nearmap's standalone Australian business has significant profit-spinning potential for shareholders and today's price of 40 cents only ascribes a market valuation of $139 million for all the company's operations.
However, the business is now committed to its US development and all eyes will be on the US sales numbers for the first six months of FY16 that will likely not be released until February 2016.
The US development (if successful) is likely to take longer than the market demands, which means investors prepared to remain patient may find today's prices an attractive entry point for a speculative buy.
Other tech opportunities in the small-cap space include the founder-led Freelancer Ltd (ASX: FLN) and innovative recruitment disruptors 1-Page Ltd (ASX: IPG) and Reffind Ltd (ASX: RFN).
