I think AMX is a good bet. Here is why.

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Intro

Aerometrex is an aerial imaging and photogrammetry company. What does that mean? Theytake a huge number of high-quality photographs from above ground and then sell digital 2Dand 3D models that are built based on those photographs.

Who would want to use the product?
Government, engineering firms, city planners, insurance companies, real estate agencies – thisis not a full list of industries that use Aerometrex products and services.

How are the photographs taken?
They fly aircraft and use special cameras to take the photographs.

How is this different from Google Earth?
There are two factors that matter: frequency of image capture and resolution. So, AMX data ismore up-to-date and more accurate. AMX captures capital cities four times a year and most ofrural and regional cities once a year. The average Google map data is between one and threeyears old.

Can drones do this?
The cameras that provide desired high resolution are too heavy for drones to carry them.

History and products

Aerometrex was founded in 1980. For most of the time AMX flew the aircraft, took pictures andoffered 2D models to customers. It then branched out to offering 3D modeling and LiDaRmapping. Aerometrex raised $25 million on IPO and went public on ASX in December 2019. Themoney was raised to enhance their data-as-a-service platform, upgrade LiDAR equipment, andexpand business to new geographies, particularly to the US.

Aerial imagery
Aerial imaging was offered on a project-to-project basis most of the time. Management realizedcompany sometimes had to fly and capture the same city within a very short period of timewhich was not efficient. As a result, MetroMap came into existence. MetroMap is a platform towhich you subscribe and receive the latest digital datasets of a city/place you need.

In 2021 management announced that all aerial mapping sales activities will solely be focused onMetroMap. AMX will consider custom project in case the digital resource is not present inMetroMap.

Company has been renting aircraft until 2014, which is when they bought first of their own.Now they are operating a fleet of eight aircraft. Owning aircraft instead of chartering it broughtoperational expense down from 35% of the revenue to 19%.

MetroCam
In 2020 Aerometrex announced a release of their own camera – MetroCam. It is a proprietaryproduct designed in-house and built by a US manufacturer. It is a so-called high-flying camera.High-flying means exactly what its name says – camera that can capture images from higheraltitudes without losing quality. Being able to fly high also helps to avoid high-traffic air spaceover metropolitan areas. MetroCam can reach resolution up to 5cm per pixel, which is morethan 36 times more pixels per unit area than high-resolution commercial satellite imagery.

LiDAR acquisition
LiDAR offering came about after acquisition of Atlass Australia in 2015. LiDAR stands for lightdetection and ranging. With LiDAR, instead of taking photographs with camera they shootlasers beams (2 million per second) to the ground as they fly and collect data by measuring thetime it takes to reach earth and reflect back. The digital datasets derived using LiDARtechnology are particularly valuable when shape and size are crucial for the project. Think ofmeasuring stockpiles accurately in mining or tracking bush fuel loads to help prevent forest firesin government.

3D modeling history
Aerometrex launched their sophisticated 3D modeling service in 2012 but did not get anysubstantial traction until recently. AMX uses both airplanes and helicopters to collect data toproperly build 3D models. There are sixteen cities in Australia, and San Francisco, Miami andLos Angeles in the US available in Aerometrex online store.

AI/ML
Separate word on this. AMX has been investing heavily in AI/ML by hiring talent and developingsoftware. Company believes there will be a lot of value in statistics and analytics which can bederived from digital datasets. Sometimes clients are more interested in those statistics than inphotographs themselves. For example, number of swimming pools within neighborhood,number of trees in a forest, number of cars in a parking lot, and so on. AMX partnered withAustralian Institute of Machine Learning to continue development in this area.

Competition

Because Aerometrex has different offerings it makes sense to split competition by products.

MetroMap 2D imagery
This subscription service competes with Nearmap head-to-head in Australia. AMX is verytransparent with their pricing whereas Nearmap not so much. Nearmap is an obvious leader inthe space, almost a monopoly until recently. Nearmap’s objective has always been to expandgeographically to the US market, which they did. Factors like absence of a large competitor andhigher interest might have led to being a bit lazy in their own backyard (I am not claiming this asa fact but this is my assumption). Being more responsive to quirky features requests combinedwith lower price is what I think will let Aerometrex keep gaining market share. How much andfor how long? I don’t know. According to Aerometrex MetroMap market is $80 million. 90% is taken by Nearmap. In FY2021 MetroMap sales were $3.6 million. Gains do not have to be tooexcessive to make a difference for Aerometrex.

LiDAR
I have not been able to determine a clear leader in this industry. Somebody here mentioned that AAM Group is number one and AMX is number two as far as LiDARoffering is concerned. I can neither confirm nor deny that statement.

3D
AMX considers themselves as a market leader in this space. Two recent project wins in the USare a good validation for the technology because customers were Google and Lunaverse. Theprojects were not substantially material in terms of revenue but certainly confirmed company’sleadership in 3D modeling world.

Mark Deuter has been asked a few times during differentinterviews about competitive advantage of the company. He thinks the advantage lies incumulative knowledge of their team about the industry and in having an innovative spirit.

Management

Since 2005 the company was led by Mark Deuter who owns 12% of the company. He retired atthe end of 2021. Company appointed a new CEO – Steve Masters. Steve has been at helm ofElectraNet since 2014. ElectraNet is large enterprise - South Australia’s electricity transmissioncompany. Steve Masters does not have background in aerial imagery, he is a big corporationguy. This makes me think Aerometrex hired him to grow and scale the company. New CEOstarts in February. Time will tell.

David Byrne worked at the company for more than twenty years and was head of engineeringbefore getting promoted to COO level. I see it as a plus when companies promote employees toexecutive levels internally.

Executives and directors own roughly 36% of the company.

Financials and valuation

Current market cap is $65 million, FY 2021 revenue was $21 million and company has $16.5million cash in the bank. Total cash burn was $5.3M in FY 2021. Company’s Australianoperations are cash flow positive while the US side of the business is still burning money.Aerometrex has been investing heavily in their equipment, processes and people (headcountwent up from 49 in 2016 to 118 in 2021). Company has a history of being profitable in pre-IPOtimes. There is no foreseeable risk of dilution in my opinion.

Why does opportunity exist? Because AMX is a relatively unknown microcap company. Plus,revenues were flattish on the surface for the past two years which caused slow share pricedecline.

In two to three years, I expect that most of the aerial mapping projects revenues ($5M) willtravel to MetroMap and MetroMap on its own will acquire more new customers (+$5M). Evenif we discount 3D modeling segment completely and assign almost zero growth for LiDAR ($9Mto $10M) the company will still have $25M revenue ($15M SaaS). Current EV is $50M. I do notlike to predict multiples but I believe the company will be worth at least double of what wehave today. Aerometrex has a validated cutting-edge 3D modeling technology which withpopular trends such as digital city twins and metaverse could take the company to a wholeanother level. However, it is too early to make estimations about actual revenues flowing in.

Conclusion

Aerometrex was a private profitable company that decided to step up and grow. They wentpublic, invested in their people and technology, and hired a corporate CEO. In my opinion AMXrepresents a good bet on the rapidly growing aerial imagery and 3D modeling industry.