Turnaround stories on the ASX are a rare breed, and within the technology sector, they are among the rarest of all. Investors often shy away from tech companies burdened with high cash burn, lack of profits, frequent capital raises, product deviations, and management changes—typically a recipe for disaster. However, every so often, an unlikely contender begins to defy the odds, emerging from the depths with renewed promise and potential.

Such is the case with Catapult Group International Limited (ASX:CAT). This small-cap technology company, originally founded to enhance athlete performance through innovative wearable technology, has faced its share of challenges. Yet, in 2024, Catapult is proving to be a shining light, ticking all the right boxes and quickly climbing out of its previous struggles.

Catapult’s journey from an Australian startup to a global leader in sports technology is a testament to resilience and strategic pivoting. Now, with a focus on profitability and sustained growth, Catapult is capturing the attention of savvy investors looking for a hidden gem in the tech sector.

From Local Startup to Global Leader

Catapult creates technology to help athletes and teams perform to their true potential. Founded in Melbourne in 2006, Catapult emerged from a partnership between the Australian Institute of Sport (AIS) and the Cooperative Research Centres (CRC) to enhance the performance of Australian athletes ahead of the Sydney Olympics. Initially focusing on wearable technologies to address fundamental questions in sports performance, Catapult has grown from a little local startup to a global leader in sports technology, offering solutions across the entire performance ecosystem, from wearable tracking to athlete management and video analysis.

Catapult operates primarily in the sports analytics industry, focusing on collecting and analysing athlete performance data. The company’s foundational technology, developed through a five-year collaboration between the Commonwealth Cooperative Research Centre for Microtechnology and the AIS, integrates inertial sensors with GPS to track athletes. This innovative platform has paved the way for sophisticated tools that measure and enhance athlete performance. Today, Catapult’s operations are divided into three main segments:

1. Performance & Health: A SaaS platform that tracks athlete data using wearable devices.
2. Tactics & Coaching: Video analysis software that enhances coaching strategies and player performance.
3. Media & Other: This includes the Athlete Management System (AMS) and strategies to monetise video content to increase fan engagement.

The company’s commitment to making performance technology accessible to athletes at all levels is evident in products like PLAYR, an athlete tracking device designed for the consumer market. This device allows amateur soccer players to monitor their performance like professional athletes. Catapult’s client base includes some of the world’s largest teams and organisations, reflecting its influence and reach in the sports technology market.

Tailwinds and Leadership with Skin in the Game

The global sports technology market is a rapidly growing sector, valued at US$21.9 billion in 2022 and projected to reach US$41.8 billion by 2027, with an impressive compounded annual growth rate (CAGR) of 13.8%. This expansive market provides a substantial playing field for companies like Catapult to thrive and expand.

Catapult’s extensive global footprint is a testament to its influence in sports performance technology. With over 500 staff across 28 locations worldwide, Catapult works with more than 3,650 elite teams in over 100 countries. This broad network underscores the company’s capability to drive significant advancements in sports performance on a global scale.

A notable aspect of Catapult’s strength lies in its leadership and insider commitment. Key insiders hold approximately 18% of the company’s 261 million ordinary shares, demonstrating substantial ownership and confidence in the company’s future prospects. Additionally, nearly 26 million unquoted securities, including long-term and short-term incentives and various options, reflect the leadership’s vested interest in the company’s success.

Recent Results: A Promising Financial Turnaround

It hasn’t been a smooth ride for long-term shareholders of Catapult. The company initially rode the wave of post-COVID investment in promising growth stocks in 2020, only to see its share price decline sharply over 2022-233 due to disappointing results, capital raises for acquisitions, and a management change to steer the company in a new direction. Additionally during this period, Catapult shifted its focus towards the consumer/prosumer market, resulting in significant cash burn.

However, recent financial results indicate a promising turnaround. The market reaction has been optimistic about Catapult’s outlook following the company’s latest annual results. Some of the key highlights include:

• Annualised Contract Value (ACV): A key indicator of future revenue, ACV grew by 20% in constant currency year-over-year, reflecting strong customer demand and successful cross-selling strategies.
• Revenue Milestone: The company’s revenue hit a significant milestone of US$100 million, underscoring the strength of its software as a service (SaaS) strategy.
• EBITDA Improvement: Operating earnings (EBITDA) reached US$9.3 million, a substantial improvement from a loss of US$11 million the previous year.
• Net Loss Reduction: The net loss after tax improved to US$16.7 million, down from US$31.6 million in the prior corresponding period.

Revenue growth was driven by new customers and increased ACV per team, boosted by the company’s new video solutions. Catapult’s core SaaS metrics showed ACV retention improving to 96.5%, up 30 basis points year-on-year. Customer lifetime duration increased by 15.9% to seven years, and the number of pro team customers rose by 9.4% to 3,317 teams.

CEO Will Lopes highlighted this as a historic year for Catapult, with solid growth in free cash flow and profit margins. The company’s SaaS strategy has been pivotal, delivering substantial ACV growth driven by new customer signings and increased cross-selling with new video solutions.

The company achieved its free cash flow targets, generating US$4.6 million, a US$26 million improvement year-over-year, after paying down US$4.7 million of debt during the latest quarter.

Catapult’s FY24 financial results reveal a company that has not only stabilised but is also well-positioned for future growth. The achievement of positive free cash flow is a significant milestone, demonstrating the effectiveness of the strategies implemented by the new management team. The market responded positively, with Catapult’s share price rising about 10% upon receipt of these results, capping off a twelve-month period in which the share price has increased by more than 80%.

Looking Ahead

For FY25, Catapult’s management aims to sustain strong ACV growth and high retention rates while balancing growth and profitability. Management has emphasised the importance of adhering to the Rule of 40 to ensure cost margins align with long-term targets.

The Rule of 40, a key valuation metric for SaaS companies, suggests that the combined revenue growth rate and profit margin should exceed 40%. With a 43% rate, Catapult is performing well and shows strong potential for continued success.

“Our objective for FY25 is to deliver on our strategic priorities with a focus on profitable growth,” said Lopes. “We anticipate that this focus on profitable growth will also lead to higher free cash flow as our business scales.”

These metrics will serve as important indicators of Catapult’s progress towards sustained profitability and the development of a world-class SaaS business. 

The TAMIM takeaway 

Catapult is a rare turnaround story on the ASX, particularly within the technology sector. Despite past challenges, the company has shown remarkable resilience and strategic agility, transforming itself into a promising player in the global sports technology market. With improved financial results, effective leadership, and a robust growth strategy, Catapult is well-positioned for continued success. As the sports technology market expands, Catapult’s innovative solutions and strategic focus make it a compelling investment opportunity for those looking to capitalise on the growing demand for performance-enhancing technology in sports.