Is ProStar Recession-Proof Because of Its 10x Cost Savings by Nearly Eliminating Strikes?



KEY POINTS
  • Recession-proof businesses are those that are significantly less sensitive to economic declines. Examples include: (1) industries that provide public works services like utilities, police, and governments; (2) industries that provide essential maintenance or repair services like auto mechanics and healthcare; and (3) industries that offer discounted prices like fast food chains and big box stores. ProStar fits these categories and investors should think about the company as being less sensitive to a recession, if not fully recession-proof.
  • The cost savings using Pointman® flows from avoiding strikes, aka hitting stuff underground like pipes and cables. ProStar compared two projects for the same customer (both about 10 miles similar urban corridor). The one using Pointman® had only three strikes, while the other had 147 not using Pointman®. The direct cost savings is estimated to be $800,000. Indirect costs avoidance estimates are significantly higher by orders of magnitude. The case to use Pointman® is simple—saving 10x the money on direct cost avoidance.
  • ProStar projects a revenue CAGR >100% over the next three years. The company expects revenue to double to more than $2 million in 2022 and reach $10 million in 2024. The company expects to have positive EBITDA and positive free cash flow in 2023.
  • The market for ProStar’s PointMan® is partly based on the construction cycle, which has a strong tailwind over the next few years with the recent passing of the US infrastructure bill. From the DIRT Report, we know there are at least 500,000 reported accidental strikes on buried infrastructure per year in the US, one hit every minute of every working day. Each strike represents a potential customer. Another way to think about total addressable market is the % reserved in construction bids for utility strikes, which if you conservatively estimate at 3%, represents $42 billion. If the industry is willing to spend 10% of the reserve to potentially save it all, that is $4.2 billion.
OUR INSIGHTS

The Opportunities

After a three-year redesign of the software led by an ex-Sun Microsystems CTO, COO Vasa Dasan, ProStar is now evolving from product development to selling. The market is well over $1 billion in the US for construction alone, and more than $4 billion globally. The company has 21 patents and data accuracy 100x better than Google Maps, so it has a significant technology advantage. Two marquee clients are Colorado DOT, which mandates the use of PointMan® by state law, and one of the largest infrastructure construction companies in the US. The company expects revenue to grow more than 100% per year in each of the next several years.

The Obstacles

ProStar is relatively small, under $100 million market cap, and recently released a new product. The construction industry has historically not been enthusiastic adopters of new technology; however, PointMan® is a cloud and mobile application that is low-cost, easy to use, and very intuitive. PointMan® runs on Amazon’s AWS cloud and smartphones, which makes the product easy to use and adopt. The company has recently expanded into vertical markets of colleges, utilities, municipalities, and zoos, which are somewhat resilient to change and can have regulatory and bureaucratic challenges that could slow adoption.

Recession-proof businesses are those that are significantly less sensitive to economic declines. Examples include: (1) industries that provide public works services like utilities, police, and governments; (2) industries that provide essential maintenance or repair services like auto mechanics and healthcare; and (3) industries that offer discounted prices like fast food chains and big box stores. ProStar fits these categories and investors should think about the company as being less sensitive to a recession, if not fully recession-proof.

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