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Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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<h2>KEY POINTS</h2>
<ul>
<li>The company has experienced significant customer growth over the last 15 months and, more importantly, it has a churn of zero; meaning Prostar has only expanded the number of licenses with its customers. The Colorado Department of Transportation (CDOT) has mandated the use of ProStar’s software. Several companies use the free version today, but eventually the company will be able to monetize those licenses. ProStar’s customers have grown from two, prior to the time of going public (CDOT and one of the largest construction companies in North America), to 23 today.</li>
<li>ProStar projects a revenue CAGR of &gt;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.</li>
<li>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 percentage 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.</li>
</ul>
<h2>OUR INSIGHTS</h2>
<h2>The Opportunities</h2>
<p>After a three-year redesign of the software, led by an<br>ex-Sun Microsystems CTO, COO Vasa Dasan, ProStar is now evolving from product development to selling. The market is more than $1 billion in the US 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.</p>
<h2>The Obstacles</h2>
<p>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.</p>
<p>Read our reports on ProStar, including a&nbsp;fireside chat with CEO Page Tucker, on our&nbsp;website.</p>
<h2>COMPANY UPDATE</h2>
<p>ProStar specializes in the development of patented mapping software. ProStar’s Precision Mapping Solutions are natively cloud and mobile and offered as Software as a Service (SaaS). ProStar’s patented geospatial intelligence software provides the ability to capture, record, and display the precise location of critical infrastructure, such as buried utilities and pipelines, on 3-axis’ (x, y and z plane) with up to 1cm accuracy, all in real time.</p>
<h2>Significant Customer Growth</h2>
<p>Prior to going public, the company had two major customers, the CDOT and a flagship construction company, one of the largest US infrastructure construction companies. In the last 15 months, the company added roughly 20 large customers, including KCI Technologies, T2 Utility Engineers, Kraemer North America, Landmark, WSB, Kokosing Construction, the Township of Aberdeen, New Hampton, Grinnell College, and Tulsa Zoo (see Figure 1).</p>
<p>It remains to be seen if the pattern of geometric growth of licenses will hold, but the company is encouraged by two observations. First, at the enterprise level, working with its largest customer, that Years 1 to 3 progression on projects was as follows: Year 1: one division and one project, year 2: three divisions and five projects, and year 3: decision chain moved to corporate and is on 10 projects so far with more projects expected through the balance of 2022. On a smaller scale for a mid-size company that was a license only (not project) customer, the company is encouraged to note that in month zero, the customer had two licenses, then expanded to five licenses eight months in, and just ordered another 18 licenses to be at 23 licenses 15 months in.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/271/873/original/image_88465118121651590413170.png?1651590416" class="editor-image img-responsive" data-smartkarma-image-id="271873"></figure>
<p>Figure 2: Marquee Client Descriptions</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/271/874/original/image_27635931231651590432899.png?1651590434" class="editor-image img-responsive" data-smartkarma-image-id="271874"></figure>
<p>Source: WTR, ProStar</p>
<h2>Zero Churn</h2>
<p>The company has not (a) lost any customers and (b) only expanded the number of licenses at each customer, showing the stickiness and value of PointMan.</p>
<p>The churn is zero because customers generally start small, then work with the product for some time. As they see that it saves them money, they sign up for more licenses on more projects. Customers cite ease of use, significant cuts to risk, and time savings because everything is now digitized and in the cloud. The time savings and the lack of strikes save them money. One of the key elements is the 1cm resolution, which enables the builders to accurately dig.</p>
<h2>CDOT</h2>
<p>PointMan is mandated by CDOT. In Colorado, approximately 300 users representing approximately 100+ companies are currently using the free version of PointMan. At some point, ProStar will be able to monetize those licenses.</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>John Roy, phd, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

The company has experienced significant customer growth over the last 15 months and, more importantly, it has a churn of zero; meaning Prostar has only expanded the number of licenses with its customers. The Colorado Department of Transportation (CDOT) has mandated the use of ProStar’s software. Several companies use the free version today, but eventually the company will be able to monetize those licenses. ProStar’s customers have grown from two, prior to the time of going public (CDOT and one of the largest construction companies in North America), to 23 today.
ProStar projects a revenue CAGR of &gt;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 percentage 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 more than $1 billion in the US 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.
Read our reports on ProStar, including a&nbsp;fireside chat with CEO Page Tucker, on our&nbsp;website.
COMPANY UPDATE
ProStar specializes in the development of patented mapping software. ProStar’s Precision Mapping Solutions are natively cloud and mobile and offered as Software as a Service (SaaS). ProStar’s patented geospatial intelligence software provides the ability to capture, record, and display the precise location of critical infrastructure, such as buried utilities and pipelines, on 3-axis’ (x, y and z plane) with up to 1cm accuracy, all in real time.
Significant Customer Growth
Prior to going public, the company had two major customers, the CDOT and a flagship construction company, one of the largest US infrastructure construction companies. In the last 15 months, the company added roughly 20 large customers, including KCI Technologies, T2 Utility Engineers, Kraemer North America, Landmark, WSB, Kokosing Construction, the Township of Aberdeen, New Hampton, Grinnell College, and Tulsa Zoo (see Figure 1).
It remains to be seen if the pattern of geometric growth of licenses will hold, but the company is encouraged by two observations. First, at the enterprise level, working with its largest customer, that Years 1 to 3 progression on projects was as follows: Year 1: one division and one project, year 2: three divisions and five projects, and year 3: decision chain moved to corporate and is on 10 projects so far with more projects expected through the balance of 2022. On a smaller scale for a mid-size company that was a license only (not project) customer, the company is encouraged to note that in month zero, the customer had two licenses, then expanded to five licenses eight months in, and just ordered another 18 licenses to be at 23 licenses 15 months in.

Figure 2: Marquee Client Descriptions

Source: WTR, ProStar
Zero Churn
The company has not (a) lost any customers and (b) only expanded the number of licenses at each customer, showing the stickiness and value of PointMan.
The churn is zero because customers generally start small, then work with the product for some time. As they see that it saves them money, they sign up for more licenses on more projects. Customers cite ease of use, significant cuts to risk, and time savings because everything is now digitized and in the cloud. The time savings and the lack of strikes save them money. One of the key elements is the 1cm resolution, which enables the builders to accurately dig.
CDOT
PointMan is mandated by CDOT. In Colorado, approximately 300 users representing approximately 100+ companies are currently using the free version of PointMan. At some point, ProStar will be able to monetize those licenses.
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  John Roy, phd, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Update Shows Significant Progress with Customer Growth

Prostar Holdings

Update Shows Significant Progress with Customer Growth