Editing 1Spatial (section)

== GIS market and three growth pillars ==

1Spatial operates in the growing global market for GIS or geospatial software and services. The market opportunity is significant and Allied Market Research estimates the global geospatial software market will reach $8bn by 2025, growing at a 12% CAGR. Key drivers of this growth include the development of smart cities, urban planning and the increased use of spatial data in utility and transportation markets. GIS technologies are being used in a growing number of applications too, including disaster planning, mining, satellite navigation and mobile devices, all of which expand the addressable market for GIS solutions. Furthermore, 1Spatial management estimates that 80% of all data collected have a location element or associated field. Unfortunately, much of these data are difficult to access and use, as they are stored in different systems, formats and repositories. Having a system that can compile, verify and integrate these data is critical, and 1Spatial’s competitive advantage over firms such as Hexagon, IQGeo and EBA Engineering is found in its knowledge, expertise and product solutions for GIS data. 1Spatial focuses on three target GIS segments, government, utilities and transportation and infrastructure, all of which are benefiting from the increased demand for spatial data.

'''Government'''

The government segment includes government-sponsored initiatives in city master planning, state-wide location master databases, asset management, surveillance, sustainability, survey and mapping, emergency safety planning and so on. Looking forward, structural tailwinds include infrastructure spending (eg President Biden’s Job Plan), the UN’s call for sustainable development goals, several UK government initiatives (Net Zero Strategy, ‘Build Back Better’ initiative, and transition to a new Environmental Land Management Scheme), the Next Generation 911 systems (NextGen 911) in multiple US states and Northern Ireland’s digital transformation programme. There are multiple use cases for SPA’s products among these initiatives. For instance, when planning the location of electric vehicle charging stations and wind farms, the government’s designers need to know where spatial assets can be found. Are they above or below ground? Are there utility lines nearby or will more need to be added? Another example is with the Ordnance Survey in the UK. For it to effectively map the nation, it needs GIS data on where key geographical features, elevation, water and road networks are physically located. All these activities should grow the demand for ensuring the GIS data is clean, validated and integrated, thus potentially driving business to SPA and its GIS solutions.

'''Utilities'''

Utilities are also increasing their use of GIS data, with increased demand coming from power and gas distribution, green energy, water network management, etc. These include the digital mapping of the UK energy system to support NetZero and improved incident management initiatives for utilities. An interesting use case is with gas networks that are looking to connect with alternative energy sources, such as hydrogen gas. As these grids expand and maintain their piping networks, they require precise, correct GIS data, which is where SPA’s platforms come into play in creating a digital twin of the system. Another issue is that many of the historical utility systems worked with imperfect location data, but with the new systems, they need correct information and will not operate with incorrect data. Another example is NUAR, where the government is working to determine and map utility assets, pipes, cables, etc. Now companies are sharing data with NUAR and outside firms will start to use those data for key decisions, there is much less tolerance for errors in the GIS data.

'''Transportation and infrastructure'''

Finally, transportation and infrastructure are also experiencing increased demand, with traffic management plans, highway/road data, electrical charging station planning, etc, all needing accurate, verified GIS data. Contract wins include Google’s use of 1Data Gateway and 1Integrate in managing its facilities and the US Highways Performance Management Systems.

The automation of traffic management platforms is an example of where 1Spatial’s solutions are applied in the transportation sector. The ‘Red Book’ is a UK government document that includes the building codes, speeds, required signage, etc, needed when constructing roads, pedestrian lanes and carriageways. Historically, construction planners and designs had to manually consult and review the book to ensure compliance, which could add days or weeks to the timelines. 1Spatial’s solutions integrate data from numerous sources, including the Ordnance Survey, and automate the Red Book process in SPA’s rules-based engine. For instance, a customer who wanted to rebuild a highway could go to 1Spatial’s cloud-based platform, run their plans through it and in around 30 seconds determine the rules and regulations needed, a considerable time savings compared to the old, manual process. Furthermore, SPA’s platform keeps the Red Book rules up to date, so clients know they are referencing the latest regulations and provides an audit trail for use if any issues or concerns are raised by governmental authorities. SPA has taken the concept of the Red Book, automated it, put it on the cloud and made it accessible to many clients in seconds rather than days or weeks.

Another example involves the multi-tenancy platforms that provide SaaS solutions. In many countries, surveyors will gather data for buildings and properties and before they send it on, they need to ensure it complies with regulations and codes. 1Spatial created a cloud hub for surveyors to upload that data and within c 90 seconds they can receive a report on any issues or corrections needed. In other words, this is validation as a service, another potential business avenue for SPA.

'''Non-GIS data'''

While GIS data are the primary focus of SPA’s business model, they do interact with non-GIS data. Non-GIS data often come packaged with GIS information, so 1Integrate would run its rules, checks and verifications against the non-GIS data too. For instance, data on an underground pipe would include GIS data (location, dimensions, etc) but also non-location data (age of pipe, construction material, etc) and so both types of data are evaluated by SPA’s solutions. Checks can be carried out on non-GIS data, but generally the focus is on the spatial element. 1Spatial does not market its solutions for non-GIS data and any business specifically for non-GIS solutions (without associated GIS data) would be small.

'''Three pillars of growth'''

1Spatial’s growth strategy is based on three pillars: Innovation, Customer Relationships and Smart Partnerships. First, Innovation’s focus is to make continued investments in the two key areas of its 1Spatial Platform: Data Management Solutions (ensuring data are correct, consistent and compliant) and Business Applications (using data through business applications to solve specific business issues). As mentioned previously, SPA has also launched 1Data Gateway, a self-service portal to validate, process and analyse spatial data, which has led to contracts with Google and the states of Michigan and California.

The second pillar, Customer Relationships, has emphasised developing trusted partners in location data. This includes increasing the number of webinar opportunities, growing online content and increasing customer engagement. Key to this is its Land and Expand strategy (discussed below in the US market opportunity section), which focuses on starting small with new customers then growing into contracts once they become trusted partners. This has led to several customer expansion contracts with existing customers such as Northern Gas Networks, Google and a large French water utility.

The last pillar, Smart Partnerships, emphasises developing partnerships with major technology consultants, software platform providers and businesses in adjacent industries. This includes collaborating with select partners in bidding on large contracts, often in competitive tenders, where 1Spatial’s role is to be the data integrity provider, providing its domain expertise in handling geolocation data. SPA may not have the size to be the prime on these large tenders, but it does perform a key role for partners. For instance, SPA recently won what we believe are the two largest contracts in company history (£8m with a department of the UK government and £6.5m with the Geospatial Commission) and both were in collaboration with strategic partners. According to management, choosing the right partner to join was a critical factor in the wins and it expects to continue this trend of bidding alongside select partners. 1Spatial has also developed a close strategic partnership with Esri, a global market leader in GIS database software. Notably, 1Spatial has also won an award from location intelligence industry leader Esri for its product integration within Esri’s ArcGIS Enterprise. It also entered into a new partnership agreement with Ordnance Survey, which resulted in securing the pilot for the Energy Networks Association.

'''UK/Ireland market opportunity'''

The UK/Ireland region has historically provided about 34–40% of SPA’s revenues (34% in FY21) and, after growing at 27% in FY19, decelerated in FY20 to 3% and then fell 4% in FY21 to £8.4m. However, much of the FY21 result was due to the timing of closing out some contracts, and total sales orders did grow across the year. ARR also continues to grow, rising 17% to £3.9m in FY21, as newer contracts increasingly contain higher levels of recurring revenue. Overall, much of SPA’s UK/Ireland business has been governmental or agency related, such as contracts with the UK Environment Agency, Geospatial Commission and NUAR, Ordnance Survey, Defra and the RPA. Utility wins include Northern Gas Networks’ migration to a new Esri model, while the Traffic Management Plan Automation (TMPA) initiative is an example of transportation and infrastructure wins.

Looking forward, we see revenues growing by 3% in FY22e and then accelerating to 6% in FY23e as more entities (especially governmental departments and agencies) digitise their data and move to data-driven businesses where accurate location data are a key component. We expect UK/Ireland to produce 34% of SPA’s revenue, reaching about £9.4m by FY23e. We see growth in the UK/Ireland business driven by increased government spending on infrastructure, investments derived from projects related to the UN’s sustainable development goals, extended business with current clients from the Land and Expand strategy (described further below), digital mapping of the UK’s energy system, increased business from facilities management projects, smart partnerships with large consulting firms and software platforms, the growing ecosystem of collaboration across entities and the expansion of shared location data, which requires solutions like SPA’s platform, such as with the NUAR contract, the TMPA app’s move towards minimum viable project and beta testing, the UK government’s Net Zero Strategy and SPA’s partnerships, which continue to generate new opportunities in the geospatial and LMDM markets.

'''EU market opportunity'''

Over the last few years, the portion of 1Spatial revenues from Europe has fluctuated between 36% and 48%, with FY21 coming in at 45% of total revenues or £11m. Furthermore, Europe’s growth has also shown wide variations, moving between a 12% decline in FY19 to 76% growth in FY20 (mostly due to the GI purchase, as described below). In FY21, growth settled at 9%, although flat on a like-for-like basis as 1Spatial’s results benefited from nine additional months of acquired revenues. Much of the European business was utility related (a large water utility in France, Nantes’ Water Department), transportation and land related (Seine Grand Lacs, Strasbourg Eurométropole) and/or comprising solutions from the Esri partnership.

Earlier in 2021, SPA also announced the final stage of integration of Geomap-Imagis (GI), which was acquired in May 2019. GI provides solutions across transportation, utilities, government and facilities, primarily based on Esri’s ArcGIS platform. Aside from adding technical capability, market presence and scale, the acquisition was intended to address the challenges SPA had faced in France and Belgium, where its Elyx solution struggled to compete with ArcGIS, as the EU market is very competitive. With the GI acquisition, SPA’s European customers now have access to Esri’s global GIS platform and the opportunity for cross-selling should also drive further business. As a result of the integration, European operations are now consolidated under one management structure, with a focus on maximising the Esri relationship.

Over the next two years, we forecast European revenues growing at 1% per year, or about 41–44% of overall SPA revenue. Sales growth should be driven by further Esri partnership deals, increased EU government funding for infrastructure, telecom business and water and utility deals. We also see the focus shifting towards higher-value private and commercial contracts, as the current business has been weighted more towards metropolitan and government contracts.

'''US market opportunity'''

While much of SPA’s business is in the UK and EU, the US is a growing market at 12% of FY21 revenues, having grown a total of 48% since FY19 to £2.9m. Overall, the US business is about one-third government, one-third transportation and one-third consumer (the majority of which is Google). Over the last 5.5 years, SPA has expanded its client base from two to c 30 in the US and is now seeing multiple contracts per year from the same clients.

1SPA’s contract win with Montana is also evidence of its continued expansion across the US market. Montana is the seventh US state (and eight jurisdiction) to choose this 911 solution, which incorporates SPA’s 1Integrate and 1DataGateway products and enables emergency entities across the state to upload and validate their location and 911 data to comply with Next Generation 911 Act requirements. Moreover, this 911 solution has a rapid implementation time, usually only a few months from contract inception, and management believes it is much quicker than other solutions in the market.

Several key themes are responsible for the growing US GIS market. First, the overall awareness of the importance of GIS data has increased. For instance, seven to 10 years ago, many 911 systems did not have location-related data available. Now, GIS data are a part of most emergency service programmes, including NextGen 911, as well as many other applications.

Another theme is how the GIS industry is looking for tools that will solve geospatial issues across a spectrum of business needs (such as the 911 service, highway planning and pipeline location). Companies want solutions that can used over and over in different situations and management believes that SPA has a reputation for providing versatile solutions.

One notable catalyst for the US market is the recently passed Infrastructure and Jobs Act of about US$1.2tn in spending for transportation, broadband and utilities. These funds will likely include spending on Department of Transportation projects, highway improvements, etc, all of which have GIS components and would require services such as 1Integrate.

From a macro view, the US provides a significant opportunity set. For instance, while there may be one government and one department of transportation in the UK, the US has 50 states and a multitude of counties and cities that are each a potential market for 1Spatial. Each state, county or city could have 911 emergency services, a department of transportation, environmental agency and utility services, each of which relies on GIS information and would likely need a service such as 1Integrate to check, validate and cleanse their data. Whether it be utility location data, transportation and road design, city planning or 911 emergency services, the US has a significant opportunity set at the national, state, city and county government levels.

The US customer base has increased over FY21 and FY22, as shown in Exhibits 7 and 8, both in number of customers and the geographic spread. The named clients are the key wins for each year, such as the city of Los Angeles, Kansas Data Access and Support Center (DASC), Maryland Department of Transportation (DOT) and the State of Georgia in FY22. The circles represent the revenue value, with the larger ones indicating higher revenue values. Moreover, the shaded area in Exhibit 8 depicts the region covered by a letter of intent received by the Eastern Transportation Coalition to award SPA a funding/purchasing contract, with two of the states already interested in having 1Spatial do work for them once the contract is in place.

The competition is limited in the US, as SPA’s business is in a niche industry. While this is discussed below, there are three primary sources of competition in the US. First would be potential clients who want to develop their own GIS strategies, but soon discover that SPA’s solutions are quicker and more cost-efficient with much greater accuracy. Second would be offshore firms that will use ‘eyeballing’ and basic, often generic, data cleansing tools to correct the data. Key issues with this approach are that organisations can lose control over the quality of their data and there is often no process in place to keep data quality up to date as location information, such as spatial data, can frequently change. Third would be engineering companies that may have some specific domain expertise that could score well in competitive tenders (eg around infrastructure and 911), but the data quality, integration and data compliance aspects of their tender may not score as highly as 1Spatial’s, which is very important in most tenders, in our view. We believe each 911 tender that 1Spatial wins demonstrates its domain expertise around 911.

'''Land and expand: Driving US success'''

The Land and Expand strategy continues to propel much of SPA’s success in the US. In this strategy, SPA wins an initial contract and, once a client sees the benefits of SPA’s solutions and a successful execution of the initial contract, it awards SPA contracts in related services such as transportation and utilities. For instance, in California (CA) one of the earliest customers was Los Angeles (LA) county, which started with NextGen 911 and has now expanded to public works. Furthermore, SPA has expanded its business throughout the state, selling to DOT agencies such as Cal Trans.

The networking among governments across state, county and local agencies must not be overlooked. Once 1Spatial wins a contract with a state or large city, it serves as a reference case for others in the same area. Many of these state, county and local government staff attend the same industry events, share success stories and discuss solutions to issues like GIS data, which has increased 1Spatial’s business. NextGen 911 highlights this strategy, where SPA began with one state and now has spread into seven states, including Georgia, California and Michigan. Evidence of this can be found in Georgia (GA), a key state where NextGen 911 uses SPA’s solutions. Remarkably, the state even created a flier for other states to show what SPA was doing – essentially advertising 1Spatial’s business to other regions. Georgia even spoke at a recent conference about the solution and the state is viewed by management as one that is invested in SPA’s success.

'''Overcoming challenges: Tech hiring and business transition'''

One issue facing the US is the lack of sales staff with specialised knowledge of the GIS industry. A salesperson must have the right technical acumen in GIS to act as a trusted partner to customers in finding solutions. The US sales infrastructure is now in place to support growth, but sufficient, qualified sales staff must be found. SPA has added a managing account executive and management believes it is gradually overcoming this issue.

In the US, SPA is also transitioning to more of a software sales corporation. The goal is to continue selling repeatable term licences in the US, with software as the majority of contract values and services as no more than 50%. To this end, it has implemented several key initiatives, such as ISO 9001, various quality management system and continuous improvement projects. Ensuring the quality of business processes is essential, especially when one is working with data and focusing on verifying, correcting and managing customer geolocation information.

As SPA wins more and more business with influential and reference clients, is seen as a provider of faster and more versatile solutions and expands its business with existing customers, we anticipate that the US business should continue to increase its portion of company sales. While the US-specific margins have not been disclosed, the ongoing growth in higher-margin repeatable term licences business should also contribute to SPA’s overall profitability. Overall, we forecast US revenues growing at about 23-28% over FY22e and FY23e and reaching £4.6m by FY23.

'''Leader of a niche market'''

As discussed earlier, 1Spatial operates in a niche market. While there are many firms that provide software for using GIS data, gathering location data, or levering GIS information to generate insights, there are few direct competitors that specialise in auditing, cleaning, verifying and integrating location and geospatial data of such volumes and complexity as 1Spatial, which can ensure true data governance across the enterprise or, as with recent contract wins, nationally. Exhibit 9 provides a snapshot of comparable firms in that they are in the same sector (eg geospatial industry) or are mainstream data software management providers that do not specialise in the niche of location/spatial data like 1Spatial.

Another group of competitors is consultants who are leading a large project and try to do the LMDM work themselves. While it was more common in the past, the trend of carrying out LMDM work internally has changed over the past few years, as now SPA is being brought in as a subject-matter expert on many projects. With the quantity and complexity of location data expanding, some consulting firms are choosing to use GIS specialists like SPA as part of the deal team. In fact, some customers are mandating that the ‘best-in-breed’ strategy be used for tasks like cleaning and validating location data, which we believe is again driving business to SPA.

We must also consider how some companies would manage their own location data without using a firm like SPA. For instance, some government entities still use Excel and landlines to manage GIS data, which results in higher rates of errors, a much slower process, and key person risks surrounding the manual, complex spreadsheets and models. To clean such data requires substantial effort, errors may still remain and the process depends largely on the programmers who developed the model. In contrast, SPA’s platforms can run high volumes of data through its rules engine and in under a minute can provide an output report. Furthermore, unlike manual processes with complex coding, SPA provides an audit trail for use with government agencies and is designed for ease of use.