ikeGPS Group Limited (IKE.NZ) Q1 FY2026 Earnings Call Transcript & Summary

[Audio Gap] Financial 2026 performance update. We've got the company's Managing Director and CEO, Glenn Milnes, to go through the presentation up on the screen released on the NZX and ASX this morning. [Operator Instructions] Glenn, I'll hand it over to you to go through the presentation. Thanks.

Thanks, Simon, and thanks, everyone, for taking the time to meet. So pleased to provide an update for the first quarter of our FY '26. So that's the period through to March 2026. We've had -- in summary, we've had a really solid quarter in terms of business performance. We're on track or ahead of plan in terms of revenue and margin and EBITDA target. So keen to just chat through the key metrics, and I want to be very respectful of everyone's time. We've done a lot of engagement with the market over the last couple of months. So I won't spend time today on some of the business basics and our products and market. I'd rather just get to the metrics and then open things up for Q&A. So please take note of this important notice in terms of the information that we're looking at here today. I want to run through the first quarter performance headlines, reiterate our outlook in terms of guidance and in this document, it's the same as has been made available to the market over the last 1 to 2 months in terms of content around the addressable market and our value proposition. So I think just going straight into performance metrics, our exit run rate of annual platform subscriptions has grown from a prior calendar period perspective. It's up close to 30% this year. We did note in the release, it is on a New Zealand dollar perspective, it's down from 3 months ago based on the foreign exchange rate, and we can talk to that a bit further on in the questions. But the New Zealand dollar, it was an error actually in the release, the New Zealand dollar strengthened. It didn't weaken, but we had almost 8% impact of NZD versus USD item for this quarter. We're a U.S. business. We generate revenue in U.S. dollars and we report in New Zealand dollars. So that was an impact, but from an absolute or functional currency perspective, we were getting on track in terms of revenue, and we just continue to see this really positive growth trend in terms of year-on-year subscription revenue and our CAGR. Again, from a subscription seat licenses perspective, this from a PCP perspective has continued to grow. We're, I think, in good shape in terms of where this is trending for the rest of this financial year in terms of our pipeline. So we've seen continued growth of seat-based metrics through this year, and we're seeing some really interesting growth metrics tied to the Based metrics through this year, and we're seeing some really interesting growth metrics tied to the IKE PoleForeman product that we released late in FY '24. So I feel we're in good shape on that front. Transaction revenue. So you'll recall that some of our customers like to pay us on a transaction basis, meaning that they use our software and our products and they either do the analysis, asset analysis and asset engineering themselves and pay us on a per asset or transaction basis. And others also like to use our value-added service called IKE Analyze. This is the item that has some volatility in terms of volumes, but it's a cash generative sort of value-added component to our business model. So this was down a fraction on last year, but we see increased demand and some growth expected in the medium and long term in terms of the transaction revenue component of the business. And looking at it all stacked together in terms of the subscription business, the transaction parts, that's the blue and the orange bars as we're looking here, the green part is tied to the hardware and services element of what we do. And our service is mostly tied to education and training, which is something that we use as a go-to-market avenue, but we see strong growth in terms of the recurring and reoccurring revenue side of the business. It now makes up about 88% of what we do. And we're reiterating here our expectation and guidance for 35% or greater growth in the platform subscription revenue side of the business based on momentum and based on the pipeline that's continued to be developed through this year. As we do each quarter, we've published our key metrics table in terms of being able to see the key economic engine of the business, the gross margin side of the company has continued to grow strongly. So it's up to 76% through Q1. That's up from 70% a year prior. And noting also, as most people are aware, we're very much fully funded to now execute our continued growth plans. We concluded AUD 18 million placement through July, and there's a $2 million non-underwritten share purchase plan that's in process at the moment. So we're in very good shape. We've been about cash break-even for the last 12 to 18 months. And we're really looking to accelerate certain growth plans through the remainder of this year. So I feel very fortunate to be positioned to be able to do that. The balance of this presentation document, which I won't spend time on talks about the market opportunity and how we go to market. And we are fortunate to be in the right place at the right time. We're headquartered here in Colorado and North America. We go to market directly with a team of experts that really understand how to build power infrastructure and fiber infrastructure for communications companies. The team is very stable now in terms of its size. I think we can scale fast from here without commensurate increases and team size. And we're building out our product portfolio. So just think about software to maintain and develop a power network through its entire life cycle. That's what I guess is seeking to do. And I think it's why we're winning. We've got beautiful and easy-to-use software tools to support our customer requirements in a defensive but really interesting market. And again, I'll go fast through the product side of things. PoleForeman continues to evolve quickly in terms of adoption. And I think there are some questions around additional adoption rates. We're working very hard on automation-type tools, using AI to solve specific problems -- a specific workflow problems and a unique kind of way for our customers. And then working on other new products and capabilities that support our industry. We're lucky to have a customer council that represents more than 15 of the biggest electric utilities in North America. The rest of it is material that we've all covered before, probably 2 decades of grid resiliency and grid capacity programs across North America that we helped us sit behind in terms of market requirements, and it's a huge industry in terms of the number of players, the number of, this is just the investor-owned utilities. We served 8 of the 10 largest today, but have another 70 or 80 investor-owned utilities to go and serve over time and more than 3,000 others in terms of municipalities and cooperatives that again serve power and to the North American market. So it's a big industry, and we're sitting at the front of it and expect to continue to grow quickly. I won't go through too much more of this slide information, which is market-specific, we'll be releasing these slides after the session. But again, it's something that the market has reviewed historically. And so Simon, I'll probably open things there to ensure we've got sufficient time for questions from those attending.

First question is from James Bisinella at Unified Capital.

Glenn, congratulations on the results. Just a few questions from me. Maybe just firstly, keen to unpack the new product potential sort of understanding there are some commercial sensitivities around that. But just keen if you could flesh out for us when the releases are anticipated and perhaps like the potential for customer ads when they do launch, just noting that it is customer counsel led, so just some of the dynamics around that?

Yes. So look, the context is, we've -- in the prior financial year, we built IKE PoleForeman for our customer council. It was a number of the biggest investor-owned utilities in the country that helped us to design and build that product. And our intention always is to focus on product market first. So for this industry, a pull-through capability rather than to build something for the industry and to push it at the electric utilities to be quite resistant to that behavior. So at the end of the last financial year or start of this calendar year, we sat down with our customer council, and these are the standards, directors of some of the biggest utilities in the country and said, "Hey, we've enjoyed the IKE PoleForeman experience?" Are there other problems that you'd like us to solve for you or to help to solve. And that stimulated the opportunity to build these 2 new software modules. So we're now positioned -- 1 of these products should be in inside of beta customers within either the end of this financial year or the very beginning of next financial year. So quite fast in terms of a network management solution for the electric utility market. The other solution may be -- may take a little bit longer. But we think these 2 products can be very significant in terms of recurring revenue for IKE and very significant for utilities in terms of value. So hopefully, things that we can add in, in a very meaningful way and in a fast way, versus a typical build-buy decision.

Okay. Great. No, that all makes sense. And then just next 1 for me. Around the additional transaction revenue expected across FY '26, you mentioned that, that's going to be self-perform, which is 100% gross margin. Can you just walk through at a high level, the difference between like a self-performed versus an IKE-performed transaction? And if there's a difference in the type of customers that are utilizing the 2 different offerings within transactions?

Yes. Look, some customers, not that many, but some in the communications space are trying to match the money that they pay for use of software, their variable cost to their variable revenue. So in this case, we're talking about a customer there've been the user of IKE for 7 years, and they'll be retained as a customer. What they do is they use our software. They use our tools and they process their assets and their engineering workflows themselves instead of paying us on a per seat basis, how many people are using the software in front of a computer, they pay us on a per trend asset basis, so a transaction. So it's actually a higher revenue model for us. But for the customers, it gives them the ability to make sure with some of the regulatory uncertainty on the communication side of the industry at the moment, it gives them an ability just to make sure that they stay profitable at all points. So in this particular case, we expect this 1 business. They dropped off in terms of some subscription seats, but they'll probably do about $0.5 million of transaction revenue through this coming year.

Okay. Excellent. Great to hear. And just final 1 for me. Good to see the reiteration of break-even EBITDA on a run rate basis into FY '26 till the end of, that's a big milestone for the business. You've also flagged that EBITDA is running at or above plan in the first quarter. Have you seen much over the first quarter in terms of in terms of costs? Or is there still strong operating leverage coming through in the business?

No. Operating leverage is evident. So I think while we've had this negative FX impact in terms of how we report revenue but it also reduces our costs from a reporting standpoint. So no, our cost base is in good shape, and we just feel fully on track for those targets.

Next up, we've got Jules Cooper from Shaw and Partners.

You mentioned PoleForeman has continued to perform strongly. Can you provide a little bit more sort of data around that. Historically, you've talked to customer numbers, TCV signed licenses, ARR, et cetera, just something that we can work with to see how that continued to perform in the first quarter?

Yes. Look, I think the detailed data, Jules, will be available in the first half report. The really, I think interesting thing around IKE PoleForeman has been, we closed more than 100 customers through that first year or so of launch. And we've seen some of these, particularly the big investor-owned utilities have come back and have re-upped in terms of number of seats through Q1 and have indicated that's going to continue through Q2. So what that means is a utility is starting to spread it further across functions. And the second, I think, really interesting potential item is, now we're seeing this ecosystem effect. So in electric utilities at Duke Energy, the biggest utility in North America have standardized on us. Now, they are requiring their engineering companies or communications companies, anyone that's working on their network to do any of this design work using IKE PoleForeman. And we're seeing this really, I think, favorable sort of flow on impact in terms of the ecosystem. So that's, I think, going to put us in good shape in terms of the full financial year.

Okay. And is that -- if I just sort of get you to elaborate there, the first quarter subscription revenue run rate is below the guidance for the full year. Is it that sort of pipeline and what you're seeing with PoleForeman and how your customers are responding in the ecosystem effect is what sort of gives you confidence over the balance of the year, together with maybe comments around transactional revenue?

Yes, that's right. It's -- some of this is timing and the month of July has been strong in terms of close contracts and seats tied to IKE PoleForeman. So that's traveling well for us at the moment.

Okay. All right. Excellent. And then last, if we look at the cash balance, it was down $1.5 million roughly versus the fourth quarter. Can you -- there's a few moving parts here, and we've only got a closing figure, right, that we're working on. Can you provide any sort of insight into receipts, maybe how some of your customers are paying in terms of multiyear that's had an impact there or whether it is an increase in sort of cash costs. I think you sort of mentioned that the operating leverage has continued, but just how we sort of think about that cash burn from a receipts versus payments perspective in the first quarter?

Yes. There's always some working capital timing components. As you know, Jules, we've been about cash break-even for 12 to 15 months. And we have had the benefit of some multiyear subscription customers paying everything upfront and capitalizing. We actually do have more customers seeking that same model, but through Q1, we didn't have that same impact. So it was a bit of a blend of some timing items with customers, but we've stayed in good healthy shape, balance sheet wise. And obviously, through July, we completed a capital raise as well, which is the balance sheet was already very strong. And now we've got the ability to put our foot down in a couple of new initiatives.

Next up, we have James Lindsay from Forsyth Barr.

A few from me, if I may. Just further to the question with regards to the 2 product development, can you give us an indication of the relative size. If the first 1 is in network management versus where the second 1 will be sort of the 2 opportunities, which has begun.

Look, we believe, as we get deeper inside of our customer footprint, these are very large infrastructure companies. The items that we're building towards, if we're successful, and we've got a lot of work to do to make these products successful, but they deliver a lot of value into utilities. I think they can be much larger product opportunities than what we deliver today. We already do very important work, and we're extremely sticky inside utilities, but we think this could take us to a next level in terms of value to our customers' stickiness and obviously, subscription revenue per customer. So we're excited about the pathway we're on, and we're not trying to be tricky in terms of not talking to exactly what these products will do. But obviously, we operate in a very competitive market potentially. And we're not disclosing publicly what we're building capability wise because that would potentially put some of our competitors on notice.

Yes, absolutely. I understand the sensitivities. Just with regard to the speed, so obviously, well done on that speed for delivery that sounds good news. But can you just give us an indication as is that all being done with internal tech teams? Or is there external suppliers coming in there to help expedite?

It will be a combination of both. So obviously, intellectual property ownership is important. So we need to own everything that we do, but we'll be using some external contractors. It is, I just think it's an incredibly exciting time to be a software business and to be building new platforms, some of the new capability and technology and architecture options are very, very exciting. So yes, we're sort of thrilled to be launching, but we'll use some additional internal resource, and we use some external resource where it makes sense.

Great. And just with regard to the solid customer growth over the quarter, maybe just some extra words around that, if it's coming in from PoleForeman or just in the core office system.

It's been almost an even mix of the 2 in terms of IKE PoleForeman and IKE Office Pro. So we target internally to run it one new enterprise customer a week, and we've almost been at double that rate through Q1. And I know it can seem underwhelming if you match it to the upfront revenue items, but we start small and site every single 1 of these accounts, and you have to win them to be able to grow them over time. So yes, it's important to be giving the new logos in.

And then obviously, not too many negatives in the number, but just the transactional margin. There was a bit of weakness in there as well. as a gross margin, can you sort of give us an indication of what a more sustainable level is in that transactional margin?

Yes. Look, the transaction side of what we do, particularly the services side, which is IKE Analyze, which is when a customer uses our products and then us to complete some services work on their behalf as the part that has some volatility, it is lower margin, but it will pulse up and down. And we saw from a PCP perspective, some softness, it was pretty much at plan in terms of budget and forecast. But I think over time, that's going to continue to grow, but we'll see some ups and downs through the quarters. I think it's important for investors and our shareholders to understand that particularly that services component of transaction revenue, it makes us very valuable and very sticky with customers. And we'll see some upside risk and some downside risk associated with that part of the business. But it's always generating positive cash flow, which feeds into the core software part of the business.

And then just last 1 for me. Just with regard to sort of how far through sort of IRR do you think you are for PoleForeman? Obviously, you're starting to continue to get some growth there. But is it sort of halfway through the available market? Or how are you receiving the total opportunity for PoleForeman?

Yes, goodness. Look, I think IKE PoleForeman is going to grow tremendously through this year, but we have got this a much, much larger market opportunity for IKE PoleForeman over time. So the industry really has not adopted this practice in terms of structural analysis. So there's a lot of new logos. We're about to launch a campaign to go and address directly one of our key competitors because we think we've got something quite superior. So there's a lot of runway. A lot of work to do. So nothing ever happens quite as fast as we want to in the electric utility industry. But yes, there's a lot of white space and green space in the industry.

Yes, just sort of extension to that. Just with regard to it's probably 1 of your best quarters as far as new customer growth. Was there anything in particular during the quarter that helped drive that? Are you saying you're about to launch, I mean, on the marketing side of things. What happened in this quarter that helped to be 1 of your best?

Yes. I mean we're consistently putting campaigns together targeting various corners of the market or various personas within the market. So yes, we saw a good run rate through this quarter. I think -- and James, we've talked about this historically, at the end of last year, we had this long tail of legacy customers that hadn't renewed to the new platform, and we -- from a customer number perspective, we recognized them all is lost, which was -- had an impact on that customer number. We're seeing that some of that long tail just cut back in because they have to because they serve the big utilities that have adopted IKE PoleForeman standards. So I think we keep probably seeing a good uptick in terms of that number.

We've just got a couple of submitted questions, Glenn, that we'll pulse through. Can you just talk us through just with regards to the exit revenue run rate? What gives you confidence to deliver growth going forward? You mentioned in terms of July has been a strong month, but perhaps just addressing some of the pipeline that you see coming through.

Yes. I mean the pipeline is in very good shape in terms of the opportunities that sit in front of us. We obviously had the FX impact through Q1, which is quite material. We've -- from a business standpoint, we've tracked fully at plan or ahead of plan on all the key metrics through the first quarter of the year if you put the foreign currency side of things, aside. So yes, it feels like we're in good shape. We've grown the subscription side of the business strongly annually for many years now. And I feel we've got better visibility now than we've ever had in terms of funnel. So overall in good shape. It's not a slam dunk, but it gives us quite a lot of confidence.

Great. And just last question. After you reach break-even on an EBITDA basis, do you plan to pursue stat profitability next?

Yes. Look, I think, eventually that there's a few factors that we could be profitable in a heartbeat if that was the only objective. Again, I think the best outcome and the highest value outcome for our shareholders and for the market. Look, when we win these customers, we do not lose them. I mean we will lose 1 or 2 of the network owners that this is an opportunity to win big electric utility companies and big communications companies and keep them for decades and decades in terms of ongoing subscription revenue and then growing with them over time. And I think that's something that we can either choose to accelerate in terms of our speed of logo acquisition and growth in the footprint? Or if it's a better value to shareholders, we can focus on profitability outcomes. But I think we're in a very fortunate industry at a very fortunate time at the moment. And we're focused very hard on balancing those 2 things, so making sure we've got a very sustainable operating model but growing. And winning these businesses, I think, is going to pay back significantly for our investors over time.

Glenn, that concludes Q&A. I might just hand it back to you for closing remarks.

No, thanks, everyone, for joining. I appreciate the opportunity to catch up. Our next update will be at the half year period, so it will be in the middle of October. But obviously, we're available any time to answer specific questions or get in contact. Thanks, Simon.

Good-bye.