ikeGPS Group Limited (IKE) Earnings Call Transcript & Summary

Good morning, and welcome to ikeGPS' First Quarter Financial Year 2023 Performance Update following the release of the quarterly on the ASX and NZX yesterday. On the line today, we have CEO, Glenn Milnes; and also the CFO, Stephen Fairbrother. Before I hand it over to Glenn to get started, I'll just remind you that if you do want to ask questions, you can do so via the Q&A panel at the bottom of the screen, and we'll get to those post the brief presentation. Glenn, I'll hand it over to you to get started. Thanks very much.

Thanks, Simon, and thanks, everyone, for taking the time to join. I'll look to pulse through this material very quickly in 10 minutes or less and then open things up for questions. I think, in summary, we had a very strong quarter through Q1, and we expect this momentum to continue just based on the market tailwinds and then also based on contract backlog and our sales funnel in front of us. As you know, IKE, we're focused on the North American electric utility and communications market. We've got 3 software solutions that drive productivity for our customers when they're engineering their network. I think the really pleasing part of this last quarter has been the way that we've had continued expansion of existing customers. But at the same time, we've added important new ones. And this is really the thesis for IKE, it's building decades long relationships with these really sticky large infrastructure companies. So I'll go through the material quickly, just an important notice around the information in this presentation. Again, lots of words on this chart. What I'll do is actually just get to the graph so it's easier for everyone to consume. So revenue in the period grew 162% against prior calendar period. Keep in mind that the prior calendar period was also a strong period of growth for us, and subscription revenue, which is recurring and reoccurring transaction revenue is the core driver of growth, and that was -- that grew 167% to $5.7 million. This is obviously important because the quality of that revenue is much higher. It's much more predictable in terms of how we have a forward lens of where the business is tracking to. I think the other really important metric for our shareholders to be aware of is the way that our signed contracts flow through to recognize revenue. The subscriptions are typically recognized over 12 months after signing. And transactions revenue flows depending on how fast our customers engineer the network and run their projects. So the orange bar here is the signed contracts level quarter-over-quarter, and the blue bar represents revenue, recognized revenue. And so it's a good proxy for how we expect the revenue growth picture to flow. And just the chart here that we always report is around the transaction, level of transaction revenue. So every time a customer processes an asset or an engineering exercise through our software, we take a transaction fee in most cases. And so it's a great proxy for the utilization of the platform, and that's continued to grow strongly, up nearly 300% on PCP. In this table here, we have just details of the key metrics and the business that we track daily and weekly, but is really what drives the revenue engine of IKE. So it's the number of transactions, the level of subscription revenue, and it's also the stickiness of our customers or the number of enterprise customers that are using our platform. And keep in mind, now we're probably less than 5% penetrated in terms of the number of parties or participants across the North American landscape. So a lot of room to add new logos. A lot of words on this slide, apologies, but there's probably some important talking points. Yes, in terms of the new customers that we won through the quarter, we've worked with. It's one of the largest engineering service providers that operates across the whole of the United States market. And we won them with quite a material contract supporting a 10-year network hardening program for an underlying electric utility, which is a customer of this electric engineering service provider. And so yes, it's a very long-term contract work and it becomes very predictable for us just in terms of run rate revenue that will come through supporting, for example, this customer and obviously, an opportunity to go much more broadly across this engineering company's underlying customer base. And the other -- just the other note here, which I think is interesting, is around some of the market development activities that we're performing, this is sitting in front of closing contracts and obviously, subsequent recognition of revenue. But one very large electric utility, we trained 325 of the engineers through this last quarter on IKE products and IKE workflows. This is a utility that got hit very hard by a hurricane less than 12 months ago and they're looking at how they harden the network and looking at IKE software and capability to help them support that. So it hasn't translated to revenue yet, but we're optimistic that it will. The other note here is just around the signed contract backlog. We estimate that about $13 million to $15 million of signed contracts that we have in the backlog will be recognized through the next 3 quarters, so in FY '23. Just noting that the ultimate timing is always subject to the execution speed of our customers. Last note is the Board and the management team are just highly cognizant of the importance of maintaining a fortress balance sheet, given market volatility. We're in a very strong position now. I think we can grow strongly and make sure that, that's always maintained. And we are -- we do have a focus on our track to positive cash flow. I think most people on the call are familiar with our products. The following slides are ones that you've seen before. Our products just speed up engineering for our customers. There's some examples here of what the software looks like in practice, just so you can see the way that we digitize network assets and how we drive accuracy and other productivity outcomes. This is our IKE Structural product used by 5 of the 10 largest in the Australian utilities and the United States. And IKE Insight, which we're infusing into automation capability into all of our products based on the IKE Insight platform, but it's also an offering to the market, which lets us do some new exciting things with bulk data that customers may have already captured or they're looking to capture in the future and our ability to very efficiently process and provide engineering outcomes from these huge data sets. And just from a market standpoint, the tailwinds in the sector continue. If anything, they just -- they strengthen, I think, year-over-year. We really see the electric utility, the underlying folks that own the power assets to be the biggest price, taking a 10-year lens, but we still have this very significant communications, fiber and 5G tailwind getting attached to power poles. Again, we help these folks do this engineering faster. And so look, I will pause there and be happy to take any questions?

Thanks, Glenn. [Operator Instructions] We've got a couple of questions. First off, Glenn, I note IKE has signed a top 5 engineering group in this quarter. Is it more important to sign utilities or engineering groups?

It's a really good question. And the answer is both. The engineering companies are becoming more and more important in this market. The utilities have got an aging workforce and -- but increasing network engineering demand. And so they're leaning on the engineering companies more and more. And the reason winning the engineering companies matters is -- I mean this group, for example, have been in the industry for 75 years. So they've just got very established relationships and very long-term contracts already in place with the utilities. So going in through the partnering with engineering companies, not only do we make them more profitable, but it also means that IKE doesn't need to be involved in RFP processes and some of these things that take longer typically in the sales cycle. So yes, we see them as of equal importance.

And just next question, adding 50 new enterprise customers in the last 12 months is commendable. But if last year was 20, that's 1 per week. Will this run rate continue?

We're focusing hard on it in terms of some of the investment we're making in sales team expansion. We really -- it's such an enormous market that we play in. And as I've mentioned before, more than 6,000 enterprise customers to target, and we're in 350-odd at the moment. So yes, that's the opportunity. Most of the revenue growth that you're seeing now at the moment is coming from existing customers. The customers we won 2 or 3 years ago that have just scaled up their use of the platform. So that's pleasing. So it's a case of account management plus new logo programs.

Given recession [indiscernible] over the next couple of years, do you see this having any significant impact on the company sales growth, margins, et cetera?

No. I mean we're fortunate because of the industry that we're in. It's very defensive to those types of recessionary headwinds. I think the exception to that may be how the communications companies, how fast they keep building their next-generation networks if they're fearful of underlying consumer behavior, but the customers we're supporting, project we're supporting are generally multiyear CapEx and OpEx projects that are very well committed to already.

Perfect. Thanks very much, Glenn. That concludes the Q&A. Well done battling COVID throughout. I'll hand it back to you for closing remarks.

Thanks, Simon, and thanks again, everyone, for joining. Hopefully, just a short efficient update was useful, but i'll be happy to follow up with anyone if there are follow-on questions.

Perfect. Thanks, Glenn. Thanks all.