ikeGPS Group Limited (IKE) Earnings Call Transcript & Summary

Good morning or good afternoon, and welcome to ikeGPS' First Quarter of the financial year 2025 performance and update and outlook. From the company today, we have the CEO, Glenn Milnes, and the company's CFO, Brian Musfeldt. Before I pass it over to Glenn and Brian to go through the presentation up on the screen, I'll just remind you, you can submit questions through the Q&A panel button at the bottom of your screen, and we'll get to those post the end of the presentation. Glenn, I'll hand it over to you. Thanks.

Thanks, Simon. Thanks, everyone, for taking the time to join this update call. It was a very positive quarter for the business, and I would like to touch on the headlines, also introducing Brian Musfeldt as our CFO. Brian and I both placed out in our Colorado, U.S.A. headquarters. So what we'll do is get to the key charts first. Please take note of this important notice. We'll look at performance headlines. There are some near-term outlook items that we would like to highlight. And there is some further detail in this presentation around our addressable markets and our products and value proposition, which many of you are familiar with. So we'll pull through that quite quickly. So moving on to some of the performance charts that we released this morning.

Yes. Great. Thanks, Glenn. Yes. So platform subscription revenue continues to show consistently strong growth with a 3-year CAGR of about 41%, growing to $3.2 million for Q1 of fiscal year '25. The growth was driven by a combination now of our IKE Office and IKE Office products and through the successful sell-through of our next-gen IKE PoleForeman subscription product that we launched back in Q2. So we're excited to report the growth, and the company really does expect this growth to continue in this segment through fiscal year '25, forecasting approximately 50% growth during fiscal year '25 in subscription revenue. Next slide, Glenn. So starting in Q1 '25, we're now going to report our exit run rate, our ERR for our annualized subscription revenue at the end of the reporting period. In our case, these figures represent the contracted annualized platform subscription revenue of the company at the end of each of the reporting periods. So as of June 30, we have an exit run rate of just under $13 million. And our 2-year CAGR for that ERR was about 35%. And again, we also expect this to continue to grow this year, with the end of the year expected to be closer to 50% period-over-period at the end of the year. This growth is again driven by our IKE Office and our IKE Office products, but it's also now being generated through that IKE PoleForeman subscription model that we've put in place at the end of last year. And PoleForeman subscription products have already closed a little over $12 million of TCV since the launch in Q2 of 2024.

I think the other metric, again, that we will now be reporting quarter-over-quarter ties to the number of subscription seat licences. We've seen really substantial growth in this metric, if we look at pcp and also the FY '23 financial year, it really evidences the transition we're making in terms of our products that we're bringing to market and the business model we're selling. So again, really substantial increase in subscription seat licences and this represents many thousands of engineers at utilities and communications companies who are using our products for design and assessment of distribution networks.

Yes. So our platform's transaction revenue shows a 3-year CAGR of about 23%, but they were slightly lower in Q1 of 25% as compared to '24. This decrease is really just due to the strong end activity from key communication customers in Q1 of 2024. In turn, the margins from this platform transaction revenue have actually improved substantially. If you look at Q1 of 2024, we were about 24% margin. And in Q1 of '25, we're showing 41% margin. And this improvement has really just been due to the operational efficiencies we've talked about in the past few quarters that really are allowing us to deliver on these revenues a little more effectively. So based on the contracts in place and the guidance from our long-term customers, customers -- we expect the transaction volumes and the associated revenues from these platform transaction revenues to build again in Q2 and through the rest of the year, fiscal year '25.

Yes. And just adding to that, we've got that confidence based on contracts that have been closed through the Q1 period that we built into delivering and billing through Q2 and Q3. And the last item is bringing it all together in terms of total revenue. We've had a 3-year CAGR of 31%. And just based on product mix, the blue bar represents subscription revenue in this chart, the green bar represents transaction revenue. And just due to the product mix, we're seeing our gross margin continue to strengthen at 70% as of Q1 FY '25. And as Brian mentioned, we do expect a healthy growth rate through the rest of this financial year based on contracts that have been put in place. I think that this is the key metrics table that we publish every quarter. I won't go through this line by line. It's a bit hard to read, but this presentation is available later today. So you can again look at it or it's also in the document that was released this morning. And the takeaway is really tied to the key things that we've already talked about in the previous graphs.

Yes. And I think the one other key takeaway we haven't covered is just real cash and receivables at the bottom there. So cash receivables were about $14 million at the end of June, a compromise or comprised of $10 million in cash and $4 million of receivables. Just like to point out, that's consistent with our cash position at March 31 year-end and up from our cash position on December 31 of $8 million.

So if we just touch quickly on some other update and outlook items. There are just probably two things we were keen to highlight for this call, given time constraints. But it really is to do -- look back and also look forward around where we're getting to with IKE PoleForeman. So remember, this is distribution network design software. We're one of the 3 standards in North America for the design process and care design of networks. We compete with two other firms. Again, the recap is, we acquired the assets of the PoleForeman business in late 2019 for a little over USD 3 million. At that time, it had about of $0.3 million of recurring revenue. We've built the next-generation products. We had the help of a customer council that had the standards directors from many of the very largest utility customers and communications companies in the North American market. And that really helped us, I think, to get our product market fit correct. And we've sort of seen the impact of that total contract value, which we mentioned sits at more than $12 million now across a range of existing customers, but also some important new ones. And although we don't publish a lifetime value estimate, these customers are extremely sticky in nature. They become extremely reliant on these workflow processes. And we think we've built something that's the best in the market. So we expect the customers, we're winning, to last after a very long periods of time with extremely low churn. We're going to win more major customers in the near term. And ultimately, by the end of this year, we should have 8 of the 10 largest utilities in the North American market standardized on the IKE PoleForeman standard. So the other part is, I think, the industry is recognizing the strategic nature of assets like this and similar design assets for the electrical grid. And some of the activity around acquisitions, et cetera, around comparable assets has been something that we think is relevant. The second item, again, that we're excited about. We've invested substantially into building AI. It's the hopelessly overuse term, obviously, everywhere at the moment. But we've worked really hard to build very specific automation capability for designing and engineering, distribution, electrical grid. And we're excited to be bringing new products to market this quarter. There's an example solution here around being able to assess an entire network area for viability for attaching fiber or more electrical grid capacity. And there's other automation tools that we will be inserting into existing products that will just make our customers go much, much faster and be much more productive in terms of very specific workflows. So that's coming to market. It adds to the potential subscription footprint, if we're successful selling these in or upselling into our existing customer footprint. So it's something to certainly look out for in terms of innovation this year. From here, I will greatly accelerate because many of you have seen these slides, but we put them in, in case we've got folks on the call that aren't as familiar with our business, but I'll pulse quick from here. we've developed a suite of products to add productivity into the engineering of distribution networks. And so our suite covers the entire life cycle of planning and network than the digitization or assessment of a network, what you actually already have in the field. Remember, these utilities tend to have millions of assets that they need to be assessing. And then we've got tools for the design, maintenance and also for grid hardening or grid resiliency. And lastly, the above subscription-based products, we have our IKE analyzed offering, which is where we help our customers do parts of their processes faster with a service and with some technology to accelerate their workflows. It's a big market, more than 3,000 electric utilities in North America. And they've got to make the grid resilience, so it doesn't fail on a storm. They've also got a big problem around adding capacity onto the electrical grid. So they've got to get than 50% of power in North America onto the electrical infrastructure. And that requires lots of engineering and our products help improve the quality of these processes. These are billions of dollars in terms of the activity in the market, but it's growing an analyst forecast that's just going to continue to grow in terms of CapEx and OpEx spend across the North American landscape, just given the age and aging of their infrastructure and some of those problems that we just talked to with more storms, more capacity requirements. Just a visual representation here of simply how large the North American landscape is. These are the big investor-owned utilities. There's 106 of them. We're in about 32 of them today and making strong progress in terms of pursuing these really large slow moving but extremely sticky customers. And then you go down a level, these are the smaller municipalities and co-ops, it's 2,800 of them, again, providing power into smaller rural environments, but they all represent sales opportunities for the IKE product set. Again, most of you have seen this, but our footprint continues to expand. We have got 8 of the 10 largest utilities, more than 400 customers subscribing to our platform today and a total addressable market of more than 5,000 enterprise target accounts. A complementary market opportunity is the fiber industry. So these are communications companies deploying fiber networks across North America, spending a huge amount of capital and they're in a race to get their networks built and beat their competitors about 200 cons companies that are fighting to the first or second in any region. And our products are the same for this group of customers. But the value proposition is all around dramatically speeding up their network deployment process. And there's some metrics here around the level of spend. Things are just continuing to grow and grow in terms of fiber deployment activity. The item that has been slower than what was anticipated 3 or 4 years ago is 5G network deployment. It's a much smaller part of us, market opportunity for us, but that's the item that hasn't quite gone as quickly. Again, just some example, logos here, you might not be familiar with too many of them, but AT&T, most of you know, the biggest comms company in the world; Crown Castle, the biggest shared infrastructure group in North America, both standardized on IKE. Some more details here around TAM, which I'll go through quick. In terms of market tailwinds, we're just lucky to be in the right place at the right time, probably 20 or 30 years of very strong tailwinds sitting behind the problems that we solve. And the biggest additional item has been the amount of energy that needs to be put out of the grid by 2050 to meet targets and power the EV and the data center market. From just 20% today, some examples of what our products look like, this is looking into our software. This is AT&T in Florida, showing all the submodules or networks where they have assisted assets using IKE. And this is AT&T looking down at the national footprint and some of the projects that they're running in this case, across about 7 states. So we do span the coast to coast in terms of the U.S. market. The thing I'm probably just most pleased with, through the last 12 months, is what we've done from a team perspective, some -- just some detail here around some really talented people that we've added through the last year at a leadership and Board level. And obviously, a number of ways that we're looking to continue to grow the business in the short term and in the long term. We go to market directly with the direct sales group. So sales team expansion, adding new logos, there's a big cross-sell and upsell opportunity once we win a customer with one product, there's other divisions in that business, we can sell our broader suite of products. Two, we've done 3 -- from an inorganic growth perspective, we've done 3 acquisitions through the last 4.5 years. I think all of them have created substantial value into the business, talked about our PoleForeman previously and the AI that's coming to market this year. And at the moment, we are just hyper focused on North America. It's such a large industry opportunity here. But over time, certainly in international market expansion opportunity. And with that, I will pause and Simon, happy to take any questions for myself or for -- or Brian can pick up relevant ones.

First question, just wondering whether you could put a bit more color on the cash flow. Do you expect the need to raise money over the next 12 months?

Yes. I guess short answer to that is, no, we don't expect the need to do a cash raise over the next 12 months as we talked about at our year-end calls. Companies striving to be EBITDA positive in the second half of the year. And so we don't envision a need for cash raise.

Great. And have the industry discussions regarding grid capacity accelerated recently with generative AI or data center trends?

Sorry, Simon, could you please repeat that? I just lost you midway through.

That's right. Does generative AI demand potentially accelerate the need for fiber or 5G development?

I mean the biggest requirement from what we're hearing from utilities, is the amount of power the data centers need to run those data centers and to run those AI-based tools. And that means the utilities need to put more capacity on their grid. That means more conductors, more wires, more loading and that means more engineering, and that's what we support. PoleForeman is at the absolute center of those processes, be it the fiber wire going on to existing power pole or be it more grid capacity or grid hardening, so the network doesn't fall over in a storm.

Congratulations on the progress on PoleForeman. How far through the client onboarding [indiscernible] or existing clients likely to take on a new offering? And given your comments on advancing investor market now, where do you see revenues getting to over time?

Yes. We've just sequentially sought to convert our client list of about 140 customers using the legacy product per the metrics we've released, we've also been closing some important new customers, I think just based on the efficiency and ease of use of this product versus the others in the market. So we're still early in terms of market penetration. But so far, touchwood, the onboarding process has gone really well. And the feedback on the product, you naturally have some bugs and items that you need to attend to when you launch new software into these huge enterprise customers, but the feedback from the engineers using it has been overwhelmingly positive, which has been great.

Great. Where, if any, potential outside in FY '25 subscription revenue is likely to come from?

I mean we're sort of diversifying that subscription revenue base, which Brian talked to. So there are some very large opportunities on the IKE Office Pro side as we see new customers adopting IKE Office Pro. And then we have good line of sight to IKE PoleForeman seat license revenues and some big customers that are yet to formally make the switch, but they are very committed to doing so.