ikeGPS Group Limited (IKE) Earnings Call Transcript & Summary

Good morning, and welcome to ikeGPS's First Half of Financial Year 2025 Performance Update as released on the NZX and ASX this morning. From the company today, we have the CEO, Glenn Milnes and the CFO, Brian Musfeldt. Before I hand it over to Glenn and Brian to follow through the presentation up on your Zoom screen or alternatively for analysts [Operator Instructions]. Glenn, I'll hand it over to you. Thanks very much.

Great. Thanks, Simon, and thanks, everyone, for taking the time to meet. We had our Annual Shareholders' Meeting about a month ago. We're keen to talk you through the second quarter of the year, in particular, it's been a really strong quarter for the business. So there's a bunch of exciting things happening and continued good momentum. So what I'd like to do is have Brian, our CFO. Brian and I are both based here in Colorado and our headquarters. Brian will take you through some of the key numbers for 8 or 9 minutes. I'll do the same in terms of some product updates and product vision in terms of what's coming. And then would like to open things up to Q&A. And thanks for all the questions that have already come in. I appreciate the engagement. So keen to cover those to the extent we can. So Brian, if you're able to share the screen, and I'll let you pulse through the numbers.

Great. Thanks, Glenn. Yes. So starting on Slide 4. Platform subscription revenue continues to show consistently strong growth with a 3-year CAGR of 38%, growing to $6.5 million in the first half of fiscal year '25. The growth continues to be driven by a combination of growth from both our IKE Office IKE Office Pro products and the successful sell-through of our next-generation IKE PoleForeman subscription product as well as retention rates of approximately 95% in our subscription platforms. Platform subscription revenue now represents over 53% of our total revenue, and our sales pipeline for new business is strong and growing. The company expects continued growth from this segment, forecasting approximately 40% or greater growth during fiscal year '25. Next slide. Starting fiscal year '25, we are now reporting our exit run rate, our ERR, of our annualized platform subscription revenue. These figures represent contracted annualized platform subscription revenue at the end of each reporting period. As of September 30, the company has over $13.2 million in exit run rate, representing a 34% growth year-over-year, and we expect this to grow by approximately 40% or greater by the end of fiscal year '25 as well. And that's going to be driven by the growth in our IKE Office and IKE Office Pro products as well as the successful sell-through of our next-generation IKE PoleForeman subscription product that has already closed $12.5 million of TCV since its launch in Q2 of '24. Next slide. Beginning in fiscal year '25, we've also started reporting our seat licenses. These licenses each represent an engineer actively using our subscription offerings. Seat licenses have grown over 179% in the last year, and we now have approximately 6,000 active licenses. Seat counts have grown at an accelerated pace due to customer additions, upsells as well as transitioning customers onto a new per-seat subscription model when adopting the new IKE PoleForeman product. To date, 50 customers representing over 3,000 licenses have converted to the new IKE PoleForeman product. Next slide. Our platform transaction revenue came in at $4 million for the first half of fiscal year '25, representing a 3-year CAGR of over 20% and a 6% increase over prior year. In addition, margins from the platform transaction revenue have improved to 107% from 19% in the first half of fiscal year '24 to 37% in the first half of fiscal year '25. This increase is due to software improvements and operational efficiencies made during late 2024. This allows us to deliver on these revenues more cost effectively. Based on the contracts in place and the strength of our pipeline, the company expects transaction volumes and associated revenue from platform transactions to build in the second half of fiscal year '25. But as consistently stated, timing and delivery of these transactions are customer dependent and therefore, can be variable. Next slide. This table summarizes our key metrics that we have historically reported over the past few years. I think we've covered most of the key revenue metrics on this table on the previous slides. And I note that the metrics are all tracking in line with our current plans. A few different key items to note. Our blended gross margin profile continues to improve with the first half of fiscal year '25 coming in at 67%, up from 59% in the first half of '24. This is driven by improvements in our platform transaction revenue margins as noted above, and a continued shift in the product mix toward higher-margin subscription revenue. We expect this trend to continue into fiscal year '25 and beyond. Total cash and receivables as of September 30 were $11.1 million. That's comprised of $6.8 million in cash and $4.3 million of receivables. With payables of $1 million and no debt, our balance sheet remains strong. As context, cash has reduced $3 million over the last 12 months, but this is during a period of substantial investment into building 5 new products, 3 of which have now been launched. This investment into product development is paying back. A good example of this is IKE PoleForeman. This new product has been in market for approximately 9 months. And to date, 84 customers have subscribed to this new platform, of which 50 were existing and 34 new. The product has generated over $12.5 million in total contract value and has increased IKE's ARR by $4 million. The company intends to continue developing and investing in our platform development. With that, I will turn it back over to Glenn for a CEO update.

Thanks, Brian. And Simon, if you can just bounce forward a couple of slides, please, to the PoleForeman slide. And I apologize to all those online. I'm on the delayed flight, so I'm operating from my mobile. I can't see the slides necessarily. I did just want to sort of follow up on a number of items that Brian has covered. So we've been particularly surprised on the upside with what's happened around PoleForeman. So keep in mind, we've built here one of the design standards for the electric utility market for distribution networks. And we've been winning customers at a much faster rate, I think, than what we had anticipated in terms of go-to-market. So yes, I won't repeat the stats and the data from Brian, but the new IKE PoleForeman product has been really well received by our core customers. We truly think we are going to set the standard for distribution design. So it's a very privileged position to be in, in terms of where we sit now. So we've got thousands and thousands of engineering designers using IKE PoleForeman today to design software standards. And there's been a few questions around, well, all these storms and hurricanes, et cetera, that are flowing into the United States, how does that it impact IKE? Yes, I mean, we were sitting behind a lot of the grid hardening and grid resiliency processes across North America now. And we do expect more Tier 1 investor-owned utilities to adopt and standardize on IKE PoleForeman through the coming quarter and through the second half of this year. So that new product innovation has been tracking really well. As Brian mentioned, 85 customers now have -- utilities have come on board, 35 of them are new customers. So it's really having an impact in terms of the investment we're making. And then Simon, if you can go ahead 2 slides, please, to talk about the other product innovations and, I guess, market vision that we have tied to what we're doing with artificial intelligence. AI is a horribly overused term in so many places today. But we've spent a lot of time, and we've invested significantly in building automation tools tied to specific workflows around -- again, around distribution, power utilities. And yes, we were excited this quarter to get 2 other new products to market, which have been well received. So the first of these is called Double-Wood Detective. These are technical products, but necessarily so. I think the magic of AI is when you can apply them to very specific workflows inside a company or inside a network. So for us, Double-Wood Detective lets us use -- we've partnered with Google and a couple of other bulk data businesses. We're able to go in, in [ tower ] utility, remember, these folks typically are managing millions of assets. But we can go in and tell them where they have double wood or ghost pole or twin pole situations. It's the very weakest and most vulnerable part of a tower network. Go in and tell them kind of where they have a challenge and where they need to be looking next to deal with the next storm or the next wind event or whatever it might be that they're staying up at night. So again, really specific capability, but something that applies to the entire industry. There is probably 10 million double wood pole vulnerabilities across the North American power landscape. And we can help utilities just go find them and do a better job of detection. Simon, next slide, please, tied to Joint-Use Ticket Automation. This is a related application, but it's actually broader. Most power poles across the North American landscape are sharing infrastructure. So you've got the power at the top and then you've got all of the other folks that are attaching their communications, cables or cable TV or whatever it might be also across the same asset. Again, we've built a system like a whole of network scale -- whole of North America scale. We're able to screen and look at violation reporting, make-ready construction situations or pole transfer automation. This is a regulatory requirement for anyone that's sharing any overhead asset in the North American infrastructure sector. So again, this has come to market through this quarter. We drive lots of productivity in terms of accuracy, but particularly here in terms of speed and regulatory compliance. And we have other AI tools that are hitting the market through the second half of this year, some of which will be going into our existing products across a very broad customer footprint. So that's exciting because, a, it helps them as customers in terms of their efficiency, but also in terms of how we think about ARPU per user because as we keep adding value, we can keep increasing pricing. But some of these AI tools, which we've invested in over the last 2 or 3 years are now hitting the market. So yes, we're really excited about where things are getting to from a technology perspective. Next slide, please, Simon, I think, it just goes to Appendices. So I'd probably pause there and be keen to open things up to questions.

Perfect. Thanks, Glenn. Thanks, Brian. I might just allow Forsyth Barr team to talk. Please go ahead, guys.

James and nice work on the period. A few questions from us, and then we'll probably just hand back and see if there's others, but we've got 5, 6. But obviously, 2Q was quite a good period for enterprise customer wins. So I understand you're talking about -- a bit of about PoleForeman effect. So maybe the first one is, is that second quarter uplift, I think, 16 new enterprise customers added. Is that just PoleForeman really? Or is there other things going on?

It's been a mix -- thanks, James. It's been a mix. I think many have been tied to IKE PoleForeman, but others have been tied to other products, including IKE Office Pro. So it's probably 2/3 IKE PoleForeman, 1/3 IKE Office Pro. But we keep running it. Well, we're growing faster than 1 new customer a week. It's probably 1.5 customers a week that are new who are jumping on.

Yes, that's a great success. And then maybe just talk -- just with regards to the sort of -- obviously, with those numbers, we don't really have a sense of scale or size of those wins. But maybe just talk to the quality of the customers that are coming on and the -- of the sort of the top 100 investor-owned utilities, just where you are positioned now as far as penetration?

Yes. That's a good point. I mean customers aren't equal. And for those on the call, like, there are more than 3,000 electric utilities across North America, but 110 of them are big investor-owned utility groups. And it's the same with the engineering companies. You got the Tier 1 national groups, there's probably 250 of those plus a big long tail of others. So they're not all equal. In the first half of the year, it's been a mix. We just flipped from a competitor, 1 of the 5 largest investor-owned utilities into IKE PoleForeman, I think, based on its productivity benefits. So that's massive. And then there is a tail for us of engineering service providers that kind of sit behind that number. I think we're at about 40 new customers this financial year to date. So it is a mix for sure. And we're growing across some of the bigger communications companies as well that have national footprints. I mean, think of North America as like 50 countries. It's not just 1 country. So these bigger national groups, as you start to grow across those folk, it's obviously a lot more meaningful.

And then just with regards to the talk about sort of PoleForeman contracted customers, just about what's driving the conversion for that? And I assume it's pretty hard to get a sort of large utility across. But what holds that up both within your organization and within theirs?

Yes, they're just very big businesses that have a very established way of doing engineering and their operational activities. So it takes time in all cases to get someone engaged and then to get them to make a change. So we sell with our messaging with -- particularly with IKE PoleForeman. It's around simplicity and clarity in terms of using the software. I've got hundreds of design engineers working every day. So if you can make it easy for them to do their job correctly, that's the driver for the conversion. So it does take time in a sense of [ human ] to sell into these really large groups. But that's the industry that we're in, and that's what we're pursuing. And we're kind of -- we are ticking off a lot of these bigger groups week over week.

And do you think that the restriction though is within your organization as far as delivery or theirs as far as just going through the processes?

Yes. No, it's both. I mean we target the -- our sales model, we sell directly and we deliver directly to customers. They really love that model. We're like a partner that they can't live without essentially. So yes, there's some constraints in terms of our size. But at the same time, the industry makes changes at certain points. All of these storms and all the grid hardening and grid resiliency and grid capacity requirements happening across the network now are driving utilities to come at this problem a little bit faster than what they probably had 10 years ago.

And just a few more, I might just be greedy with time, if you don't mind. Just with regard to the Street View data and relationship with Google, just about how far away sort of that data is being used and on getting revenue lines to sales?

Yes. I mean we're using the data now. So yes, it's exciting. And for context for folks on the call, we partnered with Google 1.5 years ago or 2 years ago, and we still do, looking at all of their bulk data that they're capturing for other applications, so things that you guys might use every day with Google Maps and what have you. So we're grabbing that data and applying it to power poles and power infrastructures. So yes, it's been really interesting to be able to see what they're collecting and also the frequency that they collect that kind of data in terms of every city across the United States, and we're applying it to power poles. So yes, a couple of those applications are in customer hands at the moment.

Right. And then just quickly on the last two, just with regard to transactional gross margin lifted a bit. Just wondering if you could give us some guidance about what's driven that uplift over a relatively short period of time.

Yes. Brian, you can grab that.

Yes. We talked about that last year. We did a reduction of our team here in the U.S. in the third quarter of last year, and we shifted a lot of that production to a dedicated team in Mexico of contractors. So that shift has really reduced our cost base pretty significantly in that they're able to do it a little under 1/3 of the cost of what it used to cost us here in the U.S. Also, a lot of this development we're doing aids our internal analyzed team. So a lot of these things we're doing are helping us speed up our own processes internally. So when we provide the Analyze service, we can do that more cost effectively and we can improve our margins. So a combination of those has really improved the margin.