IKE - IKE GPS Group

[Greekwatchdog]

For Bars Review

IkeGPS (IKE) reported a soft FY24 result, which was well signalled to the market. Revenue fell -31% from FY23 due to a major slowdown in Transactions, and operating expenses were elevated relative to our expectations despite cost out initiatives implemented in 2H24. While disappointing, FY25 should be a significantly improved period for IKE. Management has guided to >50% Subscriptions revenue growth in FY25, led by customer wins and the successful launch of IKE's next-generation PoleForeman software. Additionally, it appears the outlook for Transactions has improved, with IKE cautiously optimistic it will return to growth. IKE is well positioned for the future with: (1) a new base from which it can generate sustainable revenue growth, (2) improved business quality due to the shift in the product mix towards higher margin and more predictable Subscriptions revenues, and (3) supportive industry dynamics. On our revised forecasts, we expect IKE to achieve its cash flow breakeven goal without needing external capital. Our blended spot valuation rises +5% to NZ$0.83.

What's changed?
Earnings: Our operating EBITDA estimates fall by -NZ$2.4m, -NZ$4.0m and -NZ$4.4m in FY25, FY26 and FY27 respectively.
Blended spot valuation:  Our blended spot valuation rises +4cps to NZ$0.83, as gross margins improve medium term.
Revenue, as expected, fell significantly due to Transactions weakness
Total revenue fell -31% to NZ$21.1m in FY24, but this followed the +93% increase seen in FY23. Transactions revenue drove the decline, dropping -61% to NZ$7.3m as volumes from several key customers paused. Transactions revenue had ballooned +191% in FY23 due to outsized activity from these customers. While Transaction revenue appears suppressed relative to FY23, the overall trend remains constructive, with a +45% revenue CAGR since FY21. Subscriptions revenue grew by a solid +21% �������in FY24. Group margins expanded due to the product mix as the quality of revenues improves with higher Subscription revenues.

Operating expenses above our estimates
Total operating expenses of NZ$28.7m in FY24 exceeded our forecast of NZ$25.0m due to elevated sales and marketing costs, and heavy ongoing investment into R&D. We had expected some reduction from the cost-down programme IKE announced in 1H24, which included reducing staff in back office and service positions, as well as reducing contractor costs. While these cost savings were not immediately apparent in the FY24 result, the delayed impact may materialise in the FY25 results.

Outlook positive and our confidence in the revenue outlook grows
Despite depressed total revenue in FY24, the outlook for IKE has turned positive. Management has guided towards >+50% Subscription revenue growth in FY25 due to the ongoing success and growth prospects of its core subscription-based products: IKE Office Pro and IKE PoleForeman. Transaction revenue is also expected to grow, albeit with a wider range of potential growth outcomes. We are confident that the sales cycle is now turning positive and IKE can return to growth in FY25.

FY24 results summary
IKE reported a weak FY24 result. Total revenue fell -31% versus FY23 to NZ$21.1m, with Subscriptions revenue growth of +21% unable to offset a significant -61% decline in Transactions revenue. The decline in gross profit (-21%) was less pronounced, as the shift in the product mix towards higher-margin Subscription revenue resulted in gross margin expansion from ~53% in FY23 to ~60% in FY24. However, operating expenses were elevated relative to our expectations. This was despite the cost-down programme implemented in 2H24, where IKE expected to drive ~NZ$4m of annual cost savings. This saw NPAT losses expand by more than anticipated to NZ$15.0m.

Key points:

Subscriptions: Revenue growth has been driven by the ongoing growth of the IKE Office Pro subscription product, which has seen a >30% sales CAGR and ~95% customer retention over the past three years. Additionally, IKE's next-generation PoleForeman product has brought in over NZ$12m of total contract value (TCV) since its launch in 3Q24.
Transactions: Management attributed the fall in FY24 revenue to outsized activity from certain customers in FY23, which caused revenue to balloon +191% in that period. Transaction revenue has grown at ~+45% CAGR over the past three years and was still +15% ahead of FY22 in FY24.
Hardware: Revenue declined by -27%, driven by a -21% fall in hardware sales and partially offset by an +80% increase in other service revenue.
Operating expenses: Operating expenses came in at NZ$27.8m, +NZ$0.7m higher than FY23 and +15% above our forecast. Sales and marketing expenses increased by +26%, research and engineering expenses fell by 10%, and other operating expenses rose by +22%. 

Earnings revisions
IKE's operating expenses were significantly higher than we had anticipated in FY24, with sales and marketing costs in particular surprising to the upside. We adjust our estimates accordingly, with total operating expenses increasing by >20% across FY25, FY26 and FY27. Partially offsetting these impacts, we now have improved visibility into the growth drivers of IKE's revenue in the near term, and we assume a stronger top-line in FY26 and FY27. IKE disclosed revenue from IKE PoleForeman and IKE Insight in FY24. We expect PoleForeman and Insight to drive significant growth for IKE's Subscription segment, alongside the continued growth of its core IKE Office Pro product. IKE has also changed its segment reporting, providing increased clarity around gross margins. As a result, our gross margin profile improves materially over our medium-term forecast horizon. Nevertheless, our operating EBITDA estimates fall by -NZ$2.4m, -NZ$4.0m and -NZ$4.4m in FY25, FY26 and FY27 respectively.

We continue to believe that IKE has sufficient capital on hand (sitting on NZ$10.2m cash, with no debt) to get to cash flow breakeven. Our forecasts assume IKE reaches breakeven at the EBITDA line in FY26 and at the NPAT line in FY27.

[Left Field]

Thanks for posting FB's take on IKE's results.

Detailed investor presentation link http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/IKE/432098/419980.pdf

After reading the presentation and FB's take - I am more comfortable holding in the risky side of a portfolio.

[Untamed]

If anyone is struggling to fully understand exactly what IKE "does" in terms of the products and services they provide, there is a wealth of information on their website.

There are sections on all the different products eg: IKE Office Pro, IKE Foreman, IKE Insight etc - plus information on their handheld devices etc. There are even videos demonstrating everything. This is where I got my basic understanding of what they do, and what it is they are providing. The knowledge I gained about electricity distribution in general, from my ex, is what helped me understand the time and manpower saving IKE is offering these companies. The sheer amount of information they can now have at their finger tips, is quite mind blowing. There will still be a need for feet on the ground of course, but using the devices and software on site, means they can do all kinds of measurements without having to walk miles along the length of a distribution line. For example, staff in the field can point their device at Pole A, then at Pole B, and automatically get information on span length, height and numerous other things.

Here is the start place for all of this:
https://ikegps.com/ike-office-pro/

This link takes you to demo videos on all aspects of IKE:
https://support.ikegps.com/hc/en-us/categories/18312278707341-Demonstration-Videos

To get an initial idea of what I'm talking about, watch this demo video:
https://support.ikegps.com/hc/en-us/articles/18384315556237-How-to-measure-spans-with-the-IKE-Vector-Tool

This company is smart. They know what they are doing and they have their sights set on a huge potential market. But like anything, it takes time to get initial customers onboard. Once they do though, those customers are "sticky" and are clearly renewing existing contracts, and expanding those contracts. As long as IKE keeps providing quality, customers will stick with them, and they will bring new customers with them (sub contractors etc). Transaction revenue will always be unpredictable in terms of timing, but it will always come eventually. The timing aspect depends on the customer's own project management eg: weather conditions, supply issues, sub contractor issues etc. Any one of those things can result in planned transaction "work" being delayed. This is simply a reflection of the nature of the electricity distribution and telecommunications business.

So I am not concerned about transaction revenue figures. As long as subscription revenue keeps growing, new customers keep coming onboard (and staying) - everything is ticking along as it should be.

[Minimoke]

If anyone is struggling to fully understand exactly what IKE "does" in terms of the products and services they provide, there is a wealth of information on their website.

There are sections on all the different products eg: IKE Office Pro, IKE Foreman, IKE Insight etc - plus information on their handheld devices etc. There are even videos demonstrating everything. This is where I got my basic understanding of what they do, and what it is they are providing. The knowledge I gained about electricity distribution in general, from my ex, is what helped me understand the time and manpower saving IKE is offering these companies. The sheer amount of information they can now have at their finger tips, is quite mind blowing. There will still be a need for feet on the ground of course, but using the devices and software on site, means they can do all kinds of measurements without having to walk miles along the length of a distribution line. For example, staff in the field can point their device at Pole A, then at Pole B, and automatically get information on span length, height and numerous other things.

Here is the start place for all of this:
https://ikegps.com/ike-office-pro/

This link takes you to demo videos on all aspects of IKE:
https://support.ikegps.com/hc/en-us/categories/18312278707341-Demonstration-Videos

To get an initial idea of what I'm talking about, watch this demo video:
https://support.ikegps.com/hc/en-us/articles/18384315556237-How-to-measure-spans-with-the-IKE-Vector-Tool

This company is smart. They know what they are doing and they have their sights set on a huge potential market. But like anything, it takes time to get initial customers onboard. Once they do though, those customers are "sticky" and are clearly renewing existing contracts, and expanding those contracts. As long as IKE keeps providing quality, customers will stick with them, and they will bring new customers with them (sub contractors etc). Transaction revenue will always be unpredictable in terms of timing, but it will always come eventually. The timing aspect depends on the customer's own project management eg: weather conditions, supply issues, sub contractor issues etc. Any one of those things can result in planned transaction "work" being delayed. This is simply a reflection of the nature of the electricity distribution and telecommunications business.

So I am not concerned about transaction revenue figures. As long as subscription revenue keeps growing, new customers keep coming onboard (and staying) - everything is ticking along as it should be.

Pull up a map of America. And measure how  far it is for one side to the other. Then measure distances from one city to another. Do the same for NZ. And we'll get a sense of the enormity of the opportunity.

America has miles and miles and miles of nothing. Except roads and power poles

[Untamed]

Pull up a map of America. And measure how  far it is for one side to the other. Then measure distances from one city to another. Do the same for NZ. And we'll get a sense of the enormity of the opportunity.

America has miles and miles and miles of nothing. Except roads and power poles

Exactly! The potential market is huge, and the potential time and manpower savings to customers is equally as huge.

[Left Field]

Must admit I was a bit grumpy re yesterdays results and possibility of another cap raise however after listening to the Investors call I'm super happy to hold and have added more to my portfolio today.

Very impressed by new CFO Brian Musfeldt who assured "there is no need to raise capital in the future and we are extremely confident in FY25 and FY26."

Other highlights.
- Although IKE is now standardised in 8 out of 10 of the largest investor owned utilities in the US they estimate they have only penetrated 5% of the addressable North American market.
- In a similar metric, IKE is now being used by 26 of the 120 biggest utility companies
- On the above points IKE is still growing at at least one new customer signup per week.
- So huge market share growth opportunity in an industry that offers 25 years of  planned forward investment in Grid Analysis and upgrading. The CAGR rate for this alone is historically  47% pa (ie based on the last 3 yrs actual revenue gains by IKE)
- Add to the above point further  gains in market share, you can see why IKE is so bullish about its FY25 transaction revenue forecast of 50% revenue gain.
- IKE's first AI offering will be rolled out to customers in the first quarter of FY25 (it works much like Microsoft Co-Pilot and offers around 30% more productivity.)

Needless to say I'm no longer grumpy!

[Greekwatchdog]

I just started my holding with a purchase 15,000, Future looks very exciting and management seems rather positive about prospects. Solid prospects in the US.

Will add more once I see some momentum in share price from here.

Have a nice long weekend to you all.

[Minimoke]

I just started my holding with a purchase 15,000, Future looks very exciting and management seems rather positive about prospects. Solid prospects in the US.

Will add more once I see some momentum in share price from here.

Have a nice long weekend to you all.

Thankyou. I am well under water with IKE, so you've done your bit to help me to the surface.

[Greekwatchdog]

Thankyou. I am well under water with IKE, so you've done your bit to help me to the surface.

Been on my watchlist for last 15 months, it was now or never. History says I am useless at picking the bottoms of stocks

[Left Field]

Optimistic FY24 Annual Report for those interested

https://api.nzx.com/public/announcement/433676/attachment/421769/433676-421769.pdf

FY25 should be interesting....... will IKE deliver?

[winner (n)]

Optimistic FY24 Annual Report for those interested

https://api.nzx.com/public/announcement/433676/attachment/421769/433676-421769.pdf

FY25 should be interesting....... will IKE deliver?

Photo on Page 19 ...wonder if they do pylons?

[Untamed]

Photo on Page 19 ...wonder if they do pylons?

They only work with distribution networks, not transmission, so no, they don't
Pylons don't require the same level of maintenance as poles do, and they don't have other services attaching to them, as many distribution assets do, such as telecoms and fibre. So transmission, is not where the need, or the money is.

[Greekwatchdog]

Shouldn't be too long before we get a Quartely update from them.

[BlackPeter]

They only work with distribution networks, not transmission, so no, they don't
Pylons don't require the same level of maintenance as poles do, and they don't have other services attaching to them, as many distribution assets do, such as telecoms and fibre. So transmission, is not where the need, or the money is.

OK - I spent out of curiosity maybe 30 min with the annual report, and understand that they offer SW-tools which should help with the design and analysis of electricity networks.

I am sure, this is a useful thing, and it must be, otherwise there would not be customers buying it, so - all good?

What I am wondering is - how do customers without the IKE tool box solve these problems (i.e. what are the alternatives to IKE), and how much money (if any) do they save by moving from whatever they otherwise do in order to plan / analyse their networks to IKE.

So - who are IKE's competitors (or competing methods) - and how much cheaper is it for the customers to use IKE tools instead?

I think anybody who invests into the future of this company would need to have an answer to this question.

Anybody did this analysis and happy to share their knowledge?

[Untamed]

OK - I spent out of curiosity maybe 30 min with the annual report, and understand that they offer SW-tools which should help with the design and analysis of electricity networks.

I am sure, this is a useful thing, and it must be, otherwise there would not be customers buying it, so - all good?

What I am wondering is - how do customers without the IKE tool box solve these problems (i.e. what are the alternatives to IKE), and how much money (if any) do they save by moving from whatever they otherwise do in order to plan / analyse their networks to IKE.

So - who are IKE's competitors (or competing methods) - and how much cheaper is it for the customers to use IKE tools instead?

I think anybody who invests into the future of this company would need to have an answer to this question.

Anybody did this analysis and happy to share their knowledge?

As a starting point, take a look at the case studies below:

https://ikegps.com/casestudies/twig_technologies/