IKE - IKE GPS Group

[Untamed]

FOR IMMEDIATE RELEASE, 10 July 2024
Notification of Webinar for ikeGPS Group Q1 FY25 Performance Update
ikeGPS Group Limited (IKE) (NZX: IKE / ASX: IKE) is pleased to announce it will release its
performance update for the quarter ended 30 June 2024 on Monday, 15 July 2024.
The Company will discuss the results on a webinar with CEO Glenn Milnes at 11:00am
AEST/1:00pm NZST the same day of release – Monday, 15 July 2024.
Registration for the investor webinar is available via the link below:
https://us02web.zoom.us/webinar/register/WN_d9UEjq7kTOew1LOSYu5mjw
Questions can be pre-submitted to simon@nwrcommunications.com.au or asked via the
Q&A function during the webinar.

Here's your opportunity to submit the questions some of you have been wanting answers to.

[BlackPeter]

FOR IMMEDIATE RELEASE, 10 July 2024
Notification of Webinar for ikeGPS Group Q1 FY25 Performance Update
ikeGPS Group Limited (IKE) (NZX: IKE / ASX: IKE) is pleased to announce it will release its
performance update for the quarter ended 30 June 2024 on Monday, 15 July 2024.
The Company will discuss the results on a webinar with CEO Glenn Milnes at 11:00am
AEST/1:00pm NZST the same day of release – Monday, 15 July 2024.
Registration for the investor webinar is available via the link below:
https://us02web.zoom.us/webinar/register/WN_d9UEjq7kTOew1LOSYu5mjw
Questions can be pre-submitted to simon@nwrcommunications.com.au or asked via the
Q&A function during the webinar.

Here's your opportunity to submit the questions some of you have been wanting answers to.

You mean we should ask them to provide an objective assessment of their products with the products of the competition?

 

[Untamed]

You mean we should ask them to provide an objective assessment of their products with the products of the competition?

 

That's not what I meant ...but I actually see no reason why one couldn't ask that question. Whether you accept their answer as objective or not, would be up to you 

I do think though, that IKE needs to understand that the technology side of what they provide, has a learning curve to it, and is not necessarily something shareholders can always get their heads around. So I think you could quite justifiably ask some of the questions you have posted here. Even something as simple as "if they don't use IKE, how do they complete these tasks?" or even "what are the proven advantages for customers using the IKE platform?"

We are part owners of the company. We are more than entitled to ask questions, and for things to be explained or elaborated on. I have a question I might ask - they mentioned their customer retention rate is 95%. Which is really good, but I would be keen to know why the other 5% didn't "stick." Maybe IKE can make improvements to better meet the needs of the few customers who are not convinced to stay. I'm not worried about that figure, but I am curious to hear the answer.

[BlackPeter]

That's not what I meant ...but I actually see no reason why one couldn't ask that question. Whether you accept their answer as objective or not, would be up to you 

I do think though, that IKE needs to understand that the technology side of what they provide, has a learning curve to it, and is not necessarily something shareholders can always get their heads around. So I think you could quite justifiably ask some of the questions you have posted here. Even something as simple as "if they don't use IKE, how do they complete these tasks?" or even "what are the proven advantages for customers using the IKE platform?"

We are part owners of the company. We are more than entitled to ask questions, and for things to be explained or elaborated on. I have a question I might ask - they mentioned their customer retention rate is 95%. Which is really good, but I would be keen to know why the other 5% didn't "stick." Maybe IKE can make improvements to better meet the needs of the few customers who are not convinced to stay. I'm not worried about that figure, but I am curious to hear the answer.

Fair enough. I sent him a list of questions (along my previous posts) ... Lets see, whether and how they respond ;

[Untamed]

Fair enough. I sent him a list of questions (along my previous posts) ... Lets see, whether and how they respond ;

I have also submitted my question. It will be interesting to see if they address them in the webinar. I have not had much luck, when submitting my questions live, so maybe we have a better chance submitting them ahead of time.

[Untamed]

Q1 FY25 Performance Highlights:
� Exit Run Rate of annual platform subscription revenue grew to ~NZ$12.9m ( +40% vs pcp)
� Total recognized revenue in the quarter of ~NZ$5.8m (+4% vs pcp).
� Recognized subscription revenue of ~NZ$3.2m (+29% vs pcp).
� Recognized transaction revenue of ~NZ$1.8m (-16% vs pcp but noting margin increased ~NZ$0.2m).
� Gross margin of ~NZ$4.0m (+18% vs pcp), with a gross margin percentage of ~70% (up from pcp of ~61%)
� Total cash and receivables as at 30 June 2024 of ~NZ$14.0m, comprised of ~NZ$10.0m cash and ~NZ$4.0m receivables, with payables of NZ$1.1m and no debt.
� This cash position is flat against the cash position at 31 March 2024 and up from 31 December 2023 (NZ$8.0m).

Commentary
IKE CEO Glenn Milnes commented, "Q1 FY25 represented a very strong start to the new financial year with more significant subscription contracts closed with tier-1 North American customers that will continue to grow our subscription revenue run rates.

With respect to this core subscription revenue, since the late 2024 launch of our new IKE PoleForeman product Total Contract Value (TCV) closed has exceeded $12m from mostly tier-1 electric utilities in the U.S. market. The extremely sticky nature of these customers means that the life-time value of these contracts is significant. In total ~58 customers have now subscribed to this new platform, of which 34 were existing customers and 24 are new. This has translated to several thousands of new seat licenses, each representing a distribution network design engineer utilizing the product. We do expect more major customers to close in the near term and that IKE PoleForeman will ultimately be the standard for structural analysis in eight of the ten largest electric utilities in North America.
Subscription revenue in FY25 is expected to grow strongly at ~50% vs pcp to ~$16m per annum or greater. This outlook is based on the ongoing growth of our core IKE Office Pro subscription product and on the success of the launch of our new IKE PoleForeman product.
As previously stated, transaction revenue in FY25 is expected to grow against pcp but with a wider range of potential profiles and as such represents higher risk – both upside and downside. As a reminder of our business model, IKE generates additive transaction revenue, on top of base subscription revenue, from some customers as they engineer more network assets in our system.
Overall, we closed ~NZ$9m of contracts in Q1 FY25 across ~ 180 deals. Our customer retention rate is excellent at approximately 95% and our sales pipeline for new business is strong and growing.
Our margin profile also continued to grow this quarter to ~70% due to a continued shift in the product mix toward this higher margin subscription revenue. We expect this trend to continue.
Q2 and 2H FY25 are also an exciting period for IKE in terms product innovation with the expected introduction of new AI-based automation capabilities into existing and new IKE products. We have invested significantly into building automation specific to driving productivity outcomes for our customers for the assessment & design of their distribution networks and associated workflows, and we look forward to putting these capabilities into customers' hands.

[Left Field]

Yikes....... Ike..... I was hoping for better

Total revenue up only 4% is not going to stop the cash burn.

Subscription revenue looking OK, However Transaction revenue is not delivering.....

[Untamed]

Yikes....... Ike..... I was hoping for better

Total revenue up only 4% is not going to stop the cash burn.

Subscription revenue looking OK, However Transaction revenue is not delivering.....

They have fully explained the situation with transaction revenue, as have I, on several occasions. The timing of customers' transaction activity is out of IKE's control. It is the nature of transaction contracts, which is why IKE's focus is on increasing subscription contracts/revenue. Subscription revenue is set in concrete. Transaction revenue on the other hand is not. Obviously customers will at some point complete transactions on their networks, but the timing will always be flexible and often unpredictable, as there are so many customer related issues that can impact that.

There is so much information on the IKE website, and in every one of their presentations, that explains this far better than I can. Anyone investing in this company needs to get their head around how this works, because this is the nature of the subscription/transaction platform beast.

I am more than happy with how things are progressing. As long as subscriptions are increasing, which they are, the business will succeed. I am not worried about the transaction revenue figures across reporting periods - the revenue will come, we just never know exactly when. The day to start worrying, is the day IKE stops signing new contracts and/or the day subscription revenue starts declining. I do not for one moment see that ever happening.

[Dolcile]

Hi untamed, do you know why there doesn't seem to be much correlation between Platform subscription ARR and Seat Licenses? 

ARR up 40% whereas seat license up 207%.

[Untamed]

Hi untamed, do you know why there doesn't seem to be much correlation between Platform subscription ARR and Seat Licenses? 

ARR up 40% whereas seat license up 207%.

The ARR figure represents the annual recurring revenue received from subscriptions - so that is the "set in concrete" revenue from subscription customers.

I can't see where you got the seat figure info from? Is the 207% the increase in the number of seat licences?

The webinar starts at 1pm. Maybe you can submit a question and get it straight from the horse's mouth?

[Left Field]

Just watched today's seminar.......I'm a lot less grumpy now.

A few of key points
1.) No Cap raise likely in FY25
2.) Still managing costs and on target to be EBIT positive 2H FY25.
3.) Addressable market is rapidly growing in importance with AI fuelled demand for data and renewable energy transmission.

[Untamed]

I have also submitted my question. It will be interesting to see if they address them in the webinar. I have not had much luck, when submitting my questions live, so maybe we have a better chance submitting them ahead of time.

As much I like this company, and have faith in them as an investor, I am pretty damned pissed off that they chose to completely ignore my submitted question. It is beyond disrespectful to invite shareholders to submit questions ahead of time, then not have the decency to present said questions to the meeting.

I have emailed the dude I sent my question to, and have also emailed Glen Milnes directly.  Not happy 

[BlackPeter]

The ARR figure represents the annual recurring revenue received from subscriptions - so that is the "set in concrete" revenue from subscription customers.

I can't see where you got the seat figure info from? Is the 207% the increase in the number of seat licences?

The webinar starts at 1pm. Maybe you can submit a question and get it straight from the horse's mouth?

Mmh - had a look into their latest annual report, todays update and into the websession.

On the positive side - they did answer all of my questions (which is good), even if one obviously needs faith to believe the forward looking answers (like cashflow). Sort of wondering whether this is the first time where they are promising that things will better in the second HY? So far the cashflow does not look that flash, and looking at their historic data, they seem to write losses for some time ...

Good to get some metric for the benefits of their tools to the customers (they said that their customers would need only half the (engineering) staff to do a certain network upgrade. While this is not material to the big electricity and communication companies, it certainly is for the engineering teams, particularly if considering the expected growth in workload due to increased network load due to electrification and global warming.

I think I heard as well that there are other competitors offering similar services ... and it sounded like these are trying to push their solutions pretty hard. While IKE obviously thinks (or says), that their tools are better - that's probably something an investor should further investigate.

Overall - if we take their word as gospel, than clearly they are short before inflection point and things from here can only exponentially grow.

It's just - that's what every start up tells their investors, and - lets face it - many (once) start ups are now losing money for a long time - and so far is IKE no exception to this game.

Given that I went to the effort of adding them to my spreadsheet (and for what its worth, it says, they are currently too dear), I probably leave them on my watchlist (i.e. my view can change) - but so far I don't see what makes them more special than companies like e.g. WYN, PEB, CRP, EVO, Jade, RAK, GEN, GTK or any of the many other start ups hanging around for a long time, pleasing traders but living off their investors until these give up. 

Statistically seen do 19 out of 20 start ups bite the dust without returning the investor capital, but who knows ...

I certainly do wish IKE investors the best of luck. Who knows, maybe this will be the next XRO?

[Untamed]

I have had a response from Glenn already, so he gets a thumbs up for a very prompt reply.

He apologised and explained that he wasn't given my question. He thanked me for my loyalty to IKE and asked me to send him my questions directly, and he will reply later tonight or tomorrow.

I have sent him a couple of questions, so watch this space. My faith is at least partially restored 

[Untamed]

OK, for anyone interested, Glen just sent me a comprehensive email, answering my questions and he is happy for me to share here. I have copied and pasted my questions, with his answers underneath. He has clarified a few things for me personally, especially re transaction revenue.

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Firstly, as a shareholder I have always been impressed by the 95% customer retention rate. But out of curiosity, does IKE request "exit feedback" from these customers, to get an indication of why they did not renew their contracts? If so, is IKE actively looking at what you could do/change/improve, to encourage those customers to "stick" around?

Yes we do get exit feedback. 95% retention is a very strong number for our industry, and the primary reason customers do churn tends to be their specific profile – being small engineering firms that may have won a contract with a big utility or comms group who tell them they must use software to deliver their engineering services – so they buy IKE licenses.  When their contract ends with the utility or comms group, they naturally do not re-new with IKE – until their next contract is won.  We like taking this profitable business, but generally there is little we can do to influence the churn on and off.

The main point of confusion lies around the difference between subscription and transaction revenue - as in, what customer "tasks" create that revenue. To that end, could you please look at the following, and confirm whether my understanding is correct:

A) All customers are Subscription customers - paying a recurring (monthly?) subscription fee to use the IKE platform

Yes – but generally annual subscriptions  are paid upfront

B) Some customers also have a Transaction contract  - this revenue is created when a customer completes transactions on assets (poles) - some customers do not have the transaction contract?

Correct – less than 5% of our customer count, pay for transactions on top of their subscriptions – however this is an important business model for some parts of the market – where certain participants like to match their variable revenue (from say a Utility who is paying them 'per pole') with their own variable costs (paid to say IKE)

C) Today you mentioned "Seat licences" - which I have not heard before. Are these licences related to the transaction side of things?

No – Seat Licenses relate to Subscriptions and number of software users. 

So for example you have customer A with 10 seat licences - which represents 10 engineers designing or reviewing a section of a particular network?

That's correct – however they pay for each seat license in the form of annual subscription revenue.

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I was very surprised to see that 5% transaction customers figure. I knew some customers were subscription only, but I had no idea it was the majority. Knowing that, reinforces my understanding that transaction revenue is not the focus. It is subscription revenue that is the backbone of the business. Transaction revenue is a bonus "add on."

Hopefully at least some of you have found his response helpful.