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#1H FY23
Added 2 months ago

One of the better looking charts. last7 halves, revenues, pbt, cfo. note profit helped by +$2.7m FV adj and +$2.2m FX i have reversed out of pBT.

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#1H FY23
Added 2 months ago

$IKE posted their 1H FY23 results. Again, no surprises given the 4C reports.

Major headline is that they have posted their first half of profits at $1.1m, up from a pcp loss of $6.2m, as well as first half of positive operating cash flow.

With revenue growth of +170% over PCP we do need to keep an eye on how costs of sales scales (+240%), which meant gross proft only increased by 128%. On a positive note, operating expenses were only up +30%,

Overall, it looks like the inflection point is reached.


Summary of their "key takeaways":

• Net Profit of $1.1m translates to a $7.3m improvement over pcp (loss of $6.2m).

• Positive operating cash flow of $0.9m evidences the operating leverage in the business.

• Gross margin 1H FY23 of ~$8.2m (+128% vs pcp) represents a 1H FY23 gross margin percentage of ~53%.

• Total Expenses increased modestly relative to high revenue growth and customer acquisition.

• Comprehensive Income of $4m, noting impacts of USD/NZD fx movement.

• Cash increased +$1.1m in the six-month period.

• Total cash and receivables grew to ~$29.3m, comprised of $25.5m cash and $3.8m receivables, with no debt.

• Revenue outturn 1H FY23 of ~$15.4m (+170% vs pcp)

• Within this, recurring Subscription and reoccurring Transaction revenue was ~$13.6m (+183% vs pcp), representing ~88% of revenue mix.

• Gross margin 1H FY23 of ~$8.2m (+128% vs pcp) representing a 1H FY23 gross margin percentage of ~53%. 


I'll not repeat my positive observations about the strategic positioning of $IKE from previous straws, other than to say this is one of my largest speculative holdings in RL and SM.

Results Webinar will be on 1 Dec at 9:30am AEDT.


Disc: Held in RL and SM

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#Volumes
Added 3 months ago

I've been following $IKE closely over recent months. Trading liquidity is an issue, but more recently those in the market looking to buy significantly outweigh the sellers. (see below)

After a recent email exchange with CEO Glenn, I'm confident that they are focused on the cost / margin aspects of the business, so in the next 12 months we should start to see how the operating economics are shaping up as the business scales.

Given the recent positive update of strong growth in transaction revenues, if the full accounts in November and outlook update confirm the increasingly positive position, and the receding spectre of the need for more capital (which Glenn has been adamant about now for the last year), we could see significant upward pressure on SP to encourage some holders to sell. I don't expect to be among the sellers, as $IKE is one of my stronger conviction speculative holdings for the longer term (covered in previous straws).

I'm just hoping that they are not added to the list of small techs that get taken private while valuations are under pressure. A couple of their competitors in the USA have been taken private over the last few years.

Disc. Held RL (2.7%) SM (10%)


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#1HFY23 Performance Update
Added 3 months ago

https://newswire.iguana2.com/af5f4d73c1a54a33/ike.asx/3A604750/IKE_IKE_1H_FY23_Performance_Update

$IKS reported its 1HFY23 performance update, with full results to follow in late Nov. Overall, a positive result, with the company cashflow positive in the half, showing the impact of increasing subscription and transaction revenues from contracts won in prior periods.

Highlights report:

+ Positive cash flow was ~$2.2m in the Q2 FY23 period, and was ~$1.1m positive in the 1H FY23 period, evidencing the operating leverage in the business.

+ Cash and receivables as at 30 September 2022 grew to ~$29.3m, comprised of $25.5m cash and $3.8m receivables, with no debt.

+ Revenue 1H FY23 of ~$15.4m (+170% vs pcp).

+ This outturn is ~$0.4m above the top end of the range forecast.

+ Within this, recurring Subscription and reoccurring Transaction revenue was ~$13.6m (+183% vs pcp).

+ Gross margin in 1H FY23 of ~$8.2m (+128% vs pcp) representing a 1H FY23 gross margin percentage of ~53%. 


Observations:

1HFY23 revenue of $15,4m compares with $16,0 for the whole of FY22,

Cash of $25.5m up on end of FY22 at $24.4

%GM of 58% contines the downward trend of the last four 1H periods: 72%, 67%, 63% and 58%. Will be looking for some commentary on future expectations for GM% in the 1H results call. Most of the impact appear to be due to declining platform revenue GM.

New closed contracts are the lowest in four Qs, albeit up significantly on PCP. Potentially a sign of $IKE managing cash burn by not chasing new logos too hard.

Key highlight is the strong growth in transaction revenue (see below). This indicates that existing customers are continuing to increase their use of the platform.

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Conclusion.

In line with thesis.

Based on contract wins in FY22 and the commentary at the same time, these positive results are expected. They demonstrate the focus of the firm to establish a cash generative business.

Looking forward to the full accounts and report in November and the outlook, particularly around trends in existing customer adoption and new contract wins. Will request commentary on GM evolution.


Disc: Held in RL (3%) and SM (9%)





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#AGM
Added 4 months ago

$IKE is continuing to grow strongly in the USA, focused on the North American utility sector. Here, it faces the multi-decade tailwinds of renewal of US infrastructure generally as well as heavy investment in the energy transition particularly the distribution grids. Furthermore, as a consequence of increasing frequency and severity of severe weather events due to climate change, monitoring and repair/renewal of infrastructure is also increasing.

Forecast 1HFY23 Revenue is $14.7-15.0m, up +160% over the pcp.

If growth continues to build in 2HFY23, then $IKE appears to be on track to beat my current forecast revenue of $30m. (So, I am sticking to my current valuation of $1.50, for now).

$IKE retains a “fortress balance sheet” with CEO and Board all too aware of the adverse macro environment and determined to guide $IKE to sustainable growth without need for further capital.

Market Positioning

Compared with other industry verticals, utility network engineering is unglamorous. The work requires highly trained professionals, with many of the work flows being manual, high volume and highly repetitive. Perfect candidates for digitalisation and automation.

$IKE's product suite have proven productivity improvements, which is very attractive to utilities who facing growing maintenance and capital investment programmes, with a major demongraphic challenge in their core engineering work forces.

And yet the space in which $IKE competes is not highly contested. On the call, CEO Glenn Milnes pointed out that in pole analysis, two of the three main competitors have recently been acquired by Bentley Systems. This points to a high level of market concentration and pricing power. Equally, in the IKE Office Pro space, Glenn said the work is otherwise highly manual, with only one near competitor in Catapult Engineering.

So, the AMG provided further insights underscoring that not only is the industry large, but that the market structure is very favourable to $IKE, who have almost a decade head start on any potential new entrant.

On market size and forecasts, the slide below shows the scale of the market $IKE is playing in. In terms of engineering costs, these would typically make up not less than 5% and not more than 15% of the market size. So $IKE is playing for a portion of a NZ$5-15bn market – the growth, while a tailwind, is less important because penetration is so low. $IKE is about making the engineers working in that market more efficient.

9f480468fdf5563ae55a9155cd8b34d295370e.png

Costs

I asked how costs have progressed through this FY. Glenn stated that they were “favourable to plan”, and that they had “achieved growth without substantial expense growth”.

He noted that headcount was now 93-94. I observe that the annual report shows that there were 85 employees at the end of FY22, so this is indeed very modest growth given the level of revenue growth (headcount growth of little over 10%, while annual revenue growth running over 100%).

Glenn went on to explain that they will continue to grow in sales, account management and engineering, although this growth will be much slower than revenue. Supporting use of the product suite by existing customers is the biggest value driver in the short to medium term.

Importantly, Glenn highlighted that $IKE is now getting towards $0.3m revenue per employee p.a. - with productivity increasing. If we conservatively assume that headcount grows to c. 105 employees by the end of this year, if that level of productivity is achieved, then $IKE would achieve an exit run rate revenue in the order of $32m. This is probably lower than what will be achieved if growth in H2 continues beyond H1.

I conclude that in the 1HFY23 report due in November we are going to see some strong operating leverage kicking in.

Customers

Glenn refers to “logos added” when talking about customers. And the chart below is a sample of current customers. With over 350 “logos” at year end, >65 were added in the year. Some of these companies are huge. For example: market caps of Exelon (US$37bn), Duke($74bn) and Southern (74bn) are each much larger than the top Australian utilities combined.

3a334f72d3f29ae016dd8e731a73d20f624f53.pngClearly, clients are embracing the opportunity. Glenn cited that Entergy, one of the major utilities which one year ago was focused on dealing with hurricane impacts, has just finished training 340 of its engineers on courses at the $IKE University – an online capability $IKE invested in during COVID19 to assist with customer success when they couldn’t travel to customers. To dates “thousands of engineers” have been trained through $IKE University.

$IKE now serves 5 or the top 10 largest publicly traded utilities in North America. In each, the process of adoption of $IKE capabilities is a multi-year land and expand approach. (We’ve also seen this in another industry where $WTC adoption within a logistics firm takes 4-5 years.) So, each new customer brings years of locked in growth – hence the importance of investing in customer support and $IKE University.

In Q&A, Glenn added that the company is typically adding 5-10 new logos every month.

$IKE remains focused on North America, such that on their strategy roadmap, they are not looking beyond it for 3+ years.

Conclusion

I continue to be impressed by $IKE and in particular in Glenn’s no-nonsense, confident and low-key approach.

Still a microcap with low liquidity, $IKE is rapidly heading towards the inflection both in cashflow and profitability. The 1H FY23 report will give a good read out on how the business is scaling. However, we expect to hear an update on 1H FY23 revenue (including more detail breakdown than today) and cash position in a couple of weeks.

$IKE still sits firmly in my “speculative” portfolio, but my conviction grows as time progresses and I am continuing to gradually accumulate shares, having added a tiny sliver today at $0.70.

(I’m not at all phased by the macro and risk-off market. If anything, it is allowing me to accumulate more and more $IKE at a cheap price, as the investment gets de-risked. $IKE looks like it has favourable SaaS economics and a growth runway of more than a decade, with limited competition. Moreover, its customers are recession-proof. What's not to love!)

Note:

If you are unfamilar with $IKE, check out the Strawman meeting earlier this year.

 Disc. Held in RL and SM.

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#AGM
Added 4 months ago

Just about to join the $IKE AGM.

https://newswire.iguana2.com/af5f4d73c1a54a33/ike.asx/3A603427/IKE_2022_Annual_Meeting_CEO_Presentation_and_Revenue_Update

Q3 revenue (+167% pcp) and forecast for 1HFY23 (+160% pcp) very strong, with the latter almost equal to FY22.

Q3 signed contracts +31% over pcp.

Confidence in continued growth driven by accelerating US utility capex spend.

Disc: Held IRL and SM

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#Q1 Results.
stale
Added 6 months ago

IKE had an astonishingly high Q1 revenue number, hitting close to $7m in sales, $5.7m of which was subs and transactions. That’s about half of the total Fy22 results alone – exceptional stuff! Transaction revenue was the bulk of that at $3.8m, suggesting a flurry of activity in pole captures. Really encouraging stuff.

However... digging deeper, the gross margins on these transaction shrunk again from 45% in FY22 to 41% for Q1 FY23. Only 2 enterprise customers were added in the quarter as well, taking it to a total of 349.

The shrinking of the gross margins on transaction revenue suggests to me additional staff costs in the IKE Analyse product, coupled with a lack of pricing power from larger customers. Neither bodes well for cash burn, so I’m still going to sit on the sidelines until more concrete cash flows are reported in the half-year. 

Having said that, it’s clear that IKE is going in one direction. It just remains to be seen if it’s sustainable. Super interesting space and their business model is attracting customers, but I'm just keen to see more clout in their ability to set prices at their discretion.

Holding a small position for now, and will add to it if cash burn is reduced in the half-year report. Glenn needs to demonstrate cost control and pricing power from here at this scale though. No more cap raises, please! 

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#ASX Announcements
stale
Added 6 months ago

IKE this morning has provided a Q1 FY23 update. IKE CEO Glenn Milnes commented, "The past quarter was another outstanding period of growth at IKE. It included the material expansion of various existing customers and saw several new and important tier-1 enterprise groups onboarded, including one the five largest engineering companies serving the electric utility market across the U.S. The first phase of this contract includes supporting a 10-year network hardening program for a electric utility in the South-West. Market development acivity also featured training 325 engineers on IKE products and workflows at a major investor-owned utility in the southern U.S. 

Operating leverage is in place via the scalability of our software and our disciplined approach to operating expenses. Management and the Board remain cognisant of the importance to maintain a fortress balance sheet position, and driving this operational leverage to get to positive cash flow is front of mind.

The outlook remains robust. Following 71% revenue growth in FY22, we expect FY23 to be another significant period of growth. This is driven by the estimate that $13-15m of our signed contract backlog will be delivered and recognised as revenue in the next three quarters of FY23 (noting that the ultimate timing of these contracts is subject to the execution speed of our customers). In addition, our sales opportunity funnel is strong and we anticipate a healthy run rate of new contracts will also close and be recognised in the FY23 period.”  

Highlights for the quarter:

  • Revenue in Q1 FY23 of ~$6.8m (+162% vs pcp). Within this, recurring Subscription and reoccurring Transaction revenue was ~$5.7.m (+167% vs pcp).  
  • Gross margin in Q1 FY23 of ~$3.9m (+116% vs pcp) representing a Q1 FY23 gross margin percentage of ~57%.
  • Signed contracts in Q1 FY23 of ~$8m (+31% vs pcp). The signed contract backlog has continued to grow and it is estimated that $13-15m of this backlog will be delivered and recognized as revenue in the FY23 period. 
  • Cash and receivables as at 30 June 2022 was ~$27.7m, comprised of $23.3m cash and $4.4m receivables, with no debt. This position is just ~$1.2m lower than six months prior (at 31 December 2021) evidencing the operating leverage in the business.  


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#ASX Announcements
stale
Added 8 months ago

When IKE’s prelim. results came a few weeks ago I thought they looked stellar. However, now that the full report is out I have some reservations.

@mikebrisy done a good job of outlining many of the highlights in recent straws, like >70% revenue growth, >$20m in contract values, etc., but the key thing that struck me was actually just how high the cash burn was despite all that growth.

That burn was ~$6m NZD for the full year, or about ~100% or so up on last year. This is not a sign – despite what CEO Glenn has said recently – that the business is demonstrating operating leverage. Growing the top line by ~70% whilst doubling the burn is very worrying, especially in this macro environment.

From what I can gather, most of that burn is attributed to the IKE Insight product development, which is being built on the back of the Visual Globe purchase last year. They bought it for NZD $3.3m upfront with some generous milestone payouts as well (none achieved so far), yet it only delivered ~$285k in revenue last year. This is despite delivering ~$750k in 2020! So all in all, this product segment – although not really material – has dropped by about 70% (not great). It's dragging down the overall performance of the business, which is otherwise doing quite well. 

They are carrying the IKE Insight segment as about ~$8.5m in value on the balance sheet, and forecasting 433% growth (whoah!) next year, BUT an impairment will be put on this carrying value if forecasts are less than just 10% off (I think I've read that right). Given they've so far only paid $3.3m, does its valuation imply they've spent ~$5m on its integration? That's a huge expense for just $280k revenue.

10% variance on a >400% forecast seems like too fine a needle to thread to me, and I just can’t help but think they’ve paid too much for these assets. The PoleForeman acquisition in (I think) 2019 generated so much cross-sell value, but this one has really failed to meet my expectations so far. @Strawman, I’m keen to press Glenn on this front when we meet him next week, as it’s looking like they’re throwing good money after bad here potentially. 

The key question investors need to think about is whether on not that >400% growth forecast can be trusted. It would require about $1.5m in revenue this year, so we'd need to wait for the half-year report to see how it's tracking. It's possible, but it uptake needs to happen much faster. Do they need to put more salespeople on to make it happen? Perhaps, but that implies more staff expenses, office space, etc., etc.

In other scattered thoughts, although they do have a healthy cash balance (>$20m), I think they'll raise capital again this year. Glenn's spoken about other potential acquisitions in recent months, and that level of burn means not raising would probably be flying too close to the sun. So my base case is an acquisition in the next 6 months or so, coupled with a raise to fund it. More dilution is not what I wanted to see... Granted, it's a hunch, but they've raised cash each of the last 5 years or so, meaning it's straight out of their playbook for now.

Anyway, without the Visual Globe acquisition (now IKE Insight), I think they could have been op. cash flow positive, so management will need to work very hard to justify the purchase and investment into this segment. 

I still really like the company and tech, and it IS still growing at a decent clip with good tailwinds. But... the market is quite rightly punishing companies that are losing money this fast, and IKE will not be left behind in the coming months. How much money are they willing to put into the Insight segment before they either cut their losses, or double down? Time will tell.

I’ll need to consider how big a position this one remains in my portfolio after these results, and update my valuation to reflect these thoughts. a 10x multiple seems way too juicy now, and I will need to cut it down.

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Valuation of $0.580
stale
Added 8 months ago

Downgrading my target price today to take into account a larger than expected cash burn, and difficulties in the IKE Insight segment, which is burning cash at a much higher rate than I anticipated.

I think IKE can manage at least NZ $23m in sales (a 45% increase), and peg back cash losses, but they will remain unprofitable for the time being. I'm also going to factor in a small dilution (20m shares) to account for the fact I think they will raise again this year.

Keeping things simple, I'll apply a p/s ratio of 5 (down from 10) and divide by ~180m (up from 160m) shares on issue for $0.63. Convert to AUD from NZ for $0.58.

This is a big downgrade, but I think it's more realistic than my previous assumptions. That cash burn in the latest report is just way too high for what I think should be – at this stage – a reasonably fixed cost base. In simple terms, putting an extra ~$6m revenue into the company coffers should not translate into an extra ~$3m heading out the door.

Still lots to like about this business, and given its trajectory, it's worth holding a small parcel, but there are execution risks here I can't ignore anymore. Management have to start getting costs under control.

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#Valuation
stale
Added 8 months ago

Sorry, just noted an error in my IKE valuation. 6 x revenue is an SP of $1.49, not 5x. (Happy to stick with $1.50,... but thought I'd point out the error for those who are following the stock). In this case it is all in the noise.

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Valuation of $1.500
stale
Added 8 months ago

Hard to put a value on this, and am still building my model. Assuming FY23 Revenue of $30m I have put a placeholder in at 5 x revenue.

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#FY22 Results
stale
Added 8 months ago

IKE held their investor presentation on the FY22 result released yesterday. (BTW, I really like it when firms release their results at the close. It gives you time to pour over them, run your analysis and prepare your questions. Why don’t more firms do this!)

https://newswire.iguana2.com/af5f4d73c1a54a33/ike.asx/3A594634/IKE_ikeGPS_FY22_Results_Presentation

Overall, the top line growth numbers speak for themselves. More customers, and more use by existing customers. See my straw yesterday. 

But today’s number helped in peeling back some of the layers. Over the last two years, we have seen FCF of c. -NZ10m, a step up in cash burn from the previous two years. In FY21, $4.6m was due to a small bolt-on acquisition to acquire AI capability. In FY22, a similar increase in cash outflow was due to a large increase in research and engineering, i.e., developing the product including integrating the acquired AI capability. I asked on the call what the outlook for investment in product was, and CEO Glen Milnes indicated that it would continue at these levels for FY23 before coming back in line with "functional norms" in future years.

What was important was the statement by Glen that a lot of the product development is being driven by customers. Glen estimated that IKE has penetrated about 5% of the US market opportunity with 350 customers. They are one of 4 industry standard solutions in a market which is embarking on massive infrastructure reinvestment in electricity and digital. In short, they have massive industry tailwinds, growing customer adoption and they are responding to the customer demands for product development.

At a headline level, cash holdings cover them for about 2.5 year of burn at the rate of the last two years. However, with strong contract growth Glen indicated that they now have a lot of levers and they could get to cash neutrality any time they want to. He was adamant that he would not give guidance on the cash breakeven date, while at the same time recognising that the market environment is at the moment unforgiving of high burn tech firms, in terms for SP impact.

Detailed analysis of cashflows is a little tricky. They’ve had various COVID effects with Board/Executives taking pay cuts, staff payroll assistance and reduce travel, so the increases in the cost base during FY21 and FY22 must be understood in this context. There was a passing reference to this on the call. He also noted that they have maintained very high staff retention over the last two years.

A point of reference for modelling, which Glen has stated before, is that the quoted “Signed Contract Value” translates into revenue over a 9-month period (evidenced by Slide 6 in the deck). On this basis and by my analysis, they have already locked in c. $21m of revenue for FY23 and could get to $28-32m for FY23. (Note: this is my extrapolation and NOT IKE guidance!) If they can do that, it would represent FY23 revenue growth of 75%-100%.

Finally, there was a question about an ongoing collaboration with Pointerra with a WA Utility. Glen said this was progressing very well.

My biggest concern is that with valuation currently undemanding, IKE are vulnerable to being taken out. There was a question on this on the call, and Glen played a straight bat saying the board would do the right thing by shareholders. Still, I'd prefer to hold this one for 5-10 years as America repairs is crumbling infrastructure. IKE is at the right place, at the right time. 

Overall, I like the understated, factual presentation that Glen gives. Nothing in his language or presentation is unduly promotional. (He focuses on all the relevant cash and financial numbers, unlike other firms in the growth tech space!)

Today, I increased my holding IRL based on my increasing confidence in this firm. So, apologies if I moved the SP a little. Among my high risk, growth holdings, this one is becoming a high conviction for me. I’m looking forward to next week’s Strawman Meeting with Glen. (I've also put a buy in on SM at price limit of $0.80, so hopefully you won't all read this and pile in and take that away! I'll check back at 3:55 to see if I have to increase the limit!)


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#FY22 Results
stale
Added 8 months ago

https://newswire.iguana2.com/af5f4d73c1a54a33/ike.asx/3A594571/IKE_ikeGPS_Group_FY22_Financial_Results

ikeGPS releases its annual results today. No surprises as everything has been set out in the quarterly result updates.

Some headlines:

  • Revenue $NZ16 (+71% pcp)
  • Contracts signed during FY22 of $26m (+108% vs pcp)
  • %GM of 62% (vs. pcp of 64%)
  • FY22 EBITDA loss of 5.3m (vs. pcp -%5.5m)
  • FY22 Net Loss of $7.9m (vs pcp -7.5m)
  • Cash and receivables of $29.4m position broadly in line with December 2021


2H FY22 has seen the business move closer to breakeven, while revenue is still growing strongly.

Importantly, as well as new customers, existing customers are increasing their use. Transaction revenue increasing as a share of total revenue. (see image below)

Looking forward to the Strawman Meeting on this one.

Results call tomorrow at 11am.

Disc: Held in SM and IRL

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#FY22 Results
stale
Added 9 months ago

Very solid final quarter from IKE this morning, with everything more or less moving in the right direction. Total revenue of NZ $16m actually beat my expectations of $15m, suggesting that Q4 was very very good – no doubt boosted by the passing of the US infrastructure package Senate. 

I’m reasonably confident the company is Operating Cash Flow Positive now, though we’ll have to wait until 30th May to know for sure. Opex has typically increased by only minor amounts in previous years, so it’ll be close, though they have put on more staff this year. Touch and go.

The standout number in my mind was the % increase of platform transaction revenue, which shot up 178% over the past year from NZ $2.3m to NZ $6.4m. Though off a low base (covid), last year wasn’t hugely impacted, so it’s extremely encouraging. Basically, all this means is that more companies are taking snapshots of power poles. 

cd41cb8e8dc910d5d40fba118c4aed36d7f330.png

Platform subscription margins shrank slightly to bring the overall gross margin down from 64% to 62%, but I think this will trend up in FY23 as transaction revenue ramps up to take up more of the leg work. I would want to see this number higher in FY23 to demonstrate operating leverage. 

Billable transactions in total skyrocketed from just 53k in FY21 to 349k in FY22, and up by ~150k alone in Q4 (again, this just means more companies snapping power poles). Coupled with management commentary around the contracted revenue flowing in at between $15-17m in FY23, and we should expect another standout year. 

389f94e7e3198b8e90b81ecb43a8e12454c717.png

Next year should be another standout if management commentary is to be believed.

Final thought is that I’d like to see more detail on the IKE Insight product and how that’s starting to play into the revenue mix, since it’s a little opaque at the moment. @Strawman, might be worth getting CEO Glenn Milnes on to chat to us about that in the coming weeks? I think they have enough traction now to warrant a chat – and after all, this is a tricky company to wrap your head around!

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#H1 FY22 Results
stale
Added one year ago

Slightly improved numbers from the half year results, as the US opens up and activity starts to get back to pre-covid levels. Total revenue for Q2 was ~$3.1m, up from ~$2.6m in Q1, a slightly weaker than expected number, though trending in the right direction. Gross margins fell from 67% in FY21 to 63% as operating costs grew, and the loss widened to -$6.2m. Balance sheet remains strong with about $30m in cash and no debt.

Biggest detractors to the widening loss were primarily a $1m share based payment that’s been expensed, and an extra $1.4m in employee costs. Some additional travel costs also look to have made a small dent, and marketing efforts were ramped up too, which hopefully will bear fruit in the coming quarters. 

At first glance, I was worried that the business wasn’t showing any signs of operating leverage, with rising employee costs broadly matching the increase in revenue, but a closer look at the pole transaction numbers offer a glimpse into how the business might begin to scale from here.

Pole transactions

On this front, revenue per billed transaction or ’RPBT’ for short, once again decreased as activity picked up going from $38.50 p/capture in Q1 FY21, to $16.38 p/capture in Q1 FY22, and $14.38 for the full first half FY22.

Although this shows a steady decline, it actually highlights the uptick in transactions on the combined platform and demonstrates that field activity has doubled in Q2, with almost 100k captures/transactions completed compared to 60k in Q1. 

The % increase on the PCP was a staggering 500%(!), which to be fair was covid impacted:

a0684939fc22824ae783fd2e73801a0fb6c015.png

This transaction number is really the key number one to watch moving forward, as there’s no incremental cost to IKE for companies to transact on the platform as a service segment (unless they getting IKE Analysts to do the legwork) so there’s huge operating leverage to be had IF they can get more customers on board. 

Historically IKE Analyze transactions are billed out higher at ~$40 p/transaction, but looking at the operating segment breakdown, it looks to my eye that they’ve actually decreased their pricing here, probably to get some large contracts over the line. That would explain the drop in RPBT. 

IKE Insight

The new insight product generated $61k in revenue, the first from the AI acquisition they made earlier in the year. So far not a very productive addition, so watching this closely. There are huge earn outs for the previous owners if they stay on and hit revenue targets, and on these numbers they look likely to be missed. On a recent earnings call, Glenn did mention they were working closely with a large telco on developing this side of things, so perhaps there'll be more to come in the 2nd half.

Outlook

It’s ambitious, but I think they can still manage to get NZD $15m for the full year based on what I’m seeing in the billable transaction increases. BUT, they would need an extra ~500k transactions to get there, give or take. They’ll provide another update in late January on Q3, so we’ll know more then. It still seems like a lot is baked into the SP, and it's till early days, but there's huge upside if they get into the millions of pole transactions per half, rather than the 160k we've just seen.

No change to my valuation at this stage.

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#Capital Raise
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Last edited one year ago

Well as previously flagged, IKE is raising capital this week to bolster the balance sheet.

Details are still being fleshed out, but they’re looking to raise about AUD$18m via a placement, plus a small SPP of $3m. All in all, it should add about ~23m shares into the mix.

The AFR is reporting that the placement price will be $0.95c or a 14.4% discount to the current share price, so a fairly generous discount at that. They’re also reporting that $12m will be put aside as a war chest for potential acquisitions, leaving $10m for additional working capital.

I’m in two minds about the move. On the one hand, it’s come earlier than I anticipated and isn’t linked to any specific purpose as yet. On the other, it will take advantage of a relatively high share price to limit dilution. The timing is also curious, given the long awaited US Infrastructure bill is set to pass in the next day or so, of which IKE should be a huge beneficiary. To my mind, it would have made more sense to wait for it to pass and use the momentum to help grease the wheels here.

Will dust off the spreadsheet and update my valuation in the next day or so.

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#Update
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Added 2 years ago

Well done Shivrak. Nicely predicted. 

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#FY21 results
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Added 2 years ago

Ike FY21 Results

A mixed set of results from Ike’s full year report posted earlier this month. On the one hand, the outlook for FY22 looks extremely strong based on forward contracts and management commentary. On the other, revenue was heavily dented by fewer pole captures whilst the virus was wreaking havoc across North America. Q4 fell short of expectations too, with the hope that some of the missing revenue will flow into this year.

Ike posted revenue (unaudited, in NZD) of ~$9.3m compared with $9.8m in the previous year, for a net loss of $8.4m – about $3m higher than the previous year. I guess the encouraging thing was that expenses were all broadly in line with the previous year, with the exception of cost of sales, most likely due to a higher headcount from the Visual Globe acquisition. That, and the initial cost of the acquisition meant they burnt through a fair chunk of cash, so there’s a good chance they’ll need to do another raise later this year. They’ve got ~$11m left in the bank, so it will be touch and go.

Looking at the breakdown of revenue from the operating segments, there’s actually some encouraging signs for the year ahead. Although subscription revenues were relatively stable, the IKE Analyze contribution plummeted by about 30% or $1m. 

Although this looks bad, it does suggest they weren’t actually losing customers, and instead the drop in revenue this year was simply that they were processing less poles. With North America back to normal this coming year, I would expect there to be a marked improvement in this segment from here. IKE Analyze is the part of the workflow where IKE staff do pole processing on behalf of the client, and each pole they process earns them roughly ~$40, depending on the client and contract. Clients who do this themselves still get charged about ~$4 p/pole. 

Pole Foreman revenue doubled over the year as well to ~$1m, so that recent acquisition is proving to be a transformative buy. We can only hope the recent AI purchase from Visual Globe is as effective in both generating income and cross-selling to existing clients.

Sales and marketing costs seem quite high relative to other outgoings ($5.5m), and we saw in the earnings call some of the brand work that’s being done in the background, so potentially this expense drops in the next year. I think it’s too high, but it’s likely there’s a bunch of stuff lumped in there that isn’t design or advertising, so difficult to say with certainty.

Looking ahead, there’s been some very good contract signs in recent months, which suggests that the business is gaining some traction and establishing itself as a capture standard. I’d say I’m cautiously optimistic that this year will be a standout, provided restrictions continue to be eased and field workers can get back to work.

Biden’s recent stimulus plans should have a direct impact on IKE in years to come too, so there’s plenty on offer for long-term holders. 

Having said all that, I will have to revise my valuation, given the year just gone fell short of my initial expectations. 

Report here

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#Bull Case
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Added 2 years ago

ikeGPS is a dual-listed kiwi company that provides ‘pole capture’ enterprise software to large US communications and utility companies. There are two distinct arms to the business, but in recent years the focus has shifted away from their ‘Spike’ hardware to the ‘IKE Analyze’ cloud solution in North America.

In simple terms, IKE Analyze is an end-to-end solution that provides hardware and software to help ‘capture’ utility pole information with increased speed and accuracy.

A field worker will take highly-detailed images of a utility pole with specialised IKE hardware. That data goes on to create an accurate ‘digital twin’ of the pole in IKE’s cloud software. This ‘twin’ can be assessed remotely by a software analyst for structural stability and additional hardware positioning.

The accuracy of the capture data means permit approval for hardware additions is more than halved when compared with traditional methods, and has been a key driver of its success in signing up major US telecommunication companies, since that speed is particularly useful – and cost-effective – in the competitive rollout of 5G. 

There is a real chance IKE will dominate this niche, because in most instances there is simply no direct competitor. There are some disparate pieces of software and hardware that can be cobbled together to create a similar workflow, but IKE is the only true end-to-end solution that specialises here, and as such is much better suited for large scale projects. 

Furthermore, about a year ago they made a very smart – and relatively inexpensive  – software acquisition in ‘Pole Foreman’, which is the component that measures ‘pole loading’. In simple terms, this is the amount of strain that a pole will undergo in strong winds, tornadoes, hurricanes, etc. This piece of software was already deeply embedded within the industry when they bought it, and so came with a strong moat and a legion of customers, some of which have gone on to sign large contracts. 

Finally, all that captured data is kept on file as part of an immense and comprehensive ‘pole record’. This data set comes with enormous potential to monetise longer term, as companies may come to rely on up-to-date data sets for larger projects, planning, and all sorts of possibilities. 

In addition to hardware costs and yearly subscriptions fees, for every pole that’s analysed there is an additional fee. I suspect it’s in the region of $3-$4, depending on the customer and contract, but I haven't been able to confirm this to date. 

This transition to a mix of high-margin per-pole and subscription revenue means IKE is looking on track to tip into profitability in the next couple years. With operating costs mostly fixed, it's showing early signs of decent operating leverage, and at a certain point any revenue should float straight to the bottom line. It's well capitalised after a recent raise, still has its founder on board as the CTO, has a tightly held register and is executing well. All in all, one of the more interesting 5G pick and shovel plays I've been able to find. 

To give some idea of the addressable market, CEO Glenn Milnes recently estimated that the opportunity within the next 3-5 years from the top 15 utility providers in the US is perhaps around $225m. 

IKE is not exactly cheap in traditional terms and is incredibly illiquid, but this is a business that has the potential to capture much of its US market unchallenged in the next 5 years. IKE will very possibly have a dominant moat for years to come servicing the longer term thesis of utility pole maintenance, and other ‘capture adjacencies’ such as infrastructure for roads & rail.

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