Long time beat-down stock, recent results were somewhat of an improvement (although only in comparison to last year with some one-off charges).

earnings was a mild beat, driven probably by cost-cutting. No guidance to sales growth, but new CEO starting October 1 - new direction, or moving deck-chairs on the titanic?

The business model has an attractive element: a very small but crucial system for large global firms too busy to look elsewhere for savings. At a current PE of about 3-4, its an infrastructure firm that makes tech. But if new CEO has a vision to turn this back into a tech firm, based on recent solid performance then the turnaround might have already begun.

one to watch with a very skeptical eye

Bull case? well wow, thats all I can say. 300% up since feb. I'll be keping an eye of the charts on this one. Have a look at that.

After @Strawman mentioned it couple months ago I have kept watch. Look forward to seeing how the pull back plays out.

This thing isn't dead just yet, apparently:

Still glad I sold out at ~$1.36 a few years ago (at a sizeable loss).

I'm still not sure of the relevance of their products these days, but with the company now guiding for $18-25m in EBITDA for FY24, the company was (prior to today's pop) on ~4x EBITDA and currently 5.2x

It piques the interest of my inner value investor, but that guy has led me into a number of poor investments. Sometimes things are cheap for a reason.

Very quiet in terms of announcements at the moment but Integrated Research did give an update of where it expects to land at the half year. It gives itself a bit of wiggle room for negotiation with the auditors but overall it doesn't look awful. Or else the market was expecting armageddon and merely got awful. I'm not that interested in IRI these days but any telltales about how the broader market is faring are welcome and the CEO's observation that they see confidence coming back, as evidenced by improved contract length, is interesting.

[Don't hold this one]

oof, the turnaround that just wont turn.

Sales momentum slowing, the Americas is struggling, an operational review underway, TCV to decline..

The business was previously calling for growth in net Profit, now they anticipate NPAT to drop.

You can read the latest update here.

This used to be one of the best companies on the ASX, with a long history of highly profitable growth. But I think the world has changed on them, and they were caught napping.

Shares look cheap on a PE basis, but i worry this is a classic value trap. Not that it's going out of business anytime soon, but its best days are well and truly behind them in my opinion.

Initial thoughts is that this is a pretty disapointing half for IRI and I'm not totally sure what to make of it really.

If the turnaround is coming then it is a lot slower than I expected and it suggests that their product mix is not as critical as previously thought. Licence fees were up 5% (17.9M), while maintenance fees were down 24% (7.8M) which suggests non-renewal from existing customers.

The transistion to SaaS is also slower (518K, up 314% but from a very low base) than I had hoped to see if existing customers were hungry for the product. They added 23 new customers for the period, maybe these are smaller companies so slower revenue increase?

Revenue in the Americas down 24%. They had some commentary on addressing this, but it does remind me of a few years ago when the Europe segment was underperforming and personel were changed to address it. The reoccurence of this problem suggests that the buisness operations are not as easy to maintain as I had previously considered and possibly are more dependant on key personel or face to face contact to maintain customer relationships. Employee turnover was identified as a risk as part of there transistion strategy, but this wasn't elaborated. There was some positive comemtary regarded H2 but no solid guidance was given, my read is that they are hoping for some bigger renewals as the FY closes but don't want to promise anything.

Total revenue of 32.2 (down 5%)

TCV- 31.7M (up 8%)

NPAT- 1.7M but this would have been a net loss if it weren't for a 0.8M currency gain and forgiveness on a 1.4M US paycheck protection program loam which is now classed as grant income.

Overall, I am disapointed and glad that I waited for the half result to assess before buying IRI. I think this will now keep drifting lower, but it is starting to get very cheap if the turnaround gains momentum in H2 and builds into FY23. However I am going to wait for the turnaround to be clear before I try and catch this knife.

Fallen angels, broken models? IRI A2m APX

As expected, last year was a tough one for Integrated Research, with revenue and earnings down 29% and 67%, respectively. 

(ASX presentation here)

For a business that is supposedly providing "mission critical" services, the drop appears exceptionally brutal.

To understand it properly, you have to go beyond deal deferrals and covid impacts.

IRI has historically booked a lot of its revenue up front. This not only makes things more lumpy, but isnt perhaps the best way to match expenses with revenues. It isnt 'wrong' per se, and when the company is growing you dont notice it as much, but it does exaggerate the real economic hit to the business (as well as the levels of growth in prior years). 

IRI is transitioning to more of a SaaS model and when looked at through that lens the drop is less severe.  For example, while Npat was down 67%, operating cash flows were down only 14%. 

At any rate, there's a genuine impact to this change of model, one that is negative at first on statutory measures or revenues and earnings.

The key thing is that the core economics of the business, and the actual cash flows, are what matters and they are unchanged. And under a 'business as usual' scenario you have a business throwing off $10m in free cash flow per year (roughly the same as last year).

At a $350m market cap and with a debt free balance sheet, it doesnt seem too bad -- so long as the company can return t growth.

As i've noted before, they have a long history of adapting and exploiting technological change, and continue to invest heavily into new products.

But while the company itself touts a large addressable market with a new and expanded product set, it's too early to tell if they will get any traction there.

If they can return to anywhere near their 2019-2020 EPS levels (13c), which i think is possible in the next 2-3 years, i think we'll look back on the current price as quite cheap.

If growth doesnt materialise, the market multiples investors are preparted to pay could shrink further.

I'm maintining my position for now.

I have been a big fan of iri over the years. First bought in at 25c. Unfortunately sold out and bought back in a number of times since. Therefore my profits would have been much better if I had bought and held, especially considering dividends. (There's a lesson there I guess).

The question is where to from here, can iri meet the challengers of new technology and adapt( they mostly have so far), or will they start to gradually decline.

My thoughts are that they will improve and todays price will look cheap 12 mths from here. Having said that, I'll be watching anoucements closely for the next 3 to 6 mths.

The market is going nuts over IRI shares this morning, up 15% to $2.27 in early trade following news the company will beat top end guidance...but only by a whisker! 

What are IRI shares worth?

One analyst for Simply Wall Street is bullish on earnings growth over the next 3 years forecasting earnings of $20 million in FY2023 (see chart). This represents a 180% lift in earnings over FY2021 earnings ($7.1 million) but 20% lower than FY2020 earnings of $24 million.

Assuming IRI can achieve this turnaround by successfully launching new cloud-based products, lifting recurring subscription revenues,  by adding new customers with new solutions - including support for the Microsoft Teams and Zoom environments, and a new solution for Webex (released in June), what would the stock be worth?

Assuming Share Value = Earnings/share X PE

2023 Value = $20 million/172 shares X 27^ = $3.13

Discounted at 10% per year = $3.13 X 0.8 = $2.50

^I have used a PE of 27. I think this is reasonable if you believe in the turnaround story of 32.7%/year earnings growth over the next 3 years, consider last year's ROCE of 20.3%,  and consider IRI should be close to debt free with $5.5million in the bank.

In summary, I think IRI are getting close to full value assuming the turnaround story plays out!

Disc: hold shares in SM and RL portfolios.

Good note by SM. the only things i would add is that IMO old technology is at higher risk of being disrupted than the banks/telcos larger co's etc. is that IRI ? not sure. important result coming in August. i can see some concerns on glassdoor about the issues IRI is having with moving into saas. finally the accounting will overly punish reported profits in a down turn, cashflow will be key and any traction with new products should see a big bounce in accounting profits. mgt will be confident regardless as expected. disclosure i have a small holding and perserving at this stage

John Ruthven is CEO, Peter Lyod Chariman -

    He is currently the proprietor of The Grayrock Group Pty Ltd, a management consultancy company focusing on the payments industry and is a Non-Executive Director of Taggle Pty Ltd. Peter’s current term will expire no later than the close of the 2022 Annual General Meetinge,

IRI yes bearish trend here:

The business strategy needs tuning up.

not a covid-19 beneficiary anyway.

Integrated Research says it is expecting a significant improvement in the second half of FY21, with H2 revenue expected to come in between $40-45 million (around 25% higher than the $34.1m generated in the first half).

That's expected to translate into a net profit of between $4-7m for the second half, up from just $0.1m in the first.

Although that's very encouraging, it's worth remembering that the current half will still come in well below that of the previous corresponding half. In FY20, second half revenue and NPAT were $57.7m and $12.2m respectively. 

For the full year, Revenue is expected to be between $74.1-79.1m (compared to $110.9m in FY20), while FY21 net profit is forecast at between $4.1-7.1m (compared to $24.1m in FY20).

The company has blamed the current challenges on shorter term contracts, tighter customer budgets and approval processes, as well delays associated with customer indecision on future environments.  Maybe that's right, but it doesn't exactly underscore the "mission critical" nature of their product set that is often touted.

At the current price ($1.99), and taking FY21 guidance at the midpoint, shares are trading on a forward PE of 61. So clearly the market is expecting profits to normalise as customer confidence returns and as new products capitalise on some of the structural trends underway (increased cashless payments and remote working).

Eg. IRI is only on ~15x FY20 earnings

To be honest, my conviction has waned of late, as I'm unsure as to what extent their products will be disintermediated by other SaaS offerings -- many of which seem to have inbuilt diagnostic and monitoring tools, and are increasingly offering enterprise grade solutions (eg Zoom).

The unweildy enterprise solutions of yesteryear really made something like IRI's Prognosis product invaluable -- but will the more modern 'plug and play' offerings still require this? I'm not sure, and I don't have the direct experience to accurately gauge what is happening at the coal face.

Integrated Research delivered a very underwhelming, though not unexpected, set of numbers for it's first half to Dec 2020.

Revenue was down 34% to $34.1m which delivered only a sliver of profit ($129k). Down 99% (!)

Reasons previously given include covid induced extended sales cycles, purchase deferrals, shorter commitment periods etc. Essentially, poor sales execution.

FX also played a part.

On the plus side:

• Customer cash receipts were down only 7% thanks to good conversions and no material bad debts.
• Operating cash flows came in at over $11m, down only 15%
• Total expenses were reduced by 15%.
• There were 16 client wins over the period, including FedEx. 24 new clients are forecast for the current half.
• Remote working, cashless transactions and the transition to SaaS remain strong long term tailwinds
• Expanded addressable market with new product launches and ongoing commitment to R&D
• The company also presented results on a subsciption proforma basis (pretending, for the sake of illustration, that revenues were recognised under a subscription model). Unsurprisingly, this showed a much smoother picture of growth; roughly 13%pa on average over the last 6 years. It's easy to be cynical with this transformation of the statutory results, but the business is actualy transitioning to a subscription model and (along with the operating cash flows) it does give a useful lens into the cash generating potential of the business.

On the downside:

• That was a very big drop in revenues, and shows how the business -- as it currently reports -- is so dependent on winning new work and renewals.
• Non-renewals of licenses was~$5m, 9% of total revenue. Not encouraging. The product set is meant to be "mission critical"
• Net cash only at $1.7m ($6.5m in borrowings offsetting $8.2m in cash
• While it's a positive that management seem to acknowledge poor sales execution, that can be a hard area to turn around
• New products may not get traction, and may need to writedown some of the investment
• Transition to SaaS is a long term positive, but reported revenues will take a hit in the interim.

Overall, I still like Intergrated Research. It's stood the test of time -- not just in longevity, but in adaption and ongoing growth. I think it will still be around in 5 years and earning more than it did pre-covid.

At the same time, I could easily see shares underperforming for a good period while the market waits for validation of a recovery in profits and growth.

Visit my IRI company report for the valuation.

Disc: Held

Continuous Disclosure – Half Year ending 31 December 2020 - Update

The Company is in the early stages of preparing its interim financial statements for the six months ending 31 December 2020. Based on internal management accounts and subject to audit review, the Company anticipates both revenue and profit after tax to be at the lower end of the guidance previously provided. The AUD/USD exchange rate strengthened by another cent on the last day of the year resulting in further unrealised exchange losses. The Company’s cash balance (net of debt) at 31 December was $1.7 million (30 June 2020: $4.7 million). Despite the shortfall in revenue, cash receipts from customers for the period again exceeded $40 million. There were no material doubtful debt exposures arising during the period.

Disc: previously held

The trend in the Unified Communication industry is to move to Cloud. Microsoft is discontinuing Skype for Business and migrating all the user base to Microsoft Teams. What IR was providing to the customer is now inbuilt into Microsoft Teams offering. Similarly, CISCO has its own cloud offering. I expect 90% of customers will be moved to Cloud for UC solution by 2025 and at that point in time, IR doesn't provide any benefit to end customers - Customers will not opt-in for IR services once they migrate to Cloud. I expect this company to go to 0 by 2030. 

2 weeks after warning of a weaker first half result, Integrated Research has further lowered guidance -- and by quite a bit -- referencing the unpredictability of business closures for the remainder of the year.

Last year, IRI delivered $53.2m in first half revenue. On the 18th Dec they said they expected $41-47m, and now they are saying the result will be between $34-37m (a ~20% further reduction in guidance).

Net profit was $11.8m in H1 2019, and a fortnight ago they told investors to expect between $5-8m. Today they said profit would be between $0-2m (a further 85% drop in guidance at the midpoint).

Obviously not great news, and a very big decline on what was already disappointing guidance.

As stated previously, for long term holders the question is whether this is a structural issue or a rough patch for an otherwise strong business. 

I see it as the later, for now.

Update here

Integrated research has said that first half revenue will be between $41-47m, compared to $53.2m for the prior corresponding period.

Profit is expected to be between $5-8m, down from $11.8m. That's a very sizeable drop!

That guidance is also a very wide range, and reflects the uncertainty of business closures and deferred purchasing decisions resulting from Covid.

The business also reiterated its sensitibvity to FX movements. As said at the AGM, a 1c change in the USD/AUD changes revenue by ~$1m.

The AUD has appreciated 12% against the greenback over the current half.

Of course this isnt good news, but as a long-term shareholder i'm not bothered at all. Seen it all before.

The market price is remarkeably volatile, but the fundamentals are anything but. This doesnt change the cash long-term generation capacity of the business one iota.

This is a business that has ~20% *NET* margins, 30% ROE, consistent and attractive growth, genuine global leadership, super sticky customer base and an impeccable dividend history.

On average, i think investors can expect upper single digit earnings growth over the next 5-10 years. And you can get access to that for a PE of 22 and a yield of 2.3%.

Hopefully shares fall more and I will top up.

You can read the ASX announcement here

At its AGM today, Integrated Reserach mentioned that revenues for the first 4 months of FY21 are behind the prior corresponding period. Covid, it seems, has acted to lengthen sales cycles and defer purchase decisions. FX factors are also having an impact. 

A 1c move in the AUD/US exchange rate impacts revenue by $1m.

Beyond these near term factors, new SaaS products are expected to build in the second half and lead to "meaningful contributions in FY22 and beyond".

Factors such as remote working and cashless transactions are a longer term structural tailwind.

The market was down a bit today on this news, but I dont think it signals any longer term problems with the business. A brief look at its long hitsory shows an amazing resiliance, insanely high net margins and consistent long term growth for this world leader.

disc; I hold.

You can read the CEO and CFO update here, while the Chairman's address is here

20-Aug-2020:  FY2020 Financial Year Results   and   FY2020 - Financial Results Briefing   plus   Appendix 4E & Financial Report for FY2020

I don't currently hold IRI but I have in the past and they are certainly on my "to buy" watchlist - on a decent pullback.  They have been sold down today on these numbers - currently they're down by around -14%, so the market seems underwhelmed by this result and was clearly expecting more.  However this is a quality company with some massive customers and I'm still looking to buy if the SP gets down to $3 to $3.50 again - which is where they were trading for most of FY20 - up until June 2020 - they have looked overpriced up above $4.50, and they got down to $2.34 in March, so they more than doubled from there to their $4.90 close yesterday, obviously rallying hard into this result today.  Back in March however, we were spoiled for choice - with so many quality names available at bargain prices as so many investors cashed out of all assets, so everything fell, and I was focussed elsewhere at the time - on other sectors.

Anyway today's drop is a welcome start, but I'd like to see them drop a lot more to give me a better entry price.

Integrated Research has delieverd profit at the top end of its guidance range, with NPAT up 10% to $24.1m.

This is off the back of a 15% lift in license sales and a 10% rise in total revenue.

The payments segment was the only area to go backwards, with sales down 14% (after doubling in FY19).

Overall, net margins remain super striong at 22%. You wont find too manay ASX companies that can boast such a level.

Just a wonderful business with a long term histpry of profitable growth. I expect upper single digit profit growth for the foreseeable future.

There was some great buying opportunities over 2018-2019 as the market worried over short-term, non-structural issues. But with a current PE of 35 and a yield of 1.8% yield, it's a less attractive buy today.

Results here

Integrated Research said it expects to report record revenue and profit for the year ending Jun 2020.

Revenue should come in 9-10% higher at $109.5-$111m.

Profit likely between 8-11% stronger between $23.6-24.2m. 

License sales should be up 13-15% between $70.8 and $72.3m, driven by Unified Communications segment.

ASX announcement is here

At the midpoint, this gives IRI an EPS of 13.9c (just shy of my 14c estimate). Will wait for detail in the full results report, but happy to keep my valuation unchanged for now.

Integrated reserach has disclosed its largest ever deal; a 5-year US10m renewal and extension contract with long-standing customer JP Morgan Chase (a client of over 25 years).

For context, IRI reported ~US$35m in revenue for the half just ended. 

It's only a single data point, but a sign of IRI's defensive revenue stream and the continued relevance/importance of its offering.

Announcement here

Results came out towards the upper end of last year's revised guidance, with Net profit up 1% to $11.8m. This was on a 6% lift in revenue to $53.2m and a 7% rise in license sales. With 95% of revenues sourced offshore, a weaker AUD was very helpful.. 

The groups largest segment, Unified Communications returned to growth with revenue up 10%, and the outlook for the full year is positive.

Payments revenue (which represents about 1/7th of the total) was down 14% after a very strong prior period, but remains roughly double that of 2018's half and management said there were clear signs the revenue stream is growing.

The Asia Pacific region did especilly well with 62% growth, and CEO John Ruthven said he expected "a strong result for the full year based on the quality of the second half pipeline".

Cashflow from operations grew 28%, and net margins remain steady at an impressive 22%. The company remains debt free and has $7.6m in cash.

This is a company with a long history of delivering steady and profitable growth, it has a strong market position and very sticky customers. Not many company can maintain net profit margins >20% without enjoying some pretty major competitive advantages.

While they hit some operational snags a couple years back, there's nothing structurally wrong with this business in my view.

Results presentation here

Integrated Research has issued profit guidance for the 6 months ending December 31.

Revenue is expected to be between 4-6% higher at $52.5m- $53.5m.

Net Profit is expected to be flat, coming in between $11.5m to $12m, compared with $11.7m in the prior corresponding half.

At the AGM last year, IRI only said that it's sales pipeline "supports FY20 revenue and profit growth over the prior year"

Last year, first half revenue grew 10% with a 26% lift in NPAT.

ASX announcement here