ikeGPS Group Limited

Good morning, and welcome to ikeGPS quarterly update, where we have the CFO, Paul Cardosi, on the line. We'll have Glenn Milnes, the CEO, join shortly.

[Operator Instructions] But Glenn is going to run us through most of the financials as a part of the quarterly first, and then we expect to Glenn to join shortly. Thanks very much, Paul.

Thanks, Simon, and good morning and good afternoon to everyone. Thank you for joining our third quarter performance update.

We published our results earlier today. So hopefully, you've had a chance to look at the document.

We're not presenting slides today. I was actually going to talk you through the handout that's been published on our website as well as the NZX and ASX.

Overall, we've had a very strong third quarter, continuing on from the strength that you saw in the second quarter. At a very high level, our subscription revenues continue to grow at a 35% growth pace.

You'll see that in some of the slides that we have. We're also seeing continued improvement in gross margins, which creates operating leverage for us as a business.

And we do that with a healthy balance sheet that we're investing into new products, which are on track for release later in our calendar year. I'm going to jump to the financial part of the presentation.

And it's the section that's titled Performance Summary. I'm going to start with what we call our exit run rate or annual recurring revenue trend.

You can see that through the 9 months year-to-date, we finished at NZD 21.1 million, that's an increase 35%. It's actually 36% in constant currency.

We had a little bit of an impact from the U.S. dollar, New Zealand exchange rate, that represents about a 39% 3-year annual -- compound annual growth rate.

So, subscriptions is where the business is predominantly focused, and you can see that as we continue on that growth trend. One thing of note, we launched a product called IKE PoleForeman in literally 2 years ago, and that product exceeded $10 million of that exit run rate ARR.

So really pleased to see the strength of PoleForeman in our numbers continue as we report today. If I go to the next chart, we look at subscription revenue.

So this is our recognized subscription revenues, again, 9 months year-to-date. We finished year-to-date at $14.1 million.

That's a 38% growth rate over the year-to-date period from the prior year. What's not on this slide is we actually did about $5.3 million in subscription revenue in the third -- our third quarter, which is actually a 43% year-over-year growth rate.

So you can see from those 2 slides, subscription revenues continue to grow and the pace is picking up. In the third quarter, we added about $2 million of ARR.

A lot of that comes from new logos. We continue to win engineering and utility new logos.

We're also expanding significantly the portfolio into our existing customers. So that trend in that business model continues for us.

If I go to the third slide, which is the seat license trend, the majority of our sales are sold on an annual per seat basis, an annual per user basis. Seats grew at 30% year-over-year.

We're also seeing an increase in our average revenue per unit, and a lot of that has been helped by a recent release of our AI-based PolePilot that sells as part of our IKE Office Pro product line. So, seat growth continues well.

The pricing continues well underlying those seats. So continued growth there.

If I go to the next slide, it's our transaction or services business. And you can see that we had some weakness there in our services revenue.

If you remember from prior calls, a lot of our services customers are broadband communication companies. The U.S.

government had a reset on funding for some of those companies. So, a lot of the funding is there, but it's being delayed just through legislation changes, and we're seeing that in some of our service business.

So, you can see that in our year-to-date numbers, we're down year-over-year, both on the number of Poles that we count in our transactions. as well as the services revenue.

We have made moves to restructure the team that supports this business. We've offshored a lot of the work.

So, we are seeing improved gross margins in services, which adds to operating leverage across the company. I'll jump next to the segment revenue.

So, you can see the NZD 19.8 million of revenue that we're at year-to-date and how that is broken out. The recurring piece, which is our subscriptions and the reoccurring piece, which is the transaction revenue sits around 90% of our total revenue today.

And you can see that for the year-to-date, we grew revenues around 7%. And year-over-year for the quarter, revenues were up around 11%.

So continued growth across the revenue. But clearly, the mix is the subscription piece of the business.

I'm going to -- before we get into questions or if Glenn joins, I'll just finish with the metrics chart and just make some comments on it. This is the last -- the table at the back.

Gross margins continue to improve. You can see 79% versus 68%.

The subscription mix helps that. The restructuring we've done in the transaction services business helps that.

That creates leverage, leverage that we're using to invest in some new products as well as on our path to EBITDA positive. So that table gives you a sense of not just the overall margin of the business, but how the margins of our product lines stack up.

You can also get a sense of our customer counts as well as revenue and margin by segment. So, I'm going to close there with just comments that it's a solid quarter.

We see a similar early signs in our fourth quarter, which started in January, and we continue to book business, and we're off to a relatively strong start as we embark on the fourth quarter and the final quarter of our FY 2026. And with that, Simon, I'll hand it back to you.

Our first question is from James Lindsay at Forsyth Barr.

Congrats, Paul. And I just wonder if I could just ask a few questions.

Firstly, just with regards to, I suppose, the more disappointing performance on the transactional side of things, if there's anything in there with regard to sort of when that could turn around?

It's a good question, James. From a macro standpoint, we are hearing that a lot of the companies that got funded had to reapply and are starting to see funding coming through.

And also from a sales pipeline perspective, we're starting to get line of sight to some large projects. Timing is unsure at this point.

We're thinking March, April time frame. But certainly, we're seeing more deal activity in our pipeline, I would say, in the last couple of months than we've seen maybe in the earlier parts of this year.

So early signs that it could start to happen in first quarter.

Okay. And then obviously, the gross margin in that side -- that transactional side of the business has actually been relatively volatile.

But for this quarter, it looked to be up a reasonable amount. Is there -- can you give us any sort of headway about why it is so volatile?

Part of the volatility is we took some onetime restructuring in the second quarter. So, you would have seen, I would say, relatively low margins tied to some restructuring that we did with the team.

And then the third quarter was our first full quarter where the majority of the work in this business has been offshore. So, we had an offshore model for some of the work that we do in services, but the third quarter was really the first quarter that we saw a full quarter of work being done offshore.

And it's not just lower cost, it's also more of a variable model in that we only incur costs when we incur the work. So, we have less fixed costs in that model as well.

So, you're really seeing the effect of the offshore move that we've made.

Okay. And that's that Mexican team that you're talking about?

That's correct, yes.

Yes. Okay.

Great. And just with regard, obviously, the balance sheet in a really strong position post the capital raise.

And just with regard to the spend that's going on in R&D, can you talk about sort of the mix of what's going on in spend and sort of full year? Will that start to accelerate in the next quarter or so?

It will definitely start to accelerate. We've started to onboard some new employees tied to our PoleOS initiative.

So, part of what we're driving, I think you know is a fairly significant platform strategy. And we started to onboard some resources engineers, both here in the U.S.

and in New Zealand starting in January, and then we've got some additional hires coming in February. So, you'll see the spend tick up, but it's not reflected yet in our third quarter because the headcount came in -- is starting to come in this quarter.

And obviously, well done. I think it looks -- if I look at the numbers right, it might be your third best quarter ever as far as that 25 net customer growth.

Just interested in the mix of that and what do you think has driven it? Is that sort of more PoleForeman?

Or is it just in core product? Where is that mostly come in?

Two areas that I've seen in the third quarter, James. One is the ecosystem of companies that use PoleForeman continues to expand.

So, think about a utility not just rolling out PoleForeman in more departments, but also the engineering firms that support those large utilities. So, we're seeing, I would say, kind of a flywheel effect on that in terms of both subsegments, the engineers and the utilities buying more PoleForeman.

I would also say that we saw an uptick in Office Pro, IKE Office Pro in the third quarter. PolePilot has helped.

We're starting to have customers take the new version with the AI-enabled PolePilot. And we're also seeing -- we run a hardware trade-in program where customers could trade in old hardware and trade up to newer hardware with IKE Office Pro licenses.

And so, we're seeing a lot of the benefits from that on the IKE Office Pro side as well.

Right. And you mentioned just PolePilot.

Maybe just while you're on that, as far as sort of the customer feedback on that and if there's been any sort of fight back on the increase in price that you're putting into customers for that product?

So far, we've had about 30 customers license it with no pushback on the price. And overall, the feedback has been super positive in terms of time savings they're seeing by being able to use that functionality.

And is there anything else in market that's sort of comparable to that?

Maybe a Glenn question, but certainly, we haven't seen anything crop up just yet now that we've launched PolePilot in the market.

And just the other thing I was going to ask about the customer base. I know that there's always a very big mix of size potentially there.

And maybe when you're saying about the network effect, if it's sort of associated companies to the utilities, it's possible that the size of this, the 25 net new customers is maybe smaller than the average that you've got today. Would that be fair to say?

I would run an 80-20 on it, James, and say that 20% of those net new give us, I would say, material size of deal, meaning high 5-figure, high 6-figure kind of ACV, annual contract value deal size. And then the other 80% quantity is maybe smaller -- more of the smaller engineering firms that maybe take a smaller amount of licenses and then expand over time.

Great. And then last one for me.

It might be more of a Glenn question as well. Thanks again for the heads up on that sort of 9 months for that Module 1.

How long do you think that sort of pilot testing? Have you got any indication about how long pilot testing would take before sort of a market introduction?

I know that basing on what we did with PolePilot and the Module 1 is, I would say, it's an adjacency to what PoleForeman does, but it's a different subsegment. I would say that if I follow what we did with PolePilot, it's likely to be a 60- to 90-day beta that we'll put in customers' hands and get feedback on very quickly.

So typically, 2 to 3 months is what our beta period is, but we have more development work to do before we get to that.

Great. And you mentioned -- sorry, to carry on, I'll pass it back to Simon shortly.

I think in the raising presentation, you talked about around about $11 million, I think, if I recall, for the 2 modules. Is that still on track?

Or is there any sort of change in the view about what would need to be spent?

The only change that I would say that's material is we're, I would say, fast following in terms of our adoption of artificial intelligence. And I would say that, that is improving the way that we develop and leading to a faster development cycle.

We haven't quantified the impact yet, James. But certainly, we're leaning into, I would say, faster AI adoption that could help accelerate the development, which ultimately would lead to lower cost.

But I don't have a number that I can give you at the moment.

Our next question is from James Bisinella at Unified Capital Partners.

Congrats on the result. Lots of ground covered there.

I might just ask a couple. Just on sort of the pipe, you mentioned some strength coming through there.

Just keen to hear a bit more color kind of in the potential makeup of that. Obviously, some large deals signed in the past.

You do have 8 of the 10 largest IO users at the moment. So, is this a makeup of sort of large deals, a combination of smaller ones?

Or just any further color there would be helpful.

And just to clarify, James, are you asking for results to date or more of the pipeline that we're seeing as we move forward?

More so the go forward, yes.

Yes. I mean, we look at the pipeline constantly.

And I would say that, we have very good coverage of the bookings that we need to close to hit that 35% guidance. So we're laser-focused in on the pipeline that we have, the deals that we have in that pipeline.

And I would say, we have between 8 to 10 material deals of significant size that make up, I would say, maybe about half the pipeline. So we don't need to close all those deals to hit our 35% run rate.

But my point is the deal flow is still -- potential deal flow is still very healthy. And it's -- I would say it's a mix of large 5-, 6-figure deals in the 8 to 10 category and then the rest is smaller deals.

That's great. That sounds very supportive.

And then just another one for me, just last one, just on kind of the ARPUs of the new product line that's 9 months away. I think kind of blended ARPUs at around the NZD 2,000 mark.

So just looking for any color on ARPUs of this new product and what we could see out of that?

We haven't priced it yet. But to give perspective, our PoleForeman ARPU runs around rounded up USD 2,000 is our PoleForeman ARPU.

And our feeling is that, the new product has significantly more of a value proposition than PoleForeman. So we haven't priced it, but I would think that it would be well north of the USD 2,000 we have today for PoleForeman.

Thanks, James. Next question, congrats on PoleForeman reaching $10 million ARR.

How much approximately is the total achievable ARR for PoleForeman just from your existing client base? Is the customer take-up of PoleForeman still accelerating?

It's still accelerating through -- I would say that, the revenue potential is still significantly higher. I know that in prior calls, we've shared market penetration and penetration within our accounts.

And so, the short answer is in the next 6 to 12 months, I think the potential for PoleForeman is still there. We're not seeing a slowdown.

And the pipeline that we have suggests there's still not a slowdown. So, without throwing a number out, Simon, I would say the potential and the upside is still significant for PoleForeman.

Thanks, Glenn. Just a question on what circumstances do you envisage that the company might raise more capital in the next few years?

I would say, it's based on a strategic direction more than financial need, if that makes sense. So today, we're tracking to get the business to EBITDA positive.

And the increased gross margins give us more and more leverage as we grow that margin, we've got more to invest further the strategy. But to me, it would be strategic reasons that would lead to potential capital raise, meaning is there subsegments we could get into through an acquisition as an example.

But today, I would say we're heads down executing on the strategy we have, and it would be something strategic that would lead to the need for a capital raise.

Thanks, Paul. That concludes the Q&A segment.

Thanks so much for stepping in again. And if there's any further questions, details are at the bottom of the ASX and NZX announcement, but I hope you all have a good day.

Thanks, Paul.

Thank you. Bye.