Release Date: May 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Subscription revenue grew by 21% to NZD10.7 million, driven by IKE Office and IKE Office Pro products.
- Successful launch of IKE PoleForeman products, with total contract value exceeding NZD12 million.
- Gross margin percentage increased from 53% in FY23 to 60% in FY24.
- Strong customer retention rates, with IKE Office Pro having greater than 95% retention.
- No need to raise capital in the future due to a strong balance sheet.
Negative Points
- Total revenue declined by 31% to NZD21.1 million in FY24.
- Platform transaction revenue was down 61% to NZD7.3 million.
- Net loss increased by about NZD7.2 million in FY24.
- Operating expenses were high at NZD28.7 million, significantly impacting profitability.
- Reduction in R&D spending by about NZD1.1 million or 10%, which could impact future innovation.
Q & A Highlights
Q: The expenses of NZD28.7 million in financial year 2024 seem high versus revenue. Where do you expect the expenses to rebase to in FY25?
A: Brian Musfeldt, CFO: We did a cost-cutting in late Q3, which will save us about NZD4 million annually. Factoring in this cost cut and a CPI increase of 2-4%, we expect expenses to rebase accordingly.
Q: It's great to see the progress of the IKE Insight. Are you able to quantify the level of revenue expected from this product over the next two to three years?
A: Glenn Milnes, CEO: The biggest opportunity is to put automation and AI capability into the hands of customers already using our software, which will lead to price increases in subscriptions. We are also launching new planning tools, and we are excited about the potential revenue from these initiatives.
Q: Will IKE Insight be a subscription model or additive transaction revenue?
A: Glenn Milnes, CEO: It depends on the customer. Some prefer a transaction basis to match variable costs with revenue, while others prefer a subscription model. We meet market requirements and offer both models.
Q: Can you discuss how the acquisition of Marne and Associates contributed to the FY24 result and what role it will play in the future?
A: Glenn Milnes, CEO: The acquisition has been brilliant. Marne and Associates have trained many customers, providing IKE with credibility and engagement with utilities. It’s a pathway to market and helps us engage with engineers at utilities.
Q: Of the 8 of 10 largest utilities that use IKE, do they also use IKE's competitive products or use IKE exclusively?
A: Glenn Milnes, CEO: Utilities use various products, but they standardize on particular products over time. The 8 of 10 largest utilities are standardizing on IKE PoleForeman for structural analysis and design, which is key for their engineering and decision-making.
Q: Regarding the sales and marketing expense, how much in the second half increases tied to sales incentives and contract wins, and how much is fixed?
A: Brian Musfeldt, CFO: About 60% of the sales and marketing expense is fixed, and 40% is variable. Sales reps have a 50/50 split between base and variable pay, and marketing expenses are variable, related to shows and programs.
Q: How did you go about deciding on recent headcount reduction? Were those within a particular department or more performance-based?
A: Brian Musfeldt, CFO: It was both. A significant portion came from moving some cost base to lower-cost regions like Mexico. The rest was performance-based, ensuring we kept our investment in the company.
Q: Why are you so confident about subscription growth in FY25?
A: Glenn Milnes, CEO: It’s based on the contracts we've closed and the strong performance of IKE PoleForeman. Customer retention is also very strong on the IKE Office Pro side, giving us confidence in the year ahead.
Q: Does the company expect to need to raise capital for operations going forward?
A: Glenn Milnes, CEO: No, we have a strong balance sheet and intend to operate within our means. We need to balance the balance sheet component with customer growth, as we aim to keep customers for decades.
Q: With all the recent M&A activity in this space, do you think that IKE might be a target?
A: Glenn Milnes, CEO: There’s a lot going on in the market with private equity groups looking at the distribution side of utilities. Who knows, but there’s nothing we need to disclose at the moment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
