Earnings Call: H2 2021

Jun 1, 2021

Annual report

With a particular emphasis on where we are, what we're seeing in the market, how we feel we're positioned with customers moving into calendar 2022. And I'd like to leave as much time as possible for Q and A and discussion at the end of the presentation. So in terms of the FY 2021 year and review, so our financial year finished in March. There were some clearly some far reaching impacts of COVID-nineteen, particularly through calendar 2020 in North America. And despite Ike and our core customers being classified as essential businesses. It was still a period of real challenge and high uncertainty. In particular, our customers, these really large infrastructure providers, We're not, in many cases, particularly well set up to move to remote work and remote operation. We're really excited about where we've landed as we come into the FY 2022 year. As the pandemic hit More than 12 months ago, we adopted a plan to try to stay on the front foot as much as we possibly could and really try to develop talent. Our processes look for opportunities to build new products and to acquire new businesses that weren't fearing as well through the pandemic. And I feel as though we achieved some very important strategic milestones through this year. And our goal was to be able to bounce forward as fast as we could when the inevitable happened from a pandemic perspective, and our customers in our industry have really got back to work. And I think the very good news for shareholders and stakeholders is that since January of this year, We've seen really heightened activity and I think it's been in a position to be able to move with our customers and move forward strongly. In terms of the year that's been from an FY 'twenty one perspective. From a group perspective, revenue was down around 5% on prior calendar periods. We had particular impacts through Q1, so the period of April to June of 2020 and then Q3, 3, which is the 2nd wave of COVID in North America, which was pretty devastating from a health perspective. And that's where we had a lot of customers and projects that deferred through that period of time. From an operating cash perspective, we were just over $3,000,000 from an operating cash flow loss through the period to plan. And we finished the year with approximately $40,000,000 of cash and receivables from a balance sheet perspective. I think the most important item for shareholders and investors has been the continued shift in terms of the products and solutions that we deliver to our core communications and utility segment here in North America. So through this year, approximately 3 quarters of our revenue came from transaction and recurring subscription sources. So that's the blue bar in this chart, notwithstanding the COVID impacts. And I think this is a really important transition in terms of increasing the quality and predictability of our revenue and our growth as we move forward. So I won't read these slides verbatim. I think some key metrics within that operating revenue line that we just looked at for the year, and these are metrics that on a quarterly basis, we'll be reporting moving forward. So we had $4,600,000 of subscription revenue coming from our customers. We've got 284 enterprise subscription customers using Ike platform products, and we generated $2,300,000 of transaction revenue. So our business model is a platform subscription to accessing EDI products and then a transaction fee based on the number of poll transactions that come through our system. And there were 53,000 approximately billed poll transactions through the FY 2021 period. And that's a really key driver for us in terms of growth and the item that we focus on a lot as we talk about FY 'twenty two and forward. So our focus from a market perspective has just become tighter and tighter around the communications segment and the electric utility segment here in North America. We feel that market timing is optimal. We dramatically speed up network development processes for both of these groups. And we feel we're in the right place at the right time in terms of macro market factors. We'll talk a bit more around some customer proof points and also some of the momentum that we've had coming out of calendar 2021. So through the 1st 5 months of this calendar year, we've won new contracts of approximately just under $9,000,000 in the context of a $9,300,000 revenue year for FY 'twenty one. And we have focused very hard on team and talent. And while a lot of our quasi competitors and other businesses operating in our market through COVID that furloughed or laid off a lot of staff. Ike reduced pay across the leadership team and the board, but we kept our entire team together. And we've worked really hard on recruiting new talent, which I think sets us up very well for the growth year that we believe we have in front of us. Again, this is a snapshot of the P and L for the FY 21 year. I won't go through it page by page. This presentation document was released to be read without commentary. So we've included all of this detail in the release document. So in terms of where we are from a calendar 2021 perspective, from January as COVID impacts lifted and particularly now so that the vaccine is rolling out across North America. We've had a lot of customers. So these are all existing customers. None of these contracts surprised us. They were pipeline or deferred deals, but We've been fortunate to close additional business with AT and T, very big investor in fiber and 5 gs structure across the U. S. We announced Crown Castle have standardized on Ike. They're the largest shared communications infrastructure company operating in the U. S, standardizing on Ike for aspects of their fiber and poll related work, growing our account with Corning, who not only build and ship the most fiber optics across the North American market but also assist their companies to deploy the fiber, which is where we help them and some important expansion proof points across the electric utility space, which we'll talk to in a bit more detail. So just stepping up a couple of levels. From an ICE standpoint, why we jump out of bed in the morning and our team, I think, jumps out of bed in the morning as we support some really meaningful, broader market demands. And North America is a long way behind in terms of providing fiber and broadband access to the nation. And this is a country where we still have a lot of folk that have to drive to a Starbucks car park or a Taco Bell car park to access broadband. And it became a very heightened problem with everyone moving to work from home over the last 12 months. And we're really trying to assist communications companies to get networks to market faster. This is a slide we've presented over the last 12 months or so. We do really feel like we're in the right place the right time, just massive investment into fiber and 5 gs networks, also a huge expected investment coming into rural broadband development across North America. I can our platform. We dramatically speed up aspects of deploying networks. And the productivity gains we deliver really matter to the communications companies and the engineering companies that are developing these networks. And there's a lot of them, more than 200 communications companies competing to get to market the fastest and more than 1,000 engineering companies that support the communications groups. This isn't a winner take all market opportunity, but it's I think the winner can take the best in terms of customers. And that's really where we aim is to win the best and the largest customers operating in this segment. If we take a 10 year lens of Ike and how we can move from $130,000,000 $140,000,000 market cap today to a $1,000,000,000 plus business. A 10 year lens, this comes from the electric utilities in the North American market. And this photograph here is a power pole that's failed. The power infrastructure is at the top of the pole on the right hand side of the road, but you can see just how many other Infrastructure companies and service providers are attaching to every one of these assets. Hundreds and hundreds of millions of these poles across North America, every time anyone such as a pole, it needs to be engineered and designed and then built to standards. And that's really what we help electric utilities achieve and also the folks that are touching these power poles. There's also a lot of the electric utility groups, so more than 3,200 utilities, More than 200, they call them investor owned utilities, but these are the big publicly listed groups that tend to own a portfolio of electric utility companies. And they all face the same problem with aging infrastructure. A lot of legal liability, a lot of regulatory liability, and they all want to deliver safe and reliable power. And I guess our solution, we strive to make this engineering design maintenance process much faster of much higher quality. And this is where we're going as a company. So we talk about the Ike Pol OS and creating the Pol operating system for the North American marketplace. And what we've said about doing is moving from where we were 4 or 5 years ago, it was essentially a device company, but building solutions that solve distinct and complementary problems for these same core customers. And a lot of words on this slide, but we now have the IC Office solution. It's a web based analytics platform and also tools field tools to go and capture poll specific information. We now have iCinsight, so it's an AI platform to process drone imagery, lidar imagery, smartphone imagery and bring poll insights out of these really, really large data sets and solve some unique problems. And we have iQ Structural, which is a pole loading software platform used by 5 of the 10 largest IUs in North America. So that's taking all the input data and and making engineering assumptions from there. And we lay that all on with what we hope can be the best customer experience in the industry specific to the North American market. We touched on this in the word release document from yesterday, just around how we see the transition and upsell of IT solutions across these really large infrastructure companies. And just thought it was useful to sit out here An example customer, this is a Fortune 100 Electric Utility Group. They have 5 similar electric utilities in their portfolio. The transition for Ike has been a really interesting one. This one of these utilities was a Polformin customer. Was paying us around $20,000 per annum to use the Pohlformin like structural product. That gave us, I think, a privileged entry point to come in and help solve a very specific problem around a network assessment. In October 2020, we signed a $700,000 Phase 1 that followed a fast pilot that went live and was delivered successfully through November, December through to March of this year, notwithstanding some COVID delays on their side. And then in May, we announced the contract extending to an additional one point dollars 2,000,000 Phase 2 contract. So it's now close to a $2,000,000 contract that we will deliver primarily through this FY 'twenty two. And we're only processing around 350,000 of their poles for one specific application and they're a much larger business. They have 1,300,000, 1,400,000 poles in their network, and they have a lot more problems as well. And We're engaging with them now around Iconsight, so our AI platform to solve some other issues for them. But this is the way Customers can develop over time and how we can introduce our different solutions or our different apps into a customer over time. From a just from a proof point perspective, We are now working with many of the biggest names in the business and brands in the business. We're at different stages with a lot of these different businesses. But we have 200 and as at March, we had 284 enterprise customers that were subscribing to the IKE platform. And that's a key metric for us is to continue to grow the number of subscribers. Also, we're looking to create decades long relationships with these groups and be the partner they can't live without. Just a sneak peek in terms of some new branding and presentation around presenting Ike as the Polo West company that will be coming to market soon. As I mentioned, our business model is that there's a platform subscription. It doesn't matter what product or app you're working with. There are transaction fees that layer on top of the platform subscription, typically build on a per poll basis because that's way our industry does business. And then we offer other value add products such as IQANalyze, such as IQANiversity and some real world productivity metrics as to why customers buy, why customers work with us. But we're driving really meaningful speed to market, cost reduction or quality improvements across many of these groups. And it's the reason why we go to market directly with a direct sales team. But it's the reason why We have confidence in terms of where we sit today and how we can continue to deliver value over time. Just an example here of Aike University. So when the pandemic struck, we prioritized standing up a remote education and a remote deployment system called iQ University. And so we now have a very scalable online system that allows all of our customers to come in to learn about Ike Technology, to get going in the field and get productive and also to be able to interact with Ike and our team. And those kind of education elements are very important for embedding Ike inside our target customers. Just touch quickly on team and talent. We focus hard on building a really industry that group of people that sit around Ike. We're really fortunate and pleased to be able to bring Eileen Healey onto the Board of Ike earlier this year. So Eileen is an industry veteran out of the communications market based in San Francisco. And Eileen, through 2 startup companies or high growth companies that Eileen's founded, works with many of the very largest communications group operating across the U. S. And a few of them listed there, but AT and T, T Mobile, Vodafone, Verizon, etcetera. And lastly, the AIP team, this is a bit of a mix in terms of our group today. But we're poll people. We're poll experts. We sell directly. We're building a brand based around Ike and we're building a delivery model directly. And we really think there's an opportunity to build enormous brand equity around delivering the customer experience in the market. So these are some of our folk and we focus on making our customers as successful as possible. With our business model, once customers are using our technology, the more successful they are, the more successful we are. So the cash register rings as more and more polls are processed through our products and platforms. So thank you. With that, Simon, I'll pass back over to you for Q and A. And if you could just let me know any questions that have come through. All right. Thanks, Glen. Thanks for the presentation. Just a reminder, if you did want to submit a question, please Do so via the Q and A button at the bottom of the screen. First question, Glenn, from the highlights page on Page 3, Analysis on 100,000 poles at only $4.20 per pole, what analysis is this? And what does it cost Ike? It's a good question. So a customer can access our platform. They pay us a subscription, and they can use our tools and our products and software to do their own analysis of the data they're collecting using Ike tools and platforms. And they may be paying us $2 $3 $4 $ per poll, but they are doing the work of that analysis. So that's almost it's very high margin from an IQ perspective. Now this differs from another customer that may decide to use IQANalyze, the ICA analyze product. What that means is they use our tools to go and collect poll information in the field. They send it back to us into the cloud And then we do the analysis. And we might be charging $25 or $30 per poll to do that analysis and deliver them back a report that they need. So there is a real discrepancy between the 2. And there's a good example recently actually of AT and T standardized on Ike around 2 years ago. They're outsourcing a lot of their engineering today to engineering service providers. We won an engineering service provider. They're doing about 100,000 poles on a self perform basis, so a lower fee, but it'll be around a $400,000 a year customer. But they're now leaning on IQANalyze to do some of the more complex work. So they've added another $100,000 or so of IQANalyze work over the last month. So we get a hybrid across our customer base. Thanks, Glenn. Next question, again, just on The analysis advanced engineering assessment on 3,000 poles at, say, dollars 40 per pole, what's this analysis and what does it cost like? So the analysis in this case is for make ready recommendations. What that means is Our software and our people analyze a power pole and we make a recommendation about how to move other infrastructure around so that you could attach a fiber line or something similar. And in a typical scenario, that type of work is 60%, 70% gross margin. Our gross margin across the business this year was 65%, I believe, which had dropped down from 71% the prior year. And it was tied mostly to us keeping some capability that sits in the gross margin line as we had a slowdown in volume, but we expect that to bounce back up and go in the right direction this year. Great. Thanks, Glenn. Next question. Like the first question, I'm trying to get a sense Platformsubscriptions revenues versus transaction revenues, thinking about the Fortune 100 electric utility in the preso on Slide 16, what share of the almost $1,000,000 of revenue from that customer would be classified as platformsubscriptions revenue versus transaction revenues? Yes, good question. And in that case, moving forward, that will be around 40% subscription and around 60% transaction revenue. We've detailed for FY 'twenty one the split between the subs and the transactions, But we expect the transaction piece to be a real growth engine for us now that projects and customers are really coming back online. And can you just describe the competitive landscape within your industry? So, there's a lot happening from a quasi competition perspective around sensing. And Take drones, for example. A big driver for us in terms of acquiring Visual Globe is that we want to be agnostic to how data is collected. The real value is analyzing all the data, the big data that gets collected, be it by drones or smartphones or LiDAR or IKE devices and being very poll expert in helping customers actually move their projects through faster. So lots of competitive pretty interesting developments around sensing. But we're building a platform to be able to ingest any of it is our intent. And then we're seeing, I guess, at the other side, there are they tend to be large engineering service providers, private equity funded and they're really going after this communication space in particular. And some of them, their services companies, their big body shops of 100 or 1000 of engineers, but they're looking to build some technology to make them go faster. And we're seeing some quasi competitive activity there. The difference for Ike is we're building a platform, a technology platform. We want to power the whole industry and we want to we certainly want to how the engineering service providers and we want to be the platform for utilities and the comms groups also. Great. Thanks, Glenn. From the highlights on Page 2, is it fair to assume that turnover of $18,000,000 to $20,000,000 is possible at March '22 financial year on the current contract run rates. Well, yes, look, we have booked close to $9,000,000 through the 1st 5 months. Keep in mind that the revenue recognition flows through as our customers deliver projects. We try to help them go as fast as possible, but the revenue recognition comes over time. We haven't forecast for this year. We are optimistic we can have a strong year and a solid growth over obviously the previous year behind us. There's some analyst coverage from Bell Potter that have their forecast number. So there are some indicators in the market. Great. Thanks. And are you looking at any expansion opportunities Sign of the U. S. At this stage? No. The opportunity is so massive in North America. We're still small. This year, we'll get to a full time headcount of just under 100 people. And we're still the more focused we get, the better we get. And we think if we get things even half right in North America, then we can build a really hopefully large and interesting business for shareholders. Great. And what's your legal risk if false analysis is performed by Ike or your tools And that results in a critical portfolio. Do you carry insurance for that risk? We do. I mean, we explicitly aren't liable for our tools and our software and our delivery, we stop short of the point where an engineering company or a utility stamp it and build to a specification. And that liability sits generally with the folk that construct the network, be it the asset owner or the engineering company. So, we actually were one step back from that liability risk. And yes, we obviously carry indemnity cover more generally, but it's not a significant risk. And in terms of being tied into some of these massive litigations and where there's been wildfires, etcetera, we're steps back from that. Is there a mechanism whereby you could license or franchise a third party to develop, say within the European market? That's something that we're looking at because of The platform that we're now building and also because of our revenue model, the way it's developed, it's more partner friendly in terms of there's recurring revenue and there's transaction revenue over time. So we've had some approaches from certain markets. But at the moment, it's not something that we're spending time on. I think it will be something that will become more relevant probably over the next 12 months. Great. I think that's the end of the Q and A segment. I might hand it back to you to Glenn for closing remarks. No, thank you, Simon. I think we've covered all the key points today. We're optimistic about the year ahead. It's been a tricky year for us, our industry, and I think most businesses. But yes, look, we're pleased about where we sit today and look forward to keeping shareholders posted on a quarterly basis. All right. Thanks, Glenn, and thanks all for joining.