Simon Hinsley: Performance update. From the company today, we have the Managing Director and CEO, Glenn Milnes, and the company CFO, Paul Cardosi. Before I hand it over to Glenn to go through the presentation up on your screen, I will just remind you that analysts can raise their hand and ask a question audibly or type, and for all others, please submit it through the Q&A button at the bottom of your Zoom screen. With that, Glenn, I will hand it over to you. Thanks.
Glenn Milnes: Thank you, Simon. Thank you everyone for taking the time to join in terms of our H1 performance update. I would like to leave as much time as we can for Q&A, towards the end of the session. The H1 of the year, you have all likely seen the release. We pretty much closed the H1 on track in terms of budget and growth targets. I would like to talk about. Paul is going to take you through the numbers next in terms of the charts. I think the exciting thing for us in terms of ongoing growth, we have sort of followed a pretty consistent growth trajectory, expect to continue to do so. We have three new products coming to market. We are grateful for the support we have had from shareholders in terms of funding some of these new capabilities.
Glenn Milnes: We are taking a very AI-first approach in terms of what we are doing, and how we are operating as a business. We have invested some of the capital that we received last year. We raised NZD 25 million last year to invest in new products. Not to buy companies, but to build them. They are all on track. So we are bringing to market in the H2, a secondary design product. So that takes us into the software side of managing power delivery in the distribution network. That matters because a midsize electric utility might spend NZD 100 million a year managing secondary power delivery, and we think we can make that more efficient. We have built that product with a customer council that includes many of the biggest utilities in North America. We have got some other AI-generated capability around make-ready engineering, et cetera.
Glenn Milnes: In November, when we release our full financial results, there will be demonstrations from the team around what these products are and they are very real now. We are excited about what these are going to deliver for our customers and also what they will deliver for shareholders and Ike in terms of subscription revenue. Otherwise, yeah, we have tracked almost completely to plan. We are a bit ahead in terms of cash. We are on track in terms of revenue. But happy to take any questions on those further items in due course. Paul, maybe you can take everyone through the numbers. The thing that we have had weakness around has been professional services. We have called that transaction revenue. That is the part that has had some headwinds. It is actually picking right back up. But Paul, you can take the group through that.
Paul Cardosi: Do you want to hit the guidance first, Glenn Milnes, or do you want to come back to that?
Glenn Milnes: We will come back to it. Where we think we are landing is greater than 30% exit run rate in terms of guidance for the year. It is really strong, in terms of numbers and demand. We are in a pretty resilient market in terms of the United States electric grid demand for what we are doing. So we do not see things slowing down.
Paul Cardosi: Okay. I am going to walk through the charts that were published earlier today, just the key financial metrics that we typically cover. I will start with the annualized exit run rate. This is our September recurring revenue that is annualized, and then comparable is with September of FY 2026, which was 2025 calendar year, and then September 2024. If you look at the growth rate, we were at 13%, comparing our calendar year September 2026 annualized ARR versus prior period. Again, just if you look at our growth over these three years, very healthy 29% compound annual growth rate. So, just to give you a perspective on how we exited ARR, and as Glenn Milnes just mentioned, we are projecting exiting FY 2027 closer to a 30% growth rate, not a 13%.
Paul Cardosi: We will get into how the new products and the new contracts, et cetera, will impact that positively in the H2 as we hit Q&A. If I go to the next slide, which is just the recognized subscription revenue. I think most of you know we have evolved the business to being a very heavily subscription revenue business, and we do have services and some hardware and training. You can see a 22% year-to-date growth rate. So you can see just shy of about NZD 11 million recognized subscription revenue. This is our core product offerings across IKE PoleForeman and IKE Office Pro and our device as a service offering. So the core offerings within the Ike portfolio, we saw a 22% growth rate year to date.
Paul Cardosi: Again, if you look at the steady growth we have had as we have evolved into a subscription business, 28% 3-year compound annual growth rate. So very healthy, continued growth across the subscription base. Moving next, our pricing model, our licensing model is heavily a seat-based model. We sell typically 1 and 3-year contracts to large accounts, utilities, engineering firms, communications companies. It is a user seat model over a 1 or a 3-year contract. If you look at the seat growth, you can see that the number of active seats we had crossed the 10,000 threshold, which is, I believe, the first time we crossed that in Ike's history. It basically added up to an 11% growth rate over the prior year seat count.
Paul Cardosi: If you look at how seats have grown in the business, tied to both customer acquisition as well as new product launches, et cetera, in the last couple of years, we could see a 31% compound annual growth rate on the seat count. So, continued strong seat sales as we sign more of those contracts. I am going to jump next to this slide. I just want to call out, we have in the past called this platform transactions. I think it is important to note that it is essentially tantamount to professional services. This is where a lot of our customers need additional help to either collect data about the pole infrastructure or analyze that data, and we provide a services offering to those customers. We have seen demand reduce significantly this year. Some of it is tied to, I would call, delayed investments in US telco infrastructure.
Paul Cardosi: The things that I would point out that I think are of note here is September, the month, was extremely strong. So we did see a pickup in business and services work in the month of September. We do go into October with a very strong backlog. A stronger backlog than what we have seen entering our Q1 or Q2. So anticipate a stronger Q3 as we report in a few months, our Q3 around this business. I would say we remain cautiously optimistic around, is the pickup a trend or is it a one-time impact? I would say we remain cautiously optimistic for Q4, but again, expect based on the visibility we have with our backlog, an improved performance in our Q3 in this area of the business. The next slide just shows you that evolution.
Paul Cardosi: The dark blue bar at the bottom just is really the subscription piece of our revenue. You can see that our revenue at NZD 12.7 at the very top was flat or relatively flat, down 1% over prior year to date. You can see the mix in terms of how subscriptions has evolved in the business. If you're doing the math or looking at the notes, 85% of the business is recurring revenue, and it's recurring revenue at 95% gross margin. What that does is it gives us a lot of operating leverage to invest in products, because over the last few years of the business, you've seen an evolution and an increase in the business's gross margins, which just provides so much additional leverage for us to invest in the future technology and go-to-market that we have in the business.
Paul Cardosi: I'll finish with just really the metrics that really summarize everything here. I think a couple of things I'll just quickly call out that I've maybe not covered. The top section, you can see year-over-year, 6% improvement in gross margin. So we've went from 75% to 81%. Clearly, the mix of subscription as well as looking at the cost structure around our services business last year has really helped with both those efforts to improve the margin. I would call out, if you scan down to professional services, negative margin, which is never good in a business. But again, September, the month was very positive. I anticipate stronger gross margin, positive gross margins as we get into Q3, and then beyond into Q4. We remain cautiously optimistic about that.
Paul Cardosi: Hardware revenue and other, which is a very one-time revenue stream for us, it's dropped to 7% of our business. It was, I believe, around 10% a year ago. So that's a good thing. Again, just really supports the narrative that we have around the recurring nature of the business that we have here at Ike. I think with that, Glenn, we can move to Q&A, or anything you want to add?
Simon Hinsley: With Q&A. Thanks, Paul. Just in terms of first question. Hi, Glenn and Paul. Platform subs revenue has been pretty flat for the last four quarters, around NZD 5 to NZD 5.5 million. Can you talk about growth prospects for the company excluding the new products, i.e., has PoleForeman topped out in terms of penetration?
Glenn Milnes: No, it is not. Probably some important context with Ike, with PoleForeman. We acquired that asset that had NZD 500,000 of revenue when we bought it, and we paid about NZD 3 million to buy that business. It is now tracking at about NZD 13 million of ARR. So we have grown it like 25 times in terms of its growth, and we are still winning new customers. That certainly has not stopped. Simon, in terms of the growth, and then, what are we doing next? The new product stuff actually is relevant. We are living in an AI world now where you can develop products faster, but the thing you cannot develop faster is customer experience and distribution and customer support and all those types of things. We are delivering a companion product to IKE PoleForeman into our customer base. That is what we will be presenting in November. But we are excited about that.
Glenn Milnes: It takes us into the electrical management of the grid. It is potentially a much higher value product than IKE PoleForeman if we get it right. So yeah, we are pretty excited about the growth potential of, A, existing products, and B, the new ones. Keep in mind also our competitors like SPIDA, SPIDAcalc. We have hired all their key people into Ike to help us in terms of design. When you see, and again, I know it is all technical gobbledygook for many people, but we are launching a communications module inside of IKE PoleForeman. That is very much tied to taking customers from SPIDA, for example. We have got two key competitors. Anyway, we are pretty energized about the second half of the year. We have got three new products coming to market at the moment.
Glenn Milnes: Our team are very busy, but we think it is really going to matter in terms of revenue and shareholder outcomes.
Simon Hinsley: We just got a question from Richard Harrisberg at Canaccord. Richard, please go ahead.
Richard Harrisberg: Thanks, Simon, and morning, Glenn Milnes and Paul Cardosi. Thanks very much for taking the question. Good to speak again. Just a quick one on the ARR, which was pretty flat from Q1. You referenced in some of the communication a bit of a delay on customer timing with some contracts, and obviously the outlook still looks pretty positive if you are expecting over 30% growth. Could you just unpack reasons for the delays there? Was that something on the customer side? What you are seeing broadly from a budget perspective within customers' budgets, and how much they are willing to continue to deploy technology like yours. Thanks.
Glenn Milnes: Thanks, Richard. Paul will follow with some more detail. The whole utility infrastructure in the United States continues to invest in making the grid better and stronger and wider, obviously, in terms of capacity. We do not see any limitations there. Some of these customers, they take much longer than you and I would like. We are not losing any opportunities. It is just timing, in terms of how they deploy budget and capital and things. They move very deliberately. They are pretty brilliant people, but they move slowly. Paul, you might want to comment.
Paul Cardosi: Yeah, I think just to add a couple of comments. One is our PoleForeman growth, Richard, and also for the person that asked the last question, the growth is still a very high double-digit growth, and we still continue to see existing customers buying licenses and also new customers coming onto that product. I would call out that a lot of these large utilities look to see how their financial years are progressing, and often they have dollars to spend towards the end of the year. Their years are typically January through December, not ours, which is year-end March. If you looked at our sales pipeline going into this year and look at it now, those deals are still in play, I think is the important point. It is not like suddenly all these deals dropped out of the pipeline.
Paul Cardosi: It is just the timing of them is a combination of waiting for their budget dollars to free up. Also, there is a little element on a couple of deals where they are waiting for the new products. Again, we always planned that those would ship in the H2. The last thing I would say is, and I think I have mentioned this on prior calls, a lot of our PoleForeman renewals happen in the H2, so we will see the benefit of that price increase we have talked about in prior calls. That kicks in at renewal. Again, as we get through some of the renewal deals, you will see the impact of that price increase. That was always part of our plan. As Glenn Milnes mentioned, we were within about a point of our recurring revenue plan for the H1.
Paul Cardosi: And it is more just timing these deals in the H2 that is really got us kind of thinking about adjusting the outlook.
Paul Cardosi: And it is more just timing these deals in the H2 that is really got us kind of thinking about adjusting the outlook.
Richard Harrisberg: That is really helpful. Thanks, guys. Yeah, maybe you could just unpack that a little bit more on the pricing aspect that you are expecting to see in the H2. And then on top of that, just the go-to-market strategy for the new products which you will be releasing that seem really exciting. Is that kind of going to be directly to existing customers? Will they have to sign up kind of separately to that, and how that also impacts your ARPU metrics?
Glenn Milnes: Well, there is quite a few elements to that question. We are increasing pricing across the IKE PoleForeman products by 10% to 25%, and trying to obviously optimize the way that that fits together. The new products, we are testing price optimization across some of the handful of customer council groups that we have engaged. And we are lucky, right? We have got the biggest utilities in the whole country asking us to build something for them, that they have relative price insensitivity, but they also have procurement departments and those types of groups. So we are working our way through that. But the secondary voltage analysis product that helps power supply and power efficiency, we believe delivers a great deal of value into these groups, and therefore we can price accordingly. So we have not landed on pricing there.
Glenn Milnes: We will get the first two or three big utilities on the platform giving us feedback, and then we will be pricing it for the whole market. But potentially it is a really exciting accelerator in terms of ARPU and the subscription base. But yeah, still work to do, and we are certainly not going to put anything out there just yet. But we have got some thinking around it.
Richard Harrisberg: Yeah, that sounds really exciting. Maybe just a last one from me. You guys obviously did really well earlier on in the year in achieving the EBITDA breakeven end of year FY 2026 and meeting that guidance. Obviously, you've then subsequently just invested in some of these products and the future growth that's going to come. What can we expect from a breakeven standpoint going forward? Is that an FY 2028 aspiration? Or maybe just unpack that as my last question. Thank you.
Glenn Milnes: No, thanks. I'll go first, and then Paul can follow up. Look, the market expected, I think, growth companies, technology companies, to show that they could be sustainable. We worked pretty hard in terms of getting to that point, which we did. We raised capital last year, NZD 25 million. It was four times oversubscribed in terms of that placement to build new products and take those products to market. That's what we're doing at the moment. I know that there's a follow-on question, would be, "Well, you guys, you're consuming cash, et cetera." No, we've invested it into these new products. We're bringing them to market. They're coming, and they're going to be, I think, highly profitable. So yeah, we could be profitable any day if we chose to be, but we're operating in a really big industry, serving very big customers.
Glenn Milnes: We've got NZD 30 million on the balance sheet, and we intend to keep investing in getting these products to market. If we need to, we can slow things down. But we're right on track in terms of plan and budget from a board perspective. Then, Paul, you can comment further.
Paul Cardosi: Yeah, I think what's important to note is we've obviously listed the products we're launching, Richard, right? But if you think about PoleForeman, the ability to tap a bigger market for PoleForeman is how you should be thinking about the secondary voltage, as well as the PoleForeman product we've got announced for the communications market. If you look at our spending this year, we're going to spend about 11% more in our product and R&D teams. Just conscious decisions that we know that those products are going to expand the ability to not just win a bigger footprint inside the utility but also win more utilities. Consciously, we've upped our R&D and product spend by about. It's running at about 11% year to date higher than last year, and I envision it finishing the year with kind of a 10% to 11% growth.
Paul Cardosi: I think the most important part is you look at our resources that we are putting on the products. We are looking at about 65% to 70% of our product teams are now on either one of those products that are listed or continuing to enhance that AI-enabled PolePilot product we announced last year, as well as a lot of AI enablement behind that. I think it is not just the numbers that are going up, but it is also where the teams are focused in terms of the new effort and innovation, which is super important to win that market share.
Simon Hinsley: Cool. Just a question from Sinclair Currie at MA Financial. Thanks for the presentation. Can you please expand on the scale of the investment into new products, and perhaps how that will impact on cash flow and balances by the end of the financial year?
Paul Cardosi: I can take that one as well.
Glenn Milnes: Yeah. Thanks, Sinclair. Paul covered quite a lot of that, but last year, we got funded to build new products. We do have a view that the world has changed. You have historically raised money to buy another company. We think that there is an opportunity to build new products with AI-first technology, and that is where our investment is going at the moment. We are in a fortunate place. We actually have a really amazing team in terms of AI-first development and AI-first frameworks in terms of how we do things. I know every company on the face of the Earth is scrambling to stay competitive around this stuff, and there is the whole AI dividend discussion and et cetera. But yeah, we feel that we are well-positioned. Paul actually leads the charge with a few of our other team members around not just AI and products.
Glenn Milnes: If you can automate things for customers, you can charge for it. But if you can also automate internal processes, you do not have to hire people to do things faster. So we are investing really hard. We have got training organizations and other groups involved in terms of our processes. Paul, you can comment because you are at the coalface on this.
Paul Cardosi: Yeah, I think if you dial back to the start of the year, Sinclair, we looked at the headcount we thought we would need to launch the products that you see in our release today. Then we looked at AI and said, "How can AI help us get there without having to hire all these resources?" So we played a bit of a balancing game, if you like, where we have looked at critical resources that are absolutely essential for things like software architecture, product management, things that are maybe more difficult to do. Then we looked at areas such as QA and others where AI can play a significant, testing and creating mock-ups, et cetera. So we ended up probably hiring, I would say somewhere between 40% to 50% of where we thought we needed to hire as we went into the year. AI helping quite a bit.
Paul Cardosi: I would just add a second comment, and I think it is a cash comment that maybe some others have as well. There were a couple of one-time things that happened in Q2 that dropped the cash, and again, as Glenn mentioned at the start, our cash is slightly ahead actually, about NZD 800K ahead of where we expected it to be. The two big things to really call out is there is a lot of variable compensation that gets paid out in Q2. That is not something we do every quarter. A lot of annual variable comp happens to get paid out in the month of July, so you are seeing the impact a little bit from that. Then the other one is we closed a large utility deal. It was a 3-year deal, NZD 1.5 million, and the receivable was paid in October.
Paul Cardosi: Timing on cash on a big deal really just came in a few days after the end of the quarter. We obviously recorded as Q3. So a couple of, I would say, one-time things that happened Q2 that did not necessarily dictate the future burn rate as we finish FY 2027.
Simon Hinsley: Thanks for that, Paul. Just a question come through just in terms of what exactly gives you confidence in Q3 and Q4 subscription growth, particularly on Q3. Are they contracts that just missed Q2 or is it pipeline?
Glenn Milnes: No, the pipeline's strong. It's stronger than it's ever been. Look, we've continued to grow. We don't have much churn. Virtually no churn in terms of key customers. We do lose some small engineering firms, but we keep all of the big infrastructure owners, and there are others coming through the pipeline. The pipeline looks good and we've got to keep closing. We've got new products to introduce through Q3 and Q4. It's into the same customer base, plus the rest of the market. The combination of those two factors mean that we feel really good about growth rates and what have you. It's hard to put a number on the table when you're growing at 30%, 40%, 45% or whatever the number is. But we're in a really good spot, I think, Simon.
Simon Hinsley: Glenn. Just in terms of inbound acquisition interest, there's been some in the past. Just a question as to whether that has continued or reared its head again.
Glenn Milnes: Well, look, the electrification is a big theme for private equity at the moment, and a year ago, we had one of the big firms, Blackstone, turn up and make an offer. There are other firms that are looking at us and trying to understand how they can get into the software side of the electric utility market. There's a lot of engagement. We're not for sale and there's nothing that we need to be disclosing or talking about, but we are, I think, in the sights of some of the bigger firms.
Simon Hinsley: Well answered, Glenn. Just one final question that is not linked, but it sort of links. I am surprised the directors have not been buying shares down at these levels. Is there a blackout period?
Glenn Milnes: Well, there is always blackout periods, and most of our directors have a significant interest in Ike in terms of shareholding. I cannot speak on their behalf in terms of why they are not buying or selling.
Simon Hinsley: Not selling. All good. Thank you very much for that, Glenn and Paul. Glenn, I might just hand it back to you for closing remarks. We will finish up there.
Glenn Milnes: No, thank you, Simon, and thank you to everyone for joining. We will have another webinar towards the end of November, and that will be interesting insofar as we will be outlining some of these new products that you as shareholders have funded over the last 12 to 18 months. They are coming to market, and I think that will be an interesting topic to discuss. There will not be any new surprises in terms of numbers, et cetera. I look forward to being in touch between now and then.
Simon Hinsley: Thanks, Glenn. Thanks, Paul, and thanks all for attending. Have a good weekend.
Operator: Goodbye.
