IkeGPS expects to perform to prospectus in 2016 financial year

IkeGPS [NZX: IKE], the laser measurement tool developer, expects to meet its prospectus forecasts in 2016, despite under-performing on sales and running a month late on its new product rollout in the year ended March 31.

The Wellington-based company, whose senior management are now based in the US, reported a $5.1 million loss in its latest year, compared with a loss of $2.3 million a year earlier, and just below the loss of $5.33 million forecast in its July prospectus. Sales rose to $4 million, from $1.9 million, missing its projection of $6.4 million.

The company warned investors last month that revenue would miss guidance in the 2014/15 financial year, because anticipated sales of its new smartphone tool, Spike, fell in April instead of March, and would be counted in the current financial year's results.

However, while the company is expecting Spike units to "exceed the IPO offer document forecast for FY16 of 2,712 units and revenue of $2.9 million," it is not expecting this catch-up to boost total revenue for the current year, which it expects to be "in line with its IPO offer document forecasts, with revenues growing to $14.3 million."

The board says it is confident that the momentum from anticipated revenue growth of 250% for the current year "will carry over into the 2017 financial year."

Like other software-based tech firms, such as Xero, Wynyard Group and Orion Health, ikeGPS is focused on building sales momentum in international markets before it achieves profitability. The company expects to have $10 million in working capital available at the end of the current financial year to continue expansion.

Staff has grown from 20 at the time of the IPO to 63 fulltime positions today, with the largest proportional growth in the sales and marketing force in the US and in development capability at its New Zealand base. Sales presences in China and Europe have also been established.

The company is also concentrating on building US institutional investor interest, although its statements to the NZX today make no mention of plans to list the stock in the US.

Presentation slides accompanying the result suggest ikeGPS shares are undervalued by as much as 121% on a price-to-book value basis, and 190% on a share-price-to-sales basis, compared to similar US-listed growth stocks. The shares, which have never traded above the $1.10 July IPO price, fell 2.5% at the opening of trade on the NZX to 78c.

Chief executive Glenn Milnes said the Spike smartphone product was now experiencing "strong online growth" following the launch of a sales site, and enterprise sales opportunities were emerging. IkeGPS had signed new corporate partnerships with GE Digital Energy and Stanley Black & Decker, two major players in the US market. It expects more such partnerships, it said, without giving details.

The Spike tool was finding a ready market in the insurance, signage and real estate sectors, where its ability to make accurate measurements based on photographs was improving productivity, Mr Milnes said.

Like other software as a service companies, ikeGPS is seeking a greater proportion of recurring, subscription-based revenue, although that is embryonic for now. Recurring revenues were nil last year and are estimated to be 4.9% of total sales in the current financial year.

The company expects government grants to decrease to a tiny fraction of total income this year, compared to previous years. It will be targeting gross margins on product sales of more than 65% as it moves toward a greater proportion of sales coming from software rather than hardware and will put 45% of its revenue investment into sales and marketing, and 35% into product development.

The process of selling to enterprises and new corporate partners was "intensive," Mr Milnes said, and would produce "lumpy" revenue results.

"Product development costs will increase in absolute dollar terms as we introduce new software and hardware products, but are expected to decrease as a percentage of operating revenue," he said.

(BusinessDesk)

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