IQGeo Group PLC Half-year Report (4790L)

TIDMIQG

RNS Number : 4790L

IQGeo Group PLC

13 September 2021

IQGeo Group plc

(the "Company" or the "Group")

Interim results for the six months ended 30 June 2021

Continued success in orders and revenue growth

IQGeo Group plc (AIM: IQG), a market leading provider of geospatial productivity and collaboration software for the telecoms and utility network industries, is pleased to announce its interim results for the six months ended 30 June 2021.

Operational highlights:

   --       Substantial progress in all regions with new customer wins and extensions

-- Successful integration of the OSPInsight (OSPI) business which was acquired in December 2020 and which now forms our Small and Medium Business (SMB) unit

   --       Release of mobility solution for OSPI customer base

Group financial highlights:

-- Recurring revenue growth of 58% to GBP2.6 million (H1 2020: GBP1.6 million) representing 40% of H1 revenue (H1 2020: 34%)

-- Annual recurring revenue (ARR) order intake has increased by 88% to GBP1.5 million (H1 2020: GBP0.8 million)

   --       Exit ARR* increased by 131% to GBP6.6 million (H1 2020: GBP2.9 million) 
   --       Gross margin increased to 63% (H1 2020: 51%) due to positive changes in sales mix

-- Substantially reduced adjusted EBITDA** loss of GBP0.4 million (H1 2020: GBP1.2 million) with a reduced loss for the period of GBP1.0 million (H1 2020: GBP1.7 million)

-- Net cash balance of GBP12.1 million as at 30 June 2021 (31 December 2020: GBP10.5 million, 30 June 2020: GBP11.2 million)

Outlook:

   --       Exit ARR of GBP6.6 million provides good visibility of future revenues and cash flows

-- Expected continued progress in profitability and operating cash flow as recurring revenues continue to grow

*Exit ARR is defined as the current go forward run rate of annually renewable subscription and M&S agreements

**Adjusted EBITDA excludes amortisation, depreciation, share option expense, foreign exchange gains/losses on intercompany trading balances and non-recurring items and is reported as it reflects the performance of the Group

Richard Petti, Chief Executive Officer, said:

"I am pleased with IQGeo's performance for the first six months of the year. Despite continued business disruption caused by the Covid-19 pandemic, IQGeo performed well against all our key metrics with strong financial performance, product innovation and go-to-market strategies.

The IQGeo technology continues to develop its best-in-class solutions enhanced by significant new software releases and the integration of our award-winning mobile software for the OSPI customer base, which we have successfully started to deploy. Development and demand for our cloud-native capabilities continues to grow as we continue to accelerate our investments in cloud technology. We have also made significant progress in the rollout of our new network "system of record" capabilities, deploying this technology with customers in both North America and EMEA. These system of record capabilities take the IQGeo solution into the heart of the incumbent vendor market, significantly strengthening our competitive positioning.

Direct sales of our software through our enterprise and SMB teams remains strong with particularly encouraging growth from our new SMB unit, delivering an exceptional number of new logos in the first half. We are making steady progress in geographic market expansion having established new channel, technology and integration partners to support our market growth objectives in all our regional markets.

The IQGeo business is on a firm operational and technology foundation and combined with the growth in the underlying markets in which we operate, the directors remain very positive about the outlook for the Group in the second half of the year and beyond."

For further information contact:

IQGeo Group plc +44 1223 606655

Richard Petti

Haywood Chapman

FinnCap Ltd +44 20 7220 0500

Henrik Persson, Seamus Fricker (Corporate Finance)

Tim Redfern, Richard Chambers (ECM)

Notes to Editors

About IQGeo

IQGeo(TM) (AIM: IQG), delivers award-winning geospatial software solutions to telecommunication and utility network operators around the world ranging from large multinationals to smaller regional providers. The IQGeo software suite improves productivity and collaboration across enterprise planning, design, construction, maintenance, and sales processes reducing costs and operational risks while enhancing customer satisfaction. Our mobile-first, cloud-native software helps companies create and maintain an accurate view of their increasingly complex network assets that is easily accessible by anyone, wherever and whenever needed. Whether using our Enterprise IQGeo Platform or targeted OSPInsight fiber planning and design software, we enable a "System of Action" that breaks down information silos, improves data quality and accelerates decision making. Headquartered in Cambridge, with offices in Denver, Salt Lake City, Frankfurt and Tokyo, we work with some of the largest network infrastructure operators in the world. For more information visit: www.iqgeo.com/

Chief Executive Officer's statement

Overview

IQGeo's primary target markets of telecommunications and utility network operators have remained resilient despite the shift in business priorities and working patterns caused by the Covid-19 pandemic. These industries are providing critical national infrastructure which has been highlighted by a greater demand for nation-wide broadband and utility services as more people work from home in all our key markets. Combine this trend with the rollout of fibre and 5G services and grid modernisation for electrical network operators, we expect to see continued strong demand for IQGeo's end-to-end geospatial software solutions building on the 39 new logos signed in the first half of 2021.

The first six months of 2021 have unfortunately also witnessed a number of catastrophic climate events including wildfires, heat waves, floods and severe storms which have all had a major impact on both telecommunication and utility networks. One key theme that has emerged from our markets in these incidents is the need for greater network resilience. Creating more resilient networks against a backdrop of year-on-year staffing declines demands that operators digitise and automate all aspects of their network lifecycle. Not only must they respond to natural disasters quickly but put systems in place to proactively seek out, mitigate network weaknesses and respond quickly when incidents are reported. These drivers have resulted in significant wins such as the federal Western Area Power Administration in North America and a new win at one of the largest Japanese energy companies in the world, where the IQGeo solution will be used for disaster prevention and response. Unlike many of our competitors, IQGeo's software is optimised for the industries we serve, enabling us to help operators improve the quality and enterprise-wide accessibility of network information in order to build and maintain more resilient networks.

The Covid-19 pandemic has also accelerated an ongoing shift in buying patterns for enterprise software from direct sales engagement to online research and evaluation. We see potential customers spending much more time researching and evaluating software solutions on their own before engaging with salespeople, with some studies pointing to a 100% increase in digital research by clients(1) . This shifting pattern plays to the strengths of IQGeo as an agile, digital organisation. We are constantly measuring and evaluating our own online footprint and working to develop digital sales content and marketing strategies that support online prospects. As a result of this improvement in our online presence, IQGeo have attracted a greater variety of network operators including cities, airports, universities, departments of transport, oil and mining companies aside from the traditional commercial telecommunications and utilities operators.

This trend toward a greater online presence also speaks to IQGeo's Cloud-first product architecture that is helping customers move their software deployments from on-premise to a cloud hosted environment, a trend we have seen increase significantly with our customer deployments compared to that of a year ago. While cautious telecommunications and utility network operators have been slower to move to cloud-based deployments than other industries, we believe that the move to cloud will accelerate in the coming years. There are compelling technical and financial advantages to SaaS based cloud deployments and IQGeo will continue to invest in this area to provide an industry leading solution.

(1) https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-b2b-digital-inflection-point-how-sales-have-changed-during-covid-19

Strategic Priorities

The strategic priorities of the Group remain consistent with those identified within our 2020 Annual report which was published in April 2021. Since then, the Group has achieved continued progress against our strategic objectives in the first half and this positive performance is reflected in our first half results.

-- Regional Growth: The Group has added 39 new customer logos during the first six months of the year, with market share being expanded in North America, Europe and Japan. This included new business with notable brands such as Shaw Communications and Western Area Power Administration in North America, Deutsche GigaNetz and Swish fiber in Europe and two tier one utilities companies in Japan.

-- Building Recurring Revenues: The combination of new customers and expansion orders from existing customers has added GBP1.5 million of Annual Recurring Revenues ('ARR') through subscription and M&S arrangements to our exit ARR, which now stands at GBP6.6 million.

-- Product Innovation: IQGeo has continued to grow investment in the IQGeo product stack adding functionality with an increased focus on cloud capabilities for both enterprise and small/medium business clients.

Board changes

In May 2021 IQGeo announced the appointment of Carolyn Rand as a new Non-executive Director to the IQGeo Board. Carolyn is a great addition to the existing Board members and her extensive expertise with enterprise mobile software is a particularly good fit given IQGeo's focus on mobile-first, cloud-native software architecture and business operations. With a strong background in finance and audit Carolyn has taken the role of Chair of the Audit Committee.

Current trading and outlook

Our financial performance remains in-line with Board expectations, and we remain positive about the outlook for our target markets in the telecommunication and utility industries. With major private and public initiatives for electrical grid modernisation and the roll out of fibre and 5G networks, we continue to see significant opportunity in our two industry verticals in all our geographic markets. In addition, the OSPI acquisition at the end of 2020 has expanded our addressable market as we successfully target the high-growth area of regional, private, and governmental fibre network operators.

Richard Petti

Chief Executive Officer

Financial Review

On 21 December 2020 the Group acquired OSPInsight International Inc. ("OSPI") for a total consideration of up to $8.75 million. During the six months to 30(th) June 2021, the OSPI business has been successfully integrated into IQGeo's operations and the positive results of the acquisition along with the organic growth achieved by IQGeo's pre-existing operations are reflected in the Group KPIs below:

 
 KPIs                               H1 2021   H1 2020 
                                    GBP'000   GBP'000 
---------------------------------  --------  -------- 
 Total revenue                       6,378     4,722 
 Recurring revenue                   2,574     1,625 
 Recurring revenue %                  40%       34% 
 Exit recurring revenue run rate     6,581     2,850 
 IQGeo own product orders            6,900     5,500 
 Gross margin %                       63%       51% 
 Adjusted EBITDA loss                (357)    (1,209) 
 Loss for the period                (1,041)   (1,732) 
 Recurring revenue net retention     109%      133% 
 Cash, net of debt                  12,115    11,209 
---------------------------------  --------  --------

The Group continues to focus on increasing Annual Recurring Revenue ("ARR") through subscription-based software sales and maintaining long-term relationships with customers, creating recurring revenue growth and achieving sustained profitability and cash flows. ARR also includes maintenance and support arrangements from perpetual licence sales.

During the first half of 2021, ARR order intake has increased by 88% to GBP1.5 million (H1 2020: GBP0.8 million), the highest ever recurring revenue order intake for a 6 month period for IQGeo. This has been achieved through winning 39 new customer logos combined with expansion sales to existing customers. The Exit ARR of the Group as of 30 June 2021 has increased by 131% to GBP6.6 million (H1 2020: GBP2.9 million). Although lower than H1 2020, the recurring revenue net retention rate of 109% was still pleasing. The driver behind the 2020 figure was the large order received from Tokyo Electric and Power Company, an existing customer, in March 2020. In H1 2021, ARR order intake was across 39 new logos as well as current customers.

Orders

Bookings of orders related to IQGeo own products increased by over 25% to GBP6.9 million during H1 2021 (H1 2020: GBP5.5 million) with new customers being added in all three of our key markets (North America, Europe and Japan). Bookings of orders related to third-party Geospatial Services were GBP0.2 million (H1 2020: GBP0.5 million).

IQGeo product order backlog (orders won, revenue not recognised) as at 30 June 2021 was GBP9.2 million (H1 2020: GBP5.8 million) with the growth being due to increased order intake. Third-party Geospatial Services order backlog was GBP0.6 million (H1 2020: GBP1.0 million).

Revenue

In addition to recurring revenue described above, revenue is derived from consultancy services on own IP products and also consultancy services connected to third party products. The Group continues to focus its strategy on its core IP products rather than lower margin non-core 3rd party products, this revenue stream will continue to diminish, replaced by higher margin IQGeo products. Revenue composition by revenue stream is summarised in the table below

 
 Revenue by stream                  H1 2021    % of total   H1 2020    % of total     Year on 
                                     GBP'000     revenue     GBP'000     revenue     year growth 
                                   ---------  -----------  ---------  ----------- 
 Recurring IQGeo product revenue     2,574        40%        1,625        34%           58% 
---------------------------------  ---------  -----------  ---------  -----------  ------------- 
 Perpetual Software                   761         12%         122          3%           524% 
 Services                            2,599        41%        1,847        39%           41% 
---------------------------------  ---------  -----------  ---------  -----------  ------------- 
 Non-recurring IQGeo product 
  revenue                            3,360        53%        1,969        42%           71% 
 Total IQGeo product revenue         5,934        93%        3,594        76%           65% 
                                   ---------  -----------  ---------  ----------- 
 Geospatial services from 
  third party products                444          7%        1,128        24%          (61)% 
---------------------------------  ---------  -----------  ---------  -----------  ------------- 
 Total revenue                       6,378        100%       4,722        100%          35% 
---------------------------------  ---------  -----------  ---------  -----------  -------------

Recurring revenues have increased by 58% to GBP2.6m (H1 2020: GBP1.6m) as a result of the ARR won during 2020 and the acquired OSPI customer base. ARR won during H1 2021 has had limited impact on revenues for the six months ended 30 June 2021, with the increase in recurring revenues to be realised in future periods. Sales of perpetual software licences will continue to fluctuate in reporting periods as the Group continues to focus on subscription sales and the increase during H1 was due to a single new customer. The increase in deployments and expansion orders has led to a 41% increase in associated service revenues which reflects the growing customer base using IQGeo software. The Group continues to have visibility of services revenues of around six months forward due to the strong backlog of orders won

Gross profit

 
 Gross profit                 H1 2021     Gross    H1 2020     Gross    Gross margin 
                               GBP'000    margin    GBP'000    margin        mvt 
                                            %                    % 
                             ---------  --------  ---------  -------- 
 Gross profit/gross margin     4,037       63%      2,422       51%         12% 
---------------------------  ---------  --------  ---------  --------  -------------

Gross margin percentage increased by 12% compared with the prior period. High margin recurring product revenues are 40% of total revenues for the six months ended 30 June 2021 (H1 2020: 34%). This shift in product mix has driven the increase in gross margin percentage along with improved services margins.

Operating expenses and adjusted EBITDA

Operating expenses were GBP5.5 million (H1 2020: GBP4.1 million) and are summarised as follows:

 
                                                H1 2021   H1 2020 
                                                GBP'000   GBP'000 
---------------------------------------------  --------  -------- 
 Other operating expenses                        4,394     3,631 
 Depreciation                                     156       223 
 Amortisation and impairment                      780       472 
 Share option expense                             119       20 
 Unrealised foreign exchange on intercompany 
  trading balances                                55       (282) 
 Non-recurring items                               8         - 
 Total operating expense                         5,512     4,064 
                                               --------

Other operating expenses of the Group include sales, product development, marketing, and administration costs.

Other operating costs during the period have increased with the addition of the OSPI acquired business adding GBP0.8 million of operating costs to the Group. The Covid-19 pandemic has continued to restrict travel and face-to-face sales activities which has resulted in reduced costs. Operating costs are anticipated to increase in the future to drive further revenue growth.

Adjusted EBITDA excludes amortisation and impairment, depreciation, share option expense, foreign exchange gains/losses on intercompany trading balances and non-recurring items and is reported as it reflects the performance of the Group. Adjusted EBITDA for the period was a GBP0.4 million loss (H1 2020: GBP1.2 million loss).

The operating loss for the period was GBP0.9 million (H1 2020: GBP1.6 million loss).

EPS and dividends

Adjusted diluted loss per share was 2.2 pence (H1 2020: 4.0 pence). Reported basic and diluted loss per share was 1.8 pence (H1 2020: 3.5 pence).

Consolidated statement of financial position and cash flow.

Cash as at 30 June 2021 was GBP12.1 million (31 December 2020: GBP11.1 million, 30 June 2020: GBP11.9 million).

Cash net of debt as at 30 June 2021 was GBP12.1 million (31 December 2020: GBP10.5m, 30 June 2020: GBP11.2m). In April 2020, IQGeo America Inc, a subsidiary of IQGeo Group plc applied for and received a loan of $819,000 under the USA CARES Act's "Paycheck Protection Program" in order to support the USA operations during the uncertainty caused by the impact of the global COVID-19 pandemic. This loan was forgiven by the US Small Business Administration along with interest accrued in June 2021.

Net cash outflows from operating activities materially reduced to GBP0.4 million (H1 2020: GBP1.1 million) partly due to R&D tax credit cash received during the period.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's performance, and the factors which mitigate these risks, have not significantly changed from those set out on pages 32 to 35 of the Group's Annual Report for 2020 (a copy of which is available from our website www.iqgeo.com).

Condensed consolidated income statement