ikeGPS Group (ASX:IKE) reported what management described as a “very strong” third quarter performance update, highlighting accelerating subscription growth, improving gross margins, and continued momentum in its IKE PoleForeman product. The company said it is investing from a healthy balance sheet into new product development that remains on track for release later in the calendar year.
Subscription growth and ARR expansion
In the prepared remarks, management focused first on annual recurring revenue (ARR), which it referred to as its “exit run rate.” For the nine months year to date, the company finished at NZD 21.1 million, an increase of 35%, or 36% in constant currency, with management noting a small impact from the U.S. dollar/New Zealand dollar exchange rate. The company also cited a 39% three-year compound annual growth rate for this metric.
Recognized subscription revenue for the nine months year to date was NZD 14.1 million, up 38% year-over-year. Management added that third-quarter subscription revenue was about NZD 5.3 million, representing 43% year-over-year growth. During the quarter, the company said it added around NZD 2 million of ARR, with contributions from new customer wins and expansions within existing accounts.
Seat growth and pricing uplift tied to PolePilot
The company said the majority of its sales are structured on an annual per-seat (per-user) basis. Seat licenses grew 30% year-over-year, and management said average revenue per unit increased, helped by the release of its AI-based PolePilot, sold as part of the IKE Office Pro product line.
In the Q&A, management said approximately 30 customers have licensed PolePilot to date, and it reported no pushback on price. Management said customer feedback has been “super positive,” pointing to time savings, and noted it had not yet seen a comparable competing product emerge after the launch.
Management also said a hardware trade-in program—where customers trade in older hardware and upgrade to newer hardware with iOffice Pro licenses—has supported iOffice Pro activity.
Transactional services softness and restructuring impact
Management acknowledged weakness in its transactional services business, attributing it to delays affecting broadband communications customers. Executives said a U.S. government “reset” on funding required some companies to reapply, delaying project activity even though funding is “there.” As a result, year-to-date services revenue and the number of poles counted in transactions were down year-over-year.
In response, the company restructured the team supporting the services business and offshored a significant portion of the work. Management said the move has improved services gross margins and created a more variable cost model with fewer fixed costs. During Q&A, management attributed recent volatility in transactional margins partly to one-time restructuring costs taken in the second quarter, while noting the third quarter was the first full quarter reflecting the offshore model, including work performed by a team in Mexico.
On timing for a transactional recovery, management said it is seeing improved “line of sight” to larger projects and increased deal activity in the pipeline over the past couple of months. However, it cautioned that timing remains uncertain, suggesting a potential March–April timeframe and “early signs” that activity could begin to materialize in the first quarter.
Revenue mix and margin improvement
Total revenue for the nine months year to date was NZD 19.8 million. Management said the recurring components—subscriptions and transaction revenue—make up around 90% of total revenue. For the year to date, revenue grew around 7%, and year-over-year quarterly revenue growth was around 11%, with management emphasizing that the mix continues to shift toward subscriptions.
Gross margins improved, with management citing 79% versus 68% (as presented on its metrics table), driven by subscription mix and the services restructuring. Management said the improved gross margin profile is creating operating leverage that is being directed toward new product investment and progress toward becoming EBITDA positive.
Pipeline, customer additions, and product development plans
During Q&A, management discussed customer growth and deal composition. When asked about net new customers—referencing 25 net customer growth—management said the quarter’s additions came from two main areas:
- PoleForeman expansion, including broader adoption within utilities as well as growth among engineering firms supporting those utilities, which management described as a “flywheel effect.”
- Office Pro uptake, supported by PolePilot adoption and the hardware trade-in program.
Management characterized the new-customer mix as roughly “80/20,” saying about 20% of net new customers represent material deal sizes (described as “high five-figure, high six-figure” annual contract values), while the remaining 80% skew smaller, often engineering firms that may expand over time.
Looking forward, management said it has “very good coverage” of the bookings needed to support its 35% guidance and cited a pipeline containing 8–10 material deals that account for about half of the pipeline, with the balance made up of smaller opportunities.
On new product development, management said R&D spend is expected to accelerate as new hires tied to its PoleOS initiative began onboarding in January, with additional hires expected in February. This increased spend was not reflected in the third quarter due to timing. Management also referenced a forthcoming product module it said is about nine months away, and suggested beta testing would likely resemble prior launches, estimating a 60–90 day beta once development is ready.
When asked about pricing for the upcoming product, management said it has not priced it yet, but noted that PoleForeman ARPU is around NZD 2,000 and indicated the new product would likely be “well north” of that level because it “adds significantly more” value.
Management also addressed capital needs, stating that any future capital raise would more likely be driven by strategic opportunities—such as potential acquisitions—rather than financial necessity, while reiterating that the company is tracking toward EBITDA positive performance.
Closing the update, management said it is seeing early signs of a similar trend continuing into the fourth quarter, which began in January, and described booking activity as relatively strong heading into the final quarter of its fiscal year.
About ikeGPS Group (ASX:IKE)
ikeGPS Group Limited, together with its subsidiaries, engages in the design, sale, and delivery of a solution for the collection, analysis, and management of distribution assets for electric utilities and communications companies in the United States. The company offers IKE Office Pro, a cloud software to measure, manage, and export pole data from the IKE device; PoleForeman, an application for electric utilities and communication companies for performing pole load analysis; and IKE Insight, an artificial intelligence and machine learning engine to gain pole insights at scale.
