IQGeo Group PLC Interim results (0879O)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Iqgeo Group Plc	LSE:IQG	London	Ordinary Share	GB00B3NCXX73	ORD 2P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	18.00	4.64%	406.00	400.00	410.00	405.00	390.00	390.00	73,610	16:35:22

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Communications Services, Nec	44.49M	4k	0.0001	40,500.00	249.39M

Iqgeo (LSE:IQG)
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From Apr 2019 to Apr 2024

TIDMIQG

RNS Number : 0879O

IQGeo Group PLC

30 September 2019

IQGeo Group plc

(the "Company" or the "Group")

Interim results for the six months ended 30 June 2019

Significant progress against strategic priorities

IQGeo Group plc (AIM: IQG), a market leading provider of geospatial productivity and collaboration software for the telecommunications and utilities industries, is pleased to announce its interim results for the six months ended 30 June 2019.

IQGeo (myWorld) operational highlights:

-- Five new logos signed in the first half including a major North American telecoms operator and our first customers in Europe. A further three logos signed in the second half so far.

-- Investment in sales resource delivering client wins across main regions and improved pipeline

-- Increased sales momentum from the subscription model following successful introduction at the start of the year

-- Investment in product innovation resonating with both new and existing customers with newly launched products; Network Revenue Optimizer, Construction Manager and Operations Manager all generated sales

Group financial highlights:

-- Bookings of orders related to myWorld increased by over 100% to GBP2.5 million during H1 2019

   --      Total revenue generated from myWorld products increased to 65% (H1 2018: 45%)

-- Net cash balance of GBP26.0 million at 30 June 2019 (31 Dec 2018: GBP30.9 million) following payment of costs associated with RTLS SmartSpace business disposal but prior to shareholder return of GBP11.0 million via a Tender Offer completed in September

-- Pro-forma net cash balance (taking account of the Tender Offer and costs) of GBP15.0m as at 30 June 2019

Outlook:

   --      End market conditions remain favourable as customers focus on digital transformation 
   --      Annual Recurring Revenues including subscription and M&S is currently GBP1.6m.

-- Expect continued strategic progress in the second half: strong growth in myWorld orders, continued pipeline expansion and good growth in subscription orders

-- Cash outflow in H2 will be similar to H1. Operating cashflow in 2020 and beyond is expected to significantly improve as continued sales momentum builds on our base of existing subscription revenues

Richard Petti, Chief Executive Officer, said:

"I'm very pleased to report on a first half where we have made significant progress. Our investment in product innovation and sales resource have delivered a more than doubling in bookings for our core myWorld software while we have added five new client logos. These include a top 10 North American telecoms operator and the first new European client from our regional sales office.

"Whilst we transition towards a subscription model, we recognise that some customers prefer perpetual licence and are also mindful of the impact that this transition has on our cash flows. We therefore expect to continue blending perpetual licences wins with subscription deals. Our subscription offering is particularly attractive to mid and small sized operators where we are seeing high levels of traction. At the same time the enterprise-grade quality of the software is also driving interest from large scale utilities and telecommunication providers.

"We now have 7 customers signed up on a subscription basis generating an Annual Recurring Revenues of GBP0.4m from a standing start at the beginning of the year

"The favourable market conditions reported in the 2018 annual accounts are continuing, driven by the digital transformation of our target markets. Combined with our unique and differentiated product set and refreshed sales infrastructure this is driving an improved pipeline and provides confidence in the business' opportunity and prospects for the future."

For further information contact:

IQGeo Group plc +44 1223 606655

Richard Petti

Tim Gingell

finnCap Ltd +44 20 7220 0500

Henrik Persson, Anthony Adams (Corporate Finance)

Tim Redfern, Richard Chambers (ECM)

Tulchan Communications LLP +44 20 7353 4200

James Macey White, Matt Low, Deborah Roney

Notes to Editors

About IQGeo

IQGeo(TM) (AIM: IQG) a leading developer of geospatial software for the telecommunications and utility industries, accelerating productivity and collaboration across enterprise planning, design, construction and maintenance processes. Our reality-centric solutions create and maintain a real-time, accurate view of complex network assets, dramatically improving data quality and currency. IQGeo's open, mobile-first architecture streamlines operational processes using any device, in the office or in the field, enabling greater business collaboration. We help network operators meet their digital transformation ambitions, saving time and money, while improving safety and enhancing customer satisfaction. Headquartered in Cambridge, with offices in Denver, Frankfurt and Tokyo, we work with some of the largest network infrastructure operators in the world. For more information visit: https://www.iqgeo.com/

Chief Executive Officer's statement

Overview

Our first six months of trading as IQGeo saw bookings for our core myWorld products increase by more than 100% to GBP2.5 million. Five new logos were signed, and we expanded our penetration with existing customers through the sale of new products. Having only introduced the subscription model at the start of the year we have seen good progress in accelerating this type of business whilst recognising that some customers continue to prefer perpetual licence deals. Having signed up another three subscription deals since 30 June, we now have 7 customers signed up on a subscription basis that will generate Annual Recurring Revenues of GBP0.4m.

Pipeline generation for telecommunications and utility industries continues to develop in all our three geographies: North America, Europe and Japan.

Strategy

IQGeo is a rapidly growing, global software business that accelerates productivity and collaboration for our telecommunications and utilities customers. I am pleased to say that in the first half of 2019 we have made tangible steps in our strategy across all areas of our business.

   1.     Regional Growth

While our traditional strength in North America continues with new signings in the USA and Canada, we have also signed our first new customers in Europe thanks to our investment in a new European sales office.

   2.     Transition to Subscription

We are making good progress in our transition to a software subscription licensing model whilst at the same time managing the impact this transition has on our cashflow by continuing to offer perpetual licence deals where appropriate. The subscription model enables customers to reduce the upfront investment and build up licence numbers based on demand and usage. For IQGeo it creates long term relationships that will naturally expand with further usage and provides an effective platform to cross-sell additional solutions while generating ongoing revenues. We see this approach being particularly successful among the 'Tier Two' operators in our markets (mid and small size operators) which has become an increasing focus for our sales and marketing activity.

   3.     Product Innovation

Our continued investment in product development is also beginning to deliver results off the back of the products launched in H1 2019. We have closed business for our new Network Revenue Optimizer, Construction Manager, and Operations Manager. These new products combined with our existing mobile-first myWorld platform and the impending launch of Network Manager, our next generation geospatial solution, are creating a very competitive and comprehensive product line.

Business development

Following the disposal of the RTLS SmartSpace business in 2018, we invested in additional development, sales and support infrastructure to best position IQGeo to capture the market opportunity. This included the recruitment of experienced quota-carrying personnel and software developers.

The business has also changed the way it priced and sold myWorld to encourage more long-term subscriptions and recurring revenue in line with our strategy. We transitioned our pricing schemes to a usage-based model which provide our customers better price points to start using myWorld and better aligns value with increased usage as system integration and user adoption grows.

Our sales activity is led by progress in the North American market having secured several high-profile customers from entrenched competitors and have built a healthy pipeline in both the telecoms and utility markets.

In North America we have successfully signed new business contracts with large regional utilities as well as a significant top 10 telecoms operator with over 18.6 million subscribers for a solution that will be used by both its fixed and wireless business lines.

In Europe our newly-formed sales team closed their first contracts in the telecoms space, establishing critically important reference customers that will help to accelerate future pipeline growth. Sales in Japan remain satisfactory as we work with our reseller partners to target strategic utility operators.

Product innovation

IQGeo's product strategy is well differentiated from that of its competitors and is resonating with both existing customers and new opportunities. Unlike other vendors, our solution sits across the entire network lifecycle (from design, to construction, to operationalization and support) and offers an 'office to field' solution that replaces multiple disconnected systems.

This approach is proving popular with medium and smaller sized operators who do not have the IT resources or budget to buy and integrate several systems for managing their network. Larger operators also see opportunities for savings and efficiency by targeting systems sitting alongside their GIS (such as construction management) and activating this functionality within myWorld.

Board changes

There were two significant changes to the IQGeo Board of Directors in the first half of 2019. Paul Taylor was confirmed in the role of Non-Executive Chairman and Andy MacLeod has joined the Board as a new Independent Non-Executive Director. A telecommunications expert with an extensive industry pedigree, Andy brings a rich depth of experience in IT technology and operations for fixed line and wireless communications.

Capital reduction and Tender offer

Following the court approved Capital Reduction in July 2019, the Company returned GBP11.0 million of its cash balance, following the Ubisense sale, to Shareholders in September 2019 pursuant to the published Tender Offer. In establishing the quantum of the Tender Offer, the Board considered the controlled investment strategy required to support the Company's growth ambitions as well as the working capital needs of the business going forward.

Current trading and outlook

The sales momentum generated in the first half has continued into the second. We have already closed an additional three new logos and are continuing to build our annual recurring subscription revenue base which now stands at GBP0.4m.

Overall for 2019 we expect myWorld orders to grow strongly, offsetting the planned step away from third party business. The second half is expected to see continued improvement in the pipeline and good growth in subscription orders delivering a modest improvement in myWorld revenue over 2018 and a similar level of operating cash outflow to the first half of 2019. As we move into 2020, operating cashflow is expected to improve significantly, as continued sales momentum builds on our base of subscription revenues.

Richard Petti

Chief Executive Officer

Chief Financial Officer's statement

The Group is focused on growing own product myWorld revenues which include generating recurring revenues from both software subscription products, selling perpetual software licences and maintenance and support contracts, and delivering consultancy services revenues. Additionally, the Group has a legacy operation that provides lower margin consultancy services connected to third party products which have declined in the current period in line with expectations and may decline in future periods.

Orders

Bookings of orders related to myWorld increased by over 100% to GBP2.5 million during H1 2019 (H1 2018: GBP1.2 million) following investment in sales capability across the organisation. As at 30 September 2019, seven new subscription customers across all geographies with Annual Recurring Revenue (ARR) of GBP0.4m have been signed.

Bookings of orders related to third-party Geospatial Services were minimal (H1: 2018: GBP3.0m) but a GBP1m+ order has been received after the period end from an existing customer for additional consultancy services for 2021.

myWorld order backlog as at 30 June 2019 was GBP1.7 million (H1 2018: GBP1.5 million). Third-party Geospatial Services order backlog was GBP0.9 million (H1: 2018: GBP2.6m).

Revenue

Revenue composition by revenue stream is summarised in the table below:

 
 Geospatial revenue              H1 2019    % of total   H1 2018    % of total     Year on 
                                  GBP'000     revenue     GBP'000     revenue     year growth 
                                ---------  -----------  ---------  ----------- 
 Software                          737         20%         682         12%            8% 
 Maintenance and support           589         16%         411          7%           43% 
 Services                         1,027        28%        1,456        26%          (29)% 
 Total revenue generated from 
  myWorld products                2,353        65%        2,549        45%           (8)% 
                                ---------  -----------  ---------  ----------- 
 Geospatial services from 
  third party products            1,292        35%        3,150        55%          (59)% 
------------------------------  ---------  -----------  ---------  -----------  ------------- 
 Total revenue                    3,645        100%       5,699        100%         (36)% 
------------------------------  ---------  -----------  ---------  -----------  -------------

The commercial model is evolving with a strong focus on building a subscription-based software business and long-term relationships with customers. This approach enables more customers to start with smaller deployments which can then be grown over time. Ultimately this approach will provide greater stability to income and operations in future periods but will have the impact of deferring revenue recognition in the short term. In the first half of 2019 revenue from perpetual software licences grew by 8% with minimal subscription revenues being recognised in the period. Recurring maintenance and support revenues continued to grow to over GBP0.5m registering 43% growth over the same period in 2018.

Gross profit

 
 Geospatial gross profit      H1 2019     Gross    H1 2018     Gross    Gross margin 
                               GBP'000    margin    GBP'000    margin        mvt 
                                            %                    % 
                             ---------  --------  ---------  -------- 
 Gross profit/gross profit 
  margin                       1,226       34%      2,469       43%         (9%) 
---------------------------  ---------  --------  ---------  --------  -------------

Gross margin percentage has decreased during 2019 by 9%. The change in approach to the subscription-based model has resulted in a short-term decline of revenues generated from myWorld products. While the revenue mix has moved in favour of higher margin software and maintenance and support revenues, the significant reduction in services revenue which has a fixed cost of delivery, has led to an overall decline in the gross margin during the first half of 2019. Increases of recurring subscription and maintenance & support revenues, together with new staff completing their training and offering better utilisation, are expected to drive an improvement to both gross profit and gross margin percentage in future reporting periods.

Operating expenses and adjusted EBITDA from continuing operations

Operating expenses were GBP4.4 million (H1 2018: GBP3.0 million) and are summarised as follows:

 
                                                H1 2019   H1 2018 
                                                GBP'000   GBP'000 
---------------------------------------------  --------  -------- 
 Other operating expenses                        4,022     2,626 
 Depreciation                                     139       123 
 Amortisation and impairment                      406       371 
 Share option expense                              6        118 
 Unrealised foreign exchange on intercompany 
  trading balances                               (151)      54 
 Non-recurring items                               -       (247) 
---------------------------------------------  --------  -------- 
 Total operating expense                         4,422     3,045 
---------------------------------------------  --------  --------

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

Sales costs have increased during H1 2019 as a result of headcount being added to develop sales channels in both the North American and European utilities and telecoms markets.

Product development and product marketing costs have increased as the Group focuses on creating the next generation geospatial platform.

The H1 2018 other operating costs reported above include an allocation of the administration and marketing costs of the Group which supported both the Geospatial and discontinued RTLS SmartSpace divisions during 2018. Accordingly, the H1 2018 other operating costs reported above do not reflect a realistic cost base to support the standalone IQGeo business. H1 2019 other operating expenses are based on the IQGeo operating model which includes short-term serviced office leases in Cambridge, Frankfurt and Tokyo together with a subscription-based IT environment which provides the company with a flexible cost base from which to develop with minimal capital expenditure other than product development.

Adjusted EBITDA from continuing operations 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 GBP2.8 million loss (H1 2018: GBP0.2 million).

The operating loss for the period from continuing operations was GBP3.2 million (H1 2018: GBP0.6 million).

EPS and dividends

Adjusted diluted loss per share from continuing operations was 4.6 pence (H1 2018: 0.9 pence). Reported basic and diluted loss per share from continuing operations was 4.4 pence (H1 2018: 0.8 pence).

Consolidated statement of financial position and cash flow.

Cash as at 30 June 2019 was GBP26.0 million (31 December 2018: GBP30.9m, 30 June 2018: GBP5.8m).

The net cash outflows from operating activities were GBP3.6 million (H1 2018: GBP1.3 million).

Discontinued operations

On 31 December 2018 the Group received a net sum of GBP27.1 million cash consideration from the sale of the RTLS SmartSpace business, after settlement of all outstanding debt of the Group, including the balance on the HSBC loan of GBP1.8 million.

During H1 2019, the Group received an additional GBP1.1 million cash consideration in respect of the sale as a result of the finalisation of the completion accounts. This sum was greater than the GBP0.8 million asset recognised within the balance sheet as at 31 December 2018, creating a GBP0.3 million gain on disposal during the H1 2019 period.

Additionally, during H1 2019, GBP1.8 million of costs associated with the disposal were paid.

Repurchase of share capital

On 2 August 2019, the Company announced a proposed tender offer to repurchase up to a maximum of 28,260,869 of the Company's Ordinary Shares at a price of 46 pence per Ordinary Share.

Following approval of the tender offer by a General Meeting of Shareholders on 22 August 2019, the tender offer completed on 30 August 2019 resulting in the share capital reducing by 23,803,690 and GBP10,949,697 of surplus funds being returned to shareholders in September 2019.

Following completion of the tender offer and as at 27 September 2019, the issued share capital was 49,498,429 ordinary shares of GBP0.02 each

Kestrel Partners LLP, represented on the Board by Oliver Scott, is the Company's largest Shareholder, with an interest of 25.98% in the Company's issued share capital prior to the repurchase of shares, fully participated in the Tender Offer. Following the completion of the Tender Offer Kestrel Partners LLP hold 23.58 % of the share capital.

Robert Sansom, a director of IQGeo, fully participated in the Tender Offer and following its completion now holds 7.74 % of the share capital.

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 26 to 29 of the Group's Annual Report for 2018 (a copy of which is available from our website www.iqgeo.com).

Tim Gingell

Chief Financial Officer

Consolidated income statement