Announcement PDF Integrated Research Limited (ASX:IRI) FY2024 Half-Year Financial Results 22 February 2024 John Ruthven, CEO Matthew Walton, CFO We are IR A leading global software company providing performance and experience management solutions for the world’s mission critical ecosystems. Real-time analytics, fast troubleshooting, dynamic alerts, comprehensive reporting and customizable dashboards delivers a seamless user experience across … collaborate highly complex and expanding communications environments transact increasingly complex and expanding global payments networks infrastructure business critical network infrastructure Blue Chip Customer Base Long-term, high value relationships based on mission critical solutions Tech | Telco BFSI Health | Gov | Edu Retail |Industrial | Other 5/10 top telcos 6/10 top US banks 5/25 Fortune 500 top companies 5/20 largest Australian companies (market cap) CEO Key Messages Focus on growth leveraging improved working capital base 1. We have benefitted from the company’s strong renewal base and exercised cost discipline to improve profitability and cash. 2. Transact and Infrastructure performed strongly, up significantly on pcp bolstered by several large contracts. Whilst Collaborate headwinds persist; our focus is on larger enterprise with complex environments and industry verticals where our value proposition is strongest. 3. Our improved cash position enables the pursuit of a product led growth agenda. Half-Year Performance Review: Statutory (A$M) TCV growth and expense reductions drive statutory results 38.4 40.8 REVENUE 6% Dec-22 8.5 29% EBITDA Dec-22 32.4 Dec-22 Dec-23 CASH RECEIPTS FROM CUSTOMERS Dec-23 11.0 31.7 NET OPERATING CASHFLOW Dec-23 2% 1.0 Dec-22 18.6 3.4 239% Dec-23 21.5 11.2 NPAT 248% 3.2 Dec-22 Dec-23 NET CASH Jun-23 Dec-23 16% Half-Year Performance Review: Proforma (A$M) Proforma metrics are impacted by low new business and continued client/revenue churn 67.5 TOTAL CONTRACT VALUE (TCV) PROFORMA SUBSCRIPTION REVENUE 38.9 41.3 Dec-22 Dec-23 34.1 32.9 6% 4% Dec-22 38.1 PROFORMA REVENUE Dec-22 ANNUAL RECURRING REVENUE 1 PROFORMA EBITDA Dec-23 37.3 Dec-23 2% 64.0 5% Dec-22 Dec-23 8.2 7.7 Dec-22 Dec-23 83% 87% Dec-22 Dec-23 CASH CONVERSION RATE 2 6% 4ppt Note: Proforma revenue is a non-statutory alternate view of term licence and maintenance revenue (unaudited); refer to appendix for calculations 1. ARR (Annual Recurring Revenue) means monthly recurring revenue as of 31st of December multiplied by 12 2. Cash conversion rate equals cash receipts divided by proforma revenue FY24 Key Priorities YTD Summary Report Priority Status Notes Markets – continue growth momentum across all regions on plan YTD TCV is ahead of pcp, and growth expected for the full year. New business – win more new business and expand product footprint behind plan YTD, we have won 13 new customers, behind expectation. Existing customers – improve customer retention and renewal yield mixed The renewal book exceeds prior year, now weighted to H1. NRR improved from 92% to 95% on constant currency. Cost base – tightly manage to align with expected developments in the trading environment. on plan H1 expense was down 21%; operating expense expected to be down on prior year. Product innovation – co-develop with customers to reduce development cycles and validate use cases on plan Targeted approach to product development. Financial – increase profitability and retain a strong balance sheet on plan Statutory profits and cash expected to be up on the prior year. Financials Revenue Analysis: TCV, Statutory, Proforma and RR High Collaborate churn weighing on recurring revenue 60.0 • Cloud related sales started in 2021, reason why TCV and statutory revenue gap narrowed from 2021 • Proforma subscription revenue reflects recurring revenues • Continued decline in proforma subscription revenue and RR is driven by “down-sell” experienced in Collaborate 50.0 40.0 30.0 20.0 10.0 - 1. 2. H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR H1'22 H1'23 Statutory RR (Recurring Revenue) means monthly recurring revenue as of 31st of December multiplied by 6 TCV means Total Contract Value – refer to appendix for definition H1'24 TCV Geographic and Product Revenue Analysis Transact shows steady period on period growth, regional growth impacted by Collaborate Geographic Asia Pacific revenue - A$M 20 10 15 8 30 20 6 10 4 5 0 Americas - US$M Europe revenue - £M 10 2 H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR H1'22 H1'23 Statutory H1'24 0 TCV 0 H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR H1'22 H1'23 Statutory H1'24 TCV H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR H1'22 H1'23 Statutory H1'24 TCV Product Collaborate A$M 35 30 25 20 15 10 5 0 Infrastructure A$M Transact A$M 12 10 8 6 4 2 H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR H1'22 H1'23 Statutory ** H1'24 TCV 0 H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR 1. TCV by geography excludes services 2. Statutory revenue includes Testing services 3. RR (Recurring Revenue) means monthly recurring revenue as of 31st of December multiplied by 6 H1'22 H1'23 Statutory H1'24 TCV 14 12 10 8 6 4 2 0 H1'18 H1'19 H1'20 H1'21 Proforma Subscription RR H1'22 H1'23 Statutory H1'24 TCV Revenue Analysis: ARR Summary Headwinds continue offsetting growth and tailwinds A$M 80 70 60 • • • • • 67.5 ARR Jun 2023 0.4 New logos Collaborate 0.7 Upsell Collaborate 4.3 Downsell Collaborate 2.1 Upsell T&I 1.9 Downsell T&I 0.7 Exchange rate 64.0 ARR Dec 2023 Total ARR decline of 5% to $64m driven by Collaborate Collaborate down 10% - churn across all geographies All regions experiencing losses Upsell in T&I driven by Fiserv renewal No significant new logos ARR (Annual Recurring Revenue) means monthly recurring revenue as of 31st of December multiplied by 12 11 Operating Costs Disciplined cost management reduced total operating costs by 21% Product and Technology - A$M Sales and marketing - A$M 50% 25 25 20 53% 40% 20 31% 20.2 30% 15 15 10 12.0 5 18% 6.7 0 Dec-22 Dec-23 Adopted a more balanced and disciplined approach to innovation investments aligned to value drivers. 19.0 20% 10 10% 0% 5 30% 50% 20 25% 40% 15 30% 10 20% 20% 0 Dec-22 • Dec-23 15% 11% 8% 10%5 Expenses • 51% General and administration - A$M 60% 25 0% 0 5% 4.1 2.8 Dec-22 Dec-23 % of proforma revenue Sales & marketing spend reflect lower headcount versus prior period. • 10% Costs reflect headcount reduction and cost control improvement. 0% Half-Year Performance Review: Key Metrics High recurring revenue and long duration renewals Proforma Revenue 38.1m 11% 37.3m 12% TCV Renewal & New Contract Life 51% 38.9m 50% 59% 89% 88% 79% 34% 35% 16% 15% 13% 11% 10% Dec-23 Dec-22 Dec-23 Dec-22 Dec-23 Dec-22 Recurring Non Recurring 1 & 2 Yrs • >80% of total proforma FY21 revenue is recurring in nature (multi-year non FY22 cancellable licenses and related maintenance) 41.3m 3 & 4 yrs 28% 5 yrs • Average contract length from sales during the period was 4 years, unchanged versus prior year. • Transact & Infrastructure represented ~65% of the contracts closed in H1. Renewal New & Capacity Services • Stronger contracts renewal period • New business and capacity down on pcp; 60% and 45% respectively • Lower attach rate in services Net Cash Flow Analysis Continued focus on disciplined cash management 60 32.4 50 27.7 A$M 40 1.3 30 0.5 18.6 20 21.5 10 0 Net cash 30 June 2023 • Cash receipts from customers Cash paid to employees and suppliers reduced by 7% compared to last year. No payments for capitalised development in the first half. Cash paid to suppliers and employees • Cas Income tax FX, Interest & other • Net cash 31 Dec 2023 Continuous focus to improve cashflow from operations by reducing expenses and DSO. 14 EBITDA Cash Flow Bridge Debtor factoring complete and working capital improvement due to lower expenses and better collections A$M 20 11.0 3.3 10 Completed in December 2023 7.7 2.1 0.9 0 EBITDA - statutory Over-time revenue conversion * Proforma EBITDA Historical debtor factoring Working capital change 1.3 Income taxes paid 3.4 Net cash from operations * Over-time revenue conversion deducts “upfront” license fees and adds back the (“over-time”) amortised license component that relates to the reporting period. Commission costs associated with this timing difference are also adjusted to ensure revenues and expenses are matched to the correct reporting period. 15 Balance Sheet Strengthened cash balance Period Ended (as at) Jun 23 Dec 23 A$M A$M YoY Strong balance sheet with net cash of $21.5M and no debt. Cash and cash equivalents 18.6 21.5 16% Trade and other receivables 63.5 68.1 7% Intangible assets 0.0 0.0 - Right-of-use assets Trade receivables provide a strong source of future cashflow. High quality, low doubtful debt risk. 0.0 0.3 - All other assets 7.7 6.8 (12%) Total assets 89.7 96.8 8% Trade and other liabilities 7.9 7.0 (11%) Borrowings 0.0 0.0 - Net assets up 19% to $71m – negligible intangible assets Provisions 4.4 3.3 (24%) Tax liabilities 0.4 0.5 9% Deferred revenue 14.1 12.3 (13%) Lease and other liabilities 3.1 2.6 (16%) Total liabilities 29.8 25.7 (14%) Net assets 59.9 71.1 19% Strategy & Product Strategy progression - embrace innovation: incubate new ideas, new technologies in a fast-fail environment - adjacent new products & product enhancements - cash generation: $21.5M - balance sheet: ▲19% - profitability: $11.0M EBITDA capital management - explore synergistic M&A opportunities - partner to enter adjacent new product areas and market segments growth options - enhance business model: optimise revenue model, GTM and development for high-growth - create new revenue streams: new products for new markets scale-up Collaborate Customer Wins Providing assurance for the mission critical services of our customers Airbus (Europe) CDW SP (USA) 3-year term 3-year term New customer Renewal & expansion 110,000 users 135,000 users Solution: Collaborate UC Enterprise Server, Reporting Essentials, SBC, Collaborate Video Collab Room Solution: Full suite of IR's Collaborate products Customer challenge: the "Smartphone For All" project emerged as a main contender for IR and Cisco in this account. The project aims to connect and engage all Airbus Commercial employees by simplifying telephony solutions. Over the past two years, 17,000 smartphones have been deployed, with more than half allocated to factory workers. Notably, 40,000 landline phones have been collected, and 50,000 Cisco Jabber applications deactivated. The project is in progress. Customer challenge: CDW provides critical services to strategic end customers. IR Collaborate is an essential part of their managed services that support their customers’ stringent KPIs. CDW acquired some companies during the last few years. This renewal positions us to continue growing our strategic partnership with CDW as they standardize on practices and solutions across the newly combined companies. IR solution: IR's Collaborate product suite provides end-to-end visibility of the multi-vendor ecosystem in one product. IR solution: IR's Collaborate product suite provides CDW complete migration assurance without disruption and more insights to allow their business to run efficiently post-migration. Transact Customer Wins Ensuring reliability in today’s complex payments environments Fiserv Worldpay Network International LLC US, EU, LATAM, APAC United States Middle East 5-year term 5-year term 3-year term Renewal and Expansion Renewal Renewal and Expansion Solution: Transact and Infrastructure (inc. new NonStop Business Insight solution) Solution: Transact and Infrastructure Solution: Transact and Infrastructure Customer challenge: Fiserv is a leading global provider of payments and financial services and has been an IR customer since 1999. Their challenge is to ensure that they deliver superior value to their clients through leading technology, targeted innovation and excellence in everything that they do. Customer challenge: Worldpay is the second largest non-bank payments acquirer in the US, processing well in excess of a billion transactions per month. Their challenge was ensuring that their merchant networks are operating at over 99% uptime. Customer challenge: NI is the largest payments acquirer in the UAE and is expanding into multiple countries within the MEA region. As part of this expansion, they are modernising their platforms to introduce new payment types and services. Their challenge was to provide reliable monitoring for such a significant network expansion. IR solution: Our latest Cards and NonStop solutions are being used to provide Fiserv with rapid notifications of networking problems, to enable them to make better-informed business decisions. These innovations were instrumental in Fiserv’s decision to extend its relationship with IR. IR solution: Our Transact-Cards Plus solution is deployed across Worldpay’s multiple payment hubs to monitor the payment processing environment and ensure that their use is operating within expected SLA undertakings. Transact has been Worldpay’s chosen monitoring solution for the last 20 years. IR solution: To resolve this challenge, NI chose to extend its current IR solution by adding Transact Real-Time payments monitoring and upgrading to Transact’s Cards and NonStop Plus solutions. These extensions enabled NI to solve its complex monitoring needs all within a single monitoring and analytics tool. FY24 Key Priorities and Outlook FY24 Observations Following the first half of FY24, IR makes the following observations regarding the current trading year: • Customer sentiment remains steady, reinforcing the cautious optimism around business growth. • Renewals book expected to exceed the prior year, weighted to the first half of FY24, following the closure of several large renewals in H1. Renewals now skewed towards Transact & Infrastructure clients. • Collaborate churn expected to persist. • Current FY24 new business and upsell pipeline is up on pcp, weighted to Collaborate. Focus on targeting larger enterprise customers across all products and geographies. • TCV growth expected in the Americas and Europe; Asia Pacific down on a strong pcp. • Year-end cash balance expected to be higher, assisted by increased sales, reset of the cost base, and disciplined receivables collections. CEO Key Messages Focus on growth leveraging improved working capital base 1. We have benefitted from the company’s strong renewal base and exercised cost discipline to improve profitability and cash. 2. Transact and Infrastructure performed strongly, up significantly on pcp bolstered by several large contracts. Whilst Collaborate headwinds persist; our focus is on larger enterprise with complex environments and industry verticals where our value proposition is strongest. 3. Our improved cash position enables the pursuit of a product led growth agenda. Disclaimer SUMMARY INFORMATION This document and the associated transcript (together “the presentation”) has been prepared by Integrated Research Limited (ABN 76 003 588 449) (IRI). The presentation provides general background information about IRI's activities current at the date of preparation. IRI is not responsible for updating, and does not undertake to update, the presentation. It contains information in a summary form and does not purport to be complete. It should be read in conjunction with IRI's other announcements released to ASX (available at www.asx.com au). NOT INVESTMENT ADVICE The information contained in the presentation does not constitute investment or financial product advice or a recommendation to acquire shares or other financial products. It does not take into account the investment objectives, financial situation or needs of any particular investor. 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Appendix Annual Recurring Revenue - Analysis All Products Opening ARR FX gain/(loss) New logos Upsell Churn/Downsell Closing ARR Collaborate Opening ARR FX gain/(loss) New logos Upsell Churn/Downsell Closing ARR T&I Opening ARR FX New logos Upsell Churn/Downsell Closing ARR APAC AUD APAC AUD APAC AUD 15.5 Americas USD 28.2 0.2 0.5 (2.1) 14.0 0.1 1.2 (1.9) 27.7 7.1 Americas USD 16.0 0.2 0.0 (0.9) 6.4 0.1 0.4 (1.7) 14.8 8.3 0 0.0 0.5 (1.2) 7.6 Americas USD 12.2 0 0.0 0.8 (0.2) 12.9 Consolidated AUD 4.5 67.5 (0.7) 0.0 0.4 0.2 2.8 (0.6) (6.1) 4.2 64.0 Europe GBP Europe GBP YoY Growth -1% 1% 4% -9% -5% Consolidated AUD 2.4 36.3 (0.4) 0.0 0.4 0.0 0.7 (0.4) (4.3) 2.1 32.8 YoY Growth Consolidated AUD 2.1 31.2 0.00 (0.3) 0.0 0.0 0.2 2.1 (0.2) (1.9) 2.1 31.2 YoY Growth Europe GBP • Overall FX headwind of 1%. • All regions experienced decline. • Significant Collaborate headwinds with losses exceeding wins. • T&I wins marginally exceed losses. -1% 1% 2% -12% -10% -1% 0% 7% -6% 0% Churn/Downsell is equal to the annualized dollar value of expiring commitments that were either not renewed or renewed for a lower value in the period. Interim proforma subscription revenue Reconciliation of statutory to proforma revenue Interim revenue Dec-20 Dec-21 Dec-22 Dec-23 Dec-20 Dec-21 Dec-22 Dec-23 A$M A$M A$M A$M Infrastructure 9.7 9.1 9.4 9.3 (9%) (7%) 4% 0% Transact 5.0 5.3 5.5 6.2 1% 7% 3% 12% Collaborate 22.1 20.1 19.2 17.3 (8%) (9%) (4%) (10%) Proforma subscription revenue 36.8 34.4 34.1 32.9 (7%) (6%) (1%) (4%) Perpetual sales 0.7 0.5 0.3 0.2 (75%) (25%) (46%) (31%) Testing Services 2.4 2.2 1.9 1.8 (15%) (6%) (17%) (5%) Professional Services 4.2 3.7 1.9 2.5 (7%) (12%) (49%) 30% Proforma revenue 44.1 40.9 38.1 37.3 (11%) (7%) (7%) (2%) Statutory revenue 34.1 32.3 38.4 40.8 (36%) (5%) 19% 6% Proforma revenue 44.1 40.9 38.1 37.3 Deduct Amortised licence fees (26.4) (26.1) (25.8) (24.7) Add license fees recognised upfront 16.4 17.5 26.1 28.2 Statutory revenue 34.1 32.3 38.4 40.8 Reconciliation to Statutory Accounts: Product TCV Strong renewals across all products, steady new business Collaborate – A$M 17.0 7.4 9.6 Dec-22 Renewal Infrastructure – A$M Transact – A$M 14.5 2.3 12.2 8.6 Dec-23 Collaborate, down 15%: 8.1 0.7 10.2 Dec-22 Dec-23 Renewal New & Capacity 10.9 2.1 6.5 1.4 6.7 Jun-22 Renewal New & Capacity Transact, up 27%: 11.8 1.3 10.5 Jun-23 New & Capacity Infrastructure, up 45%: Strong renewals period • Large deals renewed across all regions • Large deals renewed across all regions • FY22 Low new business, the main driver for new & capacity • New & capacity mainly driven by upsell to existing customers • New & capacity driven by upsell to existing customers • Note: Product TCV excludes services and testing Product TCV by Geography Growth in Americas APAC – A$M Americas – US$M Europe - £M 16.1 11.7 7.3 8.1 2.2 4.4 5.9 Dec-22 Dec-23 Renewal New & Capacity 9.6 2.0 1.2 14.9 7.6 Dec-22 Renewal Dec-23 New & Capacity 4.2 0.3 3.9 Dec-22 Renewal 2.4 2.3 Dec-23 New & Capacity APAC, down 31%: Americas, up 68%: Europe, down 42%: • Healthy renewals offset by FY22 lower new business compared to pcp • Large contracts renewed across all product lines • Fiserv renewal consolidated into Americas (previously split between Europe and Americas). Note: Product TCV by geography excludes services and testing Proforma Subscription Revenue 6.7 15.7 7.2 4.1 4.1 0% 3.2 3.1 -3% Dec-22 6.1 13.1 Dec-22 Americas 6.1 11.9 Dec-23 International 7.8 +0% -10% -10% 9.4 9.3 3.0 3.1 6.4 Dec-22 Americas 6.2 Dec-23 International Note: Proforma subscription revenue is a non-statutory alternate view of term licence and maintenance revenue (unaudited). 2.2 1.7 Collaborate T&I 1.0 -5% 1.2 -32% Dec-23 T&I Transact – A$M Infrastructure – A$M -14% 3.3 1.1 Dec-22 Dec-23 Collaborate 17.3 5.4 6.2 8.7 T&I Collaborate – A$M 19.2 14.0 Dec-22 Dec-23 Collaborate Europe - £M Americas – US$M APAC – A$M +3% 5.5 2.7 -3% 2.8 Dec-22 Americas 6.2 3.0 +11% 3.2 +14% Dec-23 International Proforma Subscription Revenue Purpose: To provide an alternate view of underlying performance by restating term licence and maintenance revenues on a recurring subscription basis. How: • All licence sales from FY2012 to FY2024 were analysed for each region in their natural currencies (the historic analysis period) • Perpetual deals have been reported separately in the year sold • Subscription revenues have been calculated by aggregating amortised licence revenues with maintenance revenues for each product line • Other revenue streams have been reported the same as the statutory accounts (e.g., professional services and testing services) • A reconciliation of proforma revenues and statutory revenue has been included for the reporting period Glossary Annual Recurring Revenue (ARR) equals to the monthly proforma subscription revenue at the end of the period multiplied by 12. Cash conversion rate equals cash receipts divided by proforma revenue. Customer retention equals the opening customer count for the reporting period less customers who are deemed to cease purchasing from IR in the reporting period; this total is then divided by the opening balance and presented in percentage terms. Proforma subscription revenue provides an alternate view of underlying performance by restating term licence on a recurring subscription basis (i.e., over time) plus other recurring revenues such as maintenance fees and cloud services. Note: the current statutory model recognises licence fee revenue upfront at the commencement of the contract. Net revenue retention equals recurring revenue generated from existing customers over a set period. Proforma revenue equals proforma subscription revenue plus other non-recurring revenue streams such as perpetual license fees, professional services and one-time through testing services Total Contract Value (TCV) means the total value of a revenue generating contract written in the period of performance less any residual value from a previous related contract. The value includes software licence and related maintenance, cloud, testing and consulting services bookings. Capacity sell existing products sold to existing customers due to increase in usage, sometimes referred to as upsell.