Announcement PDF 2024 Annual Annual Report report Annual Report 2024 Contents 2 Financial Update 4 Chairman’s and CEO’s Letter 9 About IR 10 Directors’ Report 20 Remuneration Report (audited) 34 Corporate Governance Statement 41 Consolidated Statement of Comprehensive Income 42 Consolidated Statement of Financial Position 43 Consolidated Statement of Changes in Equity 44 Consolidated Statement of Cash Flows 45 Notes to the Financial Report 71 Consolidated Entity Disclosure Statement 72 Directors’ Declaration 73 Auditor’s Independence Declaration 74 Independent Auditor’s Report 79 Shareholder Information 81 Corporate Directory 1 2 Integrated Research Limited Financial Update (A$M) Revenue EBITDA 24.6 83.3 69.8 12.1 19% Jun-23 Jun-24 Jun-23 NPAT (Excl impairment)* Jun-24 Cash Receipts from Customers 76.3 27.1 72.4 942% 2.6 Jun-23 103% Jun-24 5% Jun-23 * Jun-23 NPAT excludes $31.8M impairment of goodwill and intangible assets. Jun-24 Annual Report 2024 3 Net Operating Cashflow 13.8 13.0 6% Jun-23 Jun-24 Net Cash 31.9 18.6 72% Jun-23 Jun-24 202 4 Integrated Research Limited Chairman’s and CEO’s Letter Dear Shareholders, On behalf of the Board, we extend our sincere appreciation for your continued support of Integrated Research Ltd (IR). Over the past year, our company has delivered a significant turnaround, and we are embarking on a fresh phase. We are excited to share the key highlights and our direction for the future. John Ruthven Peter Lloyd Annual Report 2024 Financial Performance Summary We are pleased to report strong financial and operational results for FY24, reflecting solid execution across our business. The Total Contract Value (TCV) signed during the period reached $83.9 million, a 22% increase over the prior corresponding period. Group revenue increased by 19% to $83.3 million. Contributing to this result was a strong renewals book, new business growth in the Americas, improved sales discipline and good demand for our Infrastructure and Transact solutions. Total expenses were significantly reduced by 44% to $58.0 million, primarily due to rightsizing operations, and the absence of the $31.8 million impairment charge recorded in the prior year. Revenue growth and expense control resulted in a substantial increase in net profit after tax, up to $27.1 million, from a loss in the prior year. Our financial position strengthened considerably, with cash at bank increasing by 72% to $31.9 million as of 30 June 2024, as a direct result of improved operational efficiency, cost management, and disciplined cash collections. Looking through a product lens, Transact and Infrastructure products had a very strong year, with Infrastructure revenue rising 71% and Transact up 52%. This was on the back of strong renewals and multi-year license deals ranging from an average of three to five years. By contrast, Collaborate revenue dropped 11% as the market continued its shift to cloud and hybrid solutions, impacting demand for on-premises tools. Notably, Collaborate net revenue retention (NRR) in constant currency improved to 86%, up from 79% in the prior year. This reflects efforts to retain and win larger customers, operating complex communications eco-systems. 5 Taking a regional view, the Americas delivered a standout performance with US$39.1 million in revenue, up 39% from last year, driven by large contract renewals, new business and growth across all product lines. Asia Pacific, revenue declined 8%, as growth in Transact and Infrastructure was outweighed by underperformance in Collaborate. Europe saw a 28% revenue drop, where strong performance in Collaborate was offset by weaker results in Transact and Infrastructure. The Board has declared a final dividend of $0.02 per share, fully franked, reflecting our commitment to delivering value to our shareholders, whilst maintaining a solid balance sheet to support our working capital requirements and pursue current and future growth opportunities. Growth Strategy Our improved financial position provides a platform to face into some of the Company’s headwinds, as well as take advantage of opportunities. Across our product portfolio we make the following summary observations; a. NonStop is a highly cash generative but mature business b. Transact is a small solid business in which we are yet to fully leverage our position c. Collaborate churn has slowed; however, we expect it to continue 6 Integrated Research Limited Our growth strategy is product-led and focuses on retention and expansion of our existing product lines, and net new product development. We are making modest investments in our existing products for both retention and growth. This includes features to retain NonStop customers, developments to expand our Transact product line beyond card payments and enhancements to our Collaborate solutions to support customers’ cloud migration journey. We are also investing in net new products to create additional revenue streams, organically with IR Labs (an internal incubation engine), and inorganically by looking for M&A opportunities. We have undertaken substantial organisational changes to enable and support our product-led growth strategy. This has included significant changes in senior leadership - both our CEO and CFO; the launch of IR Labs and streamlining to a single global sales organisation under a globally experienced executive, as well as changes to the board. CEO Transition On 7 August, the Board announced the appointment of Ian Lowe as our new CEO, effective 1 October 2024. Ian brings extensive experience across a range of sectors, and a proven track record in leading high-growth, product-led technology businesses. We sought a leader outside our current product areas to help us find net new sources of revenue growth. We are confident that his leadership will be instrumental in guiding IR through its next exciting phase. John Ruthven, who has served as our CEO with dedication and distinction, is continuing in his role through the first quarter of FY25, ensuring a smooth and orderly handover to Ian. We extend our deepest gratitude to John for his significant contributions over the past five years, particularly for the FY24 result and positioning the Company for future success. Capital Management Our improved financial position gives us optionality for capital deployment. We are developing a capital management framework to guide our deployment of capital across investments to retain and grow our customer base, diversify organic revenue, pursue targeted M&A opportunities, and deliver shareholder returns. We will discuss the framework in more detail at our upcoming AGM. Looking Ahead Our strong financial position and growth strategy underpins our excitement and optimism for the company’s future. But our new initiatives will take time to deliver and until then we are influenced by current dynamics. We anticipate a mixed outlook for FY25, with a softer renewals book compared to the prior year, particularly skewed towards the second half of the year and modestly skewed to our Transact and Infrastructure clients. We expect Collaborate churn to persist as some clients migrate to a full SaaS environment. To offset this, our new business and upsell pipeline is strong, with a particular focus on targeting larger enterprise customers across all products and geographies which derive substantial value from our products. In closing, we are confident that the strategic initiatives and leadership changes we have put in place will pave the way for continued growth and success. We remain committed to delivering positive outcomes for our shareholders, customers, and employees. Thank you for your ongoing support. Peter Lloyd Chairman John Ruthven Chief Executive Officer Annual Report 2024 create great when it matters most 7 8 Integrated Research Limited connect the dots to ensure technology delivers on its promise Annual Report 2024 9 About IR IR is the corporate brand name of Integrated Research Limited, the leading global provider of experience management solutions for business-critical technology environments. The modern world relies on a complex array of technologies to keep turning. IR’s aim is to simplify that complexity and enable their customers to create great experiences, insights, systems and connections, when it matters most. IR offers three key solution suites - Collaborate, Transact and Infrastructure - powered by the Prognosis platform, enabling a deeper level of insight to turn real-time data into real-time intelligence. These solutions enable performance management, analytics, and business insights, and are used by many of the world’s largest organizations including major stock exchanges, banks and telecommunication companies, to keep their critical technologies running as they should. Our purpose is to create great when it matters most. Our mission is to connect the dots to ensure technology delivers on its promise. Collaborate Transact Infrastructure IR Collaborate offers enterprise grade performance management, testing solutions and analytics across voice, web, video and collaboration ecosystems. Analyse transaction data, deploy new technology with confidence and ensure a seamless payments experience to keep your card, high value and real-time payments business flowing. Access real-time insight into HPE Non-Stop environments to help manage IT performance, spot patterns in data, proactively prevent problems, and build a solid foundation for business-critical systems. IR Transact simplifies the complexity of managing modern payments ecosystems, uncovering unparalleled insights and turning data into intelligence to help you optimize the commerce that connects our global economies. IR Infrastructure provides the insight organizations need to make informed business decisions and ensure systems are running efficiently to optimize the mission-critical environments that connect our world. Whether your environment is on-premises, in the cloud, or hybrid, IR Collaborate simplifies the complexity of modern unified communication and collaboration environments, providing the insight you need to ensure your most essential business systems, provide a seamless experience and optimize the collaboration that connects your people. 10 Integrated Research Limited Directors’ Report The Directors present their report together with the Financial Report of Integrated Research Limited (“the consolidated entity” or “Integrated Research”), being the Company and its controlled entities, for the year ended 30 June 2024 and the Auditor’s Report thereon. Review of operations and activities Principal activities Integrated Research Limited’s (the “Company” or “IR”) principal activities are the design, development, implementation and sale of systems and applications management computer software for business-critical computing, Unified Communication networks and Payment networks. Group overview Integrated Research has a long heritage of providing performance monitoring, diagnostics and management software solutions for business-critical computing environments. Since its establishment in 1988, the Company has provided its Prognosis products to a cross section of large organisations requiring high levels of computing performance and reliability. Prognosis is an integrated suite of monitoring and management software, designed to give an organisation’s management and technical personnel operational insight into and optimise the operation of their HP NonStop, distributed system servers, Unified Communications (“UC”), and Payment environments and the business applications that run on these platforms. Integrated Research has developed its Prognosis products around a fault-tolerant, highly distributed software architecture, designed to achieve high levels of functionality, scalability and reliability with a low total cost of ownership. Integrated Research services customers in more than 52 countries through direct sales offices in the USA, UK, Germany, Singapore and Australia, and via a global, channel-driven distribution network. Integrated Research’s customer base consists of many of the world’s largest organisations and includes banks, credit card companies, telecommunications carriers, technology companies, service providers and manufacturers. The Company generates its revenue from licence fees, recurring maintenance, testing solutions and professional services. Revenue from the sale of licences where there are no post-delivery obligations is recognised at the date of the delivery. Revenue from maintenance contracts is recognised ratably over the service agreement. Revenue from professional services and testing solution services is recognised over the period the services are delivered. Review and results of operations Overview The Company achieved an annual profit after tax of $27.1 million. This represents a significant increase on the prior year as a result of a 19% increase in Revenue to $83.3 million, together with a 44% decrease in expenses, inclusive of a non cash asset impairment expense in the prior year. This has also helped the Company increase its cash balance by 72% and trade & other receivables by 16%. The improvement in revenue performance was the consequence of a stronger renewal book and a higher win rate. The first and second halves of the financial year were relatively consistent period for sales, with new business sales stronger in the second half, though lower than the preceding year. Pleasingly our largest market in the Americas rebounded well and underpinned the revenue result, with 39% growth on prior year, where Asia-Pacific and Europe were down, 8% and 28%, respectively. Demand generation and sales execution risk continued to be a focus for management. The Company incurred currency losses of $0.9 million (prior year gain of $0.9 million) and benefited from other income of $0.1 million (prior year $0.5 million). These amounts are included in other gains and losses of the Consolidated Statement of Comprehensive Income. Annual Report 2024 11 Revenue The following table presents Company revenues for each of the relevant product groups: In thousands of AUD 2024 2023 % Change Collaborate 35,154 39,368 (11%) Infrastructure 25,129 14,667 71% Transact 18,434 12,127 52% Professional services 4,575 3,666 25% 83,292 69,828 19% Total revenue Collaborate revenue of $35.2 million, decreased by 11% over the prior year. The Collaborate market continues to have significant change with customers moving toward cloud and hybrid environments and reducing their footprint of onpremise collaboration tools. This has increased the risk of churn on the Company’s on premise collaborate solution. The constant currency net revenue retention rate for Collaborate was 86% (2023: 79%). Licence fees for Collaborate were $21.6 million, down 12% over the prior year. SaaS revenues for Collaborate were $2.2 million, down 15% over the prior year, noting that the revenue from cloud-based products is recognised over time. Infrastructure revenue of $25.1 million, increased by 71% over the prior year. Transact revenue of $18.4 million, increased by 52% over the prior year. Improvement in Infrastructure and Transact revenue performance was on account of a stronger renewal book and a higher win rate. Licence transactions sold during the year were closed on a multi-year term basis with maturities ranging from an average of three to five years. The following table presents Company revenues for each of the relevant geographic segments in underlying currencies: 2024 2023 % Change Asia Pacific (A$’000) 15,830 17,219 (8%) Americas (USD’000) 39,138 28,113 39% Europe (£’000) 4,128 5,755 (28%) Asia Pacific revenue of $15.8 million, was down 8% over the prior year. The region achieved growth across Transact and Infrastructure however this was outweighed by underperformance in Collaborate. Asia Pacific added 10 new customers over the course of the year, with 11 exiting. Americas revenue of US$39.1 million, was up 39% over the prior year. The region experienced large contract renewals and revenue improvement to prior year across all product lines, with Transact and Infrastructure strongly outperforming and encouraging new wins in Collaborate. In FY24, the Americas added 12 new customers with 45 smaller-sized customers exiting. Europe revenue of £4.1 million, was down 28% over the prior year with strong performance in Collaborate being overshadowed by lower Transact and Infrastructure results. Europe added 1 new customer over the course of the year, with 14 exiting. The net customer churn was driven by Collaborate, consistent with the trend in recent years. This is a perpetuation of the competitive environment and is one driver of the Company’s strategic focus on larger, diversified clients with an ideal profile that resonates with the product offering. 12 Integrated Research Limited Directors’ Report Expenses The following table presents the Company’s cost base compared to the preceding year: In thousands of AUD 2024 2023 % Change Product and technology expenses 12,779 23,695 (46%) Sales, professional services and marketing expenses 38,679 40,892 (5%) General and administration expenses 6,493 6,312 3% – 31,778 (100%) 57,951 102,677 (44%) Impairment expenses Total expenses Total expenses were down 44% to $58.0 million. The significant reduction in expense was primarily a result of a large reduction in product and technology expenses, reflecting a review and reset in the product development strategy and a reduction in staff numbers, together with the $31.8m impairment expenses in the prior year of goodwill and intangible assets as a result of a devaluing assessment of the Cash Generating Unit reflecting updated forecasts and underlying business assumptions for new business, renewals and expenses. Total staff numbers finished the year at 142 (2023: 175). Gross spending on product and technology expenditure represents 15% of total revenue (2023: 30%): In thousands of AUD 2024 2023 % Change Gross product and technology expenses 12,779 20,882 (39%) Capitalisation of development expenses – (7,479) (100%) Amortisation of capitalised expenses – 10,292 (100%) 12,779 23,695 (46%) 15% 30% Net product and technology expenses Gross spend as a % of revenue Tax expense Income tax was a net benefit of $0.42m for the year (2023: $0.07m) as tax expense was offset by current year and brought forward R&D credits and recognition of previously un-recognised deferred taxes. As at 30 June 2024, the Company has utilised all its R&D credits. Excluding brought forward R&D credits from prior years, the Company’s effective tax rate would have been 22.2%. Shareholder returns Returns to shareholders were as follows: 2024 2023 2022 Net profit/(loss) ($’000) 27,130 (29,226) 1,545 Basic EPS (cents) 15.57 (16.90) 0.90 Dividends declared per share (cents) 2.00 Nil Nil Dividend franking percentage 100% N/A N/A Return on equity 37% (40%) 2% Annual Report 2024 13 Strategy and Priorities IR progressed its turnaround in FY24 in response to the ongoing evolution of our customer and competitive landscape. With core markets of Collaborate and Transact continuing to reflect ongoing structural market changes and our large enterprise customers who are the core of our customer base, making strategic decisions around on-premise, hybrid and SaaS infrastructure, it is clear that IR requires product led growth and the pursuit of new revenue streams, to drive longevity and shareholder value. A core focus in FY24 was the continued stabilisation and consolidation of our key business fundamentals. We focused on maximising sales execution in a year of strong renewals and particularly in the Americas as our largest region, revitalised our core product offering to customers via a major software release, focused on market and competitive landscape assessment and innovating product strategy, built strong working capital and made organisational re-alignment and key hiring decisions to drive product led growth of the business forward in a sustainable way. Our balance sheet has no debt and the cash balance is strong, allowing us to pursue opportunities for product led growth. During FY25 our key priorities include: – Refocus go-to-market and customer support on a narrow set of high-value, ideal customers to optimize growth and reduce churn; – Target product and engineering on fewer, high-yield product extensions, for productled growth in existing markets; – Restructure the organization in support of these priorities, and yield cash and resources for growth; and – Implement capital management plan to invest cash in innovation to diversify organic revenue, targeted M&A for fresh inorganic growth and shareholder returns. We make the following observations regarding the FY25 trading year: – Renewals book is softer to the prior year and is weighted towards H2 FY25. Renewals skewed modestly towards Transact and Infrastructure clients; – Collaborate churn expected to persist as clients migrate to a full SaaS environment; – Current new business & upsell pipeline is up on pcp, weighted to Collaborate. Increased focus on targeting larger enterprise customers across all products and geographies; and – The effective tax rate is expected to normalise in FY25 given brought forward R&D tax credits utilized in FY24. The material risks to delivery on our priorities continue to be: – Vendors enhancing their in-built tools to narrow the competitive advantage of the IR offer; – Changing customer requirements, particularly a move to more homogeneous environments; – Inflationary cost pressures both in the IR supply chain (wages growth, supplier price increases), and for customers resulting in an increase in competitive pricing in renewals and new business; – Sales capability given the tight labour market, highly technical skillset and time to productivity to effectively build a pipeline of opportunities and convert these to commercial deals; and – Product capability, given the tight labour market, highly technical skillset and time to productivity to ensure our product offering and value proposition are relevant in the market. 14 Integrated Research Limited Directors’ Report Directors The Directors of the Company at any time during or since the end of the financial year are listed below: Peter Lloyd John Ruthven MAICD B.Ed, MAICD Michael Hitz Independent Non-Executive Director and Chairman Managing Director and Chief Executive Officer Independent Non-Executive Director Peter was appointed Director in July 2010 and elected Chairman in March 2021. He has over 45 years’ experience in computing technology, having worked for both multinational computer hardware and software providers. Peter’s experience in global markets includes executive management roles leading the Asia Pacific region as well as several stints in the U.S. For 35 years, Peter was specifically involved in the provision of payments solutions for banks and financial institutions. He is currently the proprietor of The Grayrock Group Pty Ltd, a management consultancy company focusing on the payments industry. Peter is a Non-Executive Director of privately held Taggle Pty Ltd. Peter’s current term will expire no later than the close of the 2024 Annual General Meeting. John joined IR in July 2019 as the Company’s Chief Executive Officer and was appointed as Managing Director in September 2019. Mr Ruthven is an internationally experienced software industry executive respected for his strategic approach and operational expertise across global enterprises. Mr Ruthven has over 25 years’ experience working in the technology industry with a proven track record of leadership and delivering strong profitable growth. Michael was appointed a Director in October 2023. His career spans roles from engineering communications infrastructure in energy, mining and telecommunications, to corporate strategy, mergers and acquisitions and investing. Over the past five years Michael has worked with a leading pan-Asian fund to invest in public companies pursuing growth in payments, telecommunications and energy. Prior to this, Michael was a Partner and Managing Director for The Boston Consulting Group, where he held roles including leading the technology, media and telecommunications business. BE Hons 1 Prior to joining IR, Mr Ruthven was the Operating Officer – Global Sales at TechnologyOne (ASX: TNE). Prior to that he was President & Managing Director ANZ for SAP, SVP International Sales at Zuora Inc, and various senior positions at CA Technologies and Computer Associates Inc. John has extensive international experience in the USA, Europe and Asia Pacific regions. 1 Mr Ruthven resigned from the Managing Director position after the end of the financial year, with effect from 17 July 2024. Michael is a Director of The Institute for Economics and Peace Limited. Michael’s current term will expire no later than the close of the 2026 Annual General Meeting. Michael is currently Chair of the Company’s Technology & Innovation Committee. Annual Report 2024 Mark Brayan Kate Greenhill BSurv Hons, MBA BEc, FCA, GAICD Independent Non-Executive Director Independent Non-Executive Director Mark was elected a Director in November 2023. Mark has had an extensive career as a Chief Executive Officer and Managing Director. He has run several Australian technology companies, public and private, in various domains including communications and artificial intelligence. Mark was previously the CEO of Soprano Design Pty Ltd, CEO and Managing Director of Appen Limited (ASX:APX), CEO and Managing Director of MineSite Technologies Pty Limited, and CEO and Managing Director of Integrated Research Limited (ASX:IRI). Mark is currently Chair and Non-Executive Director of SenSen Networks Limited (ASX:SNS), and Chair and Non-Executive Director of Shorthand Pty Ltd. Kate was appointed a Director in April 2024 and is a fellow of the Institute of Chartered Accountants in Australia and a Graduate of the Australian Institute of Company Directors. Kate has over 25 years’ experience in the financial services industry with extensive knowledge of finance and risk. As a former Partner with PwC, Kate has worked In both Australia and the UK providing assurance and advisory services to clients. She has experience as Chair of Audit, Risk & Compliance Committees. Mark has a Masters of Business Administration (MBA) from the Australian Graduate School of Management (AGSM) and a First Class Honours Bachelor of Surveying from the University of New South Wales. Mark’s current term will expire no later than the close of the 2026 Annual General Meeting. Mark is currently Chair of the Company’s Nomination & Remuneration Committee. Kate is currently a Director of Australian Ethical Investment Limited, an ASX Listed company. Kate Is also a Director of Intersect Australia Limited, Australian Ethical Superannuation Pty Limited and the Australian Ethical Foundation Limited. Kate’s current term will expire no later than the close of the 2024 Annual General Meeting. Kate is currently Chair of the Company’s Audit & Risk Committee. 15 16 Integrated Research Limited Directors’ Report Officers of the Company Will Witherow B.A., J.D. General Counsel and Company Secretary Will joined IR in July 2017, based in the Company’s Denver, Colorado office. Mr. Witherow was promoted to Head of Legal and Compliance in 2019 and subsequently relocated to IR’s head office in Sydney, overseeing the provision of legal services for the Company’s global operations and serving as IR’s Data Privacy Officer. Will was appointed IR’s General Counsel and Company Secretary in April 2022. Will is a qualified lawyer, holding a B.A. in Political Science and International Relations, and a J.D. in Law, along with being a Certified Information Privacy Professional through the International Association of Privacy Professionals. Prior to joining IR, Will gained experience in the software industry with global organizations, including Oracle and Deloitte. Christian Shaw B.Bus CPA Chief Financial Officer Christian joined IR in January 2024 and assumed the role as Chief Financial Officer on 1 March 2024. He is responsible for Group Financials, Finance Planning and Analysis, People and Culture and Legal teams. He has three decades of listed and private company experience as a senior finance and corporate services executive from a range of industries, including technology, minerals processing, financial services, telecommunications and biotechnology. Christian possesses a strong operational, commercial and strategic focus and has been the former CFO at AJG Australia, Multicom Resources, Unith Limited, Moko Social Media Limited and iCash Payment Systems Limited. He graduated with a Bachelor of Business from the University of Technology Sydney and is CPA qualified. Resigning and Retiring Directors and Officers during the year Cathy Aston B.Ec, M. Comm, SF Fin, GAICD Independent Non-Executive Director Cathy joined IR in April 2022 and retired as a Non-Executive Director and Chair of Audit & Risk Committees in March 2024. Allan Brackin BAppSc Independent Non-Executive Director Alan joined IR in February 2021 and retired as a Non-Executive Director and Chair of the Nomination & Remuneration Committee in September 2023. Anne Myers MBA, FAICD Independent Non-Executive Director Anne joined IR in July 2018 and retired as a Non-Executive Director and Chair of the Technology and Innovation Committee in November 2023. James Scott BEng Hons, GAICD, FIEAust CPEng EngExec Independent Non-Executive Director James joined IR in May 2021 and retired as a Non-Executive Director in January 2024. Matthew Walton B.Sc., MBA, CPA Chief Financial Officer Matthew joined IR in July 2022 as interim CFO and r