Director, RaaS Advisory, Research as a Service (RaaS)

Research as a Service (RaaS)

Director, RaaS Advisory

Insightful Financial Models and Research Analysis

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<h2>Integrated Research Ltd</h2>
<h3>New integrations: aims to regain momentum in ‘23</h3>
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<p>Integrated Research Ltd (ASX:IRI) is a software company providing performance management and analytics for business-critical systems globally. It has three product lines: (1) ‘Collaborate’ for unified communications, collaboration and contact centre environments; (2) ‘Transact’ for payment transactions; and (3) ‘Infrastructure’ for IT network infrastructure. IRI’s ~600 clients include &gt;25% of the Fortune 500 and many are long-standing (&gt;15 years). Historically, IRI’s communications products served ‘on- premises’ environments (e.g. supporting Cisco, Avaya and Skype systems), while its payments services focused on bank and payments processor infrastructure as well as transactions data and analytics for card payments. Since FY20, IRI has been in a period of strategic transition reflecting material investment in new product development to meet customer needs and capitalise upon market trends. Its new offerings encompass: (1) Cloud solutions; (2) Hybrid (on-premise/cloud) solutions (e.g. monitoring and troubleshooting for remote working environments using Microsoft Teams, Zoom); (3) Software-as-a-Service (‘SaaS’) subscriptions (to reduce on-premise product skew); and (4) Payments solutions for real-time and high-value payments (given the increased volume of cashless payments). This new product development has been ‘self-funded’ via cashflows. However, IRI’s FY22 operating and financial performance (in North America and Europe) fell below its original expectations and KPIs due to delayed or cancelled customer purchasing decisions and some internal sales execution issues in H2. It has recently appointed new key personnel in North America and Europe and “remains confident that over the longer-term, its business- critical products and solutions will return the Company to growth.”.</p>
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<h3>Business model</h3>
<p>The majority of IRI’s revenue is generated from its Collaborate offering which serves 5.8m users (55% in FY22) with the remainder from Transact (13%), Infrastructure (21%) and professional services (11%). Geographically, FY22 revenue was derived from Americas (61%), Europe (15%), and APAC (24%). Traditionally, IRI’s software has been deployed at client premises under a private infrastructure model and, in turn, licence revenue has been recognised upfront (at commencement of ~three-four year non-cancellable contracts) leading to somewhat ‘lumpy’ reported revenue even though clients make annual licence fee payments throughout the term, while the attached maintenance fees have been recognised and paid annually. Given IRI has started to derive SaaS revenue (recognised over subscription period), it now discloses additional metrics of: (1) Pro-forma (‘underlying’) revenue which is closely aligned to cash receipts ($79.8m vs. $75.5m in FY22); and (2) Total Contract Value of ‘in year’ contract signings for new and renewal business.</p>
<h3>Solid FY22 cashflows despite lower-than-expected revenue</h3>
<p>IRI recently disclosed the following FY22 financial information: (1) $62.9m reported (statutory) revenue (down 20% on pcp); (2) $79.8m pro-forma revenue (down 4% on pcp) of which 85% is recurring; (3) $56.7m Total Contract Value (down 25% yoy); (4) $8.5m reported EBITDA and $24.5m pro-forma EBITDA; (5) $1.5m net profit (including $4.0m tax benefit); (6) $16.9m operating cashflows and $5.1m free cashflows (after $11.5m capitalised development spend); and (7) $12.3m net cash (no debt), up from $5.5m at 30 June 2021.</p>
<h3>Trading at sizeable discount to Splunk and ASX All Tech Index</h3>
<p>IRI is trading at 0.9x EV/Revenue and 5.5x EV/EBITDA for FY23f (Source: Refinitiv). Whilst it is significantly larger (US$2.7b revenue), Splunk (NASDAQ:SPLK) provides an indicative valuation yardstick given it has competing products. IRI is trading at a sizeable discount to SPLK’s forward EV/Revenue of 4.2x and EV/EBITDA of 31x. The ASX All Tech Index (XTX) provides another valuation metric – with IRI also trading at a significant discount to XTX’s 12-month mean forward EV/Revenue of 3.3x and EV/EBITDA of 17x.</p>
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Integrated Research Ltd
New integrations: aims to regain momentum in ‘23




Integrated Research Ltd (ASX:IRI) is a software company providing performance management and analytics for business-critical systems globally. It has three product lines: (1) ‘Collaborate’ for unified communications, collaboration and contact centre environments; (2) ‘Transact’ for payment transactions; and (3) ‘Infrastructure’ for IT network infrastructure. IRI’s ~600 clients include &gt;25% of the Fortune 500 and many are long-standing (&gt;15 years). Historically, IRI’s communications products served ‘on- premises’ environments (e.g. supporting Cisco, Avaya and Skype systems), while its payments services focused on bank and payments processor infrastructure as well as transactions data and analytics for card payments. Since FY20, IRI has been in a period of strategic transition reflecting material investment in new product development to meet customer needs and capitalise upon market trends. Its new offerings encompass: (1) Cloud solutions; (2) Hybrid (on-premise/cloud) solutions (e.g. monitoring and troubleshooting for remote working environments using Microsoft Teams, Zoom); (3) Software-as-a-Service (‘SaaS’) subscriptions (to reduce on-premise product skew); and (4) Payments solutions for real-time and high-value payments (given the increased volume of cashless payments). This new product development has been ‘self-funded’ via cashflows. However, IRI’s FY22 operating and financial performance (in North America and Europe) fell below its original expectations and KPIs due to delayed or cancelled customer purchasing decisions and some internal sales execution issues in H2. It has recently appointed new key personnel in North America and Europe and “remains confident that over the longer-term, its business- critical products and solutions will return the Company to growth.”.




Business model
The majority of IRI’s revenue is generated from its Collaborate offering which serves 5.8m users (55% in FY22) with the remainder from Transact (13%), Infrastructure (21%) and professional services (11%). Geographically, FY22 revenue was derived from Americas (61%), Europe (15%), and APAC (24%). Traditionally, IRI’s software has been deployed at client premises under a private infrastructure model and, in turn, licence revenue has been recognised upfront (at commencement of ~three-four year non-cancellable contracts) leading to somewhat ‘lumpy’ reported revenue even though clients make annual licence fee payments throughout the term, while the attached maintenance fees have been recognised and paid annually. Given IRI has started to derive SaaS revenue (recognised over subscription period), it now discloses additional metrics of: (1) Pro-forma (‘underlying’) revenue which is closely aligned to cash receipts ($79.8m vs. $75.5m in FY22); and (2) Total Contract Value of ‘in year’ contract signings for new and renewal business.
Solid FY22 cashflows despite lower-than-expected revenue
IRI recently disclosed the following FY22 financial information: (1) $62.9m reported (statutory) revenue (down 20% on pcp); (2) $79.8m pro-forma revenue (down 4% on pcp) of which 85% is recurring; (3) $56.7m Total Contract Value (down 25% yoy); (4) $8.5m reported EBITDA and $24.5m pro-forma EBITDA; (5) $1.5m net profit (including $4.0m tax benefit); (6) $16.9m operating cashflows and $5.1m free cashflows (after $11.5m capitalised development spend); and (7) $12.3m net cash (no debt), up from $5.5m at 30 June 2021.
Trading at sizeable discount to Splunk and ASX All Tech Index
IRI is trading at 0.9x EV/Revenue and 5.5x EV/EBITDA for FY23f (Source: Refinitiv). Whilst it is significantly larger (US$2.7b revenue), Splunk (NASDAQ:SPLK) provides an indicative valuation yardstick given it has competing products. IRI is trading at a sizeable discount to SPLK’s forward EV/Revenue of 4.2x and EV/EBITDA of 31x. The ASX All Tech Index (XTX) provides another valuation metric – with IRI also trading at a significant discount to XTX’s 12-month mean forward EV/Revenue of 3.3x and EV/EBITDA of 17x.













Integrated Research Ltd - New Integrations: Aims to Regain Momentum in ‘23

Australia

Energy One Limited is a supplier of software and services to the wholesale energy and carbon markets in Australia.  The Company's expertise includes the following areas: Wholesale energy and carbon trading software including front, middle and back offices; Risk management; Consulting in wholesale and retail energy markets; Retail and metering software and database services.

Vinyl Group Ltd operates as a music company. The Company provides an online record store where creators and music fans can connect and collect records across all genres, powered by official music credits, verifying every creative contribution on every recording. Vinyl Group serves customers worldwide.

Reckon Limited distributes, publishes, supports and markets financial management software in Australia.  The Company's products are developed locally by the Group or republished under license from Intuit.  The Company's software targets personal financial management, SME financial management and financial planning and are sold under the "Quicken" brand.

Prophecy International Holdings Limited develops, sells and supports business application and development software for managing the financial operations of medium to large worldwide organizations in the private and public sectors.  The Company's products include the "ProphecyOpen" family of software.

DigitalX Ltd operates as a software solutions company. The Company operates in the global digital payments systems industry through disruptive fintech solutions in the remittance and value chain sectors, and allows consumers to make secure and cost-effective money transfers worldwide..

Adveritas Limited operates as a software company. The Company develops mitigation software which detects, mitigates, and reports on digital advertising fraud. Adveritas serves customers worldwide.

PharmX Technologies Limited provides software solutions. The Company develops and markets health care solutions.

Adacel Technologies Limited is a developer of complex, real-time automation, communications, and simulation software and systems. The Company's software is primarily utilized by air traffic controllers and satellite-based air traffic automation systems.

XREF Limited is a human resource technology company focused on candidate referencing. The Company utilizes a cloud-based system that automates the process for obtaining and checking candidates' references, helping compliance with privacy regulations, reducing fraud, and enabling employers to obtain detailed references anonymously and directly.

K2fly Limited operates a software-as-a-service business that is involved in the enterprise asset management sector. The Company offers an integrated software ecosystem for the management of physical assets in asset-intensive industries. K2fly serves customers worldwide.

ESTsoft Corp. develops a wide range of software products. The Company develops Internet, business, and online gaming software solutions.

JoyCity Corporation is an Internet entertainment company. The Company develops online games and provides entertainment contents through its website.

A8 New Media Group Limited is an integrated digital music company.  It sources music content from its own interactive Internet UGC Platform and from international and domestic record labels.  The Group promotes music content through wireless networks of mobile operators and on the Internet. It sells music content in form of ringtones, RBTs and IVR Music to mobile phone users.

Pro-Ship Incorporated develops packaged application software for business use. The products include fixed asset management, sales management, and accounting software.  The Company also provides system operation management and system solution services.

Mono Technology PCL offers information technology services. The Company offers several business services including mobile technology, internet businesses, publishing operations, and television broadcasting. Mono Technology provides its services in Thailand.

Advanced Media, Inc. develops and sells voice recognition/voice verification system for Japanese language.  The Company also provides consulting services. Advanced Media sells voice recognition middleware and packaged software.

Hangzhou Liaison Interactive Information Technology Co Ltd manuafactures and markets information system softwares. The Company also provides services in system consolidation and technical supports.

Focus Systems Corporation develops computer software.  The Company mainly develops, manages, and provides maintenance service for communication network software and business application software.  The Company also manufactures and sells CD-ROM.  Focus Systems also develops Internet security software.

Cyber Com Co., Ltd. develops networking and communications software products. The Company also provides technical services and sells personal computer-related equipment and software.

UNIRITA Inc. develops and sells packaged software for system management for companies and government. The Company also provide consulting services for system development.

Integrated Research Limited develops, sells and supports system and application management software products.  The Group's software is used by customers for a variety of services, including storage management, data collection, performance tracking, event automation, help desk applications, job scheduling and resource management.

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Integrated Research (IRI AU)

Integrated Research Ltd - New Integrations: Aims to Regain Momentum in ‘23

Integrated Research Ltd New integrations: aims to regain momentum in ‘23 Integrated Research Ltd (ASX:IRI) is a software company providing...

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