Inside IkeGPS: The Software Powering America’s Grid Hardening Boom

G'day and welcome to the latest episode and today we're joined by Ike GPS's managing director and CEO Glenn Mills. We're to Glenn for six or seven years I think it's on been on a strong performance in terms of the ASX last training about a dollar eight up strongly over the last year but it's a company that's revolutionising poll and overhead asset management for utilities, telecoms and engineering firms. It's experiencing massive tailwinds which Glenn talks about in terms of the grid hardening within the US which is now 100 times bigger than Australia's rewinding the nation as well as a fiber optic rollout and essentially what initiatives they're rolling out in terms of AI both in business and out in the products but we hope you enjoy. Glenn thanks for joining me I think we've worked with Ike for five or six years you've been listed on the NZX since 2016 which is quite scary yeah sort of overnight success but maybe you've just for a start gives the founding story when you start to get involved with Ike we can go from there. Great thanks Simon for having us. So yeah we listed as a pre-revenue company it was a hardware business at that point my background is in the telco industry in Europe and you know sort about you some of the challenges in building networks overhead networks and when about changing the business to a software company solving very specific workflows to get networks power networks and telco networks built faster and better using technology and in terms of the core off-ranging as pollen overhead as a software software solutions what's the sort of key problem that you're able to solve for customers at this stage what they use it for. You know we call ourselves the whole OS companies so we're looking at how utilities can digitize their network assess it and then design a stronger and better and higher capacity network and then also how they can maintain that network over time and so whole of life cycle distribution network management is our goal. Any based on Denver Colorado which is a bit a bit of a distance from New Zealand talk to us how yeah what why you sort of focusing on North American market and how it's the sort of evolution from New Zealand to US sort of happen. Yeah the technology spun out of New Zealand but from day one we've sold only into the North American market we do have a handful of Australian utility customers but otherwise you know we're headquartered in Colorado and with an office in Alabama and our team is just fully focused on the US market and for good reason there's 3,000 only trick utilities in the US all with the same problem of aging infrastructure and needing more capacity and a harder grid and so the the opportunity is just vast compared to any other market in the world. I mean it does tell us nice in terms of the grid hardening and tailwind associated with Ike maybe just for those it aren't obviously we've heard a lot and seen a lot of success on the ASX in terms of the other grid hardening you know an expansion with stocks you're interconnected there maybe just sort of to give us a bit of the land as to how bad the issue is yeah why it is such a significant tailwind for Ike. Look I think Australian investors and shareholders are familiar with rewiring the nation and what's happening with the grid in Australia. In the US the market is a hundred times larger and the problems quite a lot bigger as well so very much aging infrastructure more than 200 million distribution assets 130 million of these I know these numbers have seemed a bit arbitrary but 130 million assets coming up to 50 years of age. So when you say assets that's that's power poles they're they're power overhead powerful so we help customers get power from a transmission network into homes and businesses so we do yeah all the residential all the business power delivery. It seems like a crazy number in terms of power poles and when you talk about the issues associated with that I'm not saying they're the fires and they sort of different things obviously that I'm sweeping through what is that how does Ike have a role in that in terms of either pretty or post yeah with wildfires and power poles yeah sparking and that sort of thing yeah a bit of a case study there as that sort of look. Yeah one of our products is called Ikeball format and it's the design software so when a utility wants to harden their network and harden their distribution power poles they're using our software to design that network and you know today that software is getting standardized or it has been standardized by eight or the ten largest utilities in the US and 170 other customers so it's become very much an industry standard for grid hardening and that also flows through to grid capacity so they you know in the US they've got a double the amount of power on the grid over the next 20 years it's a massive engineering task the US grids the biggest human engineer thing on the planet and it's all one to connect it so it's a it's a really big problem and it's an exciting thing to just to be supporting and when you talk about fiber as well is that an extension of as a grid hardening or is that you know further tailwinds how does that sort of look in terms of broadband roll out there. Good question you know there's a fiber boom in the US probably to run for the next four to five years a lot of that fiber gets attached to the power networks and often in the United States you might have five or six or seven other infrastructure companies attaching to the power network and that will require engineering and design and maintenance and again that's what we sit behind five of the ten biggest communications companies today we're at a smaller scale in terms of how penetrated we are in those groups but we help the fiber companies they care about going fast and getting the network built the power companies care about safe and reliable power like the highest quality network design so different same products but different and if we sort of zero in on on the customers you know you talk about eight of the top ten utility companies in the US are customers what what is a typical sort of customer profile look like and who uses it within there is the engineers is it in consumers what does that sort of look like and just gives you a couple of examples of abuse cases. Yeah we tend to start with the standards group and they're they they're lured over the distribution network they set the standards for every piece of technology every piece of hardware every piece of kit that gets designed into their system so they set the engineering standards and they also want to make sure the utilities complying with regulatory standards and for the reason they don't want to be there's enormous liability risk if they do start the next five yeah yeah fail in a hurricane etc so we typically start there and once we're standardised inside the standards department then we go out into you know construction groups or joint use groups and that's how we grow over time and in terms of products weight can just run us through what what their names are and what they use for and perhaps was zero in a little bit in terms of poll form because it's been an incredible story in terms of acquisition to to real scale with we've got a software product that helps customers go out and collect and assess the network and digitise their assets so they get digital forms that's called Icofus Pro we've got another product that's used for the design and structural analysis of assets that's called Ikepole Forman and then we have a an AI centric tool called Ike Analyze and that's where we've just released new capability where we put automation inside of these products so we you know we've got very expensive engineers using our software and so if we can make them 20 30 40% more efficient and increase quality through AI capability then that's you know very valuable and in terms of just zeroing back in on poll form and so you're quite that how many years ago about four and a half years ago and I was doing how much in terms of revenue or ARR it had about half a million yes almost almost zero at that time yes and now it's we're sort of talking yeah upwards of 10 ARR yeah by the end of this year that's right yes so we've grown it probably 20 times and how much did you buy for three million dollars so it's been a good acquisition been a good acquisition it's been a great the great team to work with and we've really learned to you know we rebuilt the software and turned it into a very beautiful modern user experience that doesn't sound like it goes hand in hand with the industry no we're trying to brand different yeah to most of the other players here and you know what we've managed to do simplicity and clarity is one of our core values and that means into products so we put all of the really complex engineering complex mathematics complex physics behind the the UI the the user experience and then just make the software very very straightforward to use and that's important because our customers have got hundreds and hundreds and hundreds of engineers using the software every day so you want to make it easy to train and very standardized in terms of our puts you built a bit of a war chest in terms of you know recent capital rising. He had 34 million bucks. I'm cash at bank recently. I'm in his signal. You know, you'll use your customer council to build new products that have demand, which when it's customer lead is always obviously a good thing in terms of uptake. What do they sort of look like, and if you could just expand on that a little bit more? Yeah, look, we're very hard over the last six or seven years to build a customer council. We've got 18 of the biggest utilities in North America that sit on that, and they're not mid-level people, they're the standard directors that run these businesses. They've helped us design, they helped us design the next like-pop format products, and they've all adopted it, and then, you know, I sat down with them at the beginning of this year and took them out for dinner and said, "What are the problems do you have?" And they've defined two additional big cost issues and big network quality issues, and said, "Can you build this for us?" So, you know, that's what we're funding, and the idea is obviously to have Rinson Report. Yeah, hand-hand tend to have these products pulled through by the industry. It's very hard to push technology at utilities, they're quite reluctant to take tech that's being pushed at them. So, the idea is to get a product market fit. And in terms of that, I've seen a lot on LinkedIn. You've got a new drive on this front. In terms of education and training and awareness around the different products and the capabilities, how do you sort of look at that and what's the importance of that? Yeah, we're a software business, we're not a training and education service company, but we use that to be able to get in front of our customers and help them. And the natural, we train on the National Electric Safety Code and how to be best practice, and we train on occupational health and safety for power workers, we're dealing with volatile environments and dangerous environments. And the natural question that flows from those sessions, and we've trained many thousands of engineers now, the natural question is how do we use technology which leads into a constructive discussion around our software and our products? And then if we shift to the financials and obviously released the half year update yesterday, which demonstrated essentially a record quarterly growth in terms of ARR or exit run rate, ads and whatnot, he's sort of looking at, you know, with a step back to a three years, the business has changed fundamentally in terms of the growth. How are you sort of looking at it now? I sort of remember way back when this tailwind was coming and it was building and again, it sort of feels like an overnight success, but a hell of a lot of work has gone in there. How do you sort of look at the next couple years? Are we going to see these tailwinds really drive hard or is it more into year three, four, how does that sort of look? Look, I think the universal view is there's a 20 year macro market tailwind for the electric utility industry in the US. There's $2 trillion of investment going into it. They're very, very large numbers. And it's a rising tide. You know, this isn't a market where there's one winner. You know, you want to pick the best customers. We don't lose customers when we win them. They stay with us. We haven't lost a single infrastructure company that we've won, but you do have to have patience and sense of humour to sell to utilities because they are naturally cautious. They're pretty heroic people and they're a risk of us. But we're now just getting this momentum. We've got brand recognition and I think an appreciation for how reliable our products and our team and our services. This might be a stupid question or an ignorant question, but in terms of the tailwinds that are coming, how important is it, you know, could you just stand still today and keep serving existing clients or how important is it to sell to the next customer to, you know, penetrate further existing customers? Does it just sort of happen naturally or how much effort it goes into that? It's another good question. We've got, you know, we're at an exit run rate of subscription revenue of about 20 million at the moment and they grew close to 50% over the last year. And we think we're 20% penetrated in our current customer footprint. We've got about 425 subscription enterprise subscription customers. So we should be able to, we're not going to get all of that penetration, but we should be able to quadruple it over time if we do well with account development. And the other important thing though is we want to be the most respected and dominant software player doing what we do. So we focus on you logo when we're winning about two customers a week. It's still pretty intense. It's still pretty solid. Yeah, you've, and they start small, and naturally, but you've got to win them to be able to grow them. So that's a really key metering for us and for investors. And you talk about key metrics and I know on your size call, you said around NPS and independent study there, that you typically don't sort of publish those, you do them internally and just talks through, you know, A, what it was and the significance in terms of, you know, satisfaction from customers, but, you know, what that leads to in terms of retention. Yeah, and as context for those that aren't familiar with NPS, it's a Boston consulting framework, spend around forever. And you, you can score from minus a hundred to plus a hundred. And generally speaking, zero is considered good. And then it ratchets out. And the context was one of the very big private equity firms. They didn't, they didn't ask us, didn't ask me. They went and surveyed 40 of our customers and came and reported back the NPS score, which is in the 90s, which is just yeah, it's very high. So we do track it internally ourselves. And it generally sits between 45 and 60. So it's testament not just to product and technology, but we have a pretty phenomenal team that delivers directly to customers. We've got solution engineers that can help our customers be successful. So, and what actually one of our mantras is to be the partner that our customers cannot imagine living without. And that does start to have an impact when you put people in process alongside good, good product. And when we look at, um, guidance for this financial year, I know you talk about near second half, you know, EBITDA break even, how do we look at, you know, what are the key things to invest in? So look at obviously that. I think in the last quarter, you demonstrated a strong growth without strong, strong costs, you know, increasing. That'll probably change over time as we invest in more products and scale and the rest of it. But you sort of talking about that positive jaws effect, you know, into the future, is that the way we should look at it? Yeah, there's, there's a few things over the past 18 months. We've been approximately cash break even. Yep. And we've, you know, we've grown, gross margin. It's grown to 76% from, I think it was at 60, 67, 68. Yep. Prior year. So gross margin profiles growing. And that's with the more subscription revenue and transaction revenue, which is, yeah, and transaction revenue, low margin, it's the services business. Yep. So there is a revenue mix, yeah, hone in there. And yeah, we've managed to keep costs materially flat through the past year, year and a half. Because I think it would have been three years ago where you've really crunched down costs and brought them right down. But you managed to, you know, basically, you know, maintain that anchor. I really strongly throw it, which is testament to to the product and management. Yeah, and look like I think every technology business on the face of the earth, we're looking really hard at AI tools, not just putting them inside of products, but inside of our work practices. And we're training the whole business at the moment. What does that, what does that look like, specifically without giving away any trade secrets? But is it, yeah, running emails? Is it, yeah, more productivity sets? Yeah, well, I'm just interested, yeah, from self-interest perspective and your others are. But how does, yeah, how do you talk about your, was a poll project, yeah, increasing 20, 30, 40% productivity? What tools are you using in terms of, yeah, internally? Oh, everything for a product design, prototyping through to code development. And that's quite dramatic in terms of increased efficiency. And also looking at, you know, it's called a Genetic AI or agents where the AI doesn't just do the initial processing and summarise that it actually makes a business decision and can do that without human intervention. And we're willing at the choke points. Yeah. And now business, you know, everything from lead generation through to cash collection and, right, and with a big customer experience element. And in terms of, from a, an agent AI perspective, is that a set product, you're building that sort of internally or so? It's a combination of using, there's some really, we want to be a great fast follower at this, and we're using a global training agency that's probably the best group in the world, I think, and bring the whole company on. So it's exciting times. Yeah, it's great, great time to be a, and, you know, a smaller software development business. And I think, you know, people have talked about a Genetic AI and AI. You have the past sort of 8-10 months. I think you're firm. I'm your business is such a size now that you haven't built up this excessive fat. Whereas, you know, you look at overnight as Amazon and all the different companies, you know, cutting 30,000 jobs that happens over many years, right? You get bigger and bigger, and you can, unfortunately, crunch it down for the. personal perspective or as you're still an imbu agile, scaling fast that you can keep with team alongside it as well. - Yeah, it's interesting we've got a folder where we're based, we've got Google and Facebook, Microsoft et cetera, and the level of layoffs that are taking places phenomenal for assets about being able to go 50% faster rather than have to cut costs and cut people. - Yeah, and if we look in the next sort of three to five years, yeah, of a success story that I can inevitably will be, what does this sort of look like? Is it, I suppose, you know, a way I'd ask it is, what excites you most is it, you know, winning logos, scaling revenue, ERR, is it share price, you know, what's the most satisfying thing for you? - Well, share price for our investors, really. - Yeah, it's very important. - It's very, it's very important. But, you know, we want to own the market. If not own the market, but be the most respected in the market in terms of power distribution and solving the specific problems. And we are, you know, aiming to build a platform so that we deal with each important workflow that our customers have pain around at the moment. And we want to stay very high growth and profitable. We are very glad that you've ended off. Yeah, there would be acquirers, you know, in the last 12 months and you're still sitting on the boards. I'm good to see the share price momentum picking out alongside, you know, the quarterly performance and good luck for the rest of the year. Thanks very much, Jonas. - Thanks, Simon. - Cheers.