28 May 2019
Since listing on the ASX in July 2016, IODM has kept a low profile whilst it commercialised its platform which automates the process and workflow for managing accounts receivable. Since hitting a low point of 0.6 cents in October 2017, the company has performed well and the share price has recently hit its highest level in over 3 years at 3.5 cents. I recently caught up with CEO, Mark Reilly to find out how the company is progressing.
|Date of Report||ASX||Price||Price Target||Analyst Recommendation|
|Date of Report 20/02/19||ASX ST1|
|Price $0.058||Price Target N/A|
|Analyst Recommendation N/A|
|Sector: Technology||52-Week Range: $0.011 - 0.035|
|Industry: Software - Infrastructure||Market Cap: $15.48 million|
What do you do?
The IODM platform streamlines the business workflow in managing accounts receivable. Its objective is to drive operational efficiencies and boost cash flow whilst also providing important compliance and governance duties by sweeping the whole leger giving certainty around the quality of the debtor book. It also delivers important intangible benefits such as the reduction in stress typically associated in following up late payments.
The platform is scalable from the smallest size business issuing only a few invoices each month through to large scale enterprises issuing hundreds of thousands of invoices monthly. The platform is a fully automated stepped programme of reminders and escalated actions designed to elicit prompt payment of outstanding accounts. The platform is highly customisable in terms of the conditions which prompt the reminders, who gets the reminders and actions as well as the wording of the communications.
Whilst IODM has clients across the full business spectrum, the company’s sweet spot is the corporate and enterprise market. The SME market is very competitive with many relatively low cost options that makes marketing difficult and expensive relative to the revenue generating potential. This is despite the lack of sophistication and a capability of most of these options.
On the other hand, the corporate and enterprise market has scale where the benefits of the IODM platform can be fully realised and quantified in ROI terms. Enterprise management platforms such as SAP and Oracle also have accounts receivable modules, but they are typically expensive and often lack the flexibility and comprehensiveness of the IODM platform. However, the sales process into this market can be lengthy albeit it is shortening.
The company generates revenue from subscriptions, operating licences and implementation. Subscription revenue is billed monthly based on the number of invoices. Operating licence revenue is generated from large clients and is based on contracted values and implementation revenue is sourced from the installation and customisation of the platform for these clients.
What have you achieved?
IODM has gained traction and is now building sales momentum. Sales in FY 2018 increased by 94% to $215K and looks to be on track to reach between $400K and $500K in the current financial year after increasing by 107% in the six months ended 31 December 2018.
Importantly the volume and value of invoices managed on the platform is escalating rapidly. In the six months ended 31 December 2018 over 140K invoices were handled with a value exceeding $350 million compared with less than 10,000 invoices handled with a value of around $30 million in the same period a year earlier.
Client numbers are increasing and the company announced in November 2018 its first collaboration and strategic partnership. This was with the Australian subsidiary of a US based global financial services group and is expected to generate leads of which a number have already occurred.
What are the growth opportunities?
Given the size of the market and the universality of the problem of late payment of accounts, the growth potential is enormous, and progress will primarily reflect increasing market penetration. The company’s value proposition and competitive advantage will continue to be developed through regular product enhancements which should stimulate ongoing interest in the product.
So, given miniscule penetration, high rates of growth are sustainable for quite some time. Current rates at around 100% could continue for the next two or three years before it starts to taper to more sustainable long term levels. However, it is conceivable that the company could experience one or more quantum leaps in scale should it secure some very high volume clients.
IODM currently has about 20 clients with volumes exceeding 20,000 invoices per month. This is the primary target market and clients should grow at a healthy pace but securing a very high volume business such as a telco, power company or insurance company for example would transform IODM.
New corporate and enterprise clients will typically generate strong growth over a number of years from the natural increase in business volume and as use of the platform extends from a pilot in a unit or division before rolling out business wide.
Overseas expansion is not being actively pursued at this stage, but will probably occur naturally as existing clients implement the platform in their overseas operations. The platform is easily adaptable to the credit management regulations of any particular country.
The financial reports for the six months ended 31 December 2018 point to a strengthening financial position notwithstanding that the company is yet to reach breakeven. Sales revenue for the period was $186K, more than double the same period in the prior year and the pre tax loss was lower at $376K despite receiving $100k less in the R&D tax offset pointing to a further reduction in operating costs. Whilst sales are growing at a rapid pace, off a low base, the research and development tax offset still contributes about 60% of total revenue for the full year.
The balance sheet is quite modest with total assets of only $253K. In contrast to most other technology based companies, it has relatively little value in intangibles, however, it does have a working capital deficit of about $170K which is partially offset by a net cash position of $102K.
Inasmuch the company is still burning cash, it has a requirement for additional capital. In this regard it is running a low liquidity strategy whereby it holds relatively low amounts of cash which it tops up with small placements as required. This enables the company to raise capital at or near the current share price without having to incur a large discount and dilution which also focuses on protecting shareholder value.
What do I think?
Managing outstanding accounts is the bane of every business. It’s time consuming, labour intensive and expensive. It’s a drain on financial and management resources and if not managed properly can lead to severe cash flow problems. So, the IODM value proposition is compelling and the financial return potentially high. The issue for IODM is whether it can scale fast enough. With operating costs of around $2 million, it could be another 2 to 3 years before breakeven is achieved. However, if IODM can secure a high-volume client such as telco or power company, the company will move to a new level with a clear pathway to early profitability. Such as client acquisition would transform the business and be potentially “company making”.
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