The company was established in 2014 and over the years since has built and stabilised the platform, developed a sustainable, scalable business model, built supporting engineering, sales/marketing and administrative infrastructure and established multiple distribution channels.  The platform was commercially launched in 2016 and has been validated by a diverse client base.

After a relatively slow start, momentum is now building and growth is accelerating off the back of investment into sales and marketing afforded by the IPO. The number of employees on the platform passed 1,000 in December 2016 and was close to 2,500, with 19 clients, a year later. By June 2018 the number should be approaching 10,000 with maybe 70 clients. Just as importantly the average number of employees per client is also rising strongly suggesting the company is making inroads into larger businesses. It is also achieving some early international success with the platform in use in 8 countries including, New Zealand, The UK and USA. Most of the international presence is with arms of Australian businesses but a recent win was with a US business (who found the company through a web search) who has operations in six countries, including Australia.

In a recent announcement, the company said that annual recurring income had passed $1 million. By the end of calendar 2019 annual recurring income should be heading towards $2 million.

Scale is critically important to the success of the business and reaching sustainable profitability, but the company will need to achieve a markedly higher level of market penetration if it is to build a significant business. I guess that a base of 20,000 to 25,000 employees is required to reach breakeven or a modest level of profitability and this looks to be achievable by around the latter part of calendar 2020. The question is how does IntelliHR get to say 50,000 or more employs on the platform at which point revenue will be around $9 million? This would confirm the commercial viability and scalability of the business but the time frame to achieve this is the key point of uncertainty.

The company has established a multi-pronged distribution strategy to achieve this combining a mixture of direct sales, partnerships with consultants and integration with other HR platforms. Partnerships and platform integration are great strategies to accelerate market penetration by leveraging resources and capabilities of third parties, although inevitably at some cost to margin. More of these partnerships are important, especially for entering international markets, but having just one of these as a key client generator will be a powerful growth driver.

Although IntelliHR is primarily focussed on the mid-market, it has some enterprise level clients, and is constantly talking to other similar prospects. A number of clients have over 1,000 employees and more are expected but securing a client with say, 10,000+ employees would certainly take the business to a new level.

Whilst building sizable penetration in the domestic market is the central pathway to building scale, the international market arguably provides the greatest overall opportunity for IntelliHR.

At the moment, international development is somewhat ad-hoc, however, the potential has management focus and I expect a strategic approach towards market entry will be apparent over the next year. The most likely approach will be through partnerships, distribution arrangements and integration with other platforms similar to its approach in Australia. It’s unlikely that the company will heavily engage directly although some local office representation may be established.

As the platform primarily stores and analyses content and data there is virtually no regulatory risk and implementation is relatively straight forward ensuring few roadblocks for international development.

Product development will be the long term route to ongoing growth. The emergence of artificial intelligence and machine learning is likely to create enormous development opportunities. The technology is still early stage but the potential in using the data currently collected for predictive purposes is already evident and product development opportunities are likely to emerge within a few years.

IntelliHR’s financial structure is typical of an early stage technology-based business. The business is scaling-up rapidly but revenues are currently modest and operating cash flow is negative. Cash burn appears to be accelerating as the company scales-up. The operating cash flow deficit averaged about $830K per quarter in the first half of FY 2019 but increased to $1.3 million in the March 2019 quarter. This is to be expected as the company expands its sales and marketing efforts and further increases in the cost base should be offset by higher cash receipts in the coming quarters.

As a capital light business there were few assets other than Intangibles (goodwill and IP – $2.0 million) and cash ($1.7 million) as at 31 December 2018. There is no debt. In early May, the company raised an additional $1 million through a placement to boost cash reserves to about $2.0 million. More capital is likely to required to get the company to a position where it is sustainably cash flow positive.

It can be agonisingly slow for an early stage business  to build traction but when the wheels start spinning it can accelerate quite rapidly. This seems to be IntelliHR’s experience and the company appears to be on the cusp of a “great leap forward”. Given the enormous size of the workforce and the huge corporate investment in managing staff, building and sustaining a workplace culture and driving productivity, tools to boost efficiency and lower cost are compelling.

I like the market opportunity and more particularly IntelliHR’s strategies to scale-up the business. Building a strong presence in the domestic market and with all the infrastructure in place, it is well positioned to venture globally.  It looks like the company should breakthrough to profitability in the second half of calendar 2020 but the actual time frame and the additional capital required to achieve this are the key issues of uncertainty.

This is a stock to watch for its global potential.