Integrated Research Limited (ASX: IRI) released its first-half result to the market this morning, with revenues and profits falling. Here are the key points.
Profits wiped out as revenue sinks
The business recorded revenue of $34.1 million, down 36% compared to the prior period. Management cited the lengthening of sales cycles, customers deferring purchasing decisions and currency headwinds as reasons for the underperformance.
Despite the shortfall in revenue, cash receipts from customers were $42.4 million, with the business collecting receivables from past sales.
Stemming from the fall in revenue, Integrated Research reported a profit after tax of $129,000, down from $11.8 million in the prior year.
The business now has only $1.7 million of net cash on the balance sheet, indicating a potential capital raise may be required in the short-term to mitigate the revenue slump.
As a result, management did not declare an interim dividend to shareholders – the first time the business has missed a dividend payment since 2003.
Outlook
Management did not provide firm guidance, only declaring that revenue and profit for FY21 will be below the preceding year.
The business hopes to drive revenues in the second-half through its new suite of software products and transition to subscription rather than license sales.
My take
Integrated Research has been a bottom-drawer stock for many investors, given its strong growth in revenue, profits, and share price over the past 10 years.
In the most recent annual report, 87% of revenues were recurring in nature and its software was ‘mission critical’ to clients. The performance in the first half-year of this year would suggest otherwise.
Moreover, of the 21 deals deferred to the second-half by customers, only three were closed in January, suggesting clients are not rushing to recommit.
Management stated the acceleration in cashless payments and growth in remote working are structural tailwinds to its operations. However, despite platforms such as Microsoft Teams and Zoom recording rapid adoption in 2020, Integrated Research failed to gain traction.
Personally, I’m leaving Integrated Research on my watchlist for now and waiting to see if management executes on the growth strategy. I’d rather miss the initial 10% pop to be confident the business retains its market-leading position.
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