Integrated Research Limited (ASX: IRI) celebrated record revenues and profits for the 2015 financial year at its 15th Annual General Meeting held on Friday last week.
During FY15, company revenue increased 32%, from $53 million to $70.3 million. Software businesses are capital light and enjoy significant operating leverage, meaning the strong revenue growth resulted in a 68% surge in net profit to $70.3 million.
The Americas represent around 75% of company revenue and favourable currency movements did improve the result. In constant currency, revenue and net profit still increased by an impressive 24% and 41%, respectively.
The company noted the average exchange rate against the US dollar for FY15 was 84 cents compared to 91 cents during FY14. The exchange rate now sits around 70 cents which will provide another boost to revenue and profit in FY16.
Mr Steve Killelea, founder and current Chairman of Integrated Research, noted that: "Last year's exceptional result was attributable to a number of factors. Integrated Research's good years have historically been defined by the closing of one or more very large sales." He went on to say: "After reviewing the current sales pipeline the prospects for the 2016 financial year remain buoyant."
AGM key points
Customer satisfaction of Integrated Research's software is high, and 95% of customers renewed their maintenance contracts across all product lines. As a result, maintenance revenue increased 15% during FY15 to $23.7 million and now represents 34% of total revenue. Importantly, maintenance revenue is recurring which provides a solid base of growing earnings for the business.
Integrated Research continued to add big global names to its customer base during FY15 including Zurich Insurance, Standard Chartered Bank, The Royal Mail Group, The US Customs and Border Protection, Cabcharge and Rabobank.
Mr Killelea said, "The company's cloud-based solutions, which were released last year, are being licenced by many service providers. It is expected that this side of the business will have sustained growth as the future demand for outsourcing grows."
On 1 July 2015, Integrated Research completed its acquisition of IQ Services for US$1.5 million, its biggest to date. IQ Services provides a variety of testing solutions (comparable to a GP who checks your health) to large corporations and the business expects to leverage this new capability into its existing customers. It looks like a great addition, and after only 5 months there have been a number of early cross sales wins.
Research and Development expenses increased by 12% to $12.4 million during FY15 and the company is "continuing its significant investment in its product lines to improve its competitive position and to expand into new markets. The investments to date in Contact Centre, Call Recording Assurance and Skype for Business are all delivering early returns."
Guidance
Integrated Research has no plans for major acquisitions and will continue to focus on organic growth or small acquisitions of complementary products, if applicable.
Recapping its historic year, the Chairman noted that "the return to shareholders both in terms of dividend and share price increase has been the best year ever. This performance attests to the dedication and commitment of the staff and management of Integrated Research."
No revenue or profit projections for FY16 were given to investors at the AGM, however, with an increasing suite of products, growing number of satisfied Fortune 500 clients, currency tailwinds behind it and a passionate management team, investors should be confident in Integrated Research's long-term growth and outlook.
The business is debt free, delivers exceptional returns on equity (around 40-50% in FY15) and is trading at a trailing price to earnings multiple of 27. Its current price, around $2.30 per share, is 20% below its recent high and could be an attractive entry point for long-term investors.
