Description

Ivrnet is a SaaS provider of telecommunications-based applications and services that has spent the last several years overhauling core products and getting several others ready to launch.  I believe that the business is now at an inflection point where increased client wins from the new products should start to drive revenue growth at very high incremental margins.  One product in particular, Nextext, has the potential to increase EBITDA by multiples of current levels in a relatively short time frame should it prove successful in the market.   The company currently trades for only around 1.4x revenues (largely recurring), 1.9x gross profit, and around 10x EBITDA providing downside support in the event that all of the new products fail to generate material revenue growth.

The company’s size and liquidity make it more suitable for personal accounts.  Shares trade as IVI on the TSX Venture Exchange.

Ivrnet Central

Ivrnet Central is a membership management product.  It helps facilitate the management of various community-based organizations by handling program registration, communications, event bookings, reporting, payments (i.e. collection of membership dues), etc.  In particular they are focused on 1) community and resident associations and 2) sport (both team and individual).

This business has been stagnant for a number of years as the company essentially halted their sales efforts while they completely rebuilt the product to unify various applications into a single product and to give that product a modern UI.  Based on the work completed to date, Ivrnet Central’s functionality includes basic membership management, payments, and class, program and facilities registration.

The company is currently still rebuilding various important modules, however, to better serve their core markets.  They are focused on building a Communities module for the community association market right now, which they anticipate shipping this year.  After that will follow modules for both Individual Sport and Team Sport (both are in process, but the focus is on Communities first).  As these new modules are released, starting with Communities, the company will finally be able to start winning new business again and thus drive revenue growth.  

One of the biggest reasons for optimism is that their anchor customer here was Brookfield Residential Properties, who is a very large developer of master planned communities.  Ivrnet Central was built to specifically address the issues that Brookfield was having with their prior software, and the expectation is that upon completion Brookfield will choose to more aggressively rollout Ivrnet Central (it’s currently in six of their developments).  The company also believes that Brookfield should also serve as an excellent reference customer and expect referrals to come through that relationship.

ActiveNet is considered the primary competitor here and I have found that their product is generally not very well regarded.

Nextext

Nextext is a text messaging service / marketing platform that is used by public transit authorities (PTAs) to reduce the cost of texting bus times to interested riders.  PTAs typically allow riders to send a text message to inquire about a particular bus’ arrival time.  Sending these text messages, however, is a cost center for the transit authority.  

Nextext partners with these transit authorities by sending these text messages for them at a lower cost in exchange for the ability to send a geo-targeted ad with each message.  Each contract will no doubt be structured differently, but a transit authority will receive some combination of lower pricing on texting services and a revenue share on ad sales, potentially even turning what has been a cost center into a profit center for them.   

Nextext has been in development since 2013 and was finally launched in April of this year.  They are outsourcing the ad sales for this service to agencies in exchange for a share of the ad revenue; you can see that Far West Outdoor is selling ads in the Calgary market for them here (http://farwestdigital.com/)   If you go to the main website (http://www.nextext.ca) you can see that they’ve already signed up three transit authorities in Calgary, Vancouver, and Kitchener/Waterloo.  The early traction outside of their “home” Calgary market in particular is notable.

What’s most intriguing about Nextext is how quickly it has the potential to materially increase profitability with just a few customer wins.  In the press release announcing the launch of Nextext (http://www.newswire.ca/news-releases/ivrnet-launches-nextext-to-the-north-american-market-575377451.html), management states: “We are currently in discussions with over 20 transit authorities throughout North America, representing texting volumes of over 10 million per month, which translates to over $7-million in annual opportunities.”

My understanding is that the $7 million in revenue estimate is net of the revenue split with Far West and thus has very little incremental cost for Ivrnet.  It is of course recurring in nature as well as it would be tied to texting volumes.  For a company with a $3.5 M market cap and $400k in EBITDA, it’s therefore not hard to see how a successful ad sales effort in just a few municipalities would have the potential to increase profitability by multiples of its current levels.

Safepay

Safepay is a PCI compliant solution for e-commerce payment processing.  The key component for Ivrnet is the Telepay portion of that, which ensures PCI compliance for credit card numbers taken over the phone.  Businesses surprisingly often have their staff manually recording credit card numbers obtained over the phone, which introduces the risk of a rogue employee stealing this credit card information, and most importantly is not PCI-compliant.  Telepay is an IVR-based technology that automates this process and takes the employee out of the transaction, thus ensuring PCI-compliance.  

Safepay has a relatively small amount of business that they’ve sold directly to various departments in the Alberta government, but they are launching the product more broadly this year and it should start contributing to revenue growth.  It will logically start to be sold through payment processors and their ISOs, which should allow them to scale up the business faster than an entirely direct sales effort would.

Other

Ivrnet has various other products and services (Safe Team, hosted phone systems for SMBs, Call Trak, etc.) but they have finally started focusing their efforts on the three that I detailed above which have the best growth prospects.

Ivrnet has high insider ownership at around 33% of the shares outstanding.  CEO David Snell has consistently added to his position at current prices over the last several years and now owns 18% of the shares.  COO Chris Topolniski bought one million shares in the last financing a year ago and is now up to 3% of the shares outstanding.

Risks

• Ad agency partners could fail to sign up enough advertisers to adequately monetize the ad inventory created via Nextext.  Once an ad agency partner is in place this is essentially out of Ivrnet’s control.
  
  
• New product modules could take longer to ship than is currently anticipated.  They have had product release dates slip in the past so it would not be surprising if some of the Ivrnet Central modules that are yet to be released take longer than currently expected to complete.
  
  
• New products could fail to get traction in the market.  There is inherent uncertainty with any new product as to whether it will adequately meet customer needs at an attractive price.
  
  
• Customer churn rates could increase if management loses focus on supporting existing customers while they are launching multiple new products into the market.

Catalyst

• Company signs up more transit authorities to Nextext.
• Overall revenue growth returns -- the business has been flat-to-declining while they overhauled Ivrnet Central and developed several new products, and so revenue growth will demonstrate to investors a marked change in the business
• Company shows that the Nextext model works by generating meaningful revenues from the three launch customers
• Eventual initiation of investor relations activities.  The company has remained under-the-radar thus far due to the lack of investor relations.