Revenue up 15.7% but gross margin improvement masked by widening losses

Gross margin expanded 800 basis points to 67%, with gross profit up 31% to approximately NZ$8.1m. Despite this, the pre-tax loss widened 3.8% to NZ$7.1m, meaning cost growth outpaced the revenue and margin improvement. The operating cash outflow narrowed substantially to NZ$2.6m from NZ$5.2m, partly because capex collapsed 86.2% to NZ$0.4m (3.0% of revenue versus 27.6% in HY24), and working capital released NZ$2.2m as receivable days fell from 105 to 65. Cash on hand declined to NZ$6.8m from NZ$10.2m in the prior comparable period.

The exit ARR run rate reached approximately NZ$13.2m annualised (+34% versus the prior comparable period), and subscription gross margin held at 87%. This is the clearest signal of durable progress in the business, because subscription revenue carries the margin required to eventually absorb operating costs — but the gap to breakeven remains large given a NZ$7.1m first-half loss.

The cash position is thinning and the burn rate matters. Cash fell to NZ$6.8m; the operating cash outflow of NZ$2.6m for the half, even after the NZ$2.2m working-capital release, implies that ongoing burn will pressure the runway over the next two to three halves unless revenue growth accelerates or cost controls deepen further. Total equity has more than halved year-on-year to NZ$13.6m, reflecting accumulated losses.

The capex reduction is a significant swing but its source matters. The prior comparable period included NZ$1.7m of capitalised development spend that has largely disappeared in HY25. Lower capitalised development can reflect completion of a platform build cycle or a deliberate shift to expensing — either way, it changes the cost-base and cash-flow comparability between periods.

The FY24 full-year result saw second-half operating cash flow recover to a small positive (implied NZ$0.7m inflow versus a NZ$5.2m outflow in HY24), suggesting the business has historically been second-half weighted on cash. At the HY25 annualised revenue run rate of approximately NZ$24.3m, IKE is tracking above the FY24 full-year revenue of NZ$21.1m, which is consistent with the subscription growth trajectory the company flagged at FY24 when it cited contracts expected to underpin greater than 50% SaaS revenue growth in FY25.

Whether the second half can convert that revenue momentum into materially lower losses depends on whether operating cost growth is contained. The release does not provide cost guidance, so the path to the breakeven that management has signalled as a medium-term objective remains unquantified.

Subscription revenue is contracted and recurring, its gross margin is stable at 87%, and the transaction segment showed a significant margin recovery (37% versus 19% in HY24) as volumes normalised from the project delays that depressed HY24.

The operating cash flow improvement, however, owes much to timing and structural factors rather than earnings quality. The NZ$2.6m working-capital release (receivable days compressing from 105 to 65 days) and the near-elimination of capitalised development capex together explain most of the cash-burn reduction. These are not repeatable to the same degree in the second half. Free cash flow before lease payments improved to approximately negative NZ$2.9m from negative NZ$8.1m, but that comparison is heavily distorted by the capex swing. The ROE of -51.5% versus -22.9% in the prior comparable period captures the equity erosion from ongoing losses accumulating against a shrinking equity base.

This briefing cannot assess the probability or timing of reaching operating breakeven, nor the adequacy of the cash runway, without forward cost guidance or a contracted revenue disclosure.