Eco Investor December 2015

Initial Public Offering

Reducing Commercial Building Emissions

Eco Investor has been writing about BuildingIQ, Inc. since the company was founded in 2009 so it is encouraging to see it now issue a prospectus to list on the ASX. The energy management software and service company is raising $20 million through an offer of $1 CHESS Depositary Interests (CDIs) and expects to list on 17 December.

Nearly 10 per cent of Australia's greenhouse gas emissions come from commercial buildings, and BuildingIQ has an award winning, cloud-based, energy management software service for owners and managers of large commercial building portfolios. The software uses intelligent predictive analysis and automated control to reduce energy costs by 10 to 25 per cent. In a portfolio of large buildings, that can be significant money.

The technology was developed by the CSIRO and the company has enhanced it with new capabilities into a Predictive Energy Optimisation (PEO) platform. PEO is a proprietary machine learning technology and type of artificial intelligence that monitors heating, ventilation, and air conditioning (HVAC), lighting and power systems, uses thermal modeling, predictive analysis and human comfort modeling to optimize energy consumption, and can adapt to new information such as real-time electricity tariffs and weather information to determine the best control points and operating schedules.

Chairman Alan Cameron AO said energy is a controllable operating cost and BuildingIQ is well placed to capitalize on the convergence in the big trends of growing global energy demand and long-term rising electricity prices combined with government and private sector support for efficiency and sustainability.

"The rise of "Internet of Things" (IoT) and cloud computing technologies has enabled innovative solutions, such as BuildingIQ, to combine technology intelligence and connectivity to unlock new value from existing assets at a lower cost and significantly faster return on investment (ROI) compared to traditional approaches," he said.

BuildingIQ has shown itself to be a fast growing business and it now has contracts for over 25 million square feet or 2.3 million square metres across over 100 buildings in the US and Australia. The clients are public and private sector organizations which own commercial property in government offices, healthcare, education, hospitality, and retailing. The contracts are usually for one to three years.

The Building Energy Management System suits buildings which are larger than 100,000 square feet or 9,300 square metres and have a Building Management System. The business model is monthly revenue via a license to the platform and this is charged on a per-square-foot or per-square-metre basis. The current revenue ranges from US$0.08 to US$0.13 per square foot per annum or $0.75 to $1.20 per square metre per annum depending on the level of energy spending and the length of the contract. As well as the large cost savings, there is a low or no upfront cost so the customer's value proposition is further improved with quick free cash flow.

The company has 47 employees, 12 at its headquarters in San Francisco, 12 in New York and 23 in Sydney. It has its own sales force, and further sales opportunities come from its partnerships with the large industry players Siemens and Schneider Electric.


BuildingIQ key financials.

The IPO is fully underwritten by KTM Capital Pty Ltd. The capital to be raised is for expansion. In 2012 BuildingIQ commenced in the US, where it is now headquartered, and it is now ready to expand into other countries.

BuildingIQ is backed by strategic and financial investors including Exto Partners Australia Pty Ltd, Siemens Venture Capital GmbH and its affiliates, and Paladin Capital Group. Together they have invested about $24 million in the company. Hopefully the venture capital angle means the company has developed rigorous business management, capital management and business growth skills.

Post float, BuildingIQ will have 84.5 million shares on issue and a market capitalization of $84.5 million. The CHESS Depositary Interests (CDIs) are beneficial interests in the underlying shares and are being issued as BuildingIQ is incorporated in Delaware and the CDIs will enable the securities to be settled electronically through CHESS.

BuildingIQ is a pre-profit company with revenue to 30 June of $2.1 million and an after tax loss of $2.4 million. However, its fiscal year ends 31 December when the revenue is forecast to be $4.8 million and the loss $4.2 million. The pre-IPO balance sheet is also modest with total assets of $5.7 million and net assets of $3.6 million after accumulated losses of $19 million.

Post IPO, total assets will be $28.3 million, and net assets $25.3 million.

BuildingIQ is a speculative investment in energy efficiency and green buildings. On the plus side it has a large addressable market, lots of room for growth, and can offer quick and measurable cash benefits to clients. But the company said that losses and negative operating cash flows will continue in the near-term, so profitability is some time away. (ASX: BIQ)

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