· Significant contract wins during the period and since the period end including:
· a multinational general insurance company, and a manufacturer of rolling stock and infrastructure for the rail network (combined contract value of £0.9 million)
· a science-led sustainable technologies business (£0.6 million)
· an international building materials group (€1.0 million)
· Annual Recurring Revenue (“ARR”) carried forward increased by 18.8% to £6.0 million vs H1 2019 (£5.0 million)
· 25.5% increase in contract revenue backlog to £6.4 million today, from £5.1 million at 1st May 2019.
· Acquisition of the trade and assets of Langdon Systems, which specialises in supply chain data relating to import and export duty management and has a blue-chip client base of 60 clients
· Group revenues £3.1 million (H1 2019: £3.5 million) following removal of low margin generating revenues which improved gross profit margin to 81.2% (H1 2019 78.4%)
· Administrative expenses tightly controlled at £2.8 million (H1 2019: £3.0 million) resulting in Operating EBITDA (excluding acquisition costs and share based remuneration) loss of £155,000 (H1 2019: £213,000 loss)
· Cash balance of £499,000 following drawdown of loan of £0.5 million and repayment of pre-existing loan notes and other loans of £722,000 during the period.
Chief Executive’s Review
The first half of the year has seen us follow a process of trading out low margin revenues and replacing them with higher yielding annual recurring revenue (“ARR”). Whilst doing this we continued to acquire new customers, expand offerings with existing customers and grow internationally. The Group has in parallel continued to invest in product development, enabling us to innovate and add new products into the portfolio. Whilst this focus on improving the quality of revenue impacted sales in the first half of the year compared to last year, we remain confident that the second half will enable us to stay on target and to meet management expectations.
A key highlight of the first half was the acquisition of the business of Langdon Systems Ltd. Langdon specialises in bulk handling of supply chain data with a strong position in import and export duty management systems, providing import and export data reporting, visualisation and data mining. Although not generating significant returns in the current financial year, Langdon adds over £0.4 million to our ARR and does not significantly increase our cost base. Already within three months of the acquisition, we have been able to increase the Langdon ARR, integrate the solution onto the RAPid platform and we are now able to offer the services to a broader customer base utilising our in-depth knowledge of data extraction, data cleansing and reporting. The impact of Brexit, although uncertain, is likely to create a significant jump in demand for the Langdon data services in the coming months and years as companies become required to report to HMRC for imports and exports with the EU. We are excited by its prospects and are implementing plans to benefit from this potential upside.
We have been able to develop and integrate new technologies and robotic process automation solutions that have been contributed to reducing our cost base. This has provided the additional resources to focus our attention on building out our Sales and Marketing team whilst managing our costs tightly and it is our expectations are that within the next 12 months this will start to show material financial benefits to the Company.
I am pleased to report that since the half year our sales growth has been significant, as can be seen in the recent announcements. We have increased our backlog to £6.4 million as of today, an increase of 25.5% from £5.1 million at the start of the year, and we have grown our year on year ARR by 18.8% to £6.0m. This alongside our cost management initiatives provide us with the confidence to expect EBITDA being positive in the second half of the year.
Our Customer retention rate remains high at greater than 90% and in most clients we are expanding our sales opportunities and revenues.
We believe that the quality of the RDT RAPid platform continues to be highly recognised, giving us the opportunity to take major steps forward on a number of important fronts, including moving out of traditional spend analytics to be more involved with the complete Supply Chain Analytics and Master Data Management.
Underpinning this progress is our talented and skilled team who are fuelling the continued development of innovative solutions and widening the sphere of sales opportunities. This is reflected in our growing list of clients. These include many leading global businesses and the increasing number of partnerships we are establishing. Partnerships that bring us closer to where high volumes of business and commerce meet, giving us the opportunity to play a significant information management role.
Our sales team continues to gain momentum as demonstrated by our increasing pipeline and the wins announced in the last few months. Furthermore, revenue growth from our installed customer base remains healthy as we continue to expand our ARR. This, we believe, is evidence of the success of our “land and expand” strategy as well as of the emerging value of the Rosslyn business model. Our customer churn remains extremely low, at less than 10% per annum.
We remain confident that, supported by strong contracted revenue visibility and new business momentum, we will continue to build on the solid progress and foundations laid.
The six months to 31 October 2019 saw revenues drop slightly as we implemented a programme of removing low margin products and services and their replacement with higher margin ARR contracts. At the same time, we have been able to maintain and improve the cost efficiencies that we worked hard to deliver last year. The revenue growth and the cost savings enable us to see a clear path to EBITDA being positive in the second half of the year, and an operating cash break-even position (excluding working capital movements) during the full financial year.
Our ARR growth has been achieved as a result of our ability to assist enterprises to significantly reduce the complexities associated with capturing and managing their data whilst improving their analytics capabilities. At the same time, we have been able to support our clients by reducing the costs of deploying analytics, increasing the speed of deployment whilst being able to demonstrate a positive return on investments.
As enterprises modernise, we are benefiting from the migration from traditional on-premise applications to cloud based services. The technology value gap between a traditional on-premise solution and a cloud-based approach is increasing as we continue to develop faster, better and more intuitive solutions. We are now being frequently asked to deliver our solutions into a “private” cloud environment, owned and maintained by our clients. We believe this will assist us in improving our sales cycle metrics, accelerate our expansion plans and maintain a low churn rate.
We are increasing our investments in the sales and marketing teams, particularly focusing on large enterprises in key industry segments. We have deployed dedicated managers whose focus is on establishing deep and trusted relationships with strategic accounts. Supporting each of these areas is a customer success team who support not just the implementation but also the expansion of the footprint of the platform in each account.
The Group’s sales pipeline continues to grow and I am pleased to report that we are in negotiations with a number of large enterprises and look forward to updating shareholders in due course. On the partner front, our focus is on making our existing partners ever more effective in selling the benefits of the platform through which we extend and scale our sales capability.
We are continuing to build on our world-class and well-regarded development team. Their depth of expertise and agile approach enables us to respond quickly to customer needs and market opportunities and give us an advantage over the traditional on-premise approach.
The Group’s strategy remains to build a strong and dynamic company focused on growth and building shareholder value.
The second half of the year has begun well. There have been a number of new contract wins as well as expansion of our current customer portfolio. The firm has been short listed as the preferred vendor in the US, UK and Europe for potential new contracts which cover a number of new exciting verticals and applications for RDT and we look forward to updating shareholders in due course.
The research and development team are executing on an exciting schedule of improvements and new technologies, which we expect to be released into full production late in the second half of this financial year. Of note, we expect to deliver: simple self-service tools that will enable clients to improve data management capabilities; compliance reporting and predictive analytical capabilities; supplier information management capabilities and full contract to cash management capabilities. We expect these tools to improve our customers’ risk analytics and compliance reporting capabilities along with information and insights to support their fundamental business needs and their strategic decision making.
Our pipeline is healthy and, through the impact of our new solutions and services, we are negotiating contracts with significantly larger values than we have done in the past. Given their size, these contracts are taking longer to negotiate but we have been able to automate many internal processes, reducing the lead-time for delivery and shortening the time to value extraction for our clients. Management are working to deliver these contract wins during the current financial year and, if achieved, would significantly increase EBITDA for this year. Even without these contracts at this time we have every confidence in meeting our expectations.
The directors are pleased with the progress made to date and believe that the Company is increasingly well positioned to take advantage of opportunities. The RDT RAPid platform is emerging as a recognised and well-regarded technology in this large and growing market place, and through our continued and disciplined execution, we expect progress to continue. As a result, we believe the Company is in an exciting position for the rest of this year and beyond.
14 January 2020