Actual Experience plc (LON:ACT), the analytics-as-a-service company, has announce its unaudited consolidated interim results for the six months ended 31 March 2020.
Highlights
● Pivot in focus of sales processes to professional services model largely complete
● Revenue of £971,516 (31 March 2019: £953,025)
● Gross profit increased by 29% to £507,099 (31 March 2019: £393,141) as a result of improved operating efficiencies
● Operating loss after exceptional item declined by 12% to £3,031,961 (31 March 2019: £3,444,666)
● Loss per share of 6.06p (31 March 2019: loss per share of 7.37p)
● Cash and cash equivalents at 31 March 2020 of £4,394,105 (30 September 2019: £7,876,634)
● Expected annualised cost savings of approximately £1.8m resulting from a restructuring of the cost base, as announced previously
Dave Page, CEO of Actual Experience plc, said: “Our pivot to a professional services led engagement is now complete and structural changes made in this regard will be reflected in the reduced ongoing cost base. We continue to make progress in targeting further land and expand opportunities with global blue chip companies and remain convinced that we will grow our Annual Recurring Revenue as a result.
Significant changes have taken place globally in regards to how businesses are operating. The recent enforced adoption of home working places digital transformation and related digital experience at the top of the corporate agenda. We, together with our Partners, their customers, and a growing number of industry analysts, believe that this will result in long term change to how employees work that highlights the need for our technology. Our ability to service the needs of major corporates, be it in traditional offices or in hundreds or thousands of individual homes, places us in a strong position. Discussions regarding potential new contracts are well progressed and we expect to be able to announce further details regarding this in due course.”
COVID-19
The health and safety of our people remain our top priority. In a direct response to the COVID-19 pandemic, and in accordance with government guidelines, we have implemented our business continuity plan. Our office has been closed since 16 March 2020 and all employees are working from home with no disruption to business operations. Other relevant measures contained in the government guidelines have been followed, including cancellation of all business-related travel. Actual has been able to continue supporting its Partners and their enterprise customers with no compromise on service levels or delivery.
BUSINESS REVIEW
The first six months of the financial year have seen the Company complete its pivot from a managed services led offering to that of professional services, placing us at the heart of our Channel Partners processes in order to promote quicker customer engagements, and we have seen deployment cycles shorten as a result. This will help us to execute our strategy of signing new ‘land and expand’ deployments with large scale global blue chip enterprises. As noted in the report on the Company’s full year results for 2019, the adapting of the processes involved some restructuring within the business. The resulting reduction in headcount was completed by March 2020.
Having agreed the new approach with our Channel Partners, our focus in the first four months of the current fiscal year was on the commercial and technical aspects of implementation. Whilst significant progress was made in this respect, the COVID-19 pandemic diverted attention of all of our Partners towards implementing business continuity processes, not just for their customers but for their own organisations. The immediate impact of this was to slow down the finalising of certain details but as Partners and their customers have adapted to new ways of conducting their businesses, with a momentous shift to remote and home working, the opportunity for our offering has increased significantly.
Enabling efficient and effective remote working is now a key focus of most businesses in the current environment. The ability to do so depends entirely on how productive staff can be from home, which in turn relies heavily on the human experience of numerous digital collaboration tools. For enterprise IT departments used to looking after tens or hundreds of corporate offices, managing the human experience of thousands or tens of thousands of home offices is an enormous challenge.
Our analytics can help these enterprises swiftly identify where the cause of poor human experience lies. Using our analytics, businesses can fully harness the economic and well-being benefits of homeworking, leading to fast and effective resolution of the issues and increased employee productivity.
Our analytics can analyse the human experience of thousands of home offices simultaneously, promptly providing actionable information to recover lost productivity, and providing an ongoing analytics capacity to manage human experience going forward. As the COVID-19 situation has progressed, we have been working very closely with our Channel Partners to support their customers in this new environment and are seeing increasing levels of engagement as a result.
From an operational standpoint, we have seen minimal impact as a result of the virus, as our own business continuity systems and procedures have enabled all our employees to work from home, allowing us to continue providing full support to our Channel Partners with minimal disruption.
I would like to thank all of our staff for the professionalism and dedication that they have shown throughout this difficult period and their unswerving attention to supporting our Partners to help them navigate the challenges presented.
The Company is planning to introduce a share purchase scheme in June 2020 and all employees will have the opportunity to purchase newly issued shares. All directors have agreed to participate in this scheme and we will be announcing details of these purchases in the coming months.
Revenue for the first six months of the current financial year was £0.97 million (H1 2019: £0.95 million) with Annual Recurring Revenue (“ARR”) at the end of the period also similar to last year’s at £1.9 million (H1 2019: £1.8 million). The Company retains adequate cash balances for the next year, taking into account expected annual savings from the business restructuring of approximately £1.8 million. As at 31 March 2020, the Company had cash and cash equivalents of £4.4 million, which will provide the Group with sufficient resources to meets its liquidity requirements for the next 12 months, based on a conservative forecast of sales growth and cost efficiencies.
We are actively seeking new business opportunities and progressing discussions with our existing Partners. As at the period end, the extension of current revenue contracts and the timing of new revenue contracts remains uncertain. However, the discussions are well progressed and are expected to result in additional new revenue for the Group. Furthermore, the Group has restructured the business to align itself with the evolved sales model which has resulted in a reduction of the cost base as well as improving operational efficiencies.
After making appropriate enquiries and considering the assumptions and uncertainties described above, the Directors consider that it is appropriate to adopt the going concern basis in preparing the consolidated financial statements. Accordingly, the financial statements do not include any adjustments which would be required if the going concern basis of preparation was deemed to be inappropriate. However, if the Group is unable to deliver the anticipated revenue growth it would give rise to a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.
Market
The global digital economy is currently seen as accounting for about a third of the total world economy, and we believe that digital activities will continue to grow as businesses strive to further refine and enhance their value propositions to their customers.
Our Analytics-as-a-Service (AaaS) gives our customers the insight needed to improve their customers’ digital journeys and operational efficiency. Using our analytics, businesses can manage and improve the human experience of their digital ecosystem, so that staff productivity is improved. We now have a number of large Channel Partners building our analytics into their processes in a way that will enable us to continue to scale and reach further into the global digital economy.
The market opportunity for Actual Experience remains large and is rapidly growing, as a result of the enforced digital transformation that we are seeing through a shift towards remote working. We have seen greater need for our analytics during the first half of the year, as our Partners assess customer staff productivity whilst they are working from home, and we believe there will be an increase in customers’ requiring access to performance data as the world adapts to this new environment and different working practices.
Strategy
As well as continuing to build our pipeline of land and expand opportunities, we are focusing in the short term on helping our Channel Partners optimise the new realities of home and remote working for their customers. There are strong reasons to believe that a lasting effect of the current pandemic will be a continuing cultural shift towards a much greater proportion of home working. In order to achieve this, digital transformation and user experience will have to remain at the top of the corporate agenda. Our ability to service the needs of major corporates, be it in traditional offices or in hundreds or thousands of individual homes, places us in a strong position.
Through our Channel Partner network, we are able target a significant proportion of the global digital economy. Through these Partners, we have been able to execute customer deployments, and some of these deployments bring the opportunity to attract new Channel Partners, which will in turn help us build a pipeline of additional customer deals and further our global reach.
Product development
Fundamental to our success is the ability to refine our technology so that it is easy to deploy and is user friendly. Over the years, we have invested heavily in development and innovation of our analytics to ensure our product is simple to use, so that our Channel Partners and their customers are able to easily access the full capabilities of our solutions. This will result in a significant reduction in the skill and knowledge required by our Channel Partners and deliver value to their mid-tier and SME customer. As already highlighted, we have also worked hard on enabling our technology to be integrated into our Partners’ offerings, so that our analytics can be included as part of their wider offering, rather than a standalone product.
We have continued to make product changes in line with our new professional services model for sales processes. We have made further improvements in the reporting of analysis of users’ digital experience, including better user interfaces.
Sales & Marketing
Considerable work has been done over the period to support our Channel Partners in our shift to a more business-orientated professional services model, and we continue to ensure that our Partners have the necessary tools needed to effectively deliver our offering to their customers. The majority of our marketing materials and tutorial videos have been updated so that our Partners can shift their focus from fixing operational issues to human experience and brand integrity. Training has been done with specific sales teams at individual partners to prepare them for the new emphasis that arises as a result of home working.
Current trading, COVID-19 impact, and Outlook
The need for effective home working and the ability to monitor the technology which enables it are clearly moving up the corporate agenda. Discussions are well progressed regarding potential new contracts to support this commercial opportunity and we expect to be able to announce further details in due course.
Whilst we believe that the increase in home working will create significant opportunities for Actual Experience, we are also having to deal with the impact of the COVID-19 pandemic on our own operations. To the best of our ability, and after discussions with our Partners, we have factored this into our planning. The health and safety of our employees, Partners and their customers is paramount, and we have taken decisive steps to move fully to remote working, with an online sales, marketing and support model for engaging with our customers. The Board remains cautious and vigilant, assessing the impact of COVID-19 on the general economy as we develop and manage our cash resources as well as we can.
FINANCIAL REVIEW
Consolidated income statement
Revenue of £971,516 was recognised in the six months ended 31 March 2020 (2019: £953,025). The increase over the corresponding period in the previous year is derived from the previously announced ‘land and expand’ contract deployments. The Company continues to focus on its indirect sales model, with revenues from Channel Partners accounting for 97.9% of sales in the period (2019: 99.5%).
A gross profit of £507,099 was achieved in the period, compared to the gross profit of £393,141 in the corresponding period in 2019. This reflects further operating efficiencies in the Company’s customer support operations.
Administrative costs amounted to £3,127,535, compared to £3,837,807 in the six months to 31 March 2019, reflecting the Company’s continuing focus on expense reduction, as well as the positive financial impact in March 2020 of lower payroll costs following the completion of the restructuring process, as announced previously. The comparative numbers below for the six months ended 31 March 2019 have been restated to include the effects of adoption of IFRS 16 Leases.
As noted in the Business Review, the Company completed a restructuring in February 2020. The cost of the restructuring was £411,525 and is not included in the above table. The restructuring reduced headcount from 93 to 74 and, together with related costs such as employee travel expenses, it is expected that this will result in monthly operating expenses being reduced by approximately £150,000 per month, commencing in March 2020.
As disclosed in the notes to the Company’s 2019 Financial Statements, and in accordance with the requirements of IAS 38, qualifying development expenditure is capitalised and amortised over the estimated useful life of the developed assets. Total expenditure on research and development in the six months to 31 March 2020, prior to capitalisation, was £1,264,860 (2019: £1,331,706). In the current period, £182,401 has been capitalised, net of amortisation (2019: £30,077).
The Company continues to benefit from the tax relief given in the UK on qualifying development expenditure. This research and development tax credit is estimated at £154,314 for the period (2019: £120,000) and substantially accounts for the tax credit in the Consolidated Income Statement.
As a result of the investment noted above, the Group recorded an operating loss in the period of £3,031,961 (31 March 2019: loss of £3,444,666) and a loss per share of 6.06p (31 March 2019: loss per share of 7.37p).
Balance sheet
The Group has a debt free balance sheet. Cash and cash equivalents decreased in the period, from £7,876,634 at 30 September 2019 to £4,394,105 at 31 March 2020. This decrease, which was in line with management’s expectations, was substantially as a result of the loss for the period, including redundancy payments, associated with the restructuring. Free cash flow for the period was £(3,425,490) (2019: £(2,572,877)). Free cash flow is defined as net cash flows used in operating activities, plus development of intangible assets, plus purchase of property, plant and equipment.
The trade and other receivables figure of £672,148 at 31 March 2020 (31 March 2019: £481,710) comprises trade debtors of £413,357, prepayments of £115,042 and other debtors of £143,749.
Trade and other payables of £464,314 (31 March 2019: £965,309) includes non-payroll accruals of £231,420 (31 March 2019: £412,234). The accrual for commission and bonus payments decreased to £67,800 (31 March 2019: £344,266). The balance relates to trade creditors, tax and social security, and deferred income.
Going concern
As in previous years, the Group has continued to utilise its cash resources to fund losses whilst the sales pipeline is being established. The cash balance as at 31 March 2020 was £4,394,105 which will provide the Group with sufficient resources to meets its liquidity requirements for the next 12 months, based on a conservative forecast of sales growth and cost efficiencies.
We are actively seeking new business opportunities and progressing discussions with our existing Partners. As at the period end, the extension of current revenue contracts and the timing of new revenue contracts remains uncertain. However, the discussions are well progressed and are expected to result in additional new revenue for the Group. Furthermore, the Group has restructured the business to align itself with the evolved sales model which has resulted in a reduction of the cost base as well as improving operational efficiencies.
After making appropriate enquiries and considering the assumptions and uncertainties described above, the Directors consider that it is appropriate to adopt the going concern basis in preparing the consolidated financial statements. Accordingly, the financial statements do not include any adjustments which would be required if the going concern basis of preparation was deemed to be inappropriate. However, if the Group is unable to deliver the anticipated revenue growth it would give rise to a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.
