D4t4 : Audited full year results

30 June 2020

D4t4 Solutions plc

Audited full year results

D4t4 Solutions Plc (AIM: D4T4, 'the Group', 'D4t4'), the data solutions provider, today announces its Audited final results for the year ended 31 March 2020.

Financial highlights

· Proposed final dividend of 1.9p (2019: 2.3p), total dividend for year 2.67p (2019: 3.0p)

· Year-end cash position £12.77m (2019: £11.00m)

Operational highlights

· Recently launched Celebrus 9.2 with embedded machine learning and Natural Language Processing (NLP) capabilities

Peter Kear, Chief Executive of D4t4, commented:

'We made significant progress in our transition to a recurring revenue model from perpetual licences with our new forward-looking measure, ARR, up 26% and our recurring revenue increased to 45%, up from 29%.

'We are pleased to report we are transitioning from two product divisions into one, to simplify the business and focus on our Celebrus suite of products and supporting services. These encompass our own extensive software IP with our leading capabilities in instant time data capture, data migration, data management and monitoring.

'Our high level of customer retention and increasing recurring revenue visibility has mitigated any material short term impact of Covid-19. We have a strong pipeline of new business as companies look to accelerate their digital transformation in response to the seismic shift online.

'This year has started promisingly and in line with our expectations, with strong levels of both existing and new client activity.'

Enquiries

Statement by the Chairman

2019/20 Performance

The year ended 31 March 2020 was a year of excellent progress against our key strategic objectives which are:

1. To increase revenues from our Celebrus software family of products which include both our CDP (Customer Data Platform) and our CDM (Customer Data Management) hybrid cloud platform with a focus on growing high margin recurring revenue from our enterprise class clients.

2. To transition the business to a term-based recurring revenue model as the long-term value created from recurring revenue is generally significantly greater than one-off, perpetual contracts.

I am particularly pleased to report that revenues of a recurring nature grew from 29% to 45% of Group revenues and that the forward-looking measure of ARR grew by 26.2%. These were achieved despite the considerable disruption from Covid-19 during the last few weeks of our financial year.

In the short term there is a well-known consequence of transitioning from perpetual to recurring licence models in that revenues recognised in the year are lower, hence the reported revenues fell from £25.2m to £21.7m in the period. If the majority of new contracts had closed on a perpetual licence basis then there would have been significant top line revenue growth in the year.

Several large contracts that probably would have closed on the existing perpetual licence basis were deferred into 2020/21 as a result of multiple stakeholders in client and partner organisations needing to review and approve new recurring revenue based contractual terms.

One of the perhaps lesser known aspects of transitioning large complex deals to a recurring revenue basis is the sometimes unforeseen complexities of redrafting contracts, aligning goals with strategic partners and ensuring risk and reward remains as intended during contract variations over a multi-year term.

During the year significant progress has been made in deepening and expanding our relationships with strategic partners and the Board is optimistic the results of this will be seen in the growth of introductions during 2020/21.

One of our goals for 2019/20 was to raise awareness of our CDP software (Celebrus) amongst the technical analyst communities and I am pleased to report a growing level of coverage from organisations such as Forrester as well as an appreciation by CIOs in organisations with a mature and sophisticated data strategy of the value that can be derived from the real time (instant) data capture capabilities of the product.

Covid-19

In common with so many businesses, we closed our offices. All staff were able to work from home with little to no impact on customer service, data security or productivity.

On behalf of the Board, I am grateful to our global workforce for the manner in which they have responded to these challenges. I would like to take this opportunity to thank all of the staff for their hard work and commitment - it is thanks to you that the business has made such good progress throughout the year and particularly during the last few months.

The Board reviewed the impact on all roles across the business. Although a small number of roles were identified as being not required during the office closures, the Board took the view that it would not claim on the taxpayer funded furlough scheme as the business was able to bear this small cost without recourse to the public purse.

Dividend

The Board has carried out a detailed review of the Group's dividend policy. Historically there has been a balance between a progressive dividend and the requirement to invest in growth.

This year we had two additional factors to consider, the short-term reduction in profitability as we transition to a recurring revenue model and the need to preserve cash because of the uncertainties surrounding Covid-19.

Taking account of all these factors the Board has recommended (subject to shareholder approval) a final dividend of 1.9p per share (2019: 2.3p).

A progressive dividend policy will be reinstated once the transition to recurring revenues has progressed sufficiently that revenues are again moving upwards.

Outlook

At this early stage of the year and with the long-term impact of the pandemic on the global economy not yet fully known, it is difficult to assess the impact on the Group's financial performance for the current financial year. However, our high level of customer retention and increasing recurring revenue visibility are expected to mitigate any material impact.

Our customers are experiencing a wide range of challenges. Due to the increase in online transactions, the majority of clients in the financial community are more than ever involved in improving customer experience by treating their customers individually or in detecting and preventing fraud and evaluating credit risk to an even greater degree. Our consumer sector customers are experiencing a very mixed set of results.

The one certainty is that digital transformation remains at the forefront of most people's minds and our products and services play firmly in that area.

We are seeing a continued increase in our recurring revenue visibility. The pipeline of major new contracts remains strong and a high proportion of these new deals, which are likely to be of a recurring revenue nature, are expected to be signed in the 2020/21 financial year.

Contracts are not being cancelled albeit that some are being deferred or slower to close and we are continuing to win new contracts.

Despite Covid-19, we remained focused on our transition from perpetual / capex sales to recurring revenue sales. This year will be key to that transition.

Notably the Group has strong cash reserves and no debt.

Taking these factors into account, including some very positive initiatives with our existing strategic partners and the excellent progress with product development, the Board remains upbeat about the future prospects for the business through 2020/21 and beyond.

2020 has started promisingly and in line with the Board's expectations, with strong levels of both existing and new client activity.

Statement by the Chief Executive Officer

Strategy and position

During the year we took the strategic decision to switch from an unpredictable perpetual licence (capital expenditure) based sales model to a predominantly term / recurring revenue model. This shift will provide us with increased forward visibility and quality of future revenues.

At the same time, we are focused on increasing revenues from our Celebrus software family of products. We remain a leader in both real time digital data collection and customer data management and our products and services are used by many of the world's largest financial services and consumer organisations.

We have continued to capitalise on our technology leadership position and grow our presence in those target sectors, while at the same time exploring new industry areas where our technology can provide similar value and business advantage.

Our solutions provide our customers with confidence in the depth and quality of their data, safe in the knowledge that they can collect all relevant data from every customer interaction across all digital channels in real time.

Our technology ensures that digital channel data can be easily combined with any other customer data that exists in their environment - enabling customer analytics, optimised customer experiences and more accurate targeted marketing, all in real time.

The Group's focus is to empower clients to maximise the value gained from their customer data, delivering major uplifts in terms of their revenue and profitability. Our real time data collection and customer data management platforms are well positioned as leading offerings for financial and consumer markets as companies look to accelerate their move towards a digital transformation, fuelled by the continuing shift online by consumers and businesses alike.

Sales overview

Throughout the year we announced the successful closure of a number of new global customer contracts in the UK, mainland Europe, the Pacific Rim and North America into sectors ranging from financial services to telecommunications and consumer organisations.

2019/20 was a year of change and we successfully managed to convert a high proportion of net new sales to term / recurring style revenue contracts. These new client contracts were evenly spread across Europe, Asia and North America.

We also extended our relationship with many of our existing clients globally with sales of increased capacity, geographic extensions, additional digital collection channels and multiple third party integration adapters.

Sales for the year were £21.75m (2019: £25.24m), the change due in main to the move from perpetual / capital sales to term / annual recurring contracts. Sales of our Celebrus product family of software and services now make up 80% of total Group revenue (2019: 71%).

As a result of the change in product mix we were able to improve our gross profit margin levels to 60.7% (2019: 56.7%). This was through a combination of our own software (own IP), our hybrid cloud customer data management platform and our delivery services with the associated increase in our term / recurring revenues. This resulted in an adjusted pre-tax profit* for the Group of £5.05m (2019: £6.02m).

We finished the year in a strong cash position at £12.77m (2019: £11.00m) and due to strong sales in the final quarter trade debtors stood at £7.97m (2019: £4.06m).

We have started on the journey to a more predictable recurring revenue business and I am pleased to announce that we grew those recurring / term based revenues by 33% during the year to be 45.2% of our total revenue for 2019/20 (2019: 29.2%). Moving forward, and in line with this transition, we will measure our ARR exit rate as an additional KPI.

Partnerships

Our strategic partnerships remain a major focus for our business and we recognise that the geographical reach and business diversity that our partners bring to us is key to our own future growth. During the year we have successfully continued to promote and enhance our relationships with Teradata, SAS, Pegasystems and Adobe both directly and via their partners.

Our channel partner sales continue to contribute a major proportion of our revenues and as can be seen in recent announcements we will be working even more closely with our partner base.

We have recently commenced work on a number of new partner initiatives which should provide significant returns over the coming one to two years.

Markets and opportunities

Although the Covid-19 pandemic has brought considerable uncertainty, the one thing that remains unchanged is the need for companies, both old and new, to complete the digital transformation of their business.

Our products and services are key to many companies' digital transformation plans and working with both industry analysts and our partners we continue to extend our reach and improve market awareness.

Throughout the year we will continue to invest in the geographies where we see the greatest opportunity and take advantage of the increased availability of highly skilled individuals. We see significant opportunities to invest in growth and with our strong cash balance we believe we are well placed to make the most of these opportunities this year.

The opportunity to work more closely with our partners has never been greater and many of our sales are made possible as a result of the extended reach and penetration into enterprise accounts that our business partners provide.

Technology platform leadership

Our Celebrus customer data platform has matured over a period of 20 years and represents the best in class globally for real time omnichannel data collection. The recent launch of Celebrus 9.2, with the introduction of machine learning and Natural Language Processing (NLP) capabilities, has significantly enhanced our offering.

Our Hybrid Cloud customer data management platform continues to gain traction with companies who need to combine their multi siloed customer data sources into one real time environment to gain true advantage from their historical customer data assets for risk, fraud or customer experience applications and now with the introduction of a Platform as a Service option (PaaS) for on-premise deployments we see more opportunity for growth.

Our growing research, development and testing teams across Europe and India have enabled us to move significantly ahead of our competitors in the market. With further planned new releases due in the autumn, we will continue to deliver market leading technology in both our data collection and data management platform products.

To date, we have presented the business under two divisions: Celebrus Customer Data Platform (CDP) and Hybrid Cloud Customer Data Management (CDM). Going forward, we will fold Hybrid Cloud CDM into Celebrus and it will be presented as part of the Celebrus family of data products, which will now include data capture, data migration and data management & monitoring. We are making this change in order to simplify the business and align our focus on the full Celebrus suite of products and supporting services.

Celebrus

Customer Data Platform (CDP):

We recently announced the release of Celebrus Version 9.2 (our enterprise real-time customer data platform) with new embedded machine learning and NLP capabilities. Celebrus captures and instantly activates data across all digital channels to enable customer analytics and hyper-personalisation through one-to-one marketing in real -time.

Celebrus is the first CDP solution in the industry to use machine learning to deliver Automated Marketing Signals. Automated Marketing Signals enable enterprises to better understand customer interest, life events, subscriptions and customer experience. These preconfigured signals reveal new revenue generating opportunities and dramatically limit customer churn.

The value of the new NLP functionality lies in the ability for enterprises to immediately understand 'customer sentiment' in all digital channels including online chatbots, complaints feedback and product review forums. This speed is significant because it allows clients to make meaningful interventions 'in the moment' to safeguard customer relationships and reinforce their brand values.

Notable wins in this area during 2019/20 included:

· An extension of an existing contract with a global telecommunications company headquartered in APAC

Customer Data Management (CDM) - Hybrid Cloud

We have had considerable success with our hybrid cloud Customer Data Management platform solution in a number of sectors including financial services, automotive, retail and health.

We are seeing an increased requirement to combine our Celebrus (Customer Data Platform) digital data, collected in real-time, with historical data held in multiple siloed locations. By bringing together those disparate historical data siloes into one real-time data platform we enable better decisions to be made for customer experience, next best offers, risk and fraud applications.

Our data migration, data management and data monitoring software is being used in many organisations where combining and managing very large historical data sets at scale is the challenge.

The opportunities that we currently see in our sales pipeline are increasing and our customers are asking to consume this on a Platform as a Service (PaaS) basis which gives us further opportunity to increase our term based recurring revenues.

Notable wins in this area include:

· An extension to an existing contract with a global nuclear fuel company

Creating notable customer references in the market is key to sustainable future growth and the advocacy of our customers is therefore of paramount importance to us.

Summary

There have been a number of notable developments throughout the year, underpinned by a solid financial performance.

D4t4 has made good progress in transitioning away from a perpetual licence model to a recurring revenue model, which will allow more forward visibility and better quality of earnings over the long term. This current year will be key to that transition.

We saw continued blue chip contract wins throughout the year, both with new and existing customers across our extended Celebrus product family.

Our sales pipeline was strengthened by our strategic global partnerships which remain a major focus for our business and we successfully continued to promote and enhance our relationships with Teradata, SAS, Pegasystems and Adobe.

We made significant enhancements to our enterprise software technology with the launch of Celebrus 9.2. This latest version introduced machine learning and NLP to our capabilities, which will facilitate new revenue generating opportunities for customers and will dramatically limit customer churn.

Overall, we have maintained our position as a leading data software and solutions provider across our key markets, we have continued to focus on growing our presence in target geographies, particularly the US, and have made huge strides in enhancing our Celebrus products with the introduction of machine learning and NLP capabilities.

Statement by the Chief Financial Officer

It has been another very successful year for the Group, with the transition to a recurring revenue model well under way. This change puts us in a strong position, with much improved visibility of future revenues and cashflows - more important than ever in these uncertain times.

Revenue

We report today total sales for the year ended 31 March 2020 of £21.75m (2019: £25.24m). This reduction reflects the move to providing annual recurring contracts rather than one-off perpetual licence sales and the transitioning of our Hybrid Cloud Customer Data Management Platform business to 'as a Service.'

We successfully converted a high proportion of net new sales to recurring revenue contracts. This resulted in our recurring revenues growing to 45.2% of our total revenue (2019: 29.2%). The recurring revenue being the proportion of 2019/20 sales which are of a recurring, rather than perpetual or one-off, nature.

ARR as at 31 March 2020, was £9.55m (2019: £7.57m), an increase of 26.2%. This is our key forward- looking metric of revenue at a point in time that is reasonably expected to recur in the next twelve months. We are confident of continued growth in this number as we continue the transition.

Sales of our Celebrus product family of software and services now make up 80% of total Group revenue (2019: 71%). The switch in business model resulted in our own Products - Own IP sales being down some 16.7%. Products - 3rd Party revenue was also reduced significantly. Delivery Services and Support & Maintenance revenues increased, by 15.9% and 9.7% respectively, as these revenue streams are less impacted by the transition.

Gross Profit

Gross Profit was £13.21m (2019: £14.31m), reflecting the lower revenues. However, as a result of a change in product mix, we improved our gross profit margin to 60.7% (2019: 56.7%). This is due to the primary reduction in sales being in the low-margin 'Products - 3rd Party' segment and our Celebrus product family making up a larger proportion of total Group sales as mentioned above.

Administration Expenses

Administration costs increased slightly to £8.34m (2019: £8.02m) with continued investment in growing our US business largely offset by a reduction in Head Office costs. We shall continue to invest in growing the business where it makes sense to do so in the coming year.

Net Profit and Earnings per Share

Adjusted Profit before Tax (before amortisation of intangibles, share-based payment charges, foreign exchange gains/(losses) and one-off restructuring costs) for the year was £5.05m (2019: £6.02m), with the variance driven almost entirely by the reduction in sales. Statutory Profit before Tax was £4.97m (2019: £6.34m).

A net taxation charge of £522k (2019: £511k) gives a Profit after Tax of £4.45m (2019: £5.83m).

Earning per Share on an Adjusted, fully-diluted basis, was 11.19p (2019: 13.89p) whilst Statutory EPS was 11.12p (2019: 14.78p).

Balance Sheet

The Balance Sheet remains strong, with Net Assets up 17.8% at £29.26m (2019: £24.84m).

Non-current assets reduced by £613k, to £14.03m (2019: £14.65m) principally due to a reduction in the deferred tax asset as a result of utilising US tax losses in the year and a number of share options being exercised during the year. Also included within Non-current assets are £188k of Celebrus-related Development costs capitalised during the year.

We continue to expense the majority of R&D costs, only capitalising where we are very confident that all of the IAS 38 criteria are met. R&D costs expensed in the year amounted to £784k (2019: £576k) as we continue to invest in further developing our software.

Current assets increased by £7.50m to £24.82m (2019: £17.32m). Driving this was a £3.86m increase in Trade and other receivables together with a £1.22m increase in inventories and £1.77m uplift in the closing cash balance to £12.77m (2019: £11.00m). The increase in receivables was due to particularly strong sales in the final quarter and the inventory variance is because we acquired some stock in March for a sale due to complete in the first quarter of the current year.

Total liabilities at year-end were £9.59m (2019: £7.12m), an uplift of £2.47m driven by a £2.6m increase in Trade and other payables. The increase in Trade payables at year-end was linked to the strong sales in the final quarter mentioned above. The Group remains debt-free.

Dividends

The Board is recommending a reduced final dividend of 1.9p (2019: 2.3p) which brings the total dividend for the year to 2.67p (2019: 3p). This reduction is to reflect the lower profit level this year due to the recurring revenue transition. If approved at the Annual General Meeting, which is to be held on 6 August 2020, the final dividend will be paid on 28 August 2020 to shareholders on the Register at the close of business on 24 July 2020.

Consolidated income statement

for the year ended 31 March 2020

Consolidated statement of comprehensive income

for the year ended 31 March 2020

Consolidated statement of changes in equity attributable to Equity Holders of the Parent

for the year ended 31 March 2020

Consolidated statement of financial position

as at 31 March 2020

These financial statements were approved by the Board of Directors and authorised for issue on 29 June 2020 and were signed on its behalf by

Peter Kear

Chief Executive Officer

Consolidated cash flow statement

for the year ended 31 March 2020

Summary notes to the financial statements

1. General information

D4t4 Solutions plc is a public limited company incorporated and domiciled in England and Wales and quoted on the AIM Market, hence there is no ultimate controlling party.

The address of its registered office, registered number and principal place of business is disclosed on the inside cover of the financial statements.

The financial statements of D4t4 Solutions plc and its subsidiaries (the Group) for the year ended 31 March 2020 were authorised and issued by the Board of Directors on 29 June 2020 and the Consolidated Statement of Financial Position was signed on the Board's behalf by Peter Kear.

2. Significant accounting policies

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared under the historical cost convention, with the exception of land and buildings which are held at valuation.

The presentation and functional currency of the financial statements is British Pounds and amounts are rounded to the nearest thousand pounds.

The Group and Company's business activities, together withthe factors likely to affect its future development, performance and position and the risks and uncertainties are presented in the Strategic Report in the Annual Report. The Group and Company have sufficient financial resources to cover budgeted future cashflows, together with contracts with a number of customers and suppliers across different geographic areas and industries. Asa consequence, the Directors believe that the Group and Company are well placed to manage their business risks successfully.

Having reviewed the impact of the Covid-19 pandemic on the business, and stress-tested the Group's future plans and cash flow projections, the Directors are confident that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

The financial information contained within this final results announcement for the year ended 31 March 2020 and the year ended 31 March 2019 is derived from but does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2019 have been filed with the Registrar of Companies and those for the year ended 31 March 2020 will be filed following the Company's annual general meeting. The auditors' reports on the statutory accounts for the year ended 31 March 2019 and the year ended 31 March 2020 are unqualified, do not draw attention to any matters by way of emphasis, and do not contain any statements under section 498 of the Companies Act 2006.

3. Business and geographical segments

IFRS 8 Operating Segments requires these to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and assess their performance.

The Group has four tightly integrated service lines that are offered to clients. These service lines combine one or more of four types of revenue to deliver on our core services.

Information is presented to the Board on the revenue analysis below:

All revenue streams are recognised on a point in time basis apart from Support & maintenance which is recognised over time.

No allocation of other income and costs to these categories is made because the Directors consider that any such allocation would be arbitrary and contract sensitive, as would be any allocation of assets and liabilities.

The segment reporting set out below is consistent with that provided to the Board of Directors and has been prepared under both the original segmental reporting analysis and now the current segmental reporting analysis.

Geographical information

The geographical revenue segment is determined by the domicile of the external customer.

4. Dividends

The proposed final dividend is subject to shareholders' approval at the AGM and has not been included as a liability in these financial statements.

5. Earnings per share

The calculation of earnings per share is based on profit attributable to owners of the parent and the weighted average number of ordinary shares in issue during the year.

The adjusted earnings per share figures have been calculated based on earnings before adjusted items. These have been presented to provide shareholders with an additional measure of the Group's year-on-year performance.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares arising from share options granted to employees where the exercise price is less than market price of the Company's ordinary shares at the year end.

Details of the adjusted earnings per share are set out below:

Posting of accounts and AGM

The annual report and accounts for the year ended 31 March 2020 will be available from 30 June 2020 on the Company's websitehttp://www.d4t4solutions.com/company-information/investor-relations/for the purposes of AIM Rule 26.

The Annual Report and Notice of Annual General Meeting ('AGM') will be posted to shareholders on 14 July 2020 and will, in the case of the AGM notice, be available from that date on the Company's websitehttp://www.d4t4solutions.com/company-information/investor-relations/for the purposes of AIM Rule 26.

The AGM will be held at the Group's registered office: Windmill House, 91-93 Windmill Road, Sunbury on Thames, Middlesex, TW16 7EF on 6 August 2020 at 9.30am. As set out in the Notice of Meeting, and to comply with public health and safety legal requirements currently in force, shareholders will not be permitted to attend the 2020 Annual General Meeting in person. Shareholders are encouraged to vote electronically on all resolutions as soon as possible by appointing the chairman of the meeting as their proxy and will be invited to an online Q&A after the AGM has concluded.