Attraqt : Half Year results

RNS Number : 6855M

ATTRAQT Group PLC

18 September 2019

18 September 2019

Attraqt Group plc

("Attraqt", the "Group" or the "Company")

Half Year results

Transformational acquisition completed adding powerful competencies

Attraqt Group plc (AIM:ATQT), the provider of SaaS solutions that power exceptional online shopping experiences, is pleased to announce its unaudited results for the six months ended 30 June 2019.

GROUP FINANCIAL HIGHLIGHTS

• Revenue increased 7% to £9.0m (HY2018: £8.4m)
• Gross profit increased by 35% to £6.6m (HY2018: £4.9m)
• Adjusted EBITDA1 profit was £0.3m (HY2018: £0.2m loss)
• Loss before tax was £1.9m (HY2018: £1.8m)
• Basic EPS loss 1.4p per share (HY2018: 1.7p loss per share)
• Operating cashflow of £0.6m (HY2018: £0.4m)
• Cash at the period end was £6.3m (FY2018: £0.5m)

OPERATING HIGHLIGHTS

• Transformational acquisition of Personalisation Platform provider, Early Birds SAS, completed on 29 May 2019
• 11 multi -year contracts with a total renewal value of £3.9m in H1 2019 (HY 2018: 4 contracts worth £0.3m)
• Annual Recurring Revenue increased to £18.9m (HY2018: £15.2m)
• A number of new logos were signed including Joules, a worldwide soft drink manufacturer and a French multinational telecommunications corporation
• A number of new brands have gone live in the UK, Nordics, France and Australia.

COMMENT FROM LUKE MCKEEVER, CHIEF EXECUTIVE OFFICER OF ATTRAQT GROUP

"The past six months have been a milestone period for the Group. We have made great strides in the implementation of our refreshed strategy and it has been pleasing to see that all of the hard work we have undertaken opera onally can be seen through the improvement in our financial performance.

The acquisi on of Early Birds, completed in May this year, was a transforma onal step and immediately accelerated our strategy by several means. The addi on of its algorithm orchestra on capabili es underpin and accelerate our roadmap, its addi onal real- me data-capture capability expands our data-led approach, and it has opened up a key new geography by providing a strong foothold in the French market. More importantly, it has enhanced our capability in the key area of A r ficial Intelligence, and A raqt is now poised to provide our clients with a truly innovative offering.

Current trading is in line to meet full year expecta ons and we con nue to be excited by the prospects for the Group. We believe we now have the fundamentals in place to deliver improved growth."

A video overview of the results from the CEO, Luke McKeever is available to watch here: http://bit.ly/ATQT_H119

FOR FURTHER INFORMATION, PLEASE CONTACT:
Attraqt Group plc	Tel: [phone]
Luke McKeever, Chief Executive Officer
Eric Dodd, Chief Financial Officer
Canaccord Genuity	Tel: [phone]
Simon Bridges, Adam James
Alma PR	Tel: [phone]
Rebecca Sanders -Hewett, Susie Hudson, Sam Modlin

1. Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, share based payments and exceptional items .

REGISTERED OFFICE AND HEAD OFFICE

Attraqt Group plc 7th Floor

222-236 Grays Inn Road London

WC1X 8HB

Registered Number: 08904529

ABOUT ATTRAQT GROUP

• raqt powers excep onal shopping experiences for over 300 of the world's leading retail brands . The Company delivers omnichannel search, merchandising, and product & content personaliza on for retailers and brands . Simple-to-use interfaces and efficient workflows enable Merchandisers to take full control and enhance the value of smart automa on with their own strategic expertise and creativity.

I n 2019, A raqt acquired Early Birds, the award-winning AI -driven personaliza on so ware provider. Together, the two companies combine A raqt's pedigree in data-led search and merchandising capabili es to op mize product discovery and visual cura on, with Early Birds' award-winning ability to empower learning algorithms to orchestrate and personalize the en re shopper journey. The benefits to retailers and brands will be the ability to orchestrate enhanced shopper journeys that also deliver superior commercial returns .

For more information visit www.attraqt.com

CAUTIONARY STATEMENT

This interim announcement contains certain forward-looking statements relating to the business of Attraqt Group plc (the "Company") and its subsidiaries (collectively, the "Group"). They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Group to differ materially from those contained in any forward- looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

The Group is providing the information in this interim announcement as of this date, and we disclaim any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

CHIEF EXECUTIVE STATEMENT

I am very pleased to report on a busy period for the Group, where we have achieved robust financial results alongside significant operational progress . Our team has been hard at work continuing to put into effect our refreshed strategy, which as announced in February 2019 focuses on leveraging our strengths as well as driving a client-centric approach, a culture of idea-sharing and innovation, and on using data to drive every decision that we take. I am delighted to say that we have already delivered demonstrable progress against these goals .

The operational progress we have made has flowed through into improvements in our financial KPIs . Revenue was up 7%, with 4% of that being organic, to £9m. The organic growth was driven by significant upsells into our existing customer base. Gross profit increased 35% to £6.6m, and gross margin improved across both SaaS and Services, by three percentage points and 14 percentage points respectively.

Alongside this, several of our operational KPIs have advanced, demonstrating our continued focus on operational excellence. Our Net Promoter Score, for example, is steadily increasing, with us now consistently receiving scores which are widely accepted as between 'good' and 'excellent'. Our ambition is to move into a market leading position in the near term. Through tracking progress using data at every stage of the journey, we underpin our ability to drive sales and marketing execution.

Our acquisition of Early Birds, the artificial intelligence powered SaaS personalisation platform, completed in May, was a transformational step for the Group. Early Birds brings: A powerful and contemporary underlying technical architecture; the addition of an Artificial Intelligence competence; increased scale in France, a key European eCommerce market; and increases the total addressable market by enabling us to serve more online retailers profitably. Although it is at an early stage, we are delighted with the progress so far. The Early Birds and Attraqt teams have come together and are fully engaged at all levels . The integration of Early Birds and the hiring of new talent to support the business' growth is also proceeding in line with plans . We are pressing forward with common systems and reporting and have found the innovation offering already assisting with renewals . Most importantly, we have two clients going live with the unified Attraqt and Early Birds solution, with a strong pipeline of opportunities for our unique joint proposition and additional clients anticipated in the second half.

REVIEW OF SALES AND OPERATIONS

Attraqt grew revenues by 7% to £9m over the period, driven largely by an improvement in the number of higher value renewals secured. This focus on multi -year renewals provides greater visibility of future revenues and highlights the strengthening of several of our client relationships .

A number of new logos were signed during the period, including with a worldwide soft drink manufacturer, a French multinational telecommunications corporation and Joules . Despite the broader market conditions in UK retail, we were pleased to grow our relative market share* from 29% to 31% in our key verticals over the period, with the loss of clients offset by new logo wins and account growth with existing customers .

The Company continued to experience attrition in line with management's expectations . Some client attrition continued to occur as a result of external factors, including the challenges faced on the UK high street, and the pervasive threat of e-commerce software re- platforming. We expect that attrition will continue to play a factor in the short term, before declining in FY20 and beyond. Net retention for the period was 95%. Initiatives implemented to mitigate client attrition include the introduction of enhanced reporting to help brands to calculate value, extending our customer success and advisory functions, refreshing our underlying data architecture to expedite new product development, and a number of key strategic appointments . We believe these initiatives, alongside the acquisition of Early Birds and what it has brought to the Group, are key to the effective mitigation of manageable attrition going forward.

The new client on-boarding process is now running smoothly, with all new logos the Group signs going live on plan and in a timely manner.

Newly introduced sales tools have also increased our account intelligence and contact coverage. These tools are enabling the team to deliver a personalised engagement strategy per target account. Other sales initiatives recently undertaken, including the introduction of account-based marketing and a more prescriptive sales approach are showing early signs that support improved sales execution going forward.

MARKET DEVELOPMENTS

Retailers' margins con nue to be squeezed by external cost pressures, and as such we have seen increasing scru ny put onto their spending, of which software vendors are a part. This means that it has never been more crucial for vendors, such as Attraqt to provide a clear return on investment with an offering that cannot be economically replicated internally. A raqt delivers on each of these factors, with a team steeped in industry experience and trusted by the world's leading brands, robust technology and a proven ability to increase conversion rates .

The A raqt offering is one that works for leading interna onal brands, manufacturers and retailers facing complex challenges, who wish to create excep onal shopping experiences from discovery through to inspira on and purchase, and beyond - recognizing and reacting to each shoppers' individual shopping moments .

• raqt has a limited exposure to 'classic' retailers, with 24% of our exis ng ARR generated by customers with a retail store footprint. W ithin this we are increasingly working with the retailers that are outperforming the market, or with interna onal

retailers . Three out of the top ten brands that consumers have stated are their favourite luxury fashion brands+ are also currently Attraqt customers .

We are mindful that the macro-economic environment remains uncertain, thereby con nuing to put decision makers in businesses under pressure, and that this can some mes result in an increased length of the sales process . However, in this sector, the brands who embrace change are winning, and as such we are confident that we will continue to deliver.

PERFORMANCE AGAINST GROWTH STRATEGY

I n February this year we announced our refreshed growth strategy, which leverages the Group's strengths and leave us in a good posi on to address the future needs of e-commerce. We believe this approach allows us to strengthen rela onships with current clients, win new clients, and increase efficiencies in the business . By focusing on the six key strategic priori es outlined below, we will ultimately create value for all our stakeholders .

• Evolving our data-led approach
• Increasing the speed of our innovation
• Driving customer success and optimising the customer experience
• Enhancing our partnership strategy
• Concentrating our effort on key verticals
• Replicating our UK success in other geographies

Great strides have been made in a short me in the implementa on of our strategy, par cularly in regard to op mising the customer experience. David Newberry has been appointed as Chief Customer O fficer and Jon Stephens as Director of Customer Experience, focusing on delivering an informa ve and seamless end-to-end customer experience. We are also now collec ng data on customer health through the use of Gainsight and are pleased to have seen our scores increasing over the period.

I n order to take full advantage of the Early Birds integra on and further increase our innova on speed we have created a new Product O ffice. Roger Brown, founder and CEO of leading personaliza on vendor Peerius, which was sold to Episerver in 2016 has recently joined to establish and lead this new function.

A new partnership manager was also hired shortly a er period end, whose role is to explore poten al addi onal partnerships with complementary vendors which we believe will help to extend our reach, increase win rates, and support our ability to execute on new innovation. We look forward to updating shareholders further on this in due course.

A key part of evolving the data led approach has been the development of an insights tool that measures the return on investment of our product and services . O nce live on client sites this will provide valuable insights internally and for our clients .

PRODUCT DEVELOPMENT AND EXPANSION OF SERVICE OFFERING

Technology

Data and feature integra on work has con nued to consolidate the A raqt and Fredhopper capabili es inside the Fredhopper Discovery Pla orm. The next step in the journey is to also fully integrate the Early Birds technology into our offering. Thus far, we have already implemented a connected data pipeline and enabled AI -driven product rankings inside the Fredhopper Discovery Pla orm so that clients can begin to compare their crea ve rankings with algorithmically generated rankings . Going forward the focus will be on progressing our joint innovation to launch a unified front-end user experience.

We continue to explore all opportunities to enhance our technology stack, both organically, and through M&A.

Services

We believe that automated technology works best when combined with human ingenuity. This is because shoppers buy on the basis of a combination of logical consideration and emotional connection, so retailers must cater for both.

O ur decision to package our deep industry experience and insights as ongoing, short advisory engagements has come to frui on through our experience consulting and technical consulting offerings . This has resulted in an improved services gross margin.

PEOPLE AND VALUES

Since defining our values earlier this year: be er together, pioneering and data-led, they have truly become integral to the way we do business, and feed into everything we do. We are confident they will drive our shared success .

A raqt's people are one of our key compe ve advantages . We have built a team which is focused, experienced and working towards a shared goal; to achieve our vision of becoming integral to the world's best shopping experiences . There is a palpable feeling of optimism and vitality in the team, and the Board and I would like to thank them all for their continued hard work.

OUTLOOK

We have mapped out our road to success and have seen the fundamentals of the business shifting positively over the period in a way which we believe will deliver improved long-term growth and future-proof the business .

Trading post period has been encouraging, with contract wins including Helly Hansen and Galeries Lafaye e. Between A raqt and Early Birds a significant sales pipeline has been built and Management's focus is increasingly on the effec ve conversion of this pipeline. Current trading is in line to meet full year expectations .

We have a great, aligned team, powerful and increasingly innova ve technology, fantas c customers and unrivalled industry experience to drive our long-term success . We are confident that the Group can con nue to drive growth and deliver for shareholders in the period ahead and beyond.

Luke McKeever

Chief Executive

18 September 2019

*Customer ARR key verticals / Market ARR opportunity key verticals

+Consumer research carried out by Attraqt on 3000 UK, France and UAE luxury shoppers in July and August 2019.

FINANCIAL REVIEW

Total revenue increased by 7% to £9.0m (2018: £8.4m) including the impact of one month's revenue of the Early Birds acquisition completed on 29 May 2019.

SaaS revenues increased by 8% to £8.1m and services revenue decreased by 1% to £0.9m. The ARR rate for SaaS revenue was £18.9m.

Gross margin increased by 14% to £6.6m (2018: £5.8m^), with a gross margin of 73%. The SaaS gross margin increased by 2% points to 79% and this was achieved by finding efficiencies in the costs base and the services gross margin increased by 14% points to 20% due to improved control of existing contracts and more diligent scoping of new projects .

Operating expenses increased by 6% to £6.3m (2018: £5.9m^) driven by increased spend in the cloud operations team to improve Amazon Web Services performance and key hires including mentioned in the Operating Review.

Adjusted EBITDA (pre-exceptional) profit of £0.3m (2018: £0.2m loss) were in line with management expectations .

The exceptional costs of £0.9m in the period relate to costs associated with the acquisition (£0.6m) and restructuring costs (£0.3m).

Depreciation and amortisation totalled £1.3m (2018: £0.9m) and increased due to the adoption of the new leasing standard IFRS 16 and the acquisition of Early Birds with amortisation recognised on intangibles that were created on the acquisition. There was a share-based payment charge of £0.2m (2018: £0.2m).

Loss before tax was £1.9m (2018: £1.7m loss), with the tax credit in the period £0.2m (2018: £0.1m charge). Therefore, loss for the

half year was £1.7m (2018: £1.8m loss).

The cash balance at the end of the period was £6.3m. The cash balance as of 31st December 2018 was £0.5m.

Eric Dodd

Chief Financial Officer

^In 2019, the Board have reviewed how the costs for 2018 were allocated and have decided to reclassify Cloud costs £720k and Support

development £113k from costs of sales to administrative expenses.

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2019

Note	HY2019
(unaudited) HY2018	FY2018

(unaudited)

£'000

£'000 £'000

8,965

Revenue	6	8,357	17,144
Cost of Sales	6	(2,411)
(3,431)	(5,614)
Gross profit		6,554
	4,926	11,530
Administration expenses		(7,546)
	(6,181)	(13,680)
Exceptional administrative expense	7	(870)
(464)	(563)
Total administrative expenses		(8,416)
	(6,645)	(14,243)
Loss from operations		(1,862)
	(1,719)	(2,713)
Finance costs		(22)
	-	-
Loss before tax		(1,884)
	(1,719)	(2,713)
Taxation credit/(charge)	8	165
(77)	(49)
Loss for the period/year		(1,719)
	(1,796)	(2,762)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2019

HY2019 Note (unaudited)

HY2018 FY2018 (unaudited)

		£'000
		£'000	£'000
Loss for the period/year		(1,719)
	(1,796)	(2,762)
Foreign exchange translation differences		(21)
	28	(8)
Total comprehensive loss for the period/year,		(1,740)
	(1,768)	(2,770)
attributable to shareholders of the parent
Loss per share attributable to the ordinary equity
holders of the company
Basic and diluted EPS	9	(1.4p)
(1.7p)	(2.6p)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes HY2019 (unaudited)

HY2018 FY2018 (unaudited)

		£'000
		£'000	£'000
Non-current assets
Intangible assets	10,11	40,998
25,803	25,432
Right of use assets		1,222
	-	-
Plant and equipment	12	345
176	168
		42,565

Total non-current assets	25,979	25,600