Adept Technology Group plc share price, company news, analysis and interviews

AdEPT Technology Group plc (LON:ADT) Chief Executive Officer Phil Race caught up with DirectorsTalk to discuss their Q3 trading update, progress of the Fusion project, how AdEPT Education has helped during the pandemic with schools & the NHS, what investors can expect in the coming months and their Capital Market’s Day.

Q1: You recently published a trading update for Q3 of the current financial year. In the update you announced that you’d reinstated guidance, why now?

A1: I think we’re getting a real strong sense of where the year is going to end and, I think, more importantly, what we’re seeing in terms of the coming year so it feels only right to share that view with our investors.

Q2: How would you describe trading from September to December then?

A2: I think the headline is resilient and I think it’s been a headline for us and many of our peers in this marketplace.

We have a broad range of very loyal and contentive of clients who do need to continue to invest in technology to help them service their own clients. So, we’ve seen that resilience feed into our sales from September into December and also, we’ve been able to get to the work. Obviously, early in the pandemic, it was very difficult to get to site to deliver projects whereas during the autumn and early winter, we’ve been able to get to that work, get on site to deliver projects.

So, I think a combination of two things there.

Q3: Just talking about projects, you have a project called Fusion, can you just remind our viewers what that project is and how it’s progressing?

A2: Yes, that’s an internal project name but it’s been widely trailed.  We have been a business that gather together, through acquisition, a number of different companies. When I joined AdEPT Technology just over two years ago, it was clear that we needed to bring the entire business together, whether that’s through one brand but also internally in terms of how we operate and run the business.

So, we’ve been implementing a common platform for use by the entire workforce whether that’s salespeople, people in the support teams, project engineers and right through to the accounting function. The mission is to have every run on that same platform so we can do two things really:

One, move work around the group. We’ve got a number of different offices across the group which we can now move work around the group to get it delivered by the most productive individuals.

Secondly, we get greater insight with what’s going on with the business which helps us optimise the productivity of the company.

So, two fundamental missions and we’ve made great progress.

Q3: Now, you touched on the pandemic earlier, a lot of people have had to change the way that they work, including schools. How has the company AdEPT education been helping?

A3: Education is a big part of our business, the schools that we service have been hugely affected by the impact of lockdown and one of their big challenges has been, not only working remotely, like in other companies, but also providing a service to pupils remotely through digital platforms. So, massive challenges facing their teachers and their leadership.

We’ve been doing some wonderful things and it’s been great hearing some of the feedback from those schools. Probably, the most important one is digitally enabling schools with the help of funding from the Department for Education.

So, we’ve helped over 5,000 schools move to the cloud, we’ve provided them with those digital platforms whether that’s Microsoft or Google and those schools are now able to teach remotely which has been a lifesaver over the last month, during this rather strange pandemic period.

Q4: Not only have you been helping schools but you’ve also helped transform part of the NHS, can you talk us through that?

A4: Obviously, you’re talking specifically around the Health and Social Care Network project which we’ve been delivering for well over two years now and we’ve announced success against that programme, at least the NHS has. They’ve announced success against that programme, saving several million pounds a year and also, speeding up the information flow throughout the NHS, through a high-speed network that connects the entire NHS estate.

We’ve been delivering that for a number of different organisation whether that’s care homes, whether that’s critical care hospitals or doctors surgeries and helping them get access to those high-speed connections.

We’ve delivered that now and we’re very pleased with the letter we received from the NHS earlier this year which basically said, ‘thanks for all your great work and the success of the programme’. So, always pleased to not only see the team win projects but really more importantly, to see those projects delivered and executed with a happy customer at the end of it.

It’s obviously why we do what we do.

Q5: Sounds like you’ve had a successful quarter, what should investors be looking out for in terms of news flow over the next quarter and beyond?

A5: I’m very proud of the business, my 300-person team have been working from kitchen tables, they’ve been struggling themselves with having children at home whilst they’ve not been able to go to school and I’ve been learning a lot about the personal lives of the surrounding individuals that work within the business. They’ve been incredibly dedicated to delivering for our customers so I think the quarter will show goods progress against our plan, despite the challenges of the pandemic.

In term of news flow, obviously we’ll close out our year at the end of March, our year-end is end of March so we’ll be putting out probably a brief trading update at that point to help investors understand where we are.

Beyond that, we have some good news that we’ll hopefully share over the next two or three months. I’d be very keen to start sharing some project success stories as well as sales wins with the investor community so look out for those.

We would love to be able to talk about acquisitions, obviously that’s a part of our DNA, we continue to look at the marketplace to see whether there’s any out there so hopefully at some point, we’ll be able to share news about that. Obviously, subject to many things going right.

I think, hopefully, good news on project delivery, a healthy update on the progress of the business and other significant news, we’ll keep you posted.

Q6: Phil, you’ve announced that there will be a Capital Market’s Day, can you tell us more about that?

A6: AdEPT Technology Group are running a Capital Market’s Day on the 9^{th of} March and the theme is very much under the covers, getting beyond the numbers so three main aspects to that:

1. We are sharing the story of London Grid for Learning which is a great relationship of ours that looks after several thousand schools, principally based in the London area. So, you’ll hear from the CEO of the London Grid for Learning business, a wonderful story there.
2. We signed up a partner, 8×8 recently and our partners are crucial to our success, if we have fantastic partners and we marry those to market demand then we’ll be a successful business. We signed up 8×8 so we’ve got the European Vice President to talk about their experience with us and our experience with them.
3. We are a consolidation vehicle, we acquire businesses so I thought investors might appreciate learning from the experiences of our most recent acquisition which was a company called ACS in Doncaster.

So, that’s the third leg of the Capital Market’s Day that we’re running on the 9^th of March.

AdEPT Telecom plc (LON:ADT) Finance Director John Swaite caught up with DirectorsTalk for an exclusive interview to discuss their final results for the year ended 31st March 2018 and what shareholders should be looking out for.

Q1: It looks like another strong year for AdEPT Telecom with further transitions to managed services, can you give us a summary of the trading performance?

A1: Yes, well it has been another strong year for AdEPT continuing on the transition to managed services and what we’ve seen is that we’ve had a revenue increase, up 35% to £46.4 million over the prior year. A large chunk of that is driven through the acquisitions that we’ve done in the year but also the full-year contributions from the acquisitions we’ve done in the prior year, there’s also organic growth in that revenue number of around 3%. So, we’re very pleased with that.

Also, what we’ve seen is an increase in acceleration in the transition to a full managed service provider, managed services is now up to 70% of what we do which is in comparison to the 55% in the prior year. So, really starting to move that one whilst maintaining our focus on recurring revenue for products and services which we’ve maintained at 78% in the year. So, that’s been a key focus of ours to maintain that revenue visibility and stability with a continued focus on London and the South East in terms of the customer base. What we’ve actually seen is further growth in the public sector base of the business which is now up to 31% of the total revenue stream of AdEPT.

We’re continuing to focus, as a business, on the profitability down EBITDA level which we’ve seen increased 25% in the last 12 months up to £9.8 million but actually if you look at the run-rate, we’re at £1.5 million EBITDA run-rate because we’ve only got an 8 month contribution from Atomwide in the period. The EBITDA margin has also remained stable, we’re at 21% EBITDA margin which is well within our normal range and also a 26% increase of diluted EPS, up to 27.7p.

So, across all metrics there has been an improvement in the business year-on-year.

Q2: AdEPT is well known for its asset-light model and high levels of cash conversion, how has this continued and how is the cash being deployed?

A2: Yes, we are operating an asset-light model, as you say. In terms of capital expenditure in the period, it was less than 1% of revenue so we really are an asset-light model focusing on EBITDA generation and converting that into cash. In terms of the EBITDA to cash conversion, the operating cash flow was 81% of the EBITDA number so continuing in our normal range of 80-100% conversion and in terms of deploying that, we’ve been deploying out on acquisitions and dividends and paying down our debt facility.

Q3: As you mentioned, you undertook the acquisition of Atomwide during the year. Can you give us more detail around the acquisition and its strategic fit?

A3: Back in February 2017, we acquired our first IT business, it was the first step into IT from our unified communications background when we acquired a business called Our IT. Our IT is a really great business but it’s a commercial IT business with no public sector exposure and because we’ve got public sector expertise in the unified comms and telecoms part of the group, what we were actually looking for is an IT business with some sort of public sector exposure.

So, back in August 2017, we acquired Atomwide Limited. Atomwide is the Chief Technical Partner for London Grid for Learning (LGfL) which makes it one of the largest IT providers in the UK education sector, supplying about 3,000 schools of which roughly 2,5000 are in London. So, there’s more than 2 million users of Atomwide’s education software and apps, they’re filtering more than 1 billion web requests every day, we’ve got the on-site datacentre which is hosting a lot of the information and we’ve also got software development team in there.

So, strategic fit wise, it had a great fit with the group and it provided some extra things that we didn’t have before. The business has performed well post-acquisition and in line with the targets and the forecasts that we set, it’s been fully integrated in terms of the sales and the finance perspective but what it has done is extended the group’s IT offering.

Now, we can provide both commercial and public sector expertise in IT which is what we’ve always had in the telecoms and unified coms, so it’s given us a fully-rounded offering now.

Q4: Yet again, another dividend increase was announced, can you give us any further detail on the progressive dividend policy?

A4: We have been following a progressive dividend policy and, in these results, what you’re seeing is a 13% increase in the dividend up to 8.75p compared to 7.75p in the prior year so that 13% increase represents payout of roughly 26% of the operating cash flow of the group. The policy that we’re applying is a progressive one and what you’ve seen historically is a payout ratio of roughly 30% of the operating cash flow so that’s the model that we’re following.

Q5: What can shareholders look forward to in future periods?

A5: Well, it’s largely going to be more of the same, sticking to our knitting, focussing on what we’re good at. What you’ll probably see is an increased transition; more towards managed services and continuing to focus on developing and winning new business in London and the South-East and also in the public sector. You’ll see us retaining and maintaining our high level of recurring revenue; around the 80% mark, keeping that asset-light focus on the business so that we are generating positive cash flow that we’re not having to keep reinvesting through capex, high free cash flow return of around 80% in the business and then we’ll either be investing that back into the business, into acquisitions, or returning it to shareholders via dividend.

Q6: When can shareholders expect the Annual Report and the AGM Notice from AdEPT Telecom?

A6: So, we’re expecting to post out the Annual Report and the AGM Notice some time in the middle of August, so shareholders should receive from the middle to the back-end of August and we’re expecting to hold the AGM in late September, in line with our normal timetable.

AdEPT Telecom plc (LON:ADT) Financial Director John Swaite caught up with DirectorsTalk for an exclusive interview to discuss their latest trading update

Q1: John, can you give us an update on recent trading since the interim results?

A1: We’ve just recently announced a trading update on the results to year ended 31st March 2018 and it’s quite an upbeat statement. The business has continued to trade strongly since the interim results, we obviously can’t comment on specific numbers at the current time because the audit of the year end results hasn’t yet been completed.

We’re confident that revenues are going to be ahead of market expectation which was a 29% rise year-on-year to £44.4 million so we’re confident that revenues are going to be above that number and also that EBITDA will be slightly ahead of the market expectation where they’re expecting a 23% rise year-on-year to £9.6 million.

So, all in all, the trading is continuing very strongly in the period and we’ve got a confident outlook.

Q2: AdEPT Telecom have undertaken a number of acquisitions, can you give us an indication of their financial performance since acquisition?

A2: Yes, the business has undertaken a number of acquisitions over the last 24 months and the acquired businesses have continued to perform post-acquisition.

Probably the best indication of their performance is reflected in the deferred consideration payments that we, as a business, have made out which is linked to the post-acquisition performance for the 12 months since the day we acquired them. Comms Group which is the unified communications business based in Northampton, that one hit the maximum deferred consideration, and a bit beyond it, so we paid the full amount in July 2017. More recently, the Our IT acquisition which we undertook in February 2017, which is a commercial IT business based in Chingford and St Neots, that one also hit the maximum deferred consideration and has just been paid in full in April 2018.

So, we’ve been very pleased with the performance of those businesses post-acquisition and we’re also very pleased that the senior management teams have all stayed on with the businesses. So, very pleased with the performance.

Q3: So, the business operates an asset light model, has the strong operating cash flow conversion continued?

A3: Yes, it has. As a group, we’re operating the same asset light business model across all the sites, whether it’s in telephony, unified communications or IT, we’re all very focussed on generating EBITDA and converting it into cash and that has continued. The best demonstration of that is at year-end, we had lower than forecast net debt at March 2018, even after taking into account the timing of the Our IT deferred consideration that was paid shortly after year-end, the net borrowings as a company were £300,000 lower than the market expectation.

So, nothing has changed in AdEPT’s business model, we’re still highly cash generative and we look to continue like that.

Q4: Can you give us an update on the progressive dividend policy?

A4: We are operating a progressive dividend policy and, as I referred to previously, we’re continuing to generate strong cash flow which we’ve been typically returning part of that back to shareholders through the dividend, with the balance either being reinvested in the business or reducing down the net borrowings. So, it’s a combination of those things.

In terms of the dividend policy specifically, in the trading statement we’ve just announced the recommendation of a final dividend of 4.5p per share which, subject to getting approved at the AGM, should be paid to shareholders in October 2018. So, if you take into account the final dividend plus the interim dividend, the total dividends for the year are at 8.75p per share which is a 13% increase year-on-year, so shareholders should be pleased with that return.

Q5: Finally, when can we expect AdEPT Telecom’s full-year financial results?

A5: The audit is currently in progress and what we’re expecting is in line with our normal timetable, we’ll be releasing the final results in early July with the actual printed annual report to go out to shareholders some time in August 2018. So, everything will be in line with our normal timetable in previous years.

AdEPT Telecom plc (LON:ADT) Chief Financial Officer John Swaite caught up with DirectorsTalk for an exclusive interview to discuss their latest interim results

Q1: Now, the interim results show that the financials of the group have grown considerably from the prior year, can you give us some detail behind this growth?

A1: Yes, we have seen some change across the group, mainly driven through some acquisitions that were done over the last 12-18 months. The business has transformed really, if you’d looked at this 2.5 years ago, we were very much just a telecoms business, but we have completely transformed now a proper managed services business. In fact, we’ve now got more than two thirds of our revenue is coming from managed services, so we are definitely a long way down the road for transition, we’re suppling full IT capability, unified communications, connectivity and voice.

If you looked at the business in March 2015, the revenue stream at that point was generating £22 million per year with EBITDA of £4.6 million but if you look at the run rate of where we are today, at September ’17, it’s grown to £48 million revenue and £10.5 million EBITDA.

So, we’ve grown in scale but also the quality of the revenue stream has improved as well, we’ve shifted from 53% managed services to 68% managed services year-on-year and since March ’15, that number has increased from 27% up to 68% so we’ve made a significant transition.

The revenue year-on-year is up 36%, EBITDA is up 34%, adjusted profit before tax is up 29% and on the back of that, the EPS is up 20% and so, on all key metrics the business has really pushed forward particularly in the last 12-18 months.

Q2: The acquisition of Atomwide, the IT for Education in London specialist, was completed in August 2017, can you give us a bit more detail on the strategic rationale for AdEPT Telecom?

A2: Atomwide was actually our second acquisition of an IT business, we bought a commercial IT business called OurIT back in February 2017 which is an excellent business and a great fit for AdEPT as a group. The one thing that it didn’t give us was the public sector element which we’ve been focussing on as a group for a while, so we had the commercial offering, we just didn’t have that public sector offering.

Atomwide are a business which gives us a real foothold into IT in the public sector. It’s a business that’s making around £7.5-£8 million revenue and on that, about £2 million EBITDA so it’s a good-sized business and it is particularly focussed on IT for Education. Atomwide itself has got around 3,000 schools that they’re supplying IT for, it is the number one provider to IT for Education across London, supplying over 2,500 schools in London.

What it’s supplying on there are bespoke software and apps and network support and there are around 50 apps that are being used by more than 2 million users so it’s a proper grown-up business. Other things that it’s supplying is things like Office365, they’ve got more than 1 million users on Office365, and it’s got web-filtering products in there, we now web-filter more than a billion web requests a day.

So, it’s a really good business and it’s a great fit with the rest of the group, plenty of cross-sale opportunity in there. The other opportunity that Atomwide has got is to try and extend the sale of all of its products etc. into schools and academies outside of the London area and also, into other public-sector bodies. We believe that some of these products are not just restricted to education, they can be used across a wider number of sectors.

Q3: The group has continued to deliver high EBITDA to free cash flow conversion, what is the group policy to using this cash?

A3: We have continued to generate high cash conversion, in the current period it’s an 86% conversion rate which is within our normal range of 80%-100% and we’re still a very capex-like business, non-infrastructure so capex is less than 0.5% revenue in the interim period.

The policies of the group really is to generate high EBITDA, convert it into cash and then doing two things with it, we’re either paying it out through dividend back to the shareholders or reinvesting it through acquisitions. In this period, we announced a 13% increase to the dividend up 4.25p, which has still got 3.1 times dividend cover on there so plenty of cover there, and we’ve reinvested some of it back into acquisitions. I don’t see that policy changing going forward, it’ll probably be a combination of both, we’ll be returning some of it to shareholders in the dividend and reinvesting the rest in acquisitions.

Q4: Now, I think you touched on this a little earlier, the business model, has it changed as a result of the acquisitions recently?

A4: No, not at all. In fact, the businesses we’ve bought are all very similar in terms of the metrics, EBITDA percentage conversion on sales was 21% in the first half. If we look across at all five of our group businesses, they’re all within a fairly tight band as 19%-23% EBITDA on sales so, it’s a very consistent across the group.

All of them are trading very similarly with the same business model, all of them are capex-light with cash conversion, they’re all 80% or more recurring revenue and recurring margin so really what we’ve done is we’ve built on very similar businesses and they’ve been strategic acquisitions for skill sets.

What we think now is we’ve got pretty much complete managed service offering for both the commercial and the public sector but we’re focussing very much on London and the South East in terms of where we’re targeting customers.

Q5: What does the second half hold in store for AdEPT Telecom plc?

A5: Well, the second half is going to be probably more of the same, sticking to our knitting and carry on. You’ll probably see more of a transition towards managed services and the telecoms part might start to shrink a little bit more as we continue to focus on bringing in new managed service customers and new products on board. We’ll continue to review strategic and earnings-enhancing acquisitions as we always have done but we’re not in a position where we need to do acquisitions but if the right thing comes up at the right price then we’ll have a look at it.