# Falanx Group Limited Revenues increased 73% after operational improvements

- Link: https://www.directorstalkinterviews.com/falanx-group-limited-revenues-increased-73-after-operational-improvements/412793204
- Published: 2019-09-19T07:14:52+01:00
- Author: Giles Arbor

**Falanx Group Limited** ([LON: FLX](https://www.directorstalkinterviews.com/company/falanx-cyber-security/fcs.l)),
the global cyber security and intelligence services provider, has today provided
its audited results for the year-ended 31st March 2019.

**Financial highlights**

· Revenues increased 73% to £5.2m (2018: £3.0m)

· Gross margin increased significantly to 44% (2018: 31%) driven by favourable revenue
mix and strong services utilisation

· Contribution from monthly recurring revenue represented 56% of revenue (2018: 
62%) with the lower % being attributable to strong growth in professional services.
The monthly recurring revenue run rate at 31 March 2019 was £0.24m (2018: £0.19m)
and monitoring recurring revenues grew by 91% to £1.0m (2018: £0.52m)

· Adjusted EBITDA loss reduced by 25% to £1.2m (2018: £1.6m), reported loss £1.9m(
2018: £2.4m)

· £3.2m future contracted revenues (2018: £2.3m) of which £1.1m (2018: £0.7m) was
deferred income

· Debt free with cash balances of £2.4m (2018: £0.9m) following successful institutional
share subscription in November 2018

· Loss per share reduced by 53% to 0.58p (2018: 1.24p)

· Shareholders’ funds £7.6m (2018: £5.3m)

**Operational highlights**

· Strong performance from our core business, Falanx Cyber buoyed by the successful
integration and contribution of First Base acquisition

· Strategic partnership with SolarWinds continues to develop with Falanx appointed
as the first Threat Monitoring Service Provider (“TMSP”) for the UK, continental
Europe and South Africa

· Falanx Intelligence (Assynt) shifted efforts from one-off sales to high-quality
recurring revenue income

· Increased customer base by over 10% to 400

· Management team strengthened and well placed for next stage of growth

**Post period highlights**

· Trading to the end of July 2019 in line with management’s expectations with professional
services in Cyber growing by 10% compared with prior year

· New premises in Reading secured as part of planned Cyber expansion and current
investment program largely complete

· Successful delivery of Cloud security service with our in-house developed CASB(
Cloud Application Security Broker) capability

· Strong pipeline of business in each division from new name and existing accounts

· 50% growth in the Managed Service Providers (“MSPs”) channel since the start of
the current year

*Adjusted EBITDA is a non-IFRS headline measure used by management to measure the
Group’s performance and is based on operating profit before the impact of financing
costs, share based payment charges, depreciation, amortisation, impairment charges
and exceptional items.

**Mike Read, Falanx Group Limited Chief Executive, said: **

> “This has been a very busy period for Falanx with a number of operational improvements
> made and a renewed focus on channelling our efforts towards the most profitable
> sales opportunities. We have seen strong organic growth across the core areas 
> of our business, and we see growth continuing into the current financial year.
> We anticipate the SolarWinds partnership to start to bring benefits in the second
> half of the current financial year as they rollout their product.
> The Board has set out its strategy of driving top line growth and reducing costs
> as it targets cashflow breakeven. We are confident of achieving this goal in the
> near term as our sales pipeline continues to grow with our enhanced cyber security
> offering. As a result, the Board views the future with optimism.
> There is no doubt that the cyber security market is growing rapidly so it is essential
> that we focus our efforts on the best near term situations as we seek to increase
> shareholder value.”

**Chairman’s statement**

I am delighted to be writing to you as the recently appointed Chairman of Falanx.
I joined the Group on 28 March 2019, but I have known the team for some time longer.
I was impressed with the unique opportunity Falanx has available due to its relationship
with SolarWinds and the Threat Monitor Service Provider (TMSP) program. The program
allows Falanx to leverage its own security services through the scale of its international
technology partner and immense MSP channel. This places Falanx in a strong position
to take advantage of the obvious growth opportunities within the cyber security 
sector and was one of the reasons I decided to join.

Prior to any anticipated revenue growth as a consequence of the TMSP program, in
the reporting period ending March 2019, I am pleased to report overall revenues 
increased by 73%, to a record £5.2m (2018: £3.0m). This has been achieved by a useful
contribution from acquisitions as well as securing a number of new client wins which
is testimony to the service we provide our clients. Of particular note is our second
half performance which recorded a 39% increase in revenues to £3.0m and I am pleased
to report that momentum has continued in the current financial year. Against our
strong sales and margin performance we have reported a reduction in adjusted EBITDA
losses to £1.2m (2018: £1.6m loss).

We were delighted to secure additional funding of £4.155m (before expenses) in a
well-supported institutional placing which has strengthened our balance sheet and
will help support our future growth plans. Our balance sheet is much stronger with
£7.6m (2018: £5.3m) of shareholders’ funds of which £2.4m (2018: £0.9m) was cash.

**Group strategy and corporate governance **

Following the successful transition of both divisions during the year, we saw some
significant client wins in Intelligence and Cyber sales as well as a strong contribution
from the First Base and Securestorm acquisitions. This year we expect this success
will act as the foundations for the Group to drive momentum and achieve further 
top line revenue growth. I am confident that, with continued focus on addressing
high-growth market sectors, we can achieve sustainable profitability and enhance
shareholder returns.

As the Group increases its scale and we continue to monitor levels of best practice,
strengthening our corporate governance has been an area of focus. To this end, we
reviewed our advisers, leading to a change of nominated adviser to Stifel (from 
Spark Advisory) and a change of Auditors, BDO LLP (from Kingston Smith LLP). We 
would like to express our thanks to both outgoing firms for their services and support
over the years.

**Outlook statement**

As I mentioned above, I was drawn to Falanx partly by the opportunity its relationship
with SolarWinds creates and partly by its strong services capabilities and robust
organic growth in this reporting period. I have no doubt that a partner of SolarWinds
stature would not have entertained Falanx as the inaugural TMSP for UK, Europe and
South Africa, had it not been impressed with the breadth and quality of service 
which has underpinned our organic growth over this period.

In parallel to growth opportunities we continue to monitor and respond to technological
changes. As our customers transition data and infrastructure away from traditional
on premises solutions to the Cloud, we are developing and adapting our services 
and technology in order to maximise the full potential of our in-house technology
development work, which has received positive industry and potential customer feedback
from both the UK and US.

Although we look to automate as much as possible with the support of our technology
developments, we are predominantly a people-based organisation, dependent on highly
skilled and well-motivated staff. We recruit and retain great people by offering
an excellent working environment with competitive salaries and benefits as well 
as share participation incentives. I would like to thank the management and staff
for their continued resolve to achieve success in our pursuit of market leadership
in cyber defence.

The Board is confident that the investment programme in the first half of the year
is starting to produce positive results which will be reflected in the second half
of the year. Our drive to achieve cashflow breakeven is the Board’s primary objective
and we are confident of reaching this goal in the near term. In addition, our thanks
go to our loyal shareholders, for providing the funding and support to facilitate
the ongoing delivery of our objectives.

Approved by the Board on 18 September 2019 and signed on its behalf by

A Hambro

Chairman

**Chief Executive Officer’s Report**

**Introduction **

Falanx Group Limited is a provider of Cyber Security and Strategic Intelligence 
services across many geographies, to over 400 customers ranging from Government,
large enterprises to the SME market. The operations of the business are supported
by Falanx Technology who together with third parties provide the underpinning technology
for our teams.

**Falanx Cyber **

Our core division recorded a much stronger performance in both revenue and EBITDA
performance than in the prior year (see note 4). This was due to the acquisition
of First Base (acquired 23 March 2018), increased contract momentum and stronger
professional services utilisation. Revenues grew by 222% to £3.57m and the final
6 months were 46% greater than H1. Gross margins were 49% (2018: 21%) and this was
attributable to business mix and stronger professional services performance. The
division invested in sales and marketing expansion as well as infrastructure investment
in the second half of the year to support growth plans such as SolarWinds which 
is expected to start benefiting in the year ended 31 March 2020. Overall adjusted
divisional EBITDA was £0.05m (2018: loss £0.87m) and the division was profitable
on a similar basis in the second half of the year, reversing similar losses in the
first half of the year.

Falanx Cyber now offers an extended portfolio of professional cyber security services,
complementing our MDR (Managed Detection and Response) service, through the successful
integration of First Base and Securestorm, acquired in March and July 2018 respectively.
These acquisitions have provided an additional customer base across a diverse range
of sectors including Government, Finance, Legal, Insurance, Retail, IT and Telecoms.

To accelerate growth beyond the confines of traditional direct sales and cross-selling
opportunities between service lines, Falanx Cyber exploits a ‘Channel’ model, providing
security services via its growing network of MSP partners. These IT outsourcing 
organisations have longstanding and trusted status with their customers for the 
provision of essential business IT functions, as such they are natural partners 
for Falanx Cyber and a significant extension of our market reach.

The most significant addition to this growing ‘Channel’ model is the strategic partnership
with SolarWinds (NYSE: SWI), a leading provider of powerful and affordable IT infrastructure
management software, which was announced on 19 September 2018. SolarWinds appointment
of Falanx as the first TMSP across Europe and South Africa creates the opportunity
to access SolarWinds’ MSP customers. SolarWinds’ customer managers introduce Falanx
as a preferred security provider, offering managed services support to its Threat
Monitoring Service program, along with the Falanx Cyber portfolio of security services.
In turn, each MSP can leverage the SolarWinds technology and Falanx services into
their own client base. This multiplying effect offers Falanx Cyber access to a very
significant market place of pre-qualified consumers.

SolarWinds has engaged with the three inaugural TMSP’s, of which Falanx Cyber is
one, requesting feedback into the development and product specification of the SolarWinds
Threat Monitor product. This preparatory work has been focused on creating a highly
scalable platform and seeding this ‘mass market’ opportunity with education programmes
and disruptive pricing. The significant marketing power of SolarWinds will be applied
to fully launch the product with the support of the TMSP’s in the second half of
our current financial year.

The combination of strong and growing demand for the Falanx Cyber portfolio of services,
market pull of the MSP ‘Channel’ model and the unique opportunity offered by SolarWinds,
indicate another year of high growth ahead. In 2019, the division had overall organic
growth of 10% although our key service line of monthly recurring monitoring grew
by over 90%. Overall the cyber sector is experiencing strong macroeconomic drivers
and is forecast to grow significantly over the next few years. To keep pace with
this continuing high growth, Falanx Cyber has further invested in people, processes
and infrastructure to expand capacity and maximise the revenue growth opportunities
of the current year and beyond.

**Falanx Intelligence (Assynt) **

Our strategic Intelligence business unit, Falanx Assynt, provides market-leading
geopolitical reporting and analysis on major emerging markets to global corporate
customers. The two principal business lines are now the subscription-based Assynt
Report service and the Embedded Analyst business.

Revenue and EBITDA reduced in H1 as a consequence of remodeling and investing in
the business to move away from historic ‘spot’ revenues and toward a greater proportion
of high-quality recurring revenue. In 2018/19, the two recurring revenue product
lines represented 85% (2017/18: 72%) of total Intelligence revenues. The remaining
15% of revenues were from one-off Business Intelligence (“BI”) and Strategic Intelligence
consulting projects. These ‘re-balancing’ measures ensured a return to growth in
H2, with revenues growing by 32% compared with H1. For the full period 2018/19, 
revenue of £1.64m (2017/18: £1.89m) was generated with an adjusted EBITDA loss of
£0.05m (2017/18: profit £0.25m. The second half turnaround led to a much-improved
monthly recurring revenue performance and was achieved after a planned increase 
in cost base to build expansion capability to support future growth and the division
was profitable at an adjusted EBITDA level in the second half of the year.

The first half of the year was focused on consolidation and investment, including
the first serious reformulation and upgrade of our flagship product, the Assynt 
Report, for ten years. We invested over £0.1m in the creation of our proprietary,
customer focused, online portal. This has replaced the previous email-based distribution
system which had reached ‘end of life’, while at the same time much improving customer
experience, product presentation, ease of consumption and opportunity to scale service.
Feedback from existing customers has been overwhelmingly positive, with the increased
sophistication and presentation of the product, including the introduction of maps
and graphics, generating great interest among new clients. The introduction of the
new Assynt Report Mobile App in June 2019 will further improve the accessibility
of our product to subscribing customers.

For our Assynt Report subscriber base of global corporates (many of which are headquartered
outside of the UK), we have produced over 1,200 reports analysing events in 37 countries,
including specialist analysis of international jihadist trends. Our overall international
business grew by 20%. Over the course of the year we have expanded our country coverage
to include regular reports on three additional countries in sub-Saharan Africa and
Latin America. We plan to expand our Africa coverage further during the current 
financial year.

The reputation and demand of the Embedded Analyst service, aimed firmly at the FTSE-
100 and NASDAQ-100 market, continued to grow strongly, with three existing clients
seeking additional capacity and strong interest from new clients, particularly in
the USA. As a result, the total number of embedded analysts increased by 40% over
the course of the financial year, with additional positions scheduled to come on
stream in late 2019. This includes a major new contract with one of the largest 
global (US-based) technology companies, which has an annual revenue potential to
make it the Division’s largest. This illustrates our growing reputation and has 
led to discussions ongoing with other similar organisations.

In addition to our increased focus on high quality recurring revenue via the Assynt
Report and Embedded Analysts, we are now focusing on Strategic Intelligence projects
which are more clearly aligned with our core geopolitical analysis and emerging 
market expertise. This has enabled us to pitch at a higher price point and increase
share of the ‘value-add’ components of projects with in-house resources, further
improving traditionally high levels of customer retention and account expansion.

The Assynt business has a robust platform for growth over the next three years and
the significant client wins since the start of 2019 provide strong validation for
this being a separate division and a valuable asset

**Falanx Technologies **

Our technology development organisation continues to develop proprietary and innovative
technology and integrate 3rd party technologies to support Falanx Cyber business
lines MDR (formally known in Falanx as MidGARD) and professional services (Penetration
Testing, Awareness and Consultancy).

Our strategic technology development program has shifted away from traditional ‘
on-premise’ engineering, toward customers and applications that have embraced high
growth and in particular, public Cloud such as Amazon Web Services, Microsoft Azure
and Google Cloud Platform. A few years ago, only a small percentage of customers
were considering public Cloud as a viable alternative to the traditional data infrastructure
offerings from vendors such as Oracle, HPE Vertica and IBM, or on-premise solutions
offered by their local data centre vendor. However, the landscape has now changed
dramatically, and we are therefore focused on enabling Falanx Cyber to secure our
customers in the Cloud.

As a result of this focus, the Falanx Technologies team have successfully developed
our own proprietary CASB (Cloud Access Security Broker) capability. This functionality
is required as many traditional network security monitoring tools are not ‘Cloud
Native’ and therefore require additional third party software to bridge the gap 
to cloud hosted applications such as SalesForce, Office 365 and Sage. The development
of our own capability is a significant resource, allowing Falanx Cyber secure its
customers as they transition to the Cloud.

These technologies allow users to significantly reduce cost, increase security and
gain greater insight to their security ‘Big Data’ assets. We are evaluating strategies
to maximise the full potential of our development work, which could have uses beyond
traditional security. It has already been evaluated by industry experts and the 
feedback has been positive and is currently being evaluated by US based organisations
as an alternative to some of their existing infrastructure.

Approved by the Board on 18 September 2019 and signed on its behalf by

M D Read

Chief Executive Officer

**Chief Financial Officer’s report**

**Revenue **

Group revenues grew by 73% to £5.2m (2018: £3.0m). Revenues in the second half of
the year were approximately £3.03m and represented growth of 39% compared with the
first 6 months. This was as a result of increased contract momentum in each division
as well as much stronger professional services delivery and better utilisation of
professional services resources in the Cyber division which followed the integration
of First Base (which was acquired 23 March 2018). Assynt recorded stronger BI revenues
in the second half and began to benefit from large recurring subscription and embedded
analyst contracts which began to deliver at the end of the year.

The business has continued to benefit from a strong element generated from the recurring
contracts in each division, and overall this was 56% (2018: 62%). Whilst the proportion
fell, this was due to a much improved services performance, an overall an increase
of circa £0.97m was recorded. At the end of the period monthly recurring revenues
across the Group stood at approximately £240,000 per month (2018: £190,000). The
majority of the growth was from monitoring contracts and managed Cyber services 
in line with the Board’s strategy of moving to higher quality revenues. At the period
end the Group had approximately £3.2m of future revenue (2018: £2.3m) under contract
including deferred income of £1.1m (2018: 0.7m).

We have added (through acquisition and organic efforts) several larger accounts (
typically spending more than £0.1m per annum) and this, combined with our much expanded
customer base with around 340 customers invoiced by us in the year, has reduced 
our customer concentration profile significantly with no single customer accounting
for more than 6% of revenue.

**Cost of sales **

Cost of sales represents cost items which vary more closely as a function of sales
demand and therefore revenues. The Intelligence division’s cost base is largely 
employment costs for full time and external consultants who produce intelligence
reports for customers as well as certain database access licences. The Cyber division
costs include the team who deliver the monitoring and professional services, external
licence fees for technology platform and its support (some of which are fixed and
some of which are variable).

**Gross margin **

The Group’s gross margin was 44% (2018: 31%). Each division experienced margin improvement
as a result of favourable revenue mix with a significantly increased contribution
from high margin recurring revenues, as well as improved utilisation of professional
services staff. This grew overall gross margin from 36% in the first 6 months to
approximately 49% in the second half.

**Operational and cash based costs **

Administrative expenses excluding depreciation and amortisation and exceptional 
costs increased from £2.5m to £3.5m as the Group grew its infrastructure and headcount
to support growth. Average headcount in the year was 72 (2018: 51) reflecting the
impact of acquisitions in 2018 and 2019. Both divisions expanded their sales and
marketing capacity in support of growth plans, and the results for 2019 included
a full year of management costs at both divisional and Group levels.

**Exceptional costs**

Exceptional costs were £0.18m (2018: £0.53m) mainly represented certain restructuring
costs post acquisition and transaction related fees. Share option charge were £0.06m(
2018: £0.05m). These are detailed in notes 5 and 12 to these accounts.

EBITDA

Adjusted EBITDA loss for the year was £1.2m (2018: £1.6m) after adjusting for the
items highlighted above. Headline reported EBITDA loss was £1.5m (2018: £2.2m).

**Depreciation and amortisation**

Depreciation and amortisation was £0.37m (2018: £0.30m) and largely (£0.28m) represented
amortisation of the intangible assets arising on the purchase of First Base in March
2018 and Securestorm in July 2018 where the customer base is amortised over 10 years
and 3 years respectively on a straight-line basis. The remainder arose from depreciation
of plant and equipment and software assets. The prior period represented software
licences for the Cyber division purchased in 2014 and 2015. The remainder represented
usual amortisation charges around the Company’s assets.

**Financing costs **

Financing costs were £4,257 (2018: £2,900) and arose from bank overdrafts operated
in the year.

**Taxation Charge**

The Group recorded a non cash deferred taxation credit of £0.5m (2018: £nil) arising
from revaluation of customer bases from acquired organisations. The corresponding
amount has been treated as goodwill.

**Result for the year **

The Group’s operating loss was reduced by 10% to £1.8m (2018: £2.0m) and this was
attributable to revenue growth, higher margins and less restructuring. Loss per 
share fell by 53% to 0.58p (2018: 1.24p).

**Non-current assets **

The Group continued to invest in technology during the year and a further £0.4m (
2018: £0.5m) of development costs were capitalised in support of monitoring technology
development of Project Furnace in the technology division. Spend on tangible and
intangible fixed assets was £0.13m (2018: £0.07m) primarily on technology and infrastructure
costs. The intangible assets from the customer base of First Base and Securestorm
are amortised over a period of 10 years and 3 years respectively from date of acquisition(
March 2018 and July 2018). This customer base has continued to grow during the year
and experiences little churn. The intangible assets created from R&D investment 
in Project Furnace has been reviewed against likely expected cash flows. As referenced
in the Falanx Cyber Technology section of the Chief Executive Officer’s report this
ongoing development work has initial market interest.

The intangible assets arising from acquisition such as Goodwill and Customer bases
were tested for impairment in the line with the Group’s policy and no adjustment
to carrying value was required, although £0.46m of customer assets from the acquisition
of First Base was reclassified as goodwill and this was reflected in opening balances.
A further £0.5m of goodwill arose from deferred tax adjustments related to the acquisition
of acquired customer bases, the majority of which arose in the prior year and this
is described further below.

The Company continues to review optimal routes to market for this in conjunction
with its advisors. The Company continues to invest in its corporate infrastructure
and particularly its technology estate to ensure it is optimised for growth plans
and risk management.

**Working capital **

Amounts due from customers, net of bad debt provision increased to £1.2m from £0.9m
due to greater business volumes and timing of certain billings. Overall debtor days
fell from 65 to 47 and showed the strong cash performance and record of collection.
Other debtors increased, caused by slightly higher contract assets (accrued income)
which was billed early in the new financial year and from the prepayment of certain
3rd party licence fees which has previously been paid on a monthly basis. The Group
continued to have a very low incidence of delayed and/or non-payment of debts by
customers and our average losses over the last two years were only 0.07% of revenue.

Contract liabilities (deferred income) increased to £1.1m (2018: £0.7m) on greater
volume of advanced billings to customers in both divisions. This accounted for most
of the increase in current liabilities which increased from £2.13m to £2.43m with
a reduction in certain liabilities which were recorded in the March 2018 balance
sheet. Creditors were within payment terms at the March 2019 balance sheet date.

**Capital structure **

The Company issued the following shares during the period:

On 16 July 2018 the company issued 2,222,222 ordinary shares at a price of 4.5p 
each to the vendors of Securestorm Limited as consideration of £100,000 for the 
acquisition of its entire share capital. On 14 November 2018 the Company issued 
138,499,999 ordinary shares at a price of 3.0p each to institutional investors raising
£4.155m gross (£3.977m net) after deducting commission and transaction related costs.

At the 31 March 2019 the Company had 400,401,185 ordinary shares of nil nominal 
value in issue. The Company also had 41,061,251 warrants outstanding at 31 March
2019 and full details are in note 20 to these financial statements. Approximately
26m of these warrants lapsed in May 2019. On 27 March 2019 the company varied its
memorandum and articles of association and introduced a threshold of 1p below which
shares cannot be issued without shareholder permission.

At the year-end shareholders’ funds stood at £7.6m (2018: £5.3m).

**Statement of Cash Flows **

During the year the Group raised £3.977m net by the issue of new shares in November
2018. A net working capital outflow of £0.35m (2018: inflow £0.01m) arose from the
settlement of certain liabilities outstanding at the end of 2018 and also from the
liabilities inherited from the acquisition of Securestorm Limited in July 2018. 
Operational cash flow remains closely aligned with EBITDA performance, and has averaged
at circa 90% over the last 2 years with variations arising from short term timing
issues. £0.46m was used in ongoing investment in technology platforms. Cash balances
at 31 March stood at £2.4m (2018: £0.9m).

**Restatement of Prior Year Results**

£0.08m of foreign exchange losses were recorded as a charge against operating losses
in the year ended 31 March 2018 and has been reclassified as Other Comprehensive
Income. A deferred tax asset arising from the revaluation (under IFRS 3) of the 
customer base intangible acquired with First Base Technologies LLP in March 2018
resulted in a credit against corporation tax of £0.47m. £0.46m of intangible assets
previously capitalised as customer base related on the same acquisition were reclassified
as goodwill. Consequently, loss per share reduced from 1.56p to 1.24p per share 
for the year ended 31 March 2018.

**Post balance sheet events **

In July 2019 the Company entered into a lease for premises in Reading. This will
form the basis of the operations of Falanx Cyber which will be moving its operations
from Birmingham to Reading in August 2019. This was done after an extensive review
of the optimal position to locate the Cyber Security Operations Centre (SOC) from
an access to relevant skills perspective and to help the overall expansion of the
business. This premises will be operationally leveraged for maximum utilisation.
The net impact of the lease is expected to add an additional £0.1m to cash operating
costs per annum and will be accounted for under IFRS 16.

Approved by the Board on 18 September 2019 and signed on its behalf by

I R Selby

Chief Finance Officer

Key Performance Indicators

| Performance Indicator | Description | Why measured | 2019 | 2018 | Comment | 
| Group revenue – £’m | Changes in total revenue compared to prior year | Revenue growth gives a quantified indication of the rate at which the Group’s business activity is expanding over time | £5.2  | £3.0 | Increase of 73% attributable to increased revenue in the Cyber division, with 39% growth in the second half of the year compared to the first half of the year | 
| Gross margin | Percentage of total revenue retained by the Group after direct costs deduction | Provides an indication of sales profitability and proportion of revenue available to cover other running costs | 44% | 31% | Improved margin due revenue mix and better utilisation in professional services following acquisition and integration | 
| EBITDA – £’m | A measure of profits excluding non-cash items such as depreciation and amortisation | Offers a clearer reflection of the ability to generate cash | £(1.5) | £(2.2) | Increase in revenue and reduced costs | 
| Adjusted EBITDA – £’m | A measure of profits adjusted for non-underlying items such as restructuring and acquisition related | Underlying performance of business operations | £(1.2) | £(1.6) | Much reduced restructuring charges and acquisition related costs | 
| Cash conversion | Operational cash flow / EBITDA | Measures the ability of the business to convert profit into cash | 132% | 96% | A close correlation between trading performance and cash generation/usage. | 
| Recurring revenue % | Recurring revenue lines / total revenue | Shows visibility of recurring revenue growth rate | 56% | 62% | Reduction in % due to significant growth in non-recurring professional services revenue, although an underlying increase of circa £0.97m recorded  | 
| Contracted revenue – £’m | Binding commitments from customers for future revenues | Shows visibility into contracted revenues underpinning future revenue forecasts | £3.2 | £2.3 | Greater levels of advance customer commitments including advance payments (contract liabilities)  | 
| Monthly recurring revenue – £’m | Revenue from the provision of services on a recurring basis | Shows predictable monthly metrics to track progress against objective of becoming profitable solely on recurring revenue | £0.24 | £0.19 | Increase in revenue from protective monitoring and consulting in the Cyber division and embed service in the Intelligence division | 
| Number of Invoiced customers | Number of customers invoiced over the preceding 12 months | Measure of customer concentration (includes acquired customer base) | 340 | 332 | Growth of 2.4% largely attributable to increased customer base of the Cyber division | 
| Headcount | Average headcount during the year | Shows average number of employees in the year | 72 | 51 | Increase in operations staff to deliver future revenue commitments | 
| Contract liabilities (deferred income) – £’m | Contracted and invoiced revenue yet to be recognised (deferred income) | Shows visibility into invoiced amounts to be recognised in future periods | £1.1 | £0.7 | Increase due to growth in the Cyber division and contract value increases in Assynt | 
| 
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