# Falanx Group Limited Revenues jump 51%

- Link: https://www.directorstalkinterviews.com/falanx-group-limited-revenues-jump-51/412761306
- Published: 2018-11-14T07:18:07+00:00
- Author: Giles Arbor

**Falanx Group Ltd** ([LON: FLX](https://www.directorstalkinterviews.com/company/falanx-cyber-security/fcs.l)),
the global cybersecurity and intelligence provider, has announced today its interim
results for the six months ended 30 September 2018.

**Highlights**

· Group revenues increased 51% to £2.2m (2017: £1.4m) and gross margin increased
to 36% (2017: 27%)

· 198% increase in Cyber division revenues to £1.4m (2017: £0.47m)

· Underlying EBITDA £0.71m loss (2017: £0.85m loss), reported £0.97m loss (2017:
£1.0m loss)

· Recurring revenues remain strong and grew by 41% to £1.2m and provide a strong
underpinning for the Group

**Operational Highlights**

· Sales force strengthened and delivering high levels of new revenue opportunities
for the Group

· First Base now fully integrated and value of order levels are c20% ahead of last
year

· SecureStorm, acquired on 16 July 2018, recently secured a significant £0.6m renewal
contract from a high-profile UK Government department

**Post Period Highlights**

· In parallel with the transformational deal with SolarWinds MSP and leveraging 
the Threat Monitor Service Provider (TMSP) platform, we are pleased to announce 
a new client contract worth £60,000 for the provision of monitoring services over
a three-year period which has annual payments in advance

· Our strategic intelligence business, Falanx Assynt, has recently secured a three
year £0.2m+ contract with a major European oil & gas Company

· Post period end Falanx has won 14 further new logo contracts across the Group

· Tendering opportunities for new business are currently at record levels

 

> **Mike Read, Chairman and Chief Executive Officer of Falanx Group Ltd, commented:**
> “The ever-growing threats which Cyber-attacks pose are becoming more prevalent,
> providing an increasing opportunity for Falanx. We have worked very hard to strengthen
> the management team and improve our routes to market – the result of this is bearing
> fruit.
> We are extremely excited by the opportunity which our SolarWinds partnership creates
> and, though this has led to an increased investment in resource, we are highly
> confident the opportunity for Falanx is significant.
> Recurring revenues continue to be a major focus for Falanx and our pipeline of
> new business is at record levels. As we continue to develop our suite of Cyber
> Security solutions, we view the future for Falanx and our loyal shareholders with
> considerable confidence.”

**Introduction**

Falanx Group Limited has made good progress in the six-month period to 30 September
2018. Its chosen markets of Cyber Security and Strategic Intelligence are both underpinned
by strong macroeconomic drivers fueling growth. Falanx has been structuring itself
to address this growth opportunity and to create a growing and predictable stream
of high margin revenues. This is being done by aligning both sales-forces on subscription
and repeat business; we have gained traction in these over the period. We have expanded
our customer base through organic growth and acquisitions, our Cyber Security division,
which has a successful indirect sales model of addressing customers through Managed
Services Providers (“MSPs”), has now partnered with SolarWinds, a leading provider
of powerful and affordable IT infrastructure management software, to address its
UK and South African markets.

**Cyber Security (Professional Services)**

The Company has made good progress in the six months to 30 September 2018. The focus
of operations has been the integration of the acquisition of the trade and assets
of First Base LLP (“First Base”), which joined the group on 23 March 2018. We now
have a single professional ‘Cyber Services’ operation and common infrastructure 
to deliver our testing, consulting and training lines of service to customers. As
a result of fully integrating the business into the Group there was some impact 
on staff utilisation, with a consequent impact on revenue in the period. This has
since recovered and the business is performing in-line with management’s expectations.

We are pleased to report First Base order levels have remained strong and are approximately
20% ahead of those in the previous year. This has resulted in a high backlog and
order book which adds to our future visibility. First Base has signed 55 new name
customers in the period, reflecting a significant shift since the acquisition towards
winning new logo (a new customer to the Group) business, facilitating future cross-
selling of all services and in particular the MidGARD monitoring service. First 
Base continues to experience low customer churn and has also signed multiple framework
agreements to provide services to large national and international organisations.
In total we have seen 77 new logos in H1 across the Cyber business including 4 new
MidGARD managed service monitoring contracts.

The Company acquired SecureStorm Limited (“SecureStorm”) on 16 July 2018, a Cyber
Security consultancy delivering specific services into its governmental and corporate
customer base. We are pleased that shortly after acquisition it secured a £0.6m 
renewal of an existing contract, spread over 2 years, from a high-profile UK government
department. SecureStorm has been fully integrated and cost synergies are underway,
as well as the generation of further cross selling opportunities including our MidGARD
monitoring service. SecureStorm has added the benefit of exclusive and commercially
advantageous reseller deals with ‘Best in Class’ security software vendors, deployable
in a managed services environment to the Group; this represents an additional upside
opportunity. SecureStorm has been recently re-accredited as a National Cyber Security
Centre approved supplier, reaffirming its access to UK Government cyber requirements.

**Cyber Security (Monitoring)**

Monitoring Sales have grown, and several new clients have been secured. The monthly
recurring revenue stood at c£90,000 at 30 September 2018 (2017: £35,000) marking
an increase year on year of 157% and a growth of £35,000 from the start of the period.
We have a strong pipeline of business, including certain major opportunities, which
if successful will more than double the current base. A key tenet of our acquisition
strategy is to cross sell monitoring services into our acquired customers; opportunities
for such cross selling are enhanced through both recently acquired customer bases.

A major milestone is the achievement of the SolarWinds partnership which was secured
in September 2018. We have worked closely with SolarWinds throughout 2018 to help
develop a programme which will enable Falanx to reach a dramatically larger customer
base than it would achieve via direct sales. Whilst this has involved significant
management, technical and sales resources, we believe the potential future value
of this relationship far exceeds the current size of the overall business.

Our strategy is to offer a fully managed monitoring and response service from our
SOC (“Security Operations Centre”) to three market tiers:

1. Small to Medium sized businesses will now be serviced by the ‘Threat Monitor’,
SolarWinds ® Threat Monitor™, an automated solution that is designed to reduce the
complexity of threat detection;

2. Medium to Large sized businesses and Government departments, are serviced using
certain tools which are specifically relevant to their organisations through our
MidGARD managed SOC service;

3. Enterprise sized organisations are serviced on the original SIEM solution which‘
Threat Monitor’ is based upon, provided by our relationship with SolarWinds. This
solution is predominantly offered as an alternative to on-premise solutions for 
large organisations that have their own internal security team but who wish to outsource
the SOC operations and focus on value-added security activities through their own
staff.

For tiers 1 and 2 we offer a fully managed service which includes UK Government 
compliant rule sets, detection protocols, threat hunting, reporting, and response
using our own tools and skills in our dedicated SOC.

Enterprise clients, with their own security team, can leverage the SolarWinds enterprise
solution and make use of our managed SOC services to assist with ‘load balancing’
their internal resources. An example of this is a top 20 UK Law firm which has recently
built a security team around an outsourced Falanx SOC service to support them rather
than developing their own internal capability.

**Assynt**

The focus of our strategic intelligence business unit is to move to a high margin
recurring revenue model from sales of the subscription-based Assynt Report, complemented
by specific business intelligence projects. Assynt Report recurring revenues, including
revenues from our embedded analyst business, have historically been about two thirds
of the business by revenue. They have grown by 10% during the period. Over the same
period, we have expanded our country coverage by 10%, producing regular analysis
on forty countries and issues for 44 clients, predominantly global corporates headquartered
outside the UK. Business Intelligence revenues, which are project driven and can
be inherently volatile, were weak in the first quarter of the year but have regained
momentum in the second quarter. The Assynt business has recently become profitable
based purely on recurring revenues.

This focus of the restructured sales and delivery team has been to move to a web
portal content publishing system as opposed to the distribution of individual files,
upgrading our client interface and introducing new features and greater usability.
The new portal was launched at the start of October 2018 and has been well received
by customers. In October 2018 Assynt won a £0.2m+ order for the delivery of strategic
intelligence services over a three-year period to a major European oil and gas company
and has a growing pipeline of potential customers.

**Falanx Technologies**

Falanx continues to invest in its proprietary technologies to reduce costs, increase
the capacity of our service delivery capabilities and to create potential incremental
opportunities.

**Post Period End**

Since the start of October 2018, we have won 14 further new logo contracts across
both divisions, 11 being within Cyber. We are developing sales of SolarWinds products
alongside Falanx services and have signed our first managed SOC Support Service 
contract. We have presented to the large community of SolarWinds MSP customers at
several events over recent months, including Arizona in the USA as well as more 
recently, the SolarWinds EMEA Roadshows in the UK and South Africa.

**Outlook**

The SolarWinds opportunity is transformational for Falanx both in terms of customer
capture and potential financial returns. Over the next few months, there will be
a necessary expansion in the deployment of our resources to meet the expected increase
in activity. Whilst revenues for the first half, although well ahead of the same
period last year, have been slightly lower than our original internal expectations
due to reasons outlined above. We have regained strong momentum in our existing 
business activities during the second half. With the addition of the SolarWinds 
opportunity, the Directors expect this growth to be maintained into the next financial
year.

FALANX GROUP LIMITED

CHIEF FINANCIAL OFFICER’S REPORT

**Revenue**

Group revenues grew by 57% to £2.2m (2018: £1.4m). Growth came from the Cyber division
which grew from £0.47m to £1.41m underpinned by further sales of monitoring contracts
and therefore the growth of the recurring contract base. Revenues benefitted from
the acquisition of First Base (acquired 23 March 2018) and SecureStorm (acquired
16 July 2018) which added to professional services. Post-acquisition integration
took place during the period required some resources, resulting in a shortfall of
circa £0.2m of delivery of professional services revenues. This has now been completed
and utilisation of professional services staff has increased significantly in recent
months. This trend is expected to continue. Recurring and managed services revenues
were £1.29m (2017: £0.91m) and accounted for 59% of overall revenues (2017: 63%).
The reduction in the overall proportion was due to a larger professional services
element in Cyber.

The Assynt business has focused on transitioning to a revenue model more heavily
aligned to recurring revenues from the Assynt Report. Business Intelligence revenues
are client project driven and arise on a less predictable basis and a shortfall 
in these mainly at the start of the period of circa £0.2m adversely affected revenues
which were reduced by 25% to £0.71m. The profitability of the Assynt business has
been based purely on recurring revenues.

Our contract base of monthly recurring and managed services revenues increased in
the last 6 months from £0.19m to c£0.25m due to growth in monitoring contract wins
and the acquisition of SecureStorm and its managed services contracts.

**Gross Margins**

Gross margin improved to 36% (2017: 27%). Better utilisation and much higher monitoring
revenues increased gross margins in Cyber to 42% (2017: 4%); the slippage in BI 
revenues in Assynt reduced its utilisation and its gross margins fell to 25% (2017:
36%).

**Costs**

Administrative expenses excluding depreciation and amortisation and non-underlying
items increased from £1.23m to £1.50m. This was largely due to £0.35m increase in
costs arising from acquired businesses which was offset by a reduction of c£0.1m
in group costs. Depreciation and amortisation increased to £0.18m (2017: £0.12m)
due to the commencement of amortisation of intangibles arising on the acquisition
of the trade and assets of First Base over a ten-year period. Non-underlying items
of £0.08m comprised acquisition fees and some restructuring around acquisition integration.
Average headcount following the impact of acquisitions increased from 48 to 62.

**Adjusted EBITDA and Result for the Period**

Due to the slippage in BI consulting revenues in Assynt referenced above, EBITDA
in that division fell from £0.18m to approximately breakeven. The Cyber division,
due to a larger revenue base, reported a much-improved performance with losses reduced
from £0.55m to £0.12m. Underlying EBITDA loss for the period was £0.71m (2017: £
0.85m) after adjusting for the items highlighted above. The overall loss was £0.97m(
2017: £1.01m). Loss per share was 0.37 pence (2017: 0.67pence).

**Statement of Financial Position**

**Non-Current Assets**

Intangible assets increased from £1.14m to £4.8m. £3.3 m of this arose from the 
acquisitions of First Base and SecureStorm and the remainder was mainly due to ongoing
development of our own technology and corporate infrastructure.

**Working Capital**

Trade and other receivables increased to £1.18m (2017: £0.58m) resulting from advance
invoicing in Assynt and the acquired businesses (First Base and SecureStorm) in 
addition to increased prepayment of key operating costs. Current liabilities (excluding
deferred income) were £1.15m (2017: £0.98m). Deferred income was £1.09m (2017: £
0.34m). The increase of 220% was due to the acquisition of First Base in March 2018
and a higher level of advance invoicing in Assynt.

At the year-end shareholders’ funds stood at £3.9m (2017: £1.9m) and there were 
261,901,186 shares in issue (2017: 157,290,075).

**Statement of Cash Flows**

There was a favourable movement in working capital over the period arising from 
advance payments by customers in both divisions. This reduced operational cash outflow
to £0.53m (2017: £1.01m) representing 67% of EBITDA (2017: 114%), an improvement
by the business. A further £0.27m (2017: £0.38m) was spent on investing activities
with a greater proportion on development of our own technologies.

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