KRM22 plc a year of progress further strengthening the quality of ARR

KRM22 plc, (LON:KRM) the technology and software investment company that focuses on risk management for capital markets, has issued the following trading update for the 6 months to 30 June 2021.

DirectorsTalk caught up with KRM22 Executive Chairman and CEO Keith Todd to discuss the news

The Company has made progress in the Period, further strengthening the quality of its Annual Recurring Revenue (“ARR”), including the signing of £0.3m of new business.  In addition to this the Company’s pipeline of opportunities remains strong with £0.6m of ARR with agreed contracts awaiting signature by customers plus a further £0.2m in final discussion ahead of contract negotiation and is seeing strong engagement with new high quality prospects.  The Company did see two customer losses worth an aggregate of £0.5m ARR, one as it transitioned legacy business to its current business model of delivering Software as a Service and a second due to the impact of a customer non-payment of invoices and therefore non-renewal.

The Company expects to report results for the Period on 1 September 2021, and these are estimated to be:

·           ARR: £3.7m (H1 2020: £4.0m)

·           Total revenue: £2.2m (H1 2020: £2.3m)

·           Adjusted EBITDA loss: £0.3m (H1 2020: £0.3m)

·           Cash balance as at 30 June 2021: £1.3m (FY 2020: £2.0m)

New business in the Period included:

·           Two new Market Surveillance customers

·           An existing Pre-Trade Risk customer adding the Market Surveillance product to their Global Risk Platform;

·           A five-year renewal with a major European Bank for the Market Surveillance product, with increased ARR on an annual basis over the five-year contract; and

·           Incremental contracts for data news feed services.

The Company has been working to transition its historic ARR contracts to a Master Services Agreement (“MSA”) under longer-term contracts and these, together with new business wins that are also contracted under an MSA, now represent 55% of total ARR.  New business wins have been strong since inception from £0.2m in FY 2018, £0.7m in FY 2019, £0.8m in FY 2020 and £0.3m in first half of 2021 and the Company also has further opportunities across its product suite and is anticipating increased ARR contract signings in the second half of the year.

The reduction in total revenue recognised in the Period compared to FY 2020 reflects the churn experienced in FY 2020 however, adjusted EBITDA loss for the Period is broadly in line with last year despite the slightly lower revenues.  Costs remain within budget and lower than FY 2020.  The Company has also provided for £0.14m of potential bad debt from a middle east Market Surveillance customer as described above.  This customer has made a decision to refinance their business which may help recover the potential bad debt.

The cash balance as at 30 June 2021 stood at £1.3m representing a £0.7m cash out flow in the Period.  The Board anticipates a neutral cash flow in the second half of 2021.

The Global Risk Platform has matured and is now a significant springboard for growth, as the Company has extended features and available offerings including news feeds, market data feeds and a recent partnership with a regulatory compliance monitoring company.  Despite the progress made, the Company has continued to suffer from delays in new contract signings with tier one banks and as a result for the year ended 31 December 2021 the Board now expects to report modest revenue growth against the prior year, and marginally behind current revenue expectations.  The Board also expects the full year adjusted EBITDA loss to be in line with the FY 2020 full year results as a result of continued focused cost management.

Keith Todd CBE, Executive Chairman and CEO at KRM22 commented: “The Company has made progress but it has been frustrating that some contracts were not signed in the Period.  The outlook for the second half and future remains positive.  We have suffered from delays in tier one bank signings which is frustrating but unfortunately not uncommon.  There is no doubt that the Global Risk Platform, integrating risk functionality, provides customers with valuable options as it reduces their cost and complexity of risk.  The Company continues to build a higher quality of customer base, better aligned with our strategy.”

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KRM22 plc a year of progress further strengthening the quality of ARR

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