Latest Results

I am exceedingly proud of the Company’s achievements this year. Notable areas of positive progress among many to choose from include: the continued strong revenue growth; the reduction in underlying losses as we push towards delivering our first profits and sustainable cash generation; and strong retention and meaningful upsell of new product features and licences to our customer base.    We continue to make great progress with our partners, welcoming new global names to our well established eco-system and in turn these partners continue to deliver significant new logo sales opportunities for us.    Given the multi-faceted challenging backdrop of the unfounded patent infringement case, rapidly rising interest rates and general business softness in the face of economic uncertainty, these achievements are particularly impressive.

For many of our people this is the first time that they have faced these types of challenges. Our management team and employees around the world have nonetheless responded robustly and intelligently to these wide-ranging events. For them to not only have appropriately dealt with these challenges, but also achieved great results despite them, is wonderful to see.  

The PCI Pal team continues to grow and today we have representation in the UK, the United States, Canada and Australia. Our staff turnover remains low, and our culture even stronger. I would personally like to thank each and every one of them for their contributions towards meeting the Group’s mission.

Strategic Direction

The Board is extremely pleased with how our strategic direction is developing.   With the recent focus on new products, our addressable market is growing. Equally, with our investments into customer and partner success, and new geographies, we are seeing our sales pipeline increase, especially in the United States.  These continued positive outcomes from our annual rolling strategic planning are collectively increasing our confidence for FY24 and beyond. 

Corporate Governance

I am mindful of the fact that as part of a fast-growing international organisation I have to ensure that our organisational structure and corporate processes remain robust so we can continue to deliver for all stakeholders, while not diminishing our entrepreneurial culture.  The Group is supported by an experienced Board of Directors, who in turn are supported by an organisation that has proven it can deliver. We take outside professional and business advice where needed.   Our strategic aims are clear, our employee culture excellent, and our commitment to our partners and customers is unshakeable.  I believe we have a balanced business that can continue to grow within acceptable levels of risk tolerance.

Patent Infringement Claim

As announced by the Company on 25 September 2023, in the UK the Company was successful in the High Court of England and Wales (“High Court”) in both defeating the claims of patent infringement made by our competitor, Sycurio, but further was successful in its own counterclaims to invalidate the patent as well.  This is a comprehensive win for PCI Pal and substantiates the position of the Board since the day this unfounded action was launched. No matter what happens next, I believe this judgement significantly reduces the downside risk for investors, and validates the Board’s position that it has taken for the last two years.

Management have been extremely thorough in their handling of this situation, and I believe combined with this victory in the UK, that the business has mitigated risks from any outstanding activity.  It continues to be the Company’s belief that this action was brought by a competitor who is trying to disrupt PCI Pal’s momentum and to make commercial gain.

Stakeholder Communications

As a board, we remain focused on clear and regular communications to all investors, both retail and institutional, and expanding disclosures in line with the growth in complexity of the business.  We continue to utilise phone and video briefings as well as utilising the Investor Meet Company portal, to reach shareholders of all types. The CEO and CFO offer regular in-person meetings. As Chair, I am available as a direct line of communication to all shareholders in case other questions arise that need to be answered independently, as well as offering meetings with institutional shareholders around the time of the AGM.  

Looking Forward

I continue to be both excited and encouraged by the progress that has been made by the Group in FY23, and the Board is confident in the outlook and prospects in FY24 and beyond. Given the momentum in the business I look forward to sharing further progress reports and news during the coming year, as we continue our strategic growth journey towards profitability and further scale.

Simon Wilson
Non-Executive Chair
8 November 2023

Key financial performance indicators

The Directors use a number of Key Financial Performance Indicators (KPIs) to monitor the progress and performance of the Group.  Our core KPIs are showing strong performance against expectations.

The principal financial KPIs used by the Board to assess the Group’s performance are as follows:

¹ Recurring Revenue is the revenue generated from the recurring elements of the contracts held by the Group and recognised in the Statement of Comprehensive Income in the period

² Adjusted EBITDA is the loss on operating activities before exceptional items, depreciation and amortisation, exchange movements charged to the profit and loss and expenses relating to share option charges

³ Cash balance plus maximum debt facilities available (subject to covenant tests being met)

The principal operational KPIs used by the Board to assess the Group’s performance are as follows:

¹TACV is the total annual recurring revenue of all signed contracts, whether invoiced and included in deferred revenue or still to be deployed and/or not yet invoiced

² AWS platform churn is calculated using the ACV of lost deployed contracts in the period divided by the opening total value of deployed contracts at the start of the period

³ AWS platform net retention rate (“NRR”) is calculated using the opening total value of deployed contracts at the start of the period less the ACV of lost deployed contracts in the period plus the ACV of upsold contracts signed in the period all divided by the opening total value of deployed contracts at the start of the period

I am pleased to report that FY23 was another strong year for PCI Pal, allowing us to deliver on our growth plans which we laid out back in April 2021.   We have managed this performance against the slowdown in the economic climate, aggressive inflation and the distraction of the unfounded patent infringement claims being made against us.  This performance clearly demonstrates the financial robustness of our channel first business model backed up by our innovative, patented pure cloud solutions. 

Revenue and gross margin

Overall Group revenue grew by 25% to £14.95 million (2022: £11.94 million) and gross margin improved to 88% (2022: 84%).  

The majority of the revenues are generated from products hosted in our AWS global cloud platform. The first-generation privately hosted platform, which we have not proactively marketed since 2019, now accounts for only 6% of revenues (2022: 12%) having completed the migration of customers using this platform for payments to our AWS platform.  This has allowed us to eliminate the need for our PCI DSS compliance certificate on the old platform and to close our London private data centre.  The remaining customers on this platform only use the service for telephony services which is hosted by a third-party partner.  Overall, in the year we have seen an approximate £0.5m drop in revenue from closing this platform for payments but have maintained the overall profit contribution from the new licences and cost savings.

The EMEA business, the most mature business and based in the UK, grew revenues to £9.96 million, an 18% increase on the prior year, while the international operations grew revenues 43% year on year to £4.98 million.  Revenues from our non-UK customers now make up 37% (2022: 31%) of the overall Group revenues.  We expect the revenues generated from our international operations to continue to grow strongly as we further strengthen our position in the United States and continue our expansion into the ANZ region and Canada.   

The Group’s revenue reflects its SaaS business model. It delivers its services primarily through channel partners into contact centres who are predominantly charged on a recurring licence basis. The terms of the sales contracts generally allow for automatic renewal of the licences for a further 12-month period at the end of their initial term. 86% (2022: 89%) of revenues recognised in the period have come from annually recurring licences and transactions.   Our strong recurring revenue gives the Group high future revenue visibility.

ACV growth

Annual Contract Value growth is a key leading growth indicator metric of the Group.   Contracts signed in the financial year begin to be released on a monthly basis into recognised revenue after an average of 26 weeks (2022: 24 weeks) following contract signature.  Following a strong H2, ACV increased year on year by 20% to £4.16 million (2022: £3.46 million) positively reflecting the further development of the Group and its strong partner eco-system, which made up 77% (2022: 62%) of the value sold in the year.

TACV

TACV is a key indicator of future recurring revenues as it shows the total value of all customers whether their services have reached revenue recognition or not.    Therefore, TACV provides strong future revenue visibility which is an attractive aspect of the Group’s business model. TACV at the end of the financial year increased 23% to £16.43 million (2022: £13.36 million). Of the TACV only 14% (2022:22%) is derived from transactional revenues which is deemed to be recurring in nature.  The year on year change is a result of the majority of sales being recurring in nature, predominantly license sales, and also a drop in transactional based revenue from our Gen 1 platform which we have decommissioned, as discussed above.

This £16.43 million of TACV is analysed as follows:

The value of annual recurring revenue from contracts that are live and deployed (“ARR”) as at the end of the financial year was £12.58 million.

The jump in mid-deployment contracts to £3.08m reflects the strong new sales performance achieved in H2 of the financial year, and these contracts are now going through the deployment process, with revenue expected to be recognised in the current financial year.

We have seen a £0.42 million reduction in the amount of projects classed as being “on hold”.  This is testament to our continuous improvement around project delivery, our increasingly tight working relationships with our partners, and improvements to our product suite. Contracts typically go “on hold” as a result of a lack of resource with the customer and/or channel partner, or where our solution is part of a larger project being delivered by our partner or the customer, which may mean there is a delay in reaching the PCI Pal aspect of the project.  Such on-hold contracts therefore take longer on average to start delivering recurring recognised revenues. 

As with any internationally expanding business, exchange rates will affect the reporting of Group numbers as assets and sales are translated into sterling for reporting purposes. During the financial year, and especially in H2, we saw the US dollar exchange rate increase from $1.20 to $1.26 which had the effect of decreasing the sterling value of the US denominated contracts for TACV purposes by approximately £0.3 million.  The change also led to the exchange loss recorded in the Statement of Comprehensive Income.

Churn and Net Retention

We continue to achieve low levels of customer churn so our gross retention rate remains strong at 95.4% (2022: 96.9%). In addition, during the year we agreed to terminate £0.14 million (2022: £0.18 million) of contracts prior to them going live due to changes in circumstances from the original expectations.

In the year we achieved upsells to customers that represented 15% (£0.64 million) of the total ACV won.  The majority of these upsells are expansionary upsells where the customer is adding additional licenses of their current solution, or adding an additional product to their service, such as PCI Pal Digital.  Upsells are lower year on year, but are within management’s expectations, as in FY22 we benefitted from a number of large expansionary upsells to several of our largest customers, that were not likely to be repeated in FY23.  As a result the Group’s net revenue retention rate (“NRR”) was positive but lower at 103.0% (2022: 117.7%).

Internal adjusted operating loss¹ metric

The Board uses an internal metric for calculating the adjusted operating loss for the Group to get a better comparative measure of performance. The internal adjusted operating loss for the Group has changed as follows for the year:

¹ Loss from operating activities before exchange losses/gains recorded in the profit and loss exceptional items and share option charges used for internal reporting comparisons

Adjusted EBITDA

EMEA

The EMEA region reported an Adjusted Operating Profit of £0.57 million (2022: £0.37 million). The region continued to deliver strong revenue growth of 18% growing to £9.96 million (2022: £8.46 million) resulting in an improvement of £1.50 million in Gross Profit at a margin of 82% (2022: 79%).

Administrative costs, before exchange movements and exceptional items, grew by £1.29 million to £7.61 million primarily reflecting a further investment in personnel as we continue to expand the business and invest in new products.

Depreciation and amortisation costs were £1.15 million (2022: £0.90 million) meaning that the EMEA operation recorded an adjusted EBITDA of £1.72 million (2022: profit of £1.27 million).

International

North America

The North America region’s Adjusted Operating Loss (which includes the new Canadian operation) decreased by £0.53 million in the year to £1.56 million (2022: £2.09 million). 

Revenue in the region increased by a pleasing 44% to £4.75 million resulting in an improvement of £1.52 million in Gross Profit at a margin of 99% (2022: 96%).

Administrative costs, before exchange movements and exceptional items, grew by £1.0 million to £6.25 million. The North American administrative costs primarily consist of salary costs for the sales, marketing and mostly customer facing employees.  The operational activities for the North America business are provided by the EMEA business in return for an ongoing royalty payment which was £1.19 million (2022: £0.83 million) in the financial year.   

Depreciation and amortisation costs were £nil million (2022: £0.08 million) meaning that the North American operation recorded an adjusted EBITDA loss of £1.56 million (2022: £2.01 million). 

Australia

The Group continued to invest in its operations in Australia, having opened in the region in the previous financial year and hired its first employees. 

Revenue for the region increased by 65% to £0.28 million (2022: £0.17million) reflecting increased business momentum of the region.   However, as the result of the further investment the region the Adjusted Operating Loss increased to £0.28 million (2022: £0.18 million).

Central

Costs for the Central operation primarily relate to the PLC activities of being a listed company, including the majority of the employment costs of the Board.  The PLC has also funded the costs of the patent case in the UK.

Further segmental information is shown in Note 10.

Administrative expenses

Total administrative expenses were £17.95 million (2022: £13.08 million), an increase of 37%. 

The underlying administrative costs can be analysed as follows:

The underlying increase was therefore £2.50 million, of which £2.49 million was from the overall increase in personnel costs in the Group reflecting the full year costs of those hired in FY22 and the move from 103 employees to 114 employees at the end of the financial year.

The cost to run the AWS platform worldwide (including the development, testing and staging systems) in the year was £0.95 million (2022: £0.89 million).  The cost of the platform represented only 6.4% (2022: 7.5%) of the revenue recognised in the year, highlighting the scalability of the AWS platform and the operational gearing it can deliver.   Depreciation and amortisation increased by £0.18 million to £1.16 million.   

Personnel costs charged to the Statement of Comprehensive Income (including commission, bonuses, recruitment and travel and subsistence expenses) were £12.04 million (2022: £9.55 million), and £1.55 million (2022: £1.05 million) of the personnel costs were capitalised as Development costs. These personnel costs make up 78% (2022: 74%) of the administrative costs of the business.  Travel expenditure increased back to £0.54 million (2022: £0.34 million) reflecting the increasing scale and international growth of the business.

The Board has been cognisant of changes in the economic environment over the last 18 months.   There has been noticeable inflationary pressure on our cost base, for example, on some underlying software products used as well as additional wage inflation pressure, over and above that originally expected.  Insurance rates for our industry have increased significantly alone resulting in an additional £0.2m charges per annum.   With its strong revenue growth, the business has been able to absorb many of these costs to date and still deliver on its expectations of profitability, but underlying inflationary cost pressures continue.

Patent case defence costs

On 25 September 2023 the Company announced that it had secured victory in the High Court against the unfounded patent infringement claims being made against it.   This is an important step in the overall defence against the claims being made against the Company.

During the financial year the Group incurred legal and professional fees and other direct costs relating to the defence of the patent case totalling an additional £1.98 million, of which £1.28m was paid in the financial year.

The US case is continuing and is expected to be heard in the summer/autumn of 2024.

The patent costs per entity incurred to date and future estimated are as follows:

The direct costs relating to the claim incurred to date have been disclosed as an exceptional item in the Consolidated Statement of Comprehensive Income.   The estimated £1.118 million of future patent case costs relate to the current estimate to bring the US claim to court and the finalisation of the UK ruling.  The estimate does not include any costs to be incurred in defending any appeals nor does it assume that any damages or claimant legal costs will be paid as we believe the claims are unfounded. 

In the UK the Company will be looking to recover the maximum possible amount of costs possible that we have incurred in defending the patent claims from the claimant, Sycurio Ltd.   The quantum and timing of such a payment is currently unknown and so has neither been accrued into these accounts, nor estimated for disclosure.

Changes in accounting policies

There are no changes in our accounting policies for FY23.

Capital expenditure

As required by IAS 38, the Group capitalised a further £1.55 million (2022: £1.10 million) of internal development expenditure as we continue to invest in the AWS cloud platform and introduce new features and products.

The Group also capitalised £0.05 million (2022: £0.05 million) of external contractor work relating to the Group’s internal systems. 

Other capital expenditure was £0.05 million (2022: £0.13 million).  Most of this expenditure related to new laptops for the new and existing employees. As a cloud driven organisation the Group has no need to invest in hardware for customer deployments.

Set-up and Professional Services Fees

During the financial year, the Group generated from new contracts £1.41 million (2022: £1.41 million) of set-up and professional services fees.   These fees are initially held in the balance sheet as deferred income and then released to revenue over the economic length of the contract as governed by the IFRS 15 accounting standard.

Deferred income

Deferred income increased 11% to £11.82 million (2022: £10.62 million), mostly reflecting the timing of growth in new business sales and the consequent increase in licence fees invoiced in advance, and to a lesser extent the continued build-up of unrecognised set up and professional services fees.

Trade receivables

Trade receivables grew to £3.51 million (2022: £2.96 million) as the business expanded its customer and contract base. The level of receivables reflects both debtors generated from new business sales as well as existing contract renewals outstanding at the end of the period.  As at the 30 June 2023, £0.89 million (2022: £0.67 million) of the outstanding debtors related to newly signed contracts.  

Our debtor collection rates remain within expected average ranges ending the year with 74% (2022: 78%) of debtors less than 60 days old. The Board does not believe that any of the debts over 60 days old will require to be written off.

Taxation

As at 30 June 2023 the UK entity had not yet received payment for its R & D tax credit claim for the financial years 2021 and 2022 (2022: £0.16 million for financial year 2020). The delay in settlement of the claims was due to an open enquiry by HMRC.  In October 2023, we received notification from HMRC that they had approved our claim and we are expecting to receive £0.54 million in due course. The Group will not recognise the tax credit claim in its accounts until the claim has been received from HMRC.   No claim has yet been made for the financial year ended 30 June 2023.  

Cashflow and liquidity

Cash as at 30 June 2023 was £1.17 million (2022: £4.89 million). The Group therefore used £3.72 million (2022: used £2.63 million) of cash.

In the period cash payments of £1.28 million net of VAT (2021: £0.69 million) for the legal fees and other direct costs relating to the patent case were paid. The adjusted net cash spend in the core business is therefore £2.44 million.

I am pleased to report that in the second half of FY23 we reported positive cash generation of £0.22 million, once the £0.93 million spent on the patent case in the half is excluded.

Cash was boosted in the year by the agreement of one of our US customers to pay for three years of licence fees in advance.

Banking facility

During the year the Group arranged a £3m, multicurrency, revolving facility with Silicon Valley Bank (“SVB”) secured by legal charges over the assets of the Group.  The £3m facility availability to the Company can fluctuate on a month to month basis as it is subject to the level of assets and liabilities at the time of drawing.   Following the insolvency of SVB the facility has now been transferred to HSBC.  The facility was undrawn at the end of the financial year.  Further details on the loan facility can be found in Note 21.

Going Concern considerations

The Board continues to monitor the Group’s trading performance carefully against its original plans, global economic pressures, such as inflation, and other factors affecting our core markets and products. It also reviews the potential impact of a resurgence of the COVID-19 pandemic. 

During the year the Group continued to win new contracts, recording new ACV sales of £4.16 million, as well as substantial growth in its transactional revenues.   Customer retention remains high.

The group deployed new customer contracts with an annual recurring revenue value of £2.74 million.  At the end of the financial year the group had £12.58 million of deployed, live contracts contributing to revenue recognition. It also has a further £3.08 million of contracts in current deployment with a majority that are expected to go live with the next few months which helps underpin our expectations for revenue growth in FY24. These recurring contracts provide annual recurring cashflow that underpins the future of the Group.

With the Group year-end being 30 June, the Group prepared its next financial year budgets in the April to June 2023 period.   The budget for FY24 was prepared, along with an extended forecast into FY25, following detailed face-to-face meetings with all managers with a focus on building on the existing strong performance and on the product plans and roadmap.  The budget includes an assumption of a more modest  rate of expansion of headcount as compared to FY23 and includes the launch of a number of new products. 

The Group finished the year with a cash balance of £1.17 million and had an undrawn revolving credit facility of up to £3.0m available to assist cashflows as and when required.

The Board considered the prepared budget and the controls in place that are designed to allow the Group to control its overhead expenditure while still maintaining its momentum and delivering market forecasts.  Particular attention was paid to the potential sensitivity impacts that any adverse movement in sales and customer deployments might have on the Group’s net cash position and the level of headroom achieved.

The Board considered the likely timing and impact of the legal fees relating to the patent claim being made against it on the cash flow of the Group.   The sensitivity scenarios around the budget models indicate that the Group would continue to have sufficient resources to meet its expansion plans in FY24 whilst at the same time meeting the cost requirements of defending the patent case.

The Board also considered actions that could be taken to help mitigate the actual results if the assumptions made in the original forecast proved to be overly optimistic.  At all points the Directors were satisfied in the robustness of the Group’s financial position from the presented plans which, they believe, take a balanced view of the future, together with the contingencies that can be taken if the budget assumptions prove to be materially inaccurate.   The Board is therefore satisfied in the Group’s ability to meets its liabilities as they fall due.  

The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Directors continue to adopt the going concern basis in preparing the accounts.

Dividend

The Board is not recommending a dividend for the financial year.

William Good
Chief Financial Officer
8 November 2023

The accompanying accounting policies and notes form an integral part of these financial statements.

The Board of Directors approved and authorised the issue of the financial statements on 8 November 2023.

The accompanying accounting policies and notes form an integral part of these financial statements.

The accompanying accounting policies and notes form an integral part of these financial statements.