Latest Results
Full Results
Strong Growth with Record New Business
PCI-PAL PLC (AIM: PCIP), the global provider of secure payment solutions for business communications, is pleased to announce full year results for the year ended 30 June 2023 (the "period").
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Financial Highlights:
FY23 30 June 2023 | FY22 30 June 2022 | Change | |
Revenue | £14.95m | £11.94m | +25% |
Gross Margin % | 88% | 84% | |
% of revenues from recurring contracts | 86% | 89% | |
Adjusted EBITDA1 loss | (£1.11m) | (£1.88m) | +41% |
Adjusted PBT2 loss | (£2.31m) | (£2.90m) | +20% |
Loss before Tax | (£4.89m) | (£3.11m) | -57% |
New ACV3 contract sales in period | £4.16m | £3.46m | +20% |
TACV4 | £16.43m | £13.36m | +23% |
ARR5 | £12.58m | £11.05m | +14% |
NRR6 | 103.0% | 117.7% | |
Customer retention7 | 95.4% | 96.9% | |
Cash and available resources (incl maximum debt headroom)8 | £4.17m | £4.89m |
Operating and Other Highlights:
- Continued strong momentum in key US market, with £2.5m new business ACV won in the year representing 61% of new business for the Group.
- New business momentum emphasised by 48% year on year increase in net new logo sales.
- Strength of partner eco-system illustrated by further increase in contract value signed through resellers, now making up 77% of ACV signed (2022: 62%).
- 241 new sales contracts signed in the period (2022: 217), average ARR value increased 14% to £17,000. (2022: £15,000) reflecting PCI Pal’s increasing strength in the mid-market and enterprise space.
- High partner and customer satisfaction rates with 95% Gross Revenue Retention (“GRR”) across the year.
1 Adjusted EBITDA is the loss on Operating Activities before depreciation and amortisation, exchange movements charged to the profit and loss, exceptional items and expenses relating to share option charges
2 Adjusted PBT is the Loss before Tax before exchange movements charged to the profit and loss, exceptional items and expenses relating to share option charges
3ACV is the annual recurring revenue generated from a contract.
4 TACV 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.
5 ARR is Annual Recurring Revenue of all the deployed contracts at the period end expressed in GBP.
6 NRR is the net retention rate of the contracts that are live on the AWS platform rate and is calculated using the opening total value of deployed contracts 12 months ago less the ACV of lost deployed contracts in the last 12 months plus the ACV of upsold contracts signed in the last 12 months all divided by the opening total value of deployed contracts at the start of the 12 month period.
7 Customer retention is calculated using the formula: 100% minus (the ACV of lost deployed contracts on the AWS platform in the last 12 months divided by the opening total value of deployed contracts 12 months ago expressed as a percentage).
8Cash balance plus maximum debt facilities available (subject to covenant tests being met)
Current Trading:
- PCI Pal is well-positioned to deliver the key financial milestones expected this year whilst driving continued growth momentum and new product development.
- As announced on 25 September 2023, in the UK the Company comprehensively defeated the unfounded patent infringement law suit brought by one of its competitors, with the judge ruling resoundingly in PCI Pal’s favour on all counts. PCI Pal now seeking maximum cost recovery.
- Sales highlights since year end:
- A number of new enterprise customers signed in key US market, including a Fortune 50 home goods retailer; and a FTSE100 electrical goods company signed via their US subsidiary.
- An exciting new partnership with a major telco in New Zealand which has immediately produced the relationship’s first customer, a central government agency in the region.
- New business ACV to date is 11% ahead of the same period in prior year with strong near term sales pipeline which includes a number of major new customer and partnership opportunities.
Commenting, James Barham, Chief Executive Officer, said:
“We’ve delivered another strong year. Revenues have grown strongly, we have accelerated new business sales, particularly in our key US region, and overall losses matched expectations. During the year we have proven that our global, cloud based SaaS platform appeals to the entire breadth of our addressable market, from the very smallest companies, to large enterprise, and this capability has been a key component to our growth trajectory. To have achieved this while challenged by a number of headwinds is thanks to our people and the team we have built.
“Since we set out on this current phase of our plans, FY24 has always been slated as the first year of full Group profitability. No doubt the headwinds have made this a more challenging ambition, and with anticipated revenue growth rates of 28-30% in the coming year, we believe the business is well positioned to achieve our profitability milestone. We will continue to build on the foundations we have established in the last five years to take this business to the next level.
“It’s an exciting time at PCI Pal. With a strong near-term sales pipeline, regular planned new product releases on the horizon, and supported by the strongest partner eco-system in our market, we can look forward to driving further growth in FY24.”
Analyst Briefing: 9:30am today, Thursday 09 November 2023
An online briefing for Analysts will be hosted by James Barham, Chief Executive Officer, and William Good, Chief Financial Officer, at 9.30am on today, Thursday 09 November 2023 to review the results and prospects. Analysts wishing to attend should contact Walbrook PR on [email protected] or 020 7933 8780.
Investor Presentation: 12:00pm on Tuesday 14 November 2023 (UK time)
The Directors will hold an investor presentation to cover the results and prospects at 12.00pm on Tuesday 14 November 2023 (UK time).
The presentation will be hosted through the digital platform Investor Meet Company. Investors can sign up to Investor Meet Company and add to meet PCI-PAL PLC via the following link https://www.investormeetcompany.com/pci-pal-plc/register-investor. For those investors who have already registered and added to meet the Company, they will automatically be invited.
Questions can be submitted pre-event to [email protected] or in real time during the presentation via the "Ask a Question" function.
Chair's Statement
For the Year Ended 30 June 2023
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
Chief Executive's Statement
For the Year Ended 30 June 2023
Overview
We have delivered another strong year of growth at PCI Pal which has included our strongest ever performance for new business sales, as well as significant progress against our long-term product development goals as we continue to broaden our product set.
Our execution against our stated objective to be the leader in cloud solutions in our market continues to deliver strong results. Year on year revenue increased organically by 25% to £14.9 million (2022: £11.9 million), with gross margins increasing further to 88% (2022: 87%) reflecting the high margin nature of our mature public cloud platform from which all our products are served.
New business sales
I am particularly pleased with PCI Pal’s strong sales performance, with £4.2 million new business ACV signed in the year, a 20% increase year on year. It is encouraging to see the significant increase in new logo contracts signed in the period which increased 48% year on year to £3.5 million ACV value.
PCI Pal has always set out the objective to develop products and services that can service the breadth of the contact centre market globally. Through our partnerships with many of the world’s leading CCaaS (“Contact Centre as a Service”) vendors, we have built up strong run-rate order levels for small to mid-market customer deals, and this is highlighted by the 241 contracts won in the year (2022: 217). With more than 90% of the contact centre market in the US alone being SMBs (contact centres with less than 250 agent seats), this is an important aspect of our sales execution allowing us to access the entirety of our addressable market. Further, PCI Pal’s enterprise-level sales and marketing capabilities have matured significantly in the last five years, and we are now consistently adding enterprise customers to our SMB business.
PCI Pal’s enterprise customers make up a broad spectrum of well-known brands across many verticals including retail, insurance, healthcare, and government. In the year we were very successful in adding further enterprise customers, many with a global footprint. Highlights included:
- A major contract with a Fortune 50 healthcare provider in the US where our solutions are being deployed across a contact centre estate that exceeds 10,000 agent seats. This contract was won through a partner, following a successful POC with the customer.
- A large contract with one of the largest clothing retail brands in the world, a Fortune 500 company. This opportunity was sourced through our eco-system, but was eventually fulfilled directly by us to suit the customer’s own requirements. The customer is now live in the US across more than 2,500 seats.
- Our largest contract to date in Australia, with one of the largest insurers in the world who has significant operations across ANZ, APAC, and Europe. This customer is currently going through deployment in Australia and again was secured through our partner eco-system.
- A sizeable contract with a FTSE 100 listed retail and financial services business in the UK where our solutions are being deployed into the customer’s financial services business.
Operations:
The PCI Pal platform is entirely cloud-based and has been scaled globally to support our fast-growing customer-base. The platform regularly achieves 99.999% uptime or better, with Q4 at 100% uptime across all aspects of the platform and connectivity. These high levels of performance are the direct result of our early investment in cloud capabilities, a mature cloud environment, and tight knit integrations to the majority of our partners.
We have now introduced CSAT (Customer Satisfaction) scores to our performance metrics and I am pleased to report that they are ahead of industry benchmarks at 85%. Our NPS (Net Promoter Score) for our service delivery continues to increase and now stands at 75% (2022: 65%), which is in the “excellent” category for industry benchmarks. These metrics are critical to underpinning our strong retention with GRR at 95% for the year. NRR was 103%, an expected decrease from the prior year (2022: 118%) which included a number of one-off large expansionary upsells to existing customers that we didn’t expect to repeat in FY23.
Adding to our strong operational foundations, we have built up significant product development momentum across the year and we anticipate launching several new products and features throughout FY24. This is the direct result of the product investment we began making following our fundraise at the end of FY21 and it is driving increased levels of engagement with our partners, and in the longer term will further enhance the Group’s addressable market opportunity.
Partner Eco-system:
Having defined a goal to build a partner-first sales model, we’re proud of the strength of our partner eco-system. Today we have over 50 partners actively contributing to our sales pipelines. Many of these partners are major global organisations with whom we have now built strong, long-standing relationships.
With 85% of new contracts in FY23 won through resellers; which made up 77% (2022: 62%) of ACV value won by the Group in the period, our continued commitment to our partners is showing real value. We work closely with our partners to ensure our products meet the needs of their customers. This was evidenced by an increase of more than 100% in new business ACV generated from our top five partners when compared to the prior year.
Furthermore, we continue to grow our partner eco-system. We specifically target partners that match our target markets and, in the year, new partner highlights included two major systems integrators who resell a number of the CCaaS platforms we integrate to. The first is one of the largest Value Added Resellers (“VAR”) in the United States through whom we have signed our first joint customer who is going through deployment using an integration to the Cisco Webex CCaaS solution; the second is an APAC headquartered IT services business, with extensive global operations and an international enterprise customer base.
Market and Product Strategy
Market:
Contact centre markets in the UK and US represent between 2-3% of the working populations of those countries. This trend is similar across ANZ and Europe as well. PCI Pal’s ability to serve contact centres of any size is essential when considering the make-up of this large employment pool across our market. In the US alone 94% of all contact centres (37,000 contact centres) have between 10 and 250 agent seats, employing 2.04 million agents which makes up more than 55% of the entire employed agent population in the country.
Whilst contact centres of greater than 250 seats are less numerous, they do make up a sizeable portion of the addressable market. Therefore, PCI Pal has positioned itself to capitalise on this element of the market as well, and has built up a strong track record of successfully selling into these larger organisations. In terms of scale, it’s common that PCI Pal solutions are used by contact centres whose agent count exceeds 1,000, and indeed, we have a growing number of customers with more than 5,000 agent seats across both the UK and US.
Product Strategy
In 2016 when we started on this journey, we defined a five-year strategy to be the market leading cloud provider of secure payments for the business communications space. We laid out three key strategic pillars to this objective:
- To develop and maintain the class-leading global public cloud platform that provides easy-to-integrate cloud-to-cloud capabilities;
- To use our technology to empower access to the breadth of the contact centre market globally; from the very smallest contract centres, who make up the majority of the market; to the very largest, global enterprises; and
- To build and maintain the most extensive and effective partner eco-system to allow us to achieve the two goals above in a cost effective and customer-oriented way.
I believe we have been highly successful in achieving these goals and that success has now set us up for the next phase of our ambitions. In 2021, we informed investors that we would be growing our addressable market through, initially, further geographic expansion pushing into Australia, Canada, and mainland Europe. This plan is well underway, with Australia and Canada now completing their first full years since launch. We have a growing customer base in mainland Europe which we serve today using multi-lingual resources based in the UK, leveraging our extensive partner eco-system in the territory. We expect to build on our European customer-base with a presence in mainland Europe in FY25.
Furthermore, in FY22 we began to increase investment into our product and engineering capabilities to both strengthen our current core product suites; and to additionally evolve the product-set with enhancements and new features that would allow PCI Pal to better capitalise on its market position, expanding customer-base, and integrated partner eco-system. In particular, we are adding more payment products and capabilities to our product set in recognition of the digital transformation occurring in the contact centre market today.
In September 2022, the launch of our Open Banking capability, through our partnership with TrueLayer, was the first evidence of the output of those increased product development efforts. We have now reached a point where across FY24 we expect to be releasing several other new products and enhancements that will be adding a variety of digital payment capabilities to our offerings, which include:
- A new user experience for all agent, consumers, and bot-led interactions
- An enhanced multi-service digital wallet offering (including ApplePay and GooglePay)
- Embedded integrations to the leading Buy Now Pay Later (BNPL) vendors available globally, including Klarna, Affirm, and Afterpay.
- A fast start payment processing option for SMB customers
Furthermore, we have been investing in our data backbone to empower new features and intelligence in our core products, as well as developing our own AI (artificial intelligence) aimed at driving more continuous improvements to agent and customer experience (CX). These include:
- Improved data analytics related to customer interactions and payments;
- Improved insights to empower customers to grow revenue and reduce costs; and
- Customer journey tracking to automate improvements to both agent and customer experience (CX) during payment interactions.
These new developments will also incorporate an enhanced go-to-market model that differentiates between customer type and size, empowering operational efficiencies at PCI Pal which long term will reduce our Time To Value (historically reported as TTGL or Time-to-go-live). This advancement will open the door for partners and customers to self-provision our services, which equally will provide more value to them.
We look forward to updating investors on these developments as FY24 progresses and products reach launch phase.
Update on the unfounded claims of patent infringement
In September 2021, the Group announced that Semafone Limited (now renamed Sycurio Limited), one of PCI Pal’s direct competitors, had filed lawsuits in both the UK and the US relating to alleged patent infringement by PCI Pal concerning one aspect of its Agent Assist product.
As announced on 25 September 2023, PCI Pal was successful in comprehensively defeating the unfounded patent infringement suit being brought in the UK by Sycurio. The High Court judgement was resoundingly in PCI Pal’s favour, with the judge ruling that Sycurio’s patent was invalid due to obviousness from two sources of prior art. Furthermore, the judge decided that even if the patent had been valid, PCI Pal's Agent Assist solution did not infringe the patent and Sycurio also accepted that the variants submitted by PCI Pal, which were changes it could make to its solution, would also not have infringed. The ruling from Mrs Justice Bacon is available at https://caselaw.nationalarchives.gov.uk/ewhc/pat/2023/2361.
The Board believe that this outcome validates the position it has taken across the last two years since the unfounded litigation was launched. PCI Pal has always taken a thorough and prudent approach to its own product development processes, and from the very early years of the business took advice on core developments to ensure third party IP was not infringed, as well as making efforts to patent its own innovation. The Board believes this comprehensive ruling also evidences its strong belief that Sycurio brought these claims to disrupt PCI Pal’s business and to gain commercially.
Breach of confidentiality by Sycurio Limited:
PCI Pal notes its announcement of 7 June 2023 disclosing that in April 2022, Sycurio breached the terms of confidentiality agreements that had been put in place between PCI Pal and Sycurio to protect information provided as part of the unfounded, ongoing patent litigation (“Confidentiality Agreements”). In its disclosure to PCI Pal, Sycurio confirmed that it had illegitimately shared confidential information with Sycurio personnel who were not covered by the Confidentiality Agreements. PCI Pal remains unsatisfied by the remedial measures that have been offered to date and continues to consider its options with regards to this unsavoury situation.
Looking ahead:
As noted in the announcement of 3 October 2023, the Company understands that following the victory in the UK case, a Form of Order hearing will be heard in December, where a number of administrative and outstanding matters will be resolved by the Judge. Given the extent of PCI Pal's victory, the Company will be seeking the maximum recovery of costs possible following its resounding win.
Appeals in patent cases are common, no matter the nature of the ruling, and therefore PCI Pal is fully prepared for an appeal should it be filed. Given how comprehensive the ruling in the UK was in PCI Pal's favour, the Company remains confident in the judge's judgment that Sycurio's patent is invalid due to prior art and that, even if the patent were valid, PCI Pal’s solutions would not infringe.
US proceedings:
The UK ruling has been submitted to the US court. The patents in the US are substantially similar to the UK patent which preceded those in the US. Therefore, the defence arguments and counter claims from PCI Pal are substantially similar to those in the UK. In addition, the Company notes that there is additional prior art that can be used in the US case that could not be used in the UK case.
PCI Pal’s confidence in its position in the US case has grown further following the comprehensive UK ruling. The Company expects to win on all counts, proving it does not infringe the US patents and that the US patents are invalid. As a risk mitigation measure, the Company has already taken prudent steps so that even in a worst-case scenario, which the Directors believe is highly unlikely, changes can be made to the specific aspect of PCI Pal’s Agent Assist solution in order to continue business as usual if needed. Furthermore, PCI Pal’s new features and products detailed since the last fundraise are firmly out of the scope of any of the patents involved, and therefore the Company believes that even an adverse outcome in the US would not be materially disruptive to PCI Pal’s long term business momentum.
PCI Pal Intellectual Property:
As the first mover in its market to a public cloud solution, the Company continues to protect its innovative ideas by securing patents for its technology. These patents include protection for its key deployment models of the Agent Assist solution and provide coverage across the key international regions the Group operates in today. PCI Pal’s partners and customers benefit from these innovative methods, and as such the Company actively monitors its marketplace and will defend its IP fully if required.
Outlook
This is an exciting time for PCI Pal. Undoubtedly the patent case has been a distraction for management over the last two years, but with much of the deeper preparation work complete, and with such a strong outcome to the UK proceedings behind us, that distraction is now minimised with full focus continuing towards the Company’s profitable growth ambitions in FY24.
We have always known that the business could generate strong operating profit growth as we scaled and FY24 is the first year we expect to see an adjusted pre-tax profit. The Board remain focussed on delivering its expected 28-30% revenue growth in FY24.
Meanwhile, and as a result of the additional investment made in engineering and product in FY23, we look ahead with confidence as we plan to bring a number of new products and enhancements to market throughout the new year. These new product initiatives will further complement the business we have built today, allowing us to increase the value we provide to our partners and customers; allow us to maintain high gross revenue retention rates; and increase up-sell and cross-sell opportunities whilst expanding our addressable market.
I look forward to updating investors on what we expected to be another strong year of progress at PCI Pal.
James Barham
Chief Executive Officer
8 November 2023
Chief Financial Officer’s Review
For the Year Ended 30 June 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:
2023 | Change % | 2022 | Change % | 2021 | |
Revenue | £14.95m | +25% | £11.94m | +62% | £7.36m |
Gross Margin | 88% | 84% | 75% | ||
Recurring Revenue1 | £12.93m | +22% | £10.57m | +63% | £6.48m |
Recurring Revenue as % of Revenue | 86% | 89% | 88% | ||
Revenue generated from Non-UK deployments | £5.23m | +40% | £3.74m | +82% | £2.06m |
Percentage of Revenue from non-UK deployments | 35% | 31% | 28% | ||
Adjusted EBITDA2 | (£1.11m) | +41% | (£1.88m) | +27% | (£2.56m) |
Cash facilities available3 | £4.17m | £4.89m | £7.52m | ||
Deferred Income | £11.82m | £10.62m | £8.09m |
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:
2023 | Change % | 2022 | Change % | 2021 | |
Contracted TACV1 deployed and live | £12.58m | +14% | £11.05m | +44% | £7.69m |
Contracted TACV in deployment | £3.08m | +175% | £1.12m | 0% | £1.12m |
Contracted TACV – projects on hold | £0.77m | -35% | £1.19m | +70% | £0.70m |
Total Contracted TACV | £16.43m | +23% | £13.36m | +40% | £9.51m |
% of TACV derived from variable transactions deemed recurring | 14% | 22% | 24% | ||
ACV of contracts cancelled before deployment | £0.14m | £0.18m | £0.20m | ||
Signed ACV in financial period | £4.16m | +20% | £3.46m | +11% | £3.11m |
AWS Platform Churn2 | 4.6% | 3.1% | 6.7% | ||
AWS Platform Net Retention Rate3 | 103% | 117.7% | 111.1% | ||
Headcount at end of year (excluding non-executive directors) | 114 | 103 | 71 | ||
Ratio Personnel cost to administrative expenses | 78% | 74% | 71% |
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:
2023 | 2022 | |
£12.58 million | £11.05 million | Live and delivering monthly revenue |
£3.08 million | £1.12 million | Mid-deployment and therefore expected to deliver revenues within a few months |
£0.77 million | £1.19 million | Projects classed as on hold |
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:
EMEA | North America | Australia | Central | Total | |
£000s | £000s | £000s | £000s | £000s | |
2023 | |||||
Profit/(Loss) from Operating Activities before adjusting items | 524 | (2,510) | (304) | (2,562) | (4,852) |
Unrealised foreign exchange gains/(losses) on intercompany trading balances | 45 | 255 | 25 | 5 | 330 |
Exceptional items relating to patent case costs | - | 696 | - | 1286 | 1,982 |
Expenses relating to Share Options | - | - | - | 272 | 272 |
Internal adjusted operating profit/(loss) | 569 | (1,559) | (279) | (999) | (2,268) |
2022 | |||||
Profit/(Loss) from Operating Activities before adjusting items | 240 | (1,337) | (188) | (1,779) | (3,064) |
Unrealised foreign exchange gains/(losses) on intercompany trading balances | 93 | (932) | 7 | - | (832) |
Exceptional items relating to patent case costs | 37 | 182 | - | 578 | 797 |
Expenses relating to Share Options | - | - | - | 246 | 246 |
Internal adjusted operating profit/(loss) | 370 | (2,087) | (181) | (955) | (2,853) |
Change in year | 199 | 527 | (98) | (43) | 585 |
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 | North America | Australia | Central | Total | |
£000s | £000s | £000s | £000s | £000s | |
2023 | |||||
Internal adjusted operating profit/(loss) (from above) | 569 | (1,559) | (279) | (999) | (2,268) |
Depreciation and amortisation | 1,154 | - | 1 | - | 1,155 |
Adjusted EBITDA | 1,723 | (1,559) | (278) | (999) | (1,113) |
2022 | |||||
Internal adjusted operating profit/(loss) (from above) | 370 | (2,087) | (181) | (955) | (2,853) |
Depreciation and amortisation | 897 | 76 | - | - | 973 |
Adjusted EBITDA | 1,267 | (2,011) | (181) | (955) | (1,880) |
Change in year | 456 | 451 | (97) | (43) | 767 |
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:
2023 | 2022 | % Change | |
£000s | £000s | ||
Total administrative expenses | 17,948 | 13,077 | 37% |
Adjust for: | |||
Exceptional costs incurred in year relating to the patent case | (1,982) | (797) | |
Unrealised foreign exchange gains/(losses) on intercompany trading balances | (330) | 832 | |
Share Option Expense | (272) | (246) | |
Underlying administrative expenses | 15,364 | 12,866 | 19% |
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:
Incurred in prior year £000s | Incurred in current year £000s | Total incurred to June 2023 £000s | To be incurred in future £000s | Estimated total cost of defence £000 | |
PCI-Pal PLC | 578 | 1,286 | 1,864 | 150 | 2,014 |
PCI-Pal (U.K.) Ltd | 37 | - | 37 | - | 37 |
PCI Pal (U.S.) Inc | 182 | 696 | 878 | 968 | 1,846 |
797 | 1,982 | 2,779 | 1,118 | 3,897 | |
Amounts paid in period | 693 | 1,279 | 1,972 |
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
Consolidated statement of comprehensive income
for the year ended 30 June 2023
Note | 2023 £000s | 2022 £000s | |
Revenue | 14,945 | 11,937 | |
Cost of sales | (1,849) | (1,924) | |
Gross profit | 13,096 | 10,013 | |
Administrative expenses | (17,948) | (13,077) | |
Loss from operating activities | (4,852) | (3,064) | |
Adjusted Operating Loss | (2,598) | (2,021) | |
Expenses relating to share options | (272) | (246) | |
Exceptional items | 6 | (1,982) | (797) |
Loss from operating activities | (4,852) | (3,064) | |
Finance income | 7 | 3 | 1 |
Finance expenditure | 8 | (42) | (44) |
Loss before taxation | 5 | (4,891) | (3,107) |
Taxation | 12 | (1) | 164 |
Loss for the year | (4,892) | (2,943) | |
Other comprehensive expense: Items that will be reclassified subsequently to profit or loss | |||
Foreign exchange translation differences | 326 | (1,086) | |
Total other comprehensive (expense) / income | 326 | (1,086) | |
Total comprehensive loss attributable to equity holders for the period | (4,566) | (4,029) | |
Basic and diluted loss per share | 11 | (7.47) p | (4.50) p |
The accompanying accounting policies and notes form an integral part of these financial statements.
Consolidated statement of Financial Position
as at 30 June 2023
Note | 2023 £000s | 2022 £000s | |
ASSETS | |||
Non-current assets | |||
Plant and equipment | 14 | 185 | 238 |
Intangible assets | 13 | 3,216 | 2,661 |
Trade and other receivables | 15 | 1,567 | 964 |
Deferred taxation | 18 | - | - |
Non-current assets | 4,968 | 3,863 | |
Current assets | |||
Trade and other receivables | 15 | 5,376 | 4,203 |
Cash and cash equivalents | 1,169 | 4,888 | |
Current assets | 6,545 | 9,091 | |
Total assets | 11,513 | 12,954 | |
LIABILITIES | |||
Current liabilities | |||
Trade and other payables | 16 | (11,822) | (11,372) |
Current liabilities | (11,822) | (11,372) | |
Non-current liabilities | |||
Other payables | 17 | (3,800) | (1,397) |
Non-current liabilities | (3,800) | (1,397) | |
Total liabilities | (15,622) | (12,769) | |
Net (liabilities) / assets | (4,109) | 185 | |
Note | 2023 £000s | 2022 £000s | |
EQUITY | |||
Share capital | 20 | 656 | 656 |
Share premium | 14,281 | 14,281 | |
Other reserves | 922 | 650 | |
Currency reserves | (294) | (620) | |
Profit and loss account | (19,674) | (14,782) | |
Total (deficit) / equity | (4,109) | 185 |
The Board of Directors approved and authorised the issue of the financial statements on 8 November 2023.
J Barham | Director |
T W Good | Director |
The accompanying accounting policies and notes form an integral part of these financial statements.
Consolidated Statement of changes in equity
For the year ended 30 June 2023
Share capital | Share premium | Other reserves | Profit and loss account | Currency Reserves | Total Equity / (deficit) | |
£000s | £000s | £000s | £000s | £000s | £000s | |
Balance as at 1 July 2021 | 655 | 14,243 | 404 | (11,839) | 466 | 3,929 |
Share option charge | - | - | 246 | - | - | 246 |
New shares issued net of costs | 1 | 38 | - | - | - | 39 |
Transactions with owners | 1 | 38 | 246 | - | - | 285 |
Foreign exchange translation differences | - | - | - | - | (1,086) | (1,086) |
Loss for the year | - | - | - | (2,943) | - | (2,943) |
Total comprehensive loss | - | - | - | (2,943) | (1,086) | (4,029) |
Balance at 30 June 2022 | 656 | 14,281 | 650 | (14,782) | (620) | 185 |
Share option charge | - | - | 272 | - | - | 272 |
New shares issued net of costs | - | - | - | - | - | - |
Transactions with owners | - | - | 272 | - | - | 272 |
Foreign exchange translation differences | - | - | - | - | 326 | 326 |
Loss for the year | - | - | - | (4,892) | - | (4,892) |
Total comprehensive loss | - | - | - | (4,892) | 326 | (4,566) |
Balance at 30 June 2023 | 656 | 14,281 | 922 | (19,674) | (294) | (4,109) |
The accompanying accounting policies and notes form an integral part of these financial statements.
Consolidated statement of cash flows
for the year ended 30 June 2023
2023 £000s | 2022 £000s | |
Cash flows from operating activities | ||
Loss after taxation | (4,892) | (2,943) |
Adjustments for: | ||
Depreciation of equipment and fixtures | 110 | 85 |
Amortisation of intangible assets | 1,046 | 888 |
Loss on disposal of equipment and fixtures | - | 3 |
Interest income | (3) | (1) |
Interest expense | 5 | 11 |
Exchange differences | 326 | (1,124) |
Income taxes | 1 | (164) |
Share based payments | 272 | 246 |
Increase in trade and other receivables | (1,776) | (1,438) |
Increase in trade and other payables | 2,895 | 2,918 |
Cash used in operating activities | (2,016) | (1,519) |
Income taxes received | (1) | 164 |
Interest paid | (5) | (11) |
Net cash used in operating activities | (2,022) | (1,366) |
Cash flows from investing activities | ||
Purchase of equipment and fixtures | (57) | (124) |
Purchase of intangible assets | - | (48) |
Development expenditure capitalised | (1,601) | (1,098) |
Interest received | 3 | 1 |
Net cash used in investing activities | (1,655) | (1,269) |
Cash flows from financing activities | ||
Issue of shares | - | 39 |
Drawdown on loan facility | - | - |
Repayment of loan facility | - | - |
Principal element of lease payments | (42) | (34) |
Net cash (used in) / generated from financing activities | (42) | 5 |
Net decrease in cash | (3,719) | (2,630) |
Cash and cash equivalents at beginning of year | 4,888 | 7,518 |
Net decrease in cash | (3,719) | (2,630) |
Cash and cash equivalents at end of year | 1,169 | 4,888 |