25 July 2024

APTITUDE SOFTWARE GROUP plc

('Aptitude Software' or 'the Group')

Interim Results for the six months ended

30 June 2024

Aptitude Software Group plc (LSE: APTD), a market leading provider of AI Autonomous Finance solutions, providing a differentiated approach to finance transformation and enabling finance teams to become strategic partners to the business, reports its unaudited results for the six months ended 30 June 2024.

Financial Highlights

Six months ended 30 June	H1 2024	H1 2023	% Change
Annual Recurring Revenue ('ARR') at 30 June
Annual Recurring Revenue1	£50.8m	£49.7m2	2%
-     Software ARR at 30 June1	£46.7m	£45.2m2	3%
-     Assure ARR at 30 June1	£4.1m	£4.5m2	(9%)
Revenue
Total Revenue	£35.3m	£37.5m	(6%)
-     Recurring Revenue3	£27.5m	£27.0m	2%
-     Implementation Revenue	£7.8m	£10.5m	(26%)
Profit
Adjusted Operating Profit4	£4.2m	£4.2m	-
Statutory Operating Profit	£2.5m	£1.7m	47%
Adjusted Operating Margin4	11.9%	11.2%	0.7%
Cash and Balance Sheet
Cash and Cash Equivalents	£24.4m	£24.5m	(0%)
Net Funds5	£13.8m	£12.2m	13%
Interim Ordinary Dividend per Share	1.8p	1.8p	-

 

·	Increasing growth in Software ARR of 3% (H1 2023 2%, FY 2023 0%), driven by a strong new business performance to 30 June 2024, including wins in Fynapse and Revenue Management.
·	Improved performance from the software base, with the software net retention rate6 increasing to 99% (H1 2023 96%, FY 2023 96%) reflecting the revised strategic focus and operational improvements taking effect.
·	Recurring revenue accounted for 78% of the Group's total revenue (H1 2023 72%, FY 2023 71%), and coupled with increasing cost efficiencies, are driving improving operating margins across the Group.
·	Adjusted operating profit maintained at £4.2m (H1 2023 £4.2m) despite non-recurring implementation revenue reductions.
·	Continued balance sheet strength with cash of £24.4 million (30 June 2023: £24.5 million) and net funds5 of £13.8 million (30 June 2023: £12.2 million).
·	In the first quarter of 2024, the Group commenced a share buy back programme providing enhanced returns to shareholders.

 

Strategic and Operational Highlights:

·	Two additional Fynapse clients signed in H1 2024, including one win in partnership with HSO and Microsoft and one with a major existing Aptitude Accounting Hub client.
·	Launch of global insurance industry solution with HSO underpinned by Fynapse and Microsoft Dynamics 365 demonstrating the increased take up of Fynapse by partners and clients.
·	Growing pipeline of opportunities for Fynapse, driven by our key strategic partnerships with Microsoft, HSO and a big-4 accounting firm, and our focused direct sales team.
·	Strong new business client wins with Revenue Management in H1 demonstrating the continued value of Aptitude's compliance suite.
·	Ongoing organisational transformation programme to align the organisation to the Fynapse opportunity is delivering operational improvements and cost efficiencies across the Group and will be continuing throughout the remainder of the year.
·	The Board remains confident that the Group will meet market expectations for 2024.

 

Commenting on the results, Alex Curran, CEO, said: -

'The Group has made strong progress in the first half of 2024 across its core objectives to deliver Fynapse clients, reduce client churn and begin to scale the organisation through partnerships. The completion of two new Fynapse deals in the first half of 2024 is starting to demonstrate the adoption of the platform across existing and new clients, as well as in combined offerings with our partners.

The robustness of the Group's balance sheet, high levels of recurring revenue and strong cash generation provide the Group with considerable financial strength with which to execute on its growth strategy. Our ongoing work to focus the organisation on the AI Autonomous Finance continues to deliver both operational improvements and cost efficiencies. This will set the business up to support the Fynapse opportunity as we continue on our mission to deliver long-term sustainable growth.'

Contacts

Aptitude Software Group plc

Ivan Martin, Chairman                                                                                   020-3687-3200

Alex Curran, Chief Executive Officer

Mike Johns, Chief Financial Officer   

Alma Strategic Communications

Caroline Forde / Hilary Buchanan                                                                 020-3405-0205

 

 

 

 

 

Throughout this announcement:

¹ Annual Recurring Revenue ('ARR') is the value of Aptitude Software's recurring revenue at a specific point in time, normalised to a one-year period. ARR includes recurring revenues contracted but yet to commence and excludes recurring revenues which are currently being received but for which formal termination notice has been received. Included in ARR are recurring revenues from the Group's solution management services.

² Constant currency is calculated by comparing the H1 2024 results with H1 2023 results retranslated at the rates of exchange prevailing during H1 2024. Items within the Financial Highlights table indicated by this superscript reference are calculated on a constant currency basis.

³ Recurring Revenue includes revenues from the Group's solution management services

⁴ Adjusted Operating Profit, Adjusted Operating Margin and Adjusted Basic Earnings per Share exclude non-underlying operating items, unless stated to the contrary. Further detail in respect of the non-underlying operating items can be found within Note 6.

⁵ Net funds represents cash and cash equivalents less finance obligations, which are currently limited to capital lease obligations and a bank loan

⁶ Net retention rate is measured by the total value of on-going ARR at the period-end from clients in place twelve months earlier as a percentage of the opening ARR from those clients on a constant currency basis. Software net retention rate is calculated on the same basis but excluding Assure ARR.

Certain non-IFRS financial measures (e.g. Adjusted Operating Profit) are included which assist management in comparing performance on a consistent basis

 

About Aptitude Software

Aptitude Software provides software solutions that deliver fully autonomous finance to enable its clients to drive sustainable growth and efficiency. Fynapse is Aptitude's finance data platform designed to unlock the true power of the finance function by transforming it into an AI-powered strategic and trusted value creator. Fynapse achieves this in a modular, incremental way, driving continuous improvement and rapid time to value in stark contrast to traditional finance transformation.

Strategic Progress

Overview

This is the first six-month reporting period since the Group announced our revised strategic focus under the formation of a new leadership team and the initiation of the organisational realignment to deliver the Fynapse opportunity. This realignment is centred on transitioning the Group from directly selling regulatory and compliance software to a partner-led platform organisation delivering AI Autonomous Finance, underpinned by Fynapse.

While the transition is at an early stage, we have already seen positive progress against our strategic priorities of delivering against the Fynapse growth opportunity, scaling the organisation through the strength of our key strategic partnerships and improving client retention.

AI Autonomous Finance

The Fynapse platform enables the expansion of the go-to-market opportunity for Aptitude, moving from compliance and regulations to AI Autonomous Finance. Fynapse unlocks the true power of the finance function by transforming it into an AI-powered strategic and trusted value creator. Fynapse provides a singular, trusted view of all granular business and finance data. This improves accuracy, confidence and risk management and enables AI-powered strategic insights.

Fynapse has a low total cost of ownership, with rapid implementation cycles in stark contrast to traditional finance transformation, which we believe makes the platform commercially attractive to a wide range of organisations varying in size and sector. Fynapse enables organisations to reduce costs, improve operational efficiency, increase productivity, and deliver business insights.

In the first half of the year, the Group has signed a further two Fynapse clients across the Financial Services sector, further enhancing the Fynapse base. One of the new wins was achieved in partnership with HSO and Microsoft, as part of a combined offering for Fynapse and Microsoft Dynamics 365, demonstrating the power of our partnerships and underlining the value of Fynapse to both prospects and partners. The second new win was with a major existing Aptitude Accounting Hub client, a leading global insurer. This organisation chose Fynapse due to its ability to provide an alternative and lower risk approach to supporting their finance transformation requirements. In each example, both organisations have selected Fynapse to support their AI Autonomous vision for their finance function.

The new Fynapse wins in the first half of 2024 demonstrate the strength of the Group's partnerships and existing base of clients. These wins are the start of our journey to target the delivery of 80% of new Software ARR through partners and convert a third of existing Aptitude Accounting Hub users to Fynapse by the end of 2027. 

Partner First Go To Market Strategy

Partnerships are the key foundation to Aptitude's scalable growth, and it is a key priority for the Group to increase the proportion of ARR generated through a more concentrated group of partners.

The opportunity for Fynapse is expanded by Aptitude's partnership with Microsoft, which allows both organisations to present an end-to-end solution to prospects, increasing competitiveness against vendors providing single stack functionality, as well as strengthening Microsoft's competitive position. Fynapse is the only platform selected by Microsoft which provides accounting hub and subledger functionality to support Dynamics 365 and power Microsoft's AI vision with a granular, trusted and single view of all business and finance data. Microsoft and Aptitude's Autonomous Finance visions are complementary and the AI functionality available in Microsoft's platforms further enable Fynapse's capabilities and market opportunity.

In the first half of 2024, Aptitude and HSO announced the launch of a global industry solution underpinned by Fynapse and Microsoft Dynamics 365 to support the Insurance industry. HSO is a key strategic partner, a reseller of Microsoft Dynamics 365, and provides sector expertise and implementation services in support of the combined offering. The launch of this combined offering demonstrates the speed with which partners can work with Fynapse, improving usability by clients and partners alike.

Aptitude is aiming to achieve 30% of its Software ARR bookings through partners by the end of 2024 on the journey to deliver 80% of Software ARR through partners by the end of 2027. In the first half of 2024, Aptitude signed 38% of new Software ARR through partners, supported by both newer relationships with HSO and longer relationships with a big-4 accountancy firm which has developed a managed services offering in partnership with Aptitude and Microsoft.

The progress achieved in the first half of 2024 is supporting accelerated momentum in the pipeline of Fynapse opportunities through partners. Fynapse enables partners to target multiple sectors and tier 1, 2 and 3 organisations, which in time will support an increase in deal velocity. Fynapse also supports multiple partner channel types, including co-sell, referral, managed service and reseller commercial models through its ease of use and short skill up time required from partners.

Organisational Change and Operational Efficiency

The Group continues to enact necessary organisational change to support the transition toward AI Autonomous Finance.

The foundations for this change have been placed with a new and refreshed leadership team and a flattened organisational structure. The Group's new objectives and key results framework ('OKR's) has helped to drive performance improvement across all functions in the first half of 2024 in the key areas of Fynapse delivery, the reduction of client churn and the scaling of the organisation through the strength of our key strategic partnerships.

The Group has conducted reviews across all functions to deliver the necessary process changes required as the business transitions away from its traditional compliance focus and towards a modern, SaaS-centric organisation. These reviews have highlighted areas for improvement in both effectiveness and efficiency, and the leadership team is focused on delivering this change throughout 2024.

The continued focus on efficiency has delivered improved margins in the first half of 2024, when compared with the first half of 2023. Additionally, the net retention rate for Software ARR in the year to 30 June 2024 has also increased to 99% from 96% in the year to 30 June 2023. There is further work to do to set up the organisation for success with AI Autonomous Finance, but initial progress has demonstrated that changes can deliver both increased efficiency and effectiveness.

Products

AI Autonomous Finance and Finance Transformation

AI Autonomous Finance and finance transformation includes both the Fynapse platform and the Aptitude Accounting Hub ('AAH').

Aptitude's vision for AI Autonomous Finance enables the finance function to become AI-powered strategic and trusted value creators, powering sustainable growth and efficiency. This is achieved through a singular, trusted view of all granular business and finance data, which improves accuracy, confidence and risk management. This enables AI-powered strategic insights and improved decision-making and allows finance teams to power sustainable growth and efficiency.

Fynapse, the Group's finance data management platform delivers on Autonomous Finance, with a cloud native, highly performant and modular solution that not only serves operational and regulatory accounting requirements, but also delivers a granular data fabric upon the extendable Fynapse data cloud. Fynapse provides the rich foundation for AI tooling, enabling Aptitude's clients to realise the efficiencies that may be achieved from emerging AI technologies and the Autonomous Finance function.

Along with the overall Fynapse platform, the Group has initially developed the accounting rules and subledger engines which build upon the successful AAH product. AAH is the Group's established heritage product which centralises and automates finance, accounting and reporting processes, creating a deep level of operational intelligence for our clients.

Subscription Management

eSuite, Aptitude's subscription management tool, is a modular, cloud based end-to-end SaaS solution for large, international, enterprise customers. The application is targeted towards the subscription economy and provides identity management, CRM, automated billing, payment processing, and churn management capabilities, enabling businesses to acquire, monetise and optimise customers subscriptions.

While macroeconomic conditions have had a short-term effect on the predominantly media and publishing dominated eSuite client base, the Group is confident in the opportunity for eSuite. Investment levels in eSuite have been managed to strengthen functionality, minimise churn and position the product well as macroeconomic conditions improve. The Group will take a targeted go-to-market approach, prioritising the key media and publishing sectors in line with eSuite's strengths.

Compliance Suite

The compliance suite includes the Aptitude Insurance Calculation Engine ("AICE"), Aptitude RevStream ("AREV"), the Aptitude Revenue Recognition Engine ("ARRE"), the Aptitude Lease Accounting Engine ("ALAE"), Aptitude Calculate ("AC") and the Aptitude Platform ("APT").

The Group has achieved significant historical success with its suite of compliance products. The products have generated a sizeable amount of Annual Recurring Revenue and demonstrated Aptitude's strength and credibility in serving the office of the CFO and underpin the AI Autonomous Finance vision. Aptitude's target for the compliance suite is in maintaining client satisfaction, minimising client churn and cross-selling Fynapse. The Group will take a selective go-to-market approach and establish investment at appropriate levels to ensure high levels of client satisfaction.

Assure and Implementation Services

Aptitude Assure is a solution management service from Aptitude's Innovation Centre in Poland. It extends beyond traditional software maintenance, covering tasks usually handled by clients' teams, such as release management, processing support, client enablement and solution optimisation through performance monitoring. Assure helps clients adopt new product features, especially beneficial for Fynapse clients as the product evolves. This high margin, recurring service offers a lower cost of ownership for clients.

Aptitude also provides implementation services, with the scale determined by the application, opportunity size and the division of responsibilities between Aptitude and its partners. These services are delivered by highly skilled individuals with deep domain, technical and functional expertise, setting Aptitude apart from competitors.

The Group remains committed to maintaining a high-quality delivery capability to support clients and partners.

 

People and Locations

Aptitude has office locations across the UK, US, Poland, Singapore, Australia and Canada, and the Group's two technology centres are based in Poland and the north-west of England. The Group's presence in Poland continues to generate cost advantages for Aptitude.

Aptitude targets a high-performance culture, where individuals can achieve their potential in support of the Group's objectives. The Group regularly assesses employees on a performance and potential basis, with an aim to invest in and develop key talent. Through this assessment, the Group is able to retain and develop key talent in support of succession planning, actively manage lower performers to a better outcome and increase efficiency.

Overall headcount decreased 14% over the year to 452 (31 December 2023: 472, 30 June 2023: 524). The reduction in headcount is a result of cost reduction action taken in 2023 and ongoing effectiveness and efficiency reviews in 2024. The new structure is flatter, with a reduced management layer, and more efficient. Of the total headcount, 246 (31 December 2023: 281, 30 June 2023: 226) are based at the innovation centres and working on the design, implementation, and support of the Group's products. The Group continues to monitor headcount closely, with future roles hired in line with the revenue opportunity.

In line with Aptitude's approach to diversity and inclusion the Group has implemented structural processes to ensure fairness in approach to promotions and compensation in 2024. Additionally, the Group is continuing the Women in Leadership initiative to help attract a diverse range of talent to its leadership roles.

Summary

Aptitude has made demonstratable progress against its core objectives of delivering Fynapse, reducing client churn and scaling the organisation through partnerships in the first half of 2024.

The Group continues to move through a transitionary phase, away from regulation and compliance and towards AI Autonomous Finance, which has required major organisational change. Throughout this period, Aptitude has continued to deliver growing ARR, increased recurring revenue proportions and improving margins.

Work continues in 2024 to position the organisation to effectively capitalise on the AI Autonomous Finance opportunity, building on the firm foundations delivered in H1.

 

Financial Performance

The Group delivered a solid performance in the first half of 2024, with increasing recurring revenues and cost efficiencies driving an improved margin performance.

The Group's robust balance sheet, high levels of recurring revenue and strong cash generation provide the Group with considerable financial strength with which to execute on its growth strategy.

Revenue

Recurring Revenues

Recurring revenues recognised in the six months ended 30 June 2024 increased by 2% to £27.5 million (H1 2023: £27.0 million). These now represent 78% of overall revenue (H1 2023: 72%). It is a key part of the Group's strategy to increase this percentage whilst maximising the growth rate of Aptitude Software's ARR. This strategy is delivering a growth in operating margin.  

Aptitude's ARR at 30 June 2024 totalled £50.8 million (31 December 2023: £51.2 million, 30 June 2023: £49.7 million both on a constant currency basis) representing overall year-on-year growth of 2%. Included within ARR is the value of the Group's recurring solution management services contracts ('Assure') of £4.1 million (31 December 2023: £4.9 million, 30 June 2023: £4.5 million both on a constant currency basis).

The net retention rate for Software ARR for the 12 months to 30 June 2024 was 99% (H1 2023: 96%) The improvement in the software net retention rate reflects the increased focus on reducing client churn and improving customer outcomes. The overall net retention rate in the 12 months to 30 June 2024 was 98% (H1 2023: 98%) and was moderated by expected reductions within Assure. Net retention rate is measured by the total value of on-going ARR at the period-end from clients in place twelve months earlier as a percentage of the opening ARR from those clients on a constant currency basis.  

A significant majority of the Group's recurring revenue contracts include the ability to increase ARR for clients by relevant consumer price index rises ('CPI'). The majority of the Group's renewals fall in the second half of the year, at which time CPI uplifts are processed, resulting in the larger proportion of any price increases occurring in H2.

Implementation Services

Non-recurring implementation services revenue totalled £7.8 million for the six months ended 30 June 2024 (H1 2023: £10.5 million). The reduction in implementation services revenues reflects the Group's shift to a partner-led services model and is in line with expectations.

Research and Development Expenditure

Total expenditure on product management, research and development in the six months ended 30 June 2024 remained level at £8.6 million (H1 2023: £8.6 million). The Group carefully manages its cost base to ensure that it is operating efficiently and effectively while ensuring that strategic product development is accelerated.

The Board has continued to determine that none of the internal research and development costs incurred during the first half of the year meet the criteria for capitalisation. Consequently, these have been expensed as incurred through the income statement.

Operating Profit and Margins

Adjusted Operating Profit for the six months ended 30 June 2024 was £4.2 million (H1 2023: £4.2m). Operating profit on a statutory basis was £2.5 million (H1 2023: £1.7 million). Adjusted Operating Margin for the six months ended 30 June 2024 was 11.9% (H1 2023: 11.2%). The increase in margin reflects both a transition to higher margin recurring revenues, as well as a continued focus on cost efficiency.

Foreign Exchange

With 48% (H1 2023: 53%) of the Group's revenues being generated from North American clients, the majority of which are invoiced in US Dollars, the financial results are impacted by changes in the US dollar exchange rate. Aptitude Software's H1 2023 revenue and Adjusted Operating Profit would have been reported at £37.4 million and £4.2 million respectively on a constant currency basis (compared to actual result of £37.5 million and £4.2 million). Constant currency is calculated by comparing the 2023 results with 2024 results retranslated at the rates of exchange prevailing during 2024.

Non-Underlying Items

Non-underlying items of £1.7 million (H1 2023: £2.5 million) principally comprises of intangible amortisation.

Taxation

The total tax charge of £0.5 million (H1 2023: £0.4 million) represents 21% of the Group's profit before tax (H1 2023: 22%).

Statutory Results

The Group reported a profit for the period attributable to equity shareholders of £2.0 million (H1 2023: £1.3 million).

Earnings per Share

Adjusted Basic Earnings per Share and Basic Earnings per Share increased to 5.8 pence and 3.5 pence (H1 2023: 5.7 pence and 2.3 pence).

Dividend

An interim dividend of 1.8 pence per share is declared (2023: 1.8 pence). The interim dividend will be payable on 23 August 2024 to shareholders on the register at the close of business on 2 August 2024.