Rosslyn Data Technologies, the SaaS business supplying information management solutions, delivered its Interim Results yesterday and I was once more able to speak with management.
I have covered RDT a few times here now and having previously bought the shares throughout last year at differing levels, I added again yesterday on some share price weakness, as I believe over the medium to longer term there is strong upside potential.
Although the numbers from yesterday may suggest resilience as opposed to excitement, they should perhaps be looked at in the context of the pandemic disruption along with RDT’s decision to invest in the business in order to accelerate growth.
Looking firstly at the figures released for the period ended 31st October 2020 revenues increased by 16% on the corresponding period to £3.6m and were largely driven by the previous acquisition of Langdon, which appears to have been an excellent purchase at a snip of a price.
Although there was an operating EBITDA loss (144k) for the period, this was very much down to the increased investment into the business, the majority of which has been concentrated on sales and marketing.
Speaking with both CEO Roger Bullen and CFO Ash Mehta, Bullen explained the rationale behind increased investment at a time when other businesses were tightening their belts. “It was something that had been discussed and planned for a while and that was very much tied up with us raising the money last year in what was an oversubscribed placing. We believe we have a really great product set and the investment is there to drive that forward, particularly around organic and top line growth”.
Acquisitions are also still on the agenda at RDT though and Bullen says whilst they do have their eye on something at present, they are certainly not prepared to overpay and in conjunction with that organic growth remains very much part of their ongoing strategy in driving forwards.
With around £6m in net cash on the balance sheet, RDT is in a strong position on which to execute its plans, although with Mehta’s hands on the tiller careful financial management is clearly the order of the day.
A recent decision not to renew a lease on its Covent Garden office and instead take on premises in Portsmouth is now making a significant saving, although Mehta says that it is likely when the pandemic issues subside that RDT will opt for a sales presence in the City.
As part of its investment commitment the company has significantly expanded its sales team which in August of last year saw the highly experienced Paul Watts previously with Blue Prism joining.
Bullen says that Watts arrival has in part helped the business in looking at things from very different perspectives in a sales context which has been a positive and should contribute to the strategy and growth prospects.
Having stated yesterday that the second half of the financial year has begun well, the CEO speaks of the pent up demand that is very much there and stresses that given the pandemic backdrop, timing regarding cementing contracts as for many companies in the space is at present unpredictable. “The level of marketing leads have quadrupled” says Bullen “with sales qualified leads up 18% and that has now seen us involved with five proof of value projects”.
The latter is referred to in the Interim statement where it was stated that RDT had been short listed as the preferred vendor in both the US and Europe. “Two of those are worth in excess of £2m” says Bullen, “but at present we have no idea as to just when they might close, although the other three should go straight to contract”.
The subjects in question include a Pharmaceutical company along with a food processor and no doubt any confirmation of contracts being confirmed would strengthen the investment case. The company also, post the period end, announced the launch of its Customs CloudTM product and it has already seen a host of bookings for the group’s customs software that is highly applicable to the post Brexit world which could prove highly beneficial.
A case in point is the November contract announced concerning a major multinational grocery/ general merchandise UK based retailer with a significant presence in the Republic of Ireland and this serves to illustrate the potential around the area with RDT’s system providing a comprehensive end to end solution across the customs and related space.
Speaking of the Customs Cloud prospects Mehta adds “the signs are very positive, we already have twenty customers for it, and we have seen a great response to our marketing activities, so this number could double by the end of the financial year”. Expanding, he says “Companies have a grace period to the end of June from HMRC to get their systems and reporting up and running, so we expect an increased level of interest in May to June”.
Although both Bullen and Mehta say they would have liked to have seen a positive EBITDA performance at the halfway point, they believe the investments made and concentration on driving sales at this juncture is the right strategy and will lead to positive returns moving forward.
Having for a number of years failed to make significant progress, RDT with a more recent robust balance sheet, strengthened board and sales team looks to be in a positive spot and well placed to deliver over the medium to longer term as the foundations are well set and the building blocks have already been laid.
And looking ahead Mehta also says that he hopes the newsflow should increase as the pandemic eases and we progress through the year as there clearly appears to be much in the pipeline that could prove beneficial to the story.
At present, Bullen seems comfortable with the current forecasts for RDT and given the first half performance the bar doesn’t appear to be set too high.
He also points out that RDT, having now broadened their range are seeing and targeting an increase in contract values across the sales process and these are now double what they were a year or two back.
As for the full year outcome Broker Cenkos is currently looking for total revenue of £7.5m with a negative EBITDA figure of £0.3m due to ongoing investment and net cash of £5.6m.
Recurring revenue an important factor with SaaS businesses should, according to Equity Development move up from £6.3m to £6.8m which provides for a high level of comfort and ample to support the plans with or without acquisitions. The churn rate as reported in the Interim Results is running at just 4.5% which is also a positive and again, provides for a good level of comfort.
The Institutional shareholder base headed by the respected Gresham on 26% and which also includes well known funds such as Amati with 10.4% and Octopus on 3.4% are said to be very supportive of the strategy adopted and the long term prospects for RDT.