Actual Experience plc (LON:ACT), the Human Experience (HX) software-as-a-service company, has announced its preliminary results for the year ended 30 September 2022.
Financial highlights
· Group revenue of £1.18m (2021: £1.74m). Decrease attributable to the non-renewal of two legacy product contracts
· Loss for the year of £5.27m (2021: £5.85m). The levels of monthly operating costs were reduced significantly by the year end compared to levels recorded earlier in the year
· Net cash at year end of £2.87m (2021: £8.22m). Post year-end funding of £2.8m (net) to be used to fund the working capital requirements of the Company and to strengthen its balance sheet to enable it to build financial credibility with larger blue-chip customers
Operational highlights
· Significant refresh of the Board and C-suite leadership bringing critical skills and experience in SaaS scale-ups
· Extensive market research project to identify and define our target audience and their pain points
· Applied our legacy technology to this newly emerged market problem
· Rebranded and repositioned our messaging and the the problem we solve
· Scaled our infrastructure to service enterprise customers
· Built and launched a brand new offering, our Digital Workplace Management Platform
· Completed a £3.1m (gross) equity fundraise after the year-end
Current trading and outlook
· We are in advanced discussions with a large UK central government department and expect this process to complete in spring 2023
· We are also in advanced discussions with two leading professional services firms:
o The larger of these processes should complete by late spring 2023
o The second commenced more recently but indications are that this will complete during summer 2023
· We are working closely with our existing channel partners such as Verizon and Vodafone, and new partners such as LACE, as well as increasing the size of our sales team, to identify new sales leads
Kirsten English, Executive Chair of Actual Experience plc, commented:
“During 2022, there has been meaningful change impacting every part of the business. This means our company is now positioned to capitalise on the growing market opportunity for digital workplace services.
In recent months, we have gained important new capabilities in the Company; new product, a revitalised sales team and significant changes to the Board and leadership of the Company. Our efforts are now focussed on making sales in the rapidly emerging market sector for digital workplace management tools. The economic conditions in the UK remain uncertain, sales cycles are lengthy, but we have built a solid pipeline through both our partners and, more recently, our ‘Direct Sales’ efforts.
I would like to thank Actual’s dedicated and innovative staff, plus our customers, partners, and investors for their support this past year and look forward to delivering on our potential.”
Chair’s Statement
Overview
Although 2022 was, in some ways, a difficult year for the Group, we made significant changes which should position the company to take advantage of the growing demand for digital workplace services.
The marketplace for tools which improve the digital workplace is growing. Forrester, Gartner, and McKinsey publications, inter alia, show that this is an emergent market with a variety of service offerings designed to monitor and improve performance. Based on our analysis, in our opinion none of our competitors match the capability of Actual’s new Digital Workplace Management Platform (DWMP) when it comes to providing the insights that corporate boards and management teams need to address in the complex, hybrid working environment. Our new product is more than a network performance tool, we provide continual and reliable data in a dashboard format which monitors employee wellbeing and signals where investments can be made to increase productivity.
Strategy
During 2022, we have increased our focus and pace of execution. Our strategy has been to build out the product, sales, and marketing capability of the company. Scarlet Jeffers joined in October 2021 as Chief Product Officer and DWMP was soft launched in May 2022. This was a significant achievement by the team. In May, Roy Jugessur joined as Chief Revenue Officer to professionalise our sales approach and kick start our Direct sales capability, whilst enhancing relationships with our major channel partners. We also rebranded the company for marketing purposes. During the year, we reviewed and reduced the cost base and decreased the ‘cash burn rate’ to allow us to invest in more ‘front end’ resources and give time for the new strategy to take root. And in October (following September roadshows), we raised capital to invest further in these capabilities and opportunities.
Please see the Interim Chief Executive’s statement for an update on the development of our sales pipeline.
Board and Governance
During 2022, we have made important changes to leadership and governance. I stepped into the role of Chair in March and initiated a series of changes to refine our leadership and governance and ensure it is fit for the next stage of the Company’s development. In addition to the senior management appointments mentioned above, our founder Chief Executive Officer, Dave Page, moved to a new role as Chief Strategy Officer with a mandate to secure more partnership business and became an advisor to the Board. I wanted to update you on the search for the new CEO. The process has yielded excellent internal and external candidates but is not yet concluded. However, we have an experienced management team whose focus is primarily on sales at this time. Consequently, Steve Bennetts will remain as Interim CEO (as well as being the CFO) and I will remain as Executive Chair until the new CEO comes on board. Richard Steele joined the Board in June 2022 and assumed the role of Chair of Audit in September when he replaced Sir Bryan Carsberg, who stepped down after eight years as a director. We thank Sir Bryan for his support and wisdom. In October 2022, Harmesh Suniara was appointed to the Board; Harmesh is a portfolio manager at Lombard Odier (a cornerstone investor in the recent fundraise).
Equity Placing
In October we went to the public market for additional funding and raised £2.8m (net). Our joint brokers were Singer Capital Markets and Turner Pope Investments as we targeted both professional and high net worth investors. The purpose of the fundraise was to increase our ‘cash runway’ to enable the new team and market positioning to make an impact.
Further details of our operational and financial considerations are outlined in the Interim Chief Executive statement and note 1 to the financial information.
Summary
During 2022, there has been meaningful change impacting every part of the business. This means our company is now positioned to capitalise on the growing market opportunity for digital workplace services.
In recent months, we have gained important new capabilities in the Company; new product, a revitalised sales team and significant changes to the Board and leadership of the Company. Our efforts are now focussed on making sales in the rapidly emerging market sector for digital workplace management tools. The economic conditions in the UK remain uncertain, sales cycles are lengthy, but we have built a solid pipeline through both our partners and, more recently, our ‘Direct Sales’ efforts.
I would like to thank Actual’s dedicated and innovative staff, plus our customers, partners, and investors for their support this past year and look forward to delivering on our potential by booking orders and generating revenues in the current year and beyond.
Kirsten English
Chair
26 January 2023
Interim Chief Executive’s Statement
One of the most profound and far-reaching business changes in recent times is the widespread adoption of employee hybrid working, often referred to as ‘The Future of Work’. This has presented leadership teams with a once-in-a-generation opportunity to transform the digital environment for their employees. Having invested vast sums in the past in optimising their offices for employee digital experience, enterprises are now embracing this hybrid working environment by prioritising the ‘human experience’ of their digital business applications to ensure their employees are as productive as ever, anytime and anywhere. This important trend is now increasingly recognised by leading commentators such as Forrester and Gartner, who suggest that 2023 will be the start of a period when organisations prioritise investment in technologies that improve the human experience of their digital infrastructure.
Actual Experience is ideally placed to stake out a leadership position in this nascent Human Experience (HX) sector, thanks to its patented technology and many years of know-how. Uniquely, our SaaS solution provides actionable insights from the only perspective that matters, the human perspective. By acting as a proven-to-be-accurate proxy for employees accessing an enterprise’s major applications, Actual is able to determine which employees are experiencing poor digital performance and then identify the areas requiring improvement.
Performance Review
Our previously communicated plans to pivot Actual’s strategic focus to address the strong and pervasive commercial need for hybrid working data resulted in 2022 being a year of transition for the business. The Company has emerged from this period of change with a refreshed and reinvigorated leadership team and the launch of our market-leading Digital Workplace Management Platform (DWMP). We are pleased with the consistently positive market reaction to the DWMP from both channel partners and prospective enterprise customers.
Revenue for the year ended 30 September 2022 was generated entirely from legacy sales engagements and amounted to £1.2m (2021: £1.7m); as previously announced, this decrease is attributable to legacy contracts that were not renewed during the year and which did not involve our new DWMP product.
During the year, significant cost reductions, amounting to approximately a third of peak monthly spending (savings of over £0.2m per month) were achieved through reduced headcount and other operational initiatives. This will benefit the current financial year that commenced in October 2022 by lowering the Company’s cash burn and break even point.
Net cash at 30 September 2022 was £2.9m (30 September 2021: £8.2m). Following the fund raise completed in October 2022 which raised net proceeds of £2.8m, Actual Experience retains a solid financial position, with net cash of £4.1m at 31 December 2022. However, at this time the Group remains loss-making and it will be necessary to win significant new sales orders.
People and culture
Our skilled employees are key stakeholders in the success of the Company and I would like to thank them for their ongoing hard work and dedication. 2022 has been a year of challenge and change for our people but through their continuing commitment and focus on achieving our strategic goals, the Company has emerged in a stronger position to execute our growth initiatives and stake a leadership position in the emerging SaaS market for Human Experience solutions.
Actual’s corporate culture is at the heart of everything we do. I strongly support the Company’s core values and behaviours which we expect every employee to uphold and which underpin the corporate strategy and decision making process. This culture ensures that the Company is fair, ethical and supportive towards all employees and stakeholders, making it a place where people are able to work effectively and achieve their career goals.
Platform development
An intrinsic element of the profound changes in Actual during the year has been the evolution of the Company’s technology focussed culture to a more sales-led focus. As part of this, management has listened carefully to feedback from existing and prospective customers with regard to their requirements for comprehensive, easily accessible, and timely information regarding the employee experience of hybrid working. This resulted in a market-led definition of the required product to address enterprise needs
Fortunately, Actual has been able to re-purpose its established and patented algorithms and ‘know-how’ to provide the computational core of our new SaaS offering, the DWMP. This was launched in summer 2022 and includes an interface/portal that provides rich information on the operational capabilities of the digital workplace, by user, department, and geography.
In August 2022, the Company completed an initial deployment of the DWMP with an existing customer and then proceeded to live service in October 2022. The platform has proven to work reliably at scale in this large deployment and is already providing a wealth of actionable information regarding opportunities to derive digital workplace efficiencies. This has resulted in strongly positive customer feedback.
Our markets
While still maintaining a direct sales capability, the importance and ubiquity of the need for a compelling technology solution to support hybrid working means that Actual will increasingly seek to establish partnerships with leading technology solution providers, as well as consultancies focussing on the people dimension of hybrid working.
We believe that there is a widespread need for our technology and that it will appeal especially to large global enterprises with complex digital infrastructure and applications.
Partner programme
We are pleased with the on-going support and continuing commitment of our commercial channel partners Verizon and Vodafone, both of whom are actively promoting DWMP to their customer base. Most of the sales leads currently being pursued by Actual are being generated in this way.
As a strategic priority, Actual is actively seeking new partner relationships with leading technology and consulting companies. Several of these projects are well advanced and we expect to announce new partners in due course.
As announced in December 2022, the Company is particularly pleased with its recent progress with LACE Partners, a specialist HR consultancy with a ‘Big Four’ heritage. Together with LACE, Actual is actively pursuing several opportunities with LACE’s large global clients.
Our current and prospective partners share our view of the need for a compelling technology offering that addresses the business need for comprehensive and timely information on the impact of hybrid working on the productivity and well-being of their employees. While several established technology companies claim to have a viable product offering, our partners confirm that Actual’s DWMP is ideally placed to stake a leadership position in this emerging market.
Sales pipeline
At the time of the fundraise in September 2022 we talked about our order pipeline and how we collaborate with our partners to generate sales leads. Our primary focus subsequently has been on landing high value contracts with several key prospects as this is the fastest route to obtaining paying customers, generating revenue and improving our cash position.
The following progress has been achieved on these sales engagements in recent months:
· We are in advanced discussions with a large UK central government department. This is a sales process run to rigorous procurement standards and is therefore competitive. This process is scheduled to complete in spring 2023.
· We are also in advanced discussions with two leading professional services firms. The larger of these is running a full process to select their chosen HX supplier and we believe that this process should also complete in spring 2023. Discussions with the second firm commenced more recently but indications are that this is an engagement that will complete by summer 2023.
We are working closely on these projects with our partners Verizon and Vodafone and we are in the process of expanding our sales team to ensure that we have the capacity for handling these and other large enterprise opportunities. In our experience, enterprise sales cycles are typically 9 to 12 months, although recent economic uncertainty in the UK has extended the process for some prospects.
While our primary focus in recent months has been to drive these engagements to the point of placing orders, we also continue to identify new sales leads both with our partners and through direct selling efforts. We have also progressed our previously announced relationship with leading HR Consultancy LACE, to both nurture opportunities within the HR community and develop joint marketing initiatives.
As noted in our Annual Report, we continue to receive positive feedback regarding our DWMP from existing and prospective customers as well as from our partners. While several large technology companies in the IT tooling space have recently started to play into the Digital Experience (DX) category, we retain our unique selling point having spent the last decade refining our patented algorithms and analysis. Rather than just reporting them, we translate a multitude of IT data points into quantified, prioritised actions to improve the digital workplace.
The successful completion of these sales leads remains of paramount importance to the Group. As outlined in further detail in the Financial Review and note 1 of the financial information, if the Group is not able to secure an appropriate combination of new revenue contracts and/or cost reductions and without further sources of finance being identified and obtained, then it may not have sufficient resources to meet its liquidity requirements for the foreseeable future. Accordingly, a material uncertainty exists which may cast significant doubt about its ability to continue as a going concern.
Technology investment
Actual will continue to work closely with its partners and enterprise customers to add high-value features to the DWMP to maintain its technology leadership position.
As our commercial sales activities increase, a priority for us is to continue to develop the scalability of our data centres so that they are able to meet the demands of the world’s largest companies while improving our gross margins to 90%.
Summary and Outlook
Since our trading update issued in mid-December 2022, we have continued to make progress in all our major workstreams. As previously stated, our sales cycles remains lengthy and efforts to reduce this have been hampered by the challenging general business environment, including higher interest rates and reduced levels of economic growth. Further details of our operational and financial considerations are outlined in the Financial Review and note 1 of the financial information.
Despite this economic backdrop, Actual is well placed to meet the strong and wide-spread enterprise demand for data to enable effective management of employee productivity and well-being. Our clear focus and priority is to continue to develop our pipeline of sales prospects and convert these as efficiently as possible to recurring high-margin SaaS revenue streams. In particular, we expect to be able to work closely with our existing and prospective channel partners to access large enterprise prospects. I am confident that the Company has taken the necessary steps to ensure that it is well positioned to take advantage of the commercial opportunity to stake a leadership position in one of the most significant enterprise technology developments in recent years.
Steve Bennetts
Interim CEO & CFO
26 January 2023
Financial Review
Revenue
Revenue recognised in the year ended 30 September 2022 was £1,182,956 (2021: £1,741,207) and relates to the supply of hybrid workplace Sofware-as-a-Service (SaaS) and associated consultancy services to customers. The reduction in revenue substantially arises from the non-renewal or cancellation of service for two legacy customers.
99% of revenue was derived from sales to Channel customers (2021: 99%) with the balance arising from direct sales.
Cost of sales and gross profit
The gross profit for the year was £338,052 (2021: £833,209); the decrease from the prior year is a result of lower revenues and the fixed cost element in data centre cloud costs. Included in cost of sales are data centre expenses of £518,151 (2021: £534,262), and salary and related costs of customer support teams totaling £326,753 (2021: £373,736).
Expenses
Administrative expenses comprising R&D, operational support, sales and marketing, finance and administration costs, and foreign exchange gains and losses, totalled £5,822,516, a decrease of £899,398 compared to the prior year. Most of this decrease is due to a non-recurring impairment charge in 2021, as well as the significant decrease in employee numbers in 2022 through a combination of planned reductions and attrition. This was partly offset by higher corporate costs, including audit fees and insurance premiums. The functional cost breakdown is as follows:
| 2022 | 2021 | |
| Administrative expenses | £ | £ |
| Research & development | 1,735,384 | 2,131,682 |
| Impairment to previously capitalised development spend | – | 820,110 |
| Operational support | 1,317,241 | 1,008,287 |
| Sales & marketing | 1,302,291 | 1,548,040 |
| Finance & administration | 1,468,617 | 1,209,945 |
| Foreign exchange losses | (1,017) | 3,850 |
| Total | 5,822,516 | 6,721,914 |
Tax
The higher tax credit recognised in the current financial year has arisen from the R&D tax credit claim relating to the innovative development projects required for the Company’s recently launched Digital Workplace Management Platform.
Loss for the year and net asset position
Losses after tax totalled £5,274,002 (2021: loss of £5,847,195). This decrease in losses is the result of lower administrative expenses, partly offset by lower revenues, as well as a higher tax credit in 2022.
Net assets at year end were £3,482,623 (2021: £8,835,936)
Loss per share
The loss per share for the year was 9.19p (2021: loss per share of 10.84p). The decrease in loss per share reflects the decrease in total comprehensive loss for the year.
Dividend
No dividend has been proposed for the year ended 30 September 2022 (2021: £nil).
Cash flow
We are investing in the growth of our operations to address what we believe to be a significant commercial opportunity and our cash flow from operations was therefore negative during the year ended 30 September 2022, in line with expectations.
The Group’s costs are mostly operating related, with very little investment required for capital infrastructure. Cash used by operating activities was £4,500,771 for the year, compared to cash used of £3,145,093 for the year ended 30 September 2021, with the increase primarily arising from the lower level of revenues and lower R&D tax credits received. This operating cash requirement was funded by cash reserves. The Group ended the year with cash totalling £2,871,344 (2021: £8,216,198).
Free cash flow for the year was £(5,279,050) (2021: £(3,861,700)). Free cash flow is defined as net cash flows used in operating activities, plus development of intangible assets, plus purchase of property, plant and equipment.
Accounting policies
The Group’s financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The Group’s significant accounting policies have been applied consistently throughout the year.
Principal risks and uncertainties and going concern
As more fully described in note 1 to the financial information, the amounts and timing of future revenues remain uncertain. If the Group is unable to secure an appropriate combination of new revenue contracts, cost reductions, and/or further sources of finance, then it may not have sufficient resources to meet its liquidity requirements for the foreseeable future. A material uncertainty exists which may cast significant doubt about its ability to continue as a going concern.
Other risks and uncertainties are summarised in the Annual Report.
Key performance indicators
As the Group is in the process of developing and commercialising its services, the Directors consider the key quantitative performance indicators to be sales revenues of £1,182,956 (2021: £1,741,207) and the level of cash held in the business of £2,871,344 (2021: £8,216,198). The Board performs regular reviews of actual results against budget, and management monitors cash balances on a monthly basis to ensure that the business has sufficient resources to enact its current strategy. Certain non-financial measures, such as the number of active customers and deployed DUs, are monitored on a monthly basis. The Board will continue to review the KPIs used to assess the business as it grows.
Steve Bennetts
Chief Financial Officer, Actual Experience
26 January 2023
