Cambridge Cognition Holdings plc (LON:COG), which develops and markets digital solutions to assess brain health, has announced its unaudited interim results for the six months ended 30 June 2023.
The Company is positioned to grow revenues and move into profitability, having grown the contracted order book, integrated two acquired businesses and reduced operating costs. Against a challenging market backdrop, revenues in the first half were maintained year-on-year and the contracted order book increased by 13% from 31 December 2022.
Financial highlights
· Increase in contracted order book to £19.9 million (31 December 2022: £17.6 million)
· Revenues of £6.0 million (H1 2022: £5.9 million)
· Adjusted operating loss, reflecting business acquisitions, of £2.1 million (H1 2022: £0.1 million profit)
· Cash balances of £1.9 million as at 30 June 2023 (31 December 2022: £8.3 million)
Operational highlights
· Acquired Winterlight Labs Inc early in 2023 following the acquisition of eClinicalHealth Limited in late 2022
· Integration of acquired businesses resulted in cost reductions that will realise annualised savings of £1.5 million
· Strengthened the team with the addition of industry leaders from Winterlight and Clinpal
· Delivered on product development goals, including integration of the CANTAB™, Winterlight and Clinpal solutions
Subsequent events
· The Company is announcing today a £3.0 million secured term loan to provide the Group with additional working capital and support continued investment in product development and solution integration
Commenting on the results, Matthew Stork, Chief Executive Officer of Cambridge Cognition, said: “We have made considerable progress over the first half of the year, both commercially and with the integration of our expanded technology platforms following the Winterlight and Clinpal acquisitions. Having grown the order book and maintained revenues in a challenging clinical trials market, we expect to report renewed revenue growth and movement towards sustainable profitability in our full year results.”
Investor webinar
Cambridge Cognition’s management will be hosting an online presentation and Q&A session at 5.30 p.m. BST on Wednesday 27 September 2023. This session is open to all existing and prospective shareholders. Those wishing to attend should email [email protected] and they will be provided with log in details.
Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be sent to [email protected].
CHIEF EXECUTIVE OFFICER’S REVIEW
Overview
In the first half of 2023, the Company delivered an operational and financial performance in line with the board’s expectations. The market outlook has improved and the contracted order book increased significantly, from £17.6 million at the end of December 2022 to £19.9 million at the end of June 2023.
Orders received in the first half of 2023 totalled £6.3 million, 5% ahead of the £6.0 million of orders taken in the second half of 2022. These orders included two sizeable contract awards: the first for two pivotal trials involving patients with a rare disease affecting the Central Nervous System (“CNS”) and the second with a major pharmaceutical client to provide cognitive assessments for a cancer therapy trial, one of the broader applications of our offering beyond typical CNS disorders.
Trading conditions continued to be difficult in the first half of 2023, with some drug development companies cutting costs and others delaying clinical trials. Some companies providing solutions and services for clinical trials have reported declining performance in the period. While we increased the value of contracted orders from half-to-half, we did see some delays to contract awards that we anticipate will close in the second half of 2023 or in 2024.
We implemented our plan to market combined Cambridge Cognition, Winterlight and Clinpal solutions during the first half of 2023. Despite the challenging market conditions, orders of Winterlight solutions are tracking in line with the prior year and have the potential to outperform now that we are able to combine solutions. As expected, sales of Clinpal were modest in the first six months of the year due to a limited pipeline of opportunities at the time of the acquisition and the entire team had an operational focus on developing new Clinpal modules for a luminary project. We are now seeing the Clinpal pipeline grow as we expand integrated commercial activities, particularly leveraging the luminary project and cross-selling to Cambridge Cognition’s existing customers.
Revenues in the first half were consistent with the comparable period last year. Gross margins increased in the period by nearly three percentage points. At the same time as delivering against our operating plan, we realised synergies from the acquisitions towards the end of the first half and enter the second half with considerably lower operating costs.
We expect the trading environment to improve, having seen considerable engagement from major pharmaceutical companies across multiple CNS disorders in recent months. There is a growing number of new therapeutic approaches being investigated for Alzheimer’s disease, Parkinson’s disease and Schizophrenia amongst others and the approval of lecanemab for Alzheimer’s disease has invigorated that field. Our sales activity levels indicate that many major pharmaceutical companies have completed any reorganisations prompted by the economic environment and are now progressing with normal clinical trial activities. However, the funding environment for biotech companies remains challenging and may not improve in 2023.
With a contracted order book approaching £20 million and a healthy pipeline of opportunities, we anticipate revenue growth in the second half of 2023 and the full year revenue being in line with analysts’ consensus expectations of approximately £14 million. We expect to make a major step towards profitability in the second half of 2023.
Financial results
The Company delivered a financial performance in line with expectations for the first half of 2023 with growth in orders, revenues in line with the comparable period in the previous year and a loss before tax that reflected the costs associated with the two acquired businesses pre-integration. The contracted order book continues to grow and is at £19.9 million at 30 June 2023.
This contracted order book continues to give us good visibility over future revenues as a large proportion of our contracts are for clinical trials, which can run over long periods and often commence three to six months after signing of the contract.
Revenue recognised in the period split by type was as follows:
| H1 2023 £million | H1 2022 £million | Movement £million | Movement % | |
| Software | 2.8 | 2.3 | 0.5 | 22% |
| Services | 2.9 | 3.1 | (0.2) | -6% |
| Total Software & Services | 5.7 | 5.4 | 0.3 | 6% |
| Hardware | 0.3 | 0.5 | (0.2) | -40% |
| Total Revenue | 6.0 | 5.9 | 0.1 | 2% |
Software revenue grew by 22% as expected with the delivery of contracted clinical trials as software revenue is recognised over the course of the contract once the product is in use and assessments are used. Services are recognised from the start of the study and throughout the contract with data management and study support services being recognised consistently. Hardware is procured from third parties to support specific projects and is a small part of the Group’s revenue. The Company also recognised £0.2 million of grant income.
In 2022, we changed our accounting policy for costs of sales to include pay costs directly related to revenue and have therefore restated the 2022 interim results. The impact on the current period was to include £0.4 million (H1 2022: £0.2 million) of pay costs in cost of sales that would have been in administrative expenses under the previous accounting policy.
Gross profit rose by £0.3 million to £4.8 million (H1 2022: £4.5 million) and gross margin increasing to 78.8% (H1 2022: 75.9%). This improvement resulted from increased sales of software licenses and less hardware and licensed-in products in the period.
Administrative expenses as a category includes all sales and marketing, product development and scientific support, research and development and general corporate costs. The year-on-year total of £7.5 million was £3.0 million higher than the comparable period in 2022 due to the costs of the acquired businesses, investment in new products and increased sales and marketing costs. During the first half of 2023, we took action to realise synergies, improve efficiencies, and reduce costs. We froze planned recruitment while we integrated the new businesses and reorganised the overall operations of the enlarged business. During the reported period we reduced headcount by approximately 25% across the group, which delivered annualised savings of £1.5 million. The reorganisation was completed before the end of the half year and the associated costs of £0.3 million is reported in non-recurring items. The full benefits of this restructuring will be realised from early in the second half 2023.
The loss before tax was in line with the board’s expectations and, with the integration of acquisitions now complete, we expect to move closer to profitability during the second half of 2023. The basic and diluted loss per share were 9.6p (H1 2022: 0.1p profit on a basic and diluted basis). We have presented a non-GAAP measure of adjusted operating loss to enable year to year comparison of results, which excludes non-recurring items associated with the acquisitions and restructuring, non-cash charges associated with acquisitions and share-based payment charges, as follows:
| H1 2023 £million | H1 2022 £million | |
| Operating (loss)/profit | (3.42) | 0.02 |
| Amortisation of acquired intangibles | 0.28 | 0.00 |
| Share based payment charges | 0.14 | 0.04 |
| Non-recurring items | 0.94 | 0.00 |
| Adjusted operating (loss)/profit | (2.06) | 0.06 |
Cash reduced from £8.3 million to £1.9 million over the period. Net cash outflow from operations was £3.5 million (H1 2021: £1.7 million inflow) reflecting the impact from the inclusion of the two acquisitions that we anticipated would use cash resources during the first half of 2023. The cash spent directly on acquisitions included £3.0 million of cash consideration for the acquisition of Winterlight (in line with the anticipated payments being reported at the time of the acquisitions) as well as £0.5 million of acquisition related expenses.
Operational Review
During the first half of 2023 we made significant progress against our strategic growth priorities set out in the annual report:
Driving sales of existing products and winning a greater volume of clinical trial work for our broader portfolio. We have reorganised our commercial team and focused on cross-selling solutions to a broader customer-base. With this focus, we have extended our reach to major pharmaceutical companies and are currently engaging in discussions with many of the top global pharmaceutical businesses.
Evaluating partnerships with high-impact organisations in the sector. We are executing our strategy and are discussing possible partnerships with clinical research organisations and major pharmaceutical companies.
Investing in innovation to maintain our market position and complete the development of our offering.
We achieved planned product milestones in the first half of the year, including:
· Integration of the CANTAB™, Winterlight and Clinpal solutions
· Completed development and launch of Clinpal for the 600-patient grant-funded Trials@Home study
· Developed the Winterlight automated quality assurance solution and pre-sold it into a live opportunity
· Finished migration to AWS with services now in North America, Europe and Asia to provide greater coverage
Realising synergies from the acquisitions. We have completed the organisational integration of Cambridge Cognition, Winterlight and Clinpal. We are pleased to have welcomed outstanding individuals from both businesses and are seeing the benefits of one combined organisational structure.
Outlook
We have seen a renewed level of engagement from major pharmaceutical companies with a high degree of interest in digital cognitive assessments. We expect a further improvement in market conditions as interest rates drop and investment in the sector flows more freely.
The Company can look forward to a new growth phase built on the strength of a growing contracted order book and an expanding pipeline of opportunities. This is supported by the recent contract wins, luminary trials using our solutions and encouraging partnership activities. We entered the second half of 2023 with an efficient operating structure and sustainable cost base that is representative of the stage of the Company. With well-managed costs, we anticipate progress towards profitability in the second half of 2023 and to be profitable in 2024.
Cambridge Cognition will benefit from a wider portfolio and increased investment in the sector in the near-term. We are well positioned for further growth in the sizeable market of clinical trials for central nervous system disorders.
Matthew Stork
Chief Executive Officer
26 September 2023
