Concurrent Technologies share price, company news, analysis and interviews

Concurrent Technologies PLC (LON:CNC), a world leading specialist in high-end embedded computer products for critical applications, has announced its interim results for the six months to 30 June 2023.

Financial Performance

Strengthened order intake has translated into record H1 2023 revenue at £12.1M (representing a 63% increase on H1 2022, and a 22% increase on H1 2020, which was the best revenue year to date).  Demand for the Company’s products remains strong with a H1 order intake of £14.5M (H1 2022: £14.2M) and record backlog of £29M (31 December 2022: £26.7M).  Despite ongoing challenges with component supply, it is reducing in both difficulty of supply and lead times, beginning to unlock what had otherwise been a major constraint to revenue for the previous 2 years, and will ease further throughout the remainder of this year.

·    Revenue of £12.1M (H1 2022: £7.4M) – remained constrained by components, however, represents a record half year, with an increase of 63% on prior year.

·    Gross profit of £6.0M (H1 2022: £3.7M); an increase of 62% on prior year.

·    Gross margin of 49.7% (H1 2022: 50.4%) – reduced as the result of price increases of some components due to high demand and limited supply, and increased manpower costs.

·    Operating profit of £1.0M (H1 2022: £0.0M) – predominantly driven by increase revenue, and hence gross profit (+£2.3M); net costs increased by c£1.3M, in line with investment strategy (Enabling Functions e.g. People, Commercial, Procurement; Operations e.g. talent, 2 shifts; Engineering talent; Facilities e.g. Theale office; Leadership team).

·    Profit before tax of £1.0M (H1 2022: £0.0M).

·    EPS of 1.54 pence (H1 2022: 0.75 pence); increase of 105% on prior year.

·    Cash Balance (including cash deposits) as at 30 June 2023 of £3M (31 Dec 2022: £4.5M).

o  Increased cash from Operations of £0.5M (due to a stronger H1), including increased inventory of £1M.

o  Decrease of £2M from investment activity, predominantly driven by R&D (£1.7M).

Operational Summary

·    Strong order intake of £14.5M as at 30 June 2023, with significant backlog of £29M compared to £20.3M backlog as at 30 June 2022, up 42%.

·    Revenue defined by components availability in H1.

·    Defence remains the largest market sector at 73% revenue.

·    Global customer base is solid with exports generating +90% of revenue.

·    Investment in R&D costs (talent, improved process & analysis, materials) have continued (+£0.4M), in line with stated strategy to improve the cadence and time to market of products that offer the very latest technology.

·    Launched new product Hermes, the latest processer plug-in card.

·    Key Partnership agreement announced with Alpha Data to act as a reseller of their FPGA (Field Programmable Gate Array) based plug in card.

·    New distributor agreement with SoC-e to enable the company to offer the portfolio of Relyum Advanced Networking Solutions.

·    Component shortages have remained challenging, limiting the company’s ability to ship product. This is expected to ease in H2 2023.

·    Major new systems order with FTSE 250 customer for £1.25M.

Miles Adcock, CEO of Concurrent Technologies, commented: “We are delivering on our commitment to transition our core Single Board Computer business into growth.  We maintained focus and investment throughout a difficult period of component constraints; and are now seeing the customer demand for our new products reflected as increased revenues.  In parallel we have been underpinning capability in relation to a wider systems offering, utilising our own products, but also partners’ products for use in higher value products and services.  This progress on multiple fronts creates the right conditions for our recently announced equity raise and associated acquisition of Phillips Aerospace to accelerate our Systems strategy. Together these developments provide us with confidence for the future.”

CHAIRMAN’S STATEMENT

The first half of 2023 has seen a significant recovery in the trading performance of the Company, with record revenues as the component shortages ease, although key shortages are still an issue impacting our ability to convert backlog into revenue.  Order intake remains strong and our improved time to market with new innovative products will further grow and broaden our customer base.

The acquisition of Phillips Aerospace in September 2023 is an important step in growing our Systems business, transforming the Company beyond our historic Single Board focus, with the potential for a step change in the available market opportunity for the Company.

Although an interim dividend is not being declared, we are confident we will continue the recovery in the second half of 2023 which will allow us to consider the re-introduction of a full year dividend.

CHIEF EXECUTIVE’S REVIEW

Financial Summary

The performance of the Company has remained challenged through limitations of component supply in H1 2023, resulting in a restricted, although record, revenue of £12.1M (H1 2022 £7.4M), a significant increase of 63% on prior year.  The company continues to have strong backlog (contracted work) at £29M at H1 2023 (H1 2022: £20.3M), and the Company expects H2 2023 component supply to be improved over that of H1 2023, following a critical delivery in July 2023.

Gross margin is 49.7% (H1 2022; 50.4) which is driven primarily by cost of components.  The company has seen a rise in prices during the period of shortage and high demand.  

The Company has delivered an unaudited profit before tax of £1M (H1 2022; £0.0M).  This is a £1M increase on 2022, represented by the increase revenue (+£4.7M on H1 2022) and corresponding gross profit (+£2.3M), however net operating expenses were up on prior year, in line with the investment strategy at £5.0M (H1 2022: £3.7M).  This is driven predominantly by additional investment in talent in R&D (+£0.4M), enabling functions and the Leadership team (+£0.7M).  The Company also benefitted from a £0.4M foreign exchange rate gain in H1 2022, not repeated in H1 2023.

The balance sheet remains strong with no debt and £3M of cash balances (including cash deposits) as at 30 June 2023 (31 December 2022: £4.5M).  Component supply issues have continued to dominate H1 2023, and this has meant a further investment in inventory and a restricted level of revenue, resulting in a lower cash profile.  The Company expects to see this start to reverse in H2 2023, as component supply eases.  Inventory holdings have increased to £11M by the end of H1 2023 (H1 2022: £9.5M), an increase of a further £1M since 31 December 2022.  The Company is confident in the quality of the inventory held and that it will see a reduction in the levels during H2 2023.  Trade receivables were relatively high at the end of H1 2023 at £5.3M (H1 2022: £3.5M) due to the timing and level of revenue, which was £4.7M higher than H1 2022.  

With a record order intake in 2022, and further order intake in H1 2023 of £14.5M, and therefore a significant contracted backlog of £29M, plus easing component supply issues, the Company is confident in its H1 2023 outlook.

Post Interim Close Events

On 6 September 2023 Concurrent Technologies completed the acquisition of Phillips Aerospace for US$3.4m through a combination of US$1.9m cash and the issue of equity of $1.5m to the owners of Phillips Aerospace. Simultaneously the Company raised £6.8m through the issue of fresh equity approved by shareholders at a General Meeting held on 4 September 2023.  These events broaden our product offering and strengthen the balance sheet to drive further growth.

Current Trading & Outlook

With a record H1 backlog of £29M and the component supply chain issues easing, the Company is in a good position to begin to revert to strong trading (largely no longer defined by component availability).  The Company continues on its growth journey, with the underpinning of its systems strategy through the acquisition of Phillips Aerospace (post H1), and the continued drive in maximising capacity (additional shifts, maximising space, use of third-party manufacturer) allowing for further growth into 2024 and beyond.  The product portfolio continues to strengthen with continued investment in R&D and sales, enabling a strong pipeline of opportunities, and conversion of these, to underpin future revenue growth.

Together, these strategic developments continue to provide confidence for the future performance of Concurrent Technologies.

Concurrent Technologies, (LON:CNC) a world-leading specialist in the design and manufacture of high-end embedded computer solutions for critical applications, has announced that it has completed the acquisition of Phillips Aerospace, a designer and manufacturer of rugged systems solutions predominantly serving the defence sector but with capabilities and customers in both the medical and industrial sectors.

Concurrent Technologies has acquired Phillips Aerospace for cash consideration of approximately US$1.875 million (approx. £1.47 million) and the issue of 1,807,686 new Ordinary Shares in the Company to satisfy a total consideration of US$3.375m.  The Acquisition supports the Company’s strategic goals of adding US based manufacturing to its existing capabilities whilst continuing to a greater focus on the systems market in response to customer demand.

The Acquisition significantly enhances the Company’s capability to design and manufacture rugged systems utilising its existing Plug-In-Cards. Concurrent Technologies’ management team believes that the acquisition of Phillips Aerospace is an ideal opportunity at this stage of the Company’s development in the rugged systems market, which was valued at c.$2.3 billion in 2022 and is projected to grow at a compounded annual growth rate of 14.9 per cent to c.$6.9 billion by 2033. The addressable market for rugged systems in the defence sector alone was US$262.9m in 2020, with an anticipated CAGR of 10%.

For the avoidance of doubt, Phillips Aerospace also has a machine shop business which is not subject to the Acquisition and has been transferred out of Phillips Aerospace prior to the Acquisition completing.

Total Voting Rights

The Company has applied for admission of the Consideration Shares pursuant to the Fundraising to trading on AIM. Admission will occur at or around 8.00 a.m. on 7 September 2023. On Admission, the Company will have 86,169,236 Ordinary Shares in issue, of which 531,522 Ordinary Shares are held in treasury. Therefore, the figure of 85,637,714 Ordinary Shares may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company under the FCA’s Disclosure Guidance and Transparency Rules.

Miles Adcock, CEO of Concurrent Technologies, commented: “I am delighted to complete the acquisition of Phillips Aerospace and look forward to working with our new and highly capable team. Phillips Aerospace materially enhances our capabilities in the rugged systems market. As an AS9100C Certified and qualified USA based supplier of systems to customers such as Boeing, Northrop Grumman and Raytheon, we can now further demonstrate the credibility needed to win and deliver Systems solutions that complements our existing Plug-In-Card business.“

Brent Salgat, President of Concurrent Technologies Inc, commented: “We already have a track record of working with Phillips Aerospace on a number of projects and I am looking forward to working much more closely with them now the acquisition has closed. We have very complementary capabilities and our worldwide sales and marketing teams will leverage Phillips Aerospace to win more rugged systems business.”

Concurrent Technologies Plc (LON:CNC), a global specialist in the design, development and manufacture of leading-edge embedded computer solutions for critical applications, stated today that it will announce its interim results for the six months ended 30 June 2023 on Tuesday, 19 September 2023.

On the day of results there will be a webinar / conference call for equity analysts at 09:30am BST, hosted by CEO, Miles Adcock, and CFO, Kim Garrod. Analysts wishing to register for the event should contact SEC Newgate at [email protected].

Concurrent Technologies Plc develops and manufactures high-end embedded Plug In Cards and Systems for use in a wide range of high performance, long life cycle applications within the telecommunications, defence, security, telemetry, scientific and aerospace markets, including applications within extremely harsh environments. The processor products feature Intel^® processors, including the latest  generation embedded Intel^® Core™ processors, Intel^® Xeon^® and Intel Atom™ processors.  The products are designed to be compliant with industry specifications and support many of today’s leading embedded Operating Systems.  The products are sold world-wide.

Concurrent Technologies (LON:CNC), a world leading specialist in the design and manufacture of high-end embedded computer solutions for critical applications, is pleased to announce that it has entered into a conditional agreement to acquire the entire issued share capital of Phillips Machine & Welding Company, Inc (“Stryker“) for an aggregate consideration of US$3.375 million (approximately £2.64 million). Prior to Completion of the Acquisition, the machine shop division of Phillips Machine & Welding Company, Inc will be transferred out of the business and, as a result, Concurrent Technologies will own the Aerospace and Military division.

The Concurrent Technologies directors believe that the Acquisition will progress the Company’s strategic ambitions in the Systems market, a market comprising of computer systems designed to operate in harsh and demanding environments typically including military, aerospace and industrial uses, and anticipated to be valued at c.US$6.9 billion by 2033. The nature of the Systems market provides a significant opportunity for future growth for Concurrent Technologies, and Stryker holds aerospace industry standard accreditation which is crucial in order to successfully capture the identified opportunities.

Concurrent Technologies is also pleased to announce that, primarily to finance the Acquisition, the Company has conditionally raised total gross proceeds of £6.5 million by way of a conditional placing of a total of 10,000,000 new ordinary shares of 1p each in the Company at an issue price of 65 pence per share with new and existing institutional investors.

In addition to the Placing, it is proposed that there will be a separate conditional retail offer to existing investors via the Bookbuild platform to raise up to £0.3 million (before expenses) at the Issue Price. A separate announcement will be made in due course by the Company regarding the Retail Offer and its terms. Those investors who subscribe for new Ordinary Shares pursuant to the Retail Offer, will do so pursuant to the terms and conditions of the Retail Offer contained in that announcement. For the avoidance of doubt, the Retail Offer is not part of the Placing.

The Fundraising is conditional on, inter alia, shareholder approval of certain resolutions to be proposed at a general meeting of the Company to be held at 11.00 a.m. BST on 4 September 2023. Cenkos Securities plc (“Cenkos“) is acting as nominated adviser and sole broker in connection with the Placing and as retail offer coordinator in relation to the Retail Offer.

Pursuant to the Acquisition, the sellers, Randy Dunn (selling through his trust nominee company Rose and Crane LLC), Donald McKenna and Teri McKenna, will receive initial cash consideration of approximately US$1.875 million (approx. £1.47 million) and US$1.5 million (approx. £1.17 million) by the issue of 1,807,686 new Ordinary Shares at the Issue Price on Completion. In addition, certain individuals in the existing Stryker business will be awarded Concurrent Technologies share options under the existing Company LTIP.

The Company will today be posting a circular to Shareholders detailing the Fundraising and Acquisition and convening the General Meeting at which the Resolutions will be proposed. The Circular will be available to view on the Company’s website shortly at https://www.gocct.com/investors/.

Any term capitalised in this Announcement which is not also defined shall have the same meaning as in the Circular.

Fundraising Highlights

The net proceeds of the Fundraising will be used primarily to fund the Acquisition and the Company’s strategic ambitions in the Systems market. The proposed acquisition of Stryker is the first acquisition since the new leadership team at Concurrent Technologies has been in place and will materially advance a number of the key strategic goals of the Company. The balance of the net proceeds will provide additional liquidity to enable the Company to be agile in capturing additional growth opportunities as they arise.

Specifically, the Company intends to use the net proceeds of the Fundraising as outlined below:

·    Stryker

o  Settlement of the cash consideration for the Acquisition; and

o  Future investment to enhance the facilities capabilities and production capacity of the US facility of Stryker.

·    Investment in Concurrent Technologies’ broader Systems capability

o  Continued investment in the Company’s Systems capabilities with a view to increasing the technical support infrastructure, sales infrastructure, and supporting research and development expertise to enable scaling up of the Systems operations.

·    Working Capital

o  Supporting the working capital requirements of the Company moving forward.

Stryker Acquisition

Stryker has a track record as a supplier to major defence companies in the USA and including Boeing, Northrop Grumman and Raytheon. Stryker’s capabilities lie in the design and manufacture of rugged systems which are constructed using plug in cards (“PICs“) sourced from Concurrent Technologies and others and which have the following capabilities:

·    Compute;

·    Storage;

·    Vision;

·    Data processing; and

·    I/O capability.

The Concurrent Technologies management team has identified Stryker as an ideal acquisition target for this stage of the Company’s strategic development. Stryker was founded in 1973 and has a long track record of working with defence industry prime contractors. Stryker holds accreditation to aerospace industry standards, which is critical to fully access the Systems market, and complements the existing certification held by Concurrent Technologies. The Acquisition includes Stryker’s 14,000 sq/ft manufacturing and office facility in California, from which a team of 20 employees and contractors are engaged providing a permanent base in the US from which the Company can operate and manufacture. Accordingly, the Acquisition will significantly enhance the Board’s strategic goal of increasing the Company’s US presence with a view to enhancing both new and existing client relationships and US market access.

Concurrent Technologies’ management team believes that the acquisition of Stryker will further its strategic ambitions in the rugged systems market, which was valued at c.$2.3 billion in 2022 and is projected to grow at a compounded annual growth rate of 14.9 per cent to c.$6.9 billion by 2033. Systems generally is a new area of operations for Concurrent Technologies, with the first revenues realised in the current financial year (“FY23“). The Board believe there is a significant opportunity, with the total addressable market reaching c.$262.9 million in the defence sector alone for systems in 2020. Having recently announced a significant Systems contract win, the Board believes this is a key area for growth in the future and have identified Stryker as an important target in accelerating this growth.

The management team considers Stryker to be undercapitalised and has identified a number of areas for investment in the existing Stryker business which it believes will result in significant growth in revenue for the acquired business and the enlarged group as a whole. Concurrent Technologies will utilise its global sales channels to leverage the Stryker product offering and will also leverage Stryker’s capabilities to increase its Systems market presence in the short term.

The acquisition of Stryker will enable Concurrent Technologies, as enlarged by Stryker, to significantly expand its in-house capability, including the integration of components. Specifically, the Acquisition will allow Concurrent Technologies to deliver integrated Systems solutions, including the chassis and power supply, for which it was previously reliant on the supply chain to deliver. In addition, this will facilitate the increased utilisation of the Company’s existing PICs in the broader Systems package.

For the avoidance of doubt, Phillips Machine & Welding Company, Inc also has a machine shop business which is not subject to the Acquisition.

Current Trading and Outlook

Concurrent Technologies recently published a trading update for the six months to 30 June 2023 (“H1 FY23“). This update highlighted that order intake in H1 FY23 remained strong at £14.5 million, and that the Company had an order backlog of approximately £29 million as at 30 June 2023. This performance demonstrates the significant progress that management has made with strategic initiatives for growth including accelerated product development, Systems capability, partnering, and a focus on home markets.

The Company has seen the continued easing of the global supply chain shortages that had suppressed revenues in H1 FY23, albeit the supply chain remained below historical norms. Lead times for certain components had increased to c.40 weeks in 2022, and this is now anticipated to reduce to less than 25 weeks from Q4 2023 for certain components. This is a significant improvement; however, management is monitoring supply chains carefully and managing the Company’s inventory levels in a prudent manner to enable the delivery of the order backlog.

Accordingly, cash management continues to be an area of focus for the Company with the working capital employed in the business remaining higher than would be optimal for the Company’s stage of development but will normalise with the Company’s continued growth.

Management has identified a number of additional opportunities in the Systems marketplace that are expected to start being realised in H2 FY23. This will represent a new revenue stream for the Company and the addition of Stryker will further enable the Company’s expansion in this sector. Overall, the business has evolved over the past 18 months and the Company is now working on more than 20 design win opportunities, a marked change in the previously identified opportunity set.

Miles Adcock, CEO of Concurrent Technologies plc, commented:

“We are excited to announce the conditional acquisition of Stryker and the accompanying Fundraising. Over the course of the past 18 months the Board has taken the decision to invest in the existing Concurrent Technologies platform to provide the base for future growth and the Stryker acquisition continues this investment by materially enhancing our capabilities within the Systems market.

Whilst the supply chain issues still require careful management, the Company is extremely well placed for the future. Trading in the first half of FY23 delivered record revenues for equivalent periods, with expectations for the full year exceeding all historic results despite having to perform against the backdrop of shortages of specific microchip components that has been a headwind for the business for over 12 months. However, as recent component deliveries have demonstrated, through continued careful management we are successfully navigating these challenges.

The proceeds from the Fundraising will enable us to further develop and build on our existing position in the market whilst funding the Company in the delivery of our substantial order book. Exciting times are ahead with the conditional acquisition of Stryker bringing a depth of talent and capability into Concurrent Technologies.

We are delighted with the support of a number of our existing shareholders and are pleased to welcome new institutional investors onto the register.”