Osirium Tech Regulatory News (OSI)

The information contained within this announcement is deemed by the Company to constitute inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310.

22 September 2022

Osirium Technologies plc

("Osirium", the "Group" or the "Company")

Interim Results

Osirium Technologies plc (AIM: OSI), a leading vendor of cloud-based cybersecurity and IT automation software, announces its unaudited interim results for the six months ended 30 June 2022.

Financial highlights

Operational highlights

Post period highlights

David Guyatt, CEO of Osirium, commented:

"We have continued our positive direction of travel in the current financial year, achieving record bookings and revenue for the Group alongside a sustained momentum in customer acquisition across our target sectors.

"Operationally, we have strengthened our sales and marketing arm through continued partnerships as well as for our direct sales arm through the additional funds raised earlier in 2022. Alongside this, we have driven further revenues through the emergence of our PPA and PEM products alongside PAM.

"As privileged security solutions emerge as an essential component of IT security, we continue to grow our sales pipeline with new and existing customers. Alongside this, we remain vigilant around the Group's costs with a clear focus towards reaching cash flow breakeven. The Group will continue to take steps to rationalise its cost base without compromising our sales and marketing momentum. We are very pleased with the continued trading momentum in the second half of the financial year to date and look forward to the rest of the year with confidence."

About Osirium

Osirium Technologies plc (AIM: OSI) is a leading UK-based cybersecurity software vendor delivering Privileged Access Management (PAM), Privileged Endpoint Management (PEM) and Osirium Automation solutions that are uniquely simple to deploy and maintain. 

With privileged credentials involved in over 80% of security breaches, customers rely on Osirium PAM's innovative technology to secure their critical infrastructure by controlling 3rd party access, protecting against insider threats, and demonstrating rigorous compliance. Osirium Automation delivers time and cost savings by automating complex, multi-system processes securely, allowing them to be delegated to Help Desk engineers or end-users freeing specialist IT resources. The Osirium PEM solution balances security and productivity by removing risky local administrator rights from users while at the same time allowing escalated privileges for specific applications.

Founded in 2008 with its headquarters in Reading, UK, the Group was admitted to trading on AIM in April 2016. For further information, please visit  www.osirium.com.

Chief Executive Officer's Review

Overview

H1 2022 has been a period of significant progress for Osirium, in which a number of growth milestones have been achieved. The Group's strong performance in the first half of the financial year reflects a rebound in economic conditions following the impact of Covid-19 and accelerating momentum as our end markets increase their focus on cyber security strategies. As a result, we are delighted to report the Company's best-ever H1 for bookings at £1.18 million, with revenue and deferred revenue also at record levels for the Group.

As initially reported in the trading update on 8 July 2022, Annualised Recurring Revenue ("ARR") is a key industry measurement of the size of a SaaS Company's subscription revenue, and the Group has decided to adopt this as a key performance indicator going forward. For June 2022, the Group's ARR was £1.61 million, an increase of 11% since the start of the year (December 2021: £1.45 million) and 29% over the past 12 months (June 2021: £1.25 million), providing visibility of future revenue.

The financial growth in the period is underpinned by growing momentum across all aspects of the business - more customer acquisition, new partners, a growing prospect pipeline and further innovation. The Group continued to grow its share in core sectors such as healthcare and higher education, as well as achieving wins in new geographies and sectors. Importantly, in combination with this continued customer acquisition, we are now observing a greater average contract value for these new contracts, driving the bookings and revenue growth during the first half of the financial year.

A core driver of sales has been accelerated take-up of Privileged Process Automation (PPA) and Privileged Endpoint Management (PEM) products alongside the Group's core Privileged Access Management (PAM) solution. This not only serves as an important way to initiate discussions with new customers, but also represents an exciting opportunity for upselling and cross-selling to existing customers. 

In February 2022, we announced a £1 million fundraise (gross) primarily to drive our sales and marketing functions. In addition to product R&D, the Group has invested these funds to build capacity to support the scaling up of the business. The benefits of these investments are now clearly filtering through to the level of interest we are currently witnessing in our sales pipeline. We would like to reiterate our thanks to shareholders for their support. As announced earlier in the year, the Board considers that the Company will be required to raise additional capital during the second half of 2022.

Managing costs remains one of the most important priorities for the business, and the growth in revenue experienced during the period is steadily bringing forward the cash flow breakeven point. Alongside this, the Group is actively supplementing this progress and shareholder support through measures that are delivering material cost savings within the business without affecting our ability to continue to grow our bookings.

So far in H2 2022, we have seen a continuation of the growing sales pipeline and the larger volumes of contracted revenue seen in H1. As a result, the Board remains confident in meeting revenue expectations for FY22.

Market

Privileged security continues to be a necessity for companies around the world as the risk of malicious cyber and ransomware attacks remains prevalent.

One trend of note is the increasing price and higher criteria needed to attain cybersecurity insurance. According to the Global Insurance Market Index from Marsh & McLennan, in Q2 2022, cyber-insurance prices increased 79% year-on-year in the USA, reflecting the increased cost of failure in this area. Privileged security is quickly becoming an essential product for cybersecurity insurance and, in some geographies, is seen as a necessary component for such insurance, as noted in our July contact win with a UK university. The University bought a three-year PAM subscription, worth c. £140,000, as PAM was a key prerequisite for its cybersecurity insurance provider, before any deal was agreed.

Alongside this driver, we are seeing increased awareness of the benefits of privileged protection. The Group's product portfolio has been purposely built from the ground up to blend powerful functionality with simple deployment - a key aspect of the Group's differentiation. This is gaining increased brand value and appreciation within the core mid-market space. More than ever, we are seeing a familiarity with privileged security among IT professionals.

Consolidation in the privileged security market has continued, presenting an opportunity for the Group to displace these larger, often more cumbersome providers of privileged security. The ability for our clients to roll out and implement our technologies in a cost-effective manner, thereby rapidly securing their IT systems, remains a key driver in generating and securing new business.

Product suite

Osirium's product suite consists of its well-established Privileged Access Management solution (PAM), and its more recently introduced Privileged Process Automation (PPA) and Privileged Endpoint Management (PEM) solutions.

A key development during the period is the significant growth of PPA and PEM as add-ons, as well as some customers now selecting these services as standalone products, driving further customer acquisition as well as creating another touchpoint for cross-selling and up-selling our services.

Importantly, Osirium's three privileged security products have always formed part of the Group's initial roadmap and have been engineered to be fully complementary and integrated in a simplified arrangement. The Directors believe that while other businesses have acquired products to build out their suite, Osirium's products have been built in line with its original vision, meaning they work seamlessly together, unlike our competitors.

During the period, the Group was pleased to announce its first contract in which the PPA order was significantly larger than the PAM component, demonstrating the Group's growing capabilities around the provision of a complete toolkit of privileged protection solutions. A number of contracts have since been signed involving both PPA and PEM as significant elements of the contract.  

10% of the Company's customers now have more than one Osirium product under contract, including a contract expansion with a major UK provider of telephony and broadband services, who is now our first customer to utilise all three Osirium privileged security products.

Growth strategy

Osirium's growth strategy is built around three key strategic areas: commitment to innovation,

customer focus and market expansion.

Commitment to innovation - unlocking incremental value creation

The Group is committed to ensuring its product suite remains a cutting-edge, best-in-class option for existing and prospective customers. As PAM should be at the heart of all IT operations and cyber security strategies, ease of use and availability become critical. The Group continues to invest in simplifying privileged access to vital IT systems ensuring the tool is used. Recent innovations in the PAM client, used by admins to access their devices, have focused on streamlining that access so that they can get on with their work more efficiently. For assured availability of the PAM service, Osirium has been investing in innovative architectures to ensure continued service, even if a PAM server becomes unavailable, for example, due to a hardware failure. Importantly, this is delivered in a way customers can plan their future growth without the need for complex or expensive external dependencies.

The addition of automation, which protects what users do with their privileged access, is still a unique differentiator. Osirium Research1 showed that the main inhibitors to delegating IT operations are security and compliance risks. Automation addresses those concerns, and customers are adopting Osirium PPA to allow tasks that used to need multiple expert admins to delegate those tasks to end-users safely. For example, the NHS Midlands and Lancashire Commissioning Support Unit has deployed automation to enable GP surgeries to take on common account management tasks. And a major telecommunications provider has integrated PPA with their HR system to ensure accounts are created and removed automatically, ensuring the HR system is the "source of truth" and users don't have access to any systems they shouldn't.

Removing local admin rights from end-user laptops and workstations is a goal for an increasing number of organisations as it's seen as a principal defence mechanism against ransomware and malware attacks. Osirium PEM is a good fit with its focus on that specific risk, rather than a bundled suite of endpoint management tools, and, with its policy-based approach, reduces the workload on IT teams.

1 https://www.osirium.com/news/lack-of-effective-automation-leads-to-compliance-risks-and-costs

Customer focus - providing foundations for land-and-expand opportunity

While Osirium continues to be differentiated among its peers through its simplicity of delivery and ease of deployment, the combined usage of our range of products demonstrates more value to customers. For instance, the Group's telecommunications provider customer has highlighted this combined usage means it is easier to deal with Osirium than a larger organisation with many point solutions based outside the UK. The stickiness of the Group's product suite and the cross-sale opportunity created by the appeal of its technologies, was further evidenced by the post-period contract signed by an existing customer that provides IT services to local government in the UK. Engagement with customers and targeted marketing campaigns are in place to further address this opportunity.

The Group achieved a 98% customer SaaS contract retention rate by customer number in the half, and it has established further dedicated customer success resources to maintain these consistently high renewal levels.

Osirium also continues to focus on enhancing the experience for its existing customers through initiatives such as the Osirium Customer Network, an informal forum for meeting and introducing customers to each other for sharing best practices with Osirium.

Market expansion - opening new opportunities for growth through direct and partner channels

Following on from the NHS wins the Group experienced in 2021, we have not only added to this number, but a number of the NHS Trusts signed up in the previous financial year have now expanded their existing licenses The Group has also successfully demonstrated its land-and-expand strategy by initiating the sale of the Group's add-on PPA and PEM products to some healthcare customers. Key new wins in this sector during the period include a contract with Midlands and Lancashire Commissioning Support Unit for the Group's PPA and PAM solutions. Healthcare remains a strong source of business for the Group, and we remain focused on winning new prospects alongside expanding our licenses with existing customers. As announced in April 2022, this was particularly significant as a result of this being the Group's first customer win where the PPA order was significantly larger than the PAM element.

The higher education sector remains another focus market for the Group, and we are pleased to report a number of key wins during the period including a new PAM contract worth c. £140,000 for a three-year subscription with a UK university, as announced in July.

In the financial services sector, our customer base continues to grow, and we achieved our first contract win in the US with a global investment bank headquartered in New York for our PAM solution. Post-period, we were also delighted to announce a significant three-year contract extension with a global asset manager for PAM, as well as a 12-month extension on the use of the Group's PPA solution, worth in total c. £0.5m.

Sales to new customers are driven by the Group's sales team (direct sales) alongside its channel partner network. As a result of our excellent customer service levels and best-in-class product offering, we maintain strong relationships with existing customers who are frequently willing to act as reference points when contacted by potential customers from the same sector.

Direct

The Group has also invested in its sales and marketing function during the period following the fundraising announced in February 2022, and we are now delivering sales and marketing campaigns that have a greater sophistication and scope. Physical tradeshows and other events have started to return. Attendances are below pre-pandemic levels but recovering quickly, and attendees are more motivated to have meaningful meetings with vendors, which has led to new opportunities in the pipeline. Digital marketing remains an important tool, and as a result of these investments, we are now generating more activity through our online channels than ever before. We have extended our work with specialist agencies to enhance our in-house online lead-generation activities.

Partner and reseller network expansion

Osirium's partner channel network consists of software distributors and resellers based across five continents. This network has emerged as a critical tool for customer acquisition with around 7% of the Group's sales now taking place through this channel. Having partnered with software distribution firm Prianto at the end of 2021, the Group has achieved a number of the period's significant wins through this partnership. During the period, the Group has expanded this network to include further resellers in Sweden and South Africa.

Osirium has benefitted significantly from the global reach provided by its network, enabling sales in geographies beyond the scope of the Group's direct sales arm. As a result of this network, the Group has signed contract wins in two new geographies, the USA and Finland, during the first half of 2022.

Importantly, recognising the substantial market opportunity, some of the Group's resellers have elected to invest dedicated resources into product demonstrations, proof of concepts and selling Osirium's products. This hugely increases Osirium's sales capacity.

Current trading and outlook

We are delighted to report continued momentum into the second half, underpinned by the significant contract extensions we announced in August and September 2022. This trend is expected to continue for the remainder of the year.

We approach the current period with three core strategic priorities: growing our bookings and revenue, proactively managing costs, and continuing our excellent rate of customer acquisition. With a more sophisticated sales and marketing function, a significantly expanded customer base to up-sell and cross-sell into, and a growing demand for privileged security globally, we remain very positive about the continued scaling of the business to meet demand.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASHFLOW

GENERAL INFORMATION

Osirium Technologies PLC was incorporated on 3 November 2015, and registered and domiciled in England and Wales with its registered office located at One Central Square, Cardiff CF10 1FS.

The principal activity of the Group in the periods under review was that of the development, sale and licensing of security software.

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The Group financial information is presented in pounds sterling which is the Group's presentational currency and all values are rounded to the nearest whole pound.

 The financial information does not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. The financial information together with the comparative information for the six months ended 30 June 2021 are unaudited with the audited information included for the 12 month period ended 31 December 2021. The audited information received an audit report which was unqualified and did not include a statement under section 498(2) or section 498(3) of the Companies Act 2006, but did contain a material uncertainty paragraph on going concern.

The financial information was approved by the Board of Directors on 21 September 2022 and authorised for issue on 22 September 2022.

Accounting Policies

The accounting policies used in the preparation of the financial information for the six months ended 30 June 2022 are in accordance with the recognition and measurement criteria of UK-adopted international accounting standards and are consistent with those which will be adopted in the annual financial statements for year ended 31 December 2022.

These Interim Financial Statements have been prepared in accordance with the accounting policies, methods of computation and presentation adopted in the financial statements for the year ended 31 December 2021. As permitted, the Group has chosen not to adopt IAS 34 'Interim Financial Reporting' in preparing these Interim Financial Statements.

The Directors have considered all new, revised or amended standards and interpretations which are mandatory for the first time for the financial year ending 31 December 2022, and concluded that none have had any significant impact on these interim financial statements. New, revised or amended standards and interpretations that are not yet effective have not been adopted early.

Intangible assets

An internally-generated, development intangible asset arising from Osirium's product development is recognised if, and only if, Osirium can demonstrate all of the following:

- The technical feasibility of completing the intangible asset so that is will be available for use of sale.

- Its intention to complete the intangible asset and use or sell it.

- Its ability to use or sell the intangible asset.

- How the intangible asset will generate probable future economic benefits. -

- The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

- Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally-generated development intangible assets are amortised on a straight-line basis over their useful lives. Amortisation commences in the financial year of capitalisation. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Development costs 20% per annum, straight line.

Share based payments

Osirium issues equity-settled share-based payments to certain employees and others under which Osirium receives services as consideration for equity instruments (options) in Osirium. Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted. The fair value determined at the grant date of equity-settled share-based payments is recognised as an expense in Osirium's Statement of Comprehensive Income over the vesting period on a straight-line basis, based on Osirium's estimate of the number instruments that will eventually vest with a corresponding adjustment to equity. The expected life used in the valuation is adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations.

Non-vesting and market vesting conditions are taken into account when estimating the fair value of the options at grant date. Service and non-market vesting conditions are taken into account by adjusting the number of options expected to vest at each reporting date. When the options are exercised Osirium issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

INTANGIBLE FIXED ASSETS

All development costs are amortised over their estimated useful lives, which is on average 5 years. Amortisation is charged in full in the financial year of capitalisation.

All amortisation has been charged to administrative expenses in the statement of comprehensive income.

RIGHT OF USE ASSETS

Additions to the right of use assets during the period were £222,735 (year to 31 December 2021: £nil)

The group leases land and buildings for its office under an agreement for 5 years running from 2022 to 2027.

LEASE LIABILITIES

RECONCILIATION OF LOSS BEFORE ANY INCOME TAX TO CASH GENERATED FROM OPERATIONS