Osirium Tech Regulatory News (OSI)

29 September 2020

Osirium Technologies plc

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

Interim Results

Osirium Technologies plc (AIM: OSI), a leading vendor of cloud-based cybersecurity software, announces its unaudited interim results for the six months ended 30 June 2020.

Financial highlights

· Total recognised revenue increased 35% to £0.70 million (1H 2019: £0.52 million)

· Total bookings decreased 25% to £0.77 million (1H 2019: £1.03 million)

o Record first quarter

o Coronavirus delayed customer buying decisions from Q2

o Uptick in new business wins expected in H2

· Deferred revenue increased by 15% to £1.43 million (1H 2019: £1.24 million), providing continued visibility over future revenues

· Operating loss of £1.57 million (1H 2019: £1.71 million), reflecting the tight cost control measures we introduced in response to the coronavirus

· Cash balances at 30 June 2020 of £2.13 million (1H 2019: £0.89 million), increasing to £2.53 million as at 31 July 2020 following receipt of a £0.56 million R&D tax credit

Operational highlights

· Swift and effective adaptation to the pandemic with no impact on operational efficiency

· New customers signed across both the private and public sector including one of the UK's largest NHS trusts and a major regional UK ambulance service

· Continued illustration of successful 'land and expand' strategy

o 100% renewals across customer base during H1

o Consistent pattern of existing customers booking more in 1H 2020 vs 1H 2019

· Ongoing product innovation, with all three products undergoing new releases

· Significant growth in our reseller network, establishing presence in Benelux, the Nordics, South-eastern Europe and the Middle East

Post period highlights

· New contracts signed with a group of major UK police forces, a leading UK university, a regional provider of services to the NHS, an Information Technology and Services consultancy in Indonesia, and an IT solutions provider in the Middle East

· Strong response by existing customers to the launch of the Osirium Customer Network, a forum for exchanging experiences and best practices with Osirium technology, with the first three workshops fully booked up

· Launch of PPA Express, a free version of the Privileged Process Automation platform to seed new sales opportunities

Current trading and outlook

While the impact of the coronavirus on the timing of new customer buying decisions means revenue for FY2020 may be lower than current market estimates, the strength of our offering and our growing pipeline provide a strong platform and give us confidence that, assuming the heightened level of uncertainty caused by the virus continues to subside, we will see an uptick in new business wins in the second half and increased revenue growth in FY2021.

David Guyatt, CEO of Osirium, commented:

"We continued to make good progress against our stated strategy in the period, built around a commitment to innovation, customer focus and market expansion. The coronavirus temporarily slowed new customer acquisition after a record Q1, but market trends continue to move in our favour. We now have a comprehensive and complementary suite of products designed to capitalise on the opportunity, and our pipeline continues to grow.

"Moving forwards, we remain focused on delivering our strategic objectives. Management will continue to closely monitor both the financial and operational effects of pandemic on the business, remaining vigilant on costs while ensuring we continue to invest in areas key to fulfilling our growth ambitions. Longer-term, our value proposition remains as compelling as ever, and we remain focused on cementing our position as one of the leading providers of privileged access security."

About Osirium

Osirium Technologies plc (AIM: OSI) operates in one of the fastest growing parts of the cybersecurity market and is a leading vendor of Privileged Access Security solutions. Osirium's cloud-based products protect critical IT assets, infrastructure and devices by preventing targeted cyber-attacks from directly accessing Privileged Accounts, removing unnecessary access and powers of Privileged Account users, deterring legitimate Privileged Account users from abusing their roles and containing the effects of a breach if one does happen.

Osirium has defined and delivered what the Directors view as the next generation Privileged Access Management solution. Osirium's award-winning Privileged Task Management module further strengthens Privileged Account Security by minimising the cyber-attack surface and delivering an impressive return on investment benefits for customers. Building on Osirium's Privileged Task Management module, in May 2019 Osirium launched Privileged Process Automation, providing a highly-flexible platform for automating essential IT processes to set a new benchmark in IT Process Automation. This was followed by the launch of Privileged Endpoint Manager in December 2019, bringing the total portfolio to three complementary solutions.

Founded in 2008 and with its headquarters in Reading, UK, the Group was admitted to AIM in April 2016.

www.osirum.com

Chief Executive Officer's Review

Driven by a growing awareness in the market of privileged access security as a business-critical issue and underpinned by the investment we have made in our products and operations, we achieved our best ever first quarter for bookings, successfully secured a number of significant new customers across different sectors and geographies and maintained our 100% customer retention rate in the half, with renewals across our existing base. 

As with most UK businesses, we were not immune to the effects of the coronavirus outbreak at the end of the first quarter. Because of the widespread uncertainty caused by the pandemic in the second quarter, we saw temporarily reduced appetite from potential new customers whose priorities had shifted. Encouragingly, though, since period end, impetus in conversations with prospective customers has begun to return.

While the pandemic had an impact on the timing of bookings in the first half of FY2020, it should not detract from the significant progress we have continued to make as a business. We have retained all our customers, our pipeline has continued to grow, our product suite has gone from strength to strength, our reseller network has grown substantially, and our marketing function has shown itself to be capable of pivoting from events-based to online lead generation smoothly and effectively.

Coronavirus response

As previously reported, our top priority since the outbreak of the pandemic has been to protect our colleagues, customers and other stakeholders. We also took immediate action to protect our financial position, putting a temporary freeze on new recruitment. Encouragingly, the COVID-19 pandemic has led to the introduction of long-standing business continuity measures, which will continue to evolve and stand the business in good stead for years to come. The response of our colleagues to the new ways of working has been first-class. They remain active and engaged and we are fortunate enough to have not had to make any additional cuts, make use of any government financial support schemes or furlough any members of staff.

Market

In recent years, Privileged Access Management (PAM), has become one of the fastest growing areas of cyber security and risk management software solutions. KuppingerCole, the international technology research organisation, estimates the market is worth revenue of around $2.2bn per annum predicted to grow to $5.4bn by 2025 (Kuppinger Cole Leadership Compass, Privileged Access Management, March 2020).

The automation market, where our Privileged Process Automation offering is well positioned to compete, is seeing similar strong growth. According to Mordor Intelligence, the digital process automation market is expected to grow from $7.8 billion in 2019 to reach a value of $16.12 billion by 2025 (Mordor Intelligence, Digital Process Automation Market Size - Growth, Trends and Forecast (2020-2025), 2019)

Product development

Across our portfolio, we have been focused on incremental improvements that enhance the user experience and add security and value to customers. One example of this is the shift to a new web user interface for our flagship Privileged Access Management Platform.

Moving forwards, we remain focused on optimising our product suite while exploring new and innovative ways to penetrate our target markets. One of these is introducing free downloads to generate new leads. Building on the success of the free PAM Express, in early September we released PPA Express, a free version of our Privileged Process Automation platform.

Partner and reseller network expansion

Against the backdrop of the COVID-19 pandemic, we have accelerated our efforts to take advantage of opportunities outside the UK, in continental Europe and the Middle East. Our reseller channel expanded significantly in the period with 13 new partners signed up, as the market becomes more aware of Privileged Access Management and Osirium's competitive advantage. Establishing and deepening these relationships with reseller and cloud partners remains a primary strategic objective in positioning the Group for scalable growth, and our position in the market means we can execute more quickly and effectively than some of our larger peers.

There are multiple prospects emerging across the network, which now spans several territories including Benelux, the Nordics, South-eastern Europe and the Middle East. While the business continues to achieve a significant proportion of contracted revenue through direct sales, there is starting to be a shift toward resellers. The Group expects over time to increase the contribution of partner channel sales.

We also continue to make good progress in forming strategic technology alliances. These alliances strengthen our market position by expanding the range of complementary technologies with which we integrate, opening up new market opportunities, and embedding our technology more tightly in customer environments. Post period, we agreed partnerships with cybersecurity and network management firm AppViewX, cyber security and digital risk management company RSA, and identity and access management company My1Login. We continue to seek new opportunities to team up with like-minded organisations.

In the period we also launched the Osirium Customer Network, a forum for existing customers to meet and share best practices and experiences with Osirium Technology. Online workshops on topics such as securing 3rd party access have been received particularly positively, with the first events at full capacity. The Customer Network strengthens our relationship with our customers as well as helping them maximise the value they gain from their investment in Osirium.

Current trading and outlook

We continued to make good progress against our stated strategy in the period, built around a commitment to innovation, customer focus and market expansion. The coronavirus temporarily slowed new customer acquisition after a record Q1, but market trends continue to move in our favour. We now have a comprehensive and complementary suite of products designed to capitalise on the opportunity, and our pipeline continues to grow.

While the impact of the coronavirus on the timing of new customer buying decisions means revenue for FY2020 may be lower than current market estimates, the strength of our offering and our growing pipeline provide a strong platform and give us confidence that, assuming the heightened level of uncertainty caused by the virus continues to subside, we will see an uptick in new business wins in the second half and increased revenue growth in FY2021.

Moving forwards, we remain focused on delivering our strategic objectives. Management will continue to closely monitor both the financial and operational effects of pandemic on the business, remaining vigilant on costs while ensuring we continue to invest in areas key to fulfilling our growth ambitions. Longer-term, our value proposition remains as compelling as ever, and we remain focused on cementing our position as one of the leading providers of privileged access security.

Chief Financial Officer's Review

Bookings were ahead of management expectations to the end of March and into April. However, as the magnitude of the pandemic became clearer, we began to see indications that prospective customers were deferring IT project-related decisions in favour of focusing on business continuity and cost control to mitigate business and commercial threats posed by the virus. With new customer acquisition slowing in Q2, bookings for the half were £0.77 million, a 25% decrease on £1.03m in the corresponding period in the previous year.

The year-on-year bookings shortfall also reflects the fact that our business signed a substantial three-year contract with one of our key customers in the first half of 2019 that was not repeatable. While that customer has continued to take services from us throughout the first half of this fiscal year, the difference in value versus the original SaaS contract was significant. Excluding this customer, bookings for H1 2020 would have been comfortably ahead of H1 2019, with the majority of existing customers booking more in the first half of this year than last.

Revenue was £0.70 million, a 35% increase from £0.52 million in the corresponding period last year and ahead of management expectations due to the timing of bookings and the mix of one and three-year contracts. Deferred revenue as at 30 June 2020 was £1.43 million, a 15% increase from £1.24 million as at 30 June 2019, providing continued visibility over future revenues.

Osirium's operating loss was £1.57 million versus £1.71 million in the first half of the previous financial year, reflecting the tight cost control measures that were introduced in response to the coronavirus while continuing our investment in R&D, sales and marketing as the cornerstones of our growth strategy. We will continue to closely monitor and control costs in the second half, while maintaining our commitment to investing for sustainable long-term growth. Loss before tax for the period was £1.68 million versus £1.71m million in the first half of the previous financial year, including a new loan note interest that was not incurred in the previous year.

Cash balances were £2.13 million at the end of the period under review (H1 2019: £0.89 million). Post period, the Group received R&D tax credit of £0.56 million, resulting in a £2.53 million cash balance as of 31 July 2020. 

Product development expenditure capitalised in the period was £0.78 million (H1 2019: 0.87 million). All of this expenditure was associated with new products and features.

Our headcount was 58 as at 30 June 2020 (June 2019: 50). Headcount increases in the period were principally in Sales and Marketing and Engineering as we added capacity to develop new products and service our partner channel.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to the owners of Osirium Technologies plc

CONSOLIDATED STATEMENT OF CASHFLOWS

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 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 2019 are unaudited with the audited information included for the 12 month period ended 31 December 2019. 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.

The financial information was approved by the Board of Directors on 28 September 2020 and authorised for issue on 29 September 2020.

Accounting Policies

The accounting policies used in the preparation of the financial information for the six months ended 30 June 2020 are in accordance with the recognition and measurement criteria of the International Financial Reporting

Standards as adopted by the European Union ('IFRS') and are consistent with those which will be adopted in the annual financial statements for year ending 31 December 2020.

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 2019.

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 2020, 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.

Going concern

As part of their going concern review the Directors have followed the guidelines published by the Financial Reporting Council entitled "Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks (2016)". The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of these Interim Statements. In developing these forecasts the Directors have made assumptions based upon their view of the current and future economic conditions that will prevail over the forecast period.

On the basis of the above projections, the Directors are confident that Osirium has sufficient working capital to honour all of its obligations to creditors as and when they fall due. Accordingly, the Directors continue to adopt the going concern basis in preparing the Financial Statements.

Cash reserves were boosted by the fund raise in the year to 31 December 2019 that raised £4.4m net cash in October 2019.

As at the end of the interim period ended 30 June 2020 the group had cash reserves of £2.1 million cash at bank available to support future business activities, post period end, the Group has received a R&D tax credit of £0.56 million, and the Group had £2.53 million cash as of 31 July 2020

The Board remains cautious and vigilant in the very short-term, as the full impact of COVID-19 on the general economy is not yet known. However we have contingency plans in place and have factored this into our business planning to the best of our ability. Given the Group's high level of recurring revenue, strong backlog of contracted future revenue, and software offering that supports mission critical operations, the Board believes the business to be well positioned to withstand this period and has confidence in the Group's ongoing momentum.

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 of 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 the administrative expenses in the statement of comprehensive income and total comprehensive loss.

RIGHT OF USE ASSETS

Additions to the right-of-use assets during the period were £nil (year to 31 December 2019: £159,455).

The group leases land and buildings for its office under an agreement for 4 years running from 2018 to 2022.

LEASE LIABILITIES

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

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