PTRO.L Regulatory News (PTRO)

02 December 2019

Pelatro Plc

("Pelatro" or the "Group")

Contract win and Trading update

Pelatro Pivots to Higher Quality Recurring Revenue

Pelatro Plc (AIM: PTRO), the global Multichannel Marketing Hub software specialist, is pleased to announce a significant contract win and an update on trading.

Contract win

The Group has been selected by one of the largest global telcos in the world, with significant operations in Asia (the "Telco"), to implement its Contextual Marketing Platform as well as its Unified Communication Manager software (the "Contract"). The Contract will be delivered on a managed service basis for an initial period of 5 years, with a significant proportion of the revenue on a fixed basis as well as an element of gain share, such that the expected total revenue over the 5 year period will be between $10.0m to $12.0m. The Group will incur certain incremental costs in order to deliver the Contract, including some additional recruitment.

The selection process has been highly competitive against some of the leading vendors in the Company's market and winning the Contract is clear validation of the quality of the Group's offering. The structure of the contract will bring better quality and higher visibility to future revenues. This will also enhance the Company's reputation in the market and, given the Telco is part of one of the largest telco groups in the world, the Board expects this to bring further significant opportunities for cross-selling of Pelatro's product across that wider group.

As indicated in the interim results announced on 26 September 2019, the management see the building of a business with strong recurring revenue as the best route to delivering shareholder value over the longer term, becoming less reliant on "one off" license contracts. Much of the Group's effort and investment over the last 12 months has been with that goal in mind, and today's contract win is clear evidence that this effort is working. The Group will continue to focus on building recurring and repeat revenue from its customers.

Trading update

We have been successful in winning a number of the contracts this year, including the one announced today, which have been of a recurring revenue and/or gain share nature, and as such generate their revenues upon completion of implementation and performance of the relevant service (and then spread over the term of the contract). Accordingly, revenue recognised in the current financial year in respect of these contracts will be minimal. The total value of these contracts won during FY2019 is about $16.0m-$18m, resulting in an all time high with respect to total value of contracts won in a year. Had these same contracts been won as pure license contracts, approximately $6.0m-$7.0m of revenue would have been recognised in FY2019. This shift away from one-off licence contracts to recurring and repeating revenue contracts is entirely in line with the Group's stated strategy and in the Board's view delivers higher quality, sustainable and visible revenues that will significantly enhance the value of the Group over the longer term.

The Contract win is highly significant for the long-term prospects for the Group; however, with the Contract having taken significant time and management resource to secure, the timing of conversion of certain other pipeline opportunities has been impacted. Therefore, the Group now expects to end the year to 31 December 2019 below revenue expectations, at not less than $6.5m, with $6.3m booked to date. The overall pipeline remains strong and while sales cycles have extended somewhat and conversion slowed, opportunities have not been lost, rather they have been shifted into the coming financial year. The pipeline currently stands at $15.0m, of which some $5.0m is from existing customers and $10.0m from new potential customers. Significantly, the Group expects to start 2020 with a material proportion of the expected revenues for the year underpinned by recurring and repeating revenue, including the contracts referenced above as well as support and maintenance income built up from previous years' license sales and regular change request income, amounting to approximately US$4.0m. This compares with approximately US$1.5m at the start of 2019.

With the pivot to an increasing proportion of recurring revenue, the level of such revenue incoming years the Board expects will keep incrementally increasing thereby building a strong foundation for continuous growth. These recurring revenues, with a high level of profitability, also have a steady cash flow on a monthly basis resulting in reduced debtor days. This pivot is supported by an increasing number of potential engagements in the pipeline falling into this category of revenue.

Commenting on this contract win, Subash Menon, Managing Director said: "We are delighted with this very significant contract win which validates the quality of our software, especially in the context of its relevance to Tier 1 telcos. It also marks a major shift for our business in terms of moving towards a recurring revenue model and enhancing our quality and visibility of earnings materially. Whilst it is disappointing to fall short of expectations for the full year, the decision to target a different revenue model, and a different type of contract has been taken for the long-term benefit of the Group, shareholder value and we are encouraged by the strength of the pipeline of opportunities going into the new financial year. The Board remains confident that Pelatro is very well positioned to capitalise on the large long term opportunity. We are focused on higher quality recurring revenue and steady cashflow."

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This announcement is released by Pelatro Plc and, prior to publication, the information contained herein was deemed to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014. Such information is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Pelatro Plc was Nic Hellyer, Finance Director.

Notes to editors

The Pelatro Group was founded in March 2013 by Subash Menon and Sudeesh Yezhuvath with the objective of offering specialised, enterprise class software solutions for customer engagement principally to telcos who face a series of challenges including market maturity, saturation and customer churn.

Pelatro provides its "mViva" platform for use by customers in B2C applications, and is well positioned in the Multichannel Marketing Hub space (MMH) - this is technology that orchestrates a customer's communications and offers to customer segments across multiple channels to include websites, social media, apps, SMS, USSD and others.

For more information about Pelatro, visit www.pelatro.com