REG - RegTech Open Project - Trading, Strategy and Funding Update

REGTECH OPEN PROJECTAnnouncement

04/03/2024 07:00

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RNS Number : 3661F  RegTech Open Project PLC  04 March 2024

4 March 2024

 

 

RegTech Open Project plc

 
("RTOP" or the "Company")

 

Trading, Strategy and Funding Update

 

RegTech Open Project plc (LSE: RTOP), the technology business specialised in
the automation, management, and optimisation of regulatory compliance
operations, announces a trading, strategy and funding update ahead of its
interim results for the period ended 31 December 2023 which, as announced on
29 February, will be published by 31 March 2024.

 

Highlights

 

§ Over the 2023 calendar year, on average, nine out of ten customers renewed
their subscriptions, and the total billed subscriptions revenues increased to
exceed the prior year, including cancellations.

 

§ Billings for recurring software subscriptions across all products increased
17% for the year to 31 December 2023 over the full year 2022.

 

§ Revenue mix improved year on year in 2023: recurring revenues billed
represented 58% of total billings, up from 32% in 2022

 

§ The execution of the updated four-point strategic growth plan is underway
with a focus on:

 

1.  Conversion of legacy product clients to subscription-based products
targeting a net uplift in existing recurring revenues of c.£0.4m. Additional
upselling opportunities with these clients target a further net uplift in
recurring revenue of £0.7m over 12-24 months period.

 

2.  Capturing significant new sales opportunities driven by operational
resilience regulation with a target to grow subscription based operational
resilience business 10x over 5 years.

 

3.   Monetisation of non-core GRC (Government, Risk, Compliance) assets with
a target to generate material net recurring revenues via a partnership or
material net cash proceeds via a divestiture.

 

4.   Launch of an additional scalable business line in InsurTech aimed at
corporate customers with a target to onboard first clients in 2024.

 

§ Encouraging start to the year 2024 with confirmed bookings of £0.4m
representing a material part of the management plan. Year-to-date operational
resilience software renewals bookings show a 10% increase in like-for-like
renewal revenues and in excess of 90% customer retention.

 

§ 2024 trading outlook targets in excess of 120% net revenue retention in the
customer base. The pipeline of new revenues includes several tenders with
leading blue-chip organisations including a national central bank in the
European Union and currently stands at £1.3m of which £0.45m is in
technology and manufacturing sectors, a new focus area for RTOP.

 

§ The Company continues to receive funds under the Shareholder Loan Agreement
(SLA) albeit with delays. RTOP has received an additional £0.6m of funding to
date in 2024 demonstrating the majority shareholder's commitment to the
Company. The funds requested and not received by the Company under the SLA
continue to accrue interest of 15% against funds received under the SLA
accruing at 10%.

 

Trading to 31 December 2023 (unaudited)

 

Billings for software subscriptions of operational resilience software showed
strong year-on year performance, retaining over 100% of subscription revenues
from existing customers. This was achieved with a customer churn (customers
cancelling subscriptions) of 12%, with additional revenues from the retained
customers exceeding the value of the cancelled subscriptions, indicating the
ability to grow revenues within the customer base, and the value customers
continue to realise from RTOP solutions.

 

With a focus on subscription (recurring revenue) business, RTOP achieved a 17%
year-on-year increase in subscription billings.  The mix of recurring and
non-recurring revenues within the total revenues rose from 32% recurring
revenues in the prior year to 58% in 2023, a positive move towards achieving
the target of 80% by 2025

 

For the 12-month period to 31 December 2023, including pre-listing
performance, total billed revenues reduced by c.£0.5m over the prior year.
This reduction is a result of large additional one-off, project-based revenues
occurring in 2022. The move to focus on high-margin recurring revenues is
central to the growth strategy, necessitating the move away from the
historical, low-margin one-off professional services projects.

 

Strategy update

 

To drive revenue growth and accelerate growth and profitability over the next
5 years, RTOP has embarked on the following four key strategic initiatives
aimed at capitalising on our current position in the short and medium term
and, in parallel building a new, innovative, highly scalable, high-margin
business model to drive maximum future-value for our shareholders.

 

1.   Convert legacy product clients to subscription-based products - RTOP
has a number of customers currently using Business Continuity Management (BCM)
products on a license and maintenance basis, and we are actively working to
convert these clients to our subscription-based operational resilience
platform in 2024 ahead of January 2025 renewals. This is targeted to generate
a net uplift in existing recurring revenues of c.£0.4m and create the
opportunity to upsell additional products using this platform with a target
further net uplift in recurring revenue of £0.7m over the next 12-24 month
period.

 

2.   Capture significant new sales opportunities driven by DORA operational
resilience regulation - With the January 2025 compliance deadline for the
Digital Operational Resiliency ACT (DORA) there is significant priority and
momentum in financial services and among the ICT suppliers to invest in
meeting their DORA obligations. Post-deadline, their priorities will be to
demonstrate compliance and drive efficiencies in operational resilience
activities. We estimate the addressable market to be c.£12bn globally, with
the European market making up c.£3.5bn of this figure, with analyst predicted
growth at 15% CAGR over the next 5 years. This market is directly in the sweet
spot for RTOP, with the Orbit Open Platform being a highly comprehensive,
specialised operational resilience solution, and represents an opportunity to
grow RTOP's subscription based operational resilience business 10x over 5
years by completing its software solution to be best in class for operational
resilience and generating significant new demand through its current big-four
relationships, new value-added resellers, direct sales and digital marketing.

 

3.   Monetise non-core assets - The Company has a portfolio of GRC products
and customers that are related to, but not specifically core to the
operational resilience focus of RTOP. Consequently, the Company is exploring
the options to release the value embedded in these assets either via a
licencing or reselling partnership to generate material net recurring revenues
or a potential divestiture to generate material net proceeds to the Company.
RTOP is in active discussions with institutions and potential partners as we
evaluate value maximisation options for its non-core GRC product suite.

 

4.   Launch an additional scalable business line in InsurTech aimed at
corporate customers Representing a step-change in scale and profitability,
this additional business line will offer a platform, route to market and
revenue streams that are highly scalable, with low-touch and high
profitability. Based on internal estimates, the market opportunity is circa
£5bn in Europe with 1% penetration representing £50m of available annual
revenues. Leveraging the MS Azure platform to provide corporate customers with
market-specific insurance risk assessment for business resilience, RTOP will
provide an intermediary facilitation service, creating a new relationship
between insurance providers, brokers and corporate customers, enabling access
to tailored insurance and financial products, as well as web-service-based
monitoring solutions for compliance with the conditions of the policies. RTOP
is in discussion with several insurance Managing General Agents (MGAs) and
expects to launch the InsurTech business line by signing agreements to develop
and pilot the first corporate customer solutions in the coming months.

 

Trading since 31 December 2023 to date (unaudited)

 

RTOP has made an encouraging start to 2024, with £0.4m booked year-to-date,
representing a material part of the annual management plan. The majority of
the booked amount is subscription renewals of operational resilience software,
which has grown 10% over the equivalent renewals in 2023, and together with
customer retention in excess of 90%, demonstrates RTOP's ability to retain and
grow its customers in its core market.

 

In addition, RTOP has further increased its bookings to date with a material
restructuring of a customer contract delivering an additional c.£100k in
bookings to date, with the opportunity to increase this by an additional
c.£200k in the second half of the year.

 

2024 Trading outlook

 

Net revenue retention, the revenue that RTOP achieves from existing customers
after netting subscription renewals, upgrades, downgrades and up-sales, is
targeted at >120% in 2024, driven by the successful incremental 10%
increase in renewal fees, and the roll-out of a customer upsell program, which
is expected to deliver additional customer revenues throughout the year, and
generate a further increase in 2025 as customers add products during their
annual renewal.

 

The 2024 sales pipeline for new bookings of software and related services from
customers and new logos is currently £1.3m, with £0.85m in our traditional
Banking, Financial Services and Insurance sectors, and £0.45m in our newer
Manufacturing and Technology sectors. This pipeline includes several tenders
with leading blue-chip organisations and a national central bank in the
European Union. The bookings outlook would indicate the ability to perform
against management plan this year.

 

Funding update

 

RTOP continues to receive funds under the Shareholder Loan Agreement (SLA),
albeit with delays, and has received a total of £0.6m in funding in 2024.
This is achieved through the efforts of the majority shareholder which,
despite the initial setbacks post-listing, continues to demonstrate its
commitment to the Company. It should also be noted that the funds requested
and not received by the Company under the SLA continue to accrue interest
receivable at a rate of 15% against interest payable on funds received under
the SLA accruing at 10%.  Whilst uncertainty remains over the performance
under the SLA, the Directors continue to actively manage options to mitigate
funding risks, including alternative funding sources.

 

Ian Halliday-Pegg, CEO commented:

 

"With the market for operational resilience set to expand rapidly in 2024 due
to the DORA compliance deadline of January 2025, and the upcoming UK Critical
Third Party extension to the UK regulators' operational resilience
obligations, RTOP's focus on providing specialised and uniquely comprehensive
operational resilience solutions positions it to capitalise on this expansion
as financial services companies and their ICT suppliers strive to demonstrate
compliance, and drive efficiency and effectiveness from operational resilience
programs.

 

Initial progress on the strategic initiatives of subscription conversion and
the exciting, highly scalable InsurTech additional business line are tracking
against plan and herald a new era for RTOP as it moves away from its
historical business into high-growth, high profit repeatable revenues.

 

2023 has been a significant transition year for RTOP, both committing to its
operational resilience vision, and listing on the London Stock Exchange main
market to leverage capital markets and enable investment in strategic
initiatives to accelerate our growth.  As a result, whilst overall revenues
have reduced, the quality of revenues has improved - with the percentage of
recurring revenues increasing from 32% to 58% and increases in subscription
revenues year-on-year for our operational resilience solutions.

 

In 2024 the management team is focussed on executing the four-point new
strategic plan, and trading in 2024 has begun to bear out some of the
short-term plan with some positive increases, most notably in revenue
retention year-on-year as we build a strong recurring revenue base from our
customers to underpin the strategic growth initiatives. The pipeline of new
business in our traditional market is healthy, and our investments will enable
us to expand throughout the year to drive further growth."

 

- Ends -

 

Enquiries:

 

 RegTech Open Project plc

 Ian Halliday-Pegg, CEO    investors@regtechopenproject.co.uk

 

 

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