Results for the six months ended 31 August 2023

FD Technologies (AIM: FDP.L, Euronext Growth: FDP.I) announces its results for the six months ended 31 August 2023.

Business highlights

Strategic progress across the Group led by KX advancing its opportunity in AI

• KX performed in line with our first half expectations, with ARR up 15% to £69.3m; recurring revenue was up 23% with a significant H2 pipeline providing confidence in delivering our FY24 target of ARR growth of at least 35%
• Delivered a 4x increase in our cloud service provider (CSP) pipeline by working with their respective go-to-market teams following general availability (GA) during H1 of:
  • kdb Insights Enterprise as a managed application on Microsoft Azure;
  • AWS KX managed service; and
  • Customer self-managed kdb Insights and kdb Insights Enterprise in Azure, AWS and Google Cloud Platform marketplaces.
• Completed the shift in KX from selling solutions to selling software products, with shorter sales cycles and greater scalability driving growth from new product sales that is expected to exceed 60% CAGR from FY22 to FY24.
• Launch of KDB.AI, our vector database for real-time contextual AI, for enterprise use across industries which is generating positive developer and customer feedback and building pipeline.
• Multiple new strategic partnerships announced during H1 including AWS, Google, Snowflake, McLaren Applied, SRC and EIPGRID, further increasing routes to market and reflecting KX’s market-leading position in real-time predictive analytics and AI.
• First Derivative revenue declined by 1% due to increased spending caution among customers in H1, with measures taken to improve efficiency reducing the impact on adjusted EBITDA
• In this market, our expectations for growth have reduced for the current year and we expect the second half to be similar to the first half in revenue and margin
• Market conditions remain challenging and we continue to manage resources to meet demand, but we see evidence of improvement in our pipeline for projects to be delivered next year
• We retain our view that First Derivative can deliver 10-15% annual revenue growth through the economic cycle with an adjusted EBITDA margin of 15% by FY26
• MRP revenue stabilised in Q1 and grew in Q2 compared to Q4 FY23, in line with our expectations, and we expect further progress in H2, enabling us to reiterate FY24 guidance for an improvement in adjusted EBITDA over FY23.

Bringing investment forward in KX to accelerate growth

• Incremental £9-10m in FY24 investment in KX to maximise revenue from our CSP pipeline and to invest in product engineering and go-to-market to capitalise on range of opportunities in AI, driven by customer and partner demand.
• Targeting accelerated growth to £180m of KX ARR in FY26, representing compound growth of 45% per annum from next year.
• KX to achieve free-cash EBITDA breakeven by FY26 and margin of 20-25% by FY28.
• Investment funded from Group cash flows supported by debt facilities.

We will host an investor and analyst event in London on 29 November that will detail the AI growth opportunity for KX.

Group structure

In May 2021 the Board implemented, alongside its accelerated growth strategy, a change in Group structure to enable each of our business units to communicate its value proposition and maximise its growth opportunity. This strategy has been effective and the Group now comprises strong businesses with good competitive positions in large and growing markets. Each has a distinct investment proposition, resulting from their differing operating models, and therefore capital allocation requirements. In light of this, the Board has decided to undertake a preliminary review of the optimal organisational structure and allocation of capital to best position the Group to drive value for shareholders. The review is at an early stage and the Board anticipates the result of this review will be communicated to shareholders not later than publication of the Group’s FY24 results.

Seamus Keating, CEO of FD Technologies, commented: “We have continued to drive strategic progress across the Group in the first half, with KX highlights including the launch of KDB.AI and strong progress with our global partners. We delivered a resilient performance in First Derivative and MRP despite weaker customer demand in their respective markets and will continue to manage these businesses to protect margins while ensuring they are well positioned to grow as demand improves.

In May 2021 we set out plans for additional investment in KX accompanied by ambitious targets that called for rapid acceleration in ARR. Having exceeded these targets in each of the past two years, we stated in May 2023 our belief that additional investment in KX could further accelerate our annual growth rates to 45% plus. The breadth and scale of opportunities within KX, resulting in rapid growth in our pipeline, has convinced the Board that now is the right time to make this additional investment in both product and go-to-market. This investment is a statement of confidence in the prospects for KX and is accompanied by targets that would create significant value for shareholders.”

Financial summary

* Excluding lease obligations
** Adjusted for share based payments and restructure and non-operational costs

Financial highlights

• Group revenue down 3% to £143m (down 3% at constant currency), with good growth in KX recurring revenue, a broadly flat performance at FD and a reduction in revenue at MRP, in line with our expectations.
• KX revenue growth of 12% to £37.7m (H1 FY23: £33.6m), led by recurring revenue up 23% to represent 87% of total KX revenue (H1 FY23: 80%) with reductions in both lower margin services revenue and lower value perpetual license revenue. [Note that £4.6m of services revenue has been restated from KX to First Derivative in this period, with H1 FY23 restated by £4.2m to enable a like-for-like comparison. Further details are provided in the financial review].
• First Derivative revenue £89.1m, down 1% (H1 FY23: £90.4m), driven by increased customer caution from lower investment banking revenues; EBITDA margins are expected to be similar to the first half.
• MRP revenue down 33% to £15.7m (H1 FY23: £23.4m), although Q1 revenue stabilised and Q2 saw some growth compared to Q4 FY23 due to measures we have taken to sharpen focus and improve efficiency.
• Adjusted EBITDA down 12% to £14.0m (H1 FY23: £16.0m), principally due to a weaker comparative performance at MRP.
• Net debt £7.2m (H1 FY23: £7.4m) as we continue our focus on cash management.

Current trading and outlook

The Group delivered a resilient performance in H1, with good progress in KX and challenging market conditions in First Derivative and MRP. The growth in our KX pipeline, driven by our partnerships with CSPs and the recent launch of KDB.AI, provide confidence in achieving our target of at least 35% growth in ARR for the full year. In First Derivative, we anticipate similar market conditions through H2 with the efficiency measures taken to date mitigating the impact on adjusted EBITDA, resulting in an H2 revenue and EBITDA performance similar to H1. In MRP we continue to expect to deliver an adjusted EBITDA similar to last year.

At the Group level we expect FY24 revenue to be in the range of £285m to £295m. The additional investment in KX announced today is expected to result in a £9-10m impact to adjusted EBITDA in H2, resulting in FY24 adjusted EBITDA in the range of £24m to £26m.

Looking beyond the current year, we are pleased with the progress and momentum across the Group, particularly in KX where the partnerships with CSPs and launch of KDB.AI provide confidence in the medium-term outlook to accelerate our industry-leading growth rates.

For further information, please contact:

About FD Technologies

FD Technologies is a group of data-driven businesses that unlock the value of insight, hindsight and foresight to drive organisations forward. The Group comprises KX, which provides software to accelerate AI-driven innovation; First Derivative, providing consulting services which drive digital transformation in financial services and capital markets; and MRP, which provides technology-enabled services for enterprise demand generation. FD Technologies operates from 14 locations across Europe, North America and Asia Pacific, and employs 2,800 people worldwide.

For further information, please visit www.fdtechnologies.com and www.kx.com

Results presentation

A presentation for analysts will be held at FTI Consulting at 9.30am today, following which a recording of the presentation will be available on the Group’s website.

Read the full RNS release here