FD Technologies : Results for the year ended 29 February 2024

21 May 2024

FD Technologies plc

("FD Technologies" or the "Group")

Results for the year ended 29 February 2024

FD Technologies (AIM: FDP.L, Euronext Growth: FDP.I) announces its results for the year ended 29 February 2024.

Business highlights

Strategic progress despite short-term challenges, led by KX advancing its position in core markets and developing its AI opportunity

KX:

• Delivered constant currency annual recurring revenue (ARR) growth of 12% to £73m; recurring revenue increased by 19% and now represents 86% of KX revenue (FY23: 81%)
• Performance was impacted by lower pipeline conversion rates and lengthened sales cycles, resulting from a combination of having fewer repeatable use cases in newer markets and macroeconomic headwinds
• Annual contract value added of £14m, of which more than 80% was derived from repeatable use cases in our core markets of financial services and aerospace and defence; 19 new logos signed (FY23: 16)
• Launched KDB.AI, our vector database for real-time contextual AI, with initial sales during the period and a number of key technical wins with major existing and potential customers demonstrating its ability to drive growth
• Launch of kdb Insights offerings with Microsoft, AWS, GCP, Databricks and Snowflake providing reduced time to value and cost to operate, as well as signing partnerships with leading industry partners including McLaren Applied and SRC
• Release of kdb+ 4.1, which has redefined the high-performance analytical database landscape, marking a major step forward in our core technology and the first major release in four years
• Completed the KX leadership team with senior appointments including a Chief Revenue Officer, Chief Marketing Officer and Chief Product & Engineering Officer to drive the next growth phase of KX.

First Derivative:

• Revenue declined by 8% to £170m due to increased spending caution among customers, with measures taken to control costs and improve efficiency, enabling adjusted EBITDA margin to be maintained
• Areas of demand for our domain and technology skills mitigating lower spending on general technology skills within our customer base and leaving us well positioned when demand improves
• Improvement in bookings in Q4 FY24 but market remains cautious.

Group structure review

In October 2023 the Board announced a review of the optimal organisational structure and allocation of capital to best position the Group to drive value for shareholders. In March 2024 the Board announced that it had unanimously concluded that the separation of its three businesses was in the best interests of all shareholders.

As a first step, it was also announced in March 2024 that the Group had agreed an all-share merger of MRP with CONTENTgine, a provider of B2B technology buyer insights and lead generation. FD Technologies owns 49% of the merged entity, which is reported as discontinued operations in FY24 and will be reported as an associate investment in future years. FY23 has been restated to remove MRP to enable year-on-year comparison in performance.

The final step in the process is the separation of KX and First Derivative, with a measured and thoughtful process under way to ensure that any transaction reflects the value of First Derivative. Advisers on the process have been appointed and further updates will be provided as appropriate.

Seamus Keating, CEO of FD Technologies, commented: "FY24 presented challenges within our businesses but we made significant strategic progress and we enter FY25 with clarity and focus on the exciting opportunities ahead. While KX's ARR growth was below our expectations for the year, we have addressed the operational challenges and are well placed to execute on the enormous addressable market in the industries we are targeting. First Derivative managed its cost base to ensure that despite the caution in its customer spending, it maintained margins. In the early months of FY25, the market has remained subdued but with stable activity levels.

Looking to FY25, the conclusion of the structure review provides a clear path to value creation for shareholders while the operational improvements, focus on repeatable use cases and growing opportunity in AI provide confidence that KX will deliver stronger, sustainable growth."

Financial summary

Year ended February	2024	2023*	Change
Revenue	£248.9m	£254.6m	(2%)
Gross profit	£105.7m	£105.3m	0%
Loss before tax from continuing operations	(£7.7m)	£(0.4)m	N/A
Reported diluted LPS	(145.2p)	(14.4p)	N/A
Net debt**	(£14.4m)	(£3.7m)	N/A
Adjusted performance measures
Adjusted EBITDA***	£23.1m	£33.3m	(31%)
Adjusted diluted (LPS)/EPS	(0.7p)	36.3p	N/A

• FY23 has been restated excluding discontinued operations (MRP)
• Excluding lease obligations
• Adjusted for share based payments and restructure and non-operational costs

Financial highlights

• Group revenue down 2% to £249m (FY23: £255m), with gross profit flat as gross margins increased in KX due to increased software revenue, offsetting a decline in First Derivative gross margin from lower utilisation
• KX revenue growth of 12% to £79m (FY23: £71m), led by recurring revenue up 19% to represent 86% of total KX
  revenue (FY23: 81%) Note that £9m of services revenue has been restated from KX to First Derivative in the year, with FY23 restated by £9m to enable a like-for-like comparison. Further details are provided in the Financial review
• First Derivative revenue of £170m, down 8% (FY23: £184m), driven by continued customer caution resulting from lower investment banking revenues
• Adjusted EBITDA down 31% to £23m (FY23: £33m) as a result of accelerated investment in KX and lower revenue in First Derivative
• Net debt £14.4m (FY23: £3.7m)

Current trading and outlook

KX is expected to achieve annual contract value (ACV) added in the range of £16m to £18m in FY25, resulting in gross ARR growth of 20-25%. This ACV added is expected to be delivered from our pipeline of repeatable use cases in capital markets, aerospace and defence and high-tech manufacturing. The churn rate is expected to be similar to FY24 at approximately 8- 10%, driven by the renewal rate of solutions sold in prior years, before returning to normal range of 5-7% from FY26. This provides an ARR growth range for FY25 of 11-15% at constant currency.

KX cash EBITDA for the year is expected to be in line with FY24, with an expectation that KX will generate positive cash EBITDA for FY27. H1 FY25 has started positively and supports the Board's expectation of ACV added in the period in the range of £6m to £8m in H1 and £16m to £18m for the full year. From FY26 to FY28 we anticipate ARR CAGR in excess of 25%.

We expect First Derivative revenue in the range of £160m to £170m, at maintained EBITDA margins, based on continued caution on consultancy spending at our capital markets customers.

For further information, please contact:
FD Technologies plc	[phone]
Seamus Keating, Chief Executive Officer	www.fdtechnologies.com
Ryan Preston, Chief Financial Officer
Ian Mitchell, Head of Investor Relations
Investec Bank plc	[phone]
(Nominated Adviser and Broker)
Carlton Nelson
Virginia Bull
Goodbody (Euronext Growth Adviser and Broker)	[phone]
Tom Nicholson
Don Harrington
Jason Molins

J.P. Morgan Cazenove (Broker)	[phone]
James A. Kelly
Mose Adigun
FTI Consulting	[phone]
Matt Dixon
Dwight Burden
Victoria Caton

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 and First Derivative, providing consulting services which drive digital transformation in financial services and capital markets. FD Technologies operates from 13 locations across Europe, North America and Asia Pacific, and employs more than 2,400 people worldwide.

For further information, please visit www.fdtechnologies.comand 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.

Business Review

FD Technologies comprises KX, software to accelerate AI-driven innovation; and First Derivative, providing consulting services which drive digital transformation in financial services and capital markets.

KX - the high-performance analytics database engine for AI-driven innovation

KX's mission is to accelerate data and AI-driven innovation with high performance analytics database solutions, enabling our customers to transform into AI-first enterprises. KX is trusted by the world's top investment banks and hedge funds, aerospace and defence, life and health sciences, semiconductor, telecommunications and advanced manufacturing companies.

Time series and vector data analytics and management are at the heart of our products, independently benchmarked as the fastest on the market. They help our customers process data at unmatched speed and scale and empower line-of- business leaders, developers, data scientists, and data engineers to build high-performancedata-driven applications and turbocharge their favourite analytics tools in the cloud, on premise or at the edge.

In FY24 KX achieved significant technological milestones including:

• The introduction of KDB.AI, expanding our product suite with a vector database that offers unmatched analytical capabilities
• The launch of a kdb Insights Enterprise offering with Microsoft and kdb Insights offerings with AWS, Databricks, GCP and Snowflake, each presenting a compelling value proposition, greatly reduced time to value and reduced cost to operate
• The launch of kdb+ 4.1, providing significant updates in performance, security and usability and empowering developers to turbo charge workloads
• Expanded features and capabilities of our language interfaces and tooling including Python, SQL and also Visual Studio Code. For example, our native Python-first interface, 'PyKX', now has more than 150,000 downloads and is central to our sales pipeline and ability to win new logos.

Industry forecasts by Gartner highlight significant annual investments across non-relational databases ($54bn), analytics and business intelligence platforms ($26bn), and data science and AI platforms ($24bn), with growth rates ranging from 20 to 25% annually.

Commercial progress

During FY24, the KX business added £14m of annual contract value and ARR grew by 12% (at constant currency). The lower than expected growth in ARR bookings was primarily as a result of lower than expected pipeline conversation rates, particularly with respect to new offerings and new channels. Furthermore, in the current macroeconomic environment customers are scrutinising their IT and cloud spend with renewed focus on operating costs. This resulted in lengthening sales cycles for larger purchases.

As a demonstration of strategic progress and return on recent investments, over 40% of new bookings in FY24 came from industry segments outside of capital markets; 25% of our new bookings were in Aerospace & Defence and 10% in semiconductor manufacturing, working with our OEM and systems integration industry partners. Furthermore, approximately 90% of our new bookings are from strategic products as opposed to solutions.

During FY24 we made additional investment to underpin our generative AI product offering and in FY25 we will optimise our cost base to focus our investment on the areas of highest return.

Leadership

During the year we made multiple key hires within the KX executive team, including a Chief Revenue Officer, Clint Maddox, who has a track record of sales leadership success in enterprise technology and channel distribution; a Chief Marketing Officer, Peter Finter, who has experience building marketing strategies at hyper-growth technology companies; and a Chief Product & Engineering Officer, Michael Gilfix, who has a track record building scalable global software product businesses for the enterprise market. We continue to invest in sales and marketing, strengthening and evolving our go- to-market team at all levels.

Opportunity for KX in the AI era

During FY24 we reinforced the position of kdb+ as the go-to database and query language for high-performance data analysis and model development. The rise of AI and the vast Python ecosystem present exciting opportunities that are seamlessly bridged by PyKX, our Python-first interface, and the collaborative environments of kdb Insights and Insights Enterprise. Now, KDB.AI further enriches this landscape, providing powerful tools specifically tailored for AI-driven applications and data platforms such as the AI Factory concept.

At the heart of the AI Factory, KX delivers a high-performance, scalable, and efficient analytics engine tailored for processing time-sensitive data. Our mission is to empower enterprises across various sectors to leverage the immense power of their data for insightful discovery, operational efficiency, and effective risk management. Aligning with the expansive market potential identified by industry experts, KX focuses on driving innovation and value, sidestepping the granular market size specifics for individual verticals.

Go-to-market priorities in FY25

The unique capabilities and differentiation of KX technology continue to be consistently confirmed by our customers and partners. It is from this base that we have built our growth plans. The key drivers of sustainable growth in FY25 and beyond are:

• Disciplined focus on established, repeatable use cases in capital markets leveraging standard configurations with options for cloud and on-premise infrastructure
• Continued investment in aerospace and defence leveraging our partnerships with Cloud Service Providers (CSPs) and specialist systems integrators
• Working with established OEM partners and channels to target customer wins in semiconductor and high-tech manufacturing
• Continuing to work with the CSPs on joint market propositions in capital markets as well as generative AI and as an OEM component within sector-specific solutions
• Accelerating work with customers to validate differentiated use cases within generative AI and generate market share.

First Derivative - driving digital transformation in financial services and capital markets

First Derivative is a capital markets focused consultancy that delivers a combination of deep domain skills and expertise in relevant technologies to enable its customers to meet their most demanding technology challenges. We are a trusted partner of leading investment banks, putting business outcomes at the centre of what we set out to achieve.

First Derivative delivered revenue of £170m for the year, down 8% from the prior year as a result of the challenging conditions in its market. FY24 contained a number of challenges for the global consulting industry as companies around the world reigned in spending. In particular, the failure of Silicon Valley Bank in March 2023 started a chain reaction among a number of US mid-tier banks. These events led most banks to halt spending on new initiatives and even cut back their spending on existing contracted engagements. 

The timing of the downturn in customer spending coincided with the completion of two major projects, resulting in a higher than typical bench that required some rightsizing to return to normal levels.

Market conditions did not improve through the year, as recession and the global political environment impacted customer confidence. Reduced income from mergers and acquisitions and IPOs resulted in customer budgets, including for technology, being cut further.

Later in FY24, some stability returned to customer spending with a growing need for change within our customers. Spend on compliance also improved later in the year given the regulatory change agenda over the next few years. These factors provide optimism on customer spending when technology budgets improve.

Despite the challenging conditions of reduced customer spending there has been an improvement in bookings in Q4 FY24.

While we are confident about the market fit of the services we provide, our customer relationships and our abilities, we continue to take a conservative view of near-term demand while positioning ourselves to benefit from a return to growth as customers release their technology budgets.

People

The Group currently employs more than 2,400 people, down 18% from the same time last year as a result of the merger of MRP with CONTENTgine and cost optimisation in First Derivative. Our people policies are one of three key pillars on which our corporate responsibility and sustainability are designed, enabling us to attract and retain the talent needed to execute our growth strategy.

During FY24, we focused on developing our leadership and continued to pay particular attention to learning and development. Across our business and particularly within KX we hired key talent to lead the execution of our strategy, while identifying and developing our existing leadership talent through internally developed programmes such as the Aspiring Leadership Programme. This programme offers a structured and practical path to fast track high-potential individuals into leadership roles. We also evaluated and benchmarked every employee across the Group to ensure everyone is paid competitively and continue to foster a culture of high performance and feedback.

Despite the challenging market conditions in FY24 we adopted a focused approach to talent acquisition to ensure that we were hiring the right people for the right roles at the right time. Our focus for FY25 is to continue with planned recruitment to serve our growth strategy while further developing our training and development programmes to cultivate our talent.

Financial review

Revenue and Margins

The table below shows the breakdown of Group performance between KX and First Derivative.

		FY24			FY23*
	Group	KX	First	Group	KX	First	Group
	Derivative	Derivative	change
	£m	£m	£m	£m	£m	£m
Revenue	248.9	79.1	169.7	254.6	71.0	183.6	(2%)
Cost of sales	(143.2)	(17.2)	(126.0)	(149.3)	(16.9)	(132.3)	(4%)
Gross profit	105.7	62.0	43.7	105.3	54.1	51.2	0%
Gross margin	42%	78%	26%	41%	76%	28%
R&D expenditure	(31.1)	(30.2)	(0.9)	(23.4)	(23.0)	(0.4)	33%
R&D capitalised	24.8	23.9	0.9	19.4	19.0	0.4	28%
Net R&D	(6.3)	(6.2)	(0.1)	(4.0)	(4.0)	(0.0)	58%
Sales and marketing costs	(40.1)	(31.8)	(8.2)			(15.3)	(4%)
(41.6)	(26.3)
Adjusted admin expenses	(36.3)	(18.8)	(17.5)	(26.4)	(11.0)	(15.5)	37%
Adjusted EBITDA	23.1	5.1	18.0	33.3	12.8	20.5	(31%)
Adjusted EBITDA margin	9%	6%	11%	13%	18%	11%

* FY23 has been restated excluding discontinued operations (MRP)

The revenue performance was led by 12% growth in KX while First Derivative declined by 8%, resulting in a 2% decline in Group revenue in the period. There was no appreciable currency impact on results due to similar average dollar FX rates this year compared to last year. Gross profit margin increased to 42% (FY23: 41%), with performance led by KX. During the year we announced we would accelerate investment in KX product development and go-to-market, particularly to target opportunities in AI. As a result, KX R&D cost increased by 31% and sales and marketing cost by 21%, supporting the launch of KDB.AI and contributing to our go-to-market capability. In addition, we continue to invest in people and systems to target the high growth markets in which we operate. These investments, together with the revenue reduction at First Derivative, resulted in adjusted EBITDA declining by 31% to £23.1m (FY23: £33.3m).

Reclassification of KX service revenue to First Derivative

During the period we transferred professional services contracts relating to post implementation consultancy and development from KX to First Derivative, where it is better placed to be serviced and grow. The numbers stated above reflect this change and the prior year results have also been restated to enable like-for-like comparison. The impact in the period was to move £9.0m of KX services revenue to First Derivative (FY23: £9.3m), along with £5.6m cost of sales (FY23: £5.4m) resulting in an impact on gross profit of £3.4m (FY23: £3.9m). A £0.1m movement in adjusted admin expenses (FY23: £0.1m) resulted in a net movement in adjusted EBITDA of £3.3m from KX to FD for the period (FY23: £3.8m).

KX
		KX total			Financial services		Industry
	FY24	FY23	Change	FY24	FY23	Change	FY24	FY23	Change
	£m	£m		£m	£m		£m	£m
Revenue	79.1	71.0	12%	62.5	59.7	5%	16.6	11.3	48%
Recurring	68.4	57.6	19%	56.4	50.2	13%	12.0	7.4	62%
Perpetual	2.3	1.6	45%	0.1	0.2	(76%)	2.2	1.3	64%
Total software	70.7	59.1	20%	56.5	50.4	12%	14.2	8.7	62%
Services	8.5	11.9	(29%)	6.0	9.3	(35%)	2.4	2.5	(4%)
Gross profit	62.0	54.1	15%
Adjusted EBITDA	5.1	12.8	(60%)

KX delivered 12% revenue growth in the period, driven by 19% growth in recurring revenue to £68m, balanced by a 29% reduction in services to £8.5m. The reduction in services reflects the increased ease of adoption of our software and therefore lower level of implementation services required. Annual contract value (ACV) added was £13.5m (FY23: £18.7m), with more than 80% of ACV added coming from repeatable use cases in capital markets and aerospace and defence. Revenue from perpetual license sales relates primarily to continuing customer engagements entered into before our decision in FY22 to focus exclusively on subscription sales for new customers.

Financial services revenue grew by 5% to £62.5m, with recurring revenue in financial services up 13%. We continue to benefit from adoption of kdb Insights by existing and new customers, attracted by its performance, ease of use and rapid time to value, as well as native integration with important developer languages such as Python and SQL. We had several new customer wins in the period driven by the release of PyKX, our Python-first interface, which now has more than 150,000 downloads.

Industry revenue grew by 48% to £16.6m with recurring revenue growing by 62% to £12.0m. This growth was primarily attributable to aerospace and defence and semiconductor manufacturing, where we have developed repeatable use cases that represent large and growing market opportunities.

For target markets outside of those referenced above we will work primarily through our partner networks of CSPs, OEMs and systems integrators to develop use cases that provide compelling return on investment.

Performance metrics	FY24	FY23
Annual recurring revenue (ARR) £m	72.5	65.3
Net revenue retention (NRR)	109%	119%
Gross margin	78%	76%
R&D expenditure as % of revenue	38%	32%
Sales and marketing spend as % of revenue	40%	37%
Adjusted EBITDA margin	6%	18%

Change

11%

ARR increased by 11% to £72.5m while NRR of 109% is lower than the 119% achieved in FY23 principally due to the lower level of ACV added in the period. We continue to invest across KX to develop products that will enable us to gain market share in our target markets and to address the AI opportunity, as well as the go to market capability and leadership to deliver our growth strategy.

First Derivative
	FY24	FY23	Change
	£m	£m
Revenue	169.7	183.6	(8%)
Gross profit	43.7	51.2	(15%)
Adjusted EBITDA	18.0	20.5	(12%)

Revenue for the period was £169.7m, a decline of 8% on FY23 as a result of increased caution at our customers as a result of stress on banks following the collapse of SVB, as well as lower IPO and M&A activity impacting the income of our investment banking customers. Additional factors such as geopolitical and recessionary pressure prolonged this caution, although late in FY24 we saw stability in both revenue and bookings.

Performance in First Derivative was strongest in its technology services and engineering services practices, which were both stable year on year, while the business services practice decreased by 16%. We continue to focus resources and sales effort in the areas of highest demand and where our domain expertise provides differentiation from our competitors.

In response to lower activity levels we removed approximately £9.0m of annualised operating costs, while simplifying the sales, delivery and practice management of the business. This, together with an easing of the attrition and wage inflation, has reduced the impact on margins as detailed below.

Performance metrics

FY24 FY23

Gross margin	26%	28%
Adjusted EBITDA margin	11%	11%

Gross margin was 26%, a decline from 28% in the prior year, for the reasons outlined above, while the impact of our efficiency measures enabled us to maintain an adjusted EBITDA margin of 11%.

Group Performance

Adjusted EBITDA

The reconciliation of operating (loss)/profit to adjusted EBITDA is provided below. The principal movement to note is the reduction in non-operational IT expenses following the successful implementation of the Group's Oracle Cloud Fusion ERP system.

	FY24		FY231
	£m		£m
Operating (loss)/profit	(2.4)	1.0
Restructure and non-operational costs	3.8	7.0
Non-operational IT expenses2	1.1	5.6
Share based payment and related costs	1.4	0.4
Depreciation and amortisation	19.2	19.3
Adjusted EBITDA	23.1	33.3

1FY23 has been restated excluding discontinued operations (MRP)

2 Non-operational IT expenses represents ERP implementation costs that are required to be expensed under accounting standards