Acuity RM Group (LSE:ACRM) — Trading Update

0:00 Good morning, and welcome to the ACUITY RM GROUP PLC Investor Presentation. Before we begin, I'd like to submit the following poll. I'd now like to hand over to the management team, David. Good morning, sir. Good morning, and thank you, Charlie. Welcome to this investment company presentation on ACUITY risk management. My goal today is to leave you more informed about all the great progress that we've made over the over the past few months and even extending further further back in time. We are now a profitable operating company. We are primed for growth and executing our strategy.

0:49 Just first like to provide a couple quarter one highlights. So we've now achieved six consecutive months of profitable trading. This is from this is a large turnaround from what we had in 2024, when we lost around 800,000 in that year. So this has been, quite a year of transition and turnaround. Our revenue in q one was 441 k. We were only scratching the surface in terms of our growth. We expect stronger growth toward the middle and and especially in the in the last two quarters in h two of twenty twenty six. We've had a dramatic reduction in cost, and some of that continues and will will gradually hit the balance sheet or sorry. Excuse me. Hit the hit the p and l as we move forward in the rest of the year.

1:47 One major highlight is that we outdid management's own expectations in quarter one, achieving 619,000 of contracts won. We'll see on the next page, we now have more forward contracted revenue than we had prior to q one. We've launched so one of the most exciting parts of what we've done in q one is we've launched StreamCloud, which is our new product that we'll get further into as we go through the presentation. In terms of finances, so I I mentioned 441,000 in 2020 in q one revenue. 86% of our revenue is subscription based. We are quite sticky.

2:38 Much of that is in the public sector and specifically with, with the ministry of defense. So we've gained a strong foothold in that organization, and we continue to grow and spread ourselves throughout The UK public spec sector. We've had 37% admin cost reduction year on year. I mentioned we had 619 k new contracts won, which is above what we expected for q one. And our forward contracted revenue has actually grown in the last quarter to 2,100,000 from 1,900,000 in the previous quarter. We've had two consecutive quarters of profitable training, which is a dramatic turnaround from where we were in 2024 and since I've taken charge as CEO.

3:31 We continue to have a subscription heavy revenue mix. We we do have a service component, which we can which we expect to continue to do decrease over time. However, it will never completely disappear because what we can offer that some other software companies can't offer is very strong expertise in our area. So we are not just offering a tool, but we're offering the ability to use that tool to actually deliver outcomes for clients. The business is on a path to self sustainability, and we expect significant growth to start happening in h two of twenty twenty six. Just give you a little overview of of the market where I believe we're particularly well placed. So, unfortunately, for for the world, there is quite a rising threat of cyberattacks.

4:31 So there's increasing frequency and and sophistication. With AI tools now being directed at use being used for cyber attacks, we can expect this to continue and even even exponentially increase. There's gonna be a greater need and a there there's a greater need for board oversight. So boards, more and more, are being held responsible for their cyber posture. What this means is that there's gonna be an ever growing demand to move away from spreadsheets and go to more easy to use yet sophisticated tools that allow boards to have a fuller picture of what their cyber risk is, And ACUITY is well placed for that, not only now with StreamCloud, but in the future as we as we work toward a new AI native product.

5:33 The regulatory regimes that we've seen are only going to increase. So some of those that you see on the screen, in The U UK, there's a a cybersecurity and resilience bill that's that's working its way through parliament. There is so the EU AI act where enforcement begins later this summer, that's gonna contribute to an ever growing regulatory environment. There's there's going to be an increasing need for boards to have oversight and for even mid market companies, so we're talking those in the thousand to 5,000 range, to become more sophisticated in terms of what they are doing for their in their cyber defense. In terms of mid market opportunity, distribution is the key, and you'll see this as a trend throughout the software world. And we are well placed with our channel partner relationships to be able to distribute StreamCloud and any future products that we, that that we, deliver.

6:45 So we've got there's there are many large enterprise software players that are generally burdened by their legacy software systems. So they'll be less nimble, less able to change and adapt to new circumstances. So some of the major players take a tremendous amount of time, and there's there is a a great deal of unhappiness, and we've we've spoken to a number of their clients in terms of the time it takes and the value that they actually create. So we could be talking about six months, nine months, even up to eighteen months to install some of these larger enterprise vendor solutions. Whereas, especially with StreamCloud now and StreamClassic, we're able to quickly deploy and provide value to our clients in a much quicker way than than the rest of the competitors that we face.

7:47 In terms of mid market, we now have StreamCloud launched, and that product is a perfect fit for those mid market companies that are working. They're doing they're managing their cyber risk on spreadsheets, and there are there are there are a huge number of these mid market companies out there that are still working on spreadsheets that once we have which we now have this this very easy to use product that can take them off of spreadsheets and get give them give them value, give their boards visibility, and understand what they need to do on a daily basis to improve their cyber posture. So ACUITY is is well positioned. We've got this sticky revenue base in the public sector, and we've actually now got this new product that can expand us into a new customer segment. And I talked about some of this, but I'll go a bit deeper on StreamCloud.

8:45 So StreamCloud is a fully SaaS version, which means much faster updates. It's multitenanted. So as we, it's it becomes much easier to roll out improvements over time, and it gives us a much faster operating pace to be able to to change with the the change and adapt to a to a changing environment. We've now got much faster and easy onboarding. Clients can be up and running and getting value within days versus what used to take weeks and months to do. The other big unlock here is the channel partner relationship. So we've got some quite large, in some cases, defense contractors that are being asked by small and mid medium sized enterprises to help them become more mature in terms of their their cyber defense posture.

9:46 StreamCloud now gives us a simple solution that is easy to deploy that partners can quickly roll out to their client base. Why does this matter? So we are it's our first purpose built product for that commercial segment for the mid market. So we're talking 1,000 to 5,000 employees in highly regulated industries, such as finance, health care, manufacturing, and we've got a perfectly simple solution for them. In the future, we'll have a product designed for those clients that are early adopters that wanna go AI native, and we'll also have in our arsenal a more traditional yet much easier to use than other cyber GRC software providers that for those clients that aren't ready to make the leap into this this new AI native world. We've got our first prospects already in the pipeline within weeks of launch, and we've got a couple significant channel partner opportunities that could completely change, the picture for for ACUITY.

11:02 So just to as a I've mentioned a number of these products, but just to lay it out very clearly. So Stream Classic is our flagship product that The UK public sector and its defense contractors are using and provides us a very sticky revenue base. This is well proven, very much configurable, and we have a number of happy clients that that absolutely love to use Stream Classic because it gives them a a a huge amount of advanced modeling. It can be molded and adapted to fit their processes without a great, without any coding or without, with a without a great deal of resource on from our end.

11:53 We've also somewhat really recently reduced the vendor management hub. So this is our third party risk management solution that allows clients to to send out questionnaires and manage their questionnaires. For any of you that are operating in business today, you'll understand that you'll get security questionnaires based on spreadsheets, which becomes very unwieldy, and very difficult to manage, very difficult to keep updated. And vendor management hub is a very easy to to use solution that solves that particular challenge for mid market and even, and even more enterprise clients. We have a a per one client that is that is using it, very happy with it, that is an enterprise level client.

12:42 So it's proven that that it delivers value even at the at the top end of the market. StreamCloud, I've talked a great deal about this. Our SaaS product aimed at the mid market that it solves a very pressing need for those clients that are very that may be low or medium in terms of their cyber maturity, and they need to take a step up from using spreadsheets to having all of their risk assets controls all in one place and linked to each other to be able to describe to the board what their what actions they are taking to make themselves more secure. I'll just leave you with one last slide.

13:31 So in terms of what my priorities are for the for the current year is to grow sales and pipeline. Yes, please. I believe we're very well placed to do that with our revamped marketing efforts. So refining our positioning, our messaging. The work that we've done in over the past six months to a year where we've done AI engine optimization, so we're well poised to be discoverable by a larger number of these mid market clients. We also channel partnerships are a huge part of our strategy in terms of growing our pipeline. So we have existing relationships that are reinvigorated by the release of this StreamCloud product. Speaking of which, the a second priority is to be build the StreamCloud traction. So we've we've got this great product, very easy to use, super intuitive, and we just need to, just start getting it out there. And once people start using it, we know how easy it is to use, because we've put it in front of nonexperts, and they've they've just been able to immediately pick it up.

14:49 And once word gets out that that's happening, we believe that word-of-mouth will will help spread us spread StreamCloud into an ever increasing growing market beyond just the marketing efforts that we're that we're on that are already underway. Also, we're kicking off we we have kicked off a company wide project to leverage AI for efficiency. So AI and specifically Claude and and Claude Cowork and Claude for teams, can be leveraged to make every part of the business more efficient, and that's something that we're we're gonna be doing. The the beauty of doing that is that as we scale, it's not about reducing headcount even further.

15:40 We've done that. We've got a core streamlined team. But it's about as we scale, scaling efficiently without need to hire, hire a huge amount of people and all the the issues that that brings. So that project will allow us to scale once we get StreamCloud rolling. Eventually, as we have our AI native product, we'll be able to scale without hiring an army of new people, and that will be done through AI efficiency. And that concludes our presentation. We will now move into the q and a portion of of of this investment company presentation. Thank you both for updating investors today. Can I please remind investors to submit your questions just by using the q and a tab situated on the right hand corner of your screen? Feel a reference to recording of today's presentation will be available in the Investor Meet company platform shortly after the meeting has ended.

16:43 Guys, look, as you can see, we received a number of questions during today's presentation. If I could just hand back to the team to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Okay. Thank you very much. Hi, I'm Duncan. I'm the firm's Finance Director. I'll be fielding most of the questions, passing them off to David where appropriate. So you're right, we have had a few questions come in. I was going to start with a question we've had about how concentrated our current revenue base is. And the answer to that is fairly straightforward. We've got between fifty and sixty current clients. Their annual subscriptions vary considerably in size. There is some concentration within The UK public sector, but I think probably the most important point there is that although overall, the UK government is a is a is big and is the most significant customer to the company, those individual contracts all have separate decision makers.

17:47 So it's not that one decision by one person or one group of people could could take away all of those contracts. They're all made by different people. I mean, that has pluses and minuses. The the the plus is that it's all quite sticky. The thing that makes it challenging why we have account managers focused on on defense is that it it also means that to sell requires a a fair bit of effort and get to know new people and new new decision makers. But in terms of the stickiness of the revenue, that's really important that they they they have different decision makers for each of the each of the contracts. The next question or bit of the question I was asked about was about the how we see the future of the profitability of the company. We can't make future profitability forecast at this But David, do you want to talk a bit about, I guess, what caused the forward contract revenues to rise up to £1,200,000 from 1,900,000 and Some idea of of where the 619,000 of new contract revenues came from.

19:08 Yeah. So we have some exciting opportunities in the public sector. So we in q one, we've expanded further in our in terms of The UK public sector, winning another big contract. We have some exciting, public sector style, defense style contracts of which we've we've previous previously announced. So we've got a a proof proof of concept going on with a a a major defense contractor that involves multiple nations and multiple defense contractors. So I think the pipeline is is looking particularly strong. Yes. It's it is quite exciting to see forward contract revenues rise in q one, which hasn't been the case until an until recently. So it's just another piece of evidence to show what a turnaround that we have achieved so far. And I do wanna take this opportunity to say that Duncan is fairly new to the company for those of you who may not have been following along, and he's done an outstanding job in terms of both helping to look at the cost base and also to improve our profitability. So I think we're in really strong hands there. Thank you.

20:31 Okay. The next question we've we've we've got is someone's asked about whether we have a share price target for the next two to three years. The answer is no, not directly. And I wouldn't want to commit to a share price target. I think it is probably worth investors though being aware, which is obviously disclosed in the RNSs, etcetera, that the a lot of the share options held by the the executives have a performance they've an an an an excise price of of 3.75p, and they have a performance condition which requires the shares to have traded for five consecutive days at twice the excise price. So that's 7.5p.

21:19 So whilst we're not making targets, obviously, the executives are aware of the excise price and the share price targets inside the share options that they they they hold. Okay? So, hopefully I will say that I that I I wouldn't have joined ACUITY unless I saw the potential for rapid growth. So where we've been over the past year as a as a kind of established yet scrappy company is not what I see for the kind of company's future. So very much seeing this market that is out there in front of us and our new capability to be able to meet those new demands, not just right now, but also in the in the six months and year to come in this new AI native world, that has me very much excited about where this company can go.

22:20 K. We've also had a a follow-up question about defense sales. It says defense sales can take a long time. Do you have a clear and mutually agreed time frame with regard to those potential sales? The answer is to that is no, they don't. That's unfortunately not how the defense sector works. But perhaps, David, you could expand a bit more on how we approach selling into the defense sector. Yeah. The defense sec selling into the defense sector is much easier now because we are increasingly becoming the standard for cyber risk management in in The UK public sector, specifically in defense.

23:10 And there are I will say in the next couple quarters, there are significant opportunities to expand beyond where we currently are and expand in a meaningfully meaningful way. I don't wanna I don't wanna overpromise, but there is there are significant opportunities in the months and certainly the next couple quarters. Yes. I I think from my experience so far with defense sales is that there can be a lot of talking, a lot of procrastination, and then perhaps without a great deal of warning, suddenly an order will be placed. So Yeah. It it can be quite difficult to predict. Most of them do close.

23:57 There can be lengthy delays, unfortunately. But as I said, sometimes we get or quite regularly get surprised, and suddenly something will speed will speed forward. That is, yeah, that is the beauty. I do that is the beauty of defense contracts is that we do are we are relatively certain that they will come in. We're not always certain on the timing of that happening. But once they're in the pipeline, it's generally just about working its way through procurement. And sometimes, and and what is often the case is we then see that all of a sudden, becomes a priority, and then things move much quicker.

24:43 Okay. I was gonna take one more question, which was about the, I guess, publicity around cyber attacks that have been in in in the in the press and what you see perhaps, David, as the how that drives our our business? And do you see any difference between the types of cyber attacks that are that are coming through and how that that affects customers' desire to, to buy the the software. Yeah. Absolutely. In this new AI native world, cybercriminals and specifically state sponsored sponsored cybercriminals are becoming more active and becoming more effective. And, therefore, there is a an equal and appropriate response from western nations and specifically in the defense world that that need to respond to this. So, Stream Classic is a key part of, of that defense posture.

25:48 And I can't go into any details whatsoever about what's going on there, but suffice to say, there is there is an increasing level of attacks and increasing level of awareness that we need to be as prepared as possible. And to be prepared, you need to be well organized. It's not about specific cybersecurity solutions, but what Stream allows you to do and StreamCloud, for a different market segment, allows you to do is get yourself organized to understand what your priority actions need to be today in order to prevent cyber attacks in the near future. And there is an increasing awareness of that, and therefore, the market for our products and services is certainly well established and growing.

26:38 Okay. I think that was all the all dealing with all the questions that we've we've we've had in. So can I hand back to the Investor Meet company team? Thank you both for answering questions from investors today. Before we ask investors to share their feedback, which I know is particularly important to the company, David, perhaps I could ask you for a few closing comments. Sure. I wanna thank all you investors that have shown up live here to support us in addition to those that are watching afterwards. I really appreciate your support and your attention. I believe that we are on a trajectory to dramatically improve the performance of of what we've done over the past. And we've done the the difficult bit around cost cutting without cutting into our muscle, and now we are poised for growth.

27:34 It may not happen always in a in a linear fashion, or it may not be obvious to those on the outside. But suffice it to say that Duncan and I and everyone here at ACUITY shares your sense of urgency, And I would ask your patience and your continued commitment to to ACUITY, and I can personally promise that we will do everything we possibly can to deliver on that that patience. And I think you've seen quite a few signs that turnaround has already happened, and now it's really about scaling that and and taking ACUITY to the next level. Thank you both once again for your presentation this morning. I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations.

28:25 On behalf of the management team of ACUITY RM GROUP PLC, we would like to thank you for attending today's presentation, and good morning to you all.