Intercede Group (LSE:IGP) — Interim results for the six months ended 30 September 2020

0:00 Good afternoon, ladies and gentlemen, and welcome to the INTERCEDE GROUP Interim Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Just simply type in the question in the box below and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your investor.me company dashboard.

0:32 I'd also like to remind you that this presentation is being recorded. Before we begin, I'd like to submit the following poll. And I'd now like to hand over to Klas Van Der Leest, CEO and Andrew Walker, CFO of INTERCEDE GROUP. Good afternoon to you. My name is Clas Van Der Leeste. I'm the CEO. And today I'd like to welcome both existing investors as potential new private investors and review the interim results that we will be sharing with you today. Andy Walker is also on the call. He's our CFO. It's our first meeting on the IMC platform, We clearly look forward to providing you with an update in the coming forty five minutes. Whilst this presentation is us presenting to you, we very much look forward to your questions and indeed your feedback. So without further ado, let's start and review the interim results for the period on the discussion.

1:29 So disclaimer, pictures clearly taken before COVID. We are quite relaxed nowadays in polos and T shirts. Agenda wise, provide you with a quick update on impact of COVID, a very short introduction to INTERCEDE. I will then talk about the high level KPIs in the summary scorecard, followed by progress report. In the progress report, I will focus on the high level objectives we set ourselves and in half one initiatives, I'll move on to how we achieve those objectives through our five gs strategy. I will then pass over to Andy, who will talk about the financials in the slide called Interim Results.

2:15 Moving on then, we'll be reviewing the market drivers relevant to our solution set, our positioning against those market drivers and indeed the full year outlook. And then up until that point, we very much look back in Section nine, what's next. I'll be focusing on our half two initiatives and indeed how we aim to position beyond half two into next fiscal year and then wrap up with a quick summary and any Q and A. So COVID, interesting start to the year. We invoked our BCP very early on in mid March, ahead of government lockdown, and we had everybody working remotely successfully.

3:03 We immediately started on transitional working arrangements. We started on risk assessment as stipulated by the government, and we COVID secured our offices in order to prep them for a safe staff return. Beginning of August, we had a trial, partial return to the office with some volunteers in order to test our policies and indeed one way traffic allocation around the various offices, and that worked successfully. We got really good feedback from the staff as well on how much time and effort we put into this. And indeed, in September, we had planned for a partial repopulation, 50% of the population in one week, followed by 50% of the population the next week.

3:53 But it was obvious in the beginning of September that infection rates were clearly increasing very, very rapidly, and before the government introduced Lockdown two point zero, we were already back home. At that point, we knew that we could work very successfully at home, so we took the decision to jump the gun and get everybody safe at home again. Good news in all of this is that all the deliverables we had from March onwards have been delivered and met, and whether they were revenue related or whether they were product road map related, we've seen incredible good productivity throughout the period, and we continue to see good productivity. As a business, we're probably quite lucky that we have a very technical community.

4:44 And literally, as long as they have access to connectivity and a laptop, they can work. And we've seen that working very, very well. We haven't furloughed anybody. We've had no redundancies. We've had no shorter working weeks. We've had no pay cuts. We've had no bounce back loans. We've had no nothing. We've been sailing independently, successfully in the last period. And if anything, we've actively been recruiting. Now clearly, staying in touch with staff is critical, and in a way, we were lucky that over a period of time, we switched to agile software development and a lot of the developers and well, all of the developers and indeed the testers are used to daily stand ups, and whether we do daily stand ups in the office or whether we do daily stand ups on Teams or Zoom, they work very, very effectively, and it's a good way to kick off the day and indeed stay in touch. More importantly, we urge all the line managers to contact their members of staff on a daily basis to make sure they are well, they are safe, they understand what they need to do in that given period, but also to look after their mental well-being.

5:58 We take this very, very seriously. And we've had one or two cases where individuals felt isolated. We've actually reopened our main office in Letterworth, Letterworth Hall, and we have a number of people who for a variety of reasons work from the hall. At the moment, it's about six or seven on a daily basis, and we want to make sure that everybody is happy in the working environment that they can indeed succeed in. We fully expect that everybody will continue to work remote, and as we prepared the presentation about a week ago, Boris has clearly made further announcement that he expects remote working to be effective life and actively pursued by the government until at least Easter, and we have no issues with that. We have a fully functioning team, and we will continue to function going forward.

6:51 From a sales perspective, which is when we've had quite a few questions over the last couple of days, our pipeline is growing, which is good. Our pipeline is maturing. That's good as well. Deal flow in The U. S. Has been really, really good. We've seen very limited impact from a U. S. Perspective. However, from a Rest of World perspective, we've been far more effective, and it's simply to do with countries in Europe, Continental Europe taking a very different view to lockdown compared to The U. S. For those who have followed us for a while, they know that in the past, roughly 70% of our revenues have been U. S. Generated. So the fact that The U. S. Has worked normally as far as we can see has actually been really good for business.

7:40 From a sales perspective, we've used the last six, seven months to really hone our skills and experience with remote presentations and demonstrations. We've got new presentation material. We've got new demo rigs. We've prerecorded a lot of material. So any inquiry coming in, we are ready to go from the get go, and we can present at very, very short notice. And in all of this, we've signed our largest new business deal during lockdown, which is good. You may have noticed two RNSs that were pushed out, one in August and one last week, where we've signed a net new business deal with Department of State in The U. S. Through a new partner called Guidehouse.

8:26 Total PO cover is close to $4,000,000 across the two RNSs, and the majority of that will be recognized in the current fiscal year. So COVID has definitely have had some impact from a sales perspective. I'll refer to that a little bit later on in some of the other slides. But generally speaking, operationally, we're working really, really well. We've had a few cases of COVID with individuals, but everybody has successfully recovered and is fully working. We have a pipeline that's continuing to develop, continuing to grow, so overall, we're in pretty good shape. So what does INTERCEDE do? INTERCEDE manages millions of what we call digital identities, and I'll define in the next slide what digital identities actually are. We do that for the most security conscious kind of organizations, and traditionally, they've been governments, federal departments, large enterprises, military and police. We've done this for more than twenty years. We probably have the largest pool of crypto certificate information in the business.

9:41 Have an awful lot of long serving members of staff who know this space inside out. We're based in Lutteworth in the Midlands, where we have two offices, and we have an office in Reston, just outside of Washington, ideally suited for the federal business. And for the last couple of years, we've been actively growing our global partner network. So that's all nice and well. Digital identities, okay, so what does that mean? What's the problem you're solving in the SEED? And that's probably best explained the back of this slide, because organizations and governments, they want to protect themselves against data breach, and reliance on passwords is still the number one cause of data breach.

10:31 As the slide indicates, over 80% of data breaches are caused by compromised passwords. You'll see this in the press frequently on a daily basis. There are data breaches coming out of them. Data breaches are costly and there aren't many ways to really prevent that unless you're willing to invest in policy process and application. Using multi factor authentication, two factor authentication or strong authentication is the best way to protect against data breach, and the strongest form of authentication is then the use of a digital identity. A digital identity is a private key from a trusted source on a secure device, and then you add a second sector like a PIN, a fingerprint, or a face ID to that.

11:20 So MyID makes deploying digital identities onto smart cards, onto USB tokens, virtual smart cards, or mobile devices simple, secure, convenient, and scalable. INTERCEDE has done this for the last twenty years, and we have a client base that is very recognizable from large US Federal Departments to other government departments, that's Singapore, whether that's Kuwait National ID Scheme, whether that's parts of UK government, they are the large or they include the large defence and aerospace players like Boeing, Allotin, Martin and Northrop to large banks, large telecoms operators, recognizable healthcare companies, and what's common across this installed base of clients is they tend to be with us for the long, long haul.

12:20 Earlier this week, I did a staff an all staff update on the back of the interims, and at the same time, as we were recognizing long service awards, five, ten, fifteen, twenty years, Andy also referred to the customer who's been with us for over twenty years and has indeed renewed their support and maintenance for the twentieth year running. So underlying message here is once these customers start using the MyID platform, they're in it for the long haul. We are a very good, solid, reliable, trusted provider of software that will provide the most critical assets. So that's enough about the background of the organisation.

13:06 Let's just look at a very high level then as to the interims, the last six months in a set of KPIs. So let's start with the revenue. Revenue up 9%, which is good considering the current global situation with COVID. We are absolutely convinced without COVID, we would have been in double digit territory. But nevertheless, we're really pleased with overall revenue performance. Cash has really moved forward. For those of you who've tried the company for a little bit longer, you probably know that I joined the company two point five years ago when the company was rapidly running out of cash. We're now sitting on cash for the reporting period just north of £8,000,000 When I joined, it was very close to £2,000,000 and draining fast.

13:59 Operating profits percentage wise looking very, very impressive. Clearly, we're starting from very low levels because this company was heavily loss making when I joined. But after year one, we were profitable. We are still profitable. It's not a fluke. We've delivered five halves of growth here on the key KPIs. When we look at cash, we look at revenue, we look at profitability. Pipeline, as I referred to earlier on, it's close to 30% up. It's not just pipeline in terms of absolute value. It's also the quality of the pipeline when we look at weighted values, and I actively track where the opportunities are coming from. Two, three years ago, a lot of the opportunities were purely coming out of the installed base.

14:45 Nowadays, 6066% of all net new opportunities are actually being generated as net new business, and they typically come through the partner network. So the time and the effort we're investing in the partner network is actually yielding quite significantly in our pipeline. Clearly, of this would be possible without a committed group and loyal group of colleagues. We actively measure EMPS, so that's the employee Net Promoter Score. It's a very harsh score, which can easily be negative, and it's very difficult to get positive because basically you're measuring the difference between those who are promoting you and those who are regardless detractors. We're pleased to see really good positive progression because this time around when we last won the survey, our EMPS score was positive 27, which is good. It means that the promoters are actively promoting the business to their friends and colleagues, and will positively talk about the business. That's in sharp contrast to where we've been before, and I'll provide a bit more color a bit later on.

15:55 So if we look at progress report, at a very high level, the goal has been very, very clear from the Board since I joined, get the business back to profitability, get the business back to sustainable revenue growth.

16:11 Originally, when we set out, I made clear to the Board that I think it would take a while before the business would be back to profitability, but we managed to get there after year one, and we've been profitable since. Cash, as referred to earlier on, is sitting very, very nicely at $8,000,000 and we have a very strong recurring revenue base. Andy will talk about this in his interim slide update, but recurring revenue here is very heavily driven by the annual support and maintenance. And when we combine that with customers staying on platform for five, ten, fifteen, twenty years, you can see where that recurring revenue stream has come from. We put a lot of time and effort over the last two years in building sales and marketing momentum.

17:01 Our pipeline is looking very, very healthy. I talked about the largest new business deal we've signed through Guidehouse in The US with Department of State. Guidehouse is the new inclination of PLC public services. They were taken private a couple of years ago. Guidehouse has got exclusive focus on the federal space, and we are part of a consortium that bid successfully into Department of State. For them, this is a very significant deal. They're offering they're consulting their system integration services, and we are the chosen credential management platform, and we are software provision as part of the overall solution. From a customer interaction perspective, traditionally, the company was regarded as quite defensive in terms of its customer approach. We put a lot of time and effort into that and in the next slides I'll provide you with a few initiatives that we are actively pursuing in order to drive more customer feedback into the company.

18:04 Operationally, we've moved away from a traditional waterfall approach to agile software development. We are releasing quarterly product releases at the moment. We're really driving innovation and R and D back into the platform. We dealt with some technical debts that existed in the platform. And we've really transformed from what was ostensibly a toolkit, which had arms and legs and tentacles in many, many different directions onto a proper software platform as you can see on the right hand side of slide.

18:42 MyID is now the standard off the shelf available piece of software. It's got three separate versions of software. Enterprise is exactly what it is. It's focused on the enterprise clients. PIF is a specific version that deals with compliance matters in the federal space, as well as defense and aerospace. And earlier this year, we launched MyID Professional, which is a mid market enterprise product focusing on 500 to 1,000 licenses upwards and it's sold on a subscription basis rather than a traditional perpetual license basis. So from a product perspective, we've made a lot of headway in standardizing the product. I talked about staff earlier on, how E and PS had moved from indeed minus 56, which was not good at all.

19:36 This is probably two years ago when we started the transformation of the business, but I'm pleased to report that E and PS is now positive. And the movement from negative to positive is very much being staff carried. So when we were at minus 56, I asked the staff, Guys, come on, I need help here. We need to address the issues, the underlying issues in the business from ground level up. I need a team of people who will work on this in addition to their day role and come up with a plan in order to address those issues. We have seven, eight people coming forward. They formed what we call the employee working group, and they have successfully come up with a plan, executed against the plan, and the fruits of that are very much driven in positive eMPS.

20:23 Also, if I look at the attrition at the moment, the attrition is at a three year low, which is very, very different from when I joined, when attrition levels were, to be totally honest, quite horrible. Of course, we'll continue to focus and we need to focus areas in order to create new reach in the market. We have a sales team of 10 people, that is five in The UK, five in Reston in The US. We can't create global coverage with that independently, but what we can do is

20:55 actively use the partner program in order to extend our reach in the same ways we're doing that with GuideHouse in The U. S. We have a whole host of other partners, both existing as well as new in a number of geographies where we're continuing to extend our reach into the market. Of course, that's all there to do one thing, it has to increase license sales. You know, we have high operational gear and we have incredibly high margin on licenses, so a lot of what we sell and recognize revenue for from a license perspective will drop to the bottom line. Financial control is actually a positive here for most people. Financial control is like, what does that mean? But actually, you know, joining and combining with Envy, we've maintained strong financial control, And that served us well in as far as when COVID hit, a lot of companies clearly had to mitigate their costs quite heavily.

21:57 We didn't have to we have been running a pretty lean and mean business for the last two point five years. We know exactly what the levers are. And again, Andy will provide more background on that. But we have extremely good cost control on the business, and we've made good progress in general terms. So this is about the objectives of the business, where do we want to go, how are we going to get there. So if we look at the initiatives, they are very much geared around what we call internally our five C strategy. It's a simple framework that everybody can understand as to where they play their role. The five Cs are a clear coat hanger that everybody can play a role in, and every time I do my staff updates and indeed many, many informal sessions, I repeat the same statement that guys work on one of these Cs on a daily basis, on a weekly basis, on a monthly basis, and if we collectively do that, we will drive this business forward, And I'm absolutely convinced that by keeping things simple and by giving our team in the seat a clear direction, they know where they can add the value in the business. So obviously, it starts with colleagues.

23:19 If we, as a management team, look after our colleagues, they in turn will look after the business and they in turn will look after the customers. Starts at health and safety clearly has been paramount, particularly in the current kind of climate. And in the last survey, it was very obvious that the staff really appreciated that we took the calls early to get them safe at home. We brought them back into COVID secure offices when we felt it was safe to do so. But as soon as we saw infection rates spiking, we immediately turned the clock back and said, Guys, work from home and we'll make things happen. The self appointed working group has really helped to drive the eMPS. And from a paid review and bonus perspective, when I joined, the staff hadn't seen pay reviews for the last five years. I did the deal with them, and the deal was simple: Help me to deliver the year.

24:14 I will reinstate pay reviews. So after year one, we were profitable. We introduced pay review. At the same time, we introduced a bonus culture. The bonus culture is not contractual, so more than 90% of our staff do not have a contractual right to a bonus, but we use that as a way to incentivize and a way to keep everybody motivated in the business to help us to deliver the year. We did that for year one. We've just done it for year two. So staff are getting more confident, more trust into the management team that we stick with our policy, deliver the year with us, and we will look after you. So that's the first C in the strategy. The second C is code. I'm convinced that we write the best code in our part of the industry. And the reason I say that is because our customers are incredibly happy with the platform we're providing, with the code we're providing.

25:11 Once our software has been provisioned, it works, and it works really, really well. It has very little maintenance from a client side perspective, and they know that it's a reliable piece of software. The other good guide I have there is in the number of tickets we're opening on a daily, weekly, monthly basis. The number of tickets that we open are incredibly low. We can close as many tickets in a month as we will open them. So there are very, very few outstanding tickets. We put a lot of time and investment over the last two years into the platform. I have to admit, we had to deal with some technical debt, but we have cleared a lot of that over the last two years. And version 11 is a very nice, clean, off the shelf piece of software with nice, simple installer.

26:03 11.6, as indicated here, has got a new REST React based client. It's responsive. It's clean. It's easy to work with, and customers really love the new interface. So we're getting really good feedback. Customers are clearly paramount in what we do and I referred earlier on to the fact that we are far more customer first driven And under the customer first approach, we have three clear initiatives. One is a client advisory board, something we started just over two years ago, where we actively engage our client base into the future direction of our roadmap. It's a 180 degree different approach to what the company did before, where the company very much developed in isolation.

26:52 We are now actively seeking the input. Last week, we ran a virtual client advisory board, virtual cab for North America. We had 65 clients contacts dialing in. We then split them up in different Zoom rooms. They then individually debate between them where they put the priority on different features. We will then bring them all back together. They will then discuss as a team where they think the next set of features should be and then what kind of priority. We then take that back into the business and will come up with a roadmap which reflects that. Of course, the first time we did this two years ago, there was probably a degree of skepticism as to yes, this is all nice and well, but in the seats, so what are you actually going to deliver? Well, because we've done this a couple of times now, our customers can now see that the new functionality is actually starting to appear into the product and onto future roadmap revisions.

27:52 We have good and indeed high levels of customer satisfaction, and that's reflected in the fact that we have very low levels of attrition. Our attrition in terms of revenue on the recurring revenue is in the 1% region. So it clearly underpins the fact that we have very, very low levels of attrition. The fourth C in order to drive the business forward is indeed channel. We launched our Connect Partner Program just before COVID, so timing maybe was not ideal. Despite that, we have actually signed up quite a few new partners in Europe, in Africa, in North America, and indeed, we're now starting to talk Latin America, where we're gaining interest. The partnership program is geared towards two specific types of partnership.

28:42 One is the technology partnership. So the technology partnerships are those technologies that we need to integrate with or to in order to deliver an end to end solution, And then on the other side, we have the channel relationships where they actively sell and resell our solution, and we've made really good steady progress on both sides. Of course, a lot of that is driven towards sales and co marketing and indeed training those partners so they are comfortable. The last C is particularly pertinent if we go back to the beginning where the company was running out of cash fast, you know, cash is king in this kind of business. So again, making clear to the staff that, know, if we look after the pennies, then the pounds will look after themselves. We've taken a very prudent approach to manage cash into the business, and you will provide a bit more detail in a minute on that. And then the last line is for those who are close to us and have or may have spoken to us before, you probably are aware that there is a convertible loan note sitting out there with a maturity in December 2021. Two point five years ago, we would have no real means of repaying a $5,000,000 loan note today with the amount of cash we have into the business and indeed the share price where the share price is higher than the conversion price, the conversion price is 69p, we're actually in a pretty good position where

30:13 we can deal with the loan, clean up the balance sheet and indeed take the coupon rate at 8% off our books and hopefully drop that back to bottom line. At this point, I hand over to Andy, who will talk about the interim results in more detail. Andy, over to you. Thank you very much, Claus. So I shall focus on the key numbers at a high level. Year on year, we've seen a 9% increase in revenue, and it's good to be able to report that there's growth across all three areas of revenue that we have. We're a software company, so we have software license fees. We also have associated support and maintenance, and that's forming an increasing part of our recurring revenues each year.

31:03 It's now up to 60% plus. And then the third area, which also is arguably repeat, is professional services and development, because that typically is round about the £2,000,000 mark each year. And that is both professional services and development for new customers who have particular requirements, but also for existing customers. And our customers tend to stay with us for ten plus years, during which time there may well be a number of upgrades, whether because another part of the solution is no longer supported at end of life, and therefore we help provide an upgrade path to get them onto a current product elsewhere, or because they're upgrading to a later version of MyID to get access to functionality that we've introduced.

31:54 So positive progress made on revenue, despite the difficult times that we're all operating under. As regards the operating costs, then as Claus says, as previously said, we reduced our cost base back in 2018.

32:09 We've been running things tightly since then. And given that we write all our own code, then staff costs represent 87% of our cost base both for this half year and for last year. So the movement during the year on headcount was we've increased from 82 to 83. So very consistent year on year, the only real exceptional being a relatively small one, which is that last year we sold a property and had

32:40 a profit of £50,000 from that sale. So operating cost increased 3%, with revenue being a larger increase, then that's enabled us to report a higher level of profit at all levels. So we've ticked up by £250,000 to £300,000 additional profit, whether we're talking operating profit, EBITDA or through to profit for the period. Those results for the first half in line with both internal expectations and those of FinCap, our broker. Cash balance performance has been particularly strong, with cash generated from operations increasing from £1,800,000 last year to £3,300,000 for the first six months of this year.

33:28 And that's, therefore, taking us up to a level of £8,000,000 plus, which, as Klas says, puts us in an increasingly good place to be able to steer a course through the loan notes being either repaid or converted. So happy to take questions when we conclude in terms of any more detail on financials, but I shall hand you back to Lars now for the remainder of the slides. Thank you, Andy. When we look at the market and particularly the market drivers, you heard me talk about data breach as being a really hot topic in the market, and that's really a good starting point from an INTERCEDE perspective. Clearly, the new normal, whatever that may be post COVID, whether it's remote working, hybrid working, office working, whatever version we're going to have in between, that's good for us. There is a lot of noise in the press at the moment that with a lot of people working remotely,

34:29 working from home, they are not using the corporate network, they may not use the VPNs that are available, and therefore there are additional threat factors out there. The same is valid for cloud, whether it's public cloud, private cloud, hybrid cloud, whichever cloud environment you regard or consider security, data protection, and compliance are absolutely paramount, and if anything, come even more to the front. We play in the area of strong authentication, so when people are logging in remotely, you want to make sure that the person who logs in is indeed the person who they claim to be, and that's the bit that we're resolving. Regulation is an important driver for us, particularly in The US markets. There are regulations out there which are generally referred to as FIPS two zero one in the federal space, also applicable in the defense and aerospace sector.

35:29 We had the first version of commercial off the shelf software available that was FIPS compliant. The good news is that FIPS two zero one is now also followed in other regions. So we see FIPS two zero one compliance being used, particularly in Asia Pac, who like to follow the North American standards, And indeed, that was one of the key drivers why we won our first deal in Asia Pac last year in Singapore. Market growth is always an interesting one. I frequently get the question, Klas, how big is this market? Unfortunately, the space that we're operating in, is no independent market data available, but we operate in the wider identity and access management space, of which there is a lot of data available.

36:19 I tend to look at the growth rates for these markets and the ambition that INTERCEDE needs to have is to meet or beat the market growth rates that are out there. So that's the left hand side of the slide. The middle part is a clear reflection that we have three distinct market offerings under the MyID platform. They are all off the shelf commercially available pieces of software. And then in the pinhead wheel on the right hand side, we try to explain where each version actually fits into the market. So myD PIFF is very much written for the federal market as well as defense and aerospace, and we're very well recognized in there.

37:05 MyD Enterprises is exactly what it says on the tin, but bear in mind that for all three versions, we've moved away from a toolkit approach. This is now standard off the shelf available software that can be sold and resold through our partners. MyID Professional is our mid market entry product from 500 to 1,000 licenses upwards, And that's actually been a very interesting introduction to the portfolio. Of course, it's generating its own opportunities and that's good in itself. What it has done is also given us an opportunity to have far more conversations into the market. So our channel partners lead with MyID Professional.

37:50 We then typically act as an overlay sales force. We will further qualify the opportunity. It may turn out that the requirements that the prospects have are easily served by MyID professional, in which case we have a good fit. It's sold on a subscription basis, so the barrier to entry for that specific product is very, very low. On the other hand, the client may have certain specific requirements or use cases that cannot be met by Professional, in which case we have an easy conversation and say, hey, this is not professional. Actually, we have MyID Enterprise that will meet, if not exceed your requirements. Therefore, we have the dialogue. In the past, without MyID Professional, we would probably not have been on the table, and therefore, we would have not been part of the commercial dialogue, and we would not have seen that opportunity in our pipeline. So we're actually seeing two things happening. There are incremental opportunities around MyID Professional, but that in itself is generating a secondary type of net new opportunity in the pipeline that's actually driving towards enterprise.

39:03 So that's the market. We then look at the outlook. If we start on the left, clearly, things weren't looking pretty. We were heavily loss making. We were burning a lot of cash. We stemmed that tide. We were profitable after year one in 2019. We continued the track in 2020. And I think we're all well on track to deliver the FinCap forecast for this year. Andy has already talked about the very high recurring element recurring revenue element we have. We're profitable. We're generating cash. The last two years, we've worked hard to reorganize the business and

39:42 basically make sure that we have a responsive front end, a much more professionally sales and marketing engine. We have built an indirect go to market network, but at the same time, we've also addressed the back end of the organisation. I recruited a new COO in, who is what I refer to managing

40:06 the factory. We're very much on to an agile delivery methodology now, and we're continuing to advance that as go downstream. But it is a responsive organisation who is held accountable, who are much closer to the customers nowadays, and therefore, they see far more progress in the business going forward. Without COVID, I'm convinced and Amy is convinced as well that we would have seen double digit revenue growth, but because the continental European market stopped to function in effect, we could not progress a number of deals we had in the pipeline. And the good news is these deals are not going away.

40:51 These deals are simply delayed. Countries are focusing on providing the best possible healthcare and therefore at this stage put less effort into getting digital identities up and running. But I think this is just a matter of timing. Clearly, we are in the kind of business that as a software company, we have high operational gearing, we have high margin on the software. So when we sell licenses, a lot of that will drop to the bottom line. And for the last two years, we couldn't have looked at any inorganic growth, but we're now in a position where the organization is fit for purpose. We have a product that's being transformed. We have a go to market model that's very much driven towards the channel.

41:41 So as and when opportunities for inorganic growth may present themselves, then we're definitely in a much better position, and clearly all of this is underpinned by our strategy, which I talked about earlier on in terms of 5Cs. So, so far, we very much look backwards as to what have we done over the last six months and what were some of the challenges we've addressed over the last two years. Far more exciting, I think, is the bit as to what's happening next. And there are some short term things that we need to do. We need to continue to focus on COVID, work with COVID, work around COVID, work prudently post COVID. I'm sure there will be a much longer tail.

42:28 I fully expect that February, March, April, we will still be dealing with the consequences of COVID. But as and when the markets normalize a little bit, I fully expect that we're well positioned to pick up the pace and indeed play a little bit of catch up. We spent a lot of time and effort in recent years in R and D and innovation. That actually brings me then onto the right hand side of this slide where you see a triangle. We refer to it as the strong authentication pyramid. At the bottom of the pyramid, the weakest form of authentication is passwords, and that's pretty much where we started with regards to the problem we're resolving.

43:15 As you move up the pyramid, the level of authentication gets stronger. So if you use one time passwords via SMS, yes, I admit it's two factor authentication. It is better than using a simple password, but OTP via password is not the strongest form of authentication, and there are plenty of cases out there in the public domain where this has caused security incidents across many, many enterprises. As you move up the pyramid, it gets stronger and stronger and stronger. When you reach the top end of the pyramid, PKI, that's the area where we play that's the area where you find the strongest form of authentication, which is very much recognized in the industry as the gold standard.

44:06 We have a lot of experience in that space. We've been trading for over twenty years, so we have a lot of knowledge in house. And more importantly, have the client base to underpin that. However, there is a different side to this pyramid, to this triangle, because it's also a good relative reflection on market size. And then when you look at the area where INTERCEDE has traditionally played, PKI is clearly visible, this much smaller slice of the triangle. So what we've done for the last eighteen months is actively engage with our client base in and through the client advisory boards and indeed outside of that. We've spoken to a lot of our channel partners with regards to, hey, what are your requirements? What do you see happening in the market? And indeed market analysts, we've engaged a number of market analysts to try and understand what they see happening.

45:07 And there's been a common theme from a number of areas here in as far as that FIDO has been called out by a number of our customers as an interesting technology in the enterprise space. FIDO, for those who are not aware, is an abbreviation for Faster Identity Online. It's an alliance that was originally set up to provide stronger credentials into the consumer space. So Andy Walker, at home for his private laptop could use a FIDO token to protect his personal laptop when he's logging into his Gmail account, logs into his bank, logs into Amazon, logs into his shared trading platform, etcetera, etcetera. And that works really, really well because the relationship between Andy and his key is one on one, and his wife may have one, and his daughter may have one.

46:00 So in that case, they're managing three FIDO tokens in the household, and that's all nice and well. The interesting bit about the FIDO tokens is because they're USB form factor, they've actually seen good uptake in the enterprise space, but here comes the challenge. When in the enterprise space, you suddenly need to manage 2,000, 3,000, 5,000, 10,000 FIGO tokens without a known management platform, this becomes impossible. Suddenly you cannot run this on a spreadsheet anymore. So the challenge that we were set by our clients and our partners was as follows: Can you INTERCEDE manage FIDO certificate credentials as well as the PKI credentials?

46:49 So we spent time and effort with the CTO and our Head of Product marketing and lots of our technical community trying to figure out how we could manage that. They came back, and we are now in a position where we can report back to our clients, and we have indeed reported back, that we can successfully manage FIDO tokens within our software platform MyID. So as of Q4 next year, we are adding incremental functionality to the platform where we are managing the traditional PKI strongest form of credentials, as well as the Fios credentials, as well as mobile authentication. So what we are doing is we're coming down the pyramid. We want to use the credibility we have in the top end of the pyramid to basically extend our addressable market into a much wider space.

47:44 And in effect, what we want to be known as is the unified credential management solution for companies who regard security as extremely important to protect their most valuable assets. So we want to come down that pyramid, and our access to market, as we discussed earlier on, is very much driven by the channel. So, you know, we've been expanding our channel in The US across Continental Europe, Middle East, across Asia Pac, as well as South Africa. And more recently, we are now also talking about Latin America. So our focus is very clearly geared towards extending the size of our addressable market.

48:31 Clearly, as outlined in the outcomes, what we're looking for is that we want to become the leader in the unified credential management space, so we actually provide a single pane of glass to manage credentials for the most security conscious businesses out there. We need to continue to work on that pipeline and indeed, you know, convert the pipeline and make sure that, you know, we have an increasing number of partners that become increasingly productive. When we talk about Guidehouse, yes, we have consumed one deal with them, but it's far more interesting to think about what other deals can we get in the pipeline jointly, and I'm pleased to report that there are indeed other opportunities in the pipeline that we will jointly pursue, and that's just one example.

49:20 So summarizing this, if we go back, the goal was get back to sustainable revenue growth and profitability. I thought reaching it would take two years. We got there after year one. So we exceeded that one. If we look at the scorecard for the first six months for the interims this year, I think despite the headwinds, we've delivered a very acceptable set of KPIs with growth in all areas. As discussed, we continue to invest in the product very, very heavily, not just in core functionality, but also in adding functionality so we can extend that addressable market. We're going to address that or serve that addressable market through the channel, which is why we've been very much front footed with our Connected Partner Program.

50:10 We're seeing the movement in the pipeline, and clearly, you know, we always want more and better quality pipeline, but you know, our pipeline today is materially stronger than twelve months ago twenty four months ago. Staff satisfaction is significantly improved as witnessed by the EMPS, as witnessed indeed by very low attrition levels, and we are getting really good feedback from the colleagues that we work with on a daily basis. The approach we've taken is one of crawl, walk, run. Two and a half years ago, we could barely crawl. We've managed to stand up. We managed to walk, and we started to walk quite nicely. As referred to earlier on, without COVID, we would have most definitely been in double digit revenue growth. It is what it is.

51:01 We can't change it, but I do believe that there is some potential pent up demand that eventually will get dislodged. I am impatient and he knows this very, very well. I always want to walk faster. I want to start running, but if I'm open and transparent with you, if I could have taken the position today, two and a half years ago, I would happily take it because I think it's a good starting point for the next phase of the business where we have a strategic plan that's underpinning very well what we do. We have an organisation that's fit for purpose. We have the sales and marketing team that's well oiled. We have a development and test team and wider technical community that's second to none in the industry. So combining that with the fact that we're going to extend our addressable market, I actually think that there's really good growth potential into the business, which leads me on to the next slide, and that's to thank you for your time.

52:02 And I can see that there are some questions coming in. So I'm going to hand over to Mark at the moment. Klaus, Andrew, thank you very much indeed. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor meet company dashboard. I'd also like to remind you that your feedback is important to the company and immediately after this presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Andrew, obviously investors had the ability to pre submit questions. We've received three.

52:47 I'd like to start off with the first one, which is, are there any prospects of a dividend? Well, Andy, I'm going to pass this one to you. Thank you very much, Klas. So in the short term, I guess the focus right now is on addressing the convertible. But beyond that, the good news of the cash generation over the past two and a half years is we've put ourselves in a position to be able to contemplate acquisitions and to be able to consider dividends. Thank you. The next question, can you give us an update on how well your partners are selling MyID Professional?

53:32 What are your plans to scale up the partner business? Let me take that one. There's clearly two separate questions there. If I look at the first one, partners are starting to embrace MyID Professional as part of their portfolio. It offers them a top end solution for the mid market enterprise through a subscription based pricing model, is attractive. The barrier to entry for the end clients is very, very low. They can start with very few tens of thousands of pounds and try top end technology. So hopefully that provides an answer to the first question. What are your plans to scale the partner business? As discussed in the presentation, we've launched our Connect Partner Program in February.

54:21 We've got dedicated partner managers in both The UK and The U. S. And we're starting to see some real traction in engagement with both technology partners as well as reseller partners. The partner program is there to scale INTERCEDE sales reach. And the coverage we can get with new partners indeed has resulted in new partners being signed up in Continental Europe, U. S, APAC, South Africa. And just to put this into context, if we look at half 90% of our new business was generated through partners. So I think that really underpins where this business is heading and hopefully that provides a good answer to the question. Thank you. And the final question, I know there has been a focus on customer interaction activities and in particular on a customer satisfaction survey. Can you provide some information on this and the results of the survey?

55:15 Yes. So obviously somebody has some insight knowledge as to what's going on because our customer satisfaction survey is live as we speak. We expect the real results before Christmas, so I haven't got an absolute answer. But based on the prior survey, we typically receive very constructive feedback, which will ultimately help us to drive the road map to improve processes. But it's also led to net new opportunities for incremental business. The survey is one of the three key pillars as part of our customer first approach. And just to repeat, the other two are client advisory board and client portal. Claus, Andrew, thank you very much indeed. Well, completes the pre submitted questions. Could I ask you perhaps to now look at the questions that are coming during the live event, just on the right hand side of your panel?

56:07 If I could please ask you to read out the question and then give a response where it is appropriate to do so, and then perhaps you can hand back to me before we wrap up. Thank you very much indeed. Okay. Let me just see. There's quite a few. Abi has got a question. Can you explain a little bit about the competitive landscape? Clearly, you have some very high profile customers that validate your business offering, but what sets up apart from others when tendering for business. I think it's a multifaceted answer and part of it is probably related because of our track record. We really understand this space very well, Abi. The other part is if I refer back to regulation 6,201 in The US, you need to have a platform that complies with that regulation.

57:01 So we offer that. More importantly, we have a platform that's very easy and open to integrate with and my idea, the best way to describe it, it's the central spoke or the central hub in a spoke kind of wheel. So we integrate with lots of third party applications and from day one, the platform was set up to integrate with lots of different third parties. Whether that's cards, whether it's tokens, whether that's hardware security modules, whether that's wider iDEM players, the platform is very, very open. So I think we really have a very strong offering, which sets us apart and we know what we're talking about. So next question is from Andrew.

57:49 Hey, Klas, do you see national ID schemes becoming more relevant, e. G. In facilitating access transactions as part of the pandemic or lockdown? Thanks. It's interesting. National ID schemes, we actually have a few opportunities in our pipeline. What we have seen at the moment with the pandemic is that these things have completely stalled. Countries, when we talk about national ID schemes, you know, they are focusing on the health and well-being of their citizens, and therefore the schemes that we might get involved in are currently in the longer term vision. Could they assist in lockdown experience?

58:36 Possibly they could, it really depends on what the end client wants to do now, what the country wants to do. So if I move on to Alastair, thanks for the presentation. On MyID Professional, how is the customer trial progressing? Actually, it's less of a trial. So the customer is not trialing the software. The customer is running a POC. So this is not atypical. The customers tend to start at a smaller kind of scale, prove out their use cases. Once the use cases are proved out, they ramp up. The customer we talk about here has started indeed small, but has got opportunity to grow to probably 8,000, 9,000, 10,000 licenses. Currently, it's running at 500 licenses, so it's got potential upside. How is the pipeline shaping up? This was part of the original presentation and I trust that's answered.

59:28 We've got a question from Jerry. I assume you are competing with much larger organization as security is critical. Why is the client choosing you rather than a larger, more established player? Well, I would argue more established is probably difficult in this space. We've been doing this, Jerry, for over twenty years. So we understand this space very, very well. If anybody wants to talk about credential management, I would put it out there that you would have to search quite hard in order to find somebody who's got more inherent knowledge in the business. So that's one part of the answer. There may be others that are larger out there, but when we've done some competitive research out, we're actually a reasonable sized player in the space we're operating in.

1:00:22 Moving down the list, we've got a question from Jonathan about scalability, potential and impediments. I think we've got really good scalability out there. Clearly, we're starting from relatively low numbers, but we've shown for the last five halves that we can record growth across revenue, across cash and profitability. And I do think with the approach we're taking around channels that we can significantly extend our reach into the market, then ultimately, we're a software provider. We provide a license key to anybody who wants to procure our licenses and therefore, there aren't particularly high barriers within the business to making that happen.

1:01:10 Our software is off the shelf. It's available. If somebody wants a license key tomorrow, they can get a license key. Moving on, Chris, following conversion redemption of the loan notes, do you have aspirations to introduce a dividend policy and when? I think the question was answered earlier on. Bruno has got a question about what's the size of the FIDO addressable market in dollars or sterling, Who are your top two competitors in the PKI space? I haven't got the market size figures available for Fido. Top two competitors, it really depends on which side of the pond you're looking at. We've got a number of competitors here in Europe that are different from the ones we face in North America.

1:02:03 So it's not easy to refer to top two competitors. Let's have a look. Next question, Martin, do you receive offers to buy the company and what's the BOD view on these offers? Well, clearly, as and when there might be offers, then that will be discussed at board level and it's not something I'm sure you understand, Martin, that we would go into detail into this conversation. But appreciate the question. Let's have a look. Chris has got a question. Can you give us a feel for a typical sales lead time and explain how long the Department of State contract took from start to signing?

1:02:50 Typical is probably defined in two separate areas. If we look at enterprise, it's probably between six and nine months pre COVID, currently a bit longer. If we look at federal awards, they tend to take longer simply because of scale, so they can easily be twelve to eighteen months. We know they have long gestation periods, but at the end of the time, you know, we have multiple opportunities in the pipeline, so we'll pursue those. We're used to the long procurement cycles, and we'll continue to pursue those. Hugh has got an answer. I know that CLASS holds 50,000 shares. That's right.

1:03:41 It's a well deserved option plan award sorry, it's a well deserved option award plan. Hugh, I need you to talk to the remuneration committee first. But on a serious note, there is a long term incentive plan in place. It's been published. It's actually aligned with the conversion price of the convertible loan note. So it's relatively transparent. I am well motivated to indeed get indeed the share price above 69p, and there are further thresholds on that for more options to be made available. So hopefully, that deals with the question. Here's a good question. And finally, one that I can pass on to Andy. Here's a question from Simon.

1:04:31 As your revenues grow, hopefully, how much will your cost grow? I think we've got a pre cut answer for this, Andy. Over to you. Indicatively, I think probably a good way to answer this, having had this question from one or two of our other investor meetings in the last couple of days. If revenues grow indicatively 50% to the sort of £15,000,000 level, then our expectation is that the level of headcount would be restricted to 10%, 15% growth and that should result in an operating margin of approaching 20%. So hopefully, that gives us flavor of that question and the operational gearing that we enjoy with a gross margin of high 90%.

1:05:23 Klas, I think that I think you've come to the end of the Q and A. I don't think you've missed one question. So, thank you very much. I'm also mindful of time and that investor feedback is important to you. Would it be possible if I just ask you perhaps to say a few words just to wrap up? Then obviously, I will direct investors to provide feedback. Yes. Thank you, Mark. Will do. Well, first of all, you for dialing in and indeed listening. We look forward to the second half, and that's despite COVID. We've delivered five halves of growth in all areas. We think our offering is very relevant in the current remote working environment and as a need witnessed by our sales as well as the ongoing pipeline development. We have a highly committed, loyal team of colleagues who day after day, I believe, deliver the best code in the industry.

1:06:14 We aim to deliver sustainable revenue growth and profitability. We believe we're on track to deliver this for the current fiscal year. Thanks again for attending, and we look to updating you again in June 2021. Lars, Andrew, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide feedback? If you access this meeting via the platform, the feedback page will appear. If you access it via the link sent to you via email, you'll simply be asked to log in to submit your feedback. And once again, we do apologize for the inconvenience that was caused at the beginning due to the slight technical issue that we experienced. On behalf of INTERCEDE GROUP and the management team, I'd like to thank you all for attending today's presentation. That now concludes today's session. Good evening to you all.