Good morning and welcome to the Essensys plc investor presentation. Throughout this recorded presentation, investors wll be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen to simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself; however, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Mark Furness, CEO. Good morning, to you, sir.
Good morning, Alessandro . Thank you, everyone, and welcome to today's half-year results presentation for the period up to January 2024. Alongside me, I have Sarah Harvey, our Chief Financial Officer. Okay, so let's dive into H1 24. The story of that period for us is really about our pathway to profitability, and we've made significant progress as we've improved our operating losses and our Adjusted EBITDA loss, which has narrowed from GBP 0.5 million in the previous period to GBP 4.2 million in - sorry, the other way around, GBP 4.2 million -GBP 0.5 million in this period. That's really driven by a focus on simplification, operational improvements, and a real determined focus on improving our cash generation in the near term. Underpinning our progress in the period is really the two major contract expansions we've signed, both with global real estate brands.
We'll talk a little bit about those further in the presentation, but the headlines being a minimum of GBP 1.5 million of committed ARR, which we expect to be delivered by September 2025. Notwithstanding that, we've seen some downgrades with our largest customer. As they downsized, we expect to see that result in 90 sites not renewing with us in September this year. Underpinning everything we've been doing is really our focus on product innovation and investment. And they're still key priorities. And we've announced recently the launch of a Essensys Intelligence Engine, which is really a response to significant demand from customers for a better insight capability around office utilization and occupancy. I'll come back in a few slides to talk through the evolution of our product and proposition in the market.
For now, I'll hand over to Sarah, who will take us through a financial overview and operational highlights.
Thank you, Mark. Hi, everyone. I'll start with the financial review. So if we look at the highlights for the half-year, total revenue came in to GBP 11.7 million. That was down 9% year-over-year. And that really is the impact of adverse foreign exchange movements and a decrease in our non-recurring revenue. That's the revenue that customers spend with us to take a site live. We saw a lot of activity last year and less in the current year. What that meant is that we saw a $300,000 reduction in our gross profits, but actually our gross margins showed significant improvement. So overall, we're up at 60% gross margin. And that is driven both by the higher mix of recurring revenue, which is higher margin, and a higher recurring margin, which also improved by 3 percentage points in the period year-over-year.
Recurring is still the majority of our revenue. So 10.2 of the 11.7 was a recurring basis with our customers. So that's 87% of the total. As we've discussed previously, two-thirds of our revenue comes from North America. That's our biggest market, with the remainder coming from the U.K. and Europe. And APAC remains a growth market for us, particularly Australia there, which is growing nicely. As Mark touched on, the progression in our Adjusted EBITDA loss has shown significant improvement year-over-year, so nearly 90% improvement in that number from a $4.2 million loss - $500,000 loss. And that's reflective of the specific cost-saving activity we undertook over the last year, which we've spoken to the market about previously. And we closed the period with $3.5 million of cash.
So looking at the income statement, you can see how the revenue is made up there across the regions. You can also see the gross profit margin piece there with that improvement. We'll call out the improvement in the overheads there so you can see the reduction coming through. Last year, below EBITDA, we also had a GBP 500,000 exceptional cost that was related to the global restructuring that we announced this time last year and completed through half two. And that was actually completed during the first month of FY 2024. So in the period's results we have now, there was a small amount of cost in there as well. Moving on to look at our annual recurring revenue and what's happened since we last reported that in July 2023. We have effectively remained flat.
But what we are seeing is an improvement in our expansion revenue with new sites with existing customers and less of an offset with the lost sites there. Last time we were talking to you about our ARR movements, we were seeing a significant drag from our Operate Marketplace revenue. So those are our non-core revenues. But in the second half of last year, that was a significant drag on ARR. And what we're now seeing is a far more stable position with those two streams. In terms of the Adjusted EBITDA, we talked about that year-over-year improvement. So if we take the small decrease in the gross profit number, we see a significant improvement in the staff costs line. And that was specific to the restructuring that we did in the last year. You can see an improvement in other overheads.
That is a continuing improvement position as we continue to realize those cost savings through this year. So there is more to come there. And as we mentioned, closing at a GBP 500,000 loss has significantly improved year-over-year. Okay, the cash flow statement is here for reference. You can see there in terms of the bigger numbers, working capital, GBP 1 million of that was the unwind of the exceptional reorganization costs that we booked as a provision in FY 2023. And below, sorry, you can also see there the intangible cost. That's our capitalized development cost. That is lower year-over-year. And again, that's the impact of the decisions we made last year. So our cash outflow has reduced significantly year-over-year thanks to our restructure.
So looking at where those cash flows went, GBP 500,000 of the EBITDA loss, as we've discussed before, that GBP 1 million of the provision. And then we have other working capital, GBP 1.2 million, GBP 1 million of capitalized development costs, and $800,000 of lease payments. Moving on to our operational review, we closed the period with 474 sites. That's an increase of eight on the July year-end. So we're continuing that net growth trajectory after the period post-COVID of decline. We took live seven new customers in the period, of which six were strategic. And as a reminder, we classify strategic customers as those with the ability to bring us at least $1 million of ARR. And the reason we look for those customers is that it ties in with our strategy of land, expand, and grow.
We sign a customer, we expand with them into their portfolio, and then grow further. Customer numbers reduced by two. One of those was actually a consolidation of customers. We didn't lose any sites from it. It was a merger of customers. You can see there the people numbers, 114 people at the end of January, significantly reduced from the July number because of the restructuring we previously announced. Our Net Revenue Retention went backwards slightly, but still strong at 95%. That's really reflective of the activity and the lower recurring revenues in that first half of the year. Our LTV to CAC metric improved over the period because our margins are improving for those contracts, and our customer acquisition costs are also lower. You can see there the split of sites by region. As with the revenue, the majority are in North America.
Touching on the customer base, I mentioned we had seven new customers live in the period. We lost nine, one of which was a strategic customer that represented five sites. The remainder were small. And as we've said before, we do continue to see that churn at the low end of the customer base. That is continuing, but that has stabilized significantly. So particularly in the U.K., we've seen a reduction in that level of decline, both in customer churn and revenue. Our strategic customers now represent 84% of our total sites, 81% of our total revenue, which is up from 77% last time we spoke. And the Net Revenue Retention metric for our strategic customers is 103%, comparing with 95% for the wider base. As I said, we continue to have site growth in the period.
You can see on the right-hand side there that we saw some good growth in the U.K. and Europe, which was particularly positive after a period of decline in that region. The U.S. is in a slight negative decline. That is where the single strategic customer loss was with the five sites associated. APAC continues with all new, no churn in that region. Okay, I'll hand back to Mark for proposition and market evolution.
Thanks, Sarah. As we spoke at the start of this session, we're seeing a significant progression with major customers, those big global landlords that offer significant expansion opportunity. That's really demonstrated by the two MSAs that we signed in the period. Historically, we've worked on a site-by-site basis as we look to expand with a customer. These are examples of that move to work on a portfolio basis, where actually we complete a contractual agreement that commits to a minimum level of ARR. The first is with one of the world's largest privately owned commercial real estate companies. The challenges were really they were trying to solve the problem of how do they digitally enable a network of connected spaces for their whole tenant community across their portfolio of buildings. That initially we'll see a minimum of $1 million of committed ARR.
We expect that to be delivered by September 2025. The total opportunity with that organization is well in excess of 350 sites. The second one is with an Australian-listed REIT. That's a five-year term. Again, that commits to $1 million minimum ARR. That's U.S. dollars by July 2025. The initial sites that we see identified in the phase one rollout is 30 locations. But these are real milestone customer wins for us as we move from the land-to-expand phase. That's been offset by the news recently of an expected downsizing of our largest customer, which could result in up to 90 sites not renewing in September 2024. Just want to cover a little bit of the evolution of our business and our products to really the pure-play SaaS offering that we're seeing exist with our business today.
When we started in 2006, we were in a world where IT services were mostly delivered on-premise. It was a world where for the flexible real estate industry and the commercial real estate industry we served, so serviced offices and coworking back in 2006, that actually Essensys Cloud was a primary driver of our solution. It was our private network solution that allowed us to deliver phones, internet access, network services on a centralized cloud-based model. We started to develop software that controls that way back in 2006. That's evolved over time to where we are today, which is really we've moved from an IT tool to an Essensys Platform being a full business tool, which is really now driving to solve for how do I manage and onboard tenants in these spaces and offboard tenants?
How do I manage these spaces, the bookings of meeting rooms, the inventory? How do I understand how utilization happens in a building, who's in when, where, and how they're using the spaces? And that transition of value has really resulted in a decline in applicability of Essensys Cloud. Now, that's quite important because two-thirds of the revenues attributed to the downgrade that we've just talked about are attributed to Essensys Cloud. And that customer is actually not an Essensys Platform customer. They're on our legacy product in the U.S. of Essensys Connect. So what is Essensys Platform as a pure-play SaaS offer? Well, really, we've worked hard to simplify the proposition in the last two years, simplify the onboarding journey. Because, as Sarah mentioned, non-recurring revenues, CapEx, budgets remain under pressure.
And so we want to try and disrupt that and mitigate against that and make the onboarding journey easier. And we also want to offer in-product upgrades to really use the platform itself as a distribution engine for new capability. So what does Essensys Platform do? Well, in multi-tenant real estate, one of the major challenges is how do you onboard and offboard occupier tenants? How do you give them access to the spaces and the digital services they need when they need them? So our orchestration engine within Essensys Platform deals with that complexity and automates a lot of those workflows to make the onboard and offboarding of clients very simple and efficient. Recently, we've seen a big move by the commercial real estate industry to focus on insights. That's understanding how occupiers are using spaces, how those environments are being utilized, and also what's the experience like within.
We've recently launched Essensys Platform Intelligence Engine, which I'll talk about shortly. Finally, it's how do we enable a frictionless experience, a mobile-first experience in these buildings, in these spaces? How do you simply use your phone to open a door, to tap to book a meeting room? We've been working hard on a mobile-first approach and with developing some hardware that we've talked about previously to really transform that experience in the building. Obviously, our platform is an API-first approach, which makes it very interoperable with many of the best-in-class solutions for the commercial real estate industry. Just touching Essensys Platform Intelligence Engine, because this is an evolution of our product and a new capability that we're really excited about, and we launched only a couple of weeks ago. What's really the problem that we're solving here?
Well, the commercial real estate industry in office quite often reports on occupancy. So we've seen lots of data sets referring to contracted occupancy. So that really talks to the amount of space that is contracted by any customer. What that story doesn't tell is whether that space is being utilized. And in the world of hybrid and flex and flex working, that is really critical information. And the information that's available today is very low resolution and low quality. It's really driven by turnstiles and ID badge swipes, which is basically all of the data sets come from that source. That means that the quality of that data, the picture quality, is very low fidelity and very low resolution. It's siloed across sort of different systems. So it might be some turnstiles. It might be some Wi-Fi data. It might be some sensor data.
It really doesn't give the insights that the commercial real estate landlord needs to optimize their products and their portfolios for their users. So we launched an Essensys Intelligence Engine that's really using the proprietary data sets and the patterns that we can see to surface that data in a unique and compelling way, to help our customers increase and drive occupancy, improve yield around the utilization of these spaces, and reduce operating costs. And that's been since our soft launch a couple of weeks ago, it has been the number one driver of conversation demand that we've seen over the last few years. So a significant improvement in inbound inquiries and activity following the launch of Intelligence Engine. And I just want to touch then on having talked about Intelligence Engine and Essensys Platform being pure-play SaaS offers.
What that really means, that transition from the value of Essensys Cloud to Essensys Platform, what it means in terms of overall margin progression over time. So on the left-hand side, you can see how the margin of Essensys Cloud is delivered. If we deliver GBP 1 of ARR, GBP 0.60 of that revenue has costs associated to the delivery of or the connectivity to the building, connecting our data centers to those buildings on our private network. We normally third-party wholesale those services from a BT or an AT&T in the U.S. After the fiber costs, we see the core network costs, the operation of our private data centers. Now, we see some of that cost going through costs of sale. But we see some of that, actually, with regards to our data center leases, go below EBITDA. And actually, that's an IFRS 16 adjustment.
So our cash contribution, if you think of it on that term in terms of margin, the contribution margin, is somewhere between 10%-15% from the Essensys Cloud product. Now, Essensys Cloud and the Essensys Platform were tightly bundled for many years. Two years ago, we announced decoupling of Essensys Cloud from Essensys Platform so we could deliver Essensys Platform as a pure-play SaaS solution. That is our focus. That is our whole investment activity is all around Essensys Platform. And the underlying COGS for the Essensys Platform are our hosting costs with AWS. That runs at about 7% of revenue. That means that our contribution margin after cost of goods sold is really a mid-90%, so 90%-93% in terms of our gross margin.
Our focus on Essensys Platform will continue to lead to improvements in our gross margin performance, which will deliver net margin and cash flow performance improvements as we look out. Finally, I'd just like to touch on the commercial real estate market. Undoubtedly, we're seeing significant headwinds in the office market globally. The market, though, is beginning to clearly bifurcate into two types of product sets. There is the functionally obsolete products, which are older assets and office buildings that are very low function in terms of occupier amenities and services and are not really designed for the future of the way companies work and want to operate. At the top of the market, where we're seeing significant outperformance in terms of rent, in terms of occupancy and utilization, is really the premium products.
Those premium products can be those that have better amenities, shared services and spaces, so meeting rooms and coworking spaces, and bookable resources that are for the benefit of the whole tenant community in an asset. Undoubtedly, though, we still see budgets are tight. Sarah's reflected on how that's impacted our non-recurring revenues. Non-recurring revenues is something we're trying to mitigate. By moving our proposition to a pure-play SaaS offer, it really reduces the onboarding costs and the installation and setup costs that are traditionally under pressure because of tightened budgets. We can see, as the office market starts to stabilize, we can see those big customers, those strategic customers we're working with, deliver significant long-term opportunity, as evidenced by those two MSAs that we talked to earlier.
As a brief outlook as to where we are, our discipline around cost control and cash management has resulted in a significant reduction in our EBITDA loss, delivering over $8 million in annualized cost savings so far. We believe there are further cost savings we can identify in the months and years ahead. That's really around our focus on strategic customers. As we focus on those high-value, long-term, and significant expansion opportunity strategic landlords and global players, actually, we see the focus of our product and our proposition to those specific customers really starting to deliver an improvement in our operating environment and the customer penetration. That has to be focused, as our business is, on efficiency. That focus on strategic customers actually allows us to simplify our business. It allows us to improve the adoption journey for our customers.
We can be much more focused with our customers on how do we get you to value, so why do we reduce time to value, which lowers sales cycles, improves return on investment for our customers. Finally, underpinning all of this is our focus on innovation. We've developed a unique and compelling solution in Essensys Platform, which we believe, with the addition of Intelligence Engine and some future roadmap items, means that we remain very compelling for the world's largest commercial real estate organizations as they move to deliver a more flexible, more hybrid workspace and office answer to the market. Our vision is unchanged. We focus on powering the world's largest community of flexible, tech-driven spaces. With that, I'll briefly hand back to Alessandro, who can perhaps take us towards Q&A.
Perfect, Mark. Sarah, thank you very much for your presentation.
What I'll do is I'll just bring your cameras back up for the Q&A. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated in the top right-hand corner of your screen. But just while the company takes a few moments to view those questions that have been submitted today, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Dashboard. As you can see, we have received questions throughout today's presentation. And Mark, Sarah, if I could just hand back to you just to read those questions out and give responses, and I'll pick up from you both at the end.
Thank you, Alessandro. So I'll take the first couple I can see there. So Andrew, thank you. You say you referenced achieving over $8 million in annualized cost savings. Can you please elaborate on the specific measures taken to streamline operations and reduce cash burn? How sustainable are these cost-saving initiatives over the long term, and what further initiatives are you considering? So taking the first piece of that question first, the most significant element of the cost saving came through headcount reduction. And that was done in a phased approach. So the piece we started at the beginning of half two last year was to move to a centralized structure rather than the regionalized structure we'd built up. So previously, we had three separate regions with the separate staffing that went with it across North America, U.K., and Europe, and APAC.
The business is now run and supported in a central way, which enabled us to streamline the teams and do things more efficiently. That's had the knock-on impact of speeding up decision-making and increasing the level of collaboration. There were also various non-headcount costs that went with that. That would be things like offices in those regions. Towards the end of the year, that's when we announced the final part of that restructuring, which impacted some of the support functions and product and development. That related to the stage that the business was at at that time. That was the bulk of the $8 million. There are cost savings to come over time, because clearly, when you take that level of headcount out of a business, you don't need the same spaces, and you don't need the same volume of software.
So there are more coming through that. OK, the next question from Simon. Thank you. With 80% of revenue from strategic customers, how do you define these, and what is the concentration of revenue from them? So our definition of a strategic customer is one that has the ability to bring us $1 million of ARR. So we've been focusing on those because it gives us the ability to sign an initial site with them and land into their portfolio and expand quite rapidly. And as Mark referred to during the presentation, we're moving much more to a portfolio way of discussing those customers' needs. In terms of the concentration of revenue from them, our financial information discloses that our only customer that represents more than 10% of our revenue, so our largest customer in the half year, was 26% of revenue.
That's the one that Mark was referring to earlier on.
OK, I can probably take the next two. So again from Simon, what initiatives are in place to increase the recurring revenue, and what are your short-term targets and strategies to grow this? Well, Simon, we've actually been focused on this now for some time, I think in 2019, when we IPO'd the business. The mix of our customers looked very different. We had a very large, long tail of smaller, single-site, flexible workspace operators and coworking operators.
Our belief then, and increasingly our belief now, is that actually the commercial real estate industry at large, i.e., the landlords and asset owners that we all recognize, the people who own buildings like Rockefeller Center and Gherkin, these big global landlords, we believe they are responding now to the change in demand from occupiers and tenants for better quality spaces that enable flexible and hybrid working, more shared spaces, higher quality amenities. And so our focus on strategics has been there for some time. We've seen that improve our customer concentration and revenue mix. We've seen that improve our sales efficiency.
So if you think about how our opportunity to grow, as we talked about earlier, one of those customers, one of those major milestone expansion contracts, is with a commercial real estate company that controls hundreds of assets globally and operates them now, looking to be more flexible and more future-focused. The opportunity to grow with them is to around 350 of those assets we see as identifiable that we can help them solve some problems there. And so we expect, over time, that that account will grow significantly past that $1 million of committed ARR as we expand with them over time and further penetration into their portfolio.
It's important to note that that will come on the back of our continued push into product and innovations that meet their changing requirements, because this market's evolving and has been doing significantly, and probably most importantly to note, since the pandemic. OK, moving on. From Colin, how can we get the share price back to the levels seen in January, and what catalysts do we have? I'm clearly disappointed with share price performance in the recent times, and particularly since the pandemic. Our job is really to focus on our long-term creation of shareholder value. That really is all about efficiency, the right customers, prosecuting the opportunity, delivering long-term value to our clients. What that will do is that will drive the expansion opportunity, account penetration, and therefore future cash flows. It will be really that moment in time as we move to profitability.
I think people get very, very comfortable with the outlook in terms of cash generation. I think that will be one of the major catalysts for our share price to move. But again, I'm sure you've seen many, many companies. You'll understand that the dynamics work differently across many organizations. I think they're the key things that will start us moving. And hopefully, we see them soon. OK, I'm not sure I can see any more questions, Alessandro. So maybe I can hand back to you.
Yeah, Mark. Sarah, thanks for answering those questions for investors. And of course, the company can review all the questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, Mark, could I just ask you for a few closing comments?
Absolutely. Sorry, Alessandro, I just pushed the slides through too. Thank you. Well, listen, we continue to focus on the long-term opportunity. We are absolutely determined in delivering for our customers and delivering long-term shareholder value. So thank you for your time today, and wish you the best for the rest of the day.
Perfect. Mark, Sarah, thank you once again for updating investors today. Could I please ask investors not to close this session? As you know, I'll be automatically redirected to provide your feedback in order for the management team to better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Essensys plc, we'd like to thank you for attending today's presentation. Good morning to you all.