SmartSpace Software plc (LON:SMRT), the leading provider of ‘Integrated Space Management Software’ for smart buildings, commercial spaces and hospitality, has announced its audited final results for the year ended 31 January 2020.
Note: The Enterprise software division is treated as a discontinued business in the accounts as the decision to sell the business was taken prior to 31 January 2020
· Revenue from continuing operations of £5.1 million (FY19: £2.9million)
· Adjusted LBITDA* (£1.67 million) (FY19: £1.75 million)
· Total gross profit of £2.1 million (FY19: £1.1 million)
· Administration expenses of £4.3 million (FY19: £3.2 million)
· Cash and cash equivalents at 31 January 2020 £2.6 million (FY19: £8.0 million)
Operational Highlights: Includes post review period
Transition of software business to a pure SaaS business
· In line with the Board’s strategy of focusing the software business on a SaaS model, on 13 August 2020 SmartSpace completed the sale of the entire issued share capital of SmartSpace Global Ltd and certain contracts of its US subsidiary (which together comprised the Enterprise software division) to Four Winds Interactive, for an initial consideration of £4.6m:
o Payable in cash on completion, together with a further deferred payment of £0.4m, payable on receipt of R&D tax credits from HMRC.
· Significant progress made in developing the SaaS business, both organically and through acquisition with SwipedOn, (acquired in October 2018) growing its annual recurring revenues by 93% during the year to NZ$3.6m:
o At 31 January 2020 SwipedOn had 3,896 customers operating out of 5,280 locations (Jan. 2019: 2,713 customers in 3,590 locations).
o SwipedOn continues to sell its products through digital marketing campaigns focussed primarily on English speaking markets including the US, Canada, UK, Australia and New Zealand.
o During FY20 the product roadmap focussed on add-on modules and location-based settings. Software development changed with Covid-19 specific functionality developed including contactless sign-in and pre-screening questionnaires. This created increased opportunities for SwipedOn as countries reopened for business.
· In November 2019 the Group acquired Space Connect for a total consideration of AUD $6.0 million (approximately £3.2 million):
o Satisfied by the issue of up to 2,026,234 ordinary shares of 10 pence each in the capital of the Company and cash of £1.6m.
o Space Connect’s cloud-based platform offers room booking, desk booking, visitor management, catering and workplace analytics. This ‘out of the box’ functionality is quick to deploy, easy to configure and allows SmartSpace to accelerate the development of its mid-market business. The ease of configuration also allows Space Connect to sell through channel partners and with channel partnerships already established, opens international sales opportunities.
o A number of distribution agreements already signed allowing partners to resell its workplace management solution including an agreement with Softcat, one of the UK’s leading System Integrators.
o Space Connect has also agreed a partnership agreement with Evoko, a leading manufacturer of meeting room panels. As well as offering enhanced meeting room functionality built into the new Naso panel, Evoko will offer integrated software on a subscription basis enabling users to manage room bookings via Microsoft Outlook and a new Naso App.
· Anders & Kern, our specialist distributor and integrator of AV solutions has recently signed distribution and resale agreements focusing on workplace optimisation solutions. A+K’s established network of 200 resellers is strategic to the development of the market for Space Connect in the UK.
Software development
· Investment of £0.77 million during the year in further enhancing the software solutions of continuing businesses. This has included development of new add-on modules for SwipedOn including Deliveries, Catering and SMS
Following the sale of the Enterprise software division, the purpose of the Group is to fulfil the needs for SME businesses and Board has set the following strategic priorities:
· to focus on delivering pure SaaS revenues where the Group is not overly exposed to one market or customer;
· to develop technology-led intellectual property to help SME companies optimise use of their corporate real estate focussing on rooms, desks and visitors and provides businesses with a means to implement and manage Covid-19 policies in the workplace;
· to develop new sales channels to market for our software solutions by establishing a global network of channel partners;
· to bring together the technologies of Space Connect and SwipedOn in order to create an integrated product;
· to continue with a strategy of both organic and acquisitive growth both in our domestic market and overseas; and
· to deliver higher quality earnings which will, in turn, improve cash generation.
On outlook, Frank Beechinor, CEO of SmartSpace commented:
“Whilst the coronavirus pandemic can make any assessment of the future uncertain and whilst it will inevitably continue to pose challenges for the Company’s operations and those of our clients, the Board believes that it will also create opportunities. We believe that the Company’s product offerings will form part of the solution to help our customers deal with the impact of the virus on their work environment. Both our software businesses have already developed and launched new functionality to address the new needs of businesses in the post Covid-19 world. SwipedOn now allows for contactless visitor registration and pre-screening questionnaires. Space Connect has developed and released additional functionality to help customers manage and implement their Covid-19 policies.
New sales channels for Space Connect are expected to contribute towards revenue in the next financial year. The Group’s first white label version of its software will soon be sold through a strategic partner, Evoko. Further distribution channels are being established to sell our software to customers internationally. Following on from partnering with Softcat, post period end we announced that we had signed a distribution agreement with Esco, headquartered in Singapore and operating across the Far East with offices in The Philippines, Vietnam and Taiwan.
SwipedOn has grown at a consistent rate since it was acquired in October 2018 and is now cash generative. We continue to invest in customer acquisition to accelerate the growth of SwipedOn and therefore cement its place in the market. Continuous improvements to the product through add-on modules enable revenue per user to be increased at a low cost. At the point of acquisition, the largest single SwipedOn customer had 45 locations, today our largest customer has over 150 locations. We aim to further increase the number and size of these multi-location customers through further enhancing the functionality within the software and targeted sales and marketing activity. SwipedOn is well established in the major English-speaking markets of the US, UK, Canada, New Zealand and Australia and there is extensive growth potential in non-English speaking markets. We will continue to invest in our platform to ensure it is ready for this expansion.
With the successful sale of the Enterprise business and a significantly reduced fixed cost base and strengthened balance sheet, the Group is well positioned to exploit the opportunities the management believe exists for its SaaS products globally and now enters into a new period of sustained and secure growth. SwipedOn is already generating cash for the Group and the Board expects Space Connect to become cash generative once sales from our partnership with Evoko and partners such as Softcat start to flow. A+K’s established network of 200 resellers is also strategic to the development of the market for Space Connect in the UK.
In closing I would like to take this opportunity of thanking our loyal and hardworking employees, our strategic partners and longstanding shareholders for their continued support during these extremely challenging times.”
A copy of these final results and further information on the Company will be available on the Company’s website at: www.smartspaceplc.com. Copies of the report and accounts will be available from the Company’s website in due course and notification will be made when they become available.
Chairman’s Statement
The year ended 31 January 2020 and the period subsequent to the year-end have seen the transformation of the Company’s software business from one focusing on universal customers, to a cloud-based SaaS software business focusing on SME customers. Following the disposal of the Systems Integration and Managed Services divisions in May 2018 the Group developed its software business targeting both SME and enterprise customers. This transition necessitated a significant investment in software development over the last two years, and whilst the Group was able to announce some significant contracts within its enterprise software division, the financial performance did not meet the board’s expectations. The relatively small size of the Company furthermore made it difficult to secure as many enterprise contracts as the Company needed to reach a break-even position. The Board has said for some time that it sees the greatest potential in the SaaS market where revenues are more predictable and margins more attractive. As a result, the Board decided to sell the enterprise software division to generate additional capital to accelerate the growth of its SaaS business.
Development of the SaaS business
During the year ended 31 January 2020, the Company made significant progress in developing its SaaS business, both organically and through acquisition. SwipedOn, which was acquired in October 2018, grew its annual recurring revenues by 93% during the year to NZ$3.6m, and, at 31 January 2020 had 3,896 customers operating out of 5,280 locations (January 2019: 2,713 customers in 3,590 locations).
In November 2019 the Group acquired Space Connect Pty Limited for a total consideration of AUD $6.0 million (approximately £3.2 million), which was satisfied by the issue of up to 2,026,234 ordinary shares of 10 pence each in the capital of the Company and cash of £1.6m. Space Connect’s cloud-based platform offers room booking, desk booking, visitor management, catering and workplace analytics. This ‘out of the box’ functionality is quick to deploy, easy to configure and allows SmartSpace to accelerate the development of its mid-market business. The ease of configuration also allows Space Connect to sell through channel partners and with channel partnerships already established, opens international sales opportunities.
The acquisition of Space Connect has enabled the Company to offer a full range of cloud-based space management software which can either be sold directly to the end customer or through the Company’s international distributor network. Whilst there will be ongoing development in the product, the Company has a stable product offering which provides comprehensive services to its target customer base.
Sale of Enterprise Software Division
In line with the Board’s strategy of focusing the software business on a SaaS model, the Board decided to sell the Enterprise software division and redeploy the sales proceeds in growing the SaaS business. This was achieved after the year end but as the decision to sell the business was taken prior to 31 January 2020, the Enterprise software division is treated as a discontinued business in the accounts. On 13 August 2020 SmartSpace completed the sale of the entire issued share capital of SmartSpace Global Ltd and certain contracts of its US subsidiary (which together comprised the Enterprise software division) to Four Winds Interactive, for an initial consideration of £4.6m, payable in cash on completion, together with a further deferred payment of £0.4m, payable on receipt by those companies of R&D tax credits. The Enterprise software division had 38 employees and operated out of two locations. Its revenues for the year ended 31 January 2020 were £2.2m and the operating loss of the business in that period was £5.8m. At the date of sale, the unaudited proforma net assets being disposed of were approximately £5.8m. The sale and purchase agreement contains warranties and indemnities by the Company usual for a transaction of this nature and a covenant by the Company not to compete in the enterprise meeting room and desk management software sector for a period of 3 years from completion.
Immediately following the sale, the Group had cash of £5.9m.
Outlook
Since the year end, the world as we all knew it has changed almost beyond recognition as a result of the covid-19 crisis, and it is not clear that it will ever be the same as it was before the pandemic. The primary concern of the Board has been the health and safety of our employees. I am proud of the way they adapted to working from home while our offices were closed and thank them for their efforts over what has been a difficult period for everybody.
Covid-19 may change our working practices indefinitely and has certainly focused company management’s attention on efficient and safe use of their office space. It is our belief that space management software will become an increasingly important tool to manage office space and this will therefore generate significant opportunities for the Group. Recognising the additional obligations imposed on employers to safeguard their staff and visitors, as an agile business, we have already introduced software to help small businesses manage the risks involved with safeguarding staff and visitors coming into the office in the new post covid-19 work environment.
With a significantly reduced fixed cost base and strengthened balance sheet, the Group is well positioned to exploit the opportunities the management believe exists for its SaaS products. The Group is now well positioned to enter into a new period of sustained and secure growth.
Guy van Zwanenberg
Chairman
5 October 2020
Strategic Report: strategy and operational review
The Directors present their strategic report on the Group for the year ended 31 January 2020:
Business model and strategy
The Group’s business model is to provide cloud-based software services and complimentary hardware solutions to enable an international SME client base to optimise the use of their real estate and other workspaces.
The Board believes that technology driven changes in working practices continues to generate demand from all industry sectors. The onset of Covid-19 has further increased the need for technology to enable companies to more effectively control the use of meeting rooms and desks in the offices as well as manage visitors to their premises. Following the sale of the enterprise software division the purpose of the Group is to fulfil the needs for SME businesses and in order to do so the Board has set the following strategic priorities:
· to focus on delivering pure SaaS revenues where the Group is not overly exposed to one market or customer;
· to develop technology-led intellectual property to help SME companies optimise use of their corporate real estate focussing on rooms, desks and visitors and provides businesses with a means to implement and manage Covid-19 policies in the workplace;
· to develop new sales channels to market for our software solutions by establishing a global network of channel partners;
· to bring together the technologies of Space Connect and SwipedOn in order to create an integrated product;
· to continue with a strategy of both organic and acquisitive growth both in our domestic market and overseas; and
· to deliver higher quality earnings which will, in turn, improve cash generation.
We believe the office real estate market will continue to evolve as working practices change and there is greater use of technology in the office space which businesses provide for their employees. Faced with challenges of rising costs of office space in major global cities and the impact of Covid-19, businesses are increasingly looking for ways in which they can improve the return on investment from their corporate real estate and the demand for technology solutions to address these challenges is growing internationally. Many businesses have indicated that they plan to reduce their real estate footprint following lockdown. This change will stimulate demand for SmartSpace solutions and our technology will allow employees to book desks for times they are in the office and to coordinate meetings between participants in the office and those working remotely. The strategy for our Software division is to focus on developing our software to take advantage of the opportunities afforded by this fast-growing market.
Review of the continuing business
During the financial year ended 31 January 2020 the Group made progress towards achieving its strategic goals. The Group completed the acquisition of Australian based Space Connect which offers a cloud based self-serve workspace management solution especially suited to mid-size market customers. Space Connect is now targeting customers around the globe and its management and operations have moved to the Group’s head office in the UK following which the business no longer has an operation in Australia. Space Connect was acquired in November 2019 and as a nascent business, it did not have a substantial customer base at the time of acquisition, accordingly it has made limited contribution to the FY20 results. The Group is in the process of establishing new indirect sales channels for Space Connect through a network of partners to allow Space Connect to generate fast growing high margin revenues. The Company has already signed a number of distribution agreements allowing partners to resell its workplace management solution including an agreement with Softcat, one of the UK’s leading System Integrators.
Space Connect has also agreed a partnership agreement with Evoko, a leading manufacturer of meeting room panels. As well as offering enhanced meeting room functionality built into the new Naso panel, Evoko will offer integrated software on a subscription basis enabling users to manage room bookings via Microsoft Outlook and a new Naso App. In addition, users can subscribe for additional modules to help them manage desks and provide visitor management functionality, giving customers a completely integrated workplace management solution. Under the agreement Space Connect will receive a share of the revenue from both the sale of Naso panels as well as SaaS software subscriptions for meeting room bookings, desk management and visitor management.
SwipedOn, our visitor management software, acquired in October 2018 had an outstanding year. It continued to sell its products through digital marketing campaigns focussed primarily on English speaking markets including the US, Canada, UK, Australia and New Zealand The SwipedOn customer acquisition model is based around offering a 14 day free trial period where customers access the full features of the product. There are currently three packages with tiered pricing based on functionality and locations with a series of optional add-on modules covering SMS messaging, deliveries and catering. During FY20 the product roadmap focussed on add-on modules and location-based settings. However, the emphasis of our software development changed with Covid-19 as we developed Covid-19 specific functionality including contactless sign-in and pre-screening questionnaires. With Covid-19 there in an increased requirement for businesses to maintain contact details for all visitors to their premises for the purposes of in-company contact tracing. This market need has increased the opportunities for SwipedOn as countries reopen for business.
As can be seen below, SwipedOn’s key performance indicators showed significant growth in 2020, with its annual recurring revenues at 31 January 2020 93% higher than the previous period end. This was achieved through a combination of new customer acquisition, cross selling new modules into the existing customer base as well as increasing the subscription fees, the latter being achieved with very little impact on the company’s churn rate.
As a fast-growing SaaS business SwipedOn measures its performance on established metrics for such businesses. The table below sets out a selection of these key measures.
| SwipedOn key performance indicators | 31 January 2020 | 31 January 2019 |
| Number of customers | 3,896 | 2,713 |
| Number of customer locations | 5,280 | 3,590 |
| Monthly average revenue per user (ARPU) | NZ$78 | NZ$58 |
| Annual recurring revenue (ARR) | NZ$3.64m | NZ$1.89m |
| Annual revenue churn | 4.25% | 5.32% |
| 12 month average customer acquisition cost (CAC) | NZ$1,144 | NZ$1,207 |
| Lifetime value to customer acquisition cost (LTV:CAC) | 7.6 | 6.4 |
During FY20 SwipedOn added 1,431 new customers resulting in a net increase in customers of 43% from 2,713 to 3,896. This increase coupled with the implementation of new pricing and the addition of add-on modules has led to a 34% increase in ARPU (average revenue per customer per month) over the course of the year, and an increase of 93% in the ARR (annual recurring revenue) at the end FY20 to NZ$3.64mm from NZ$1.89m at the end of FY19. One of the strengths of the business is a very high level of customer satisfaction with an NPS (Net Promoter Score) averaging 56 in FY20 and leading to an average annual revenue churn of 4.25% during FY20. This is further evidenced by the Net Revenue Retention of 128% following the introduction of new pricing in FY20
The average CAC (Customer Acquisition Cost) which includes the costs of all sales and marketing staff as well as direct marketing costs has remained at a similar level despite the fact that the popularity of some Google Ad words has increased and the company achieves a very healthy average LTV (Life Time Value) to CAC ratio.
The third arm of the Group’s business is Anders & Kern, our specialist distributor and integrator of AV solutions such as meeting room booking solutions, workplace sensors and digital signage. This includes an agreement with Evoko to distribute the current generation of Evoko meeting room panels, Liso. Anders & Kern will also distribute the Naso panel, and the associated software developed by Space Connect to operate in conjunction with the panel. We have broadened the portfolio of products and services offered by Anders & Kern and we recently announced that we have signed distribution and resale agreements focusing on workplace optimisation solutions. The Anders & Kern established network of 200 resellers is strategic to the development of the market for Space Connect in the UK.
The financial performance of the Group for the year is covered in more detail in the Financial Review.
Software development
During the year we invested £0.77 million in further enhancing the software solutions of our continuing businesses. This has included development of new add-on modules for SwipedOn including Deliveries, Catering and SMS. By the end of FY20 we had also almost completed the development of our white labelled version of Space Connect for use by Evoko in their new meeting room solution, Naso.
Since the end of the financial year Space Connect has developed and released additional features to help customers manage and implement their workplace Covid-19 policies. These features include tools to help users to enforce social distancing in offices, record and manage office sanitisation, and contract tracing of employees and visitors.
People
The people who work for the Group are the most important determinant of our success. It is therefore crucial that we select the right people and ensure they are motivated and happy within their roles. During the past year we have implemented group wide human resource management tool to facilitate communications and foster a sense of group belonging. We have strengthened our employee appraisal processes and commenced employee satisfaction surveys.
Future developments and outlook
Whilst the coronavirus pandemic makes any assessment of the future uncertain and will inevitably continue to pose challenges for the Company’s operations and those of our clients, the Board believes that it will also continue to create opportunities. We believe that the Company’s product offerings will form part of the solution to help our customers stay operational and deal with the varying impacts of the virus on their staff, customers and respective work environments. Both of our software businesses have already developed and launched new functionality to address the evolving needs of businesses in the post Covid-19 world. SwipedOn now allows for contactless visitor registration and pre-screening questionnaires. Space Connect has developed and released additional functionality to help customers manage and implement their Covid-19 policies. These features include tools to help users to enforce social distancing in offices, record and manage office sanitisation, and contract tracing of employees and visitors. We expect working practices will change at a faster rate than pre Covid-19 with staff expecting to work from home more regularly, while businesses will see the productivity benefits of flexible working. This will allow workspaces to become more dynamic environments where management of space and analytical information will become key to taking advantage of the reduced overhead available through these changes. Ensuring Space Connect offers features to help companies implement and manage Covid-19 policy through integrations with remote working tools including Microsoft Teams and Zoom, will help make our expanded product offering a ‘must have’ rather than a ‘nice to have’.
New sales channels for Space Connect are expected to contribute towards revenue in FY21. The Group’s first white label version of its software will soon be sold through a strategic partner, Evoko. Further distribution channels are being established to sell our software to customers internationally. Post period end we announced that we had signed a distribution agreement with Esco, headquartered in Singapore and operating across the Far East with offices in The Philippines, Vietnam and Taiwan.
SwipedOn has grown at a consistent rate since it was acquired in October 2018 and is now cash generative. We continue to invest in customer acquisition to accelerate the growth of SwipedOn and therefore cement its place in the market. Continuous improvements to the product through add-on modules enable revenue per user to be increased at a low cost. At the point of acquisition, the largest single SwipedOn customer had 45 locations, today our largest customer has over 150 locations. We aim to further increase the number and size of these multilocation customers through further enhancing the functionality within the software and targeted sales and marketing activity. SwipedOn is well established in the major English-speaking markets of the US, UK, Canada, New Zealand and Australia and there is extensive growth potential in non-English speaking markets. We will continue to invest in our platform to ensure it is ready for this expansion.
The growth in SwipedOn customers has continued into FY21 despite the impact of the pandemic. The company had 4,471 customers and 6,242 locations at the end of August 2020 which represents growth of 15% and 18% respectively in the year to date. This is despite an expected increase in churn as a result of Covid-19. Monthly ARPU has increased by 12% to NZ$87 and ARR has grown from NZ$3.6m to $NZ4.7m. When the pandemic first hit, we reduced marketing spend at SwipedOn which meant that the business was cash generative during FY21.
To ensure the Company is well positioned to take advantages of new market opportunities, the Company has established new distribution agreements with channel partners and strategic partnerships with industry participants. On 31 July 2020, we announced that Space Connect had signed a new distribution agreement with Softcat, a major UK-based software integrator which has already started to generate new sales for the Company.
Continuing operations within Anders & Kern throughout the coronavirus lockdown has been challenging due to the requirement to be on site to carry out hardware installation. However, we took steps to reduce the operating costs of the business during the lockdown through the Government’s job retention scheme with the majority of staff put on furloughed leave until our customers reopened and order intake increased. As we moved through the summer activity has increased further and assuming there are no further nationwide lockdowns, we expect this momentum to continue. Our intention is to reposition A+K away from its traditional offering for mainly audio-visual hardware to providing a ‘one-stop shop’ for digital workplace solutions, including space management software and hardware such as temperature readers for the workplace. We used the time during the lockdown to sign distribution agreements with new suppliers of this smart workplace technology. Where possible we try to supply products that integrate with Space Connect and the A+ K network of over 200 resellers will be an important route to market for Space Connect. During this period, we have also evolved the customer support team at A+K to support SwipedOn customers. It is also our intention that this team will also start to provide technical support for Space Connect for hardware which integrates with SmartSpace’s software solutions. We intend to focus on becoming a specialist supplier of Smart Building technologies offering both hardware and software solutions.
Following the sale of the Enterprise software division in August 2020, the fixed costs of the Group have reduced considerably and the Company has additional funds to grow its SaaS business. SwipedOn is already generating cash for the Group and the Board expects Space Connect to become cash generative once sales from our partnership with Evoko and partners such as Softcat start to flow.
Despite the difficult economic backdrop, with the wide range of opportunities open to the Company, the Board views the future with confidence. The international spread of our customer base is a strength in today’s market evidenced by the fact that whilst growth in the UK and US was challenged by Covid-19 our business in Australasia grew. Although we already have customers in 73 countries, we are eager to enter new markets with local language versions.
We completed this financial year not knowing what was coming down the line with Covid-19. We have weathered the economic storm by taking steps to reduce our cost base which helped us minimise the financial impact of Covid-19. Exiting the enterprise software market means that we can now channel our efforts into scaling a focused SaaS business, offering only Cloud solutions. The self-configuration capability of our software and working through partners means we no longer have to make the significant investment in implementation consultancy. We will continue to focus on reducing our fixed costs and a key part of this strategy will be to concentrate our software development activity in New Zealand. Our indirect route to market for Space Connect, working through partners around the globe, does not require the considerable investment of a direct sales model.
It is our belief that our strategy of not being overly dependent on any one geographic market, vertical market or customer will allow us to build a robust SaaS business. There are considerable opportunities for growth – increasing ARPU by upselling additional subscriptions and multiple locations and cross selling other products to those existing customers and entering new geographic markets.
The sale of our Enterprise software division means we believe we have sufficient financial resources to execute on these plans without further recourse to shareholders.
Frank Beechinor
Chief Executive Officer
5 October 2020
