Tern Plc (LON:TERN), the company focused on value creation from Internet of Things technology businesses, has announced its unaudited interim results for the six months to 30 June 2022.
Highlights
· Progress across the network of companies1 in the Period:
o Aggregated Monthly Recurring Revenue (“MRR”) for the network of companies in the six months to 30 June 2022 increased by 112% which reflects encouraging growth in recurring revenue contracts as the companies further transitioned from configuration work to a licencing model. MRR is recognised over a longer period than initial configuration work and therefore can impact recognised revenue initially. Turnover of the portfolio companies in the six months to 30 June 2022, declined by 12% compared to the first half of 2021 which further reflected that change as short-term one-off revenue (such as configuration work) is being replaced by longer-term recurring revenue (such as licence fees) spread over the life of the contract.
o The period-on-period increase in the number of employees within the portfolio companies, a key growth measurement, was 52% in the six months to 30 June 2022 (six months ended 30 June 2021: 14%). This was supported by an increase in MRR per employee of 40%, highlighting that the increase in employee growth was matched by a higher growth in MRR.
· £0.8 million (six months to 30 June 2021: £0.7 million) was invested by Tern in its existing network of companies during the Period, supporting their growth and development.
· Assets under management were £30.2 million as at 30 June 2022, which was a marginal decrease from 31 December 2021 (£30.6 million). This included fair value increases for FundamentalVR and Device Authority (exchange rate related) and a fair value decrease for Wyld Networks. Wyld Networks is traded on an active financial market and its fair value is determined by the market price on the reporting date.
· The reduction in assets under management was also a key driver of a reduction in net asset value per share from 9.2p at 31 December 2021 to 8.5p at 30 June 2022.
· During the Period, the Company agreed to participate in a new venture capital fund, the Sure Valley Ventures UK Software Technology Fund, with a commitment to invest up to £5 million over the 10-year life of the fund.
· FundamentalVR raised a total of £7 million in a Series B fund raise from existing investors and a new institutional investor, with the Company securing a valuation uplift of 35% from the previous book valuation. This was followed by an additional £5 million tranche of the Series B at the same valuation in early Q3 2022.
· Wyld Networks raised approximately SEK 25.2 million (approximately £2.0 million) upon exercise of 98.6% of its outstanding T01 Warrants. The business has continued to perform strongly, with further commercial traction. The company also expanded its strategic industry positioning by entering into connectivity partnerships with Eutelsat Communications, Senet Inc and TrakAssure to form the Multimodal IoT Infrastructure Consortium™ (“MMIIC”).
· Talking Medicines completed a £1.59 million syndicated equity fundraise during the Period, in which Tern contributed £0.4 million, primarily to support its planned expansion in the USA.
· Device Authority has continued its positive business momentum following the strategic investment from Venafi, announced on 2 December 2021, with the business being particularly focussed on growing its MRR through its subscription base and its modularised licence platform, KeyScaler®.
· InVMA is now trading as Konektio and following the £2.125 million equity fund raise, announced on 20 December 2021, the business has continued to see strong demand for AssetMinder®.
Al Sisto, CEO of Tern Plc, said:
“Despite the current difficult macroeconomic environment, our optimism around the potential in Tern’s investment strategy and our network of companies remains undimmed and we continue to strongly believe that shareholder value will accrue from our exciting network of companies. They have all made strong progress in the period and a number have made substantial steps forward in pivoting their business models away from one-off licence fees, to monthly recurring revenues, as their offerings have gained further market traction and relevance. Growth in this significant repeat business is what we believe is leading to increases in the valuations that they will be able to attract and attracting new investors to participate in the continued growth of our investee companies.
“As customer interest and market interest continue to expand, our companies are proving attractive to a broader set of investors, both those that are existing shareholders in our companies and potential new ones that approach our network of companies’ management teams. The majority of these investors have significantly greater financial firepower than Tern. It is therefore important that we continue to have the resources to invest in our companies, both financially and through the other assistance we provide, in order to protect Tern’s early position, for the benefit of our shareholders.
“Our ‘more than funding’ model has achieved, and is achieving, results. This includes completion of the first Series B round achieved by one of our portfolio companies. The Series B funding round by FundamentalVR, represented the culmination of our change in funding strategy adopted in 2017. We have an evergreen open-ended model, investing in seed, late seed, Series A and in some cases Series B rounds, where we are able to obtain larger ownership positions by investing at these earlier risk capital stages. Then, using our hands on approach and smaller follow-on investments, we help position our portfolio companies for growth via Series C and beyond investments, which we believe will ultimately result in exits of much greater value for our shareholders and their entrepreneurial founder partners.
“The goal of our model, at the point portfolio companies reach sufficient maturity, is to provide our shareholders with continuous access to returns as we exit investments and an appropriate time and ultimately acquire new early positions in further companies. The proposed acquisition of Pires investments would, in our opinion, have been a strong and exciting example of alternative and faster routes to value creation, although given that the conditions of the recommended all share offer were not satisfied, we are now focused on other ways to build long term value for Tern shareholders.
“These are exciting times for Tern’s portfolio companies and I look forward to reporting on further progress in due course.”
Online Investor Presentation and Q&A Session
Tern’s management and management from certain of Tern’s network of companies will be hosting an online presentation and Q&A session at 5p.m. BST on Monday 26 September 2022. This session is open to all existing and prospective shareholders.
Those who wish to attend should register via the following link where they will be provided with access details:
https://us02web.zoom.us/webinar/register/WN_Q8BHIKzjSpqKDFwyOPxeiA
Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be submitted to: tern@investor-focus.co.uk.
Note 1: Our ‘network of companies’ or ‘our companies’: Device Authority Limited, Wyld Networks AB, InVMA Limited (trading as Konektio), FVRVS Limited (trading as FundamentalVR) and Talking Medicines Limited, which are companies Tern has interests in and excludes Push Technology Limited, in which Tern has a <1% holding and minimal influence.
