High growth; cash flow breakeven this fiscal year...and profitable trading before the end of the current fiscal period in 2017. Strategy: RDT launched its Zbig data analysing software

Disclaimer: Attention of readers is drawn to important disclaimers printed at the end of this document

Rosslyn Data Technologies (RDT)

High growth; cash flow breakeven this fiscal year

RDT’s proprietary software addresses a large growing market in data analytics. Its success is demonstrated by the historic (FY16E) exit sales run-rate being 80% higher than the installed base at the start of FY16. New business from new customers delivered circa £1m incremental revenue in FY16, 38% of the start FY16 contracted revenues. Contract sizes are growing and costs of new customer acquisition falling, so an inflection point has been reached operationally. Financially the key inflection point is the anticipated move to cash flow positive and profitable trading before the end of the current fiscal period in 2017.

► Strategy: RDT launched its ‘big data’ analysing software two years ago and sales traction is strong. FY16 was exited at £4.8m annual run rate compared to its start FY16 installed base £2.6m. It is still in cash flow losses, which we estimate turning to run-rate profits during FY17.

► Robust model: The model is SaaS, so, given the early stage and strong investment, break even before end FY17E is a solid achievement. Business wins are from the direct salesforce and from partners (Microsoft, PwC etc). Contract size is growing; pipeline timing improving and renewals 95%.

► Risks: This is a loss making business, revenues derived from its proprietary RAPid product. We estimate the balance sheet will comprise a modest amount net cash at the time cash flow turns positive. Contract wins follow development and other costs, however growing sales success starts to create a virtuous circle.

► Valuation: For a business with a disruptive product whose benefits are clearly measurable to customers and approaching cash flow breakeven within one year, a valuation near 1x sales is modest and below many in the peer group.

► Investment summary: Historic (FY16E) exit sales run-rate is 180% of the start FY16 installed base. RDT has disappointed market expectations in the past. This is far from uncommon in fledgling, disruptive technology businesses. This is now set on an established and more readily quantifiable growth path. SaaS structure heightens certainty of future income and growth is driven by a number of sources.

Financial summary and valuation Year-end April (£m) 2014 2015 2016E 2017E

Sales 2.07 2.83 3.95 6.00 Gross profits 1.72 2.39 3.40 5.40 EBITDA -2.85 -3.42 -2.23 -0.52 EBITDA margin (%) -138% -121% -56% -9% PBT (Adj) -2.89 -3.48 -2.30 -0.60 Statutory PBT -3.11 -3.48 -2.30 -0.60 EPS (Adj., dil.) (p) -6.88 -4.38 -2.89 -0.75 Net cash 9.02 4.91 1.83 0.46 P/E (x) loss loss loss loss EV/sales (x) na 0.80 1.35 1.12 EV/EBITDA (x) loss loss loss loss FCF yield (%) -36% -57% -43% -19%

Source: Hardman & Co Research

10th May 2016

Software & computer services

Source: Reuters

Market data

EPIC/TKR RDT Price (p) 9.5 12m High (p) 18.0 12m Low (p) 9.2 Shares (m) 75.8 Mkt Cap (£m) 7.2 EV (£m) 9.0 Free Float* 65% Market AIM

*As defined by AIM Rule 26

Description

RDT enables accessing complex data, turning it into meaningful information via its RAPid ‘big data’ cloud analytics platform.

Company information

CEO Charles Clark CFO Roger Bullen Chairman John O’Hara

+44 (0) 203 285 8008 www.rosslynanalytics.com

Key shareholders

Directors: Hugh Cox 12.8%

Charles Clark 12.6% iQ capital 14.7% Standard Life 6.4% Hargreave Hale 6.0%

Next event

August 2016 Final results October 2016 AGM January 2017 Interim results

Analysts

[email protected] 020 7186 9952 Mike Foster


10th May 2016 2

Executive summary

Rosslyn Data Technologies (RDT) provides analytical services through a Cloud platform, delivered through SaaS. Its principal and dominant product is its RAPid platform.

This was developed from 2012 and fully launched in 2014, building on a six-year history at first analysing spend and costs data sets for customers. The business’ gross profits are rising well, now, with top line momentum now achieved. It is delivered in a financially highly predictable way, through SaaS (software as a service).

With customer numbers now rising significantly, on three year SaaS contracts, the visibility to cash flow breakeven inflection point later in FY17 is high, we consider.

The 38 customers at time of IPO (two years ago), now number 168. RAPid and its ancillary services provide the overwhelming majority of Group revenue. It solves client needs regarding interrogating clients’ analysis of the interaction with their own customers. What might have taken the customer’s IT department months to solve, the smart data technologies that sit on the RAPid platform enable users to reduce this time to a number of days.

The 1) service, 2) typical contract profile, 3) competition and 4) route to market are well established. See further analysis of each point, below and overleaf.

Financials: 45% run rate sales growth this fiscal year.

RDT exited FY16 at a revenue run-rate of £4.8m, we estimate. At this current run-rate, we estimate RDT (whilst investing significantly for growth) is loss making. We estimate revenue of £6.0m FY17E, with an exit run-rate of £7.0m. At this exit rate, the company would be generating profits. No development has been capitalised.

We estimate net cash £0.45m end April 2017 balance sheet, by which time cash flow will have turned positive.

Note the 5th May trading update, see page 11. New business from new customers delivered circa £1m incremental revenue in FY16. This is a healthy 38% of its £2.6m contracted revenues from the installed base at the start of FY16. Bear in mind this 38% (estimated) was achieved from part year contributions of those new customers. In FY16 in addition, we believe the revenue from existing clients over and above the start year run-rate was £0.2m. New client revenue added £0.6m annualised run rate as regards new clients won in the past six months. We anticipate the annualised run rate to be in excess of this from new clients won in the coming six months.

The opportunity: and how RDT addresses it.

The already large and growing size of the opportunity (US$16.5bn Gartner projected by 2018) and the superior functionality and value of RAPid are clear. As with most disruptive offerings, there is a cash outflow to surmount before any marketing and development invested generates returns. RDT is not running now at monthly profitability. The opportunity is the positive profile and sales RDT has established with many Fortune 500 clients whose ‘big data’ analytical requirements are huge.

2014 launch of RAPid SaaS product

is key and cash flow breakeven is

anticipated this fiscal year

Cash flow breakeven prior to April

2017

38 customers two years ago, now

168, with contract sizes rising

April 2016 annualised sales £4.8m

(estimated), rises to £7.0m by April

2017…. a 45% rise

April 2015 annual run-rate on

installed base was £2.6m: it added

38% of this figure in new customer

business

A US$16.5bn market by 2018, we

estimate


10th May 2016 3

1. Service. This is entirely focused and provides Enterprise Self Service Analytics, namely the extracting of key details and trends and cross-references within data RDT’s clients have received from and about their customers. This includes i) organising the data in a rigorously consistent format so that it is useful; ii) building an understanding with the customer as to how they want this ‘big data’ analysed and used. Then RDT sets up the system (on RAPid, fully launched 2014) customised for client use; iii) ‘sucking’ third party data on the population of the data. For example, RAPid would find the full address and contact details of a name of an organisation sitting in RDT’s client’s prospects list.

2. The contract is typically a three-year renewable contract typically £10,000 to

over £100,000pa (mostly now around £90,000), delivered through cloud based SaaS. Contract size has grown. Often additional services (and revenue) are added once the client has started benefiting from the RAPid service. There is a significant time invested before signing, as a function of the need to understand the clients’ exact requirements and for the clients (often very large organisations) to understand the benefit of RAPid over in-house delivery. Since full RAPid launch in 2014, this ‘pipeline time’ has become clearer and is translating in calendar 2016 to more rapid new instructions.

3. Competition is predominantly ‘in-house’. Birst, Gooddata and Domo and

others operate in the broader space. Clients are often Fortune 500. They have extensive IT departments. RAPid offers clear useful services, many of which could be performed in-house. It also offers many services which cannot, it is rigorous and rapid to instigate versus bespoke in-house IT projects which (to half replicate RAPid) would be costly. With a single dedicated point of responsibility for the clients’ senior management RAPid is robust and reliable.

4. Route to market is both through a direct salesforce employed by RDT; also

through global partners. We expand on this point in this report, page 7.

Newsflow ‘milestones’: Addressing such a large global market does require substantial build up through partnerships as well as direct selling. This has taken time and RDT’s cash breakeven is approaching imminently rather than actually achieved.

1. During the coming 12 months we anticipate this strongly positive Partnership inflection to occur. We also see confirmation ongoing of a low churn rate on more contract renewals. The customers’ ease of use within SaaS and their ability to ‘hand over’ the configuration, screening, enriching of data to RDT is a given.

2. We will receive more customer churn-rate data. Rates are currently 95% (on a

small sample as few have reached the three-year point yet). The customer invests significant time and commitment with RDT in thinking through what the customer wants out of the SaaS service – what specific data it wants and how specifically it will use it. This reduces the churn rate. It also evolves and brings add-on revenue as these evolutions occur in requirements. Whilst few have matured, it is encouraging to see the minimal cancellation.

3. White label work is evolving. Less material, but important regarding the

breadth of RDT, we anticipate an element of white labelling as OEM.

The two years since RAPid

launch have seen a steady and

now rapid rise in client wins

Contract size has grown

Pipeline conversion timing has

become more predictable and better understood

Both the direct sales force and

the partners are growing revenue

Newsflow in FY17 for investors

to analyse

Partnerships sales only just

coming through

With so few contracts maturing

until 2017, the churn rate data

will be more meaningful next

year


10th May 2016 4

Valuation: we consider there is a valuation discrepancy, with relatively low EV/sales ratio, driven possibly in part by timing issues. The market capitalisation stands at just over 100% current year sales estimate and EV slightly over 100%. The month-by-month losses are reducing rapidly and for a rapidly growing business (not capitalising software costs), early stage losses are an inevitable part of the growth model. Cash flow break even comes at or slightly before achieving profitability breakeven.


10th May 2016 5

RDT’s opportunity

The structure of this document is to address five points as follows.

1. What does it do? Page 5. RDT has created a process, RAPid, whereby client

organisations (typically global Fortune 500) input raw mass-data and receive

ordered, organised data ready for their (or RDT’s) analysis.

2. How does RDT win and expand sales? Page 6. RAPid results in readily

quantifiable cost savings for the client. Client acquisition is through a direct

salesforce and through partners such as the global accountancy/professional

services firms. 40% sales are from Partner resellers, having recently grown

significantly.

3. What is the business model and performance trends? Page 8. Direct sales to

clients (through SaaS monthly billing), and also through Partners (generating

currently c40% revenue). Barriers to client take-on are thus kept as low as

possible.

4. What is the IP differentiation and how does the Platform work? Page 9. The IP is to obviate the need to write further code, making the solution robust, cost-effective and rapid.

The target market of Enterprise Self Service Analytics is large and growing rapidly. RDT has achieved international customer traction, including Anglo America, Coca Cola Helenic and Babcock among the corporates and over 80 US Universities. Market data states the overall cloud analytics market as comprising total revenue of $4.3 billion in 2012. This is expected to grow to $16.5 billion at a compound annual growth rate (''CAGR'') of 25.8% from 2013 to 2018.

RDT has few competitors (the most common by far is ‘in-house’). We would however mention that in the cloud analytics space principle players are Birst, Gooddata and Domo whilst in niche application areas the firm comes across Zycus, Bravo and Ariba.

Processing and interrogating ‘big data’ has clearly arrived as a major market. Potential customers need help, operationally. There is inconsistency of content, finding the best way to extract the most from data in a clear, simple, ‘interrogate-able’ way. These factors are ones RDT’s clients struggle with. RDT’s main competitors really are a combination of no action by the client (which will be increasingly untenable over time) or in-house. For in-house comparison, RAPid provides a solution which requires not a single line of code to be written. It effectively sidesteps the need for the clients’ IT departments to be involved and the RAPid software is used directly by the users of the data within the clients’ decision makers.

RDT is in a position of convergence between five different technologies, namely data integration tools, and RAPid captures this all. The five comprise 1) data quality tools; 2) operational database management systems; 3) business intelligence platforms; 4) business analytics platforms; 5) advanced analytics. Each of these is in excess of US$2bn size by 2018 (source Gartner) and in total they are estimated to reach US$68bn by 2018. RDT data presentation is first rate, using

RDT’s product allows clients

to input raw ‘big’ data and

received ordered, organised,

‘enriched’ data output

The target market is

projected at $16.5bn by 2018

RAPid software is used

directly by the users of the

data within the customers’

decision makers

No IT code needs to be

written by customers


10th May 2016 6

tools to integrate, enhance and check data quality, manage and analyse the database.

What RDT does

RDT provides faster and easier ways for business users to access and transform complex data into meaningful information than when compared with traditional methods.

RDT’s RAPid model is primarily in competition with in-house solutions or with a simply lesser-level of interrogation of ‘big’ data. RDT’s process is called ICE which stands for Integration, Cleansing and Enrichment.

RDT sells its technologies on a services basis. It sells the visualised output solutions to the questions the clients want to ask of their own data. It is thus crucial that RAPid is easier to use, has an order-magnitude greater functionality and opens clients to new possibilities of raising their efficiency through use of data. RAPid also sucks in third party data points to enrich the client data points.

Thus, for example the customer wishes to use ‘big data’ it already has in its possession in order to see how to reduce inventory levels while improving customer service. Or it might wish to get products to market faster and more efficiently and also how to identify and monitor potential supply chain disruptions. RDT provides detailed analysis for more accurate decision-making and the RDT system is usually configured so that the client’s own analysts and decision makers can see a simple to use dashboard answering questions which the client can put simply and without having to write IT code.

This simplicity means the system and the data can be shared within other departments at that customer. It can be integrated with other forms of information from both within, and external to the client organisation (e.g. Dun & Bradstreet, Equifax, Experian and a whole infinitely flexible third party range). RDT is designed to cope with data which is partially incomplete (i.e. the ‘cleansing’ part of the equation) and it will fill in missing portions as much as possible, but in a robust and verifiable way (i.e. the ‘enriching’). One interrogation for example could be ‘what level of certainty is there that this data is correct and which bits seem least likely or most likely.’ Another interrogation could be to provide further data from the basic data possessed (e.g. map references and organograms for the clients’ own customer or supplier base).

At all stages, it is essential to recall that the client’s IT department need not be involved in any way and that the RDT IT input is having created and enriched the platform, not the running of any individual customer project-work.

The software sophistication within RAPid means it is

► Quick to install (i.e. theoretically virtually instantaneous)

► Does not need a single line of code to be written

► Can be used by the client for a quick, cheap ‘proof of value’

► Once that proof is shown, there is a quantifiable financial payback and the client often will seek to expand usability quantum (i.e. number of data sets and ‘seats’)

Integration, Cleansing and

Enrichment

Data comes in from a wide

variety of sources, is made

compatible and presented on a

simple dashboard

The simplicity and speed of

data presentation belies the

ease of deep-detailed

interrogation clients can then

undertake

No need for the clients’ IT

department – this is data to be

used directly by the client

decision makers….

…. so clients can find ‘scaling

up’ attractive


10th May 2016 7

How and why Rosslyn wins and expands work with its customers A sales level of £90,000 pa is the norm as a quantum for customers recently being won. This figure has risen, particularly in recent months, historically having been some £50,000. This is important in three ways. It is a component to the top line growth. The cost of customer acquisition being spread over a larger contract helps margins going forward. It proves good credibility to the larger potential customers it is courting. The top five customers provide circa 10% of total sales, top 10 c.25%. Clearly, RDT needs to keep this momentum going and our forward estimates assume it does, but the trend in recent months is robust.

In April 2015 the annualised run-rate on installed base was £2.6m. This is now £4.8m and a 45% rise yoy in sales run-rate rise is estimated in a year’s time (vs current).

Cost/benefit is a strong selling point. The costs of running the RDT system are flexible, modest and quantifiable. The benefits, given the six datasets typically interrogated, are also readily quantifiable. The six datasets are: supply chain; spending; product; customer; employee; finance.

RAPid is better than in-house solutions, because it has higher functionality in overcoming lapses in the input data, provides quicker, well laid-out ‘dashboard’ style analysis, and more comprehensive output which can be variously configured in a large variety of ways to suit the analysis required from it. It is automated so does not require the intervention of the client (or RDT) IT operatives, making the output quicker, more standardised, better able to be used on many levels and also cheaper.

Direct sales are important: growth is achieved through new customer gains in existing markets and also growth within the existing client base from the initial department across the organisation. Further to this, PwC has installed RAPid and is now selling it, as a partner (not white label), to certain of its customers. This has been joined by Genpact who is on-boarding its clients, mostly using white label. Babcock is one of RDT’s customers who have achieved particularly encouraging savings.

The sales and marketing team has risen to 22 from 12 since IPO. Partnering is a very important aspect of growth and c. 30%+ revenue derives this way. But the direct sales have also risen, fully justifying this expansion in recent months.

These reseller partners give RDT scale that they could not build with current resources, and open up new markets and geographies out of its reach. US Education is a good example of this, in partnership with E&I who has 3000 higher education members. RDT is successfully rapidly penetrating a new lucrative market place.

Partnering enhances growth (timing in part is at the behest of the third party). In addition are the big strategic accounts. Blue Cross Blue Shield have awarded RDT a national contract, to include their large operations in all 50 states. RDT is now closely engaged with a number and looking for these to start leveraging the large data sets.

Partners are important in expanding RDT’s reach within judicious cost parameters.

Contract size is rising

Run-rate metrics

Cost/benefit is a strong selling point

It overcomes lapses in the

input data

Strong direct sales force

Also, as a case studies, PwC

and Genpac are helping in

distinct ways

Direct sales and marketing

team has risen to 22 from 12

since IPO

The Partner reseller model


10th May 2016 8

Though the majority of sales are direct, the initial cash flow characteristics of Partners’ resales are attractive. The acceleration of partner relationships in the past year is crucial to the visibility and timing of the cash flow breakeven in FY17E. As this has built in the past year, the solidity of the timing of the RDT business case since IPO has materially improved.

Details partnership models bringing sales and credibility

In the PwC and Genpact partnering examples, RDT does not directly sell to or engage the end-client as its platform is integrated into PwC Consulting. RDT has trained PwC consultants and it has become an integral part of PwC’s offering. Similar situations are being trialled in DnB, Cognizant and Coupa who are all at various stages of incorporating RAPid. Microsoft is emerging as important joint “go to market” partnerships where RAPid is seen as the bridge between IT and the business. All partners have a wide range of their own client data needs.

Growth is accelerating: one issue is however that the timing of success via the partners is less visible than direct acquisition. Whilst many partners like Microsoft take a horizontal approach, the likes of Genpact take a more vertical approach.

Strong initial growth – albeit in medium as opposed to large contracts – has been achieved in US educational customers. This education supplier sector can be seen as requiring robust corroboration and certification/endorsement and thus RAPid ‘passing’ this ‘test’ is positive. So partners add to RDT scale and thus credibility. RDT could not build its order book as fast solely with their current direct sales resources. Partnering opens up markets and geographies out of its reach. The education sector in the US is a good example of this. E&I Cooperative Services is successfully implementing RAPid across its university customer base.

RAPid is in 80 US universities. These are not large contracts, they are profitable and add value for RDT’s credibility. Below we cite an E&I/Nucleus endorsement.

“With an increasing number of options to choose from, Nucleus Research says

analytics customers should ‘look at cloud solutions which do not require heavy infrastructure investment.’ Nucleus points out that ‘cloud analytics solutions, like E&I Consulting Group's partner Rosslyn Analytics, require low initial costs and drive increasing ROI over time. In addition, Rosslyn Analytics solutions allow customers to consolidate their analytics and big data tools, therefore reducing challenges associated with disparate datasets and conflicting technologies.’ ” [Source: eandi.org homepage]. Nucleus Research clients include many of the Fortune 1000, mid-sized organisations, government organizations, and nearly every leading technology vendor.

Partners are important to RDT, as it is not seeking to acquire all its customers from a direct sales team, which, for a relatively small business, could prove disproportionately expensive in the initial stages of expansion. Nonetheless, the direct sales team has been successful and has been expanded.

RDT is important to its partners. As they seek the higher level consultancy work, the ‘building blocks’ to that consultancy will be undertaken by the likes of RDT. As enterprises begin to buy and consume their IT needs differently the RAPid platform enables this.

PwC and many other Partners

Microsoft

Timing is to a degree in the

partners’ hands

RDT has to be credible to have

achieved the number of US education customers it has

Education sub-sector is an

important endorsement

Partners and important to

RDT…

….and RDT is important for

partners to leverage

consultancy


10th May 2016 9

What is the partnership?

The partnership is in most cases a technical partnership. The partner needs to incorporate an expert offering by RDT within its own ‘pitch’. RDT don’t have a professional services practice which could conflict at times with their partners. By not having this conflict it has enabled the firm to attract many more partners that it would have otherwise. RDT’s platform become the partners “Analytics Resource Centre” for their consultants, data scientists and developers to use. It is on-demand, requires no maintenance, there is no software or hardware whilst being available and scalable. Furthermore, with an increasing number of partners now developing apps on the platform those that are made public become available to all users which in turn increases the value of the platform for no cost to RDT. We have seen the value of a collaborating community in the social media world.

The industry verticals include a dominant position in the top 10 UK law firms, which is developing well. A key vertical where the platform has gained traction is in Finance & Accounting analytics where a growing number of the leading BPO firms are and have partnered with RDT to provide them that increasingly important layer of analytic technology their clients are asking for. These relationships are at different stages with some deepening quickly. Beverage should prove fruitful with its contracts with Coke, Coca Cola Hellenic and Diageo. Pharmaceuticals, manufacturing, retailing and higher education already comprise a number of large clients each and should also provide significant opportunities.

Business model and performance trends Since IPO the firm has seen a constructive increase in the average annual enterprise contract value. It costs a fairly meaningful percentage of the typical customer acquisition cost quoted above at c £40,000: falling, now. One interesting move which will emerge shortly as the proposition starts to mature further is the pricing of ‘proof of value.’ This used to be offered at low cost and in some cases free. This now is offering potential for specific revenue opportunities.

Typically a client pays their subscription between 6 months and a year in advance. A significant majority of RDT’s revenue is paid six to twelve months in advance.

The method of billing is through both SaaS (software as a service) through monthly ongoing payments and ‘up front’ licences. Contracts typically last two to three years and of those maturing, nearly all (95% as per May 2016 trading update) of these have been extended. The method of charging is changing in RDT’s marketplace from licences (which are often inflexible and thus may be under utilised) to subscription (SaaS). RDT is open to both: SaaS predominates.

The revenue model with partners is an initial fee for new clients then unit costs monthly flexed by complexity of data sources, quantity of premium data sources (i.e. that brought in from third parties such as Experian) and number of analyst seats.

RDT’s focus is to keep churn low (currently c. 3%) and expand the range of product to each client. Over 70% of RDT’s income is recurring with contracts being a minimum of one year to currently a maximum of 5 years where they have two. It is to be noted that typically cost of client acquisition equates to between 6 to 9 months revenue.

Not a ‘reseller’, but a true

introduction of RDT acting as

niche expert within the

Partners’ overall offering to

its clients

Key industry verticals being

exploited

Lawyers; BPO;…….

…… consumer;

pharmaceutical; etc

SaaS monthly payments,

usually 2-3 year contracts

Key metrics costs of customer

acquisition


10th May 2016 10

The pricing model is scalable and changes by features. It also changes by data complexity which introduces an element of price change without need to refer back, as it is within the original contract.

To minimise costs and maximise customer satisfaction, deployment is a key test and opportunity – RDT in most cases offers the client a PoV (Proof of Value) where the firm extract the clients’ data and in a short period plays this back to the prospect, with a view of delivering value as opposed to the traditional approach of demonstrating a concept.

Differentiation through IP: some background This is all about interrogation and enrichment of data by the clients’ business analysts who do not want to focus on the IT software side of interrogating the data. It also is about the client not needing to write one line of code. They will extract and integrate data, clean-up data which may be inputted originally in a variety of modes and enrich that data. RDT’s main advantage is its unique proprietary IP using a single solution which encompasses the integration, cleansing and enrichment with scalability, speed and machine-learning to semi-automate the process.

It features on-demand architecture and offers clients quantifiable returns on investment. The directors are not aware of any competition that delivers this functionality aimed at the business user.

Where RDT is driving competitive moats between itself and alternatives, is in its data management layer. RDT has designed three technologies which by themselves are useful but together become powerful and gives them a clear competitive edge and a reason why a client would buy or a partner adopt the technologies.

These are:

1. Dynamic Data Schema builder – an easy to use (non IT personnel) way to

reconfigure data to analyse it in a variety of ways. Often this is a rigid and

difficult to change format and so RDT’s offering is sought after.

2. Domain Specific Language (DSL) – Companies use about 35% of their

structured data for decision-making and only 25% of their unstructured data.

(Source: Forrester Research). There is no common language that enables the

business user to easily query structured and unstructured data sources. RDT’s

DSL is specific to the RAPid domain enabling business users to simultaneously

interact with both structured and unstructured data in a completely natural

way. Currently users are faced with search technologies for “unstructured

data” and BI tools for “structured data” – these two are distinct and silo’ed.

DSL brings the two together. This enables business users to extract materially

more value form their data than the competition.

3. Prism – This is a rules based machine learning engine. It captures all users’

interactions with the data and then plays this back when new users with the

similar is loaded.

Proof of Value initiatives

Customers have lots of data

but it needs to be ‘mended/standardised’, have

other data ‘sucked in’ to

enrich it, then interrogated

1 and 2 and 3 combine to give

maximum customer usability

and ease of use

The three technologies which

by themselves are useful but

together become powerful

and gives them a clear

competitive edge


10th May 2016 11

Data analytics platform The RDT platform enables the customers to run and analyse data sets at very low cost and highly flexible functionality, useable without need for programming expertise of the user. The RAPid analytics platform, developed in house, principally analyses customer, supply chain, product, finance and employee data. It is easy to use (i.e. not relying on an IT department) and can be programmed easily to run analysis.

RDT facilitates the interaction customers’ analysts have with data, as it has created its own domain specific language which converts someone’s interaction with data into code, thereby freeing end users’ need for programming and code-writing skills themselves. Many customers wish to manage costs of IT teams and or to allow them to upskill without being a cost to the customer.

The RAPid platform is hosted on Microsoft’s Azure platform providing RDT with the geographic coverage to service its growing client base, regardless where they are. (Microsoft website refers to RAPid). More importantly it enables the firm to be able to respond to any and all data volumes instantaneously. There is no need for large capital expenditure in hardware.

Data is derived from the clients and also third parties such as Dun & Bradstreet, Equifax and a variety of freely available sources such as land registry. Data mining is overlain with data enrichment, re-positioning to allow the totality to be assessed together then output through web, to all devices including mobile and can also be accessed through API’s (application programming interface). API is a set of routines, protocols, and tools for building software applications. An API expresses a software component in terms of its operations, inputs, outputs, and underlying types. RAPid being cloud based, this enables traditional on-premise analytics solutions to access the RAPid platform. This dual approach increases the reach and attractiveness of the platform, making initial partial adoption less of a challenge to a customer. We are not aware of any other cloud based big data management platform that offers this.

The platform automates key data management tasks, so that customers can understand a number of data sets better. This offers a positive and quantifiable return on clients' investment as its focus is typically to address a direct cost area to the clients’ organisation.

Ability to deploy and deliver quickly and flexibly has encouraged the larger clients to expand usage for example from an initial department or even a test run, and broaden out to others as confidence in quantified financial returns grows. “Aberdeen Asset Management achieved an ROI of 250% within approximately eight weeks of starting to use RDT’s technology.” Andrew Laing, Chief Executive Officer, Aberdeen Asset Management. “PHS Group’s ….. delivered £2.4 million annualised benefits in just one year. This equates to a return on investment of nearly 1,000%.” Anthony Ritchings, PHS Group

RDT enriches ‘automatically’

bringing in other data to

make the customers’ data

better

Automates key data

management tasks….

… rapidly


10th May 2016 12

To place this in context of its target market, RDT focuses entirely on Enterprise Self Service Analytics, not only because it has developed a leading product, but because the business model comprises strong attributes.

► RAPid itself derives from the pioneering by RDT of spend analytics in the cloud in 2008, which in 2010 was made self service.

► Self service enables a wider range of client operatives to analyse data than just the IT department.

► Schemas have been developed which allow data to be interrogated without the need to write programmes and protocols.

► A track record has built of clients’ quantifying the advantages to their cost base and other financial returns.

► Speed and flexibility is high, so a client might wish to commence using a restricted range of services and can broaden those out instantaneously through a SaaS delivery model.

► This is attractive to large (Fortune 500, FTSE100) clients and to Partners.

How RAPid got

here ….

…. why it is attractive


10th May 2016 13

Financial Analysis and risks

Importantly, the business model is predominantly SaaS based, thus revenue is booked monthly as opposed to up-front. Cash and revenue is not taken at the time of contract win, by the nature of SaaS contracts. No revenue front-loading, therefore.

A reduction in cash burn is coming through. Cash outflow was £2.6m 1H15; £1.5m 2H15; £2.10m 1H16 and we estimate £0.65m 2H16. The pattern is seasonal on a trend of reducing outflow. We therefore estimate a further outflow 1H17E (probably somewhat greater than 2H16E), followed by a cash inflow 2H17E and in all subsequent half years (1H18E probably very modest inflow). Over the past year, the revenue levels required for cash flow neutrality have been managed downwards. One modest example: RDT is beginning to make charges, albeit modest, for some proof of concept work, before the main contract starts.

RDT exited FY16 at £4.8m estimated sales run-rate. At this level, we estimate RDT (investing significantly for growth) remains lossmaking. We estimate FY17E exit run-rate revenue of £7m, at which rate, a run-rate positive PBT would be being achieved. It may be worth noting no software development has been capitalised.

Summary of key points in 5th May 2016 update

“The Company has agreed terms with a number of new customers. Whilst these contracts were not signed during the 2016 financial year as had been intended, they are expected to be signed imminently.” This is not material to estimates. SaaS means revenues are taken monthly, not ‘up-front’ licence ‘lumpy’ sales.

“…with a lower than expected cost base and continued strong growth, the Company will achieve cashflow breakeven during the calendar year.” We refer to how RDT has been proactive in reducing costs, whilst enlarging the customer facing team, with proof of concept costs/ recharge as one example.

“The Company is also pleased to see that the average enterprise contract has increased from c.£50,000 at the time of the IPO to c.£90,000 whilst the duration has remained at between 2 and 3 years.” We see this £90,000 figure rising further.

“…. revenue per full time employee increase from £55,000 to £80,000 since IPO.” Clearly this needs to rise further.

Risks

RDT is loss-making. New business from new customers delivered circa £1m incremental revenue in FY16. Our estimates indicate significant acceleration in this metric for FY17E. The main risk is the timing of cash-flow breakeven vs cash we estimate to be held on the balance sheet at that stage. We note the variety of factors building strongly to provide a diverse and accelerating push to sales growth, whilst costs are strongly under control. SaaS contracts give good visibility. However, some of the earlier contracts are starting to mature. None is particularly large in itself and to date, retention rates are strong. The partnerships are bringing income but by the nature, timing visibility is one-step removed from the end customer.

Further systemic risks stem from fast-moving software product markets. We note the strength of the evolving Microsoft relationship (Azure) and RAPid’s breadth.

SaaS model

£4.8m sales run rate estimated

currently…

…. £7.0m a year from now

estimates

We anticipate £0.45m net cash on

balance sheet end April 2017. Run-

rate cash flow positive prior to

FY17E year end.


10th May 2016 14

Revenue account

April year end 2014 1H15 2015 1H16 2016E 2017E

Sales 2.07 1.25 2.83 1.82 3.95 6.00

Gross profit 1.72 1.02 2.39 1.68 3.40 5.40

Gross profit margin 83.1% 81.6% 84.5% 92.3% 86.1% 90.0% Operational costs (4.28) (2.73) (5.94) (2.97) (5.63) (5.92) Other operating income 0.04 0.04 0.13 - - Share based payments (0.33) - - - - EBITDA (2.85) (1.67) (3.42) (1.29) (2.23) (0.52) EBITDA margin -137.7% -133.6% -120.8% -70.9% -56.5% -8.7% Depreciation (0.04) (0.03) (0.09) (0.03) (0.07) (0.08) EBITA pre exceptional (2.89) (1.70) (3.51) (1.32) (2.30) (0.60) Amortisation acqn related intang.

- - - - - -

EBIT (2.89) (1.70) (3.51) (1.32) (2.30) (0.60) Interest cost - 0.01 0.03 - - - Exceptional (0.22) - - - - PBT Reported (3.11) (1.69) (3.48) (1.32) (2.30) (0.60) PBT (Adj) (2.89) (1.69) (3.48) (1.32) (2.30) (0.60) Tax rate 5% 3% 5% 0% 5% 5% EPS (Adj., dil) (p) (6.88) (2.17) (4.38) (1.75) (2.89) (0.75) DPS (p) - - - - - -


Balance sheet April year end 2014 2015 2016E 2017E

Intangible assets 0.02 - - -

Property, plant, equipment 0.03 0.10 0.10 0.10 Other non current assets - - - - Total non-current assets 0.05 0.10 0.10 0.10 Trade receivables, inventories 0.71 1.20 1.50 1.90 Total Current assets (incl cash) 9.88 6.13 4.20 4.10 Current liabilities (2.11) (1.70) (2.00) (2.50) Net current assets 7.77 4.43 2.20 1.60 Long term liabilities - - - - Net assets 7.82 4.53 2.30 1.70


Cash flow April year end 2014 2015 2016E 2017E

EBIT (3.11) (3.51) (2.30) (0.60)

Depreciation amortisation 0.04 0.09 0.07 0.08 Share based 0.33 - - - Working capital 0.05 (0.68) (0.85) (0.90) Operating cash flow (2.69) (4.10) (3.08) (1.42) Interest - - Tax 0.13 0.15 0.10 0.10 Net cash flow from op. activities (2.56) (3.95) (2.98) (1.32) Capex (0.02) (0.15) (0.10) (0.05) Intangible acqn (0.02) (0.01) - - Net cash flow (2.60) (4.11) (3.08) (1.37) Share issue 11.55 - - - Dividends - - - - Net cash change 8.95 (4.11) (3.08) (1.37) Net cash 9.02 4.91 1.83 0.46



10th May 2016 15

Disclaimer The information above is published solely for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities, or related financial instruments. It does not constitute a personal recommendation as defined by the Financial Conduct Authority ("FCA”) or take into account the particular investment objectives, financial situations or needs of individual investors. The information above is obtained from public information and sources considered reliable. This is a marketing communication document and has not been prepared in accordance with legal requirements designed to promote independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Although Shard Capital Partners LLP is publishing the research, it is not restricted from dealing in the stock. Please note risk warning section on our website with regards high risk AIM shares. If you are unsure of the suitability of share dealing specifically for you then you should contact an Independent Financial Adviser, authorised by the Financial Conduct Authority.

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High growth; cash flow breakeven this fiscal year...and profitable trading before the end of the current fiscal period in 2017. Strategy: RDT launched its Zbig data analysing software