Lombard Risk Management plc (LON:LRM), the provider of risk management and collateral management software, continues to put the cash it raised last year to good use.
Having tipped the wink to the market last month that full-year results would be ahead of market expectations, the company revealed turnover in the 12 months to 31 March of £34.3mln, up 44.8% from £23.7mln the year before and at the upper end of its revised guidance range of 34mln-£34.4mln.
All companies are chasing recurring revenues these days, but especially software houses and technology platform providers, and encouragingly Lombard saw recurring revenue rise 21.0% to £12.4mln from £10.2mln the year before.
There is clearly life left yet in the old licence-based model, however, as revenue from new licences and renewals soared 113.7% to £11.6mln from £5.4mln the year before.
Underlying earnings, or EBITDA, came slap bang in the middle of the revised guidance range at £2.6mln, up from £2.1mln the year before.
Having raised just shy of £8mln in the middle of last year to invest in growing the business, management believes its decision to do so has been vindicated by the sharp rise in the top-line, but the heavy investment in its product suite and delivery capability did mean that the group made a pre-tax loss, albeit a smaller one than management had anticipated.
Total technology expenditure, which includes research, development, testing, support and product maintenance, rose to £14.5mln from £9.1mln the year before.
In its accounts, Lombard capitalises some of its research & development (R&D) costs, which is to say it treats R&D as an expense that it incurs in expectation of providing a benefit in the future rather than as a day-to-day cost.
This accounting treatment meant the loss before tax clocked in at £1.6mln, compared to £2.2mln the year before.
Stripping out this accounting treatment would show a cash loss before tax of £5.6mln, versus a loss of £4.4mln the previous year.
Cash and cash equivalents at the end of Match stood at £7.0mln, compared to £3.3mln a year earlier.
"This has been a strong year for Lombard Risk where we have comprehensively delivered on the objectives set out in our fund raising of 2016. We have reported a step change in revenue growth, opened a world class development facility in Birmingham and are successfully executing projects to extend our product capabilities," said Alastair Brown, chief executive officer of Lombard Risk.
Speaking to Proactive Investors, Brown, who took the helm in November 2015, said the new management team had eschewed the cost-cutting route because it believed the company was capable of driving revenue growth in markets where increased regulations and compliance checks were certain to increase demand for Lombard’s products.
A 44.8% increase in top-line revenue in fiscal 16/17, compared to a 10.3% increase the previous year and 15% compound annual revenue growth from the previous five years suggests that the investment has raised the company from its slumbers.
"We are delivering what we said we would within the existing business," Brown told Proactive.
As well as taking a contrarian view in terms of cutting costs - as alluded to above, Brown opted to grow the company out of its Slough of Despond - the company has also taken an unconventional approach to "offshoring" its development capabilities, choosing just about the most land-locked city in England for its new state of the art technology development centre.
Brown explained that it was becoming increasingly difficult to source talent in Shanghai, where the group has had a development team for the last decade.
"Rising costs and competition for talent, whether from local software firms or international companies, adding to the complexities of dealing with a remote centre where English is a second language," Brown said.
Apart from a no doubt well-rehearsed quip about language difficulties, Brown seems extremely pleased with the technology centre in Birmingham and the welcome Lombard has received from the Brum business community.
Lombard said it starts the new financial year with confidence, with recurring revenues up 21.0% year-on-year at £12.4mln, and the order book swollen to £10.1mln compared to £7.5mln a year earlier.
Lombard said it is targeting a return to cash profitability this year, as it reaps the benefits of its heavy investment.
“The year to 31 March 2018 promises to be a pivotal year for Lombard Risk as we continue to liberate our clients from operational and regulatory complexity, and the board remains confident in our plans and our ability to continue to execute them,” said company chairman Philip Crawford.
Brown said in his interview with Proactive that the company would continue to develop its relationships with partners such as ATOS and Oracle, and would look to replicate the relationships in other markets.
Beyond that, the management team is looking to leverage the deep expertise within its ranks.
"In three years' time, I would be surprised if we were to be focused just on regulatory and collateral," Brown said.