Intercede Group (LSE:IGP) — Interim Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the INTERCEDE GROUP PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish our responses where it's appropriate to do so. Before we begin, as usual, we would just like to

0:32 submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from INTERCEDE GROUP PLC. Klas, good afternoon, sir. Good afternoon, Jake. Afternoon, everyone. My name is Klas from the list. I'm the CEO for INTERCEDE. I would like to welcome both existing investors as well as potentially new private investors to this session, which will cover our first half being April 1 until the end of September twenty twenty four. I'm joined by Alan Story, who's our CPO, and Nitol Patel, who is the CFO. And whilst this presentation is us presenting to you, we do look forward to your questions, but also your feedback after the session. So without further ado, let us start with the presentation, which will update which will provide an update into, an insight into the markets we operate in and how we position through both additional features, but also through new products like MyID Secure Vault. So let's start.

1:37 So if you look at company introduction, I know this is a a a difficult one because we're presenting into a black hole, and we don't know whether you're, an existing investor or whether a new investor and and how much background you have. So I'm gonna pick out a few salient points here. INTERCEDE is a software company based out of Letterworth. We've got two offices in The UK. Main office in Letterworth and through acquisition, we're also based out of Bregnall. We're about 108,109 staff, just over 94, 95 in The UK, and the rest of our colleagues are based just outside of Washington. Washington for a very good reason because we're heavily geared towards The US US federal market, so we need to be near clients and prospects.

2:22 So we're a software company. What does the company do? Ultimately, at 30,000 feet, we help our customers to protect themselves against data breach. Data breach five years, ten years ago was something which was sporadic in the news. Nowadays, it's daily, if not hourly. Only yesterday, one of the NHS trusts was hit and completely rendered ineffective. So this is something that's very, very real. So we help and protect our customers against data breach. How do we do that? We basically replace weak credentials such as passwords with much stronger authentication. Alan will pick that up in his part of the presentation. And we do that simply, we do that securely, and we do it at scale. What I mean with simply, it's standard off the shelf software.

3:08 This is easy to implement, easy to integrate with, and easy to maintain. We do that securely. If you look at our client base and there are some some samples of our clients in the appendix, but also, you can find some logos on our website, you will find that these clients are very recognizable, and they tend to test our software rigorously before comes into production, particularly in The US. A lot of our US federal clients need to have an authority to operate, and they can only do so if this software has been tested. So we know it's secure. Final point is it scales. We tend to position in the market at mid level upwards. Lowest number of licenses we probably sell is in the the high hundreds, and then we scale to millions. The largest one we've probably got out there is Kuwaiti national ID scheme

3:57 who have probably issued between six and a half and 7,000,000 licenses by now, so we know the platform scales. It's also business critical software. So this is not the kind of software that will get turned off because there is an economic downturn. Basically, our clients are protecting their crown jewels with the software that they have purchased, and therefore, it's regarded as business critical. It's also very much positioned within the wider cyber security market and depending on, you know, which analyst you read, that market is still growing very much at double digit. If we then move to the box on the left from a business perspective, it is very much a scalable business. We've proven that over the last last couple of years. And And there are three main revenue streams. Recurring revenue or support maintenance, we have then our repeatable revenue, which is typically our professional services, and then on top of that, the licenses.

4:48 The good news nowadays is that the majority of our cost, a and lot of that is labor is actually covered by the revenue we get from both the recurring revenue as well as the professional services. And therefore, as and when we sell licenses, it becomes highly accretive and a lot of that will drop to the bottom line. Operating model is very much proven. I talked about the tier one client base. Some of the logos are on our website. Other clients, we simply can't talk about. We'll think about interesting shaped buildings in and around Washington. Think about intelligence agencies. And by the way, not all intelligence agencies have three letter acronyms. There are I think there are in the the low twenties in The US, and we're dealing with a number of them. Management team is established. Obviously, I've got Alan and Mitchell with me here, but we also have COO and CTO as as part of the the team.

5:40 The growth pillars are very much defined. We position ourselves as an organic growth business. The objective is always to drive double digit growth. And clearly, came off of the the back of a very strong full year. But also in this first half, we're showing again that we can drive very solid double digit growth in the the mid to low twenties. The second growth pillar is acquisition. As and when we can find the right acquisition and we focus particularly on IP, then we will layer that into the business. We've completed our first acquisition that's been fully integrated, and we're on the lookout for more acquisitions. Market wise, we're very much recognized, not just recognized by clients and partners, but also by industry analysts like who've written very favorably about our our products in the market.

6:28 If we look at that pipeline, our pipeline has developed very, very nicely compared to comparable period last year, not just in terms of absolute value, but also in terms of geo diversification. What do I mean with that? Those who've been following us for a while will know that the majority of our revenue, typically 85% is is US. But what we've actually seen that our pipeline outside of The US, which is what we classify as rest of world, has grown very, very nicely. That's not just focused on a single region. It's pretty much broad brush. We see opportunity in The UK. We see opportunity Continental Europe, Middle East, as well as Asia Pac. So that's really good to see that our pipeline is balancing more out. What I'm not saying is that our pipeline in The US is not growing. That's absolutely not the case. But we're actually seeing more number of opportunities appearing in rest of world region than we've seen for a little while.

7:22 The second point about the pipeline is actually the weighted pipeline, and we've described it as materially ahead of where we were last year. So what does that mean? We have more opportunities in the pipeline that sit on the right hand side with heavier weighting, so closer to the procurement stage. Competitively, we can very much defend protect and defend our moat whilst we are quite niche. We're very much regarded in the space we operate in, and we see very little revenue attrition. Our revenue attrition in terms of revenue is significantly below two and a half percent and has been so for many, many years. Alan will talk about the authentication pyramid, which is a very good reflection of the journey we've been on over the last five years, but it's also a good a good picture to highlight where we want to take the business next. Final point in the central box is regulation. We love regulation. Again, Alan will talk more about regulation in The US.

8:22 But we also see more regulation now appearing in Continental Europe within the EU where NIST two is very much coming into force, we fully expect in the next two to three years that companies will have to work hard to comply with the new laws that will appear in each individual country. Financials, Nietzsche will talk about the KPIs and how they've grown over a period of time. Main thing I wanna stress here is the share buy share buyback we've commenced. Two main reasons for that. First of we got some EMI options coming up next year. We haven't got enough shares in treasury, so we're actually buying shares for treasury to fulfill that potential requirement. Secondly, each one of us knows on this call there's been a lot of instability leading up to the new budget around AIM and IHT.

9:11 We have a small exposure, relatively small exposure

9:14 to AIM IHT. So we wanted to make sure we had an instrument in the market that we could actually deal with as as most of you, I'm sure, will realize share buybacks have to be approved by board. There is and there are some mechanics we have to take in place. So we want to make sure that before the budget was announced, we actually have an instrument in the markets that could deal with any any adverse reactions to to what was going on in the budget. So that's very much high level introduction. At this point, I hand over to Nitol who will talk you through the numbers. Thanks, Glass. Hopefully, everyone's read the RNS we released on Tuesday. I'll start on the left hand side in the progress report, and then I'll just highlight some of the key revenue streams that we've had in h one. Revenues have grown by 22%, 8,540,000, and on 29% on a constant currency basis, which is a good result for us, as Clas has mentioned, coming off on f y twenty four's exceptional results that we had.

10:14 Profit before tax is 1,700,000. Again, really good number for us in h 55% higher than the comparative last year. And the reason for this is because our products are so good and we continue to invest in our product. And Adam will explain what we're doing with our flagship MyoD CMS later in the deck. And also what we've done with our acquisition since we bought integrated, how we've gone to the market, and what we're looking to do with it. And that's version five zero six. And, again, Alan will explain more about that. But this week, also, we've launched our new product called MyID Secure Vault. It's a separable stand alone product, subscription based pricing only. And, again, Alan will explain more why we're doing this and what we see in the marketplace for this product.

11:01 We've taken a different approach to r and d tax credit. It's a technical tax adjustment policy. And there's a slide later in the deck, and I'll explain what we're doing with that. But you'll see an impact on the income statement because of that. And just as, Claus has mentioned, professional services have grown quite well this year in h one as a comparative, and this is mainly because of our three, either deployed, deploying, or just deployed and potential, POC that we're doing with three large federal agencies. One, we can name the Department of State. Four years ago, we won it. Two and a half years ago, it went live. We're continuing to help them, maintain and operate that and manage that, and they're constantly using our services for that. And we like that because it's a good revenue stream, a repeatable revenue stream for us, and it embeds our staff in their environment.

11:52 Last year, we had a really good strong order in December, $8,000,000, and that was with a new federal agency which can't be unfortunately, can't name yet, but they had an aggressive timeline to go live. The good news is they have gone live. They've used a lot of our professional services, and they continue to use our professional services going forward. And we don't see that tailing off. And as we've highlighted, we're in the process of doing a POC for another large US federal that's taking a longer period of time to test it. We're happy with that at the moment. We normally don't do this unless there's a license order attached to it. But because of the opportunity, we've decided to allow two of our staff to be embedded into the POC world in this agency. So that's why PS is looking good this h one. There is a licensing committee slightly behind schedule, but we'll come to an explanation of why that is the case and what we're seeing in h two.

12:45 Just the highlights on the right hand side. Yes. We do have a lot of good federal revenue, but we're also seeing movement in ROW and through that, as Klaus has explained about our pipeline and the weighting of that pipeline. And in our myADCN, MFA and PSN is also getting good traction. And the release of five zero six and the potential of what we're trying to achieve in a new marketplace, which I'll explain, has some good prospects for us in the future. Again, financial highlights pictorially. If you look on the right hand side sorry, left hand side top, revenue streams by analysis of support and maintenance, our recurring element, our PS, our our repeatable element, and our license income. As you know, we're normally perpetual. We've obviously we've, like, last few years introduced subscription. We'll see how that develops. Our MFA PSN products are all subscription as is our new product, MySecure Vault.

13:40 If you look at this year, 4.7, 2.7, that's a really good number for us. Why? Because as Klaus has mentioned, it covers a large percentage of our operating expenses. So any license sales that we do, less commission, are gonna be highly, highly accretive to us. And we're focusing that and looking to convert a chunk of our pipeline in in h two to into license income. Revenue by region, as you know, Americas continues to be the largest and will continue to be the largest in the foreseeable future purely because it's got bigger budget. It's well funded. It's got more agencies that are securing abiding with regulations that exist in United States. But there is traction in ROW, and we will look to see that orange segment grow over the coming h one h '2 and into next financial year.

14:27 Adjusted EBITDA and profit before tax is a good metric again that we focus on. Why? Because we'd like to see them close enough to each other. As you can see in h one, it's 1.8 versus 1.7. Again, there's a reason for that, and I'll explain that later in the income statement. And then on the bottom left, right, you see the movement of cash. Good cash generation gives us the capability of secure foundations to continue to invest in our products and also gives us room to maneuver in regarding m and a activity or share buybacks that we had to do this year.

15:00 And equities are now going in the right direction as well. Income statement, we have a very clean statutory income statement. That's the top half, and the bottom half is just an illustration of where the adjusted EBITDA and the adjustments look like. So if you look, then you'll see the two major issue, changes here are the net finance income. It's larger than last year. Again, a reflection of our cash balances. We, spread that money across three UK banks, a plus rate a rated or a plus rated, and we hold it to the maximum of three months to abide with, accounting standards. And then you'll see the taxation. We have not received a tax credit this year. We've elected not to take it. Again, there's a late later slide on why we're looking to do that. You'll note at the bottom that we've got carried losses of 3,900,000.

15:47 We probably want to utilize those into this financial year and and then utilize the r and d loss tax losses. Again, I'll explain that later why we're doing that. Financial position of the group. Again, we have a very clean balance sheet. We don't expense our r and d expenditure. The $3.53600000 that goes through the income statement will continue to go through the income statement by a slight tweak on my ID Secure Vault. Again, I'll explain why we we're probably gonna have to capitalize that, but the amounts we're talking are not material. The movements in other, property and plant and equipment, right of use assets is mainly because, one, we've got a new, office, in Reston, and that reflects this this seven year lease. And, also, we've invested heavily this h one in upgrading our back end infrastructure, not just physical servers, but also moving into a sale.

16:40 But all staff have received new laptops, especially development and testing staff to get new specs and capabilities, functionality so they can increase boundaries, increase productivity, and get ready for the next three to four years of hopefully increased activity. The other parts of our balance sheet that we focus on quite heavily is trade in receivables, cash, and deferred income. I should have highlighted the deferred income greater than one year. The reason for this, pure working capital management. You know, it's good to have deferred income, gives you good visibility or good visibility into the future. And if you've got even longer noncurrent liabilities that shows you that we're selling either two or three year contracts, either licenses under MF APSM, and also maybe as people are doing longer

17:28 term as an support or maintenance contracts with us and locks in the price now without the inflation increases that we apply if you don't renew if you renew every year. Trainer receivables is higher than last year. We just had late orders in September. We're under procurement rules with our big corporates and our government agencies. We get paid, but it you have to be in that system. We're in the system. It takes fifty to sixty days to get paid. Most of that money has now been collected. It hasn't had an impact on the cash flow. It's just a negative outflow, but that's comparable to the March 31. It's a working capital adjustment. We had a large debtor at March 31 on renewal a large renewal subscription that we've we have every year, And that's just a comparative the cash used in investing activities, as I've mentioned, sort of to do with the fixed assets, and there's no tax credit. Last year, we got 450,000 in tax. Obviously, this year, we didn't. Again, we've elected not to receive that. But we've got a good strong cash, balance, and we expect that to turn around in h two.

18:33 So just wanted to give some additional notes. I've mentioned the and the updates from the financial section. The capitalization of MyID Secure Vault. There's a slight change potentially on the policy, and this has got to be audited. But because it's a separable asset with standalone, can be sold without the MyIDCMS attached to it, has its own pricing, and can has identifiable costs associated with it and future revenue streams, then the standard directs and kind of gives guidance on you should be able you should be capitalizing this because you're matching future revenues with the cost element of of the development of the product. We don't see this as material. We don't see this as a significant change in policy, but it's one thing that we will be high probably doing so at year end. I just wanted to highlight that to our investor community.

19:26 Not a material change in or impact on the income statement and no change on our flagship MyID CMS, which also now incorporates MFA and PSM. The other technical change we're doing is on r and d tax credits. We normally, in the previous years, taken cash because we wanted it, and it was good to have the cash and we could invest it in the product. As we are cash rich at the moment, we've decided not to take the tax credit for this year, and we've also gone back and opened last year's tax comp. And that's the we'll we'll you'll see if cash outflow in h two was circa 500,000. That's 450,000 that we got from HMRC, and plus interest flowing out of us. Actually, it's flown out of us, in h two. The reason we're doing this is purely tax arbitrage rates.

20:13 We get a blended tax cash credit of circa 12 to 14%, and the corporation tax is now 25%. And going forward, it's better for us to reutilize r and d tax losses against future corporation tax liabilities. It just makes sense to have that arbitrage, and that's what we're doing. And that's why we've opened up last year's

20:33 tax comp and why we're paying it back and also why we haven't got a credit for this year. Share buyback, as Claus has mentioned, we decided to do one in the beginning of November. We're getting ready just for the budget on October 30 with an end date of December 31. We'll see that flowing through. You'll see the statements RNS is coming out from Cavendish and, coming to this, I l s e RNS, and we'll see how that progresses through. But we're anticipating a 1,500,000 cash outflow in h two, mainly to do with the share buyback and

21:05 the r and d tax credit I've just mentioned. And you'll see calendar shift note moving us down from eighteen point five to seventeen million purely to do with this 1,500,000 cash outflow that we we've, described just now. We also wanted to show you that, you know, for a like for like basis, if you took the exceptional out of the equation, where has this company been going in the last four, five years? You know, Klaus and I were talking about, you know, three years ago, three and a half years ago, we reported $99,500,000 for the full year, and we're now reporting 8.5 in h one. CAGR for us is great for in the sense it's now twenty twenty one, 2021.4%. We'd like to continue that. And you can see that the progress we're making. So the emphasis on the pipeline, the conversion of the pipeline is really important to us, and we'll be focusing on that going forward in the coming years and months and years.

21:59 On that basis, I'm gonna pass you over to Alan who's gonna talk more about product. Thank you, Nitol. So let's start to take a look into the product and what we're doing with it to try and drive that revenue. So as Klaus mentioned and what we do is we help protect our customers against data breach. We use that by taking weak credentials, typically passwords and one time passwords, and replacing them with stronger credentials. We use what we call the authentication pyramid to describe the strength of those credentials. So passwords at the bottom, multi factor authentication, one time passwords in the middle, and moving up to the top of the pyramid, PKI. So this is authentication based on public private keys and cryptography. Historically, we've only played at the top of that pyramid. So that's the gold standard of security is used by governments, aerospace, and defense, for example.

22:49 Strategically, we wanted to move down the pyramid to address a wider market, so that's why we made an acquisition a couple of years ago of a company that had multi factor authentication and password security management. We've now completed the rebrand of those products. We take those to market as MyID solution. So MyID has now become a product family, and we're a multiproduct company.

23:12 The next three slides really talk through each of those products in a little bit more detail. Conscious of time, I won't leave those there, but those will be in the deck, and you can use those as a little bit more reference on what each product does. What I'm going to do is really focus on where we're taking those products. So this is how we position them into the market today.

23:32 The first one is aimed at the very top of the market. So this is our existing customer base and type of customer, federal government agencies, aerospace defense contractors who have to comply with the legislation called PIV, personal identity verification, which states that you have to issue strong credentials to known people in your organization. So that's the legislation people have to comply with. To comply with that legislation, they've issued fairly complicated systems out there that integrate lots of components together. So this is how customers today are using our system in that federal government market. So on the left hand side of the slide, we're onboarding people. We're capturing fingerprints, facial biometrics. We're placing documents such as passports or driving licenses on scanners, making sure they're not faked, they're not known to be tampered with. Then we pass that information up to background checking systems.

24:27 Do these fingerprints match anybody else in the system who's enrolled before? This person's enrolled. They are who they claim to be, but are they on a terrorist no fly list before we actually let them into the air traffic control tower?

24:38 So a lot of this is about, is it the right person, and is it a good person?

24:42 Once we've done that, then we issue them a high assurance digital credential. So that takes the form of a PKI certificate with keys on a smart card, USB token, or phone. To do that, again, we're integrating lots of technologies together. The PKIs that provide the certificates, mobile device management systems look after mobile security, physical access control systems, etcetera. So this is what customers have deployed in that high assurance environment today, and that allows us then to comply with those federal government regulations. There's a change to the regulations coming out the executive office of the president that states that organizations now need to deploy stronger authentication to the maximum extent possible. That means everybody in the organization and down the supply chain.

25:30 It's quite hard to deploy PKI down the supply chain because the organization to do that has a complex system like this setup, but they're not in control of the supply chain's IT infrastructure. So it's quite difficult to implement. There's another technology that's used in the consumer space called Fido, now called Fido pass keys, still based in cryptography, which is potentially easier to deploy because you don't need as much infrastructure in place to deploy it. It's built into operating systems, for example. Now what customers wanted to do is to be able to deploy and manage this in the same way as they could PKI with their credential management system. But until recently, they couldn't do that. They could either issue the FIDO pass keys with

26:15 Microsoft ENTRA, which is Microsoft's rebranded name for their identity and access management suite, but then they couldn't do it to the policy. They couldn't comply with the federal government policy rules. Or they could issue them with the credential management system that complies with the federal government rules, but they wouldn't work with INTERCE. So Microsoft realized this. Our customers realized this. We've been on conversations with Microsoft with some of those customers asking Microsoft to give the ability to issue pass keys that it could work with from a third party system. So we've been working with Microsoft as an early adopter in this space. There's a small number of vendors we're invited to work with them on that scheme. We've worked with them on that scheme. What that allows us to do is then issue and manage those FIDO pass keys in exactly the same way as customers today issue their PKI.

27:05 So they use our system and they get all of that compliance with policy, but then they work within the Microsoft entrant environment. So what that means is the customer can keep meeting the guidelines and they can deploy those from the credentials. From our perspective, that's simply more licenses into our existing customer base. So whenever they issue a PKI smart card, that consumes a license. If we issue a FIDO PAS key or something like a YubiKey, that also consumes a license. Moving down to the absolute opposite end of the scale now. So one market, customer size INTERCEDE hasn't addressed in the past is the very small customer. So five, ten, fifteen, twenty users, for example. Even our multifactor authentication product, our mid market product, typically starts around the 250 users plus environment.

27:56 So these customers are very difficult to deploy to because they typically don't have their own IT departments, and they outsource their IT to a service provider. So we were approached by a organization called Riverbird based in Germany. What they do is they have a platform, so a cloud SaaS platform that multiple managed service providers use to satisfy multiple end customers. So that Riverbird platform is used by around 400 managed service providers, and those 400 managed service providers in turn manage multiple end customers, and they've got millions of devices under management. So partly because of the increase in the level of cyber attack, the geopolitical climate, partly because of the upcoming miss two legislation in Europe, which drives organizations to set their own cybersecurity standards.

28:49 Riverbird said, can we have stronger authentication as part of this platform? So we took the product we'd acquired, rebranded as myDMFA server, and we made two major enhancements to it. The first one is the ability to manage multiple end customers within a single instance of that server environment. So that way, we can deploy this into the River Bird cloud into their SaaS cloud environment. We don't have to deploy at the end customer site. We don't even have to deploy it into each managed service provider. The second thing we did is we enhanced the APIs around the product to allow it to be completely automated. That way, if an end customer ticks the box saying, I want strong authentication, the deployment of any software is absolutely automated down to their clients. So no human being has to get involved.

29:38 The point where they start using that and they start getting billed, again, nobody has to run a report. All of that is completely automated. So I'm personally very keen on this for a couple of reasons. One is that it allows INTERCEDE to address a customer base that doesn't cannibalize our existing revenue. We've not gotten near these customers before since they're brand new types of customers for us. The second one is that allows us to tap into that pure cloud SaaS model that gives us the scalability without having to actually run that SaaS environment ourself. So by tapping into an existing platform that's out there and widely used, it gives us those scalability benefits. So this is currently in production. We've been working with Rupert for a few months on pilot customers. It's early days, so we're up to the first few hundreds of end users at the moment. We're now monitoring that and working with them to look at what the attachment rate is, how many of those end customers will start stepping up to stronger authentication.

30:35 And if that's successful, we intend to take that model through to other managed service providers in other regions. Talking now about a new product, myD Secure Vault. So part of the security of PKI is that there is a private key, and you need access to that private key to read an email that somebody sent you if it was encrypted or open a file that was encrypted. When I get a new device, I I might lose my smart card. I'll get a new one or I buy a new phone. I need to get those private keys onto that device to be able to continue to read the email or open that file. Now traditionally, customers have managed those keys within the PKI infrastructure. Those those keys are placed in a what's known as a secure vault or a secure archive within that PKI infrastructure.

31:26 And they use our product, the credential management system, to help them recover them and write them down securely to the new device. But this causes our customers a problem. So we had a customer approach just saying, the problem this causes me is whenever I move PKI provider, which they do regularly often, so they may move between Digicel or INTERCEDE or Verizon as a PKI provider. I'm kind of locked into that vendor because my private keys are in that vendor's environment, and I need to move them from that vendor to another vendor. That's costly. It's time consuming. It's very risky. So the customer approaches and said, INTERCEDE, you understand keys and security. Could you build a secure vault to store these private keys, but one that gives us independence from the PKI provider?

32:12 So we built it. The good news is that we had a lot of code and skills and knowledge in our existing product that allows us to build this product relatively quickly, but we've built it as a stand alone product. So it's not part of the credential management system. It's a completely stand alone product, partly for security purposes so the customer can deploy it in a different environment, but partly so we can sell it integrated with the credential management or completely standalone so it could work with somebody else's credential management system. So what this does is it gives customers the ability to store and manage those private keys completely independent from the PKI infrastructure. Because it's a new product, we are only providing it on a subscription pricing basis. There's no perpetual licensing here for this product.

33:02 The way we license is for the number of keys held within the system. The more keys, the lower price per key. Most organizations, people use this. They have around five keys per person because the keys change over time. And there's also a requirement to hold on to historical keys, typically for around seven years. So for example, with one of our customers, Federal Aviation Administration, they need to hold them for seven years due to government guidelines. So if somebody like the FBI or the CIA came in to investigate somebody, they'd need to have access to those keys so they could read the emails. So that's why they need to keep it for seven years. So brand new product. This is focused on our top end customer base and where the CMS plays initially on PKI keys. But as we continue our m and a journey and start to look at other areas where we can add value, there are potential future uses for this. So for example, in nonperson entity, secrets management, API keys, device keys, for example.

34:03 Moving on to innovation. So what research activities we undertake into trying to add ongoing value to our customers. The first one is quantum cryptography. So this is probably the thing that keeps our customers awake at night at the moment. The idea behind public private key cryptography and base security is there's a private key and a public key. I can sign something or authenticate with the private key. I can verify that with the public key, but I can't get back to that private key. That remains secret. The theory is with quantum cryptography and quantum computing, you can have a computer that is so powerful and so fast. It can perform billions of what if calculations per second. So theoretically, with the public key and only the public key, you could work out what the private key is.

34:51 That means it undermines the security of public private key cryptography. So the good news is that NIST, who set all the standards in The US around cryptography, are well aware of this, and they're already working on it. So they've recently published the first three quantum resistant algorithms. What that means is even if a nation state has a incredibly powerful quantum computer, because the way the maths is calculated, you still can't get back to the private key if you know the public key. So I was in NIST, last week with their people who were setting these standards, talking to them. They are running early adopter schemes for vendors to prove you can work with these algorithms and deploy them. We will be part of those schemes as those algorithms become available on hardware devices, such as smart cards and hardware security modules.

35:40 We will be working with them in the Nest Labs, proving to our customers we can actually deploy that cryptography when they need it. So it's probably two to three years before customers need to start deploying these quantum resistant algorithms, but we will be there before they need it demonstrating that to them. And we will also help them migrate from the old cryptography to the new cryptography. So that's an important part of our product value. Second one here is artificial intelligence. So we've been looking at artificial intelligence and how it can add value to our product set. It's no secret that artificial intelligence is being used by hackers. So there's lots of examples of deep fakes of people reading video out that look like real people. The emails we all used to receive from the the Nigerian princes that are obviously fake, it's very, very difficult to spot a phishing email these days when it's generated by AI because it looks very, very realistic, and it has context in there.

36:38 The good news for us is that drives people towards stronger authentication, is which FIDO pass keys or PKI. So it drives people to us also technology. But we've been looking at where we can add value to our product set using AI. Our view of our particular product is we don't think it will replace the people using it, but it does add value and help those people. So that that's probably why Microsoft call AI Copilot as opposed to Pilot. So the two areas we're looking initially, the first one is our system is connected to lots of other systems. There are lots of log files and audit files that come out from those systems, and we have an online knowledge base. So AI with machine learning is very good at spotting patterns. If we can spot patterns ahead of an incident occurring, we can help those customers. So it could be, for example, this particular person has been logging on an abnormal number of times. You might want to investigate that.

37:34 It could be when we've seen this pattern happening in the log before, we're starting to see a network slowdown. Therefore, you might want to go investigate a particular area. So proactive AI analysis of logs we think can help people maintain their systems. The second one on here is a while ago, we put our documentation online. Some people aren't comfortable with that because it means competitors can look at it. We are comfortable with it because we believe we should focus on being the best product and making that available and stand behind it. So I'm very pleased we did that. The documentation's online. The knowledge base is online. So customers can search that easily, and they like that, but you still need a degree of knowledge to know where to look. What this can do is act as a more of a conversational style engine to help you find what you're looking for. How do I change the color of a card layout?

38:27 How do I actually swap from an old crypto algorithm to a new one? So AI with machine learning, again, is quite useful at pulling together that information from different places and presenting it to the end customer. So these are just two of the areas we're looking at in bringing AI usage into add value to our product set. Okay. With that, I'm gonna hand back to Claus. Thank you, Alan. So trying to summarize where we are today and a little bit more about outlook on the next slide. If you left with one thing today other than presenting half decent results, it's that INTERCEDE does incredibly well in highly regulated markets.

39:12 One of the reasons why we're successful in The US is because it's very heavily regulated. There are other countries where there may be less regulation, but they want to follow The US standards like FIPS two zero one that Alan referred to. We see that, for instance, in Singapore. We now start to see that happening in Australia. We see interest in New Zealand, which is really interesting for us. But we also see more regulation now within the EU with NIS two. NIS two is something that's coming into law pretty much now as we speak, and there is a large cohort of companies that will have to comply with NIST two regulations. Compliance is something that typically takes time, but it does mean that they have to make investments particularly around the cybersecurity posture. And the good news is within these two, there are real good drivers similar to those we've seen in The US.

40:03 So we expect that those market drivers will be positive for a company like INTERCEDE. We'll continue to expand our product portfolio, not just in feature enhancements, but also the launch of new products. Secure Vault, Mighty Secure Vault is a very interesting product. We've got that to market very, very quickly. We have already initial interest. There are active quotes for this product out there, and we fully expect that they will materialize in the foreseeable future. That also quite nicely builds onto point number three. We build and grow a diverse pipeline. In my introduction, I referred to a pipeline that is very solid in terms of absolute numbers, but also with regards to the weighted pipeline, it's in a much better position than where we were last year. So that gives us a lot of confidence for the full year ahead. And the second point I raised on the pipeline is the fact that we see lots of opportunity arising in in rest of world. So real good movement on on the pipeline.

41:03 Nitol as CFO, you know, he's got very single mind focus on revenue margin and profitability. And hopefully, through the numbers you see that they really plea play a key part in our day to day business, and we very much focus on those going forward. Liquidity is excellent, and that will continue to provide us opportunity to grow the cash pile and hopefully invest some of that cash into future acquisitions. We haven't focused a lot on the the acquisition part in this presentation, but just to reconfirm, we have a full time corporate head of development in house. We have a a long list of around 300 companies. At any point in time, we talk to you about five to 10 potential potential targets.

41:50 And that typically takes time. And as and when we have updates, we will clearly come come back to the market. Balance sheet, as Nicholas talked about, is very, very clean. We used to have a convertible for 5,000,000 that was dealt with just over two years ago, and 12 out of the 13 loan note holders actually converted. So if we then wrap up towards the last slide because we do wanna leave a little bit of time for q and a. Outlook wise, we clearly come off the back of a very successful year. It was the best year in the history of the company with £20,000,000 revenue, but we've seen that same kind of traction continuing into half one. And on the back of half one, as we've clearly presented the results to you, we also see very strong traction into the second half, and it gives us a lot of confidence to deliver the full year numbers for the full year.

42:43 We talked about SecureVault that allows us to capitalize on net new opportunities, not just in the existing client base, but also in potential prospect areas that we're already starting to explore. We're very close to our technology partners, our resellers, our distributors, and continue to expand. It was only last week we announced a new reseller relationship within Finigate in The Netherlands. Clearly, it's a country I know reasonably well. We visited a couple of times. Why INFINIGATE? They focus very, very heavily on the cybersecurity space, which is good. They're also one of the leading distributors of UBKeys in The Netherlands. And as you may recall from earlier presentations we've done through IMC is that when you issue or when an enterprise or a government body issues thousands of YubiKeys, you need to have a management platform. So we're very much driving that proposition jointly with INFINIGATE into the Dutch market, and we already start to see the initial traction there. M and a wise, it is extremely disciplined.

43:50 Again, we've highlighted in previous updates that we have been in DD from time to time. But once you start lifting up the carpet tiles in somebody else's organization, it's not always the things that you like to find compared to what they presented to you. So in that case, yes, we incur some legal costs. And in some countries like The US, lawyers are expensive, but it's better to walk away from a deal that doesn't feel right or doesn't smell right than have to come back in two years' time. So actually, the acquisition we did didn't really work out. And there are plenty of examples in the industry where acquisitions haven't worked out, and we can even stay pretty pretty close to home for those. Final point is we I think we excel in delivering very good service to our clients.

44:39 Alan was in The US last week not just to visit NIST, the standards body, but also to run our client advisory board in The US where we had over 40 attendees. So we're extremely close to our clients. We get real good feedback from them. We have an NPS at 55, which not that long ago was around 20. So we continue to invest quite heavily. And for those who attended the CMD, we had one of our partners, Guidehouse, talking about the importance of playing the long game, and that's exactly what we do. We we play the long game with clients even if that means that there is some short term pain. But if you take the five to ten to fifteen to twenty year view on a client, that's where the lifetime value of the client comes in, and that's very much the game we're in. So final point is short term, we're very much focused on half two. We're extremely busy.

45:30 Mitchell and I are flying to The US on Saturday to spend more time, not just with our colleagues, but also again with clients and partners and potential prospects. Medium term, our ambitions have been very clearly outlined in the industry that we've got strong ambition to grow, and that's pretty much where we are. So, Jake, on that note, I'm handing back to you. Perfect. That's great, Klas. Alan, Nittel, thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can all be accessed via your investor dashboard.

46:16 Guys, as you can see, we have received a number of questions throughout your presentation this afternoon, and thank you to all of those on the call for taking the time to submit their questions. But, guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that'd be great. Thank you. Right. So we got quite a few questions in the q and a box. Now I'm in the very good position that I read the questions and I decide who's gonna answer them. So this is quite quite good fun. So let me start with the first question from William c. Great results. Thank you. How much visibility do you have over half two license sales at this time? William, I hope that's become clear that we got real good confidence in our pipeline, not just in the short term, but also medium term pipeline is really, really good. So we have no concerns about the the opportunity for license sales in the second half and indeed beyond.

47:09 Next question is from Mark c. You advised that 85% of the revenues comes from works in The USA. How concerned are you about the possibility of tariffs possibility of tariffs the incoming president has threatened to impose on imports. Yeah. We obviously discussed this. We're pretty well protected when it comes from a pricing perspective. We play in the top end of the market if indeed there was a scenario where tariffs would be applied to our product range, then we seek to seek to revise our pricing. And I do believe we got the pricing power there. So I have no real real concerns on those discussions around tariffs.

47:55 Sorry. Some of my questions have moved on. Other question from William c. Your September contract, RNS, mentioned $500,000 major development order for a new government end client with deliverables in the second half. Is this still on track? Nitol, one for you. Uh-huh. Yes. There you go. We're confident in our ability to deliver. That also comes back to the fact that, you know, we're releasing quarterly listeners, and we have a very strong cadence in our deliverables. So we wouldn't make statements on our NSS if we didn't feel we were capable of of delivering. Marvin, question from you. What will be the full year impact of increased NIC on your cost base? Nitol, one for you.

48:45 Yeah. We've done a quick calculation for the changes in April, circa a $160,170,000 pounds increased cost for f y twenty six. What mitigation we're doing is no employee will be worse off. We were planning to increase the employer pension contributions from six to 7%, next year. That will not happen now. And the original ideal plan was to increase the gradual intake probably by four to five people next year. We're probably gonna trim that by one or two people as well just to compensate for those costs. So there is gonna be an impact, but we've got mitigating fact part of the factors in play to make sure that has a nil impact overall on the income statement.

49:34 Other question from Marvin. Do you expect the level of professional services in half one to be sustainable or revert back to more historic levels going forward. I don't think they will necessarily go back to historic levels whether we can maintain half one to be seen. But what we are seeing as as Nittel has indicated is we are getting more pulled into the very large programs we're working on because we're ultimately we're the subject matter experts. So we definitely expect going forward a very solid revenue stream on professional services. We are embedded in the large programs, so we fully expect that it will be a real good run rate on PS going forward. So I just need to skim through the questions again. There's one missed out. It's William c. Is there any particular reason?

50:23 Oh, I am sorry, William. Is there any particular reason why half one license sales were weaker than the last two years? Again, we try we try to highlight that. It's pure a timing issue. There is nothing more sinister. This is procurement. We we try to indicate that in the r and s and in this this presentation that our pipeline is strong. Our weighted pipeline is extremely extremely mature. So we fully expect the the slight weaker half one license sales will be compensated in in the second half. So we don't see any real concerns there. Next question is question from Marvin again. Can you give us a sense of the margin profile between your three revenue sources, licensing PS and recurring? Nitzel, you wanna take that one?

51:11 Yeah. I mean, it's difficult to do recurring. Recurring is just a renewal. So you've already committed the the kind of development costs and the testing environment already expensed. And then you've got a commission element on it. So renewals, the sales team get an element of commission. The, the PS, obviously, that's a cost of sale associated with that. Well, the cost of sale is Chinese operating expenses on our income statement. If we're not making margins of 40 to 50% of PS, we'll be disappointed. And then on license sales, why are we focused on license sales? Because they are highly accretive to us. Again, net of commission, you're looking at 95% gross profit on those. Quickly moving on because there's still quite a few questions, and we're trying to answer as many as we can. A question from Shakti.

52:04 How do you compare with your competition? Alan, one for you. I don't want you to be left out. Thank you, Toss. So it depends on depends on the where we are on the product set. So at the top end, the high assurance credential management. The competition, we are best in market there. There's no doubt about it. We can see that from the the projects we've won over there against the competition on the independent reports, such as. So at that very top end, the competition tends to have been either acquired by a large agency or lost focus, or it's a large sort of systems integrator who builds bespoke systems, and our customer base is very much looking for commercial off the shelf now because they've they've been stung by upgrade costs in the past. And the third option there is some of our competition deliver this by appliances, but then the end customer doesn't have an open system. They can't access the data.

52:56 So we're very much an open platform there, best of breed. As you move down the pyramid towards the mid market, it's absolutely a more competitive space. So our technique there is is to not try to compete with people who are bigger than us that we won't win against. So for example, we're not gonna be we're gonna try and compete with a a Cisco duo in that environment. So we're very much focused on how do we differentiate our products and how do we go after our sweet spots. For example, play people who don't want to put their authentication in the cloud. They want to keep it closer to their own environment. We can fit very strongly there. Places have offline environments. And, again, looking at the smaller market, how can we embed that into those managed service platform providers is another piece we're looking at. Thank you, Alan. Another question from Marvin. Do you see any risk on the Trump government that the new administration wants US businesses to provide authentication services to US government entities going forward. I think observation number one is mister Trump has been in office before, and it didn't have any impact.

53:58 We don't really expect any impact today. It's also one of the reasons why we do not sell direct in The US market. We sit behind local, national, typically system integrators, primes, and that's typically a very good position for us to be in. Another one from Marvin. How long are your typical contracts with government entities? What are the termination periods for those contracts? Let's keep this relatively straightforward. In The US, it's very much, well known that, they are funded on an annual basis and therefore are contract on an annual basis. That doesn't mean that we don't provide pricing for the outer years. Typically, when we bid for contracts, we're being asked to bid for base year and option years where option years can be option year number one, two, three, and four.

54:48 So it could be anything up to five years. Sometimes we're being asked to price for anything up to option year number nine, I e, you're bidding base plus nine, I e, ten years, but you don't get the contract for ten years. And if you look at the contracts, particularly our support and maintenance, there is no termination in as far as these contracts are paid annually upfront. We have a question from Guy next. Is there any reason to question the relationship with the US government given the recent election? Does the product become less valuable as you sell more and people get more familiar with your approach to software security? Hopefully, answer the first question already. The second part is, does the product become less valuable? I actually think it becomes incredibly more valuable, and we've actually seen that happening in recent years.

55:35 As we've won some of the real large programs within The US federal agencies, that's very much the queue and the starting point for the other federal age agency to say, actually, if they can do it, we can do it. And that's very much what we've seen after we won Department of State. Obviously, we announced the deal in December last year. They were pretty much waiting for Department of State to go into production before they went, and now we're seeing a stream of other opportunities coming into the market. So, actually, I think it makes us more valuable rather than less valuable. Another question from Bob. You expect to be able to accelerate your sustainable revenue CAGR from historically low mid teens to plus 20% plus going forward while keeping an and keeping or increasing margins?

56:22 Nitol, one for you. Thanks, Glass. Yeah. It's a difficult one. We're cautious. As you can see, you know, we are dependent on procurement cycles. So that's why we focus on the support and maintenance and repeatable revenues as a key KPI because we we know that that we can rely on that. As licenses grow, then the support and maintenance grows. And as we shift to subscription, we'll have more visibility. So the aim is, yes, to keep the the momentum going. Can we guarantee that? No. We cannot because of the way the procurement cycle works. But the idea is to when Clas has mentioned previously, we've been a very much a peak and swell entity. What we're trying to do is we're taking the peaks. We wanna keep them, but we're trying to fill the troughs up with smaller, more sustainable deals. And, therefore, we have more sustainable run of revenues as you suggest. Can we keep the 2020 plus CAGR? That's sort of aim that we wanna keep on doing.

57:21 So, yes, we're trying to keep growing at that rate if we can. Right. So we'll wrap up for the next few questions. Hopefully, we can get to the end. Given the a scratch from Steven, given the possibility of increased trade barriers to The US, do you see benefit in a in a US listing? I think if we went for a US listing, I think I would have to find a new CFO because I don't think Nittel would be up for quarterly reporting and the, the very high cost associated with that. But, you know, on a more on a more serious note, at this stage, I don't think that's even in the picture. We're very happy where we are at the moment. We do feel we got enough differentiation in the market and pricing power to, to deal with that. Simon's got a question. Carousel seems to be very busy pushing a great many companies and webinars, but I haven't seen, IGP mentioned how is the relationship developing.

58:10 Alan, you wanna answer that one? Yep. So, we are starting to appear in there now. So we were recently on a stand with them at an event. We've recently published material on their website, and we are currently planning joint webinars with them. So that is, our focus in there will be increased over the coming months. Thank you. Simon, another question. How exceptional was last year's exceptional? Could something, like that happen again? Absolutely, Simon. I don't see any reason why it wouldn't happen again. Well, I'm not gonna tell you it will happen every quarter because, we'll be in a very different space. But there's definitely opportunities in the market out there, and we're actively positioning. Alastair, Nitol touched on timing for the big US opportunity. Could you provide oh, hang on one second.

58:58 Could you provide a bit more detail on how this expected to pan out and when? Well, let me let let me answer on this this one. We're not gonna provide any any detail around that other than we're actively actively involved in that POC. The POC is progressing well. But as we well know, with U US and US federal procurement, timings can be quite difficult to predict. And even if I looked into my crystal ball, I wouldn't even give an answer to my board. So I'm not quite sure how I could you could give you a comfort answer there because there is no exact answer there other than we're very well engaged. We have a question from John. How is your own company cybersecurity process? Do you use your own products? Oh, very good question. And following on, what might be the impact of a breach in a client organization relate relating to your product. So let's start with number one. Do you use your own products? Yes. We eat our own dog food, and we are very extremely well protected. And we know that we recently had pen testing done, and they didn't really find anything worth of any note and they couldn't get through our our protection. There was a second part in the question.

1:00:13 The the the the the and following on what might be the impact of a breach in the client organization relating to your products? Alan, one for you. The impact will be quite high. I'm glad to say in the twenty four years I've been here, we've never had one. Let's answer that question. Martin has got a question. Why has your share price dropped from the peak of 200 p? To be totally honest, Martin, I don't know. I don't really focus on the share price. We focus on running the business. The share price is something that's happening around us, and there is clearly institutional pressures. There's retail pressure. But the interesting bit is we definitely know from the institutional side that they are very supportive in what we do. So I'm afraid I haven't got an answer for you. John's got a question. You speak of your m a m a m and a activity, but presumably INTERCEDE must be being looked at as a target. Are you able to comment, John? I think you know what the answer to that is. I can't comment on that.

1:01:13 I'm not trying to be awkward, but we can only put information in the public domain that is shared with everyone else. Simon, so will Microsoft effectively start acting as a reseller? The answer is no to that. But as Alan has integrate as Alan has hopefully explained, we will be very closely technically integrated with the INTERCEDE platform, which will give us net new license opportunity through our distribution channel and resellers. And then final question, Chris s. And then we're nearly well, we are out of time. But are there any opportunities to sell your products to the UK government? Absolutely. There are opportunities to sell in the UK government. We are actively doing so. Unfortunately, we can't really disclose any detail around those, but I can confirm that UK government absolutely uses our software.

1:02:09 And that is dealt with 24 questions in record time. Jake, back to you. Perfect, Klas. That's great. And Alan and Nitt as well, thank you very much indeed for being so generous of your time then addressing all of those questions that came in. But, Klas, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Yep. We'll do so. Thank you, Jake. So on the back of our record year, we've maintained this momentum into the first half and believe we're in an extremely strong position to deliver the full year forecast. And on the back of the strength and maturity of our current pipeline as explained. Our offering remains very relevant as witnessed by the daily stream of data breaches across the world, and Alan has explained how we're positioning with Microsoft for an end to end integration with Microsoft ENTRA, but also highlighted how we now start to work with MSPs and m MSSPs to bring strong authentication into the SMB market. So very much the the low end market that we traditionally haven't haven't pursued.

1:03:10 Finally, none of this is possible without our team of highly committed and loyal colleagues who day after day deliver the best code in our part of the industry. We aim to deliver continued revenue growth both organically and inorganically and profitability, and we strongly believe we are on track to deliver this for the full fiscal year. Please do take your time for your feedback on this session as we take this very, very seriously. And finally, thank you again for attending. We look forward to updating you all again, with IMC in June 2025. Perfect. Klaus, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations?

1:03:56 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of INTERCEDE GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all. Thank you. Thank you.