THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF UK MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE WITHIN THE PUBLIC DOMAIN.

25 April 2024

Checkit plc

("Checkit", the "Company" or the "Group")

Final results for the Year Ended 31 January 2024

Checkit plc (AIM: CKT), the augmented workflow and smart sensor automation company for frontline workers, is pleased to report its audited final results for the year ended 31 January 2024 ("FY24"). The audited accounts and annual report for FY24 will be published ahead of the Company's Annual General Meeting, which is expected to take place on 6 June 2024.

The Group's management team will host a live webinar which will include an opportunity for questions at 14:00 (BST) today. The webinar can be accessed via the news area of the website at https://www.checkit.net/news/ or by using this link:

https://www.investormeetcompany.com/checkit-plc/register-investor

FY24 HIGHLIGHTS

·    Annual recurring revenue ("ARR") growth of 16% to £13.3m* (FY23: £11.5m) in line with market expectations, despite a challenging global economy 

·    Recurring revenue increased +17% to £11.2m (FY23: £9.6m)  

·    Compound recurring revenue growth of 30% since FY20, reflecting strategic focus on subscription based sales 

·    Total Group revenue from continuing operations of £12.0m (+17%) (FY23: £10.3m)  

·    Net revenue retention ("NRR") of 111%**, demonstrating land and expand strategy 

·    New product functionality, enabling customers to deliver sustainability and energy saving initiatives 

·    Progress towards profitability, with a 46% improvement in adjusted LBITDA*** from continuing operations of £3.4m (FY23: loss of £6.4m), driven by revenue growth of 17%, an increase in gross margins to 67% (FY23: 63%) and an 11% reduction in operating costs 

·    Net cash at year end of £9.0m (FY23: £15.6m),  with a 23% reduction in cash burn in FY24 vs. FY23

Outlook

·    Trading since the start of the new financial year has seen continued momentum in line with the Board's and market expectations. We continue to execute against our growth strategy and develop our technology, while progressing on our path to profitability.

·    The Board expects to reach breakeven in FY27 (calendar year 2026) and are confident the Company has sufficient resources to achieve this.

Kit Kyte, CEO of Checkit, commented: "Checkit has successfully reduced its financial losses by 46% this fiscal year while continuing to escalate our growth through strategic 'land and expand' opportunities.  We are on track to become cashflow breakeven and anticipate posting a positive EBITDA performance in FY27.  The launch of our new product Asset Intelligence marks an exciting chapter in the evolution of our offering and demonstrates the synergies in the Checkit product ecosystem as data collected from IoT sensors acts as a catalyst for future software growth. We continue to focus on our twin goals of expedited profitability whilst driving top-line growth in the business and look forward to FY25 with confidence."

NOTES

* Annual Recurring Revenue ("ARR") is defined as the annualised value of contracted recurring revenue from subscription services as at the period end, including committed annual recurring revenue from new wins.

** Net retention revenue ("NRR") is defined as the amount of recurring revenue from existing customers retained over the year, excluding new wins in the last 12 months.

*** Adjusted LBITDA is the loss on operating activities before depreciation and amortisation, share based payment charges and non-recurring or special items.

CHAIRMAN'S STATEMENT

Dear Shareholders

Despite the economic uncertainty that has characterised the financial year ending 31 January 2024, Checkit has delivered an operating performance in line with Board and market expectations with annual revenues increased by 17% over last year. I am particularly pleased that we delivered losses (adjusted LBITDA) better than expected and nearly halving for the year to £3.4m (FY23: LBITDA of £6.4m) whilst recurring revenues now account for 93% of total revenues.  

After transitioning to an exclusively subscription-based model, our goal now is to enhance revenue growth in our key markets of Western Europe and North America. With a solid financial foundation, we are well-positioned to pursue our growth objectives, advance our technology, improve operational efficiencies, and hasten our progress towards profitability. I should like to thank Chief Executive Officer Kit Kyte and the rest of the senior management team who led the Group effectively during what was a difficult macro-economic environment. You will read more about the team's vision below.  

We are helping large blue-chip customers to be as productive, efficient, and compliant as possible in the face of cost pressures and operational complexities. Our industry-leading customer retention rates demonstrate how embedded our growing range of capabilities have become within our clients' technology stacks; a trend we expect to continue as the tailwinds of digital transformation, operational efficiency imperatives, and automation strengthen. 

In FY24, we have re-examined each of our markets and products and concluded there is substantial long-term value to be created by continuing to invest in product innovation to spearhead the growth of our high quality recurring subscription revenue. Our levels of recurring revenue give us excellent future income visibility and provide a stable platform from which to expedite the path to profitability, a key Company priority over the next two years.   

On behalf of the Board, I would like to thank each member of our teams in Cambridge, London, Fleet and Tampa for their commitment in FY24. Across the business, our people consistently demonstrate their ingenuity, tenacity, ambition and humanity. They are our most valuable asset and the reason for our success. 

Keith Daley

Chair

CEO'S STATEMENT

Reflecting on a year filled with macro-economic challenges, we are both excited about our progress and proud of the support we've provided to our customers, equipping them with the insights, tools, and strategies needed to succeed in difficult times. Our 'land and expand' strategy of up-selling and cross-selling has generated growth from our existing customer base, whilst at the same time we have actively identified areas of expansion and opportunity both geographically and vertically.  With recurring revenues now representing 93% of the total and our high net revenue retention of 111%, we have a sound base to pursue our drive towards profitability. 

Financial performance

Checkit's financial results for FY24 were in line with Board and market expectations, generating an overall increase in ARR of 16% to £13.3m (FY23: £11.5m). Revenue has grown by 17% to £12.0m, despite the challenging global economy.  This represents a fourth consecutive year of high-quality recurring revenue growth. 

Our focus on gross margin expansion continues to deliver with a 4% improvement to 67%. We delivered losses (adjusted LBITDA) better than expected and nearly halving for the year to £3.4m (2023: LBITDA of £6.4m) as we drive operational efficiencies and carefully manage costs across the business. 

The Company continues to expand into the extensive US market, achieving 21% year-on-year growth in US ARR contribution from £2.8m in FY23 to £3.4m in FY24. This steady expansion demonstrates the measurable benefits we offer to customers, including operational insight, enhanced staff retention, cost-effectiveness, and heightened compliance. 

Our drive to profitability continues with an improvement in LBITDA for the year to £3.4m (FY23: £6.4m), driven by the growth in revenues and reduced operating costs. Product development spend reduced by 7% to £3.9m (FY23: £4.2m), although the amount capitalised increased by 11% to £2.0m (FY23: £1.8m), as the Group invested in developing AI capability and unifying products around our platform. Sales and marketing investment decreased by 12% to £2.6m (FY23: 3.0m), with a focus on existing customers and identifying opportunities in adjacent markets and geographies.  

Through our "land and expand" customer strategy, we win new business in a discreet customer location or function and form close customer bonds that allow us to expand the services we offer over time. We do this by building trust through valuable insights and enhancing our customers' own operational performance. Our ability to grow with our customers is demonstrated by a net retention rate of 111% and provides visibility on future ARR growth.  

The economic environment remains challenging and the Board remains cautious about the impact of geopolitical trends on the development of the business. As a result, our focus is to achieve an accelerated path to profitability by balancing our growth ambitions with an increased emphasis on cost efficiency. This was demonstrated in FY24 by an increased gross margin of 67% (FY23: 63%), as well as operational cost savings across the business. The net cash position of £9m as at 31 January 2024 means we are well positioned to continue on our growth trajectory, and to develop our technology at the same time as achieving further cost efficiencies. 

Growth strategy and ambitions 

Our growth strategy is showing results. We are fulfilling market needs with a comprehensive solution that excels in data and analytics, offering insights that empower our customers to make informed decisions. Our goal to lead in augmented workflow management for the deskless industry is within reach. We've made significant strides in transforming Checkit into a predominantly subscription-based model, with non-recurring revenues now only 7% of our total revenue. This shift enhances our revenue predictability and strengthens our customer engagements, paving the way for increased contract values. 

The Group's focus is around building a sustainable and higher conversion rate pipeline across the retail, healthcare, facilities management, franchise and biopharma verticals. We are increasing customer loyalty by continuously investing in our platform, including its capacity to incorporate external technologies, positioning us at the forefront of the market. Our sales and marketing efforts are geared towards generating high-quality leads with improved conversion rates, especially in our key sectors and expanding further into the US market. Checkit's new customer pipeline in the US - a key growth market - includes a number of multi-site organisations across the healthcare, food retail, hospitality, and biopharma sectors. The US remains on course to be the largest contributor to Group revenues. 

Concurrently, we are committed to refining our operational efficiencies to expedite profitability and deliver shareholder value. Looking ahead, we are open to strategic partnerships that could further scale our business. However, balancing cost management with growth initiatives will be crucial to maintain a culture of excellence within the Checkit team. 

Innovation 

Our vision is to reshape business performance through a combination of automation and human ingenuity. Our ambition is to pioneer in leveraging the transformative potential of three pivotal technological trends: the integration of Internet of Things (IoT) sensors, the digitisation of frontline work, and the application of Artificial Intelligence (AI). Individually, each of these technologies offers significant advantages; however, their true power is realised when they are seamlessly integrated, unlocking unparalleled value for our clients. 

The essence of our innovation lies in the intelligent orchestration of IoT sensors, digital workflows, and AI. IoT sensors revolutionise traditional data collection methods with continuous and automated sensing capabilities. When coupled with AI, these sensors not only capture and monitor data but also unveil opportunities to enhance customer performance and foresee potential issues. This integration is further amplified when combined with digital workflows, enabling real-time, actionable responses by dedicated workforces. 

Our digital workflows transform outdated manual processes into streamlined, guided procedures for our customers. This transformation is exponentially enhanced by IoT automation and AI-driven insights, facilitating process improvements and targeted training opportunities. AI's capability to process and analyse vast data sets becomes significantly more valuable when integrated with IoT and digital workflows, allowing for immediate application of insights and converting them into tangible actions. 

At the core of Checkit's strategy and competitive edge is the exploitation of these combined capabilities within a unified platform. This unique capability positions us to solve a broad spectrum of our customers' business challenges. Our initial focus has been on critical areas such as food safety, service operations, and the monitoring of medical and life science environments-sectors that demand rigorous continuous monitoring and efficient workflow management, areas where the synergy of modern analytics and AI surpasses traditional human oversight. 

As we continue to navigate this journey, we are resolved to harness emerging technological opportunities that are relevant. We are committed to expanding our reach and enhancing the value we deliver. The road ahead is filled with promise, and we are eager to lead the way in transforming how businesses leverage technology for unparalleled efficiency and effectiveness. 

Positive outlook  

Our mission is to streamline and digitise the work and processes of the deskless workforce, a goal that has never been more critical. We understand the profound effect that simplifying operational management can have on organisational success, employee wellbeing, and customer satisfaction.  

Alongside our Chair and management team, I extend heartfelt thanks to our global team for their resilience and dedication. I am immensely proud of what we have accomplished, from establishing a leading market position to building a robust, long-term customer base with international, blue-chip clients. We are just at the beginning of our journey and the potential for growth is vast. Current global supply chain issues, increasing labour costs and higher compliance demands highlight the growing importance of making deskless work simpler and more efficient. Looking forward, the Board is optimistic about meeting market expectations for FY25 and confident in our ability to continue to achieve strong, sustained organic growth. 

Kit Kyte

CEO

FINANCIAL REVIEW

Progressing on the path to profitability 

Financial results in FY24 reflect execution against a wide range of metrics with revenue growth, increasing gross margins and reducing operating cost.  

Revenue has grown by 17% to £12.0m, in line with market expectations despite the challenging global economy. Our 'Land and Expand' strategy of up-selling and cross-selling has generated growth from our existing customer base, whilst at the same time we have actively identified areas of expansion and opportunity both geographically and vertically.   

Adjusted LBITDA of £3.4m (FY23: £6.4m), an improvement of 46%, reflects the Group's strategic priority to balance growth with driving operational efficiencies. As a result, gross margin increased to 67% (FY23: 63%) and operating expenses reduced by 11%.  

With recurring revenues now representing 93% of the total and our high net revenue retention of 111%, we have a sound base to pursue our drive towards profitability. The Group continues to benefit from a strong balance sheet and with the economic environment remaining challenging, will continue to execute against its growth strategy and develop its technology, whilst also driving further operating efficiencies and progressing on the path to profitability. 

ARR and Revenue 

ARR grew by 16% to £13.3m (FY23 £11.5m), in line with market expectations.  

Total Group revenue for FY24 was £12.0m, an increase of 17% compared to the prior year (FY23 £10.3m).  

ARR growth was achieved through both sales to new customers, as well as upsell with existing customers and improved pricing, as we continued to benefit from our "land and expand" strategy and maintained high retention rates.  

Sales bookings have benefitted from a number of small wins with potential for future upsell, supported by a master service agreement signed with Compass Contract Services (U.K) Limited ("Compass") for the provision of CAM and CWM to their end users, primarily in the food services sector. Since signing the MSA with Compass, Checkit has entered into several new contracts with Compass and is in discussion over further opportunities. 

We have also secured our largest contract renewal, with John Lewis plc, at £6m total contract value over three years.  Although the sales cycle has lengthened as a result of customer caution in the current environment, our pipeline remains strong.  

The Group has also continued to grow in the US, with 21% growth in ARR to £3.4m (FY23: £2.8m).  

Our land and expand strategy, where we look to prove our value in an initial relationship with customers and then build over time, allows us to grow with our customers, identifying additional use cases, extending our footprint and driving price initiatives. This is evidenced in a net retention rate of 111%² and a gross retention rate of 99%². 

LBITDA 

Checkit's adjusted LBITDA for the year was £3.4m (FY23: £6.4m), an improvement of 46%, reflecting a milestone on our path to profitability. As we balance our growth strategy with an increased focus on operational efficiency, this has maintained revenue growth of 17%, while improving gross margin to 67% and reduced operating costs by 11%.  

Gross margin improvement to 67% (FY23: 63%) was driven by increased efficiency from utilising third party providers in our delivery model, as well as the full year effect of procurement savings secured in our platform costs.  

Operating expenses reduced by 11%, as we controlled costs in the face of the challenging economic environment and pursued efficiency opportunities in our operations. These included the introduction of automated call handling and offshoring part of the customer support team in H2.  

As a result of the focus on cost management, investment in sales and marketing reduced by 12% in the year to £2.6m (FY23: £3.0m), with a focus on our existing customer base and identifying opportunities in adjacent markets and geographies.  

New product development (NPD) spend also reduced by 7% to £3.9m (FY23: £4.2m) as a result of efficiencies achieved, although the amount capitalised increased to £2.0m (FY23: £1.8m), as the Group invested in developing our AI capabilities and unifying our products around our platform.

This tailored investment allows us to introduce innovation to our technology and offer increased scope and value to customers, which will drive the next phase of our growth and enable continuing progress towards profitability.   

Non-recurring or special items 

Non-recurring or special items in the year of £0.2m related to amortisation of acquired intangible assets, and restructuring costs related to the cost efficiency programme: 

Taxation 

The Group is currently loss making and therefore no corporate tax charge is reported for the year FY24. There remains over £30m in group carried forward taxable losses and therefore there is no expectation of tax payments in the short to medium term.

Contingent liability

Checkit plc and HMRC have been in correspondence since early 2022 regarding matters of input tax recoverability. The matter is ongoing and the substance of discussions remains unchanged from the prior year. A statutory review of the case is being conducted and management continue to disagree with HMRC's position. Specialist tax advice has been sought throughout the correspondence. The total amount of input tax claimed since VAT registration to 31 January 2023 is £1.2m. Given the uncertainty and materiality of the issue, we do not consider it appropriate at this stage to provide for this and are disclosing as a contingent liability.

EPS - continuing operations 

The weighted average number of shares in issue in FY24 was 108.0m. Loss per share (basic & diluted) was 4.2 pence (FY23: 11.2 pence) 

Cash 

The Group cash position at 31 January 2024 was £9.0m (31 January 2023: £15.6m), reflecting the 46% reduction in LBITDA and the strategic purchase of inventory to mitigate supply chain constraints in the market. We expect this position to unwind over the next 12-18 months, supporting further revenue growth. FY24 saw a 23% reduction in cash burn in comparison to FY23. With the completion of inventory purchases, we expect cash burn to continue to reduce into FY25. The strong cash position bolsters Checkit's strategic drive to profitability, whilst maintaining its growth strategy and technology development. 

Consolidated statement of comprehensive income

year ended 31 January 2024

*Adjusted loss before interest, tax, depreciation and amortisation ("LBITDA") is calculated by taking operating profit and adding back depreciation & amortisation, share-based payment charge and non-recurring or special items

Consolidated balance sheet

as at 31 January 2024

Consolidated statement of changes in equity

year ended 31 January 2024

Consolidated statement of cash flows

1.     Basis of Preparation 

The consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the associated notes for the year ended 31 January 2024 have been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006.

There were no new standards or amendments or interpretations to existing standards that became effective during the year that were material to the Group.

No new standards, amendments or interpretations to existing standards having an impact on the financial statements that have been published and that are mandatory for the Group's accounting periods beginning on or before 1 February 2024, or later periods, have been adopted early.

Whilst the financial information included in this announcement has been computed in accordance with international accounting standards, this announcement does not itself contain sufficient information to comply with all IFRS disclosure requirements. The Company's 2024 Annual Report and Accounts will be prepared in compliance with UK-adopted International Accounting Standards (IFRS).

This announcement does not constitute a dissemination of the annual financial report and does not therefore need to meet the dissemination requirements for annual financial reports. A separate dissemination announcement in accordance with Disclosure and Transparency Rules (DTR) 6.3 will be made when the annual report and audited financial statements are available on the Company's website.

Statutory Information

The financial information included in this announcement does not constitute statutory accounts and is consistent with the accounting policies of the Group, which were set out on pages 55 to 61 of the 2023 Annual Report and Accounts.

The statutory accounts for the year ended 31 January 2024 will be finalised on the basis of the financial information presented by the directors in this announcement and will be delivered to the Registrar of Companies following the Group's Annual General Meeting. The announcement of the results was approved on behalf of the Board of directors on 24 April 2024. 

2. Segmental reporting

Management provides information reported to the Chief Operating Decision Maker ("CODM") as a single operating segment for the purpose of assessing performance and allocating resources. The CODM is the Chief Executive Officer.

The Group's main activities are the supply of Connected Workflow Management, automated monitoring, Internet of Things ("IoT"), and operational insight-based products and services.

Revenue by type of the continuing operations

The following table presents the different revenue streams of Checkit:

Geographical information

Information about major customers of the continuing operations

During FY24, the Group had one customer who generated revenues of 17% of total revenue (FY23: 16%).

Revenue expected to be recognised

The Group expects to recognise revenue amounting to £4.6m (FY23: £4.1m) in FY25 relating to performance obligations from existing contracts that are unsatisfied or partially satisfied as at 31 January 2024.

3. Operating loss - continuing operations

Included within auditor's remuneration for audit services in FY24 is a sum for less than £0.1m (2023: less than £0.1m) for the audit of overseas subsidiaries carried out by an auditor other than Cooper Parry Group Limited.

Cooper Parry Group Limited was paid £nil for tax advisory and compliance services (2023: £nil).

4. Net cash flows from operating activities

5. Taxation

(a) Analysis of tax credit for the year - continuing operations

(b) Analysis of tax charge for the year - discontinued operations

(c) Factors affecting taxation credit for the year - continuing operations

The effective tax rate for the year was 24%.

(d) Factors affecting taxation charge for the year - discontinued operations

(e) Factors that may affect future taxation charges

Deferred taxation assets amounting to £7.7m (2023: £6.5m) have not been provided in respect of unutilised income tax losses of £30.8m (2023: £25.8m) that can only be carried forward against future taxable income of that same trade as there is currently insufficient evidence that these assets will be recovered.

The UK Budget 2021 announcements on 3 March 2021 included measures to support economic recovery as a result of the ongoing COVID-19 pandemic. These included an increase to the UK's main corporation tax rate to 25%, which was effective from 1 April 2023. These changes were substantively enacted at the balance sheet date and hence, any deferred tax balances have been calculated as at 25%.

6. Earnings per share

Earnings per share (EPS) is the amount of post-tax profit attributable to each share (excluding those held by the Company). Basic EPS measures are calculated as the Group profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS takes into account the dilutive effect of all outstanding share options priced below the market price, in arriving at the number of shares used in its calculation.

Both of these measures are also presented on an adjusted basis, to remove the effects of non-recurring or special items, being items of both income and expense which are sufficiently large, volatile or one-off in nature, to assist the reader of the financial statements to get a better understanding of the underlying performance of the Group. The note below demonstrates how this calculation has been performed.

The adjusted EPS information is considered to provide a fairer representation of the Group's trading performance.

Discontinued earnings per share

Total earnings per share for the year attributable to equity shareholders

*       In the current and prior year, the dilutive impact of employee share options is ignored since there is no dilutive impact on continuing operations EPS measures given the continuing loss for the year.

7. Intangible assets

Acquired intangible assets are made up of the separately identified intangibles acquired with the purchase of Next Control Systems in May 2019 and those acquired with the purchase of Tutela LLC in February 2021.

Impairment testing for goodwill

The Group identifies cash-generating units (CGUs) at the operating company level, as this represents the lowest level at which cash inflows are largely independent of other cash inflows. Goodwill acquired in a business combination is allocated, at acquisition, to the groups of CGUs that are expected to benefit from that business combination.

Goodwill relates to the acquisition of Checkit UK Limited in May 2019 and of Checkit LLC in February 2021.

Goodwill values have been tested for impairment by comparing them against the "value in use" in perpetuity of the relevant CGU group. The value in use calculations were based on projected cash flows, derived from the latest forecasts prepared by management and budgets approved by the Board, discounted at CGU specific, risk adjusted, discount rates to calculate their net present value.

Key assumptions used in "value in use" calculations

The calculation of "value in use" is most sensitive to the CGU specific operating and growth assumptions, that are reflected in management forecasts for the five years to January 2029. CGU specific operating assumptions are applicable to the forecasted cash flows and relate to revenue forecasts and forecast operating margins in each of the operating companies and are based on the strategic plans for the Group. Long-term growth rates are capped at 1%.

The revenue growth rates used in the cash flow forecast are based on management's expectations of the future opportunities for the Checkit platform and the ability to upsell to existing customers on a global basis, including the planned US expansion. The forecasts include the costs associated with delivering the Checkit platforms, which are directly linked to the forecast sales growth.

Discount rates are based on estimations of the assumptions that market participants operating in similar sectors would make, using the Group's economic profile as a starting point and adjusting appropriately. Sensitivity to the discount rate has been applied to evaluate impairment testing using discount rates ranging from 10% to 20%.

Following the decision to close the BEMS business unit, management has assessed that the carrying value of the goodwill associated with the acquisition of Checkit UK should continue to be fully impaired.

The carrying value in relation to the acquisition of Checkit LLC has not identified any impairment.

8. Discontinued operations

During the prior year, the Group discontinued its activity in Building Energy Management Systems, consequently the results from this revenue stream were included as discontinued operations.

Total discontinued operations comprise:

Building Energy Management Systems

The results of ceasing operations of Building Energy Management Systems, which have been included in the consolidated statement of comprehensive income, were as follows:

Cash flows from Building Energy Management Systems

9. Contingent liabilities

Checkit plc and HMRC have been in correspondence since early 2022 regarding matters of input tax recoverability. The matter is ongoing and the substance of discussions remains unchanged from the prior year. A statutory review of the case is being conducted and management continue to disagree with HMRC's position. Specialist tax advice has been sought throughout the correspondence. The total amount of input tax claimed since VAT registration to 31 January 2023 is £1.2m. Given the uncertainty and materiality of the issue, we do not consider it appropriate at this stage to provide for this and are disclosing as a contingent liability.

10. Non-GAAP performance measures

A reconciliation of non-GAAP performance measures to reported results is set out below:

Profit measures - LBITDA - continuing operations