MPP Global Acquisition

In the final quarter of 2021, the Group completed the strategic acquisition of MPP Global Solutions Limited, an international provider of cloud-based subscription management and billing technology ('eSuite'), for aggregate consideration of £39.1 million. The acquisition reflects Aptitude Software's strategy of acquiring businesses which accelerate the Group's product strategy and support its continued global growth by further strengthening the Group's subscription management capabilities, a market in which the Aptitude Revenue Management product set already has a strong presence.

MPP Global was considered a particularly strong acquisition opportunity within subscription management due to:

·   the ability to integrate eSuite and the Group's Aptitude Revenue Management solution to create a differentiated end-to-end subscription, billing, and revenue automation solution;

·    the complementary nature of eSuite and Aptitude Revenue Management bringing a number of cross-sell opportunities;

·    a shared focus on the largest of companies, typically organisations with complex business models;

·    a high proportion of recurring revenue; and

·    a high quality innovation centre in the North West of England.

Integration of Aptitude Software and MPP Global is progressing well as outlined later within this report.

Finance Digitization

Market Drivers

Quality of data, speed of reporting and cost continue to be the top drivers on the CFO's agenda as they are increasingly challenged by the demands of operating in a digital world with growing regulatory and cost pressures. These demands result in an increase in the complexity, volume and number of sources of finance data, and the increasing requirement for decision making to move at the pace of the business in real time. Aptitude Software's product set is well positioned to address these requirements.

Finance Digitization Products

A key highlight in 2021 is the investment in Fynapse, the Group's next generation strategic digital finance platform which is being launched to the market in March 2022. Fynapse provides finance digitization capability to a market in which the Group already has outstanding credentials with the successful Aptitude Accounting Hub, a product that continued to secure new agreements with a number of organisations in the year.  

Fynapse

The Fynapse application, Aptitude Software's newest solution, is a modular, cloud native, high performance platform addressing an organisations' need to drive finance digitization to continue the transformation of their wider businesses. The application builds on the successful Aptitude Accounting Hub, centralising and automating finance, accounting and reporting processes, creating a deep level of operational intelligence for our clients. It delivers a brand new user centric interface with a consolidated, yet highly granular, view of financial data which enhances business insights to assist decision making. Importantly, Fynapse has been built in cloud native technologies providing extreme levels of performance but at the lowest total cost of ownership for finance functions.

Success with the application has already been achieved with the Group working closely with a global telecoms client as it looks to migrate to this new platform to take advantage of the new features.

The modular design and ease of integration also allows the market opportunity to extend beyond our current industries into adjacent verticals, shortening typically long implementation cycles and allowing our partner network to implement efficiently, with minimal risk, short time-to-benefit and at a competitive total cost of ownership.

The platform also offers partners the opportunity to co-create and license their own IP, further accelerating and differentiating their services, whilst the application's lower total cost of ownership and scalability of innovative cloud-native technologies provide the business with greater go to market reach through the unlocking of new prospect tier opportunities.

Whilst the Aptitude Accounting Hub continues to achieve success, to maintain clear competitive advantage and differentiation over competing applications from much larger enterprise focused ERP providers, Aptitude Software has chosen to bring forward investment in Fynapse. Accordingly, the Group has made the strategic decision to accelerate investment in Fynapse to capitalize on the mid-term market opportunity. With direct costs of approximately £1.5 million focused on this new product in 2021, this strategic investment will approximately double in 2022 as the product's capabilities are further extended.

Based on its capabilities and the positive feedback received from both our existing global telecoms client and global partners, the Group has confidence in the success of Fynapse which is expected to be a key growth driver for the business in future years.

Aptitude Insurance Calculation Engine

Further progress with the Aptitude Insurance Calculation Engine ('AICE'), the application addressing the requirements of IFRS 17 (effective for accounting periods commencing 1 January 2023), has been achieved in 2021. Building on the new business successes announced earlier in the year within the insurance market, Aptitude Software secured a number of new agreements in this sector across all of the Group's geographies in the second half of 2021 including a significant multi-year SaaS subscription agreement signed with a global insurer for the use of the Group's IFRS 17 solution. A number of sales were also achieved for the IFRS 17 "Comply" product, a simplified and pre-configured package of the existing IFRS 17 solution designed to provide a faster and more efficient path to IFRS 17 compliance.

AICE is a strategic, transformational application providing value to an insurer beyond compliance. It enables data insights and decision support delivering long-term business benefits. Development of the product has continued with a number of new innovative capabilities being added, particularly in the area of simulation and forecasting, these capabilities are expected to expand the footprint with existing accounts. Demand is expected to continue in 2022, principally with smaller and medium-sized insurers.

Aptitude Accounting Hub

The Group continued to leverage the capabilities of the Aptitude Accounting Hub ('AAH') in 2021, securing new agreements with a number of organisations as they seek to automate and transform their finance functions. A highlight during the second half of the year was the entry into a significant multi-year subscription with a fast growing global insurer for the use of AAH concurrently with the Aptitude Calculation Engine, delivered through SaaS, to support the foundation for wider group automation as the business expands. Whilst further sales of AAH will be achieved, particularly when used in conjunction with our other regulatory focused applications, we do expect that an increasing number of clients seeking to automate and transform their finance function will opt for Fynapse in the future.

Subscription Management

Market Drivers

The subscription economy is continuing to expand into new sectors as the benefits of subscription income are increasingly valued more than traditional non-recurring revenues. The Group has seen this phenomenon in broader sectors such as high-tech advanced industries and medical devices. As organisations move to these business models they require new systems to manage these subscriptions and require new capabilities to address the complexities of revenue recognition inherent with subscriptions.

Aptitude Software's products within subscription management are focused on the needs of the world's largest companies, organisations with highly complex business models and data processing requirements which generalist providers are unable to address.

Subscription Management Products

A key highlight in 2021 was the acquisition of MPP Global, bringing the eSuite platform into the Group.

eSuite

The eSuite platform is a modular, cloud based end-to-end SaaS solution for large, international, enterprise customers across the media and publishing sector as well as a growing number of other verticals.

The application is focused on the subscription economy and provides identity management, CRM, automated billing, payment processing, and churn management capabilities, enabling businesses to acquire, monetize and optimise customers subscriptions.

eSuite's ability to manage both physical and digital subscriptions means it is well positioned to expand Aptitude Software's revenue management offering into an end-to-end subscription, billing, and revenue automation solution and is expected to provide further opportunities for automation and growth within Aptitude Software's existing customer base while also supporting new business opportunities. Integration of the two platforms is progressing well and is expected to be completed during the second half of 2022 and there is already encouraging interest in both the eSuite client base and wider market for this end-to-end solution. Investment continues being made in broadening the capabilities of the eSuite platform to access new markets.

Alongside the investment in the product integration between eSuite and Aptitude Revenue Management, the integration of the eSuite team and the wider Aptitude Software business is progressing in line with expectations.

Good progress has also been achieved on a number of implementations in the UK and Europe in the period of the Group's ownership. In addition, the business is working very closely with a new prestigious global multi-media organisation as it seeks to further monetise its digital content outside of its home territory.

Aptitude Revenue Management ('ARM')

The Group's leading revenue management application Aptitude RevStream has continued to make good progress in 2021. The product continues to achieve standalone new business success with a highlight being a multi-year agreement with a publicly traded health care equipment company in California selecting both ARM alongside the Aptitude Lease Accounting Engine application providing further evidence of the expansion of the subscription economy into new industry sectors.

The Aptitude Revenue Management applications enable finance teams to automate their revenue management functions to address the demands of the subscription economy, with the market opportunity now extending beyond our current industries into adjacent verticals including high-tech advanced industries and medical devices.

The applications simplify the whole revenue lifecycle, from contract order to revenue recognition, reporting and forecasting and go significantly beyond core IFRS 15 / ASC 606 compliance to allow total control over complex revenue management for all contract types ranging from subscription-based revenue models to complex multi-part or bundled contracts. This capability allows businesses to understand and control centrally the financial impact of all their commercial propositions, the quality of their revenue types as well as providing new and valuable insights to support future business decision making such as the introduction of new products in different markets.

A number of opportunities within the recently acquired eSuite user base have been identified which will benefit from this capability once the integration between the products is complete.

Software-as-a-Service ('SaaS') Progression and Margin Evolution

The Group has continued to successfully leverage its established SaaS capabilities during 2021 across its entire product portfolio with the adoption of SaaS being significantly faster than originally anticipated.

As a result, since February 2021 all new clients have chosen to deploy the Group's software in this way leading to SaaS subscription fees as a proportion of Annual Recurring Revenue increasing organically to 31% as at 31 December 2021 (2020: 23%). Including the benefit of the MPP acquisition, this proportion rises to 43%. Whilst there are some existing on-premise clients planning to migrate to SaaS, a material movement is not anticipated in the short term given the investment in clients' infrastructure supporting our technology. 

The accelerated adoption of cloud technologies impacts margin expectations in the short term given the cost profile of a number of the Group's products when deployed as SaaS. The launch of Fynapse, with its cloud-native capabilities, is expected to enable significantly higher margins on this service to be achieved.

Our Services

Implementation Services

Aptitude Software provides implementation services to its clients, with the scale of such services depending on the nature of the application, the size of the opportunity and the balance of responsibilities between Aptitude Software and its partners. The business continues to expand the enablement of its partner network to facilitate their ability to implement Aptitude Software's product suite reliably and efficiently. Whilst this enablement will lead to a greater proportion of services being provided by partners, it remains important to maintain a high quality delivery capability to ensure that the Group can continue to support its partners and provide its expertise to those clients who wish to receive our services directly.

Due to the Group's long implementation cycles, implementation services revenue reduced in the year due to the disruption to our key markets, particularly in 2020, related to the pandemic. Demand for implementation services is however expected to increase in 2022. A key reason for this increased demand is the continuing support of a number of the implementations for the Aptitude Insurance Calculation Engine as go-lives approach for this regulatory focused application in January 2023.