Post-pandemic recovery is underway after months of challenges, the CEO and CFO of essensys have said following a mixed but optimistic set of half-year results.
Total revenue in the six months to January 2021 fell 7% to £10.6m. While the flexible workspace software provider’s recurring revenue was relatively stable, falling just 1% to £9.6m (up 1% on a constant currency basis), non-recurring revenue fell 41% to £1m.
Speaking to PlaceTech, CEO Mark Furness said: “The challenges of lockdown have meant fewer new sites go live with us and occupancy being low has resulted in lower marketplace revenues. The path out of lockdown means those things start to recover.”
Alan Pepper, CFO of essensys, added: “When we finished our full year and we were doing our roadshow six months ago, we were anticipating some recovery – like we all were and were hopeful for – and that obviously hasn’t come through.” But despite the challenges, he said he was pleased that the financial results were in line with expectations.
There was a wide divergence in essensys’ performance in its two main markets. In the UK, revenue fell 18% to £5.4m, with recurring revenue down 12% to £5.2m. By contrast, revenue in the US rose 8.3% to £5.2m, with recurring revenue up 16% to £4.4m. In dollar terms, US revenue increased 23%.
In October, essensys predicted income from the US business would overtake the UK this year. Having appointed a CEO for North America, Jeremy Bernard, and continuing its expansion in that market, essensys is close to that becoming a reality.
Furness attributed the slowdown in the UK partly to stricter lockdowns. “Things have still been able to happen in the US, as opposed to the UK,” he said.
The difference is clear in the number of new sites. While its software-enabled infrastructure platform, Connect, has grown to 431 sites (up from 400 in January 2020), the number of Connect sites in the US has grown more rapidly to 240 (up from 199).
The results reported that site churn was low and happened mostly in the UK.
Furness also pointed to the maturity of the business in the UK – which has operated for more than a decade – to explain the divergence in the two markets: “There’s a higher proportion of marketplace services by these centres being open longer in the UK than the US, so there was a deeper impact.
“But also, it’s a bit around how the UK is sold traditionally in terms of the serviced office market versus the flex play in the US.”
Product and corporate expansion
Having recently announced its all-in-one Flex Services Platform, essensys has put in place a short- and medium-term product development roadmap. The company is exploring digital twin environments, more detailed operational elements and emerging technologies, such as AI and machine learning.
essensys set up essensysLabs to research and develop new technologies and has grown its UK-based team by one-third over the first half of the year. Furness said: “Where products and services exist that are best of breed, we’ll look to integrate them with Flexible Services Platform,” but he added that in some cases in-house development is the only option.
In terms of its global footprint, essensys is in the process of recruiting a CEO for its expansion into Asia Pacific, which has been delayed due to the pandemic. The firm expects its first Connect site in the region to go live in the first quarter of the 2022 financial year.
Europe has been another focus, and Pepper said essensys has been getting a growing number of enquiries from the continent. The business has expanded into France, which will enable business development capabilities in Germany, the Netherlands and possibly Spain, Pepper said. With new deals in the works with traditional real estate players in the UK, essensys’ first and currently largest market should also expect growth in the future.
Other opportunities are arising in the Nordics and Central Europe, but Pepper said: “It will take longer. These are new customers and people and real estate entities who are entering flex for the first time, so there will be a longer lead time as they consider their strategy.”
The company’s global expansion is a reflection of increasingly global demand, Furness said. “Our customers and the industry at large are looking to create global real estate platforms.”
essensys’ share price is up more than 50% since the start of the year. Furness added: “Confidence should come with execution history. We’ve done the things we said we were going to do, and we’ve done them well.”
He pointed to essensys’ low churn rates and the acceleration of flexible workspace trends, which would directly benefit the firm. Between the launch of Flex Services Platform and a “significant pipeline” of opportunities, Furness said: “We are the go-to now as much bigger real estate companies look to develop their own flex products and services. So we are right in the conversation.”
Expectations for a recovery have also grown due to US workspace operators restarting their growth plans. Though not evident in this result period, essensys reported that it expects to see those benefits at the end of FY 2021 and FY 2022.
Furness said: “The question is ‘will we be successful’, and the size of the market opportunity gives us a good chance of being very, very successful, indeed.”