FD Technologies Faces Headwinds in KX Division, Lowers Growth Outlook

by Damian Chmiel
  • The software providers forecasts in-line EBITDA but lower revenue due to challenges.
  • KX division's slower ARR growth contributes to the cautious outlook.
FD Technologies logo

Despite facing macro challenges and lower growth in its KX division, FD Technologies (LSE: FDP) expects to deliver in-line EBITDA and slightly below consensus revenue for the year to 29 February 2024, according to its trading update released today (Thursday).

The provider of software and consulting services expects to report revenue of not less than £247 million, slightly below consensus, and adjusted EBITDA of not less than £22.5 million, in line with consensus.

FD Technologies Reports Lower Revenue and ARR Growth amid Macro Challenges

The company previously known as First Derivatives attributed the lower revenue performance to the macroeconomic conditions and some short-term challenges in its KX division, which offers high-performance analytics solutions. KX is expected to report an annual contract value (ACV) added of approximately £14 million for the year, resulting in annual recurring revenue (ARR) growth at constant currency of not less than 12%. This is lower than expected and compared to FY23 due to a lower conversion ratio, longer sales cycles, especially in the newer industry sectors, and delayed decision-making on some larger contracts.

"While the Group’s revenue and adjusted EBITDA performance is broadly in line with our guidance, the KX ARR growth is disappointing,” commented Seamus Keating, the CEO of FD Technologies Group. The weaker results align with those reported in October, when the company reported a net loss. However, the KX division stood out from the rest at that time.

The company has upgraded its sales and marketing leadership to address these issues, focused more direct sales resources on repeatable use cases in financial services and aerospace and defense, and leveraged partner channels for other industry markets. The company expects that KX cash EBITDA in FY25 will be slightly improved compared to FY24.

These results exclude the MRP division, which will no longer be consolidated in the financial statements following its merger with CONTENTgine.

The company’s First Derivative division, which provides consulting services, also experienced customer spending caution due to the macro environment. The division is expected to report revenue of approximately £170 million, which is 7% lower than FY23, although it maintained EBITDA margin by managing its costs. The company noted some encouraging signs of improved customer sentiment, but it was too early to forecast the timing of a return to revenue growth.

“With these operational improvements in place, we believe that our technology and market opportunity are compelling and that KX will deliver stronger, more sustainable growth and value for shareholders,” the CEO concluded.

The company will announce its full-year results on 18 May 2024.

Transition from First Derivatives to FD Technologies

Before 2021, the company operated under the name First Derivatives, serving primarily investment banks and financial institutions with its technology solutions. The organization decided to undergo a rebranding in a strategic move outlined in its annual report. This decision aimed to represent its diversified services portfolio better, moving beyond the implication of a focus on derivatives alone.

Under its new identity as FD Technologies, the company unveiled a strategic expansion in 2022 by inaugurating a new branch in Łódź, Poland. This expansion was driven by the "significant" demand for its services across the European region.

Despite facing macro challenges and lower growth in its KX division, FD Technologies (LSE: FDP) expects to deliver in-line EBITDA and slightly below consensus revenue for the year to 29 February 2024, according to its trading update released today (Thursday).

The provider of software and consulting services expects to report revenue of not less than £247 million, slightly below consensus, and adjusted EBITDA of not less than £22.5 million, in line with consensus.

FD Technologies Reports Lower Revenue and ARR Growth amid Macro Challenges

The company previously known as First Derivatives attributed the lower revenue performance to the macroeconomic conditions and some short-term challenges in its KX division, which offers high-performance analytics solutions. KX is expected to report an annual contract value (ACV) added of approximately £14 million for the year, resulting in annual recurring revenue (ARR) growth at constant currency of not less than 12%. This is lower than expected and compared to FY23 due to a lower conversion ratio, longer sales cycles, especially in the newer industry sectors, and delayed decision-making on some larger contracts.

"While the Group’s revenue and adjusted EBITDA performance is broadly in line with our guidance, the KX ARR growth is disappointing,” commented Seamus Keating, the CEO of FD Technologies Group. The weaker results align with those reported in October, when the company reported a net loss. However, the KX division stood out from the rest at that time.

The company has upgraded its sales and marketing leadership to address these issues, focused more direct sales resources on repeatable use cases in financial services and aerospace and defense, and leveraged partner channels for other industry markets. The company expects that KX cash EBITDA in FY25 will be slightly improved compared to FY24.

These results exclude the MRP division, which will no longer be consolidated in the financial statements following its merger with CONTENTgine.

The company’s First Derivative division, which provides consulting services, also experienced customer spending caution due to the macro environment. The division is expected to report revenue of approximately £170 million, which is 7% lower than FY23, although it maintained EBITDA margin by managing its costs. The company noted some encouraging signs of improved customer sentiment, but it was too early to forecast the timing of a return to revenue growth.

“With these operational improvements in place, we believe that our technology and market opportunity are compelling and that KX will deliver stronger, more sustainable growth and value for shareholders,” the CEO concluded.

The company will announce its full-year results on 18 May 2024.

Transition from First Derivatives to FD Technologies

Before 2021, the company operated under the name First Derivatives, serving primarily investment banks and financial institutions with its technology solutions. The organization decided to undergo a rebranding in a strategic move outlined in its annual report. This decision aimed to represent its diversified services portfolio better, moving beyond the implication of a focus on derivatives alone.

Under its new identity as FD Technologies, the company unveiled a strategic expansion in 2022 by inaugurating a new branch in Łódź, Poland. This expansion was driven by the "significant" demand for its services across the European region.

About the Author: Damian Chmiel
Damian Chmiel
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About the Author: Damian Chmiel
Damian's adventure with financial markets began at the Cracow University of Economics, where he obtained his MA in finance and accounting. Starting from the retail trader perspective, he collaborated with brokerage houses and financial portals in Poland as an independent editor and content manager. His adventure with Finance Magnates began in 2016, where he is working as a business intelligence analyst.
  • 1369 Articles
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