Half Year Report

20 August 2024

Windward Ltd.

("Windward", "the Company")

Half Year Report

Strong growth and continued innovation

Windward (LON: WNWD), a leading Maritime AI company, is pleased to announce its financial results for the six months ended 30 June 2024 ("HY 24").

Financial Highlights:

Operational Highlights:

Current Trading and Outlook:

Ami Daniel, CEO and Co-Founder of Windward said:

"We delivered another period of growth in line with our expectations with good momentum across all our financial metrics as we approach adjusted EBITDA breakeven run rate during the current financial year. Revenue is up 37% year over year and ACV, a future indicator of revenue growth, is up 35%, reflecting the underlying demand for our offering. We are expanding our global customer base as they embrace our portfolio offering to address their varied needs across global trade."

"Our investments into new products, including our highly innovative MAI Expert™, are paving the way for new opportunities through an expanded addressable market. Innovation remains at the core of our focus, and our cash reserves enable continued self-funded growth across our offering to meet the needs of our customers across maritime and logistics."

"With a high rate of renewal from existing customers, continued trading momentum into the second half, a highly competitive and differentiated offering, and high margin business, we anticipate the opportunity to keep building the company as the leader in Maritime AI for global trade "

^* For the purposes of this announcement, Windward believes market consensus for the financial year ended 31 December 2024 to be revenue of $36.2m, adjusted EBITDA loss of $1.6m and cash of $16.1m.

⁽¹⁾       ACV, as of a given date, is the total of the value of each contract divided by the total number of years of the contract.

⁽²⁾       EBITDA is earnings before interest, tax, depreciation and amortisation

⁽³⁾       Adjusted EBITDA is EBITDA before share-based payment charges and associated employer tax charges

⁽⁴⁾       All references to $ or USD are in respect of United States Dollars

For more information, please contact:

About Windward

Windward (LSE:WNWD), is a leading Maritime AI™ company, providing an all-in-one platform to accelerate global trade. Windward's AI-powered decision support and exception management platform offers a 360° view of the maritime ecosystem and enables stakeholders to make real time, predictive intelligence-driven decisions to achieve business and operational readiness.

Windward's Maritime AI supports companies across industries. The company's clients range from oil supermajors, freight forwarders, cargo owners, to banks, shippers, insurers, and governmental organizations.

For more information visit: https://windward.ai/.

Prior to publication the information communicated in this announcement was deemed by the Company to constitute inside information for the purposes of article 7 of the Market Abuse Regulations (EU) No 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations No 2019/310 ('MAR'). With the publication of this announcement, this information is now considered to be in the public domain.

CEO statement

OVERVIEW

I am pleased to report on an excellent first half to June 2024 for Windward, delivering strong financial results and remaining on track against our stated strategic ambitions for FY24 and beyond. We have built on our existing strong foundation of recurring revenues by further growing our customer base and broadened our offering through investment into our platform and our newly launched generative AI capabilities.

For H1, Windward delivered revenue in line with the Board's expectations for HY 24. We have maintained our consistently high levels of ACV growth (up 35% year over year) and revenue growth (up 37% year over year), demonstrating the attractiveness of our offering and strength of our recurring revenue business model. We remain on track for our stated target of adjusted EBITDA run rate break even during FY24. Cash at the period end remains strong at $13.8m (31 December 2023: $17.3m) With revenue accelerating and EBITDA loss decreasing rapidly (down 66% year over year to $1.3m), our cash on hand provides balance sheet strength and stability.

A time of structural growth

Our market is seeing structural change - with our core drivers of geopolitical risk, demand for AI products, decarbonisation and supply chain pressures all continuously creating more demand, as customers navigate the more challenging environment.

At the same time, the introduction of generative AI is creating strong demand across all of our customer base and according to McKinsey, 94% of enterprises will be investing more into generative AI products in 2024. Our company is well suited and prepared for generative AI - with the important investments we have made to date into our AI platform allowing us to scale and expand quickly into generative AI-first products. Our blue-chip customer base is testament to the success to date of our core focus of delivering AI-centric, best in class products for our customers.

The first step in executing this strategy was to launch MAI (Maritime AI) Expert, a generative AI tool equipped with deep knowledge in maritime operations and sanctions regulations which can perform comprehensive vessel risk assessments rapidly. This is the beginning of a comprehensive generative AI roadmap ahead for the Company. Although generative AI could be a costly technology to use, MAI Expert is being sold as an add on capability in our product, and we have seen strong initial interest from both existing and potential customers to use the product since launch in June.

We are recognised for our expertise in artificial intelligence in the maritime sector, and generative AI is therefore a natural evolution of our product roadmap, paving the way for a significantly increased total addressable market and a competitive differentiation among our peers. We believe generative AI will benefit companies with strong tech foundations, a blue-chip customer base and proprietary data, and Windward has all three of these.

Our market

The maritime and logistics environment is beset by regulatory and operational challenges dictated by sanctions and regulations, bad actors, geopolitics, natural disasters and supply chain challenges. With around 90% of goods transported by sea, there is a global imperative for all stakeholders to embrace the right technology for their needs to meet these challenges.

Key events in 2024 such as attacks in the Red Sea, which have resulted in a significant decline in shipping routes in an area that would typically serve 30% of the world's container traffic, and drought in the Panama Canal have significantly impacted supply chains, transit times and routes, and security for shippers. Container prices and insurance costs have soared in line with these delays and challenges, underlining the ongoing need for a range of maritime stakeholders, including shipping companies, freight forwarders and oil traders to maintain the best possible oversight of their operations and ensure efficiency of time and costs.

The sanctions environment continues to dictate the everyday operations of stakeholders, ensuring compliance across local and international law. The EU's 14^th Sanctions package and new UK government sanctions, both introduced in June 2024, have further targeted Russian oil and gas exports and present a new wave of compliance procedures and due diligence required for stakeholders.

At the same time, governments and port authorities require the utmost visibility of maritime operations to ensure control over their territories and prevent illegal activity. These concerns around maritime security underline demand for our products across all public sector clients, with conflicts on the rise in Europe, Middle East and potentially Asia Pacific.

Within this complex and changeable environment, Windward has established itself as a core partner to commercial and government organisations of all sizes to address their day-to-day challenges within global trade across the key areas of sanctions and regulations, supply chains and security.

Strong level of customer renewals and new customer growth

Our portfolio offering is delivering a range of data streams, APIs and AI-powered insights to our customers. Commercial customer acquisition has continued to be strong, with 32 new customers signed in HY 24, and ending the period with a total of 219 customers. As a result of continued focus on large enterprises, there was a small amount of churn from some smaller customers, despite overall customer churn marginally declining. As a result, the average ACV per commercial customer has grown 12% from $63,300 at 30 June 2023 to $70,700 at 30 June 2024. The recurring SaaS revenues from this enlarged customer base provide us with improved visibility of revenues. At the same time, this presents the opportunity for expansion of the customer base to further drive revenue growth.

New customers signed in the commercial segment in HY 24 included Bernhard Schulte Shipmanagement, Berge Logistics and Ceedbox Limited.

Both the US Federal market and ROW Government segment are historically H2 weighted in terms of new customer acquisition. We are pleased to report high renewal rates for both segments in HY 24 and we look forward to meaningful growth in both segments in H2 24.

Market-leading innovation

Our data platform combines public, commercial, private and Windward-generated data. All these data sources are being fused, injected and provided to customers via our platform for constant engagement and feedback - thus creating a cycle of a constant feedback loop which supports our proprietary data.

During HY 24, we have expanded all of these four data sources, strengthened our data curation team, and worked with our customers in listening to their needs. This customer-led approach allows us to further build new products to expand within our existing customers.

Building on our comprehensive platform through market-leading innovation and products is a key tenet of the Group's growth strategy. Through continual upgrade of our data and technology, we are able to deliver better, faster, and more powerful solutions for customers, as well as enabling access to new markets. 

In June 2024, we announced our landmark launch of MAI Expert™, a generative AI-powered virtual agent for the maritime and logistics industries. Launched in collaboration with AWS, the virtual agent provides comprehensive and rapid vessel risk assessment, leveraging Amazon's high-performing foundation models and set apart by our proprietary data and 14+ years in artificial intelligence.

Through standardising and streamlining the risk management process, MAI Expert™ reduces screening times by about 20 minutes per screening, enabling customers to better manage their costs and deliver an improved customer service. We believe that the rapid and increased productivity achieved by MAI Expert™ provides a tangible return on investment for customers, ranging from 5x for small organisations to 88x for large ones with significant screening volumes.

With the launch of our generative AI solution, we expect to expand our total addressable market and provide competitive differentiation among our peers through our proprietary data and insights. At the same time, we expect this enhancement to produce an uplift in our ACV per customer as more organisations embrace generative AI to solve issues.

Continuing our track record of product innovation, during the period we also announced the launch of Organization Defined Risk (ODR). ODR is a fully configurable risk management tool within the platform to enable commercial organisations as well as governments and intelligence agencies to independently define and configure risk and behavioural indicators that fit their unique business and risk requirements.

These are the first steps in evolving our company to be a generative AI first platform across all of our business lines.

Key partnerships to drive our expansion

Alongside direct sales, strategic partnerships with other commercial organisations through the "Windward Inside" programme enable the Company to expand its market reach by accessing new customers and markets.

We signed a number of partnerships during the period. In January, we were delighted to announce an extension to our existing partnership with the London Stock Exchange Group (LSEG). Through this partnership, Windward now provides comprehensive compliance and risk management solutions to LSEG users beyond the maritime domain.

We also established a partnership with Rightship, a leading shipping ESG provider, paving the way for further adoption of Windward's technology platform in the commercial sector. As previously announced, we have already seen two leading mining companies sign up to our platform through this partnership.

Post-period, as part of the launch of MAI Expert, we were delighted to announce our participation in the AWS ISV Accelerate programme, strengthening our existing partnership established in 2023. This collaboration sees Windward leverage Amazon Bedrock for its MAI Expert solution to improve risk management for the shipping, logistics, and public sectors.

CURRENT TRADING AND OUTLOOK

We are pleased to report that the strong trading we experienced in the first half has continued into the second half. As stated, we remain firmly on track with our goal of reaching an adjusted EBITDA breakeven run rate during FY24. Our healthy renewal rate and subscription revenues provides us with a good level of visibility going forward, and we expect to maintain our customer growth into H2. We have an exciting plan of product releases in H2 which we expect to keep driving growth with both existing and new customers.

Ami Daniel

Chief Executive Officer

FINANCIAL REVIEW

Windward management and Board regularly review metrics, including the following KPIs, to assess its performance, identify trends, develop financial projections and make strategic decisions. For a review of the key financial metrics, see below.

A KEY DRIVER OF FUTURE REVENUE IS ANNUAL CONTRACT VALUE (ACV)

ACV is a non-IFRS measure defined as the sum of all ACV for customers as of the measurement date. The ACV for each customer is the annual committed subscription value of each order booked for which Windward will be entitled to recognise revenue. For example, a contract for $1m with a committed contractual term of two years would have ACV of $0.5m, making the assumption for any period that the customer renews under the same terms and conditions.

As at 30 June 2024, Windward increased its ACV by 35% over 30 June 2023 to $37.2m, driven primarily by the increase in customers from 174 to 219 over the same period, and to a lesser extent by an increase in upsells to existing customers made possible by expansion of the number of users or the product set. Growth in ACV has been in all of our market segments.

KEY PERFORMANCE INDICATORS ("KPIS") ($ IN THOUSANDS)

We separate our Government customers into two market segments: Government outside USA (ROW) and USA Government. We do this as the buying cycle and pricing for each segment is different. For Government ROW, in most cases, Windward is responding to a Request for Proposal ("RFP") process which can take between 9 to 18 months to conclude. For the USA Government, Windward typically sells a subscription-based solution on a price per user basis. Historically most of the annual awards from the U.S. Government agencies are linked to the U.S. Federal budget cycle which typically concludes annually at the end of September.

At the end of June 2024 our largest customer was at 7.7% of ACV (June 2023: 10.1%) and the next 5 biggest customers together were 19.1% of ACV (June 2023: 25.5%).

The annual ACV churn rate is defined as the value of contracts lost from the existing customer base one year prior to the measurement date, as a proportion of the total ACV value of that existing customer base. The churn rate reflects customer losses and contractions but not any customer expansions of existing contracts.

Churn in H1 2024 was 3.2% compared to 4.7% in H1 2023. We target churn to be below 10%.

FINANCIAL OVERVIEW as of 30 June:

REVENUE

Revenue increased by 37.1% to $17.6m (2023: $12.8m). This increase was driven by 46% growth in both Gov ROW and Commercial and by 14% growth in our US Government segments mostly from the additional 45 new customers adopting our solution.

Gross margin

Gross margin increased to 81% in 2024 (78% in 2023), mostly as a result of the increase in revenue. We expect margins to stay above 80% over time.

R&D

Research and development increased from $5.7m in 2023 to $6.5m in 2024 mainly due to a higher number of employees and wage increases. All R&D costs are expensed as they occur, we do not capitalise R&D costs.

S&M

Sales and marketing increased from $6.7m in 2023 to $8.0m in 2024. The main reason for the increase was the hiring of additional sales managers in Europe and USA and an increase in marketing costs.

G&A

General and administrative expenses increased slightly from $3.1m in 2023 to $3.3m in 2024 reflecting the increased level of business activity, mainly additional office space.

Total expenses increased by 15% to $21.1m (HY 23: $18.3m), including non-cash share based compensation of $1.9m (HY 23: $1.3m), significantly lower than the 37.1% increase in revenues.  

Taxes

The Company paid $0.2m income tax in its subsidiaries.

CURRENCY EFFECT

Approximately 60% of the annual operating expenses are incurred in New Israeli Shekels (NIS). Most of the revenue is invoiced in USD and consequently the Company reports in USD. The average exchange rate between NIS and $ increased by 2.8% in HY 2024 versus HY 2023.

EBITDA

Adjusted EBITDA is a non-IFRS financial measure defined as (profit before depreciation, amortisation, interest, tax and share-based payment charges and associated employer tax charges). Reconciling EBITDA to adjusted EBITDA for HY 24, the Company added back $1.9m (HY 23: $1.3m) of stock based compensation expenses.

Statement of financial position

CASH AND CASH EQUIVALENTS

Windward had cash, cash equivalents and short term deposits at 30 June 2024 of $13.8m, a decrease of $3.5m from 31 December 2023.

CASH FLOW

Windward used $2.6m to finance operating activities in 2024, a 35% decrease from the $4m used in 2023. The decrease was mainly the result of reduced operating losses.

Ofer Segev

Chief Financial Officer

For the six months ended 30 June 2024 and 2023

As of 30 June 2024, and 2023

The accompanying notes are an integral part of the condensed consolidated interim financial information.

As of 30 June 2024, and 2023

Represents an amount lower than 1 thousand U.S dollar (*)

The accompanying notes are an integral part of the condensed consolidated interim financial information

For the six months ended 30 June 2024 and 2023

The accompanying notes are an integral part of the condensed consolidated interim financial information