1Spatial Plc (SPA) Earnings Call Transcript & Summary

Good afternoon, and welcome to the 1Spatial Plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to let the following poll. And I'd now like to hand you over to Claire Milverton, CEO. Good afternoon to you.

Thanks very much, and good afternoon, and a warm welcome to you all. Also here today to go through 1Spatial's interim results through July '22, I'm Claire Milverton, CEO. And sitting next to me today is Andy Fabian.

Hello.

So before going into the results today, I just wanted to go through a slide that I went through at the last results presentation, and it was around the fact that at 1Spatial, the Board and I believe we're really at the start of a transformational growth opportunity. I think during this half year, the reasons have actually become even more apparent. So just going through each of these in terms -- in turn. In terms of partner and customer credibility, now we really are getting this, and we'll look at some more examples of this, such as our win with HS2 and working with partners such as CGI. We are in a significantly growing market. And I would say, actually, a resilient market, the sort of customers that we're working with, government, B2B, we're in a difficult market today. But we aren't so significantly affected as others. So it's a good market for us, and it's growing. And to capitalize on that, we have our market-leading software platform for Location Master Data Management, and I'll talk to you more about that during the course of the presentation. So a quick overview of who we are and what we do at 1Spatial. So we're a software solutions company, helping our customers to make critical decisions from data with a real specialism and location data. And location data is more complex and is different to say your standard customer or product data. Our solutions address agenda such as health and safety and sustainability. And we have our market-leading software platform for location master data management. We're working with some powerful partners that are key to our growth strategy, and we have over 1,000 customers globally. In terms of our revenues, we have around 47% of recurring revenues, and we're really looking to grow our recurring revenues, and that theme will come up throughout the course of the presentation. From a geographic perspective, we're spread over a number of geographies. Europe and U.K. are the largest at the moment, but we really anticipate good growth in our U.S. region and in our U.K. as well. So I often like to start a presentation with a picture and a project that we're currently working on to understand why we are needed. And I want to start with a project that we've won in the period, and this is HS2, which is Europe's largest infrastructure project. If you don't look at the writing for a minute and just concentrate on the picture. So that's The Chipping Warden Green Tunnel under construction in Northamptonshire. And if you just think about that tunnel, there's lots of data associated with that tunnel and that data needs to be captured and put into some sort of digital system. But in terms of that tunnel, there could be location, there will be location or geospatial data. Where is that tunnel, the asset data, what is it? Well, it's a tunnel, what is it made of? What are the attributes to that tunnel? Could be some project data, design data, financial data. Could be some PDF pictures. But all of this data needs to be pulled together. And HS2, there are a number -- there are thousands of different contractors working on it. So you've got complexity of lots of different types of data and lots of these datasets being held by a number of different contractors. And HS2 needs a view of all of this data, and it needs it for doing planning or maintenance and ESG reporting. And it wants to put that into a common data environment. And so we won a contract with HS2 to help them create that common data environment. And it's worth GBP 900,000 over 2 years for us. And we've won this because we're becoming a recognized leader in the field. It's using our 1Data Gateway, the portal for data sharing and our patented 1Integrate that really checks the data quality and consistency and the compliance of the data with HS2 standards. And in the -- HS2 plans to sort of be finished around 2035. But this data is going to have to be kept there for the long term. You might say, well, that's quite a small amount, GBP 0.9 million. But this is really, I would say, a common engagement model for us at 1Spatial. It really is the sort of, I would say, the first piece of work that we'll be doing with HS2, it's almost proving the concept. And then we'll be able to scale up the work that we do with them. Now, not just in Phase 1, there's Phase 2, there's Phase 3. And there's a big supply chain here. We're looking at just some of the data coming in from the Tier 1 suppliers, which are the major suppliers such as the [indiscernible]. But there's also Tier 2 and Tier 3. So we think that there's a huge expansion opportunity here. But this is just to give you a flavor of the type of projects that we're working on. Last time when we come out for the results, we talked about the National Underground Asset Register, where we were bringing on all the data from the 650 asset providers to create this underground asset register. But it's a similar business model, and we want to move the provider of choice globally for these sort of national platforms where location data and supply chain is key. So now starting really on the results for the year and giving you that evidence of our transformational growth opportunity that I talked about on the first slide. So we are at year 2 of our 3-year growth plan, and we are really investing in our business. And we had some reasonable growth in the period on our revenues. But the key thing for me is really focused on growing that annual recurring revenue. And that is the key statistic from my perspective, where it's grown by 115%. And Andy will take us through in a moment all the analysis on the results. But we really did have some really good new long-term contracts signed in H1 with high levels of annual recurring revenue and again, those expansion opportunities for the future. We've had engagement with a number of partners, and we've been really investing in our platform, and particularly in our cloud and Software-as-a-Service multitenancy SaaS solutions, which I'll come back to at the end of the presentation. And investment in our people is absolutely key. We really need to look after them. And we're really pleased to be certified as a Most Loved Workplace by the Best Practice Institute in the period. So coming back to some of those new customer wins in the period. There's some interesting numbers there on the top right-hand corner of the slide. So of those deals that we've announced and that are on this slide, there are GBP 6.4 million of committed revenue, of which GBP 4.6 million, 72%, is recurring revenue. And that, from our perspective, is a really good stat because only 28% is services. And I think in the past and with some of the big contracts we did -- the National Underground Register, we did take on a lot of services for a strategic reason. But this ratio is something that we really want to be doing more of going forward. So we've already talked about HS2. We've got our first contract win at the top level with DEFRA. We've also had some pockets of work with the environment agency and the global payments agency before. But this contract allows any of DEFRA and its bodies that are within it to procure 1Integrate, so that's great from our perspective. And we also had a significant win in our French business with a major aerospace company, which was a EUR 3 million deal. And we've had a number of wins in our U.S. geography and U.S. is key to our growth strategy, and we'll have a look at this a bit later on when I come back to looking at the strategy after Andy has covered the numbers. And I'll also, in the second part of this, of presentation, look at partners as well because they're also key to our growth strategy. But we had some good wins in the period. I'll hand over to Andy for the finances.

Yes. Thanks, Claire, and good afternoon, everyone. Before I go into the details of the results for H1, I just wanted to sort of paint slightly longer-term picture and talk about how we're evolving our business model, which some of you may not be familiar with. But essentially, we're in the middle of a 3-year plan and the 3-year plan is focused on growing recurring revenue and driving up margins and cash flow. When we started the period, the 3-year period, the recurring revenue was a little over 40%, and we're now at 47%. So we've got a little bit further to go towards 50% and 60%, which is our sort of medium-term goal. But what we're also doing is selling SaaS cloud-based solutions, and Claire is going to talk a little bit more about what we're launching later this year. And we're also piling on these term license revenues, and I'll talk a little bit more about that. And if we look sort of maybe 3 to 5 years out, then we can see much higher recurring revenue of maybe 75%, 80%, 85%, that kind of level because the solutions that we're offering in terms of SaaS cloud-based solutions won't require the services that we currently selling. So we'll just get a much higher proportion of much higher margin revenue, and that's really what is going to drive the margin expansion. So that's the vision. We can't put any forecast over that time period, but that's the direction of travel. In terms of the results, again, Claire has mentioned, the key stats for us is the growth in term license ARR, so the annualized recurring revenue at the end of July of 115% growth. And this is really important for us because that's the very high-margin technology that we're selling, and that will lead to further growth going forward. When we combine that with our support and maintenance contracts, then the total annualized revenue grew by 29%. So we're very pleased with that, and we're really on track with our 3-year plan. In terms of revenue in the period, the term license revenue growth was 67%, and that fed into total recurring revenue growth of 18%. So again, this is all in line with what we're hoping to do. But overall, the total revenue was 11%, and I'll go through the individual regions because it's a different story for each region, but we're very pleased to have double-digit organic revenue growth. And of course, we did actually achieve a profit before tax versus a loss before tax this time last year. So just focusing again on the term license ARR. We do sell some third-party software as well as our own. We're really focused on growing our own proprietary technology, but sometimes we do sell third-party which supports our end sales. So -- and of our own technology, the growth rate was even higher at 141%. So very pleased with that. And the idea is to layer on all these contracts, get longer-term commitments 3 to 5 years, and we've demonstrated some of that this half. And that is all future revenue, which will boost our revenue growth and margins going forward. So we're at 47% recurring revenue, and we have a very high renewal rate of 94%, and we're looking to -- for that to increase this year based on our sort of projections. We also have some committed services revenue. Again, we mentioned that we're not focused on selling services, but part of our sales does require a certain level of services. As Claire mentioned earlier, the really good news is that we're getting a much higher proportion in each contract that is recurring. But nevertheless, we've got this backlog and that provides good visibility. So when you combine the growth in the ARR and the services backlog that we know we're going to deliver then you have very good visibility of this year's revenue and beyond of, let's say, more than 90%. So that's very good for a CFO to sleep at night. Just in terms of the regional performance. We're very pleased that all regions had a growth in ARR, but at different rates. The star performer this time was the U.K. with some large government contracts in the HS2 that Claire mentioned, and the U.S. and Australia also had very good growth rates. It's fair to say with Europe, although they grew at 6% ARR, it's a little bit slower, we would say, in terms of the transition from the perpetual license model, which we're moving away from to the term license model. And combined with the large contract that we signed, which was slightly later than we had anticipated meant the revenue growth in Europe was only 2% at constant currency. So -- and with the U.S., the U.S. is also performing well, but the fact that it was only 6% growth in half-on-half is partly because last year, there was a very good services revenue performance in the first half. So we think that, that growth rate will improve over the course of the year. Australia is largely, at the moment, selling third-party software, and we're trying to move towards selling 1Spatial technology. The third-party market is good for us, but it's quite competitive and also then moving to the term license model. So that meant that half-on-half Australia was 5% down in constant currency. But we do think all the regions that we're selling in will perform well this year, and we're really focused on growing in all regions. In terms of the P&L, I'm not going to go through every line, but we had good revenue growth. That hasn't flown through to the margin for a number of reasons, mainly because we are investing and we're still in the investment phase of our 3-year plan, although the level of increased investment going forward won't be so great, but we have been investing in innovation, our own technology, presales and delivery capacity. The other aspect of gross margin to mention is, like many businesses, we are impacted by inflationary costs. We did do -- when we did our pay reviews at the start of this year, we were perhaps more generous than we have been in past years. And the reason for that is because -- our cost base -- well, 2/3 of our cost base are people, and a lot of them are very skilled and they have choices, they could move to other companies. So we don't want to lose good people. And rather than wait for them to get poached, we thought we would be proactive. And so on average, our pay increases were, let's say, 5% to 7% and in some cases, higher than that. But what we have also done is put our prices up by more than that and our charge-out rates, but sometimes there's a little bit of a lag because you've got existing contracts with committed fees, et cetera. But we do want to keep good people. And so that's how we're managing our cost base. And we've actually had an improvement in our staff turnover. So that's good news. So I guess, what will drive margins to grow in the future, as we've said before, is when we get more revenue that's recurring and on the term license model, and that will increase our gross margins. Having said all that, we have made an operating profit compared to a loss last year. So we're pleased with that. On the cash side, we had -- we generated cash from operations of GBP 1.3 million, which is higher than last year. We have had a negative free cash flow, and that's partly because we're investing a lot in our products. And although working capital was better than this time last year, it's true to say that on some of these -- as we get larger contracts, then sometimes the working capital is getting a little bit stretched because you have your main client and you have a partner and in order to reach milestones and get paid, sometimes it takes a little bit longer. But we've got a concerted effort to really focus on that in the second half. And typically, the second half is better for cash generation. So we can't promise anything, but we hope to have a positive free cash flow for the whole year as a whole. And in order to make sure we're in good financial shape, we also felt it was prudent to put in place a GBP 3 million revolving credit facility on competitive terms. It's a 3-year term secured to June 2025 and that gives us good headroom. And we had net cash at the end of July of GBP 2.3 million. So I won't go through all the points here, but just suffice to say we're very much on track in our 3-year plan, we're very pleased with progress and all the indicators in the right direction. And yes, we're very pleased. So I'll hand back to Claire.

Thanks, Andy. So I'm now going to spend a bit of time just a recapping on our market and then going to go through our growth strategy and progress against that. So from a market perspective, we really believe we have a unique proposition at 1Spatial. We believe Location Master Data Management is the future. We're at the intersection of these 2 global growing markets. On the left-hand side, the geospatial information systems market worth $10 billion and estimated to be $21 billion by 2027. And that's dominated by the big players in this market such as Esri and we have Ordnance Survey in the U.K. And on the right-hand side, you've got the mainstream master data management companies and bigger IT-type companies, such as Informatica or Atkins and CGI. And they're at $12 billion and estimated to be $47 billion by 2027. But what we give to the market and what we bring to the customers is the intersection of those 2 key global growing markets because we can bring the best of both worlds. Because we can bring the GIS, the geospatial data expertise, but also the nonspatial data. What like we're doing with HS2, we've got the spatial and then nonspatial data together. We're data and we're system agnostic. And we really are at this sort of nugget and this nugget in between these 2 markets. And I think that is why we're winning in the market, and we really believe this is the future. And we believe we'll also have a -- there is also a significantly growing market opportunity and key market drivers for this growth. Firstly around government investment initiatives, investment infrastructure, building back better. And then the digital economy, the real need to get all of these assets like HS2 in a digital representation to use this data to make decisions and do things like ESG. And that's the final key market drivers of growth on this slide. The ESG, there's targets and everything that needs to be measured and reported. So there really are sort of significant key market drivers for growth in where we're operating. So now just coming back to our growth strategy. So it's made up of 3 pillars: customer relationships, smart partnerships and innovation, and we're going to look at all 3 of those. But our growth strategy is really underpinned by one team. It's really important that we look after our team and we inspire to get good people on to our team. And we've got a picture there, a recent barbecue we did in the summer where we had everyone came along with their partners and their family. And I mentioned earlier, we're certified as a Most Loved Workplace in 2022. We've also been embedding our new values into our organization, and we're currently in the middle of our global well-being market, we're doing all sorts of things like mental health training and community days and yoga and all sorts of wonderful things. But it's really important to look after our staff. And we've also been making significant progress towards refining our ESG strategy. ESG is really important to a number of our stakeholders, including our employees and a lot of them join us because of the work that we're doing around ESG for our customers. So then just focusing back on the first growth pillar, which is all around customers. And yes, we are geographically spread, but we're -- just for this purpose, we're really going to focus on the U.S. market because this is a key growth opportunity for us. And just have a look at the addressable market. We did do -- I did talk about this a lot at the last presentation. So if you want to get a bit more detail on it would want to have a look at the previous video that's on our website. But just to have a sort of overview and a recap. In 2017, we only had one client in the U.S.A., which was US Census and we now have 23 and many more in the pipeline. As we really believe there's a scalable opportunity for our solutions in the U.S. So our aim is in the States, the 50 states that we were to land at least [ $8 ] million of annual recurring revenue with them, which is an addressable market of $50 million. But we believe we've got the solutions to do that. And in the period, we had engagement with 3 new states, including Arkansas, which we won with NG9-1-1, and we'll look at that a bit more on the next slide. With the success we're having with NG9-1-1, we've now won 8 out of 8 tenders. We're looking to put that into a multi-tenancy cloud SaaS-based solution for all the 23,000 cities and counties, which you can see in the gray part of the triangle. And we believe there's a market opportunity there for sort of $100 million, and we're starting pilot trials for that at the end of this year. So that's the sort of scalable opportunity. So how have we been doing in the period. So on this slide are just some of the wins that we've had in the U.S. this year, and this is all around building to that $1 million of annual recurring revenue in each state. And that's $3.7 million of contracted revenue on this slide. If you just look into the gray box, back to this stat that what I was saying earlier, 70% of the value of the contracts here have annual recurring revenues. So only 30% of services. But we had a contract in the period with California, had a contract with Maryland, which as I mentioned earlier, we won our eighth contract for NG9-1-1 beating the competition. And we had a really interesting win with a framework contract for the Eastern Transportation Coalition worth an estimated $15 million. And we've had our first deal on that contract with Massachusetts. And the exciting thing about that deal for us is that it gets us access to 18 states. So if you go back to my previous slide, we're in 23 of 50, with those 18 states there, we've really got access to some. But this will allow us to get that first land opportunity in new states that we haven't got so far. And then on the purple box here, these are 2 new states that we have won in the period, so New York and Indiana, which we won just 2 weeks ago. And this is -- usually doesn't always happen like that. But usually, the first sort of opportunity we get is almost like a proof of concept. So going into New York, going into Indiana, showing them, they're paying for this, but showing them our technology, giving them insights, they're playing with there. We're giving them some services just to sort of figure it out. But that's our land. And then hopefully, we're going to stuff more in the gray box, which will expand. But that's our route to market in the U.S. in terms of getting to the states themselves and growing to that $1 million of annual recurring revenue. And then the second pillar, growth with partners is absolutely key. So when you think back to the intersection of the 2 global growing markets, on the left-hand side, we have our partners that are in that GIS world, the mapping data world such as Esri and Ordnance Survey. And on the right-hand side, we have some existing partners that we're working with in that more mainstream IT space such as Version 1, QinetiQ and Atkins. During the period, we've engaged with a number of new partners. We just put a couple of the logos on the slide here. So for example, we're working with Rizing who are now owned by Wipro, to get back California contracts, the first one that I spoke about. And in the U.K., we just signed a teaming agreement with CGI, which is really exciting. It's the first agreement that we've signed with CGI. And the reason why we signed it is CGI have won a GBP 95 million contract with the Home Office -- is a strategic contract Home Office, and they need partners to help deliver that. And they found out about us. We're getting a lot of credibility and visibility through the big contracts that we're winning. And there is a part of the Home Office contract where they're going to need some assistance around data and specifically geospatial data. And they really want to use us as part of that framework and delivery to Home Office. So that's a really exciting first engagement with CGI. And then with ATOS, we've just been engaged and taken on into their Horizons program, and we have around 4 ongoing sort of joint prospects that we're now going after as a result of that. So yes, particularly in the U.K., our real route to market is through partners. And I've now got a global partner manager that I took from last year from IBM, and he is really helping us getting known by these large partners. And the large partners can take us in and then we can sell our technology as part of that bigger IT contracts. So that's really exciting for us. And in October, November, we're looking to do a specific digital marketing campaign just at getting new partners on board. And so the third pillar of our growth strategy is all around innovation and our market-leading platform. So probably, if you've been on one of these presentations before, you might have seen this slide before, just to spend 2 minutes on this. On the left-hand side in the picture, you've got all the data coming in from the different sources. So on HS2, that would be from more of the different contractors. And then we have our 1Data Gateway, which is our cloud-enabled portal for uploading data to and from supply chains. And then on 1Integrate is our patented technology, which can get to work on the data, validating it, cleaning it, synchronizing all the good stuff that we can do with data. That is what we're selling at sort of things like HS2, and you have to create the rules for HS2 to comply with that standard. But where we get repeatability of rules, we can then move that up to the next level, which is the business applications. And that's what we're doing, for example, with NG9-1-1, there's a repeatable rule set. You have to comply for 9-1-1 with these [ leaner ] rules. And also what we've done to create our traffic management plan SaaS-based solution, which I'll be talking about in the next slide. In France, we have our business applications that are built on top of the SV platform. And we talked earlier about this win in the aerospace industry in France, that was with our 1Telecoms product, which was -- which is a good win for us and a great logo to have. And then the uniqueness of our platform is all listed on the right-hand side. The data sharing and collaboration that it enables, our whole automated approach to data validation. And those 2 things really drive efficiencies for our customers, saving time and money through the automated -- automation and self-service portal and the ability to create new data out of existing data. Okay. So finally, I just want to pick up on our SaaS-based solutions. So this is a real game changer for 1Spatial. So we do sell our technology with 1Integrate, 1Data Gateway, we sell it as a term license, often goes into our customers own cloud. So it is cloud-enabled. But what we're trying to do here is a full multi-tenancy SaaS-based solutions. So we'll have one installation of NG9-1-1, one installation of traffic management plan and then that it opens up. So if it's NG9-1-1, it's to the 23,000 cities and counties. And for traffic management plan, I'll talk about the customers for that. So last time we talked about NG 9-1-1, so I'm not part with that for today, and I'm going to focus on traffic management plans in the U.K. So just to give you a bit of background, if you have a look at the picture there, so probably a picture that you're all quite familiar with, a road, some road works, where there's cones set out, traffic light, you'll probably see some slowing down signs. And this is probably something that may be a contractor or a utility company has to dig up the road maybe to do some pipe maintenance. And this is happening all over the U.K. all the time. Now if you have a contractor or you're a utility company, you can't just go ahead and dig up the road, you have to apply to the local authority, get a permit. And to do that, you also have to create something called the traffic management plan which sets out the layout of all the cones and the traffic lights. And there is a rule book in the U.K. called The Red Book that prescribes how you have to lay out all of these cones and traffic lights in all the different scenarios. And currently, that's done in a very manual way of by hand drawing it or companies can do it with the sort of [indiscernible]. So you might digitally draw it, but you still have to draw it, you have to draw it and you have to be of looking at the rule book where you have to know the rule book inside/out and all these sort of things. So it's a very -- still a very manual approach. But what we have created at 1Spatial, we're working on over last sort of 4 years on an off-stopping during the COVID period is the automation of the creation of this traffic management plan and behind the photo, you can see an automated traffic management plan. And we -- you can basically go into the web, you're going to our platform, you're going to our app. And you can just say, right, I want to dig a hole here, you will put a rectangle in the road where you want to dig up. And in 30 seconds, this traffic management plan will be created that will be compliant with the rule book. And it's doing it through our rules engine, which is created using the rule book and bringing in data and bringing in some data from Ordnance Survey and what [ 3 ] words to create this. And also, there is a backup just behind the plan, you can see there is a sort of inventory list so that the traffic management company knows how many cones and traffic light to take out. So this is the first solution in the market to fully automate the production of traffic management plans in the U.K. and it really ensures compliance with the rules. It can save time, it can save money, including fines because if you don't do these traffic management plans in a compliant way, you can get fined by the local authority. And it really addresses workforce and resources and skills issues that are in the market. So you can go on to the government website, and you can see how many low-speed traffic management plans we created last year and there's around 2.5 million. So if we're charging GBP 100 per plan, that gives us a GBP 250 million market opportunity in low-speed roads. And that's currently costing at least GBP 500 million to do this manually, if not more. So we're really excited. We're at the sort of nearly at the end of the development journey on this. We're starting some field trials of the traffic management provider in October, and we're looking to showcase this at the Highways U.K. event in 2022. But yes, I just really want to reiterate. This is pure SaaS. This is pure multi-tenancy SaaS sort of golden revenue. There won't be any services revenue, be quick to access, one platform to maintain, gross margins going at sort of 80%, 90%. And there's a huge market opportunity here. We know that traffic management companies, utilities that really crying out for a solution like this. So that's really exciting for us. So just to wrap up then for our H2 objectives and outlook. So obviously, it's really keen to -- we've got to launch the SaaS offerings to increase our addressable market. We're looking to increase sales and marketing capacity in the U.S. to capture that $1 million per state opportunity. And we need to expand our partnership strategy is really key to us. And all of this to give us much more good growing recurring revenue, EBITDA margins and cash conversion in the long term. So in terms of the outlook, we've had a solid H1 performance, including some new wins, which are really providing us with confidence for future growth. We believe we've got a positive future given the market landscape and those increasing levels of ARR and committed revenue we're getting. And we're confident in delivering FY '23 results in line with expectations. And I think just coming back to that initial slide, where I talked about the transformational growth opportunity. I really just wanted to reiterate in terms of the customer and part of credibility, I mean, you don't win NG9-1-1, you don't win HS2, you don't win with partners like CGI unless you've got that credibility. The significantly growing market I talked about, and we are resilient in these currents or market macroeconomic conditions. And we have this market-leading software platform, not just for like the term license, getting that revenue in the states and with contracts of HS2, but really that golden revenue in terms of multi-tenancy SaaS for traffic management in NG9-1-1, which really should cut us [ poulters ] into a different revenue and profit generation model in the future. So I think that's it from us. So...

[Operator Instructions] I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. Claire, Andrew, as you can see, we've received a number of questions throughout today's presentation. If I may, just ask you to read out those questions and give responses where it's appropriate to do so. I'll pick up from you both at the end.

[indiscernible] is talking about that he bought some shares at 64p and the current price is at 40p. And so will I be interested in the strategy to drive the company's successful growth and profitability and increase the share price. But I think we've -- I think firstly on the share price, so I think we're undervalued in terms of our share price versus the sort of ARR and the results that we're currently producing, but there we are. We're doing lots to improve that. I think that hopefully shows through in the presentation. Building these ARR annual recurring revenues will give us good growth, will give us real good gross profit. And I think we now are adding the sort of icing on the cake, which is the golden revenues from the SaaS-based solutions, such as NG9-1-1 and traffic management plan. So we don't see that and you've asked me actually what's the plan, the timescale to go for doing this. For us, we see significant opportunity -- and it's not too in the long term now. I mean traffic management plans we're looking to launch towards the end of this year. So -- we're hoping that we'll start to see some revenues come through next year. I mean it's not in the sort of current expectations that are out in the market with our broker. But in terms of the price, we're aiming for a good price. We've been in the organization for a long time now. We're hoping to get good share price increase as a result of that. I don't know if you want if you want to add something to that?

No, I think that's fine. I was just looking -- there's another question also -- What is the split between direct and indirect partner sales? We haven't sort of published a figure, but I think it's true to say that more recently, we've been getting a lot of sales through partners. So it's probably -- it's the majority -- and the beauty of the partners is that they have so many more clients, we can then punch above our weight. So it's a very good route to market. But we still get things directly. So the HS2 one came direct. So it's a mixture. And we haven't published the stat, but that's -- I think it's a good proportion. There's a question about wage inflation. It's difficult to know. Clearly, the numbers change daily. We know that we have a valuable team of people and perhaps when we look at salaries in January, then maybe we have to pay at the sort of current level of inflation. But I think what we can do, we're in a very good position in terms of our pricing power on our product. So we will put our prices up and that will protect our margins.

So I'll answer the question from Jeremy P. How do you service the U.S. office? Local staff, yes, definitely. I mean we have a main head office in Washington. We do have staff-based, particularly sales staff that are based around the U.S. That's how we divide up the sort of territory for the different sales staff. And that we have to -- I think you need to have -- we've got technology that can be applied globally, but you need to know about the local issues. So you need to understand about NG9-1-1 in the U.S. in order to be able to sell it. We're getting more experts in, in the particular solutions that we're selling and it does really work. You have to have -- I think putting U.K. salespeople in the U.S. doesn't always work. They speak the same language. We're lucky in the U.S., you do have a much more cookie-cutter approach. For example, in the U.K., we only have one department of transport. But in the U.S., you have 50. So once you've got in with one department of transport, you can go around and go to the others, but it's really important to have that presence out there. But I'd say of all the costs across the group, there will be some growth, particularly in sales teams. But the real growth in cost will come in the U.S., and we do need to get more sales teams in the U.S.

And there's a question about what are recurring revenues made up of? In terms of the annualized value, GBP 5.6 million is the term license and the rest of the GBP 15.2 million is support and maintenance contracts from previously sold perpetual licenses. But the bit that's growing the fastest is the term licenses. And then going forward, when we've launched some of these pure SaaS cloud multi-tenant solutions, then that will be part of our recurring revenue.

Paul R. asked what obstacles are there to achieve in your ambitious objectives in the U.S. and the U.K.? I think the answer probably always comes back to people, having the right people. I mean with traffic management plan in the U.K., we are building that technology, where we're doing it right. But we -- I've got someone on board at the beginning of this year with January from the traffic management industry, and he's really enabled us to really get going and have given me the confidence that we're doing the right things. And it's always quite hard getting the right people with the right skills and the right domain expertise, I think, is absolutely key and getting him on board is what has propelled us, I think, and so we're so confident about traffic management plan. And again, with NG9-1-1 in the U.S., we have got some expertise, but I think maybe we need to get someone with even more expertise. Someone that's probably suffered those issues that you have with NG9-1-1 data at a city and account and taking them on board. So I think it's not about hiring loads of people. It's probably about picking the right people that we need to take these key things forward. That's that on that.

Yes. There's a question from Mazin. Do you anticipate any step change in capitalized development in the next few years? I think the short answer is not really. We have had an increase this period. And I think if you look at that half year, that will be approximately the run rate for the full year, and we have had a bit of a step change this year, if you like. But we kind of see that as not something we need to just keep incrementing. It is important to keep developing. And I think companies that invest a good proportion of their revenue in R&D usually do well in the long run. But I think the proportion of our revenue will start to decrease as the revenue grows. And we sort of don't need to just keep adding. We've had a big boost recently because of the cloud development. So I don't see that sort of growing hugely going forward.

Mike H. has asked, what is the usual length of a contract once a client signed up? How sticky is the product? Would they be likely to be able to do it without it or replace it? In terms of length of contract, they do vary. But they always tend to stay [ here ] as sometimes they're 2 years. Often in the U.S., they seem to have a number of years plus an options. So on the framework at least to transportation [ plan ] in Massachusetts, it's a 4-year actual and 4-year optional, so 8 in total. So it really can go from 2 years to 8 years, but you're completely right in terms of it's sticky. In terms of like our technology that we sell in the U.K. or the U.S., the 1Integrate, the 1Data Gateway, they -- once they're in, they don't really come out. The -- we've had clients that have been there for 15, 20 years [indiscernible] original technology because particularly with the data, if you set it up really well, and this is what HS2 wants to do for the long term. They never -- they want this data once it gets in they don't ever want it to go bad again because that's like the worst-case scenario. So you really want our -- 1Data Gateway, 1Integrate staying in there forever to make sure your data never gets dirty. So I don't know how they would go to replace it, to change it would just be sort of catastrophic and it would be stupid really, the cost of redoing all of that would be significant to any client.

There's a question here. I'm not completely 100% clear on the -- with your 3-year plan, what are the end goals objectives? I guess we set a 3-year time frame really just to focus -- I don't know if the question is what are the actual numbers because we didn't really publish those. But all I would say is that the forecast for revenue next year is round about GBP 32 million for -- not this year, for the following year, and we'd like to get there or even higher and with higher margins and so forth. I guess the 3-year plan is only part of the journey. It doesn't -- we don't sort of end at that point. And -- the -- we have a longer-term plan and I've sort of showed you the picture there of getting much, much higher recurring revenues and higher margins. So it's all a continuing plan.

[indiscernible] says, do you have an exit plan to be even taken over or sold once you've earned your growth profitability goals? Well, I think Andy stuck an answer to that, maybe at GBP 5. We can end -- I'm interested in the upcoming multitenancy SaaS solutions launch in H2 '23, you mentioned especially how it may impact the business and what sort of growth do you see it driving. Well, we've talked about -- I've tried to highlight to you the market sizes, which is huge. I mean if you just take traffic management, GBP 250 million, maybe we can get 10% of that market over the next 3 years and then how that will build up. I'm not sure. I mean we have grand aspirations for it. It's really hard -- we could do all this scenario analysis. I have a really good feeling. We're going to do very well in it. And I don't think it's going to take long to ramp up to that 20%-25% of that market because there's no other solution in the market. There is a problem. There is a need. There's all the good things that you could ask for. We could almost tick every tick box on it. So I can't make a forecast about it, but we are very strongly exploited about the prospects of it and the sort of growth that it could have. And as soon as we start to get visibility, we will put that into the market.

Question from MGM. Which segments of the business are you seeing decreasing demand? I guess there's so many parts that we're seeing increasing that we're not really focused on that. What we're trying to do is just focus on the areas we're selling to governments, utilities and transport. We're focused on term license sales and the SaaS solution. So I don't -- I mean, I don't know if you want to add to that, Claire, there's not an area where we're saying there's a decrease in demand, so we're turning away from that.

MGM says you've done exceptionally well to be able to grow the way you have, especially since the 2020 COVID year. Hope to continue with you on the journey. Last question.

Thank you very much. How is the management incentivized? How many shares and options are held by the team? I guess in terms of those numbers, you can look at the annual report, it's all in there. We do have some incentive schemes and I think it's all in the remuneration report. So it's...

Yes, Andy, we'll ask senior management team, key employees are all in it, we're holding the plans together. I mean, run a very collegiate type of organization, what I've dictated. We want -- all got our part to play. And I think we're all on board with the growth plans. And Andy and I got both got -- bought shares. I've been buying shares. Most of my pension [ slip is ] in my special shares. It's actually the best share at the moment. So yes, we've got -- we're quite heavily invested in the shares, aligned with sort of shareholders to get the share price up.

Indeed.

[Operator Instructions] I think you've actually managed to address all the questions from investors. And of course, the company will review all the questions later today. And will publish our responses on the [ Investment Company ] platform. But just before redirecting investors to provide you with their feedback, which is particularly important to you both. Claire, could I just ask you for a few closing comments?

Yes. I think it's really back to my last slide. I mean, I already mentioned it. We're getting customer and market credibility. We're really getting known in the market -- the market is growing. It's a good market to be in. And we've got fantastic software, and we've really now taking the opportunity to capitalize on that software with the SaaS solutions like traffic management, as I said earlier, can propel us to a new world, which is very exciting.

[Operator Instructions] Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team at 1Spatial Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.