Beeks Financial Cloud Group plc (BKS) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Beeks Financial Cloud Group plc Investor Presentation. [Operator Instructions] I'd now like to hand you over to Gordon McArthur, CEO. Good afternoon, sir.

Thanks, and welcome, folks. As usual, I'm going to kick this off. Fraser will come in towards the middle end to go through all the financial stuff, and then we're going to do some Q&A at the end. So we will kick off. All right. We're going to go kind of do the kind of quick overview of the company for those that don't really know the story. I'm going to turn the camera off actually because my hotel WiFi is not great. So I'll bring it back on for Q&A. Okay. So what does Beeks do? So we are a cloud computing company focuses solely on capital markets. So we build out cloud environments for low-latency multicast trading systems. That's all we do. We don't get involved in genetic cloud for e-mail, CRM platforms or ERP systems, anything like that. We are deeply rooted and entrenched in trading applications, working with banks, brokers, exchanges and funds all around the world. So [indiscernible] five key messages. So I'm going to go through the good, the bad and the ugly and all this stuff. So bear with me as we go through it. So we look back at 2025, we've been on market now for 8 years. Historically, we've always done between 20% and 30% revenue growth every year, fairly consistent in that. We achieved that again this year with 23% revenue growth. And pleasingly, we signed a record level of long-term contracts, which shown in the GBP 19 million of TCV that we signed through the year. If you go back to day 1 has been a public company, the majority of our stuff is on month-to-month recurring revenue that was not committed long term to the business. That has gradually changed through the year and about 1/3 of our revenue is now kind of long-term committed and multiple year contracts. So the bigger stuff is really in the Tier 1 domain. So when we IPO-ed, we IPO-ed to target the Tier 1 customer base. And pleasingly, we've made real progress in that space in the last 2 years. Significant contracts with exchanges in the last year, we signed Mexico BMV, the first one. We signed ASX, the Australian Stock Exchange. And as we announced a few months ago, we signed Kraken, which was our first exchange in the crypto space. So we had a decent year in terms of new signatures in the Exchange Cloud space. Continued expansion with existing clients, including the JSE. JSE almost full again. So we would hope that, that contract will be extended for the fourth time in the coming period. And we announced quite a lot of decent sized wins in the Proximity Cloud space, which is the single-use platform. New stuff, we launched a new product called Edge Intelligence, which we're in a couple of very large active proof of concepts at the moment. Edge Intelligence is an AI and ML modeling tool that sits on the market data that we collect through our analytics appliances. Early days for that, and we've been building that for the last 18 months. We didn't just jump on the AI bandwagon and put AI in front of one of our existing products. We've actually invested, hired a bunch of data scientists and our analytics CTO has really led that project. So we're in a couple of very meaningful proof of concepts, early days with some big banks and exchanges around the world. One of the big talking points of the year has been the launch of our revenue share commercial model on Exchange Cloud, which kind of has very considerable differences in how we account for it and Fraser can cover all of that stuff as we go through. Early indications are good. So Kraken, we're the first client to go down the revenue share routes. And Kraken after a few months is creeping into profitability on a month-to-month basis now. ASX and Toronto Stock Exchange are the next two. Australia is a few weeks away from launching. We're kind of finishing the config in the testing process. The pipeline for Australia is very, very promising. A lot of the bigger banks although they are looking at the platform already. So we've got high hopes for that. Toronto, we're just going into starting the implementation phase. So hopefully, that will be ready in kind of Q1 of next calendar year. But the early signs are very promising as we hoped. And what we've also noticed is it shortened sales cycles for other exchanges and we will talk about the pipeline going forward. We made an investment in a technology company startup that we think has built very interesting technology. They're a provider of hardware. They make what's called a Network Interface Card, which connects a server to a network, and there's a lot of latency in there. And as far as we can see from what we've done and the testing we've done on it, their NIC is faster than anything else out there in the market. So we made kind of decent sized investment into them for an equity share, but more interestingly, an exclusive agreement to sell that to the capital market space, and we're currently integrating it into a product set. So I'll kind of tackle the elephant in the room now and talk about some of the -- one thing that people want me to talk about. We did mention in our publication on Monday that one of our Exchange Cloud contracts has gone into a termination phase. I'm still relatively limited in what I can say about it, but I'm going to try and give as much color as I can without getting into legal breach of contracts and NDAs. So the contract in question was the large U.S. exchange that we signed in 2024. After we announced it, and most people know who it is, I'm not really allowed to talk about them publicly as part of the NDA. After we signed the contract and announced it, there was pressure put on from certain third parties that are listed on that exchange around the relationship that we had started. So if you guys follow us on LinkedIn and if not, you probably should, you can see how exchanges handle the launch and the promotion of Exchange Cloud. Australia, we did a launch event in Sydney where an exchange building, we had a joint presentation with ASX and Beeks -- loads of clients invites, 100 clients in the room, jointly presented it. We've done lots of presales. We've done lots of marketing together. That entire thing was missing in this other exchange engagement. So we really don't believe any chance of success. It's not been replaced by a competitor. It's not for any failing in our technology. There is a little bit of corporate politics at play, we believe. Their view is there's no demand for service. Our view is if you don't promote service, there's never going to be demand. So it's not a material contract. It was about $20,000 a month, no impact on our financials at all. But I'm not allowed to talk about certain parts of it in the public domain or I will breach confidentiality agreements that have been reminded that they are in place between the organizations. So I know a lot of you are looking for a lot more color than that, but the reality is looking back a couple of years ago, it was a great name, right? And there was a lot of excitement about it and I get there was excitement we are excited as we now become the standard in the exchanges, and that's where we believe we are, it's probably not as -- we have been exciting now as it was back then. So it's been a difficult one, but lessons learned, we move on, we're going to draw a line under it. And as we see in the publication on Monday, there's another four exchanges globally, some emerging markets, some established markets that are close to contract. We're in the final stages of contractual negotiations with four of them. So -- and then there's another wave of exchanges that are sitting behind that. So exchange pipeline, very healthy. I'm not going to dwell on it any more than that, limited to what I can see in the public domain. Unfortunately, that's just the way it is. Last part of this slide is the business is cash generating. I know it's not -- the cash flow is not huge, but that will accelerate over the coming months and years. And we are still seeing a move to our business model. So we don't see a slowdown on revenue growth or profitability going forward. So this slide just shows -- it's a nice slide for us. We can go back to 2020, which is as far back as we've gone and you look at total committed contracts, right? So we used to have a month-to-month 30-day rolling contract with all of our clients. And back in 2020, 1.3 million of committed revenue is all we had. And you can see -- and that was purely the Private Cloud Infrastructure as a Service part of the business, which we still see a lot of growth in. But as you can see throughout the years, as promised Proximity and Exchange Cloud has been released and has gained traction in the market. The size of the total committed revenue for the business has grown significantly, right? And we fully expect that to continue over the next few years. And it gives us a real base where we can model a little bit easier, forecast a little bit easier, manage the business a bit easier as a larger percentage of our revenue every year is contracted, right? So we will focus on that going forward, but it shows a nice steady increase of committed revenue to our company. A little bit about what we do. 90% of our revenue is trading infrastructure, right? We are an infrastructure cloud computing infrastructure company, 90% of our revenue is infrastructure, virtual machines, dedicated servers, network capability. And that's the largest part of our business by a long way. We also have a WAN product, a wide area network product that connects all of the data centers that we operate in so that people can move market data around or whatever they want to move around securely between data centers. Edge Intelligence, it goes hand-in-hand with our analytics platform. It's a software product. And we would hope that the software segment of our business grows in the coming years. As I say, early days for that product, but a lot of work gone into it. It will be a higher-margin offering than the infrastructure side of things once we get past a certain stage. So we would hope that the software side of the business grows. And then we've got a very small professional services revenue contribution, which is really implementation fees. We are absolutely never going to be a services-based organization. A lot of you guys have seen this slide before, but as we evolve and build more products, and that's what we'll continue to do. We are a product company. We are an R&D heavy company that build innovative solutions that try and help capital markets participants. I think it's useful to kind of keep this slide to show where the products are, what the rough commercials are around them all. And you've probably seen them before. So the legacy business is private cloud. We had a good start to this year. We've actually had our best Q1 ever. And a lot of that was private cloud revenue. I think we announced about $7 million of private cloud wins in the first couple of months of the year. And private cloud is anywhere between GBP 1,000 to GBP 20,000 a month, anywhere between 12-month contracts to 60-month contracts. And that's where the business still a large majority of our revenue comes from. Proximity Cloud is a single-use per cabinet deployment of a private cloud to any data center around the world. We've had a lot of traction with it. Pipeline for it is very strong. And that tends to be anywhere between GBP 1 million to GBP 5 million TCV per client per location. And we've got a bunch of clients looking at multiple location rollouts with us over the coming years. Exchange Cloud, kind of premier products. That's where we see the future of the business. And depending on the size of the exchange, it's really anywhere between GBP 3 million to GBP 20 million TCV. And when we see TCV, we talk about over that initial period. Now -- we've talked a lot this week all the institutional investors. And I think we've probably not pushed this as much as we should. Don't look at Exchange Cloud as a 4- to 5-year deal, right? If you look at the JSE who are now 2.5 years into their contract, we've got so many of their clients on 2.0 as they call it. A large part of the volume on the JSE exchange is now originating from our platform. So we got 2.5 years left of JSE to run to extend out more, we hope and fully expect. But at the end of the 5 years, we don't think there's any way that we will discontinue the product because they're going to have to go back to a bunch of clients and tell them to go and do it themselves again. That's not a good look. And it's been a very successful project for them. So Exchange Cloud should really be looked at as a 10- to 15-year annuity revenue stream for us, doesn't matter whether it's a classic contract or it's a new revenue share model. Exchange Cloud will guarantee growth for the company for a very long period of time. I think we've probably not been as clear with that as we should have been in the past. But as it grows and more and more clients use it, it becomes stickier and stickier. Market Edge Intelligence with the analytics offering, new offering anywhere between GBP 0.5 million to GBP 5 million TCV as a software product, so kind of sits right in the middle of our kind of commercial product offerings. And depending on, as I say, we've got a couple of very big meaningful POCs out there at the moment, that could become another exchange cloud-like opportunity for the organization going forward. But with a lot of things in AI, it's early days, right? And we need to improve adoption and improve value there. So we'll be working on that over the coming months and years. This slide just shows some of the exchange clients we've got on a map. So as you can see, we've been very successful in the Americas with BMV, ICE were the original client, never a massive contract with them. We're never expecting it to be. Toronto have now taken up. And we've got high hopes in a very large exchange, good relationship there, and we will move that forward as they get regulatory approval on their site. Kraken, the first crypto exchange, JSE and then we've got ASX. So as you can see from the map, we've still got a long way to go in terms of geographies that we can win with new Exchange Cloud clients. So this slide, again, just kind of goes back to the changing commercial dynamics of the organization. We've got very different -- we've got multiple commercial models, multiple products. And I think the market has not quite understood some of the intricacies and the differences between the Exchange Cloud traditional model and the revenue share model. So we just wanted to spend a lot of time over it. So traditionally, we would charge GBP 20,000 per month-ish depending on the spec of the rack -- per cabinet per month for an exchange, and they would commit to that for 5 years. So we didn't care whether that exchange had any clients on it really, we were still getting paid. So on day 1, we turn it on, we get paid GBP 20,000 per cabinet per month, same all the way through the contract. And it became -- it's become very apparent that we now know when and how this fills, right? We know how to sell it, how to fill it. We know what we need from an exchange. We know how to market it. And this came -- the revenue share model came on the back of the Mexican win last year where they wanted to do it very early on in the sales cycle, but they didn't have budget and they had to wait to next financial period because it was quite a chunk of -- it was a decent commitment from them. So we've come up with a revenue share model in certain situations, and we will use both models, right? Primary reason for revenue share is to short sales cycles, and we've seen that already with some of the wins we already had and the wins that we will announce over the current period. But also in the long term, if the cabinet is fill or fill up, it is commercially more advantageous to Beeks. We get a bigger share of the revenue from the cabinet than we do on the old school model. Our argument and discussion with exchanges, we are taking the commercial risk. Therefore, we want a bigger slice of the rewards. And that is not a difficult argument or discussion to have. So we will use revenue share when we think the situation is right, and we'll use a traditional model again when the situation is right. But we've shown already that it massively reduces sales cycles, and we are confident with the revenue share once we've already got live and going live in the pipeline that we see on them that it will be commercially successful. And I think there was legitimately a little bit of nervousness about that. It's got an impact on how we account for it, and I'll let Fraser cover all of that stuff. So as I said, Kraken has had a very good start. Kraken are moving their matching engine and physically moving it to a different country, that will be live in November. So we've had a bit of a soft launch for them. Once they get the new matching engine live in November, we've got an environment that's sitting beside it. They're going to do a bigger launch and offer out to a larger section of the trading community. And ASX have got a very strong pipeline going forward. So we are happy with the revenue share model early signs. I wanted to use this slide and we need to do a little bit of work in this slide, but I wanted to use this slide as an example of what we're seeing, right? I'm going to use JSE as an example here. I refer to JSE a lot, but that's because they're the most mature in the Exchange Cloud journey. And what we are seeing with JSE, we hope will replicate with other exchanges. So we have a very close relationship with JSE. There's 20 or 30 touch points between JSE and Beeks every day, whether that's an executive level, project level, engineer level, onboarding level, our customers -- their customers are our customers and we treat them accordingly. So what that does is it builds a relationship, right? And what we're seeing with JSE now is other strategic opportunities that are outside of Exchange Cloud. So Exchange Cloud has gone into JSE, growing like a weed, will continue to, but we're now seeing other conversations develop. So we are talking to JSE about -- and this may or may not come to fruition, but we're talking to them about using Proximity Cloud for some of their internal workloads, i.e. the JSE are using it Proximity Cloud for some of their internal applications, i.e., not selling it to end clients. Whether there's a network opportunity there with them that we're jointly working on where there's an ability to put a network that will connect Johannesburg and their DR data center out to the wider financial ecosystem that sits in New York and London and there's a conversation around that. One of the most interesting things, and we always hope this has happened with Exchange Cloud as JSE have now got a bunch of clients using the platform very happily, right? It's been a major success for them. But these banks and brokers don't just have infrastructure in Johannesburg. We are hoping to close in the first in the next quarter or so, our first direct contract with a major South African bank for infrastructure outside of South Africa. So they will contract with that with Beeks directly rather than through the JSE for infrastructure in New York, London or Asia Pac, and we've got a couple of these conversations at a very advanced stage. We'd always hope this would happen like people get familiar with the platform, they get familiar with the support model. They don't want to do infrastructure themselves. People want cloud for everything. We are starting to see that on some of the larger banks in South Africa. And if we can replicate that in the other exchange regions as we go forward, that gives us another material commercial opportunity that sits outside of Exchange Cloud but as a direct result of the successful implementations we are doing in these exchanges. I will hand over to Fraser to talk about some of the financials.

Thanks, Gordon, and good afternoon, everyone. Fraser McDonald, CFO. So I'll cover a couple of slides on financials. And apologies, I'm going to put my camera off as well because I'm in the same hotel and the network is not great. So Gordon touched on this earlier, we've been fairly consistent since IPO in terms of sales growth. So another really good year. So we're 26% up on prior year. So sales were just under GBP 36 million from GBP 28.5 million in the prior year. And the big driver within that was Proximity and Exchange Cloud. So as Gordon referenced earlier, we had our biggest ever year in terms of new wins. So we had about $19 million of total contract value wins across proximity and Exchange. And the vast majority of that was delivered within the financial year. A small part of BMV slipped into the current year, but most of that was delivered. And so when we deliver a Proximity and Exchange Cloud deal to the customer, we have to take about half of that revenue upfront, and I'll come on to that. But as the revenue share deals are going to be different there, but we take about half upfront. So that's about GBP 10 million of that GBP 19 million TCV that we signed. So really good year in terms of proximity Exchange Cloud. Private cloud a bit more modest growth. It was up 5%, and we talked a bit in the RNS about some legacy churn. That was us moving some of our legacy clients and their server licensing state was -- we changed that. And that project is now finished. So that did allow us to experience some churn, but that's legacy is one-off. We still have very high client retention. It's still around 96%. So not as healthy as previous years. But as Gordon mentioned earlier on, we've had our best start to the first quarter of the current year. So our recurring revenue is now up again to 31.5 million. So back to kind of previous growth levels, which is encouraging. In terms of profit, so I think when I presented this time last year, we talked about focusing on bottom line growth as well as top line growth. So -- and how we're doing that is controlling the cost base. And it's good to see that we've done that. So 1.5% profit margin improvement year-on-year has been good. And we've done that whilst investing as well. So the Market Edge Intelligence product that we've been developing over the period, we've expensed in the P&L. So we've improved margins whilst investing, which again is also positive. And again, if we're looking ahead, we believe there is scope across gross margin and operating margins. So the revenue share deals for us, as Gordon says, when we fill the data center space, we get a bigger chunk of the revenue on the same cost base. So obviously, the risk is on customer uptake with us. But when we see that customer pipeline and we have visibility and we can see that the demand is there, then we expect to get a bigger chunk of that profit margin across those. So that's healthy in terms of margin. I think it's maybe worth touching on the revenue recognition. So traditionally on our public and private cloud model, we always just have recurring revenue. So as we deliver the product to the customer, we recognize it monthly, you don't have this upfront that we do with Proximity and Exchange Cloud. So we've always had that nice smooth recurring revenue profile. Proximity Exchange Cloud when it's a fixed price, we have to do an element upfront. On the new Exchange Cloud revenue share, it pushes us back to recurring revenue. So again, it's a softer benefit of doing it. We're doing it for the right commercial reasons, but it will help with that upfront element, which ultimately we have to recognize because that's how accounting standards dictate that we have to. But as we do more of these revenue share deals, it should hopefully give us a smoother revenue profile going forward. And then in terms of cash, so we mentioned earlier on, a couple of years ago, we -- year-on-year, we would actually -- we were eating into cash. In the last couple of years, that's shifted. So we didn't make a huge amount of cash in the period. It was largely breakeven. However, these Proximity and Exchange Cloud contracts, you have to look at those over 4 years, 4, 5-year contract length. So what you tend to have with Proximity and Exchange Cloud is you have around about 30% CapEx upfront. So what we're seeing is you have that initial investment. So year 2, year 3, year 4, year 5 is when the cash starts flowing to the bottom line. So last couple of years has been healthier. And then as we look forward the next 2 or 3 years as we do more of these contracts and they enter into the later years of the contract, that's when the cash actually starts improving. So year-on-year, we did improve operating cash flow. Looking at the actual -- you can see quite a pronounced movement in our working capital over the period. So the GBP 4.2 million outflow in the slide. So what that is really, and I think there's some questions on this, which again, I can cover. When we recognize revenue in advance, and that's the GBP 10 million or so, that actually is accrued income. So you have an increase in our contract assets. So that's a movement of about GBP 6.8 million in the period. And then offsetting that, we had about GBP 2 million -- just over 2 million of Proximity and Exchange Cloud CapEx investment post year-end. So that was a movement in the payables. So quite a pronounced movement in the period. And as I said, over the next 3 to 4 years, that as that cash is collected on those deals, then that will start unwinding and deliver more cash to the bottom line. Looking at investment, again, probably similar to last year. So we're always buying infrastructure in advance and we put that into the data centers that we have across the world. So similar spend to last year, about GBP 4.5 million on capacity and infrastructure. And then the intangible assets is largely that cost of our internal development team. So we have a fairly large software development team where we develop the products in-house. As Gordon talked about, we are a product company. So further investment into Proximity and Exchange Cloud is what you see in there. And then again, from an overall cash point of view, we -- in the period, we repaid some asset financing. We really have very little debt in the business. So the debt we have is about GBP 0.4 million in asset finance. So we're in a net cash position of just under GBP 7 million. Again, so as we look forward, we potentially can, if we need to take on additional debt to support some of these Proximity and Exchange Cloud contracts. But we will -- as we start generating cash and potentially using debt, we should have enough to fund the year's growth, the next couple of years growth ahead. So from a cash point of view and an overall company margin point of view, we're in good financial health. Back over to you, Gordon.

Apologies, folks. Right. So what we're focusing on in the year ahead. We've been talking to investors. And again, we referenced it quite heavily in the RNS and the update on Monday. The pipeline is at record levels across every business unit within the group. So we really are conscious of it's a year of conversion, like we don't need to find any more opportunities to have a material year and go beyond the kind of forecast that are out there in the market. So we are not a software company for the majority of our business. Like when we sign a contract, we have to deliver it before we recognize revenue. So it's not just about signature, it's also about delivering the revenue before the end of the year, but the pipeline is substantial. We're looking to get the first clients sign up to Edge Intelligence. As I said, there's multiple proof of concepts on the go, some decent sized ticket sizes on that as well. And hopefully, when we do the next presentation, we can give more color on some of the wins that we would be expected to flow through by then. We'll continue to develop product. We are one of the few people in our world to innovate, right? Most of our competitors just acquire to grow. We don't do that. We build products that put IP into our business that are innovative and add value to our client base. So it's a core part of what we've done over the last 7 years since we've been in the public domain, and we'll continue to do that. And that includes product development continuing on the core products of Proximity Exchange, analytics and Edge Intelligence, and we will have new products that we will release over the coming years. And then we are looking at the bottom line, right? So one of the key things we've got in our control is headcount, right? So we are on an automation journey, right, instead of continually hiring engineering resource or technical resource, we're putting a lot of effort into automation of repeatable tasks so that we can manage that headcount. I think if you look at the headcount over the last year, it's pretty flat. We've hired a bit of experience, right, it's maybe up to overall wage a little bit, but -- we'll probably hire another 10 or 15 people over the coming 12 months to cope with the demands on the growth of the business. But the key to increasing the margins is to control that headcount, and we can only do that by automating and being clever about how we use technology. So it's a big focus for us going forward. A couple of slides to wrap it up. We're sitting at GBP 31.5 million ACMRR at the end of September. We've also got a couple of million of NRCs that have rolled over from last year. So we put us at about GBP 33.5 million after the first quarter, which is about 85% of the way to the full year numbers. So we had a very fast start to the year, pipeline is at record strength. And the market is moving in our favor, right? We are becoming the standard in exchanges. We are now getting exchanges approaching us, and it's not to talk to us, it's to buy the product, right? And that is a major shift in 2.5 years. So that -- we've still got a lot of exchanges that we will sell this to. And as I've said before, it's a 15-year annuity revenue opportunity for us. So we're early in the year, but given the strength of the pipeline, given what closed already, we are confident that we'll achieve expectations. Yes. So we're confident that we will achieve our expectations for the full year. And why be interested in us. So I think -- listen, it's not been all smooth sailing. I don't think anyone would ever say that at all. But I think there are very few companies out there that have achieved between 20% and 30% top line growth every single year for the last 8 years. So that has been a pretty major achievement. We IPO-ed a GBP 3 million turnover, right? We are hoping to do GBP 40 million plus this year. We're still not the biggest company in the world, but we have now a track record of delivering that top line growth, and we are now focusing on driving the bottom line to match that. We generate cash. I know you want us to generate more, but even look at the hyperscalers, they bled billions of dollars for years and then all of a sudden, they start generating huge amounts of cash. So we are concentrating on trying to generate a little bit more cash as we go forward. But we're still a growth company. A growth -- an IT company, a cloud computing company that has a very market-leading -- global market-leading position from the U.K. that generates cash is a pretty unusual position, right? The track record that I cannot overstate. When it comes to competition, we now have track record of delivering these mission-critical systems. And even if someone comes up with a competitive exchange cloud, why would anyone take the risk? Why would anyone take the risk of the billions of dollars that flow through our platforms every month, every second, every minute of every day that trading happen to go with a company that has no track record. So it's so important and it has now been proven in multiple exchanges. And we are looking and embracing new technologies constantly, hence the AI and ML side of things and cloud computing is still a growing area. So we are in a good space, and we are confident of prospects going forward. So I think that's all the slides we've got.

Fraser and Gordon, thank you very much for your presentation this afternoon. [Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. May I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Right. There's a lot of questions. Okay. I'm going to just start from the top. Edge Intelligence delighted you it's launched. Can you provide an update on the gross and EBITDA margins you anticipate? I mean that's a hard one, right? We've not sold the product yet, but it's software, right? So it will be a much larger margin than the infrastructure side of the business because every infrastructure deal we do, we have to buy CapEx compute networks for it. There is a little bit of infrastructure and deploying edge intelligence, but I mean it's tiny compared to the legacy part of the business. So I can't give you an exact figure, but look at an average software company, it's 70% to 80% margins at the gross level. So hopefully, there somewhere. The recent contract wins or on revenue share deals, will these contracts increase the gross margins and what are they? Fraser, I don't know if you want to take that?

Yes. Yes. I mean we hope so. So as Gordon talked through, the cost base on these revenue share deals is the same. So going from a fixed price of, I think example was 20,000 to when the rack is full 30,000. It's just a question of the timing right? Can we get it filled quick enough. So we fully expect to do that, as we said, if we see the pipeline and if it's not filling, then we give it 12 months and we take it back, right? But there's definitely scope in that gross margin because it's 30,000 from 20,000 on the same cost base.

Next one, are the other exchanges -- well, the four other exchanges you mentioned are likely to sign before Christmas? I love questions like these, because whatever answer I give, I'm not in control of this, right? We would hope we would get at least a few over the line before Christmas. But I've done this before when I said I think we will do something and I can't control when a client signs it and then you get it thrown back at you. The reality is I would hope -- I'd be hopeful at least a couple of them over the line before Christmas. In terms of contracts signed, right, you still need to deliver it, right? So the next four, you should be looking at material contributions to next year's numbers, not this, right? That's the reality of it. What are the benefits of having UberNIC switch? So I'm not going to go into huge detail on this because it's quite technical. So the network interface card that connects a server to the network stack, the default card at the moment, low latency card is from a company called Solarflare, and we use it extensively, right? But over a certain capacity, Solarflare starts dropping packets. UberNIC doesn't. It's faster, it's a low latency card by default, FPGA based. But you can get to full line rate, i.e., that means you can go to whatever the port speed is on the connection between the server and the switch without dropping packets. So dropping packets in our world is not great. So even in our experience in our infrastructure in certain workloads, we've had to move away from Solarflare cards and put up with increased latency from a non-latency sensitive card because that's preferable than dropping packets. UberNIC does not drop packets at load. So that's a very high-level explanation. You can go into the retail stuff. It's very technical.

I think next one is a question around the contract assets. So Note 14 shows GBP 4.8 million of contract assets, but only GBP 1 million of was invoiced. Why is this? And do you expect the remainder to be invoiced. So again, I think -- yes, so that's effectively accrued income. That is us recognizing revenue in advance when we deliver, right? So that's the upfront element of Proximity and Exchange Cloud. So it's revenue, it's not cash. So the cash catches up over the life of the period. So that's what that is. It's an addition to a contract asset. I think the next one is similar. I think it's the same question. So I'll miss that one. And typical time to get to full capacity on revenue share deals, Gordon. I mean I think the graph shows us 12 months, but I don't know if we've got a different view.

And it depends, right? Some exchanges will go in market before it's announced, before contracts are signed, some won't, right? So I mean, years a long time, right? I would expect it to fill quicker than that, but it will be different depending on exchanges. Some of them will potentially be filled very early because they've generated pipeline and one bank can take the initial implementation in one go. So it's a hard question to give a definitive answer to that. Fraser, do you want to take the next one?

The next one is asking about return on CapEx being low, where can it get to? So I think -- so typically for us, on GBP 1 million TCV Exchange Cloud contract is about GBP 300,000 CapEx, right? So depending on how -- if it's on the traditional model, it's over a year to pay back. If it's revenue share, it depends how quickly. But Exchange Cloud is CapEx heavy, but it's OpEx lighter. So just now on our P&L, about 25% of our cost base is on the data center cost, power space connectivity across our data center estate. With Exchange Cloud, it goes into the customer data center. So it's heavier on the CapEx and it's lighter on OpEx. So again, with that, slightly longer payback. But again, as I was saying in years 2, 3, 4, 5 is where we get the additional flow through to bottom line and cash.

How long does the equipment that you place exchanges for an exchange contract last before it needs replaced? 5 years. 5 Years. Next one?

I think next one is again, it's presubmitted on net working capital swings. I think I've explained that.