Cerillion Plc (CER) Earnings Call Transcript & Summary

Welcome to the Cerillion Interim Results Webinar. [Operator Instructions]. This webinar is being recorded. I now hand over to Louis Hall, Co-Founder and CEO; and Andrew Dickson, CFO. Louis, over to you.

Thank you very much, Tamsen, and good afternoon, everybody. First of all, we're very pleased to be presenting the highlights of our strong first half of trading for our financial '24 period ending 31st of March, I announce myself, Louis Hall, CEO; and Andrew Dickson, CFO. So first of all, for those of you who aren't familiar with the story and as a quick reminder here to others, we provide mission-critical core enterprise software to all kinds of telecoms businesses worldwide. This is a software that enables telecoms businesses to monetize the network infrastructure assets through the software that they use to onboard their customers, to create the products they sell to those customers, to manage those customers' usage of those network assets, to build for that usage and to manage the receivables arising. And we provide the software on a software-as-a-service basis, meaning that all customers share the same standard set of products, and this is, indeed, for us, a very clear differentiator in a market that has traditionally been dominated by much more tailored solutions. And typically, the software is provided over a 5-year term subscription agreements. As I said earlier, we have a global customer base, and we have every kind of telecoms provider, operator, business, whatever within that customer base. So we have everything from a fully integrated network operators, service providers through pure wholesalers, network wholesalers, usage wholesalers, messaging exchange businesses through to stand-alone mobile operators, mobile virtual network operators, mobile virtual network enablers who enable MVNOs and so on. So a very, very broad range, which gives us lots of different places in this market that we can be active and find opportunity. Just a little bit about the size of the market. So Analysys Mason, one of the analysts that cover this sector. This sector is referred to in the industry as BSS, OSS or which uses back-office support systems and operation support systems. So in this market, which is essentially the core enterprise software market for telco, we have an estimate here of relatively slow growth, 3.5% CAGR, but a market which is, as of today, around $60 billion annually. So a significantly large market, and even if we discount some areas where perhaps we can't fully address all of these markets. So for example, we don't compete in China. Even if this number was $10 billion, that would still leave us with a lot less than 1% market share. So we have a very broad space to go into organically and that gives us full confidence about the future. Little bit about competition. So our competition breaks down into these 4 main groups. So first of all, we have the large independent software vendors, and these have traditionally provided much more tailored service heavy solutions. And to the extend of the same is [ true of the ] second group, the network equipment vendors into this group, the main -- in this group, the main players are Ericsson, Nokia in the western part of the world and Huawei and ZTE out of China. Nokia, don't have all of the modules in the enterprise software suite. So it includes some of our modules and their offering. So Nokia is our partner rather than the competitor. Ericsson, we do compete with their suites and the Chinese vendors also have full service suites. The Chinese vendors, obviously, are presence in Asia Pacific market. But not really present much at all in our main European and North American markets. So that obviously helped us enormously. The next group of competitors is the smaller ISVs, small independent software vendors. And please tend to focus on the emerging markets where the competition is mainly about price and at a lower value point. So we don't really compete in that market these days. So we don't often see that group very much. And then finally, there's a newer group of players who are SaaS vendors that provide individual components within the overall picture -- within the overall product map. So for example, you might have 1 vendor providing a CRM solution on a SaaS basis, another vendor providing discharging, another vendor providing billing, another vendor providing SaaS fulfillment, somebody else doing workflow and of course, in that scenario, whilst there's the advantage of having SaaS products, software-as-a-service products, where we're talking about, again, about off-the-shelf products being easy to provide, the fact that they'll have to be made to work together was involving a -- 1 of the larger integrators makes us a much more expensive solution and makes it take much longer to get it actually delivered to the customer -- to the telco customer. So all in all, our main differentiators are the faster time to market, lower total cost of ownership of a product-based software-as-a-service solution compared to the much more expensive, much less flexible, heavily tailored service-heavy solutions that are provided by most of the competition. And just finally on the market, we do have very high barriers to entry in this space. Clearly, there's a lot of R&D required to create a new product suite. So for a new vendor to come in the market, that would be a significant amount of work. I think 20-plus years is significantly overcooked, it's probably more like 100 years. It's an awful lot of software, and it's not a lot of testing, it's not a lot of work to get that right. These other factors are also important. You need a lot of domain expertise to be able to do digital transformation and telco. And the market is always evolving. There's always another the 3G, 4G, 5G, 6G in the pipeline, it's not a stationary target. But I think by far, the most important barrier to entry is the credibility point. So given the software controls how telcos connect their customers, their networks, it controls how they get onboarded. But even more critically, whether those customers can make calls, whether they can get Internet connection, the software stops working and literally customers run up the Internet mobile force fail. So to have credibility to be able to be chosen to do this work in the space, you've got to have a track record, a long track record of continuously delivering successful solutions to telcos of all different types. And you have to be able to enable your prospects to go and see those customers so you've got to have very, very strong references and very happy customers. So a significant barrier to entry. Just moving back to the current period. So we're very pleased to see a strong set of results for the first 6 months of '24 with [indiscernible] against all the major KPIs. And I'll leave it to Andrew to go into detail on that in a moment. But I think we're also very heartened by the fact that we had a significant increase, a big increase in new orders, with our total new orders increasing by 32% to GBP 20.2 million, and that included the EUR 12.4 million new contract we signed with a new European Tier 1 logo back in November. And if you look at the chart on the right-hand side, you can see a clear trend of ever-increasing new orders, albeit we had a spike back in 2021 when the first half of '21, a lot of the orders fell into the same half period. So there's a bit of a timing issue there. But in general, we're seeing very strong momentum across new orders building. The other very positive thing for us, I think, at the moment is that our new customer pipeline increased by 20% over the first 6 months of the year. It was GBP 254 million. And I think that's really positive in a market where there has been some negativity or at least some talk of negativity. I think it's worth saying that in a market where perhaps CapEx spending by telco or network infrastructure investments, so on rolling out 5G and rolling out fiber may be under some pressure. The software we're providing as part of the how to become more efficient, how do you become more effective in the market with better, more flexible products and more flexible responses to changes in the market. So the software that we provide is, in many ways, part of how do we reduce OpEx and get more value from CapEx. I am also very pleased to announce last week that on the same days results that we had converted $11.1 million of that sales pipeline with the contract win we announced last Monday, with a new customer -- and a new and growing customer in Southern Africa. And I think with the additional resource, we've added into the North America, Central Europe, Asia Pacific, in financial '23 last year, which has also contributed to this pipeline. We are very confident about there being more signings of new customer logos in H2 and beyond. So all in all, we believe we're well positioned to achieve our targets, and that's given us the confidence to increase our dividend by 21% to [ 4p on the pound ]. So I'll now hand over to Andrew to go through the financial KPIs in some more detail.

Thank you very much, and good afternoon, everybody. So as Louis said, the first half was a very strong -- another strong period with revenue up 10% to GBP 22.5 million, adjusted PBT up 14% to GBP 10.5 million and further cash generation with net cash up to GBP 26.6 million. So going through each of the KPIs in a bit more detail, starting with revenue at the top left-hand corner, you can see that going back to 2019, revenue has increased each period with a compound annual growth rate over the 5-year period of 26%. Looking at the adjusted PBT graph, you can see the gradient of that graph is a lot steeper than the increase in revenue. And that is because over time, we have been benefiting from operating leverage, so the incremental revenue has been dropping from revenue all the way through to profit. Looking at net cash, as I said before, cash up to GBP 26.6 million, and there's a slide a little bit later on talking about that cash performance in a bit more detail. Louis already talked through the new orders, but you can see new orders up 32% to GBP 20.2 million, and that feeds into the back order number. You can see in the graph in the very middle, the GBP 47.1 million, which gives us a good amount of visibility into revenue that will be recognized in future periods. So that GBP 47.1 million is made up of 2 components. First of all, GBP 37.6 million of orders that have been contracted, but not yet recognized as revenue and we're flagging, we expect around 40% of that balance to be recognized as revenue over the next 12 months. In addition to that, there's GBP 9.5 million of annualized support and maintenance revenue. But of course, the GBP 47.1 million doesn't include the benefit from the $11.1 million deal that we announced last week. In terms of recurring revenue, the recurring revenue run rate increased up to GBP 15 million. And there are 2 components there. First of all, the managed service run rate, which you can see from the next graph, and on top of that, you've got the impact from support and maintenance, which I've already talked about. What we don't include in our recurring revenue run rate at the moment is the impact from term license renewals. So as a reminder, our typical contract is over 5 years. Under IFRS 15, we recognize the license revenue upfront when the software is available for use. And then at the end of the 5-year term period, we would -- because we've got a very sticky customer base, we fully expect our customers to renew, and then we can recognize that license revenue upfront again. We think we're showing a very prudent metric here because the GBP 15 million doesn't include the impact of the term license renewals. But that's something we're looking to address in the KPIs that we're planning on showing during the year-end presentation. In terms of adjusted EPS, this really flows from the increase in adjusted PBT. The increase in EPS for the period was slightly lower than the increase in pretax profit and that is due to the increase in the U.K. corporation tax rate, up from 19% to 25% as we had anticipated. And finally, on this slide, you can see our progressive dividend policy with the interim dividend up 21% to 4p per share. So turning to the financial highlights slide. As I said before, Cerillion has a track record of delivering strong revenue growth, high margins and good cash performance discontinued in the first half of the year. Revenue of GBP 22.5 million, the increase from the prior period, as you can see, was mainly due to an increase in software revenue, and this was driven by higher -- a higher level of license revenue that was recognized in the first half. In terms of margins, you can see the margins we delivered in the first half of 80.4% of the gross margin and 48.9% of the adjusted EBITDA margin were very high. We are flagging that in the second half of the year, we're expecting a lower proportion of license revenue to be recognized, and therefore, we would expect the margins that we report in the second half of the year to be slightly lower than in the first half. And finally, you can see again our Cerillion's good track record of cash performance with net cash up to GBP 26.6 million. That has enabled us to increase the dividend up to 4p per share. So this slide looks at cash generation in a bit more detail. And I think the thing that stands out here is the other side from the high level of license that was recognized in the first half, and that is through the increase in working capital that we see here. So working capital up GBP 3.9 million, and this is really driven by the higher level of accrued income that we see on the balance sheet. As a reminder, because we recognize the revenue upfront when the license is available for use, but the customer typically pays on a straight-line basis over the contract. What that means is as we recognize the accrued income -- sorry, so as we recognize the license, we see accrued income being recognized on the balance sheet, which will then unwind in the future periods as the cash is collected. In terms of capitalization of development costs and purchase of PPE, those numbers are broadly in line with the prior period, but you can see an increase in net interest and tax paid, that is really driven by higher tax payments due to the increase in profit and the increase in the tax rate I've already discussed. And finally, the graph at the bottom shows a reconciliation of opening that cash through to closing net cash you can see that free cash flow generated of GBP 4.7 million was higher than the dividend paid out and also the amount we spent on lease payments, and that's the story of how we get to the closing net cash of GBP 26.6 million. So in terms of the detailed consolidated income statement and really just 4 additional points to mention on here. First of all is that we continue to invest in R&D, so in the first half, we invested around 6,000 days into R&D, which was up around 17% on the prior period. We capitalized GBP 600,000 of development costs, which was broadly in line with the amortization charge. So overall, there was no net accounting benefit from our accounting of these development costs. Secondly, you can see there was a decrease in the depreciation and amortization balance of around GBP 0.5 million. This was really driven by non-repeat of GBP 0.5 million of amortization from the prior period. So this related to amortization of an acquired intangibles balance, this became fully amortized in the prior period and therefore, was not repeated. Thirdly, in terms of operating expenses, you can see operating expenses on a reported basis fell by 2% to GBP 8.1 million. If you strip out the non-repeat of the GBP 0.5 million amortization charge, operating expenses actually increased by 4%, but that is still lower than the increase in revenue of 10% that we reported. Finally, on this slide, you can see the increase in the U.K. corporation tax rate, up from 19.7% to 22.8%, and that was mainly driven by the increase in the U.K. corporation tax rate. In terms of the consolidated balance sheet, I think the key point here is that the balance sheet remains incredibly strong. Net cash again, up to GBP 26.6 million. There's no debt on the balance sheet, and there was an increase in net assets of 34% versus the prior period. As we anticipated, there was an increase in accrued income versus the period, which is included within the other receivables balances. So accrued income at the end of March was up to GBP 19 million, which was GBP 3.9 million higher than it was at year-end, and the increase, as I said before, was linked to a higher proportion of license revenue that we recognized in the first half. Finally, in terms of the consolidated cash flow statement, this is mainly here for reference, but it shows a detailed reconciliation of profit down to the closing net cash balance. But I think all the key points have been discussed on the previous slide. Back to you, Lou.

Thanks a lot, Andrew. So just to close off with some operational points. As Andrew said, we spent just over 6,000 man days on R&D in the first half of '24. And the main focus for us, there have been around AI support for the creation of new products and new business processes in our software suites, and that has been attracting a lot of attention with both prospects and existing customers and that demonstrates the potential of AI to make quite large improvements to how telecom businesses manage their key offerings. And also a lot of work going on improving our digital experience tools. So these are the tools that our customers, the telcos use to communicate with their customers through online software-as-a-service, mobile apps and so on. And there's a lot of focus across, I think, many, many sectors on improving that experience as more and more business, more and more B2C business is done online direct with customers through to digital channels. And in addition to that, on the -- equally important, I think, in terms of use of AI to improve software development. So to make that more accurate by using AI tools to generate source code, for example, and to generate the test we use to test that software and to run the test that we then generate automatically for our software. But I think the accuracy, the improved accuracy where we will get as we go forward from using AI in the development space, as well as the improvements in productivity will be significant factors in our industry. So it's very important we stay on top of that. We've also, as reported to earlier, added additional sales resources in North America, in Asia and in Central Europe, and we're seeing the benefit of that come through into our pipeline. So we're very pleased with that progress. In terms of international basis, our main bases remain U.K., Bulgaria and India, with sales presence in the U.S. in London, in Brussels, in Singapore and Sydney. But in the last 6 months, we've created a full subsidiary now in Bulgaria because we see that as a growing office for us, a growing staff base for us, where we're focusing on people with delivery skills and with support skills, particularly important to our EU customers, a number of whom now require us to have support provided from within the EU and we've recently agreed terms for a larger office, much larger office there to enable us to support that expansion. Similarly, in Singapore, when the prices are creating a full subsidiary to support our sales presence there and then finally, a couple of quite significant projects that got finished in the period. So in March, we completed the migration of all of the customers as the main telecom survivor in the Seychelles, CWS onto our new platform and bringing that project to a very successful conclusion. And then in Suriname, we also completed the migration of the fixed wire base. We've completed the migration of mobile base last summer. So this was a completion of that project in full. And again, Telesur is the main telecom provider into traditional PTT. And right, okay. Bear with me again while I [ sit ] for a few slides. So in summary, as Andrew explained in detail, we've seen very high very -- strong results from all the key KPIs. We're confident that the demand of the market is out there that it remains strong, particularly for Software-as-a-Service offerings such as ours where we think we have a very important differentiator. We've come into the second half of the record new customer logo pipeline. And again, just this week -- or sorry, I mean last week now announced that we converted another prospect into a contract win. As Andrew has reinforced, we have a strong base on balance sheet, and we believe we're very well positioned for current market expectations, both in '24 and beyond.

[Operator Instructions] Can you provide an update on how the implementation for the Tier 1 European telecoms customer announced in November is progressing? And if possible, give an indication as to when they're expected to go live with the Cerillion solution?

Sure, absolutely. So that project is progressing very well and work has actually started before we signed the contract. And that should go live in terms of initial customers in November this year with a gradual phase migration of the entire base over the next few months.

And the operating margins have increased from 11% in 2018 to 41%, great work, well done. Is the current level sustainable? And is it possible it might increase even further?

So I think as I said, the margins that we reported in the first half of the year were buoyed to some extent by the high proportion of license revenue that we've recognized. I think looking through to the second half of the year, we are expecting that to be slightly lower, and therefore, we really expect the margin for the full year to be slightly lower as well. I think the reason why the margins increased so much over the past few years is because we have been winning larger contracts with larger customers. And what that meant is that we have benefited from operating leverage as the incremental revenue from the larger contracts has dropped through to profit. On the sort of short- to medium-term basis, we are sort of guiding the market that our expectations would be for adjusted EBITDA to be in the region of 40% to 45%. But I think on a sort of medium- to long-term basis, as we hope to continue winning these larger contracts with larger customers, we would expect the margin to tick up further due to favorable operating leverage.

And cash conversion appears to have declined since 2020. This is according to share pad, operating cash conversion has reduced from 246% in 2020 to 67% in the last 12 months. Similarly, [ ROCE ] has reduced from 23.8% to 13.5%. What are the main reasons for this? And when do you expect this negative trend to end and cash flow to improve?

Yes, it's a good question. So I mean, in terms of the reduction in cash conversion, I think as I tried to explain before that, but we have seen an increase in accrued income in the current period. But the other side of that has been seen through the very high margins that we've been delivering. So the benefit from that, so we've got GBP 19 million of accrued income on the balance sheet at the moment. Of course, the benefit of that is that in future periods, we're going to get cash. We fully expect the cash to be received from our customers, so we'll be getting cash on the balance sheet at the moment for no profit. So that will benefit us in future periods. In terms of the [ ROCE ] performance, I mean, we have been increasing our cash on the balance sheet. So cash was GBP 26.6 million as at the end of the period. So cash has been building, so that has had some impact. What we're finding is actually is very helpful to have a high proportion of cash on the balance sheet when it comes to winning new contracts. So 1 of the first questions customers often ask us is what does the balance sheet look like? So if a customer is going to sign a 5-year contract with us, I think it's very helpful to be able to show them, we've got a high proportion of cash there and hence, we're going to be a going concern because the last thing they want is to sign a long-term contract with someone who they think may be at risk of going bankrupt. So the cash -- the high level of cash is very helpful when it comes to winning these larger contracts.

And in the same vein, do you think investors appreciate that your cash flow is always going to lag your profits by about 2 years because you credit your profits up to 5 years before the cash is received?

Yes. I mean it's a good point. I mean I think we've been clear, our policy is to recognize in line with IFRS 15, we do recognize the license revenue when it's available for use by customers, but a typical contract, which is at least 5 years. So we do have some contracts, which are longer than 5 years, but a typical contract is 5 years long. Customers pay on an equal basis over 5 years, and therefore, there is typically a lag between recognizing the profit and the cash coming through the door.

I think it's also worth pointing out that, that's only true for the term license element or the subscription piece customers pay sort of typical new contract, new customer contracts that's about 25% to 30%, maybe 35% of that order. The rest of the revenue, the services revenue to deliver the solution is recognized on a project completion basis during the course of the project. So -- and that's generally in line with cash flow and because the cash flow, but that is based on milestone payments, project milestone payments, and the services of [ APO ] within subscription fees or support and maintenance line of services, hosting. That's all recognized on a straight-line basis over the full course of the term. So I don't think we should kind of overrate the point about the forward recognition of profit versus cash.

Very helpful. And how do you manage the workload when it comes to installing systems for new customers versus the sales that have been agreed. Is there a long lead time? And if so, how will you be reducing it?

No. I mean, we -- it's certainly the case that different customers want to move at different speeds. So some customers want to get the solution implemented as fast as [ assuming ] possible others more risk averse, want to take more time and do things more gradually. So there's a sort of a natural ability to control, manage our load within that. But also, we have a lot of R&D going on most of the time when we have the ability to switch staff from R&D into project work in the short term, if we need to as a way to manage demand. There's also quite a large number of certainly an alumni out there and our people have worked at Cerillion over the years and might have moved on to go contracting whatever. And so we have ability to call back in some of those people. And we also have a number of different integrator partners who have worked around Cerillion projects now or been involved to some extent. I think as we work with more of these larger customers, we'll have more contacts with those organizations, they'll be involved in more of our projects, we're passing on more skills. So the ability to find other people who can do work that we can't do or our aim is increasing. But generally speaking, we're set up to manage 4 or 5 large implementations at any 1 time. And typically, there's 1 or 2 things that are coming to an end, something new starting up. So for example, we just completed these 2 quite large projects in March and April, that was describing earlier on that we have the new ones that are taking over those resources. So there's a lot of levers we can use to deal with that. So I would not say proper opportunity.

And is there a geographic region where you're most optimistic about growth and capturing market share?

I think Europe is still, by far, the strongest telecoms market. There are just a lot more different types of telcos, more diversity, more opportunities to get into different areas, you've got power companies at the telcos and a whole range of different business models operating in Europe that just create more businesses. So I think it's hard to see Europe not remaining the strongest market. But I think there's a lot of space for us to expand in Asia and also in North America, where I think there's more opportunity and there has been for a long time. So yes, strong in Europe, but room to do more in Asia and North America.

And total operating costs, including depreciation and amortization in half 1 '24 was flat versus half 1 '23, I am inferring from Cerillion's forecast that half 2 '24 will grow by about GBP 1.5 million. Have I misinterpreted Cerillion's forecast? Or are you expecting extra cost in half do?

I don't think we can comment specifically on Cerillion's forecast. I mean I think 1 thing we can say is that in the first half of '24 versus '23, we have benefited from the nonrepeat of the GBP 0.5 million amortization impact. I think every time, we are expecting operating expenses to continue to go up because we are growing, we're continually recruiting more heads in all of our offices, albeit we are recruiting proportionately more people in India and in Bulgaria. And of course, the average cost per head in those regions is lower, significantly lower than in the U.K. So overall, that has been very helpful in terms of increasing our margins.

And do you have any concerns with regards to scaling up capacity to support new contracts or customers?

Not really. I think the reason for that is -- a couple of reasons why we're okay with that. One is that when we sign larger customers, and then they're larger because they've got more end customers. So they've got more millions of mobile users or whatever. The services work involved in putting those solutions into service is not proportionately greater. So it's a bit harder to work with larger customers on larger contracts, but it's not a straight line in proportion increase. So as contracts get larger and customers get larger, we don't think we need massively larger teams. Bear in mind that what we're implementing is the same product on each customer -- for each customer. So it's not as if we're having to customize software, write new software, we're generally just configuring. So that gives us a much better starting point. I mean the second thing is, as I said before, as we work with more partners in time, we expect partners to start delivering solutions under their own planned contracts. And obviously, our longer-term goal is to grow software as a more substantial part of the revenue mix. And to do that, we need to do less of the implementation work and more focus on providing the software and earnings to software subscriptions. So that I think, is a natural evolution that we will see as we go forward.

And you've slightly covered this, but just to clarify, can you explain what your one-off revenues are and what makes up recurring income?

Yes. So in terms of recurring revenue, first of all, I mean, the recurring revenue KPI that we talk about is mainly made up of 2 components. One is the support and maintenance revenue run rate. And then on top of that, we've got the managed service run rate. So that gets to the annualized run rate of GBP 15 million that we show in our KPIs. As I said before, that doesn't include the impact of term license renewals, but we are looking at including that in our KPIs that we're going to plan on showing at year-end. So I can't remember the first part of the question.

Can you explain what your one-off revenues are and what makes up recurring income?

Okay. So I think I've answered the recurring income part. I think the other piece refers to the other revenue that we talked about. So we had GBP 1.8 million worth of other revenue in the period. So this is mainly third-party revenue. So this includes things like third-party licenses that we include in deals to our customers. So we purchased the licenses and these are sold on to customers as part of the deals.

And what's the average length of the contract on those recurring revenues?

So I don't think we actually disclose the average length of contract. I mean we have -- the typical contract length is 5 years. We have announced longer contracts in the past that there are contracts sort of 10 years or so long. But the average contract that we sign is over a 5-year period.

And you've covered this, too, but it has been asked. Can you explain your revenue recognition policy?

Sure. So there's really -- when we sign a new contract, there's really 3 main components to it. So first of all, we've got the license element. Now our accounting policy in line with IFRS 15 is to recognize that upfront when the software is available for use by the customer. Secondly, we've got the implementation revenue as part of the initial contract. Our policy on that is to recognize that on a percentage completion basis over the life of the contract -- sorry, over the term of the implementation, which is typically over a period of sort of 12 to 18 months, and then the third point is everything else is support and maintenance and managed service revenue. So this is recognized on a straight-line basis over the term of the contract.

And at this stage, the last question is, can you explain the increase in long-term receivables, please?

Yes. So this is mainly driven by the increase in accrued income. So again, it comes back to the point on a higher proportion of license revenue being recognized. So our accounting policy in line with IFRS 15 is to recognize the impact of license renewals, when the contract renewal is signed. So you recognize that at the point that the renewal is signed, albeit in some cases, it means that the cash will be received starting in future time periods. And I think this is what explains the increase in noncurrent receivables that you see in this industry.

And another question here. Are there any where license element has been rolled into a classic SaaS model of monthly recurring payments. And further to that, do you anticipate on a 5-year view, Cerillion will mitigate most of its business away from the upfront license model towards a recurring SaaS model?

So in terms of the way that we recognize our revenue, as Louis explained, I mean, our policy is to recognize the license revenue upfront when it is available for use by the customer, albeit our contracts are structured in a way that customers make subscription payments, which are typically in equal installments over the term of the contract. Since that is our policy for recognizing license revenue for all of our contracts.

So I think the way we treat licenses bound up in the IFRS accounting rates. And that is just the way we need to do it. But it is essentially -- it is a SaaS model. And that bear in mind also that the license element is not visible to the customer separately. And a lot of the overall subscription fee is recognized on a monthly basis. So in a way, Andrew described in terms of the support and maintenance element, the managed service element and the hosting costs, which are not, again, not breaking out to the customer or visible the customers that treated by us on a pure recurring basis internally. Hopefully, as Andrew said, when we get to the year-end, we'll be able to show a metric, which takes account of the term license renewals, which will give a truer picture of the true amount of recurring revenue in the model.

And are there provisions for a pricing review inflationary or otherwise, on long-term SaaS revenue contracts during the period?

Yes. Most of our contracts include indexation clauses. So clearly, that has been very beneficial in past years when inflation has been high. So typically, we do pass on those indexation increases sort of each year during the life of the contract.

Great. And that's the end of questions. Louis, do you have any closing remarks?

Just to thank everyone for joining. I appreciate your time to listen to us. I think we're -- the main -- I guess, the main takeaway with Cerillion is that we're in an extremely strong market, a large market where we have multiple entry points to find prospects and opportunities across this very diverse space within telco. And we have a unique proposition. We're offering the Software-as-a-Service solution, single product for customers, much shorter time to market, much lower total cost of ownership, much more flexible to use in being a product solution, but also much more flexible to upgrade in that we can actually grow in seamless upgrades, whereas in this industry, a lot of telcos are only able to upgrade every 4 or 5 years or so. So all in all, we think we're very well placed in this market and there's a great future ahead. Thank you for joining.

Great. Thank you very much, Louis and Andrew. And to all listeners, you'll now be taken to a web page to give feedback on today's presentation. If you can't complete it now, you'll get a follow-up e-mail. We'd be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.