Cerillion Plc (CER) Earnings Call Transcript & Summary

Welcome to the Cerillion Full Year 2024 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.

Hi, [ Thompson ]. We can't actually see who's logged in. Is it possible for us to see who we're talking to?

I'm afraid you can't because you're on a separate -- you're on a separate log in, but I can tell you, you've got 40 people so far.

Yes, I guess it'd have been good to know the names of all [indiscernible].

I can send it through to you.

All right. Well, good afternoon, everyone. A little strange speaking into a completely disembodied world, but we'll give it a go. So thank you for joining the webinar. I'm Louis Hall, CEO of Cerillion, founded it back in 1999. I presume at least a number of you have met us before and heard the story whoever you are. But for the benefit of those who haven't met us and don't know the story, I will give some background to who we are and what Cerillion does. So as I said, I founded the company back in 1999, in the middle of the dot-com boom as it was then. As an MDO from a large U.K. software house called Logica, which no longer exists in its own way, but it was quite a force in the software world in its day. And we went out into the market rate prior equity funding, build to customer base, rebuilt the product sets a number of times and eventually IPO-ed in 2016. And since then, we've carried on building the business and gradually built business with bigger and bigger customers and gain momentum, and we are where we are today. I'll just -- given the interest of time, I appreciate you have got a lot of time to cover quite a lot of ground. I'll just do a quick intro of Andrew. So Andrew has been with us since I think nearly 3 years in January and replaced the sort of founding stage CFO. He retired 3 years ago coming up in January. So moving rapidly on. Before we go into the highlights of the period, in terms of what we do, so we provide what we would call variously CRM and billing software or BSS and OSS software for those familiar telecoms acronyms to telcos globally. And in terms of what that -- what does that actually mean? So the software we provide essentially connects telcos network infrastructure, so their investments in mobile networks, in base stations, antenna, fiber cable, all of that stuff, whether it's fixed mobile, broadband, TV, whatever, to their own customers. So the glue in the middle that enables telcos to monetize the network infrastructure is the software that we provide. And that covers everything from defining the products that telcos sell to their own customers through to onboarding of those customers, whether it's through CRM, through call centers or through retail outlets or through digital customer experience, so our customers are serving themselves online through mobile apps and so on. Once those products have been sold and those customers have been onboarded, our software then connects those customer services to the network. Our software then manages those customers' usage of those services through our real-time charging platform, maintains balances, authorizes calls being made or online sessions being started and so on. And once we get to the end of the billing periods, our software will generate bills and dispatch days electronically or in whatever form customer preference is. And then, of course, once the bills have been received, we handle the receivables, what happens if people don't pay credit control, et cetera, et cetera. So a very broad range of software, which is right fundamentally at the heart of how telcos where their businesses. So it's not nice to have. It's absolutely critical to only telco being in business. And we deliver this through a suite of modules, different modules addressing different parts of that functional space. And we do this against a completely industry-standard backdrop of defined -- defined domains. And as you can see from the diagram, our module, which are the boxes cover all of the domains, the -- what we call the BSS, OSS space encapsulated. What I mean by that is what I've just described, that's essentially what we mean by BSS, OSS or business support and operational support systems for telco. When we do that, I guess, fairly uniquely on an as-a-service basis. So this is -- this means that all of our customers receive the same software. So we don't start with a sort of product framework or previous implementation and then going customized to order that particular version for the next customer. We supplied a standard product out of the box to every new customer. And without changing code, we then configure that solution for the customer to input their products, their tariffs, their business process, workflows, their credit control processes. Everything you can think of that will be involved in running that telcos business is configured, not hard-coded. And that's a key differentiator between us and the other main players in the market. And of course, because the product we have is out of the box and works on day 1, there's a massive reduction in terms of long-term cost of ownership in terms of how fast it takes to implement the solutions and time to market. And it gets to all customers share the same product, it's much more flexible in terms of implementing upgrades on a regular basis going forward. And indeed, customers on our Evergreen program can receive upgrades twice a year, which is -- may sound like a long time compared to iPhone updating itself but in our industry, that's quite incredible where typically platform will only be upgraded once every 5 years. So it means that all of our customers have the potential to benefit from all of the R&D we do, which is quite extensive. Okay. In terms of geographical coverage, we -- as I said, we sell to telcos all over the world. We have around 80 different customer installations in 45 different countries at the last count. And telecom is one of the great things about -- a telecom is a truly global business. And the software that we sell in the U.K. is the same as software we sell in North America, in Asia, Australia and so on, with all of these telcos around the world are working to the same industry standards. And that obviously means that we have a truly global market. In terms of how that typically breaks out around 55% of our software this year, last financial year, 56% is -- sorry, about revenue is in software and a bit less than half of it is in services. And the services are typically implementation services to put our software live, which will involve quite large projects to understand the detailed requirements of our telco customer in terms of the things I mentioned, the products they want to sell, which can be incredibly complex in many cases, and how they want to do that, how they want to engage with the customer and so on and so on. So quite a lot of services involved still, but we're predominantly a software business. A lot of our business is in Europe. Europe is probably the most dynamic telco environment in the world. There are all kinds of different telcos in Europe and just a lot more different countries with different registry environments that require different independent telcos. So that's a rich environment for us. But we also sell our business in the other geographies. And often, you'll find that some of these other geographies are more active than others. But Europe is always around half or more of our business. Another key fact about Cerillion is that a lot of our customers have been with us for more than 5 years. Most of our customers have been with us for more than 5 years. Some of our customers have been with us for 20 years. So it's a very sticky customer base. It's quite rare for us to lose a customer. Once we've won them although they're quite long sales processes, typically 9 months to 12 months, maybe even a little bit longer, we keep them for a long time. Another key fact is that a lot of our revenue does come from the existing base. This year, it was 85%, but it's often in the high 90s. So it just demonstrates how -- how important that base is and how productive it can be. And in terms of our main operating basis, we have around 360 people at the moment. HQ in London, we have about 120 in India in the main office in Pune and satellite offices in Indore and on top of that, we have about 210 or 220 people at the moment. And we have an operation in Bulgaria in Sofia, where we have about 30 people, but with recent [indiscernible] are looking to grow that to 100 or so quite quickly. We also have sales presence in North America, in Brussels, in Sofia as well now, in India, in Singapore and in Sydney. So quite a broad wide spread of sales presence geographically. And then what I'll do is I'm going to go back to -- that's an overview of what we do and where we are, how we do it. I'll give a quick run through a couple of highlights, and I'll hand over to Andrew to go through the results from financial '24. So first off, we're really pleased to have achieved new highs against all of the key financial KPIs, particularly adjusted PBT up 18%. Again, Andrew will go into more detail. But we're particularly pleased that our new orders total was up 21% to GBP 38 million, GBP 38.1 million. Obviously, that's important for 2025 that we achieved a reasonable hike in sales in '24. Underpinning that with 2 major new logo wins, the win with Virgin Media in Ireland that we announced back in November last year, a significant new signing for us Tier 1 player where we're doing absolutely everything in that territory, mobile, fixed, broadband, B2C, B2B, et cetera and replacing a strong competitor in the market, but 1 of the traditional competitors that will typically deliver a much more tailored bespoke solution. And that was essentially a logo win where there was a desire to go to a more cost-effective solution that was more modern in terms of it was SaaS-based rather than bespoke based and much more flexible in terms of [indiscernible] for the customer to introduce new products to market without vendor intervention to change configuration without code having to be changed. The second new logo win in Southern Africa that we announced back in May is with a quite a different kind of business, less mature but very much kind of up and coming and growing providing a very broad range of connectivity across 7 countries in Southern Africa. So not just South Africa and Libya or in -- and so on but also going to Botswana or to Angola. So a very broad geography, lots of space to expand into with their existing fiber and satellite businesses, but we've now invested in 5G mobile, and that was a trigger for bringing in Cerillion because this was a kind of growth-based driver where they were investing heavily in new mobile 5G network. Needed a new platform to support that, but also one that could combine all the other services that they were providing. We had the connectivity they're providing on the same platform. So that was a reason for selection there. And I think even though we took out deals, we took out value from the pipeline, the sales pipeline by winning deals, we also saw that new water pipeline, new logo pipeline grow 8% again to a new record GBP 262 million. So I think, in general, we feel that we're well positioned for '25 and very confident about the year ahead. So I'll just hand over to Andrew now, who will talk to the details, also KPIs in some more detail.

Thank you very much, Louis. So as Louis said, overall 2024 was another very strong year for Cerillion with most of our KPIs at record levels. We saw continued revenue growth, higher margins and further build in net cash. As you can see from the graph at the top left-hand corner, over the past few years, we have demonstrated continued strong revenue growth with revenue growing on a compound annual growth rate since 2019 at 18%. In 2024, revenue grew by 14% on a constant currency basis to GBP 43.8 million. At the same time, adjusted PBT increased by 18%, up to GBP 19.8 million. This reflected strong operating leverage from a high level of license revenue dropping all the way through to profit as well as improved operational efficiencies and continued focus on cost control. You can see the graph at the top right-hand corner. Over the past few years, we have performed very strongly in terms of cash conversion as well. So cash was up by 21% to GBP 29.9 million and I'll talk about cash in a bit more detail later on. In terms of recurring revenue, recurring revenue increased up to GBP 15.5 million. And again, the compound annual growth rate since 2019 has increased by 24% each year. So over time, recurring revenue has been growing at a faster rate than total revenue, and therefore, Cerillion has been becoming a better quality business. There are 3 main factors going into recurring revenue? First of all, we've got support and maintenance revenue, we've got managed service as well as recurring third-party hosting and hardware revenue as well. Through out the bottom left-hand corner shows the back order. So the backorder grew slightly up to GBP 46.9 million and that number is made up of 2 components. First of all, GBP 37.7 million of orders that have been contracted. And we estimate that around 45% of that balance will be recognized as revenue by the end of financial year '25. On top of that, we've got GBP 9.2 million of annualized support and maintenance revenue. And therefore, we have a decent level of coverage looking into financial year '25. At the same time, the graph in the very middle shows the new customer sales pipeline. So the new customer opportunities are up by 8% to GBP 262 million, So we think there's a very healthy value of opportunities to go after. And hence, we believe we are well positioned to continue to deliver future growth. As Louis said, new orders were up by 21% in the year to GBP 38.1 million, and that included the impact of 2 new customer wins during the course of the year. Finally on this slide, the dividend per share at the bottom right-hand corner, we have a continued progressive dividend policy with the dividend per share up to 13.2p. Okay. Over the slide to the financial highlights. We can see that revenue grew up to GBP 43.8 million and that was driven by growth in both software revenue, which was driven by higher support and maintenance revenue as well as higher license revenue and also services, which was driven by implementations for a number of existing customers. You can see that there was a good increase in the gross margin with a margin increasing by 1.8 percentage points to 80.5%. This was due to 2 main factors. First of all, the continued high proportion of license revenue. And as you know, a higher proportion of license revenue means that the incremental revenue drops all the way through to profit. And hence, that helps to increase the margin overall. On top of that, we did see an increase in operational efficiencies as well, which was mainly due to an improvement in the services day rate on key implementation projects. You can see that the adjusted EBITDA margin remained very high at 47.4%. So this included the factors I just talked about going into the gross margin as well as a good focus on cost control. During the course of the year, we increased head count in all of our main regions of the U.K., India and Bulgaria but by continuing to recruit strongly in India and Bulgaria where the costs are a lot lower per head, we actually managed to broadly maintain the average cost per head in line with the prior year. Okay. Over the slide, we'll look at cash performance in a bit more detail. Okay. So the table at the top shows a reconciliation of adjusted EBITDA down to free cash flow. You can see that during the course of the year, there was further build in working capital, which is broadly in line with the prior year. Just to reiterate, the increase we saw in the prior year was fully attributable to an increase in accrued income which was linked to the high proportion of license revenue that we recognized. But the GBP 6.1 million of working capital, there was increase in 2024. About half of that was due to accrued income, and the rest of it was due to the timing of receivables and payables. The graph at the bottom shows a reconciliation of opening net cash to closing net cash. I think the key point there is that free cash flow of GBP 9.7 million was significantly higher than the amount we paid out in dividends and lease payments, hence the closing net cash balance of GBP 29.9 million. Over the slide to the detailed income statement. There's really 4 additional points to mention here. First of all, is that we continue to invest in research and development. So during the course of the year, we invested around 13,000 days into R&D, which was up by 17% on the prior year. In the year, we capitalized GBP 1.3 million of development costs, which made up around 65% of the total spend. Secondly, as you can see, operating expenses increased by 8%. This included further investment in heads as well as inflation and also some impact from unfavorable FX due to strengthening of sterling over the period. You can see that the depreciation and amortization balance fell by GBP 0.5 million. This was mainly due to the nonrepeat of amortization of acquired intangibles from the prior year. So this [indiscernible] became fully amortized in the prior year as we flagged this time last year, and hence, the GBP 0.5 million amortization charge was not repeated in 2024. We are flagging that in 2025, we do expect this balance to increase again by GBP 0.5 million or increase by GBP 0.5 million due to the impact of a new lease that we have signed in Bulgaria, whereas previously we were operating through a WeWork type arrangement. But in September, we moved into a new facility, and we're also expecting to sign a lease renewal on our office in India as well. Finally, on this slide, you can see there was an increase in the effective tax rate. That increased from 19%, 19.7% up to 22.5% and that was mainly driven by the increase in the U.K. corporation tax rate from 19% to 25% in April 2023. So hence, in financial year 2024, we got a full year impact of that higher tax rate. Okay. I think the key point in terms of the balance sheet is the balance sheet continues to remain very, very strong. You can see net cash at GBP 29.9 million, and there was an increase in net assets over the year of 31%. As I said, there has been some increase in accrued income over the year. So accrued income has gone up by GBP 3 million, but this should lead to greater cash collection in future years. And finally, the consolidated details, cash flow statement really just here for reference, this is more of an appendix slide because I think the key points have already been mentioned on the previous summary slide.

Thank you, Andrew. Great. Looks okay. So conscious of time. So just a few points on operations. So during the year, we are very pleased to have completed 2 big implementation we've been working on from the previous year. So we finally finished the second phase of the project with Telesur and Suriname to migrate all of their fixed wire base having previously migrated all of the mobile base across the Cerillion. So this is -- I think in Telesur is I guess, the BT as it was the main telecom provider of everything in Suriname, [indiscernible] small country, but Telesur has to do everything that France Telecom would do or BT or whatever. And that was quite a complex project, and this is a good customer for us going forward. Also, a really small country, Seychelles, we completed in 1 shot in 1 single phase, the migration of everything in the Seychelles. Again, CWS is the old cable one of Seychelles. And essentially, they're very similar to Telesur and they provide all the services to all the customers pretty much in the islands. And obviously, a lot of that sort of high-value tourist business and so on. So quite a complex project and that one also we completed back in May. So that was an important project completion for us. And the new projects that we're working on with the new logo wins is Virgin Media, progressing very well, as is the projects in Southern Africa. So with Virgin Media, we're expecting to have that customer live in the first quarter of next year. We've already done most of what we need to do. But because this is a Tier 1 customer, there's a bigger program around us that we're now waiting on for final completion into go-live. The customer in Southern Africa, we only signed in May, but we expect to go live in March next year. So they're very much in a hurry and that obviously helps a lot in terms of our ability to implement quickly. Just a few words on R&D. So we spent 13,000 mandates on R&D in 2024, financial '24, an increase over 2023 where we spent 11,000 days. To put it in context, that's equivalent of about 60 people full time just doing R&D during the year. And one of the key things we introduced, which came in with our 24.2 release in October, is a new composable customer self-service module. So it's all about what we call digital customer experience. And it's a big thing in the industry right now. So telcos are very focused on getting customers to work to their digital channels. And I guess for 2 reasons. One is that if more customers that can take away from call centers and from retail outlets means more cost savings, but also increasingly having a very slick digital channel. So that means self-care, online self-service and mobile apps increasingly. It's important in terms of not just winning customers because if a customer has a sleep digital experience on your website, they're more like to sign up with you as opposed to the next competitor's website, but also in terms of churn, reducing churn. So when a customer needs something, it is easy to solve that problem via the online channel then you're more likely to retain that customer. So it's a big issue for telcos right now. And one of the challenges that we have as a product supplier is that it's one of those areas where telcos do think they need a specialist customized solution. And so to be the -- so with our strategy of [indiscernible] provide the same product to all customers, that was proving a bit of a challenge. So what we've now created is essentially a studio environment where customers can compose their own self-service. So the previous inclination of this customers could change the colors on the screens, the graphics, the fonts, they can move things around on screens. So they create very different looking environments. But essentially, the structure of the interaction, the flow through the sales process and so on was pretty fixed, whereas now you can -- customers can in a kind of graphical user interface environment, change the flow, change the structure completely, bring in third-party fees and third-party cards, as we call them or essential certain windows into other platforms that can then be configured to do different things. So a hugely more flexible environment that does enable telcos to take a standard product, which is a massive cost saving, and create their own unique digital environment from that in that product environment. And this is something which telcos often spend millions and millions of dollars on to create their own very unique environment. But because they're not using products to be a studio environment, they're using specialist website trades and so on. That's a hugely expensive undertaking, not just to create a thing in the first place, but to keep it up to date and to change it when new products come to market or new ways to operate in the market evolve. So this has had a lot of very positive feedback from our customers. And I think it's a really important thing that has launched in wealth at the start of our plan to '25. In terms of -- just to wrap up the presentation part and hand over to the floor for questions. I mean we -- as I said at the beginning, we're very pleased our total new orders are up 21%, giving us GBP 38 million of new orders to work on not just last year but into this year as well. And as talked about the back order, and we've spoken also about the strong and growing pipeline. And I think in general, just a quick word on the trading environment. The I think that to the extent that there's a squeeze on CapEx and telco, there's quite a lot in the press about this. And certainly, we're seeing telcos under cost pressure. The fact that we are the solution that reduces total cost of ownership that is more efficient to maintain going forward that enables consolidation and multiple bases onto a single platform that actually works in our favor to a large extent. So the deal we won in Virgin Media that we are saying earlier is a result of that driver in the market. So we don't just win when there's lots of investment as in the Southern Africa case, new investment going in. We also win as a need to consolidate and reduce costs. And Andrew, as Andrew just said, we have a strong balance sheet, strong cash flow, increasingly high recurring revenue. So all in all, in summary, we feel pretty well positioned for the future. Whatever it may bring in this somewhat certain world. And with that, I think it's over to [indiscernible] with the questions.

[Operator Instructions] Your new business pipeline stands at GBP 262 million. That's a very significant level of new business. What's the shelf life like, so to speak, of the individual opportunities?

It's a good question. So they are quite long sales cycles in telco. And I think I've shared earlier, 6 months will be quick. 9 months it's more normal, 12 months sometimes that will stretch to 12 months, sometimes even longer. And so the shelf life in the pipeline depends on how fast that process is. We don't keep opportunities in the pipeline indefinitely. So if there's a big delay in the telco says, well, okay, we're not going to look at this now this year, we going to look at this next year and wait for a new budget, then we take it out the pipeline. But obviously, this can be in that pipeline for easily 12, sometimes 18 months.

Great. And if the sales pipeline qualified leads? And if so, what percentage historically convert to sales?

So the pipeline -- the sales pipeline does -- although it's not an exact science. There is a lot of structure. So opportunities only come into the pipeline if that what we call sales qualified. So the marketing funnel generates a lot of leads and potential opportunities, but the sales team will engage with a fairly rigorous qualifying process based on do we -- is there a budget? Is there a compelling reason for the customer to do something? Is there any particular reason why they wouldn't look at our kind of solution and so on and so on. And I think at that point, there's that opportunity into the pipeline. And in terms of the win rate, we don't publish a win rate figure. But when we get down to the shortest stage, we're pretty successful once we get past the RFP in the short list. And we typically close 1 in 2 or 1 in 3, something like that, of those.

Great. And has any of the amount from total new orders, which were up 21% been recognized in the P&L yet?

So as you'd expect, I mean, we have recognized some of the backlog with revenue in the P&L, yes.

And are core software revenues included in the recurring revenue as it seems low relative to the group revenue?

No. It's a really good point. So the GBP 15.5 million that I mentioned, it's certainly made up of support and maintenance, managed service and third-party hardware and hosting revenue. So we don't include the impact of annualized license revenue. So just to explain that, we -- a typical contract for us is a 5-year contract. In line with IFRS 15, our policy is to recognize the license revenue upfront when the license is available for use. But because we have a very sticky customer base, we always expect the customer to renew the contract at the end of the term. Now at the point at which the contract is renewed, then we can recognize the license revenue all over again. So in effect, you could argue that the license stream really is a recurring element of our revenue, but we don't include it in the metrics. So I think you could argue that we're being fairly prudent in terms of the way we report the numbers.

Tremendous. And no major new contracts were signed in the latter part of the full year. Is this a timing issue? Or is the competitive environment becoming more difficult for new wins?

There's no particular change. It is just a timing issue. At this point last year, we just signed the Virgin Media deal. That was actually really closed in the summer. So it was just quite an extensive period of contract negotiation, which you sometimes get with large organizations. But again, it is a timing issue, and we're not seeing any particular slowdown in the market.

Great. And what are your chances of selling to a large telco?

Well, we do have large telcos who are customer that's a good point. And if you sort of do back to the logo looks -- let me dive back to the logo wall, obviously, [indiscernible] was taking about is a large telco. Orange is a customer of ours where we're actually supplying our software into the smart cities project in Egypt, the new capital cities. That's enormous project where Orange have the contract to provide all the telecoms infrastructure or the new city, initially building home to 3 million people and all the office space and cultural centers and so on. And -- but it's not just the telecoms in terms of the infrastructure because this is -- the smart city is all about IoT. So everything in the city has an IoT device. So whether it's gas meters, water meters, power meters, parking meters, pretty much every you can think of that a citizen would use in the city as a service is being built back into the sort of smart city network and process by Cerillion. So that's a really interesting project with a large telco in Orange that we have potential to replicate in other smart city projects. Proximus is the BT of Belgium. We support one of our challenger brands there. KDDI in Japan, a very large telco, we supply them with the [indiscernible] inventory software. Liberty Global, one of the world's largest telcos, we do most of the Caribbean sites. But I think that sort of the groundbreaker with Virgin Media and Orange extenders that we're working on, they're really strategic Tier 1 projects within the Tier 1 brand but which gives us a good platform to sell more strategic deals into the Tier 1s going forward.

Great. And previously existing customers accounted for just 85% of revenue in full year '24 versus full year '23 at 99%. What's the reason behind the drop? And is it due to the new contract wins?

Yes. I'll cover [indiscernible]. Yes. Okay. So yes, I mean essentially, we signed Virgin Media at the start of the '24 financial year in November. So a lot of that implementation revenue, you can imagine, although [indiscernible] break it out would have been recognized during 2024. And normally, the license revenue will be recognized, as Andrew was explaining earlier, once the software is available for use, which is very early on in our implementation because the product already exists. So that would have been recognized. We could assume that would have been recognized in '24. So it's really the fact that the customer was one, fundamentally in the summer, we signed the contract in November, so it counts as a current year new logo. And that's why we get that skewing as a percentage of revenue from existing customers. Also, I mean, [indiscernible] South Africa deal would have had a quite an impact as well because we've done that very quickly that the customers in a hurry. So a lot of that work has got done in '24 as well.

Great. And the back order book now has been flat for 3 years despite growing revenues. Why is this?

I mean I think this is really the timing of customer wins. So in 2024, the new orders number was up by 21%, as we explained. But a lot of those new orders were effectively recognized as revenue during the year, so they didn't go into the backorder as of the end of the year. So it is really just a function of timing.

Great. And total receivables have gone from roughly 40% to 60% of sales over the last 2 years, which inflates net working capital and drags down cash flow. Why has this happened?

So as I was explaining earlier, I mean, there has been some increase in working capital during the year. So working capital has gone up by just over GBP 6 million. Two main reasons for that. First of all, the way we recognize our license revenue we recognize the revenue upfront when the license is available for use. Whereas on a typical 5-year term contract, the customer will pay us in equal installments over the course of the contract. So what that means is when license revenue is recognized, we typically recognize accrued income upfront, and then that unwinds over the term of the contract. The other element of the building in working capital is just due to the timing of receivables and payables. So quite a large amount from a couple of contracts was received in early October versus the end of September. And so that is just a timing from 1 month to the next.

Great. And lots of questions about the cash wallets starting to get somewhat large. The shares aren't particularly cheap. But what do you think you're doing with the cash? Waiting for a deal? Waiting for a better price for buybacks? How do you see capital allocation?

So if I start on that one, a couple of points to make. First of all, the cash balance is relatively high at nearly GBP 30 million, we think it's actually very helpful to have a high cash balance particularly when we're winning, we're looking to win some large contracts with large customers. So we're still a relatively small company. And one of the first questions that we get asked is, what does your balance sheet look like because clearly, customers want some certainty that we are going to remain a going concern throughout the period of the contract that they're looking to sign with us. Do we need GBP 30 million? Probably not, that is on the high side. But from my perspective, it is still comforting. I'd rather have more cash rather than less. So to answer the question, what are we going to do with it? I mean we do have a progressive dividend policy, albeit that most of the cash that we generate during the year should be funded by the dividend. But I think the main news for the cash going forward will potentially be on acquisitions. So we're constantly looking at potential targets. So far, we haven't done any acquisitions since the date of the IPO, since back in 2016. I think to some degree, the pressure has been off of us doing acquisitions because our organic growth has been so high. But we are constantly looking at acquisitions. And I think it's just a matter of time before we find the right target. And that -- and then the cash that we were sitting on will be deployed in order to purchase a target.

But just to be clear, we're not looking at the transformational acquisitions, we are looking at bolt-on tuck-in type acquisitions to add additional product around the edges of what we do to bring in more telco customers that we can upsell into and vice-versa more product that we can sell across the existing base. Not because we need -- we're missing products, not because we can't respond to our pieces or we haven't got enough product. But if we bring an extra bits that sit around the edges of the industry standard model then it can just give us more options.

Great. And how does customer appetite compare to the past few years? And what's the outlook?

Yes. So I was saying, I think we are seeing some contraction in capital spend. But that's actually playing to our strengths. So as I said a couple of times now, that is the driver behind the Virgin Media deal, which is a great deal for us. So if you look at the broad picture, telco has got a choice to speak between spending hundreds of millions on these solutions or a few tens of millions then with a few tens of millions, not the other end of the spectrum. So I think that does help us. And equally, we can still win when -- on a growth driver as well. So whilst I think we haven't met a lot of vendors and telecoms are finding the CapEx constraint a challenge and there being some quite high-profile stories on that I think we're not [indiscernible] and so on, but we're relatively well placed, I would say.

And can you comment on the pricing environment?

Yes. I mean, well, really -- sorry, I'd say the same thing that there is pricing pressure, but that's pricing pressure from looking at us as a potential solution rather than us a problem. But there's always a debate about price. There's always a negotiation when we come to the closing stages of a deal, but we're not the cheapest. We're not really going to a Tier 2 emerging markets stuff where it is all about price. And we do find it as you've seen from the margins Andrew is talking about, we do find that possible to maintain a significant price advantage without being -- and still maintain high margins.

Great. And back orders were GBP 46.9 million at the year-end. What was it at the same time last year?

So the equivalent number at the end of September '23, it was GBP 45.4 million. So clearly, it has increased slightly year-on-year.

Tremendous. And can you hold the EBITDA margin at current levels?

Yes. So on a short-term basis, we're guiding analysts to an adjusted EBITDA margin between 40% and 45%. Clearly, that is slightly lower than we have achieved over the past couple of years, with 47% in 2024 and 46% in 2023. But in the prior 2 financial years, we have benefited from a relatively high proportion of license revenue, which dropped all the way through to profit at pretty much 100%. But we are flagging that in the short term, we might not necessarily repeat this high level of license revenue, so it could come in a little bit lower. And if that is the case, then the margin could be a bit lower as well, hence, the guidance in the 40% to 45% region. However, I think importantly, over the medium to long term, we do believe that the margin should continue to go up if we can continue to win larger contracts with larger customers. So then there should be a larger proportion of software revenue, which drops all the way through to profit, particularly the license revenue. And hence, we should continue to benefit from operating average.

Great. And how much of the organic growth came from price increases?

So in terms of -- I mean, unfortunately, we can't give an exact number on that. What we can say is that most of our contracts have indexation clauses linked into them. So when we have a long-term subscription agreement, we can increase the prices to customers in line with inflation each year. So clearly, over the past few years, we have benefited pretty well from that. On top of that, when we are pricing new deals, we typically increase our day rates in line with inflation as well. So unfortunately, we can't give you an exact number, but we can say we do structure our contracts to try to offset the impact of inflation.

All right. And how do you think about reinvesting these incremental profits you're bringing in? Are you trying to prioritize growth or profitability?

I think the model drives profitability, the fact that it's -- we're using the same software for every customer. It's -- the SaaS model is about the business by nature, high margin. And if you think about our -- as we increase -- as we do -- as we work with larger customers or customers grow their bases because our pricing is based on a number of end customers. Our customers have more number of subscribers, if you like, customer growth generates additional SaaS fees, a lot of which is term license within the subscription fee, which has no incremental costs. So the model is just naturally prone to high margin. But we look at growth, it is our priority, but we're not holding back on and putting in new salespeople or doing more R&D because we're trying to maximize margin. We don't really think of it that way. It's just kind of a notable result of working with larger customers, customers expanding, customers renewing just to generate the high margins.

Great. And what's your go-to-market strategy in new countries? And what would you say is the key differentiation versus competitors to win new logos?

Yes, it's a good question. We don't really look at it in terms of go to a new territory with a different approach because it's a global market. And the drivers as to why telcos buy from us are very similar wherever we are in the world. Obviously, the reason for putting regional sales presence in place is that having people who are -- who know the local market and are from the local market is beneficial in terms of building longer-term relationships further in advance of when prices are going to start and so on. But in terms of the competitive landscape, again, the competitors are pretty consistently across the regions too, some of the smaller ones, these small peninsular vendors perhaps are still more regionally focused. But the real people we compete with are present in pretty much the same markets that we're in geographically. And that's the large independent software vendors that are typically the providers of more tailored bespoke solutions that typically take 2, 3, 4, even 5 year sentiments and significantly more expensive in terms of TCO over a 5- to below 5-year term. And then we also have in every geography, the metric equipment vendors. So except of course in Europe and North America, we don't have [indiscernible], which is helpful for us. That certainly was a bigger problem for us about 5 years ago before the Chinese withdrew from those markets. And [indiscernible] are present in pretty much every market. Nokia are our partner, so we don't compete with Nokia. they sell the majority of our modules as part of their solution. That was the route into the deal with Orange, which in Egypt, which is very important to us. And I guess the other sort of competitor type, if you like, is the other SaaS vendors, but [indiscernible] vendors, what we call best-of-breed. And this is where a consortium of different vendors, SaaS vendors will get together in a consortium to provide the different pieces of the puzzle. All the different boxes in the diagram, if you think about the diagram we tap before of what we provide across the whole scope but of course, that in itself just brings back all the other problems with the [indiscernible] solution and that there's a lot of integration required. You need a third-party integrator, that's very expensive as a whole layer of extra cost. It takes longer, and it's a lot more risk. So we tend to win against those players because of that differentiation in similar ways with the large ISPs only here on the left we win against these guys because we're not having to tailor a solution. The solution already works on day 1. It's easily upgradable. And its a much more flexible, more reliable solution because it's the same standard product all of our investments going into.

Now that you are materially bigger than you were, say, 2 or 3 years ago, do you think that Tier 1 telcos are now more interested in signing with you for the main brands and services?

Absolutely. I think it's a -- the next big brand that gets the next bigger brands. And we have -- with each new win in the Tier 1 space, we build more credibility with each next biggest customer, we build more credibility. So I think that it's certainly the case that some of these recent wins have just helped us with the next step along the way.

Great. And on the 2 large contracts you've won Virtual Media Ireland and the South Africa operator. You said there was scope for expansion. Could you elaborate on that?

Well, yes, absolutely. I mean, obviously, Virgin Media has a lot of other properties within Europe and the U.K., for example. And I think once we get this solution live in Ireland, there's a good chance that we'll be able to have some quite interesting conversations across the wider group. We have to get the past to be live first. We have to have approved points. But it's quite a big departure. It's a big departure for Virgin Media, [indiscernible] operating in it to throw away. Nobody gets fired for buying IBM. It's not an IBM replacement, but it's that mantra. You can see for the big brand vendor and even the cost of low the money, well, you're not going to get fired for doing that, so they go with a much smaller vendor with a very different approach clearly, as long as we deliver, which obviously fully confident we will, then the savings are quite enormous and the additional flexibility and the ability to introduce quite new products to market faster, that'll become a real proof point in the group, I think. And the Irish would be very keen to [indiscernible] very keen to promote that more broadly with us.

And coming back to cash again. The question appreciates the ability it gives you gaining new contracts by showing your financial strength. But is there a threshold where you'd accelerate return to shareholders for say, exceptional dividend?

I mean I think for the time being, our focus is really on continued cash generation. As we said before, we are constantly looking at acquisitions. I think that would be our preference for use of cash. I think in the short term, we're not necessarily looking at paying a special dividend to shareholders. I think lots of our shareholders think that is not the most tax-efficient way of remitting cash back. But I think in this case, we don't have a firm plan to do that, but it's something that we can revisit in the future if the cash continues to grow.

Great. And looking at your product offerings, where do you feel you lack in an offering that could be filled by an acquisition or by R&D?

Yes. I mean going back to the product map diagram. There's nothing -- we don't have any -- we don't -- there are no holes in this in terms of the ability to respond to the standard RFP scope that we see in -- where has it gone? Yes. I mean, in the scope that is -- that is part of what the industry defines as BSS and OSS, we have all the boxes. But where there is the sort of things around the edges that we would look at things like protocol processing, so more deeper than the network layer, things that are not deep kind of standard BSS/OSS product set that would give us more telco relationships and more things to cross-sell at the sort of top of the stack, perhaps more stuff around data analytics, turning uses those sorts of things. So things aren't really part of the standard footprint, but would add extra spice, if you like.

Great. We have loads more questions, but we've run out of time. Thank you very much, indeed. Louis, do you have any closing remarks?

Well, I thank you all for listening. Of course, if any of you does have a question we haven't covered and would like to submit it back into the forum through whatever channel and we'll see where we'll go out most to answer them.

Great. Thank you both very much indeed. And thank you, everyone, for joining. And 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 would be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.