Gentrack Group Limited ($GTK)

Good morning, all. Good evening here in London. Thank you for the time today. John and I are here to bring you up to speed on the market announcement. We had announcement about our DTP acquisition a few days ago. And then when we had the market announcement, we had some pretty -- some of our supporters were like, you guys need to jump on a call and address this market announcement. I think they were right. So we're on the call immediately despite the blackout to try to navigate that. And -- but we are down there in 2 weeks' time and look forward to going through that in more detail with all of our major stakeholders. So let's talk about the announcement itself. So although recurring revenues were up by more than 10%, overall revenues have taken a slide against our forecast. And this is generally due to project revenues being lower than anticipated. So the cause of that, when we were there in New Zealand and Australia last November, early December, there were a couple of deals that we thought would close pretty quickly, and they have not. They've slid to the right, and this has impacted first half results and full year results. These deals are delayed. They have not been lost to competitors. So they still remain in our potential. But -- and quite frankly, the delays on those 2 deals were not because of billing specific issues. They were due to issues that were kind of moved out of our hands to do with their businesses. that these things happen sometime and they put the pin down on one project and dealt with other things. This was a surprise for us. And so it's caught us kind of in the situation, where we are today. We guided the revenue at the time to be north of $248.5 million. The range we released this week was $229 million to $238 million. So that's a 4% to 8% drop against prior forecast. Now the impact of this is that the lower revenues and this kind of upper range for us feed through to a large extent to our bottom line and to our EBITDA. So let's talk about the impact on our EBITDA. Now we did not give an EBITDA forecast in our November guidance. Having said that, the consensus was circa 13.5%, the consensus. In our market update, we came out with an FY EBITDA range, at which the midpoint was 7%. Now as I mentioned, a lot of this was because of some of the forecasted revenue that we had capacity to deliver not flowing through. We could have increased that 7% by scaling back either product or sales and international expansion, but we are not doing this. We've taken the decision that slowing down now in light of the execution against our pipeline and the significant sizable market opportunity would be shortsighted. So we are continuing to push ahead to pursue this pipeline. Now let's talk about the pipeline. In November, we messaged to the market that the pipeline included 10 deals that we thought would close in the calendar year that we're in now, approximately 30 million meter points, of which we would hope to target or target to win 3 to 4 of those deals in the calendar year. And that would set us up for strong growth in FY '27. The reality is all of that shifted by about a quarter. So we still hope to close 3 or 4 of those deals. I wouldn't say that we'll all be like heavily back-ended into the last quarter, but I would say that that's all shifted. That's the reality of the space we're in. But the meter count and the number of deals remains the same. I would say that some deals kind of have moved in and a couple moved out. The actual meter count point is a little bit higher than that. But anyway, that's where we sit with the pipeline. We can talk about it in more detail when we come down. We are putting all of our efforts into securing these wins and the momentum and growth. Now if you talk about growth beyond the current year and so FY '27 and beyond, I think that historical performance is generally a pretty good reflection of future performance. So if you look at the last 5.5 years or so, we have grown north of 15%, which is top line, which is our midterm target. So I think that's one thing that gives us confidence. Another thing that gives us confidence is we have g2 now. It's increasingly matured. It's in 2 live operations going into a third shortly. It's referenceable, highly demonstrable and compelling. So we didn't have that before. And then we've expanded into Asia and Europe, which gives us a significantly larger service addressable market and a pipeline to grow into. So that's one of the big levers for our confidence in the midterm target. Obviously, our airports business is becoming larger and larger, which is great. They've -- the airports business has been performing very strongly. And we just -- with the acquisition of DTP, we've strengthened the acceleration of their global capacity to grow, which is also good. From a team perspective, my team is actually -- we have some new team members that are very formidable, and we have some of the veterans that are great. I think we have the players in the right seats today. I would say that the team is working better today than they ever have in my tenure here together, which I'm really excited about. The product is really, really moving fast with AI and some other things that we're doing. And so I feel also confident when the team is so well kind of gelling and performing that this just gives us the mojo that we need. So this is the reasons we have confidence in our midterm targets. Now I do want to address the -- one of the feedbacks that we've gotten, which I think is super important because, to be honest, reputation and performance is more important to me, and I think I can speak on behalf of all the team members than compensation. And there's been some chatter about the LTIs and the vesting in November. So first of all, there are 2 parts of our variable compensation for the management team, there's cash bonuses and there's LTIs. Andy Green, our Chairman and the Board have always set a high bar for performance. We've had generally a high kind of high-risk, high-reward set of metrics that we put in place. I support this type of approach because it's what I think you need to lead on the planet. So prior to this week's announcement, we never missed our numbers. We never missed them. And as noted, the delays on a couple of these deals were a surprise for us, and we did not anticipate it. We surely don't foresee missing our numbers again. It's just not something that's in our DNA. We're going to do our best to make sure that doesn't happen. About the surprise, I would even say that in November, we put forth an LTI beyond the historical package, a new one for the management that actually the shareholders supported where we would need to get -- to make our LTI this year, we would need to get the stock to $12.5. That doesn't really sound like a layup to me. So once again, high-performance goals. I would also like to remind everyone that in last calendar year, fiscal year in November, the management voluntarily contributed 100% of our bonus to the broader Gentrack staff. So -- these are all just indicators of how we think about growing the business and taking care of our people. The Gentrack management and Board play with a straight bat. We always have and we always will. We're fully vested alongside shareholders to drive outcomes and values. John and I and most of the management team have not sold shares other than to pay down liabilities for tax obligations, which in the U.K. is just a necessity. So we are fully vested, and I am committed to do this, continue to drive this business on behalf of all of our stakeholders through the good times and the hard times. So I just wanted to kind of lay that out there because I think that's an important kind of framing. Now let's just -- in closing, I would like to respond to the response to our market update and the sell-off. Look, the market set the share price. Obviously, we -- our results is going to drive it. And we're going to keep our heads down and focus on the results. Now when we talk -- we did announce a buyback. Now we have capital allocation tools. We're going to put them to use. So we just recently bought a company, DTP, to accelerate our airports business. We're looking at other acquisitions that make sense for the business. We will actively continue to look at this to drive growth. Now if you look at maybe the reason for the buyback in light of the current price of the shares, I would like to say that we should -- if you decompose or look at the sum of the parts of Gentrack, first of all, the utilities business has grown strongly, and we will be -- we believe it will be back to strong growth. We believe in it. The airports business has material value in its own right, material value. And we know this because we get a lot of inbound interest. It's a hot space and the airports business is leading in many, many, many indicators in the space that they're in. a great platform for growth and the DTP acquisition strengthens that. We made an investment in Amber. I can say that, that business is performing exceptionally well, exceptionally well. We hold cash on the balance sheet, and we have no debt. So I think we have a strong business, strong potential, and I'd like to see the market reward that because a strong share price gives us additional optionality. But once again, management is going to put our head down and focus on the business. We remain committed, confident and passionate about our cause. We appreciate the shareholder support on this call and all of the community of investors and analysts that work with us to understand us and to understand what we're trying to achieve. And we're looking forward to delivering against it. So with that in mind, I would like to turn it over to Q&A, and we will answer what we can, and we will defer the rest until we're on site and local. So please, let's -- Mike, how are we going to run this verbal or written?

Yes. So we're going to go to the phones first. Thanks, [ Pauly ].

[Operator Instructions] And your first question is from the line of Joshua Dale with Craigs Investment Partners.

Can you hear me okay?

Yes.

Look, things have been tougher than you hoped, but your guidance does imply a rebound in non-recurring revenue in the second half of '26. Hopefully, some pretty [ worth ]coming. You mentioned 3 to 4 prospects. What is the risk of slippage again?

There's always a risk. There's always a risk. Like I said, we were surprised by a couple of deals slipping. But there's also business to win, and we need to get our share. And so -- but there's always a risk. And if it's beyond our control, it's beyond our control. I don't really know how to answer.

Yes. I mean the only thing I would sort of just add to that or maybe -- so clearly, we've brought our range down substantially. And we -- if you look at what we have to achieve in the second half, if you take out the acquisition of DTP, which we talked about last week, it's another $10 million of revenue to get to that midpoint. So we've got a good line of visibility on that. There's always work we have to do. But what we haven't done in our range is to try and bake in -- to bake in a large contribution from -- or much of a result from new customer wins. I think just where we are in the year in terms of the time line through it, I think that would be -- I think that's the right approach in terms of giving guidance. And we kind of want to be focused on actually winning new customer deals rather than looking over our back and worrying about whether we can time it so that we capture revenue within the year or not or that. So I hope that also gives a little bit of a flavor in terms of the way that we try to construct that range.

Yes. No, that's helpful. Just on your medium-term revenue CAGR target of 15%, it's probably fair to say that's becoming less meaningful as the revenue base from which to compound from continues to change. What does it actually mean now? Do you have a set of targets in dollar terms in mind?

I mean what we haven't come out with here is a sort of a guidance for FY '27. We have stuck with thinking about it in CAGR terms over a time frame, and we're looking to achieve more than 15%. If you just sort of track back to what sort of Gary was saying is that -- I mean, that is the sort of CAGR we've had over the last 5 years. So it's sort of -- when we look forward and think is that achievable? Is that the right target? It certainly feels in the right context. But we haven't come out and set out a number for next year or a dollar sign for next year. I think that would be a bit too early.

Sure. Okay. Last one for me. Your guidance also implies a pretty healthy step-up in operating costs in the second half of '26. Part of that is product development. What areas specifically are you needing or looking to work on?

In product development.

Yes.

Look, I'll take that, John. Sorry, I misunderstood. I thought you were talking about across the board. Look, g2, I mean, we went live at Genesis with the B2C brand. Then we went live in the Philippines with our B2B. We've got lot of stuff that we're focusing on. We have [indiscernible] cases that we're focusing on. We're looking at expanding the footprint of g2 beyond just what it historically did in billing and, let's say, CRM service and sales. There's all kinds of tangential areas that our customers are interested in. We're definitely spending quite a bit on AI and all the capabilities that can arm us with. I think that will literally, I mean, it's just kind of unbelievable what's happening out there today. Yes, these are all areas, and I don't really see it slowing down. I think we may find with AI that we can do things over time that -- I mean, it's moving so fast that may bring savings, but we have to wait and see. I wouldn't try to get ahead of that.

And your next question is from the line of Owen Humphries of Canaccord Genuity.

Just a couple of quick ones. So on the preferred vendor list of, call it, 3, they were the most likely, have those 3 changed, those 3 names?

Yes. As we mentioned, 2 of them shifted out. One of them probably longer than the other one, but no, no. But in the public markets, it's not really something that we want to just go into too much detail on our pipeline. It's not competitively the best approach to things.

We got that. And then given the pipeline that has pushed the right and you guys are holding the staff that are trained for this execution if they land, how long will you hold the people before making a decision to preserve margins over holding the staff?

Yes. There's a lot of movements under the water of any company, Owen. So one of the things we've been doing is, I mean, with AI, you actually -- some roles are less relevant or not relevant anymore and there's new roles. We're definitely trying to spend money to increase our customer intimacy. And so our proportion of on-site or account executives to clients because as you -- in an AI world also, you start to do more with kind of agile development on site and for deployed engineers and things like that. So we're making changes to that. We're actually increasing some sales and marketing. So you can scale up some of those people, but then maybe reduce some of the overhead that you had and capacity that you might have had that you brought in early in delivery or some performance-oriented things. So we're always adjusting the business. It would be inappropriate for us not to do that. But look, we're confident in the pipeline. And if we have issues with it, we'll react accordingly. But I think we're talking more about delays than we are about anything else.

Yes. And just on thoughts on -- you mentioned acquisitions earlier, given the share price where it is and the valuation, thoughts on increasing the buyback over acquisitions?

Thoughts on what? You broke up at the end there, Owen.

Thoughts on expanding the buyback over making acquisitions.

Look, I think it would be not an optimal time to go use a bunch of equity to make an acquisition right now. I think that's probably pretty clear. We still have cash on the balance sheet. So there's some things that may make sense, and we would like to move on them. And if we find something that's amazing and it eats a bunch of the cash, then it may impact the ability to do the buyback, and we would change that at the time. We want to leave our options open is, I think, the way we would answer that. And -- but with Mike, who's on the call, he runs our M&A and strategy unit, you saw that we started to get some results pretty quickly with DTP. We have a good machine over there, and so we're always looking for ways to help bring value and growth.

I mean it really is a balance, because as we've sort of shown -- as we strongly believe with the acquisition of DTP, that flexibility that we've got to be able to move quickly or without an equity raise, for example, that's going to have a lot of -- we think that will create a lot of value for the business. It's a great step forward for Veovo in terms of its ability to scale up. And we're able to do that because of that flexibility. Now we're balancing that with thinking about capital allocation, which is why we've announced our intention to launch buyback. I think we sort of set it at a kind of level that makes sense from the context of giving us a little bit of flexibility, but also mindful of how we can add some sort of accretion and look at shareholder value. I think we've got the balance okay at the moment, but we wanted to retain some flexibility.

And your next question is from the line of Philip Campbell of UBS.

Just a few questions from me. Just going back to your original comments at the start. So it kind of implies that the majority of the downgrade in guidance is due to utilities? Or is there some also due to airports?

So that's -- your surmise is correct. It's utilities. And we talked about utilities in terms of the delay to that sort of the pipeline of opportunities.

Right. So if we were just trying to work out the numbers, can we use like the airport numbers from last year with a little bit of growth and then we can then back solve utilities because obviously, it implies pretty low numbers for utilities.

Yes. I mean, I think before we deconstruct the sort of the guidance in the half year numbers, that's probably better when you actually can see the full interim. And you can see how things split between utilities and Veovo and the components of that Veovo revenue, et cetera. So I just think that's better -- I think that's better judge when you have that really. The focus for us and the rationale is, it is around the utility business.

Yes. Okay. Awesome. The second question was in the release, you talked a little bit about -- and I'm assuming this is possibly a change in contract terms or definitely a change in the revenue mix. So more of a skew towards recurring revenues and less to project revenue. So is that kind of changing the model to be more how Kraken would price? Or maybe Gary can talk a little bit about how we should model that going forward? It seems as though we're going to have less project revenues and kind of more recurring revenues.

So Phil, first of all, I think that's not really impacting us really this year. So just -- and you didn't imply that it did, but I just want to be clear because I don't think that was clear from the market update. It's definitely our intention to be more aggressive with onboarding customers and then charging more on the recurring revenue side. It's better revenue for us. And with g2, we can deploy quicker and in a more agile way with more confidence. So that's something that we're going to orientate towards. I have to say some of our clients, government entities and things like that still have in the way that energy pricing and capitalization or let's say, budget allocations work, some of these players just really, really prefer CapEx. And so if we have to do it that way, there's -- if it's good profitable money, we'll probably go for it. This will take time to shift the base towards this, but we are definitely going to be more aggressive on that front. But as we start to do more and more of those, it's going to shift our short-term dynamics. for, let's say, we can say, hey, we signed this deal, we'll have this impact this year, but it allows us to book this much contracted annual revenue. We'll be pretty clear about it if it starts to move the needle more materially. And I think this is definitely where we want to head, though.

Can you just explain that in a little bit more detail why the accounting would work for that?

Yes. Go ahead, John.

Yes. I mean, I think in terms of the accounting, you kind of need to look at the commercial construct of each deal. You might find that but you might find that it's not actually a matter of different accounting. It's just a change in the substance and the timing of the work you're doing. So a good example is that if you can truly position a deal where it's an out-of-the-box product and it's not being tailored, customized across the life of that implementation, it means that customers can be onboarded more quickly. It means that, that upfront project work before customer onboarding is just smaller in scale. And it means that from a wallet size of a deal, there's more a share that can be tailored towards annual recurring revenue and the value that we're bringing by the -- getting our product up and running quickly. So it's less a matter of accounting or different or difficult accounting. I think it's more a change in the construct of what we're doing.

Got you. Just the last one for me was just in terms of -- you talked a bit about AI. I'm assuming the -- from a customer perspective, they want more AI functionality built into their products. And I gather that you are starting to see AI in tenders and RFPs. And I suppose I'd just be interested in your view, Gary, like is it easier to deal with those type of requests when you're not 100% out of the box, you're kind of out of the box plus a bit of a kind of a hybrid bespoke model? Or is someone that is out of the box and they can still build AI out-of-the-box functions and still compete aggressively in those tenders?

Yes. I'm conscious of time because we only have a couple of minutes, I want to try to -- that could be a long answer. Look, the short of it is as follows. I'll be super quick on it and then we can spend more time, and we plan to when we're down there on AI. But anyway, look, our customers want to have great customer experiences for their customers and a lot of them want to cost out. And with AI, you should be able to cost out 50%, 60% of front office, back office over time. It's just where the world is headed and just automate and do more and more. This is not something that you actually turn over -- you don't bring like all the agentic answers and just they put in production. You bring the tooling and the LLMs and kind of the AI-oriented workflows that make all of this work. You bring the data, you bring the actions from your systems and then they start to roll it out and we help them do that. So they get confidence and you don't just turn it all on autopilot. That's the way our customers are starting to adapt it. And our goal is to make them also proficient in AI. A lot of them are starting to take steps now. We would like to be the -- really the AI enablement layer for retail operations, not their finance and HR, but for the retail operations because it's our system that manages that data and those controls. So I think that's a logical thing for us to shoot for. And we're really an AI-first company, and so we have the right culture and tooling to help our customers get there. I'm conscious of time, Mike, and I don't want to cut people, but also do we have much more coming in?

Yes. We've got a couple of questions left on the phones, and we've got a few questions online. So -- but we are at time. So I guess question is whether you want to try and answer this.

I think we were a little bit remiss not setting this meeting. We're making the time available. So if the people need to run, they can run, and we can stay on and continue to try to get through all the questions. We want to be responsive within the blackout considerations.

Okay. [ Pauly ], let's finish on the phone questions, and we've got some online to follow.

Your next question is from the line of Amit Kanwatia from Jefferies.

Just I mean, if I think about the comments you made earlier in terms of your revenue expectations in November, $248.5 million north of that versus if I'm looking at the midpoint at this point, it looks like a $15 million kind of headwind. And all of it is driven by the project revenues being lower slippage by 3 months. I'm just trying to understand within that $15 million, have you baked in a bit more? I mean, what is the potential that the -- those project revenues are -- if it gets slipped by another couple of months, I mean, how should I be thinking about that $15 million at the midpoint?

Yes, I can take that. So I think I was trying to -- I think I was in response to sort of questions around what we thought about the second half. I think what I was trying to say is that we haven't really baked a lot of expectation that new customer wins are going to deliver revenue in this financial year. So when you sort of say how much of that $15 million is sort of kept within the -- I think we're just -- I think we want to sort of have a guidance of something where we've got a strong level of visibility in terms of what's contracted, near contracted or existing customers, et cetera, rather than try to think that we should focus on winning these deals and capturing revenue in year. So we just try to -- that's the approach we've taken in terms of the guidance. I think that's the right one. I don't know does that answer your question?

Yes, it helps. And maybe if I think about the pipeline, and I mean you've got kind of 10 live or sort of those kind of deals ahead of you. There's some slippage 3 months you highlight. Are you willing to provide a bit more color like what markets -- I mean, in terms of geographies or markets, where do you see those slippages happening? Or any more color on that would be useful.

Yes. I think -- so yes, I'm just uncomfortable doing a lot of pipeline and where we're getting traction in a public forum like this, I just -- we'd rather just pass on that. But we are targeting Europe and Asia. I think we've been real clear about that. So it's in those territories. I hope that's all right.

As well as our core markets.

Right. Just the last one, be quick. I mean you kind of referenced to your 15% revenue growth kind of delivery over the last several years, 5 years. How should I -- and you seem to be confident of delivering that number in the future as well, more likely in fiscal '27. It looks like how should I be thinking about that in reference to your margin comments as well? You've got a 15%, 20% margin target as well. Useful to understand how should we be thinking about the delivery of those kind of margin targets?

Yes. So look, I mean what we said is our medium-term target is north of 15% revenue CAGR growth. And as we grow -- as we start to grow our recurring revenue strongly, actually, as we start to expand our revenue base, we'll see our margin improve. But in terms of -- if you think about the comment in the announcement, we're sort of saying that growing the proportion of our revenues that come from recurring revenue streams, that's a really good way to improve our margin sustainably over the medium term. And that's really what drives us to get across into our medium-term targets. What we haven't said at this point is we haven't set targets for FY '27. We just -- I think from the comments we talked about in Gary's opening presentation, I think we made it clear why we think there's a lot of growth potential in the business as it stands today with the range of opportunities in play and also an airport software business growing strongly that's just acquired a good asset that helps scale that business. So we see a lot of the things in place, but we just think it's too early to be definitive on what that looks like.

Sure. And then how should I be thinking in terms of your changing mix of the revenue profile? It looks like you're taking more of a margin risk in terms of lower onboarding revenues upfront and higher ARR. And given your kind of growth pipeline, wouldn't the margins always play a catch-up in terms of lower onboarding cost if you always kind of onboarding customers, migrating customers?

Yes, that would be a safe assumption.

All -- what I would highlight, though, is that don't sort of, if you like, use the margins that we're sort of seeing in FY '26 as the base for that. The margins we've seen in FY '26, that's to do with actually the timing of deals and we have and retaining the capability to deliver that. just bringing increasing revenue will help improve our margin. So just don't confuse the 2. That's all and use it as a starting base.

But I think this is a journey that other -- obviously, other software, enterprise software companies are going on. I think the path of revenue to bottom line would be pretty [ droned ]. Once again, I can say some of our customers do have CapEx considerations over OpEx, so it doesn't make it that simple. But I think your general assumptions were probably right.

And your final question on the phone before we move to online questions is from Amelia Hamer of Ord Minnett.

Just quickly on FX. What kind of FX impact are you baking into your 1 half and full year numbers, just so to understand a bit better the [ meaningful ] revenue.

Yes. Look, I mean for revenue, the currencies that, I guess, have the largest impact is sterling. That hasn't really changed much -- it hasn't changed much this year. It hasn't really changed much for a little while now in terms of that level. That's kind of the level we see we plan at. The Aussie dollar has [ tracked ] up a little bit. I'm not sure that makes -- and we recognize that. I'm not sure that makes a huge amount of difference. So when you think about it from a range perspective, I'm really to be honest. Those are the 2 currencies, and we sort of -- we're cognizant of what the rates are today and the U.K. sterling, which has the biggest impact hasn't moved for a while.

Great. And just in terms of the 1 half, 2 half split, particularly with the recurring revenues and the nonrecurring revenues. So over the last couple of years, we've noticed that there's sort of been a pattern where your recurring revenues tend to be a little bit softer in the second half or more weighted towards the first half. And then you get a bit of a jump up in the nonrecurring revenues in the second half. Can you just talk through that weighting between the first half and the second half that we should be thinking about?

Yes. Look, I mean, maybe another way to sort of just think about that is to think about what we're seeing in the first half in terms of that sort of profile from half 1 in FY '25, half 2 in FY '25 and half 1 in FY '26. I mean, what we are seeing is consistent sort of growth in recurring revenue. But we're actually seeing in the first half of FY '26, we're seeing that nonrecurring revenue will be lower than the second half of FY '25. And that's really driven by -- I mean, that's driven by a number of items that we've referenced before. So we've seen a number of projects and implementations that came to their conclusion at the end of FY '25 start of this year. So I think -- we referenced Utility Warehouse, the implementation there, bringing Vocus live, the upgrade at Power Water Corporation and the second phase of work at NEOM. Now in the very -- in the first half, I think the only new customer win that is sort of contributing is the win we had in Pennon. That hasn't started. That probably started a little bit later in the half than we would have expected. So that's why you see that drop from the second half of last year to the first half of this year. We would expect that as we win programs that, that starts to move upwards. That's what we're forecasting. And it can be a little bit sort of lumpy from period to period. It isn't just new customer wins that we have to think about when we're sort of trying to forecast out our nonrecurring revenue. Nonrecurring revenue is just project revenue, whether it's from new customers or existing. Existing customers they do upgrades with us. They do large-scale regulatory change or other big programs in their business. And we see programs start and end with our existing customer base quite generically. Even without customer wins, it would never go to 0 across an existing customer base of 60. There's always something there. So I'm not sure it's.

So just to clarify -- just to clarify, so you do expect nonrecurring revenue in the second half to be higher than the first half of this year?

Yes. And that's -- I mean that's what our guidance implies.

And that concludes questions on the phone. I would like to hand over to Mike for online questions.

Thanks, Pauly. First question from online. We appreciate that the medium-term 15% CAGR target is being restated. Can you talk to expected momentum in recurring revenue we should expect and how we should think of a baseline in nonrecurring, excluding new wins? So essentially, what is the underlying growth in the business if we take out the new wins?

Yes. I'm not entirely sure I get the question. Look, I mean, in terms of the growth in recurring revenue has been north of 10% in -- that's what we're expecting in FY '24. That's FY '26. That's what we've stated in the guidance. It comes from a number of sources. I mean it's both from our utilities business and our software business. It's driven by customer wins of the past. It's also driven by existing customers upgrading or upselling or even just CPI. So there's always a level. I'm not sure I call out a base level as such. We haven't gone forward and given guidance for the period of time beyond FY '26, just that we can see recurring revenue is going to be north of 10% in this financial year. And going back to sort of the question about half-on-half, you can see that's sort of consistently growing.

So -- next question would be, are you able to say whether FY '26 will see investment and R&D capitalized?

Look, so just to remind people, the EBITDA numbers that we talk about all assume that R&D investment is expensed. Any targets that we talked about in our announcement or that we've referred to on this call is actually all in the context that we assume that we expense R&D. Strictly speaking, it's an accounting judgment. You don't get to choose. We've always tried to look at that through a very realistic lens. But it's not something that we have it's not necessarily a decision of ours as to whether we capitalize or not, just that every target that we talked about. And when we talk about our EBITDA targets going forward, they are all in the context of an assumption that R&D is expensed.

Next question from Nick Basile. Can you provide more color on the quantum of investment in upfront price competitiveness versus continuing to focus on global expansion and growth and the associated impact on our EBITDA?

I didn't get it. Can you say it again?

Sure. So could you provide some more color on the quantum of investment in upfront price competitiveness versus continuing to focus on global expansion and the associated impact on EBITDA?

I think this is starting to get a little bit granular. It's quite difficult to address that without, I guess, without the sort of the context of the interims in place where you can actually see because we've always set it out in our earnings, how we've grown investment in the -- spend in the different buckets. I think it's just easier to see against that context rather than trying to address it now. It's very difficult in the blackout really. You just don't have that level of detail.

And next follow-up was, could you explain the reason why nonrecurring and project revenues drive such a significant impact on EBIT relative to the recurring revenues?

Yes. I think it's just a -- it's a question of if you're retaining the capability to deliver that revenue or part of that capability, then it has quite a large impact, particularly over a shorter period of time. Over the long term, it doesn't. Over the long term, recurring revenue has much higher gross margins and drives much higher margins. But it's just how you decide to invest in capability and capacity as you're trying to close down on a sizable opportunity ahead of you.

Just a question from James Bales. How much of the revenue mix can be attributed to ARR versus changes in the contracted revenue base?

I think -- I don't know, I think the market update and the change in our guidance for revenue, that's really linked around the timing of new work rather than the structure of different parts of our recurring base. So I think I don't think it's really -- I think we're overcomplicating that.

Very good. The question around timings. One of the questions we've had from Ron Shamgar is, is the uncertainty around AI part of the reason clients are pausing on signing new deals?

As a matter of fact, and we've said it before, I think that the -- particularly for the energy transition, there was -- there's a compelling event to move towards smart meters, trading, machine learning, forecasting, all kinds of stuff. I would say that the advent of AI is at least as compelling event to upgrade systems or modify their behavior and find ways to do it on existing systems. It's just -- it's -- I think the world is shifting in this direction. Boards are putting tons of pressure on the C-suite to embrace it, learn about it. So I think that will help us over time.

Continuing on AI, are we banking any of the efficiencies that AI coding would be having in our development teams as part of the business and other business functions? Is that being included in our thinking on what we've shared in the guidance?

I think it's early doors to know exactly how -- what kind of efficiencies we'll get over time with AI because AI touches so much of it, the way we deliver the code, the testing, the way we work with our customers, the types of services that we provide around it. I think it's early doors to put that into a forecast.

Next question from James Bales. Has there been any logo churn since November update?

No.

And any change in project activity from the existing customer base?

There's always change. I mean that's just -- we have a moving piece of customer situations. So some projects go up, they go down, there's regulatory issues, there's change orders, there's all kinds of stuff. It's a pretty dynamic space. We like it that way. It's part of what makes us an interesting job. But I don't know if I can give more detail on it. Happy to chat when we're down there to understand the question better.

You mentioned g2 implementation success and referenceability. So James is asking, do you expect this to materially improve win rates? And related, we've got a question around are the [indiscernible] and Genesis customer -- [ g2 ] customers acting as strong reference points?

Yes. They're great references, and they're happy with g2. It definitely having a stack that you can point to in production definitely will help us win whereas prior, it was more challenging for many, many reasons. I think it's one of the reasons we have the current. You grow the business like that and there's over years, there's some -- that's one of the reasons we had a little bit of a stall on the growth compared to prior. We hope that's in the rearview mirror. But yes.

So Tim Hunter has a question around the buyback. Can you be more specific around the reasoning for announcing the intent on the buyback? Is this because you saw the share price is significantly below intrinsic value?

Yes. I think -- I mean, that's actually in the announcement in terms of the quote from Andy Green. We see that it would be accretive to shareholders. Certainly, we think that the value of our business makes a share buyback an effective capital allocation tool. So I guess, yes.

And just a clarification as to whether shares acquired will be canceled.

Yes. I mean look, I mean, we've announced our intention to launch a buyback, and we'll formally launch that, assuming nothing changes, et cetera, so we're going to announce our intention after we're out of blackout. You can't practically do that here in a blackout. But I think a lot of the details of that will come out and we'll be able to announce what we've actually formally launched it. I mean it's typical for them to be canceled.

Yes. And probably the last question that we haven't already covered or at least significantly covered as part of what we've seen to date on the phones online is a question around our -- we have a large offshore dev workforce, which we'll be referring to our India team center. Any thoughts on cost-out opportunities with AI efficiencies within our business?

Okay. AI definitely -- as I mentioned before, there's some roles that are really not relevant in the AI world. And there's new roles that are being created. There's new opportunities for our people to learn new things. There'll be some cost out in some areas and some ramp-up in others. These are factors that impact our people, and we're a people-centric organization. So we're going to watch this space. But right now, we're just leaning into it and making sure we leverage it to its full potential.

Okay. That concludes the online questions. We've got the vast majority of those, some of which we've grouped up and aggregated. But at that point, I think we're in a position to close the call, Gary.

Well, we look forward to seeing everybody soon in less than 2 weeks. Thank you all very much.