Gentrack Group Limited ($GTK)

Hi, everyone. This is Gary Miles. I'm here for our HY 1 '26 outlook and results. Thank you for attending and participating. So if we go to the first slide on our financial summary. So revenues at $110 million in the period, down 1.7%. Our recurring revenues were up 11.6% from $76.4 million to $85.3 in the half. The recurring revenues -- the nonrecurring revenues that were down were generally down to a couple of sales that slipped to the right that we had not expected. These sales were due to broader business dependencies that were not lost to competitors, and we'll talk about our pipeline shortly. The Veovo business performed strongly. Revenue was up 3%. But if you strip out the hardware sale, it was up 20% versus prior period and a 30% step-up in recurring revenues, which is a fantastic result. EBITDA, as you can see in the numbers at $7.9 million versus $13 million, lower utilities project revenue dropped to the bottom line in this case. Cash at $73.2 million. As those that follow us closely know that this half is a weaker half in terms of cash because we have some big cash outflows in the first half of the year and it catches up in the second half. John will come to that in more detail. We expect FY '26 to be cash generative before acquisitions and share buyback. We will come to the buyback in due course. We're focusing on closing the acquisition of DTP and Factor, which we announced the Factor acquisition today or over the weekend. In the FY '26 outlook, we -- this remains unchanged from the 5th of May. So I'm not going to read out the entire outlook statement. I would like to say that it's too early to provide guidance for FY '27, but we are reiterating our medium-term guidance, which is to grow the business north of 15% CAGR with the medium-term target of 15% to 20% EBITDA margins. Now we're going to spend some time on a couple of strategic drivers that are really kind of a focus area for our investments, one of which is part of the Factor acquisition. So I'm going to talk about 2 megatrends that are driving particularly energy retail transformation, but also water transformation. So the first one across both the water and energy sectors is the advent and the rise of AI, to use AI to automate operations. And then on the energy transition side, price volatility, which I think everybody is becoming familiar with in the energy sector, it's becoming much, much more prevalent and the complexity of the energy transition. So let's jump into these 2 megatrends and what they mean for our customers and our business. So the first one is -- the first driver is AI automating operations and lowering cost to serve for retailers. We have some statistics here. If you look at an AI-enabled retailer, our expectation is that 30% to 70% cost reductions are very realizable over the next 2 to 3 years. There's potential for enormous cost reduction here in the front office, back office and payment sections of the retailers. AI can also help with improved regulatory compliance, target marketing and segmentation capabilities, payments and collections improvements and personalized offerings and renewals. This is a big, big investment area for us. We've got some super exciting technologies in this space. We're talking actively to many of our customers about it now. So this is a space to watch and for sure, that's driving not only our engagement with retail customers, but the acceleration of our software development life cycle. The second one is around the driver 2, which is energy transition, which is creating price volatility and service complexity. The slide on the right, we created 3 years ago about the changing environment of the energy marketplace. So you start to move to decentralized energy resources and customers having batteries in the driveway and on the side of their house or big grid scale batteries. Obviously, global kind of politics are driving also energy fluctuations. So on the -- this energy transition is driving modern system upgrades. So the main issues behind this that have been smart meters and hyperscale data. So every consumption point on the grid is starting to have a forward forecasting curve. the need to support distributed energy resource management. There, we've done an acquisition -- we've done an investment, excuse me, in [ Amber ] where we'll talk about -- we have a slide specifically on service innovation, personalization, gross margin management, advanced trading and hedging, which we're not in the trading and hedging business, but this is a modernization area for retailers. And then machine learning for forecasting and pricing. So machine learning for forecasting and pricing is where we have capabilities in G2, but we've modernized those with our Factor acquisition that we had some specific things that we were looking for that we're able to find in Factor. And so we've closed on that transaction. So I'd like to talk more about how that rounds out some of our capabilities as we move into supporting the energy transition for our customers. So the deal rationale around the strategic rationale is, first of all, Tractor has developed the gold standard for pricing and forecasting. It's an exceptional product. We scan the market well. We actually have been looking on the market for a couple of years. We're integrating that into G2. So it makes G2 more compelling. We can provide this as an upsell to all of our customers that we have today in the energy space, and it will help us win new business and push our pipeline forward. The other reason that we're very attracted to Factor is a stand-alone point of entry. [ Tractor ] can be stood up. There's no need for market localization requirements. There's really no implementation project costs. It's the same-day deployment. And so you can stand up -- the retailers can stand up Tractor outside of the standard billing and CRM system. And so it's an insertion point that we can -- there's a light touch but all around the world and then develop relations with those customers and come in behind them and upsell our billing customer care solution. So this will be really helpful as we enter new geographies, and this is a really important part of our strategic rationale. The other thing, any time you're buying a technology, the technology has to be first class, if you're providing a bolt-on like this, and then the team should be fantastic. So from the first time I met [ Jess], the CEO and other members of the team, this was clearly a group that I wanted to bring inside Gentrack a superstar set of people that know a lot about this domain and software development and have had success pretty quickly on with their technology. They are willing to base the Factor team here in New Zealand, but some of them will be coming to Europe to support our sales and our development there. So we look forward to welcoming all of them into the Gentrack family. So if you look at the next slide, this is our capability model, which, as you can see, is a very broad set of capabilities. I'm not going to go into all the details. I would say that from a capability perspective, this stack supports B2B and B2C for energy and water. It is a super capable stack. We've highlighted the areas on distribution, energy resource management in the green area where we're working with Amber. And then in the kind of pinkish area, this is contract pricing and forecasting where we plug factor in the g2 to make it even more compelling. If you look at the next slide, these are the transaction terms. I'm not going to go through all the detail on this slide. I know that there'll be questions for John and the team about some of this, I assume in the Q&A section. I would like to say that the enterprise value of $24 million was paid for with cash from our reserves. There is a potential for earn-out of additional $10 million pegged against performance targets on the revenue over the next 3 years. And once again, we're very excited to have them join our organization, and we'll come into this in more details in the financial section of our results today. I did want to touch for the first time on some more concrete updates from Amber. We spoke to Chris and Dan, the leaders of the Amber organization and see if they were comfortable us providing an update to their market traction. I think if you live in Australia, you have a pretty good understanding of Amber. There's probably some Amber users here on the call even. The most interesting statistic from this slide is that from retail propositions that get a controlled battery, Amber is now taking north of 65% of new ads from the marketplace. And you know that there's battery subsidies, so battery uptake has come along. Amber is actually through their distributed energy resources is now deploying approximately 300 megawatts of power back into the grid. This is a fantastic success story for the energy transition. You can see the performance on the hockey stick. We're really pleased with the investment we've made. This, in my view, is undoubtedly the best stack in the world to solve this problem. We've helped them into Europe and expanding their technology and making our g2 stack more compelling. So we feel good about this investment and the direction is headed and the value that it brings to Gentrack and our customer base. When we announced the DTP acquisition, we had a call on this subject. We did not have James with us on the call, James Williamson, who leads our Veovo business because he was under the weather a bit with the virus, but he's here actually across the table for me now. So I'm going to hand over to James to let him give everybody an update on Veovo as a whole as it becomes a bigger and bigger organization and inside the Gentrack family. So James, let me hand over to you.

Thanks, Terry. It's been an incredibly busy first half of the year for the Veovo business. On the delivery side, we've delivered more projects than we delivered ever before in the half. Particularly of note there is the incredible 15 airports in Saudi Arabia that we've now transitioned to the go-live state, but also significant Gen airport operations platform upgrades both in the Northern and Southern Hemisphere. On the business winning front, we've added a number of flagship customers as well. I'm particularly pleased with the first one noted on this slide here, the Tier 1 airport we've won in the Asia Pacific region. This is for our total airport management platform. It not only underlines our position as the leader for 4.0 technologies, but this opens up a whole new region for us. Previously, obviously, we've been incredibly strong in Australia and New Zealand with our technology, but this now moves us wider into the Asia Pacific region. And this is a real top tier of Tier 1 airports. Sage North America for the Port of Seattle, so Seattle's International Airport. This is a new customer for us, just going in with an initial first product but a great opportunity to grow that over time. We continue to expand our customer footprint with Gen upgrades as well as expanding our passenger predictability footprint all our major [indiscernible]. Previously, when I presented to you guys, I talked about our [ NAS ] Canada win. This is our biggest revenue management win ever and moves us into the air traffic navigation market. That project is now well kicked off and in the design phase and due to go live in 2027. Now as Gary said, [indiscernible] I missed the chance to announce our intention to acquire DTP. So I just wanted to share my thoughts on that for a couple of minutes. We've been working with BTP for the last few years. They've been absolutely key to our wins in the Middle East, both [indiscernible] platform and then they took us into Saudi Arabia. We see significant growth opportunity in the Middle East, but the biggest airport projects are happening there and the most ambitious technology projects are also happening there. DTP has fantastic relationships with all the airports in that region and we really see this as being a growth driver for us going forward. Not only have they got great relationships, but they actually bring a fantastic team of deep airport technology knowledge and particularly in technologies that are key to Veovo. We see this both enhancing our position in the Middle East, but actually for me, more importantly, we can use those 60 staff to deliver more projects globally. They also bring key capabilities around service management and cloud operations. Finally, we have invested heavily over the last few years in some critical technologies that fill gaps within the Veovo -- particularly I'm excited to see their AirportView App. This is a community app, which effectively will put our data and systems into the hands of thousands of users at each airport that we're in. This is a great cross-sell opportunity for us to take to our 160 airports globally. They've got some very exciting bolt-on capabilities to our airport operations group that includes some AI capabilities as well as some extensible data models. And they've got a world-class integration platform that drives the whole of Dubai Airport data integration, and we're looking to take that to our wider customer base as well. So really excited about the acquisition. It's going to take another couple of weeks, I think, until it completes, and then we're looking forward to welcoming them into the family.

Great. Thanks, James. So on the closing remarks before we hand over to John for the financials. Gentrack is well positioned to lead across both airports and utility sectors as they modernize their operations and adopt AI. These are sizable markets in which Gentrack has grown 18% CAGR since I joined in FY '20. We are confident in our target of greater than 15% CAGR in the medium term. The utilities pipeline across the next 12 months includes more than 10 new customer opportunities and spans circa 30 million meter points in Europe and APAC. We still target to win 3 to 4 deals from these 10 opportunities. We target to win these from now through March '27. This number of wins would set us up for strong growth in FY '27 and momentum for beyond. Veovo has had an exceptional first half. It continues to win new customers and is delivering high growth and recurring revenue. We expect this success to continue. I would like to close on my section by saying as a company with a strong balance sheet, no debt, track record of cash generation, providing an engine for bolt-on M&A. The acquisitions of DTP and Factor demonstrate how we can use this to support our growth. We remain very confident in our leadership abilities around the world and the opportunity and the size of the opportunity that sits in front of us. So with that, I'd like to hand over to John. John, please.

Thanks, Gary. So looking first at the group P&L account. You can see there what Gary was referring to earlier, strong growth in recurring revenue, that's up 12% and that's been offset by lower nonrecurring revenue. So that's project revenues at utility and lower hardware sales. Now we cover operating costs a little later, so I won't cover that here. I wanted to just talk a little bit about the LTI costs, which we split up here so you can see the impact on -- we always guided that these would be lower in FY '26 than they have been for the last couple of years. In addition to this, this half year, we benefited from a GBP 2 million reversal of costs. So that relates to the 2023 management LTI scheme where we no longer expect to meet the EPS hurdle on the last testing date. So what happens under accounting rules when that happens, we reverse the cost that we booked prior periods against that tranche against that scheme. And that's what you see in this half year effect this half year. On Amber, and Gary talked about the growth a little earlier, they're investing to grow. And so we take our share of that cost through our P&L. What is -- and you can see that here, the $1.6 million of cost. What it means is that the balance sheet number that we hold for Amber, which is around $13 million is actually less than the cost of our investment, which in turn is less than the valuation. I think the last thing to highlight on the group profit and loss account is the tax credit you see there of $3.9 million versus an almost $2 million charge in the prior period. So the reason we have a tax credit is because of the favorable treatment that we see on the LTI costs in the U.K. and in New Zealand. And that's because it's a tax deduction that they vest that not the accounting value. And that tax deduction can be used to offset profits in the year and in future periods. And then we're starting to see the benefit of that flowing through with less cash tax paid this year, and I'm sure we will in future too. Turning to utilities revenue. Just a small point here. I noted in the table below the annual fees and managed services in prior presentations, we refer to that as contracted monthly recurring revenue, CRR and support services we refer to as [indiscernible]. [indiscernible] that we're showing here now matches that used in our. So just coming back to the numbers tell us, recurring revenue is 9% higher. And we'll see something similar to that for the full year that's implied in the guidance that we've given for the full year. Strong growth in our support services compared to the first half of last year spread quite widely across our customer base. And then what you see here is the lower nonrecurring revenue. So that follows the completion of several projects that were running last year, including implementation of utility warehouse and focus, the upgrade at Power Water Corporation and the second phase of works we had at [ NEOM ] in Saudi Arabia. And then those projects running off can be replaced by new customer because of the delays that [indiscernible]. Moving across to our [indiscernible]. You'll see that our operating costs are higher than the prior period, but they're actually very similar to the operating costs of the second half of last year. Our utilities delivered a much stronger revenue performance in the second half than last year in terms of project revenue. I think it shows that we had capacity to deliver more revenue in this first half than we did which showed the impact of delays in terms of new customer projects have had on EBITDA in the half. We continue to grow our investments in both sales and in product spend, and that includes shifting some of our delivery resource to product investment in the first second half we're expecting our cost -- our operating costs to grow more slowly than revenue in the second half of the year. And I guess the other point to note though is that in terms of the LTI costs that you see here for utilities, they should be around about $2 million higher in the second half of this year because the first half benefited from the reversals that I mentioned earlier. So looking at financials, really strong half. Excluding hardware sales, it's growing by 20%. So prior period include quite a high level of those hardware sales. And just so I think you sort of what we're referring to here. But this is where we bundle hardware within our projects for upgrades or for new customer wins as an intrinsic part of that project delivery. That type of revenue is quite lumpy from half to half. It probably makes more sense to look at it on an annualized basis. But turning back to performance, the real call out is the big step-up in recurring revenue, up 33%. And that really is that's quite a wide range of customers from prior period upgrades and new customer wins coming to fruition alongside this win. So a really strong performance from the first half -- the last thing to cover is our cash flow where we ended the half at $73 million. So our first half in terms of our cash flow cycle, our first half is always typically weaker and that's because it includes big payments we have across the year. That's the payments of the prior year staff bonuses, commissions taxes, payroll taxes, for example. And you can see that in the working capital outflow for employee costs of around $10 million in the last half that drives the first half cash outflow of $1.6. In the second half, we expect working capital inflow. And what that means is that overall, we expect full year to be cash generative before acquisitions and buybacks. That brings us to an end of the slides that I wanted to cover in this presentation. There is more in the appendix that's a reconciliation. It really just shows how the revenue numbers that we disclosed within this presentation map back to our interim accounts. But that brings us to the end of the presentation and across on to Q&A. So what we're going to do is we're going to be taking questions by phone first of all. And then we will move to those questions that have been submitted online.

[Operator Instructions] Your first question is from the line of Guy Hooper at Jarden.

Can I maybe just start by asking a couple of questions on the pipeline. Could you give us a little bit of, say, broad color around what actually caused the delays? And just given that it was across 2 customers, the delays similar manner? How should we think about the risk to those projects into the second half?

It's Gary. Thanks for the question. We [indiscernible]. In some level of detail, happy to reiterate it. So we can't get into specifics on things that are with retailers that are not really ours to disclose. If you look at the types of things that could happen that are beyond our control, retailers can go into M&A situations. They could have a trigger where the competitive landscape is going to change. So for example, they can be deregulated and move into competition in the near future that was delayed by the regulators. So it took the trigger off trying to transform quickly. There are things like that, that can transpire that change the compelling event to move to a new billion CRM system. As I mentioned, that was what happened to us in this period. We were surprised by it. It's definitely not something that we had anticipated. Those kind of things can happen on the marketplace. I don't think they're normal course of business. So I wouldn't look at it as indicative of the market as a whole, but it's also something that we can't fully predict.

Yes. I mean just given we've had, I suppose, a couple of years where you had consistent upgrades in the guidance setting and then in the scenario, a downgrade, all of which predominantly driven by that project revenue, how do you think about your guidance settings as you go and look for the year ahead? And how should we think, I guess, about risk for those more generally?

I mean in terms of the full year guidance, and I think we referenced this on the call update. What we try to do is to not be dependent on winning deals from our new customer pipeline to be able to fall within our guided revenue range for FY '26. So we tried to remove the dependency on that for this year. And then for FY '27, it's too early really for us to give guidance because again, there's still to do. So we're sort of clearly setting out here, but we're not giving guidance for '27.

And maybe I'll just add what we also discussed on the call on May 5. Thank you for bringing in the beginning of that statement, beating our earnings in prior periods. We've never missed our numbers until this point, and we really don't plan to have that in our -- it's just not in our DNA. But anyway, I just wanted to reiterate that that's definitely not something we're planning to do. more...

Maybe just one last one on -- just one last one on that. Could you give us any indication of the current size of the business and what it needs to -- what growth would look like to hit the $17 million ARR earn-out target?

Sorry, he last part of your question was a little bit [indiscernible]. Can you just repeat that, please?

Yes. Just asking what type of growth would have to deliver in order to hit the $17 million ARR required for the earnout.

I mean, obviously, it's going to have to deliver strong growth to meet the full earnout target. It's what you would typically expect from an earnout target strong high bar. I mean the only thing I would call out is the statement we make in the deck in terms of being EPS accretive by FY '28, that's clearly set at a lower level of growth than the earnout. I mean we're still going to go out and grow this business strongly, but we don't need to hit that kind of growth level to...

And your next question is from the line of Joshua Dale at Craigs Investment Partners

First question, when you say you're targeting 3 to 4 deals before March '27 and then say your pipeline in the next 12 months has new prospects, it reads like 6 or 7 of those fall between March and May next year, but that's probably not right. How should we interpret that?

Yes, that's a misunderstanding. So we do not propose a 100% win rate from our pipeline. This is a qualified pipeline in which we have 10 deals as we comment, north of 10 deals. As we said, we would target to win 3 or 4 of those. Some we may not win, some may get delayed, pretty typical pipeline activity. But that's the way you should look at it. And then some will go out of the pipeline, the things will come in the pipeline. Does that make sense?

In terms of question -- yes. So you're sort of saying your win rate out of 10 is targeting 3 to 4?

We're saying our close rate. It's not really the same as a win rate because some things can shift, et cetera. Other things may come in, but Yes, we don't really like to go too much into win rate, but we're trying to give some clarity on our -- on the size of the pipeline that's well qualified and then what we need to do to go into good growth in FY '27 and beyond.

Got it. That's helpful. And I appreciate you don't give guidance for FY '27, but you -- and you obviously don't have full visibility over your revenue, but you probably do to some extent over costs. I just wanted to ask, there's an increase in costs implied by your guidance into the second half of '26. Is it fair to annualize that into FY '27?

I think on our cost base. So you're right, there's a small uplift in the cost base guidance because there's an uptick in revenue. And don't forget, you've got to think about both the utilities and the business work that through. I think in terms of FY '27, I mean it's kind of hard to really make a comment when we're giving guidance. So I guess it will depend on where we think we're heading we think we're on in terms of how that cost base will grow into the following financial year.

Okay. I appreciate you didn't put it in the release, but is there any sense you can give us of factors contribution to FY '26? Is it -- I mean, if we look at the acquisition cost of $24 million, excluding the earn-out, it's roughly in the ballpark of DTP $17 million. Is the revenue level sort of in the same ballpark as DTP too?

Well, DTP, we called out the contribution of DTP's revenue. And for Factor, we're just saying that it's not going to have a material impact on revenue in the balance of FY '26. The businesses that are very different in the profile in that way. In terms of the cost that we take on and the sales effort we put in to grow that business, what we have said is that that's actually included in the FY '26 guidance that we gave back on the 5th of May. There's nothing that you need to sort of add in or sort of take account of in terms of the guidance that we provided...

Okay. That's helpful. Last one for me. Are there any sort of utilities globally that are currently using Factor that you're willing to call out, I guess, some notable customers there?

Yes. We're not disclosing that at this point. We've talked about which countries they're in, but we're not disclosing customer at this point.

We completed the deal on Friday. I think it's probably great to sort of talk to customers and the like before we start sort of highlighting them on other calls.

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

Just a couple from me. I suppose, Gary or John, the first one was just if we are going to see in utilities a bit of a shift more towards less upfront project implementation type revenue and more on recurring revenue, will there be a bit of a transition over the next 2 or 3 years for that? So will that dampen some of the revenue growth in the short term? And then obviously, with the higher recurring revenue medium term, you'll start to see that growth be higher? Or is that obviously going to be more dependent on what customers you win?

Yes. There's no doubt that if we're more aggressive and shorter sales -- shorter delivery time for initial deployment, then the revenue will have some impact on growth on the short term. I don't really -- we have some other customers that are CapEx intensive. There's state organizations and so they may push for CapEx, that will balance that off some. But this is definitely a transition that we're trying to make, and we're intentionally moving towards, and that will affect our -- in a very positive way that will affect the dynamics of our revenue mix to the EBITDA and the bottom line. It's hard to predict exactly how that will play out. The other thing that's happening though with AI is you can actually -- these programs just when you have an out-of-box stack and then you can start to run migrations with AI and interoperability with tangential systems with AI and things like that, the cost to deploy these systems also goes down. So that's also driving a dynamic. And we like this -- as the industry gets more and more success stories deploying things without such a long-term cost to deploy it, and more energy companies and water companies will transform. So that's just part of a journey that the industry is on that we think will make a lot of sense for both the industry and for us.

Maybe the other thing I -- the only I'd add in context is that our nonrecurring revenue in FY '26, our guidance for it is comparatively a lower level than you've seen in the last couple of years. So when you're talking about the impact it has on growth going forward, it's coming off the back of a lower starting base that makes sense.

Yes. Got you. Just the next one kind of a follow-on. When I'm just looking at the composition of the utility revenues, obviously, the B2B is now at about 40%, which possibly could be due to the lower project revenues. But -- and also with the Factor acquisition, is there kind of a subtle shift here more towards B2B away from B2C? Or is that just kind of a timing thing?

No, I don't think that's -- most of our customers are actually multiplay. I wouldn't read into it that way. We like the B2C business, and we like B2B. So we're very strong in B2B. So I think naturally, that's a point that we have a lot of strength in sales process to. But if you look at our pipeline, there's plenty of B2C work and that is pretty sizable.

And just the last one. Obviously, with Anthropic, when they released the Mythos model to a select group of kind of customers globally, has energy companies had a trial of Mythos and trying to run it to find out where there's any bugs or problems with the software, including Gentrack software?

Yes. Our customers have not that I'm aware of. I think that I would be aware of, but I don't want to just blanket statement definitively. So yes, the answer is no.

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

Just back to the pipeline discussion. I know it's a qualified pipeline. I know there's movements in and out, but there must be a base case 3 to 4 over the next 12 months. Can you maybe just talk about on a risk-weighted basis, what the 3 to 4 in terms of meter points? Can you give us a broad range?

Yes. So the tricky thing talking about a pipeline in such a public environment is it's just -- it's a really competitive aspect of our business. So I just want to be -- that seems to get repeated and sent around and used in all kinds of way it's possible. So it's just pretty difficult to try to go into more details. We're trying to provide some quantitative information for our investors, but we just need to be careful about how we peel that out.

Can you use a broad-based average then?

Yes. I think when we sort of target 3 to 4 deals, we would like to target that to be a sort of proportion of the total aggregate that makes sense. But clearly, if we just -- if we won the largest and revenue generated deal that, probably be a little bit above that and you can get something a bit below that. But I would say proportion.

Yes. And also, I think if you look at it, the scale of the scale of the numbers, I mean 3 is a big number. So there's obviously some suppliers in there. We've said pretty regularly that we support Tier 1s today at scale and that we are targeting winning Tier 1s. That's an important also transition for us. I think we've done a really good job moving from the lower tiers into really being a Tier 1, Tier 2 player. That's exactly what this $30 million represents for the utility business also.

Good one. And just given where the pipeline now and the expectations and timing, are you guys rightsized in terms of headcount? Do you expect some further moderation or because just following from the question before around headcount to increase in the second half costs?

Yes. I think balance to be able to progress on deals that are in play, we need to have the capability to be able to demonstrate we've got that capability to that we can deliver on that. Clearly, we have maybe sort of reduced the level a little bit since the first half. But we need to maintain that, I guess, a strong delivery capability to be able to capitalize on the deals in the pipeline. It's a little bit of a chip and egg. It becomes harder to win the deals without the capability behind the resource behind to actually deliver on it. So we'll be careful, but we haven't launched a sort of huge sort of linked retrenchment program or a large sort of scale reduction program. I think that will be shortsighted in terms of trying to grow the business.

And last one for me, just around Factor, well done there. Just to understand what's its revenue model? Like how do you charge customers, one; and two, what's required to hit their earnout target there or their revenue targets there? And how much do you expect to generate that from your existing customer base?

We are definitely -- are -- Owen, thanks for that. We're definitely not breaking that out. We have -- we built our model to be able to cross-sell and upsell this into our base. The majority of it will also be new insertion points and new sales with G2. We really see this as a growth factor, particularly for the insertion point side. So -- and it's a high ARR-related business. That's the way it's -- there's really almost no setup cost. So this is something that people can spin up, trial for 60 days, purchase it. It's pretty slick insertion point type of technology. They also have relations with AWS and Salesforce and the likes of those players that can -- that need a pricing engine inside their own configure price offerings that they're providing Salesforce is providing to its customers. So this is something that we plan to leverage out. And we'll provide more details as that rolls out over the next year to 2 years.

And your next question is from the line of Sinclair Currie of MA.

Just interested in your managed services revenue and that composition of the recurring revenues. Presumably, that just relates to between support and managed services, the sort of infrastructure SaaS versus on-prem decisions of the clients and you'd expect managed services to remain pretty flat going forward? Or is there any changes we should be thinking about within that composition going forward?

I think first of all is in terms of managed services relate -- actually over majority relates to sort of more of a data product we have that matches rather than being sort of an infrastructure management of infrastructure in that sense -- so slightly different dynamic. I think in the past, we've always guided that we saw us reaching the sort of level we're at today, but we didn't see that we weren't guiding that people should expect that level to increase in the future. It's focused on -- currently it's focused on the U.K. market. We would like to take that into some other markets. But I think at this point in time, we sort of guide not to build growth in managed services revenue stream.

Okay. Another question just on your LTI costs and payroll tax. The implication, I guess, of where your share price is relative to where your last bunch of LTIs vested, would that imply that there won't be a repeat of the payroll tax in cost that you had and which weighed on cash flow in the first half if the current share price sort of levels are maintained. Am I understanding that accounting and tax charge correctly?

Yes. I mean you won't see -- so first of all, you wouldn't see any sort of cash flow or the like in the second half of the year. It's a first half dynamic. I think it also is generated around when the shares vest. And if you think what we sort of talked about in this deck is how the very last tranche of the 2023 scheme, we're not expecting that to vest because the EPS hurdle won't be met. So it means that you then won't have LTI taxes to pay against that in the first half of next year in the same way -- so it's always a little bit difficult to comment on how that runs. But currently, you'd expect in the first half of FY '27, there to be a very low level of LTI payroll taxes. You still have commissions, you still have staff bonuses in cash flow, but you see a small component. Sorry, does that sort of make sense? Is that what you were trying to ask...

I think that makes sense. I'll take it offline if I have anything else to come back with. And just one last question. I think Owen asked, but just to understand. So on the earnout for Factor, I guess you highlighted the upsell as a pretty large opportunity for yourselves. If you were to look at the existing overlap of -- for customers with your existing customer base, are you able to give any sort of indication of what percentage of overlap there is there? And maybe yes, just try to get a gauge for how much more of your customer base Factor could sell into relative to where they might be at the moment?

Yes. So in our current base, there's 0 overlap. In our pipeline, there is overlap. It's one of the things that was attractive about Factor is that our potential customers are also talking about Factor, which is great. I'll just reiterate the Factor transition is about growth, growth, growth and growth and getting in quickly with customers with really innovative essential technologies and building relationships to provide the opportunity to upsell behind it is -- by the way, it doesn't always have to be up behind it, but -- and that was the logic behind this acquisition that we think will help us quite a bit with our growth opportunities.

[Operator Instructions] And your next question is from the line of Amit Kanwatia from Jefferies.

Just a couple of questions from me. If I think about the fiscal '27 and I appreciate there is no quantitative guidance at this point. But if I look at the qualitative comments, I mean you're still expecting a strong growth in fiscal '27, which is similar to what you said back in November, December. And this is despite -- I mean, your pipeline has shifted by a few months, 6 months you call out. And how should I be thinking about those 2 things? Does it imply the pipeline or the conversion of customers is more imminent in the near term for you to be able to maintain that qualitative guidance comments for '27?

I mean the way to think about it is that in our guidance sort of say FY '27. And then we go on and talk about our medium-term guidance and our medium-term target. I think we're just trying to draw a distinction between FY '27 and our medium-term targets because at this time, I think it's just too early to sort of guide that we can cover that in the next financial year. Yes, we've got lots of great opportunities and drivers for growth. We've got a strong pipeline. We've got full year impact of DTP acquisition. There's a range of things out there that help support us. I think it's just too early to be more definitive than [indiscernible].

Sure. And I mean, how should I be thinking about strong growth? Is that -- I mean is it fair to say by strong, you mean double-digit growth?

Yes. I think we want to just be very careful what we set as an expectation for FY '27 at this point. And again, I think Yes. I mean I think maybe just think through those different building blocks. And you can sort of see the range of outcomes that makes some sense there.

Sure. And just staying on '27. And if I look at your operating cost, and I'm looking at the utilities operating cost in first half, that's gone up. You've given the reasons why it has and looks like your second half cost is a guide in terms of the first half. But how should I be thinking -- I mean, you're holding the cost base. Would it be fair to say your fiscal '27 operating cost to be slower than the revenue growth as well, be more like a flat kind of outcome?

A lot of that depends how fast the revenue actually grow in FY '27. I can sort of see where you're sort of heading on to that. I mean what we think about is that we have -- we've held too much capacity in the first half. We could have delivered more revenue. You see some of the benefit of that in FY sort of in this deck. I think there is some sense of that for FY '27 in terms of the wider capability that we have to deliver on revenue. And I think the only thing that we would then have to think about as we near the end of this financial year is what other investments we're going to make in terms of driving growth beyond FY '27 still.

Sure. And I mean a couple of questions on Factor, but just still trying to understand, I mean, what's the integration time line for this into your business? I mean, can you start upselling from day 1? And secondly, are you able to provide the Factor revenues and EBITDA in the last 12 months?

So we're not disclosing the financials. In terms of the integration, we will be integrated with them within a matter of weeks. And we already sent some notes to our customers about the news that we want to get the technology in front of them. So that started already this morning.

Sure. And then if I look at the ARR, I mean you've got $217 million ARR related to the earnout of $10 million. Is that the -- I mean, what's -- can you provide a bit more kind of color on the potential earnout of 10 in terms of the ARR of $217 million, is that all driven by the Factor team? Or I mean you'd be growing the ARR as well over the next 3 years? How should I be thinking that..

It's driven by sales factor. So you can see the third part of any sales related to factor sometimes stand-alone, it's purely the fact product.

Yes. And I can say it's all hands on the pump. Everybody in Gentrack salesperson, and we're all selling Factor and they're also selling G2. So that's -- we're all pushing to get and exceed as much as possible any targets we've got.

And is that 270 number, is that for fiscal '29 or fiscal '28? Can you clarify that for me?

17 number we talked about, it's 3 transaction. I think that's what we sort of talked about. Again, that's a target for the earnout. Look, I think we probably -- I think we probably got time for one other question or so from the phone lines, if that's everything from yourself.

So we've finished all the calls on the questions on the phone. We've probably got time for ond or 2 questions from those submitted online. Our first one from [ James Lindsay ], asking the consideration of the 2 acquisitions is New Zealand $41 million before earnouts, and you also have announced the buyback of up to $20 million. This will be most of the cash balance without the second half '26 cash flow. Should we expect M&A activity to be put on pause? Or is it more likely that the buyback will be paused?

Look, I think the priority for us is growth. That's -- we -- it's not the best time to go out and use equity to buy something. So we prefer to use cash. The priority is definitely growth and that would lead towards M&A. But we said we'd come back on the buyback in due course, and we will do that

And probably our last question for the call from [ Ron ]. Can you mention some of the key competitors effect? And does [indiscernible] offer the same picture?

So the main use case for pricing is mostly on the B2B side of energy. It's not only on B2B. It can be used for broad B2C portfolios and things like that. And we are obviously very strong there. I think [ Kraken ] has some ambitions in that space. I don't want to comment on the stack itself, so I'm not going to. There are other competitors out there. We generally don't like to call out competitors on calls like this. Some of the -- by the way, some retailers have their own pricing, but as you move to smart meters and things like that and hyperscale data, there's a very, very kind of growing trend to license this technology from the professionals that wants. So that's -- but we ran a pretty good funnel and decided on Tractor for a number of reasons. And I think they make -- it's really good fit for us and for our customers.

All right. Thank you, everybody, on the call. That concludes the time we've got for this morning. And I think we've addressed most questions between the phones and online. We look forward to seeing a number of you over the coming weeks. Thank you all.