Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hansen Technologies Limited Half Year '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Hansen, MD and CEO. Please go ahead.

Good morning, everyone, and welcome to our results presentation. You've got myself here today, along with Richard English, our CFO; and also Peter Beamsley, our Head of IR, and we'll just work through just some housekeeping matters, everyone. If we do experience any technical difficult, we'll just take a short break and recommence, and we'll be running questions at the end of the session. So let's just get straight into it, which is probably the financial highlights of the year. Jeez, it's always great to present to everyone what has been a fantastic first half of the financial year for us. Clearly, revenue uplift there of 7.3 resets both verticals contributing positively across the organization. A bit of a breakdown. Certainly, EMEA is our stronger performing region, certainly delivering broad-based growth across the business and a healthy pipeline as we go forward. I know our Communications and Media vertical did deliver double-digit growth of about 13.5% in the first half, and certainly supported by some really good wins, et cetera, and reinforce our position as a Tier 1 provider. Utilities and Energy vertical, positive as well. Certainly, EMEA also contributed positively with 9.4% growth. And that's probably a bit of a focus on the EMEA region for us and probably a bit of destabilization in the Americas, which we all understand at the moment now. Underlying EBITDA of $55.7 million, that's a 46.1% increase over the previous corresponding period. Similarly for EBITDA margin at 29.2%. And the thing that probably most people look in at Hansen has always been that cash-based organization of increasing to 68.8% over 49.3%. And then consequently, our NPAT (sic) [ NPATA ] also increased by 142% compared to the previous corresponding period. So it does reflect the high-quality momentum. And certainly, the benefits, I think Hansen now in its 26th year being a listed entity, that strong discipline around cost management. Along with operational improvements and productivity gains, we certainly see further opportunities for margin gain, which I'll probably cover off a little bit in the next couple of slides. Hansen and AI. Guys, we all understand we've been talking for the last couple of years about what we're doing in AI. And I know a number of you actually go on site to our websites and you see our wins and you see what we're actually talking about. So, I think it's probably important to understand that AI is well entrenched and embedded in the Hansen business. And like probably many established companies, this is not our first rodeo, if you think in terms of navigating changes over the decades. And we've very successfully along with all the big names in SAP and Microsoft, we've actually moved from things like mainframes, client server. We've navigated into the Internet. We've navigated COVID, et cetera, and AI is no different to that. AI is not a concept inside Hansen. It is a structural shift, and we are early adopters in it. If you think of Copilot, which is the coding used by programmers has been installed in Hansen for over 2.5 years now. It's important to understand, we're not trying to retrofit AI into our business. we have -- and this gets a bit technical. It's called RAG, which is retrieval augmented generation. And to probably best explain that is to understand our business, we're the custodians and sit across key data. And just trying to dumb it down as much as possible. It's a bit like you aren't using AI to ask a question in the Internet versus asking a question with very specific data around your customers. So we sit at the very heart of the customers, whether it be their call records or usage, their payment records. So we use AI based on exact data rather than asking. So it's quite a barrier when we actually the custodians of that data. And because we're not retrofitting it, it means we can use that domain expertise because we're deeply embedded in our customers and our customers' relationships and certainly strengthen us. AI is now embedded in our business now across day-to-day workflows. Not only that's the way into which we retrieve data, but we make changes, how we do engineering, but also works the whole way through sales and delivery. And we are certainly internally seeing measurable productivity gains, much faster execution, particularly speed to market. So when you talk a highly regulated market, when people are still making massive changes, trying to be fresh and new to the marketplace, we're actually hitting the ground running much faster than we historically have been. So AI has been fantastic as far as that's concerned. I think the key advantage, which I talked about is that measurable productivity and that deep data, which we're involved in because we've got decades of data to which we can retrieve from and looking at it. And it is that key advantage Hansen has. We also deliver high-value AI outcomes. It's actually -- it's meaningful data to someone rather than there's no hallucination which takes place with AI at the moment now. We're certainly expanding our AI centers. We have 2 centers at the moment now, which is actually just specific where AI products are being defined, which is actually in California and London, mainly in those locations because it's availability of staff because these aren't people which have been in the industry we're doing it 10 or 20 years ago. This is actually new and emerging. On top of that, we developed our AI champion network inside our business. And we do things which are called hackathons where we bring all our technical people together and our technical people find new ways and quicker ways of doing it, which we actually roll out in our business. It's important to understand because AI -- we've moved well beyond experimentation. This is actually real. We now have 8 products using. I'll go into some of those in a moment now. But once again, we're addressing real customer problems at the moment now and able to find a clear ROI and probably like a lot of organizations, but where our absolute focus is, is how are we adding more to our customers with their current spend. How can we add? It's a bit like buying a car and we're throwing in lane change or climate control. We're actually putting more and more around our products to actually deliver greater value to our customers from where we actually sit. We do have a clear AI strategy because it's -- we have this unique data. We have this strong balance sheet inside the business. So we will continue to invest because we see fantastic opportunities for someone like Hansen in the marketplace. It is embedded, it's commercial and it's already contributing to our business going forward. Turning to Slide 15. Just some of -- I'll just run over the top of these because these -- certainly some of our AI solutions are more relevant to our customers and the way they see it. But we already have AI in most of our products and certainly more -- some more. And these aren't pilots. They're already embedded in them. We have a trading application and the trading application actually uses predictive intelligence to look at the predictive consumptions of power, and it helps our customers using our trade product to work out how they buy futures in the marketplace. And so therefore, better contracts and more money for them. We have Agentic IVR replaces traditional call handling, improving first contact. When someone rings up, they can direct the call where it best goes to. But then you've got the next one that goes to workflow and exceptions, which helps resolving issues much quicker than they were in the past because of the deep set of history because once again, with RAG, we've got the knowledge of calls coming in the past, and we've got that history. We also orchestrate behind-the-meter assets, and this is an important one as we go forward. And certainly in Europe, in the Scandic region, we're behind the meter where people have solar, you got EV cars, you got batteries, solar, all these matters now and what AI to help orchestrate how the best utilization of that stored asset and how it directs where the power gets taken from. Product catalog, trying to use natural language, in other words, simpler questions and rather than coding for people to get products to market much quicker than they used to. EV charging stations. It's a little bit like the first one, but it means in home where people can actually then direct to actually charge their car or use the battery themselves rather than going to the marketplace. And even in Australia here, there's a number of energy companies which provide opportunities now from where you can actually wholesale your power back to them because we know the feed-in tariffs are so low at the moment now. We also have call center agents now. Once again, where you -- it's a natural -- once on our website, it will show you, you're actually talking to a machine now answering your questions. Why? Because with AI, we're able to have the history, similar situations, et cetera. And once again, that whole RAG technology built into our software, it's just looking at our data and the history of that data going forward. So taken together, we're already embedded. It is contributing, but it's certainly reinforcing our long-term investment case, which we've been on this journey for 2.5-plus years now, at the moment now. If we think about AI, once again, and I keep on talking about it, but I think there's a number of people who truly want to understand it. We understand AI is shaking up the software industry. We understand everyone seeing AI into their name, et cetera. But we are using AI in a RAG situation with the deep history and knowledge of our customers and all their data center at the moment now. We know our systems are very complex, highly regulated and integration-heavy environments because they have to comply with rules and regulations. We know that switching is risky, so Hansen works very hard to add as much value as we possibly can to all of our customers as they go forward. And we are embedded. We are the domain. We sit at the center of that great big data lake of information as it goes forward. And because with the database of record and that source of truth and certainly compliance, it's really important to understand Hansen's role going forward with our customers is actually more deeply entrenched than it probably ever has before. These systems are complex because changing over a vendor or a customer in our case, sometimes takes years, but then you lose that deep history. And so customers now understand to look at the buying patterns, change patterns, usage patterns over a long period of time helps them predict their business going forward. So eroding decades of logic and meeting inflows, et cetera, becomes -- could become detrimental to them at the moment now. But rather than rely on that as some sort of heavy moat, we're trying to add value to that moat, which is why people are actually entrusting us moving forward. It does speed up coding. There is no doubt. Our ability to code now is much, much quicker. And the last number of calls on this, you've heard me talk about subject matter expertise. Hansen is promoting very heavily subject matter expertise, that deep understanding of the industry, the compliance and the data to move forward. And our customers don't wish to gamble away which affects their revenue, their infrastructure or that absolute trust for their citizens and their compliance. We're not a generic SaaS organization. We have always and will continue to be this mission-critical lifeblood of hundreds of organizations around the world. So that's our quick talk on AI. I hope it's helped a little bit to explain what RAG and LLM stands for and how it actually works. So Richard, if I could hand over to you a little bit more in detail, please.

Thanks, Andrew, and thanks, everyone, for joining the call. I think you can hear the passion in Andrew's voice. We are taking the AI journey very seriously, and you'll see from our slide pack that we have already a lot of products in market and revenue generating. So let me walk you through the financial slides. And I've got a few key points to make as I move through them, and I'll draw your attention to those as we go. Top line growth, 7.3% growth year-on-year. Admittedly, last year, the first half was softer than the second half, and you can see there that last year, we did $178 million versus $215 million in the second half. But nonetheless, $191 million of revenue growth, again, it's driven out of EMEA. And you'll see in our slide pack that EMEA now represents over 70% of our business. It is the growth engine of Hansen. We've also made a recent acquisition into EMEA with Digitalk. So it continues to be a very exciting region for us. There's been a lot of talk in the market around FX and the impact of FX on revenue. And for companies like Hansen, of course, we are exposed overseas. So there's a couple of points here. In the first half, we had some modest FX tailwinds, immaterial, but the Aussie dollar was depressed against the 4 key currencies that we deal in being the GBP, the euro, the USD and Canadian dollar. But you would have seen in recent probably 2, 3 weeks, the Aussie has strengthened, and we're now expecting fairly modest full year FX headwinds at the top line, and I'll talk to what that means on a cost base shortly. They won't be material, but there might be a small headwind based on the current spot rates. Andrew will talk shortly to the full year numbers, but we've done $191 million in the first half, and we are expecting our second half to be stronger than that, which is very, very positive. But moving on to probably just as an important metric for us is around our profitability and underlying EBITDA, this is one of the key points to mention. The EBITDA performance is particularly solid. Our margin is 29.2% in the half versus 21% at the same time last year. So you can see a material step-up in our second half numbers. Andrew talked to AI initiatives, speed to market, productivity gains. You can see in our numbers, it's absolutely clear. We have now embedded our AI tool set across all of our delivery function and in fact, all of our corporate services function as well. And there are legitimate productivity gains that are evident in the first half and will continue to be so over the next 12 to 24 months at least. Moving down to underlying NPATA. Look, it's a reflection of the underlying EBITDA going up. Obviously, NPATA is up. Income tax rate, 26.2%. I think for the second half of the year, it will be around the 25% to 26% mark. And then finally, on cash EBITDA, which really is the key metric for us. This is our profitability, excluding R&D capitalized from an accounting standpoint. 16% cash EBITDA margin last year, jumping to 26% this year. So we are well and truly back on margins that we have talked to the market for many years. We are heading towards 30% plus, and Andrew will talk to that shortly. In terms of FX, so I mentioned the FX tailwinds in the first half from a revenue standpoint and the headwinds in the second half. That's obviously negated on the cost base. So for those that know Hansen, we have a lot of our costs sitting overseas in areas where GBP, euro, Canadian dollars, et cetera, we have staff in those jurisdictions. So the strengthening of the Aussie dollar actually assists in reducing that cost base. So from a group standpoint, the FX is probably not a material issue for Hansen coming into the full year results. R&D perspective, we disclosed in recent times, our R&D expense and capitalized. And for the first half, we expensed or capitalized approximately $15 million of R&D or 8% of our turnover. And a significant portion of that is now going directly into our AI applications tool sets, as Andrew walked you through before. You can see we've been busy over the last 6 months. Moving on to the next slide. I think everybody is probably sick of hearing me talk about our diversification, but it's real, it's genuine. We have now over 700 customers, multiple products, 2 mission-critical verticals. We operate in 3 regions, and we invoice in over 20 different currencies. So diversification is key to us being predictable, bulletproof and robust during, I think we all agree, some interesting times around the world. In terms of the diversity, you've got the EMEA region now representing 72% of revenue turnover. That will increase as the year progresses with Digitalk coming into the business from the 1st of January. But on the flip side, energy is currently 57% of the revenue turnover. That will naturally reduce as Digitalk rolls into the comms division for the second half. And we expect at this stage, it will probably deliver another circa $10 million contribution -- $10 million or $11 million contribution to the second half from Digitalk. But my second key point is around support and maintenance. And I've read a few reports coming out. This is really key for us. Support and maintenance is the predictable, profitable backbone of this business. And you can see here the material step-up in the first half of '26; and more importantly, over the last 3 years. So CAGR growth of 18% in 3 years on our support and maintenance lucrative predictable revenue stream and 16% up on the first half '25. That's off the back of rolling out implementations that have now rolled into ongoing support and maintenance contracts. We've also renegotiated with several customers throughout the last 12 months. So it's a really important point, and I'm glad it hasn't been missed in the community that this is a sign of a very strong business that support and maintenance is continuing to grow and actually, in this case, accelerating from historical run rates. Finally, on license revenue. There's often a lot of talk around Hansen and licenses. This year will be a low license revenue year. We expect it to be no more than 8% to 10% of revenue turnover. You can see the large uplift in license fees last year where we had some big wins. We had a VMO2 license deal land in the second half of FY '25. But this year, the number will be substantially lower. And I think that goes to the point that we are delivering and we are expecting to deliver margins of around 30%, and that's with a much lower license revenue cadence for the year. So I think that's important to draw out. Moving on to our first vertical. So Communications and Media. Andrew talked to the growth, 13.5% year-on-year. Again, EMEA, we're doing some really great things over there in EMEA, and it continues to be a source of growth for the business. We also -- excluding Digitalk, we think the Comms and Media business will be growing half-on-half into the second half of the year. We had Scott Weir, our President, here this week. He presented to the Board his pipeline, and there are some sizable opportunities out there. So we are optimistic that this momentum can continue into FY '27 as well. Bottom left-hand corner, you can see the license revenues. I just touched on that. You can see the $29 million in second half '25, primarily VMO2 and a few other licenses. But I will say that our second half '26, we're expecting license fees to be slightly higher than the first half as well. So overall, if you look at the contribution margin on the -- or the table on the right-hand side, this is the perfect sort of table to illustrate what we're doing here. So we're growing the top line 13.5%, and we're maintaining and actually reducing our cost base by 3.2%. And that, of course, results in contribution margin expanding from 48% to 56%. So we've talked the talk for a while now about utilizing AI and other applications to drive efficiencies, and you're seeing it in our business now. Moving on to the next slide to Energy and Utilities. And you can see here, the business is up 3% year-on-year. The energy business has been through a transition over the last few years in EMEA in particular, and we talk to what's happening in the Nordics with the energy transformation, digital transformation, they are leading the charge globally on what happens. We are front and center in the Nordics, and we are taking our learnings. We're rolling them out across other parts of the world. And more recently, we rolled out one of our applications from Finland into the North American market. So we're taking our best-in-breed products and expanding them globally. You talked to a growth rate of 3%, not overly significant, but what is something worth highlighting is the margin expansion, and we're going from 30% last year to 42% this year. And again, revenue growth of 3% and cost control with costs coming down 11% year-on-year. Again, I talked to pipeline. David Castree, our President for Energy and Utilities. He has a very solid pipeline. He's actually expanding that pipeline into parts of North America. There's a lot of activity happening in that market with the municipalities. And more recently, we expanded into new regions. We won a deal in Lithuania and looking at other opportunities in the Baltics as well. So the business is doing well from an energy standpoint and obviously, from a profitability standpoint as well. Moving on to what is my third key point to draw out. So I've talked to the margin expansion, our support and maintenance uplift, but our third point is around cash generation, and that's the reason we're in business. We are generating a substantial amount of cash in the first half of the year. The headline number of 418% seems hard to believe, and I'll just break it down a little easier for you. Operating cash flow was $54 million in the first half versus $10 million at the same time last year. But remembering last year, we had some buildup of working capital. We also had the restructuring costs for powercloud and other funding that went through the business. So not exactly an apples-to-apples comparison, but this has been a particularly strong first half cash generation for us. I mentioned before the R&D investment, $15 million has gone into our products in the first half. Obviously, we acquired Digitalk net of cash for $65 million, and that closed on the 31st of December. We also paid out a dividend. So a $0.05 dividend went out in September for circa $10 million. And then finally, and really importantly, leading to the next slide, we paid down about $30 million of debt. So I think from a cash generation standpoint, this has been one of our strongest halves in many, many years. Finally, on to the balance sheet and leverage. So off the back of the acquisition of Digitalk, our leverage ratio right now is 0.4, and it's actually declining as we head into the second half of the year. I expect our position will be net cash positive at some stage in FY '27. We're going to be paying down further debt. We've paid down more debt in the month of January. And this is, of course, is a dividend coming up in March. We're paying out another circa $10 million of dividends in March. So that brings our dividends paid out to our loyal shareholders to $71 million in the last 3 years. So we're in a very strong position to do further acquisitions. There's a lot happening in the market right now with valuations for tech companies. We're not going to change our thesis. We are buying very patiently, very prudently. The valuation is obviously very important to us. But to be in a position where we're sitting with a leverage ratio of 0.4 right off the back of an acquisition is a great place to be. So I hope I've drawn out the 3 key points to me. We've got some strong margin expansion and increasing into the second half. The support and maintenance, which is the rump of the business, the backbone of the business is accelerating, and we are highly cash generative. Over to you, Andrew.

Richard, thank you. Mate, even I'm slightly amazed when you talk about how much money paying out in dividends to people, this we provide our own working capital, use capital to buying businesses. It's amazing. So thank you, Richard, for your fiscal management. I just want to touch on Digitalk just for a moment because it is a new acquisition, even though we've spoken to everyone about it. But we did complete, as Rich said, the 31st of December. It is a great business with some great managers sitting the business. And I think we already alluded to that the founder of the business after 30 years used as an opportunity to retire. And we're still transitioning Digitalk under Hansen unified brand strategy at the moment now. It's very good customers, strong customer retention, where we're seeing is some cross-selling opportunities. But I think the thesis when we actually did that deal was based on what Hansen brings to the table. That's a small business up in Milton Keynes in the U.K. with global customers and what we're able to do is help expand that reach by utilizing our network of staff, offices, people, language and culture around the world. So we're very, very optimistic of how that's actually going. And we truly believe that global reach. On top of it, we know the investment and we're reasonably advanced on AI. The fact that we can come in on things like AI and help Digitalk to actually move their products forward probably leans a little bit more into future M&A, Richard, doesn't it? Because I think the way we think about things that we have to buy well. We've always bought well, and we've always traded on Hansen's key assets. which is our know-how, our Hansenisation, our balance sheet, et cetera. And I think going forward, we would find other opportunities like a Digitalk to take advantage. So it's a great one. And we certainly welcome all the Digitalk team to the Hansen brand and welcome to the family as we go forward. We certainly keep on looking at other verticals. I know we talk about it, but I'd probably like to be rewarded for not doing some acquisitions. We've always tried to find these new verticals where we can replicate where Hansen can add value and where it's not just be one deal or one transaction in isolation as an island. We want to move forward. But we're heavy into it. In fact, we've actually expanded our team with more team members in our M&A team now in our European office. So we welcome them to the thing, going forward. Look, turning to outlook. As we expect our second half revenue to be higher than the first half, and we're certainly targeting full year EBITDA margin of approximately 30%. We told you a couple of years ago, we would climb there, and we certainly are. We also note that the achieving long term, Hansen has always had a long-term view of running our business. And it comes down to the 3 things, which is really about the predictable, the execution, the tailwinds. So as far as the first one, that's visibility. That's the recurring revenues from our customers and the high level of predictability and is mission-critical. And the way we're thinking in terms of that is making sure that we're not giving a customer a reason to leave. Execution, it's a proven playbook at Hansen. We understand we have these deeper -- deep customer relationships with over 600, 700 customers around the world at the moment. Trying to identify increasing license share from our way at the moment now is how do we add value through our product and our product investment and AI is a serious contributor to that thing going forward. But also the opportunity, the decarbonization, smart grid cross-sell, AI multiplier is happening to all of our customers around the world at the moment now. We certainly are very lucky to have some great staff, some great innovators in our team as we're going forward. We want to be the subject matter experts, et cetera, and giving AI the tools as we've done in the last couple of years, we're seeing the benefits. So we remain extremely confident and have demonstrated delivering the 5% to 7% growth, not a made-up number, something which is real and sustainable EBITDA margin of at least 30% over the medium term is the way we're aiming. So that's my outlook. Thank you for listening to our presentation. I'm always sure there may be a question or 2, and we'll be more than happy to answer if someone has one.

[Operator Instructions] Today's first question comes from Josh Kannourakis with Barrenjoey.

Andrew, Richard, can you guys hear me okay?

Yes, we can.

I generally make a habit of not congratulating people on results, but you guys did a really good job on the AI discussion there and running through that. So thank you. That's extremely helpful. First question is on that topic, so around AI. Just in terms -- you obviously talked about that being an execution multiplier in terms of speed. In terms of your customers, like do you think there's appetite when you look at your existing customer base for potentially developing those new products? And maybe if we can just expand a little bit more on the new product pipeline. Does that accelerate the time to market on new products? And does it also add additional opportunity for pricing uplift?

That's a very, very broad question, Josh. And I don't want to give too much information out, but let me answer the question this way. We made every business is looking as efficiency as much as possible. But efficiency is not just about the way you spend money. It's actually the value for the money you actually spend. We -- 2, 3 years ago, our journey on AI was how can we add more or do quicker for our customers. And that's what we're trying to execute upon at the moment now. So if we can give in the hands of our customers more value for what we already provide, Josh, at the moment now, that's what our goal is. Now if that means if we can do it quick and we can do it faster, but we still get -- we maintain the same wallet, that's a great outcome as we go forward. Our view at the moment now is because we've got these long-term contracts, there's a lot more in terms of our R&D. But one of your -- part of your question was we are certainly developing quicker than what we did before. And we're getting things out there quicker in a more natural language to our customers as we go forward, and they are seeing the benefits. So it does mean that we should be able to get newer products or newer services, newer offerings to market quicker than they once were. I don't want to really give examples, but some complex product offerings or new tariffing or new regulations, which may have taken 3 months, we can now do maybe in 2 weeks. In fact, I was in our Indian office recently having this whole conversation with where we're seeing the benefits of our business. But as far as the business is concerned, we're really concentrating -- it's a bit like releasing a new model of a car. We're just adding more features to the model because we can, and we're utilizing that excess capacity to deliver more for less.

That's great. Second one, just on support and maintenance, obviously, extremely strong result there. And you did note that sort of continuing to accelerate. Can we just give a little bit more detail about was this period a particular step-up? Obviously, you noted some renegotiations but how should we think about the profile of that continuing? And I guess as to the second part of it, bringing back in AI, obviously, support and maintenance, there's a lot of regular sort of updates and things that go through, how much more effective and efficient can you do? So both on the revenue side and also maybe just to talk on the margin support profile there as well, how that's aided by AI.

Josh, just in terms of the growth rate, so it is right. I mean in the year, there's been a particular step-up. So I mentioned some implementations that may have now rolled into support and maintenance. That is business as usual. Some of the customer contract renewals are not such common business as usual step-up for us. So -- there's a bit of an uplift from that, that's more of a one-off. But the underlying -- the message I was trying to get out is that the underlying business continues to grow in the year, obviously, substantially stronger. But over the last 3 years, you can see it's a steady growth rate. But I would probably temper it a touch heading into FY '27, but I think it's all heading in the right direction. Your second question around efficiencies. That's exactly what we've been doing. You can see it in our financials. There is significant productivity gains, and we think they're coming for the next 6, 12, 18, 24 months at least. And it's across the whole industry. It's not just in technology, it's in many different parts of the world, but we are leveraging it, and I think you'll see some further margin expansion in that area as well.

There's actually, Josh, there is a broader thing, there's also some pent-up changes which regulators want to make at the moment now. And often, the market is having to push back because they can only absorb so much change so quick. So it actually goes -- if there's more capacity, the regulation will be risking making more changes. So it actually works hand in glove at the moment now. So we do feel deregulation, regulatory changes will probably be on the uptick in the next number of years as well.

Yes, that's great. Rich, you mentioned -- just to clarify a comment, you mentioned when you're talking on the cash EBITDA margins, obviously, strong performance in the period. I think you mentioned maybe trending towards 30%. Did I get that right? Or are you more discussing the other margin?

Yes. No, underlying EBITDA is trending towards 30%, and that's the outlook. From a cash EBITDA standpoint, I think we're at 26%, and that will naturally lift as underlying EBITDA lifts as well.

Okay. That's great. And final question on M&A. I mean, obviously, it's very -- we've seen the listed market disruption with AI. How are you seeing the pipeline and potentially some of the opportunities that may come up over the next few years? Do you think you'll be able to take advantage of some of that disruption in the market? And maybe just to give us a little bit, Andrew, a bit more flavor on where the current pipeline is sitting, what you're seeing out there? Obviously, listed multiples have come back a lot. So how does that change your view or how should we?

Well, we certainly want to use this reduction in multiples, Josh, to our advantage. And that means a bit of a focus of the team also looking at listed entities. And we're trying to find the option -- it comes down to where Hansen adds value. If we can't add anything to the equation, we tend to walk away. So we like it where we think the -- we're reasonably advanced on AI. A lot of companies aren't -- and we're trying to find those where we can actually bring value to. There's no -- our book is full of -- just as many opportunities today than it was last year. It's not moved. You're dealing also with people having to relook at the valuation multiples of their business. So that means if you're privately owned -- if I was talking about buying your house for $3 million, now I'm offering you $2 million, you've just got to sometimes let that work through the system. That hence is probably a little bit more focus on some listed opportunities, which Hansen has not really done in the past. We've done some divisions, but ultimately, but there's a number of companies in our space around the world. Imagine a Digitalk, which had been a public company, it never had the legs to truly globally expand. And we just gave it to them for nothing, et cetera. So -- there's no doubt valuations will come past. Our team is just as busy as ever. But you're right, we -- probably more than ever, we want to buy well, and we want our asset, which is really our know-how, our Hansenisation AI to be used well to optimize any business we buy.

And our next question today comes from Garry Sherriff with Royal Bank of Canada.

Andrew, Richard, Peter, good result. A couple of questions on AI and also energy. Thanks for flagging around the 8 embedded solutions, you guys have effectively put out into the platform. Just trying to get a sense, how many of those are in market versus proof of concept? And maybe just a sense of the quantum of revenue that's being generated from these AI solutions. I understand it's early days, but just trying to get a bit more color around those 8, how many are actually in market and roughly how much is being produced from a revenue perspective?

Well, all of them are in market and a proof of concept -- proof of concept means that a customer is actually using them, maybe not at the full scale, Garry. So that's where we are at the moment. You've got to understand there's probably also a bit of nervousness with customers because they don't want to break their businesses. As far as the commercialization of the offering, if you think in terms -- this is not replacing the existing product. Because what you do with RAG, you use RAG on your existing products. So you actually have like a module added to your existing application to actually be able to retrieve data in different context to what we're doing at the moment now. Because we've been able to get these things out quick at the moment now, we're probably less thinking of the commercialization of it because we are trying to use our surplus capacity to add this value to actually be more entrenched with our customers.

Understood. And again, I know we've talked a little about or a fair bit about margins and talking about efficiency and productivity improvement, which has been super impressive. I mean, realistically, where do you think the contribution margins can get to in each of those segments?

Garry, I know we don't want to disclose where we think it's headed. Look, we're in the same market as a lot of other tech companies. We are seeing efficiencies. You would have seen it last year and yesterday coming out with an announcement. There is certainly a speed to competency that we're seeing and some productivity improvements. All we can say is that we think this has got some legs to run. I mentioned 6 to 24 months of productivity gains. I think our best bet to be honest, is we'll keep updating the market every 6 months with our views. But our views are no different to the rest of large tech companies out there. You're seeing it every single day in the papers, and I'm just pleased that we've been able to embrace it as quick as we have.

And it's just not tech, Garry, it also goes into all your supportive parts of your business like these new applications, which our legal team actually use now or what happens in finance. It's across the board, remembering that we're still -- 20% of our business is actually operational support for the business. So we're looking across the board where these efficiencies are taking place.

With the -- from an energy perspective, looking at the Energy segment, it grew 3% of the top line. I just wonder, is there any impediments to faster growth that you're seeing on the ground? And I guess, is there any risk around deprioritizing energy transition policy just in the midst of the geopolitical tensions. We obviously see what Trump is doing, et cetera. But has there been any slowdown around that? Because I guess I would have thought that the top line growth for energy might have been a bit stronger.

Yes. We probably have a similar sort of view. The trouble is when you've got destabilization, and we've all been around this industry for a long time. It does play into the marketplace. And destabilization -- the revenue is not sometimes lost, they actually just move out. It's a longer decision-making process when people are looking to deploy capital and making changes. So in the energy market, if you think in terms when the regulator puts a change, that is compliance, they must do it. But when it comes to their operational efficiency, that probably becomes second to an organization. We think, as Richard said, we've got a number of initiatives at the moment now, which we've never taken advantage of. And this is across selling into different regions. To sell a product which is very strong in Europe, our first one going to North America is a catalyst for us to tackle a market we've never gone after before. And so that's actually MDM, part of it we've never tackled before. So we certainly see some changes. We -- I can probably answer it this way. You'll probably understand we're investing much more in sales and marketing in the energy market than we ever have as a sign of confidence and what the potential opportunity is.

Understood. Last question is probably a devil's advocate question just around AI and the proprietary data. Hansen is a system of record that acts as a truth -- or a source of truth, I guess, for billing and settlement. You mentioned there's proprietary data within the platform, which generic AI can't easily access. Can you maybe walk us through why that is the case? I mean, why can't generic AI or agent access the data? I guess, the market somewhat worries around systems of records becoming commoditized and reduced to the back end while users interact with an agentic front end. So maybe just, again, a long-winded question. Just trying to get a sense of walking through why you don't think a material risk?

Well, if you look in terms of our customers' data, their customers' data, which we are seeing is everything from their CRM to their general ledger to their compliance, their market responses, their data, their billing and all those things there. So they're all databases of record. That's exact data. And so the trouble when you start to look at LLM, large language model, it actually is looking at more and not being able to focus into it. Secondly, a lot of this data is not out in the marketplace. This data is not shared. It's not on Google, you can't find it. So this is the problem with that. AI is an amazing tool. As we say inside Hansen, AI is the answer. People just don't know how to pose the question. It's -- there's a degree of -- in our industry, actual data must be accurate and can't be compromised. And there's so many stories about the troubles when you go out into the ether, the hallucinations of data, which is not real. Our customers can't afford to ever be looking at data, which is not their data and can't be hallucinated must be real. And so therefore, to ring-fence it in a RAG is the way to achieve it. It is by nature -- so a new -- someone trying to enter our marketplace does not have that historical decades' worth of data at their fingertips. All they have is what's out in the ether, which doesn't make any sense when you're trying to make sense of the data because it doesn't have the right context.

Stock is up about 16%, so well done. Well done today.

And our next question today comes from Evan Karatzas with UBS.

Can you give a bit more color around the 2H revenue growth expectations? Like being above is a big range. So any sort of additional information you can give would be appreciated there.

I think we're being a little -- we're being a bit cautious, Evan. I mentioned FX. And honestly, in the last week, you've seen it change even further. And we have some pipeline opportunities. But if they land, it will obviously change things as well. So in our view, it's -- where are we? We're in February. We came out last year with an update to the market in July. I'm not suggesting we'll do that. But we're just being a little bit careful. We have, as you remember, withdrew full year formal guidance for FY '26 back in August, and we're just consistent with that theme going forward.

Okay. All right. Maybe just one other thing on that quickly then. I mean you sort of said in your prepared remarks, Richard, that license sales will be 8% to 10% of revenue this year won't be more than that. I think, they were about 6% in the first half. So just confirming that, I mean there will be some level of step-up in the second half from the licenses? And then.

Yes. There will -- I mean, I mentioned -- sorry, Evan, do you want to finish?

But that 8% includes that Telefonica renewal as well as the other -- just the final part to that.

No, I won't talk about specific contracts and Telefonica is one of many large Tier 1 customers we have. But I did say that license fees will be stronger in the second half, and that's primarily in the communications and media space, but nowhere near the level of last year, which is why I think the results are particularly strong when you're coming off circa $50 million of license fees last year. It's a substantially lower number in FY '26.

Yes. No, no, agreed on that. Just one final one. So just noting the growth and expansion you've sort of talked to in the energy business throughout Europe, but probably still the biggest opportunity remains that German market. Can you just speak to, I guess, how you're thinking about that business or that region returning to growth in FY '27? And any data points you can give us around how the RFP pipeline is shaping in that German region, please?

Yes. Look, it's a massive disruptor. As you know, the rolling out of smart meters and getting behind the meters is, it's a very immature market at the moment now. We had a massive change to the market and the regulators which rolled out about 7 months ago. We hit that on time, et cetera. It's fair to say the market is still shell shocked by that change as they're on their journey at the moment. But when we first talked to it, the German marketplace was always this 10-year view. It's one of the third largest economy in the world, and we just knew they're going to have to adopt technology. We're very happy with our purchase, very happy, excited by the marketplace. But it's -- the biggest change will happen with the forcing of smart meters and new regulations coming forward. And it's tabled. It's just -- we're just waiting -- it's all about positioning ourselves and our applications to be ready for it. We're rolling out some AI into that marketplace, et cetera. We're doing all the right things, but it was never going to be in the next 12 months. It was always -- as you know, there's another 5 years to go for this regulation to be fully rolled out.

And our next question today comes from Jules Cooper at Shaw and Partners.

Look, I don't mind complementing management teams on a great result. That was really, really strong today. Just one question, if I could, Richard, just on the revenue, just to sort of be clear, we can see that the A dollar is stronger and who knows where it ends up in the second half on average. But just from an underlying perspective, ignoring the currency, have your expectations changed at all around revenue generation in the second half versus, say, August?

We're largely on track, Jules, to exactly where we thought we'd be from a budgeting standpoint. So the rates we set from a budget standpoint for FX back in April, May, have obviously changed quite a lot. The Aussies strengthened. But when the business is turning over, what we're going to call it circa $400 million plus, a few million dollars here or there is not material to us anymore. It was when we were a $200 million business, but not now. So what I wanted to draw out was, yes, the top line will be impacted by FX, and it won't be overly material, but we're hedged on the cost side as well. So EBITDA is largely protected.

And our next question today comes from Amelia Hamer at Ord Minnett.

And Richard, well done on the results today. I know we're all sort of slogging AI like a dead horse today. But I noticed a drop in the capitalized development costs from about $9 million to -- sorry, from $9 million to sort of $6.5 million in that cash EBITDA number. Would you attribute that all to AI? And is there anything you can kind of quantify in terms of have you done a headcount reduction? Is there anything quantifiable from those development costs? And then when we look forward to the second half of the year, would you expect that to fall again? Or what are you sort of thinking?

Yes, Amelia, you're spot on. So we're getting a lot more done for less is the simplest way to put it. So AI tool sets, Andrew talked to the RAG, which for those who know technology, establishing a RAG in your own proprietary environment for your multiple products is actually quite difficult. We've got that up and running a long time ago, and we're now seeing the ability to get development done far quicker than we have previously. So I expect that the R&D actual capitalization probably won't increase a lot because we're utilizing tools to get it done quicker. And then in terms of -- sorry, what was the second part of your question there, Amelia?

Can you quantify anything in terms of headcount reduction? Anything that you can clarify or anything?

Yes, I mean, look, you don't -- it's a sensitive topic. We talked to it at the full year results that there had been some reduction in headcount. Obviously, there has been, right? So in the first half of the year, you can see it in the financials that some headcount has come out of the business. If you look at the trends globally, that's where the market is typically going. But we're trying to grow the business. We're going to need people to support the business going forward. So it's a combination, and it's a balancing act between speed to competency getting more done with less, but also having the right people in the right seats.

And then just on competition, particularly in the energy side of the business. I've been hearing a bit of commentary from sort of adjacent players and different people in the space about a bit of increased competition that they're seeing. Anything you can give us in terms of the dynamics you're seeing in the market at the moment?

I mean there's the standard players, Amelia, that have been around forever. The 2 key ones that come to mind are SAP and Oracle in the energy space. If I was in their shoes, they've got probably some bigger challenges than most. One of them is end-of-lifing their current software and looking to migrate to a new stack. So they've got some challenges. We talk to energy specifically. There are hundreds and hundreds of billing providers out there. Many of them are on legacy tech stacks, which we are not. So we look at this as a great opportunity on the energy side. You hear about these new entrants into the market. Honestly, we think that's quite a good thing. It triggers the market to consider more RFPs and moving off legacy tech stacks. So we're all for new entrants into the market. On the comms side, it's a global product we have. There are the standard 2 or 3 competitors that they have been for the last 5, 10 years. We come up against them on a frequent basis. We punch above our weight, I believe, for the size of our company. And if you look at the ranking of our products at bodies such as TM Forum, which is a global body for communications, we are ranked consistently at the top of the pile. So competition is everywhere. It's obviously good for some and bad for others, but we look at it as a positive.

And you're not seeing any pressure on implementation costs or anything like that in the energy space. We've just heard that recently from some other players.

I'm not probably sure what they're saying. There's no doubt implementation times will be coming down, et cetera. The limitation of all these things is still your subject matter. So whilst we can talk about developing is quicker, the deep-seated knowledge of the data and the people, that doesn't really change. But there's no doubt some of coding and other things and certainly migration helps. So we would like to think -- like all our application, our plan is to implement our software quicker into the future. And it's already -- we're already doing it quicker now. So I don't know it's actually driven by customers because they're all customers once they made the decision, they want the application as soon as possible. So that's always been the case. The fact that we can do it quicker is to our advantage.

And our next question comes from Michael Trott at MST Financial.

Andrew and Richard, I just wanted to start with revenue in Energy and Utilities and specifically EMEA, which had 9% growth, but this also roughly includes $21 million from powercloud and like the $1.5 million to $2 million from CONUTI. I just wanted to see based on that, which implies 6% to 7% growth in the underlying business, can you just provide some color on whether there was any growth in powercloud over the half? And then I guess as a follow-up to that, given any growth in powercloud suggests deterioration in the underlying EU growth, can you just give us some color on, I guess, the churn in EMEA that you might be seeing?

It's been a pretty optimistic day that we'll go with a negative question. So we don't disclose powercloud anymore. It's part of the CGU, Michael, that it just rolls up into the energy space. We talked to this year not being a growth year for powercloud. There is no significant churn across the EMEA market. We've got hundreds of customers up there in the Nordics. Sure, there might be a few that drop off, but we've also won plenty of new deals. So there might be some more color at the full year in terms of breaking out what you're after, but the powercloud is now Hansen Germany. It's just part of our business. The product we sell in Germany for Hansen is not just the powercloud product. We sell our MDM, our EDM, our trade solution and others. So to be honest, mate, we don't even talk to the powercloud solution anymore as a stand-alone business.

So was there any growth then? Or just happy to leave that for the full year, I guess -- for the full year to provide? Yes.

Like I said, it's part of the CGU. So it's irrelevant really. It's -- we don't even report on it separately anymore.

Okay. Then moving on, you discussed a lot on retrieval augmented generation and how this distinguishes your business from, I guess, the overall view on SaaS and the AI disruption. I'm just kind of wanting to understand how you kind of view Hansen's current RAG capabilities versus those being developed and deployed by some of your competitors. Is Hansen more of like a traditional RAG with like a traditional router module? Or is it using, I guess, what some of your competitors are looking into, which is Agentic RAG?

Mate, we probably -- I don't know. You might have full details on what our competitors are doing. I don't. So it's very hard to compete against someone doing. But maybe that's probably a more deep-seated question, which might play -- goes more to our customers to ourselves, et cetera. So I'll probably best leave the more technical element to people who better understand or understand the context of the question.

Yes. Sure thing. And then lastly, just wanting to -- because you've just touched a lot on it, other factors are there like switching costs and the fact that the data your customers hold is not openly available. Just with the world's gradual like move towards open data reforms, do you think this eventually starts to impact on the moat currently held by some of your peers and yourself? Or is it still something that you think will just like not have an impact overall?

Do you think, Michael, it makes more of effect? Do you think our customers want their data out open? They don't. Their data is their asset. If you think about all these companies. So I can just predict we support the industry. The industry does not have an open mind of presenting all their customer usage data, call center data out in the open. So I think our customers will work very, very hard to have their own moat about their own data and not wanting to put it out there as an open architecture -- [ retrievable process. ]

Just with open data, you can still have it open but encrypted so that the average consumer can't see it. It's more so that it enables switching costs amongst some of your peers to, I guess, make it more sustainable and more open for customers to be able to, I guess, not be locked into these long-term contracts.

I can only say it from our side, I've not necessarily heard of any customer at the moment now, which is actually in favor of doing it. So I don't quite -- I'm sure maybe someone's mentioned maybe an energy company said we're happy to give our data out to the ether. But I've not heard of it myself yet, mate, to be honest.

And our next question comes from Annabel Li at Goldman Sachs.

I've just got one follow-up on margins. So clearly, you've talked about a lot of opportunity coming from efficiencies and AI as well. But just with underlying EBITDA margins lifting to 31% in the second half, if my math correct, should we think about this run rating into or even expanding into '27, just given some of that commentary?

I think the best way to look at it, Annabel, is we are talking consistently and have for 3 years that we'll be getting back to a 30%-margin-plus. And we're delivering it now for FY '26, and I would expect that will continue. Whether or not there's further upside to that, we'll go through our budget process, and we'll update all of you in August.

Thank you. There are no further questions at this time, so I'd like to turn the call back over to Mr. Hansen for closing remarks.

Thank you very much, and also thank you for the questions which came through. I think we've provided a bit of color to what we're doing as an organization. I appreciate everyone's interest. And for those shareholders, we enjoy your support and our continual journey together. Thank you very much, and goodbye.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.