Softcat plc (SCT) Earnings Call Transcript & Summary

Thank you, Naz and Iain. I am Conor, and I'm here today with Josh to present our commercial licensing updates. So Microsoft has announced a change to how exchange rate adjustments are managed. Exchange rate fluctuations between local currencies and the U.S. dollar can result in pricing changes within those individual markets. At the moment, local currency pricing reviews typically occur twice a year, once in February and once in September. From 2027 onwards, Microsoft will move to a single annual review cycle for Microsoft Online Services. This change will mean that currency-based pricing adjustments will take place once per year every January, with customers receiving advanced notice in November. Moving to a single annual review provides greater pricing predictability, improved budget uncertainty and clearer renewal planning. The second update involves any new purchases of Copilot business, that's the stand-alone licenses and the bundles, from December 1, will have usage-based billing included. So this means each license will have a default limit of 4,000 credits per user per month, with the charges based on the actual usage. These credits can be used for usage-based experiences such as Cowork, WorkIQ APIs and GitHub Copilot Harness. As our third change, effective from Friday, the 1st of January 2027, both PowerUp Premium User subscription plans will increase by 10% for less than 2,000 users and 17% for 2,000-plus users. This will apply to new purchases or renewals. Existing subscriptions will retain their current pricing until the end of their current term. The revised pricing only applies where a new subscription term begins on or after the 1st of January 2027. So a quick update on the ESUs. So Windows Server 2016 ESUs will be needed after the end of the extended support phase, which is scheduled for the 12th of January 2027, although these are now available to purchase on CSP. And the same goes for Windows 10 Enterprise LTSE ESUs, which are also now available to purchase on CSP, which will help you to receive critical security updates beyond the product support life cycle. Now CSP software subscriptions are the purchasing channel for on-premise licenses like Windows Server and SQL Server in a subscription manner. From the beginning of this month, there has been an increase in cost for monthly billing frequency to bring the subscriptions in line with online services, which saw the same increase from the 1st of April 2025. And then last but not least, there has been a change solely in name for Windows 365 Frontline. There's no change in functionality, but that has now been renamed Windows 365 Flex.

Perfect. We'll now hand over to Julia to present the public sector updates.

Thanks so much, Josh and Conor. My name is Julia, and I'm a public sector Microsoft licensing specialist here at Softcat. So today, I have some updates for our U.K. government, NHS and charity customers. So like Naz mentioned at the very beginning, Microsoft is continuing to focus on broadening the AI and surrounding product offering such as your enhanced data governance and security and also supporting customers on their AI journey. Today's updates for public sector reflect exactly that. So first, let's have a look at the updates for our government and NHS customers. There have been some changes for our [ SPA 24 ] qualifying customers and NHS customers. So SPA 24, meaning the strategic partnership arrangement 2024 it's an arrangement between Microsoft and the [ Crown Commercial Services ] that gives eligible U.K. public sector organizations enhanced commercials across various Microsoft products like your M365 stack, Azure, BizApps and most recently also Microsoft Copilot. So now we unfortunately can't share the exact specifics of the SPA 24 or the NHS MOU or the memorandum of understanding as the detailed information is available only for eligible customers. However, at sort of a headline level, firstly, for organizations that qualify for SPA 24, there are now discounts available for Microsoft 365 E7, and that has been available since 1st of October. And there are also additional Microsoft Copilot discounts as well. Secondly, there is an update to the NHS MOU regarding Fabric F64 on the central tenant specifically. So F64 is the fabric tier that has recommended for customers who are moving from your Power BI Premium P1 capacity that was recently retired. So importantly, the F64 and above allow Power BI users to consume Power BI content hosted on that capacity without having to license all the users without Power BI Pro. So if your organization requires Fabric F64 simultaneously on local tenant and central tenant, i.e., you used to have Power BI Premium P1 capacity, we would very highly recommend picking up this topic more in detail with your Softcat account team. There are also a few other NHS-specific updates relating to the central tenant migrations and Copilot licensing. Again, if you're interested in discussing the SPA 24 E7 or the Copilot commercials or you're an NHS organization using or planning to use Fabric for Power BI, please do contact your Softcat account manager or licensing specialist so we can get you the details of these changes. So finally, I do have a few more charity offers on CSP. Let's move on to that one. The final update is that the Microsoft Copilot offer for nonprofit organizations purchasing through CSP is now available. So the discount applies to the nonprofit price and is available until the end of the year. The qualifying organizations, however, will have to need to confirm their charity status with Microsoft directly in the Nonprofit Portal. So these offers cover annual subscriptions with either annual or monthly billing. And there is this full volume band. So 10 to 99 licenses, the discount of 15% applies to customers that do not have any other Copilot licenses on any other agreements, including CSP or EA or [ Lisa ]. Now the other 3 bands, so 100 onwards, the discount is 20%, and 300 and up, it rises to 30%. And above 1,500, the discount is 40%. So each of those 3 tiers, you need to purchase the licenses as a brand-new CSP subscription. The discount will not be applied if you just add those quantities to an existing subscription. So eventually, if you are considering this offer, let's just confirm your required license quantity and existing Copilot subscription so we can actually identify the relevant band and check the conditions and eligibility before the purchase. And finally, so as a quick summary, if you'd like to discuss any of these public sector topics, including the SPA or the NHS updates or the charity Copilot offers, please do reach out to your account manager or your licensing specialist, and we are very happy to support. So thank you so much. And I'll now hand over to Steven to give an update on Azure-related topics.

Thank you, Julia. Good morning, everyone. My name is Steven Stewart. I am a member of our Product and Services team within our Hybrid Platforms division. Today I'm going to be providing information on recent and upcoming service retirements in Azure, the current state of Azure's native Copilot service. So yes, we will be talking about Copilot. And the renewal of Azure Funding Pass. Let's get into it. We wanted to bring your attention to a set of Azure service retirements that have taken place and are soon upcoming. On July 1, the ability to purchase or renew a set of reserved instances have ceased. I have the relevant virtual machine categories up on the screen here. This also means that once these reserved businesses have run their usage, you will lose access to them. If you wish to know if this affects you, navigate to Review VM Family and Reservation Expiration Date within the Reservations page in the Azure portal. On the 30th of September, the NVV 3 and NVV 4 virtual machine series was retired. Virtual machines in these states will have been deallocated. If you wish to keep using services on these virtual machines, you will need to resize them. However, please be aware, before you do that, you will need to request a quota increase for new target virtual machines. As of the 13th of October, GPV1 storage accounts have been retired. If the customer had not moved over to the new accounts by that date, they will have been also migrated to the GPV2 accounts. Please check if this applies to you as there will be cost changes with moving to the new accounts. Now on the 23rd of October, so this Friday, Azure Communications Service will not be taking any more customers and will be fully retired in September 2028. Microsoft is recommending Microsoft 365 and Dynamics 365 apps as a replacement. And then on the 31st of March, Microsoft Sentinel will no longer be supported in the Azure portal. Instead, Microsoft is moving Sentinel into the Microsoft Defender portal, creating a unified [ SIEM ] and XDR experience. This will not add an extra charge, including for non-E5 customers. Sentinel consumption continues to be billed as usual. However, Microsoft do recommend that customers start planning their transition now. Moving on to Copilot in Azure. So linking to what Iain mentioned about AI innovation in Azure, as of October 2026, Copilot in Azure has 6 agents. Now this service was launched in 2023, and over the last 3 years, moved from being a conversational assistant, providing explanations, advice and troubleshooting towards an AI-powered cloud operations tool. Importantly, these agents have agentic capability, meaning they can act on prompts that can make changes to a user's environment. Now the agents are currently the troubleshooting agent. Here you would describe your issue to this agent and it would diagnose the problem, find a solution and take action to resolve. If the troubleshooting agent can't resolve an issue, it can create a support ticket, gathering the necessary details so Microsoft Support can assist you more effectively. The next one is the deployment agent. The service aims to accelerate deployment speed and lower the barrier for entry for your creators. Users can describe their high-level goals to the agent and, in return, it will provide step-by-step guidance for deploying a production-ready best practice environment. The next one is the resilience agent, or resiliency agent rather. This service can judge the resiliency of your workloads or planned workloads, provide recommendations and execute remediations. You then have the optimization agent. This service can identify how to optimize workloads and operations, reduce carbon emissions and reduce costs. For instance, you can ask it to show you the top 5 cost-saving opportunities for any given subscription. And from that prompt, it will produce a series of recommendations. The next one is the migration agent. This service aims to assist migrations by allowing you to talk to your Azure migrate data. For instance, you can ask it to summarize discovered on-premise [ inventories ], the options for moving workloads into Azure, return on investment comparisons and much more. And finally, the Observability Agent. This allows users to use natural language questions when querying Azure Monitor Data such as log analytics insights. It's important to note that Copilot and Azure exists within a user's current Azure permissions and governance boundaries. The agent can only access resources and perform actions that the individual user has permission to access. Furthermore, user confirmation is required for actions from the agent to be completed. Agents are managed at the tenant level, so administrators can enable or disable individual agents. Currently, these agents can be used at no extra cost, except for the Observability Agent. While we're here, we want to flag that Microsoft has renewed its funding commitments with partners for this financial year. Should conditions be met, customers may have access to funding that can go towards Azure Professional Services relating to migrations to Azure and innovations within Azure. And over here, we have some examples of what this can go towards. And there's a decent range here. For instance, it can be applied to moving virtual machines or SQL databases into the cloud. But it also can be applied to more niche projects such as virtual desktop projects or fabric projects. So what are the prerequisites? For a project to be funded, there needs to be an increase in Azure committed revenue, which essentially means predicted Azure spend for the next 12 months. The bigger the increase, the larger the funding Softcat can apply for. Now please note that the customer needs to be on a Softcat CSP, committed to joining a Softcat CSP or in a Microsoft enterprise agreement for us to apply for this. And as a rule, a funding path cannot be applied twice for the same project within the same financial year. Please be aware there's more funding criteria than what's being displayed here. but this is the basic requirements. If you have an upcoming Azure project, which will require professional services, please contact your soft account team who can arrange a scoping call and we can see if you're eligible for funding. That's all for me. I'm now going to pass you over to Naomi for an update from customer success.

Thank you, Steven. Hello, everyone. I'm Naomi. I'm one of the Microsoft CSMs. And I'm here today to talk to you about the updates regarding the new Copilot vouchers. Let me start by summarizing the 3 voucher routes available and where each one can help. The Copilot agent voucher is aimed at organizations that want to move from an AI idea to a working agent. The engagement helps identify the right business process, shape the use case and then build, deploy and adopt an agent using Microsoft Copilot and Copilot Studio. The Microsoft funding reduces the cost and specialist support while keeping the focus on a practical outcome and measurable productivity improvement. The M365 Copilot voucher supports the successful rollout and adoption of Microsoft 365 Copilot following a qualifying investment. It can cover readiness, deployment, adoption, training and value realization. So the investment translates into a confident everyday use rather than simply making the technology available. The E7 deployment voucher is focused on security and compliance. Following a qualifying E7 purchase or upgrade, it provides funded expert support for planning, implementation and knowledge transfer. The important point is that each voucher targets a different priority, but all 3 are designed to accelerate value from your Microsoft investment. We can help confirm the eligibility and shape the engagement around the outcomes that matter most to you. So why work with Softcat on a Copilot agent voucher? The first reason is breadth of expertise. Building a successful agent is rarely only an AI exercise. It can involve Microsoft 365 Copilot, Copilot Chat, Copilot Studio, data, security and governance. Our wider Microsoft capability means we can consider those dependencies from the outset rather than treating them as a separate issue later. Secondly, we begin with business value. We help you identify practical use cases, test which ones are worth pursuing and align the chosen opportunity with your wider technology and business priorities. That creates a much stronger foundation than starting with the technology and searching for a problem afterwards. Thirdly, we support the full journey from discovery through design, governance, testing, configuration and deployment. That structured approach helps reduce delivery risk and shorten the path to value. Most importantly, the objective is not to stop at a proof of concept. It will help you move towards a production-ready agent that people can adopt that solves a genuine business need and that delivers an outcome you can measure. We would work with you to define that outcome clearly before delivery begins. For Microsoft 365 Copilot vouchers, our role is to help you turn the available funding into sustained business value. We support the end-to-end voucher life cycle, checking eligibility, shaping the engagement, coordinating delivery requirements and simplifying the program administration. That gives your team a clear route through the process and reduces the effort needed to manage it internally. The delivery itself follows Microsoft's recommended approach. We assess readiness, identify the use cases that matter most and agree meaningful success measures. This is important because Copilot creates the strongest value when it is connected to real roles, workflows and business priorities rather than deployed as a generic tool. We also put significant emphasis on adoption and change management. Training is a part of that, but successful adoption goes further. People need confidence, relevant examples, appropriate governance and support to embed Copilot into their everyday work. By combining deployment, adoption, the value realization, the engagement is designed to accelerate time to value and improve the return on your Copilot investment. The next step would be to understand your current position your priority user groups and the productivity outcomes you want to improve, then shape the voucher engagement around those needs. Finally, for E7, Softcat brings together expertise across security, compliance and identity with an end-to-end approach covering design, deployment and adoption. We start by helping you make the most use of the Microsoft-funded engagement. That includes making the application and approval process, defining the scope that reflects your priorities and making sure the planned work is clear and achievable. This reduces the administrative burden on your team and helps delivery begin sooner. Once the engagement is underway, we use Microsoft Aligned delivery frameworks to guide the work. The focus is not simply on enabling capabilities, it is on implementing them in a way that fits your organization and supporting the knowledge transfer and adoption needed for them to create practical everyday value. The result is more joined up route from investment to outcome, less internal efforts spent navigating the voucher process, greater confidence in the deployment approach and a clearer path to realizing the value from your E7 capabilities. From here, we would suggest 3 simple next steps: confirm your eligibility, agree the security or compliance priorities you want to address and then define the scope and time line for the funded engagement. We can guide you through each of those steps. I will now pass you back to Iain and Naz. Thank you.

Thanks, everyone, for listening today. I just wanted to wrap up. So a big thank you for joining, and thank you to all of our speakers. We hope the session has given you a useful insight into Microsoft latest developments across licensing, products, public sector initiatives and customer success opportunities and further funding.

Cool. I just want to thank firstly the presenters for presenting today and go for these updates. And thank you all again for joining as well. Just wanted to say before everyone leaves, just to take a moment to scan the QR code on the screen and complete the feedback format of the session. Your feedback actually really helps us shape our future QTR as we do this every quarter, right? So the more feedback that you give, tell us what you enjoyed about today, tell us what you would like to see more of. And then so we can discuss the topics most relevant to you. And again, just closing, if you'd like to discuss any of today's themes in more detail, please reach out to your Softcat account manager or your customer success team. And on that note, have a fantastic day, everyone, and we'll see you hopefully in a few months' time at the next QTR.