Tracsis plc (TRCS) Earnings Call Transcript & Summary

Welcome to the Tracsis Full Year 2023 Results Webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Chris Barnes, CEO; and Andy Kelly, CFO. Chris, over to you.

Thank you. Good afternoon, everybody. Thank you very much for joining the presentation this afternoon. The presentation will be split between Andy and I. It will take about 35 to 40 minutes in total. And then we will be available for -- to answer any of the questions that you either post during the meeting or wish to ask at the end of the webinar. So what we'll do is just start with an overview of the business for anybody that's on this call who's not familiar with who Tracsis is. So overall, our fundamental purpose is to make transport work, and the business is split into 2 sections. We have a software and product part of our business that is -- has a very strong footprint across the Rail Technology space in both the U.K. and North America and has very high levels of recurring revenue. And then we have a second half of our business that we call Data, Analytics, Consultancy & Events, that is a -- that has a mix of professional services, data science and service-based provision that includes everything from traffic data surveys through to traffic management at major sporting events and music festivals. And the 2 parts of the business complement each other in that we have a very strong footprint across the transport space. Our consultancy expertise enables us to get to the very highest levels of our customer base and to build their trust and ultimately to deliver software solutions to them. And then the data that we collect from our software solutions then puts us in a very strong position to be able to then provide data insights, analytics and visualization technologies that then go around making sure that, that data improves where capital is deployed, improves operating performance and improves operating efficiency. And on the Data, Analytics, Consultancy & Events side, it's not -- that's not a software side to our business. That is a business that has high levels of annual repeat revenue, that is very much about people and service provision. The business is built on a long track record of growth, all almost solely self-funded through a mixture of both investment in technology and R&D, and also through investment in acquisition. The group currently has 550 employees split across the U.K., Ireland and North America, roughly 50 in North America, roughly 100 in Ireland and the rest in the U.K. And you can see from the slide on -- the graphs on the page here, we pride ourselves on delivering strong year-on-year growth, and that is a story very much underpinned by our strong cash generation and our investment in new technology. Alongside that, we are strongly cash generative. The business doesn't have any debt. We spent over GBP 40 million over the last 3 years on acquisitions to bring new capability into the group. And this year, we spent almost GBP 10 million in contingent and deferred consideration on a number of those acquisitions. So we've only got about GBP 400,000 left to pay now on historic acquisitions. So that gives us an awful lot of horsepower now to focus on continuing to grow the group, especially through acquisition moving forward. So that's it as a very quick introduction to the group. Now I'll just provide an overview of the highlights from the last 12 months. So we've made strong progress in implementing our growth strategy, that has seen us grow Rail Technology & Services revenues by 26%. Importantly, that has seen a 9% increase in annual recurring revenues to now GBP 23.1 million. And that's an area which we will continue to see grow as the various SaaS implementations that we have in our order book go live. Three of those SaaS implementations did go live this year, and we have a number of other ones that we'll talk through during this presentation that will go live during FY '24 and FY '25. Alongside that, we've seen really strong performance in our North American business. This was a business that we acquired in March of 2022 and has a really strong product offering, both from the products and services that we acquired from the acquisition, but also from the technologies that we are planning to bring across to the North America from the U.K. rail sector. EBITDA continues to grow and has grown to GBP 16 million this year. And importantly, as well, this year, we've been on a restructuring journey with the group to simplify our operating model. And as part of that, the Traffic Data & Events business has been integrated into a single business, which enables us to really focus on delivering our 2030 carbon-neutral objectives, and also to bring those services together to offer a better, stronger value proposition to our customers. So overall, a strong set of results, and we'll go into more detail as we go through the presentation. And then alongside this, one of the key questions we get asked by just about every investor in the business is, what does the future look like with regards to Tracsis. 3 key things, digital transformation, changes of government that are a possibility in both the U.K. and North America over the next 12 months. And also ongoing industrial action, uncertainty around things like Great British Railways, what are the impacts of those on the Tracsis business. So in summary, we've got our -- probably our largest ever order book right now of long-term work. We've got Network Rail now having confirmed that they've got GBP 43.1 billion of funding confirmed for Control Period 7, which starts next April. We've got an industry that is very much focused on improving train performance, both for passengers and for freight. And we, at the moment, have a rapidly growing month-on-month pipeline of new opportunities. So in terms of, is there a demand from the industry? Absolutely, yes. In terms of government change, both our largest rail markets will go through general elections in the next 12 months. If you look at both those economies, efficient and affected public transport is essential if the government is going to drive its decarbonization and sustainability agenda. So through all of the conversations we are having with civil servants in both geographies, the message back is that the investment in digital transformation, the investment in better public transport and public services is going to continue. And therefore, given the service offering and the product offering that Tracsis has, we should continue to focus on what we're good at and the demand will continue to come through those 2 markets. And then finally, in the King's speech last week, there was some clarity in the U.K. around the commitment to Great British Railways, but still no commitment in terms of timing. So that is still providing us with some uncertainty in the U.K. And the other key thing we're seeing in North America is we're now starting to see a transition to an increasingly SaaS-focused model. So historically, North America has been very perpetual license focused. And if there is an opportunity, we would clearly like to see much more recurring revenue in that market. So those 2 factors will probably link -- result in an outcome where our H1 and H2 revenues will be slightly more weighted towards H2, that we're just making everybody aware of in a very transparent fashion. We are still very confident in the long-term growth prospects of the group and that we will deliver our full year results for FY '24 as currently forecast. So that's it in terms of an introduction. I'll ask Andy now to provide you with an overview of the financial performance for FY '23.

Thanks, Chris. So we're pleased to be reporting another strong financial performance for the group this year. That's been characterized by continued strong revenue growth. So total revenue for the group increased by 19%. And as we'll see in a second, that reflects double-digit growth in both divisions of the business. Our organic revenue growth was 10%. In the U.K., that includes continued growth in rail software revenue. And from a hardware perspective, a record year from our Remote Condition Monitoring business. And in Data, Analytics, Consultancy & Events division, strong growth in all parts of that division. And that was supplemented by almost GBP 9 million of revenue from the North American Rail Technology business that we acquired in March 2022, which is a really pleasing performance and ahead of our expectations at the time of acquisition. The growth in revenue delivered a 13% increase in adjusted EBITDA to GBP 16 million. Our EBITDA margin of 19%, whilst it's similar to what you would have seen in our first half, it's a little bit lower than we normally expect. And the biggest driver there is GBP 1 million of investment that we made this year in simplifying the group and enhancing some of our key capabilities, including around our SaaS delivery model and growing out our commercial teams in both the U.K. and in North America. And we'll talk a little bit more about that later on in this presentation. That GBP 1 million of cost is structural. So that's OpEx that we expect to repeat going forward. But that investment is all about accelerating revenue growth and margin accretion as we move forward. In the prior year, we had about GBP 3.5 million of exceptional costs to do with changes in contingent consideration, acquisition costs and minority investments. They didn't repeat this year, and therefore, the relationship between our adjusted EBITDA measure and our statutory profit measures is much closer. And as a result of that, we saw significant growth this year in our statutory profit measures. Turning now to our divisional performance. On the Rail Technology side of the business, as Chris said, strong revenue growth, 26% in total. That represents 8% organic growth. And as you can see from the 2 charts on the right-hand side, strong revenue growth in both the U.K. and in North America. Chris mentioned that the recurring revenue here increased by 9% to GBP 23 million. That's an increasingly important focus for us. And going forward, we would like to sell our products in an increasingly SaaS recurring revenue basis. You can see from the margin here that, that's come down to 27%. Again, that reflects that investment that we made in the year in order to position this part of the business for accelerated growth and margin accretion as we go forward. And so as we come through FY '24 and into FY '25, we would expect the margins on this side of the group to return to above the 30% level. And the reason we made that investment is because we have got a growing pipeline of large opportunities in the rail sectors in both the U.K. and in North America. On the Data, Analytics, Consultancy & Events division, we saw strong growth here as well. In our Professional Services business, so that's both our specialist rail consultancy and our data analytics business, we had 17% revenue growth to GBP 15.4 million. We're seeing good demand for that part of the business. And as part of our simplification activities, we fully integrated the Traffic Data & Events businesses, and that delivered a record revenue year of just under GBP 29 million. So this side of the business doesn't have recurring license revenue in quite the same way. But nonetheless, it does have a high amount of repeat sticky year-on-year revenue. And this year, that increased by 25% to GBP 16.5 million. We have some important contract wins during the year, and we've also had some renewals of some of our biggest contracts, both during FY '23 and in the start of FY '24. So as we sit here today, we've got a strong order book going into this financial year. We do have some revenue in this side of the business that we don't expect will repeat in FY '24. In total, that's about GBP 3 million. And therefore, we think that this side of the business will deliver a financial performance in FY '24 at roughly similar levels to what we've delivered in FY '23. Turning to cash. The group continues to deliver healthy levels of cash generation. We have no debt. And whilst overall cash decreased by GBP 1.9 million in the year, that was after spending GBP 9.6 million to satisfy the material remaining earn-outs and deferred consideration. So as Chris mentioned, we've got approximately GBP 400,000 still to pay over the next 2 years. But that means that from a capital allocation perspective, the cash that we're going to be generating going forward is now pretty much fully allocated towards driving both organic and acquisitive growth. We invested about GBP 300,000 this year in completing the development of the Hopsta smart ticketing app, and that's a key growth driver for us in the smart ticketing space. We saw an increase in working capital again this year. That reflects trading patterns. In particular, it reflects an increasing receivables book at the end of the year that's been recovered, and we had no recoverability issues on that side of the business. A GBP 1.5 million of CapEx for us is quite a high amount as well as reflecting activity levels that also includes investment to upgrade our IT systems and operating environment as part of the transformation activities that Chris will take you through shortly. So overall, continued strong cash generation leaves us in a really good position to continue to invest in the growth of the business. I'll pass you back now to Chris to talk about some of these transformation activities that are underway across the group.

Some of you will be very familiar with the long-term story of Tracsis, and some of you won't. But basically, I took over as CEO in 2019, and took over a very, very successful buy-and-build strategy from the founders of the business. But that nature of the businesses at that time were they were very much stand-alone. And that model worked really well for us at that stage. We had a real focus in terms of specific products and technology offerings and very -- in different parts of the rail market. And anything we really did differently to start with, was to focus very much on how we could get more consistent organic growth into the business. We then, alongside that, had a large order book of SaaS contracts that we have started to -- started to go live this year, but that we've been delivering for the sort of last -- starting to get the delivery right for the last 18 months. And what became very clear during that is that we needed to make some changes to the organization, both in terms of the skill sets that we had, but also in terms of the processes that we use to develop and release software. So last year, we made an investment in enhanced capabilities across the business. So we brought in a new Group Managing Director. We've got a Rail Technology CTO starting with us very shortly. We made investments in our people team, investments in our IT and delivery teams. And that has all been focusing around bringing together our U.K. Rail Technology businesses. And also, at the same time, upskilling and expanding our commercial teams, such that we can really make the most of the opportunities that are in front of us and improve the delivery of those large SaaS contracts. So what our focus is on at the moment now is on the group transformation actions that you can see in dark blue at the bottom corner of the slide. And that's really about improving the timeliness, quality and repeatability of what we do. So if we are to be able to scale the business and really benefit from the transition to more and more SaaS revenue, we've got to make sure that we've got a product that's repeatable, that we've got a product that is delivered in partnership with our clients to really well-defined set of delivery timelines, and is also something that we can really benefit from in terms of increased margin, in terms of an increased investment in those systems to make sure that we can keep them at the leading edge of what we do. So there will be around GBP 2 million of costs that we take this year as part of that group transformation. But what that will enable us to then do at the end of that is to have a much more integrated business model, especially here in the U.K. that will enable us to scale for growth moving forward. So Andy, would you just walk everybody through what's included in that GBP 2 million of exceptional costs, please?

Yes, of course. So the key component parts of that are to do with removing duplication around the business. So having gone from 10 operating units to 4 operating units, it's making sure that we've got the efficiencies in that model. That does include head count reductions. It's also about streamlining our operating footprint. So both in terms of the number of locations that we operate from, also in terms of our legal entity footprint. It's investing to upgrade our systems and processes, including our finance and management information systems to match the size of the group today, but mainly the anticipated pace of growth going forward. And it's what we're calling enhancing our IT and software product operating model. What we mean by that is having a consistent way across the group that we did develop, deliver and then support our technology products. So doing that according to best practice principles, doing it in a consistent way and enjoying that way, and that's the secret to really achieving that increased speed, quality and repeatability of delivery, but then importantly, the scalability of the margins as we drive revenue from those products going forward. So all in all, we think that will be in the order of GBP 2 million of exceptional investment this year. The majority of that will be in the first half of the year. And the focus then is to come out of that transformation phase into FY '25, with the business set up for scalable growth going forward. I'll pass you back to Chris to start the operational update section.

Okay. So I'll start those updates in the U.K. rail technology space. So over the course of the year, we have brought that team together under a single leadership team for many of the reasons that Andy has just talked about, to give us that opportunity to collaborate more strongly, to share -- to better share technology across those different groups, and also to act in a much more coordinated way around in which we interact with our customers. So moving towards having key account directors for Network Rail, for the train operating companies, for the freight operating companies and making sure we've really got that close relationship with all of our customers. So in the U.K., we've got 4 growth vectors. We've got TRACS Enterprise, this year, 2 full-scale go-lives have occurred for that product, with U.K. train operating -- train operators, and we've got 3 further deployments that will be implemented in FY '24. And we're now talking to customers around deployments for FY '25 as we continue to look to roll this product out across the U.K. Our RailHub platform, which is our safety and risk management platform, is now fully integrated into Network Rail and the rail supply chain, and there's 40,000 users now of that product. That's now a standing -- starting point now in conversations with Network Rail around additional features or functions that we want to add into that platform that will form either a replacement of legacy systems that have come to the end of their useful life, or increasingly, how do we bring more data -- interrogation and data analytics capabilities onto that platform. So it's a great entry point for us into expanding our ecosystem across the rail infrastructure space. As we said already, we had a record year for installation of remote condition monitoring solutions. We have long-term relationships and contracts with Network Rail. And importantly, we're starting to now build out the network of opportunities that we have into North America. And then we'll talk about this in a little more detail in the R&D section, is we've also made strong progress with both our smart ticketing and delay repay products. We've gained market share with both, and we'll provide a bit more information on where we are with our Hopsta app development in a subsequent slide. But overall, the U.K. has got a strong order book. We've got a growing month-by-month pipeline. And it's all about, now, looking at opportunities across our previously sort of very siloed product offerings to look at opportunities where we can bring some of those together and further expand our market position and the products that we offer to our customer base. The next update is on North American rail. So you can see in the picture on the right-hand side here, we've actually rebranded the business in October of this year. So everything in North America, as we evolve and grow this business will be branded as Tracsis, which is a different approach to that, which we took in the U.K. where we -- as we acquired businesses in the U.K., historically, they kept their original identity and branding. In the U.S., we're starting from a position of using the Tracsis brand. That's been really well received by the industry. I was out in the U.S. in October, a number of senior executive transit operators and Class 1s are really interested in what we're doing in that model. With this model, they're very interested in the technologies we already have in the U.K. and are looking for new competitors and new technologies to come into the U.S. marketplace. So as Andy said earlier on, we're really pleased with the performance of our North American business this year. There's a real energy in the U.S. There's a real focus to want to grow and expand our product offering, and we have a market that's very receptive to that. So in the U.S., there are 3 key growth vectors, 2 of these are products that we acquired with the business. So the first is in Computer Aided Dispatch. And we will launch a really important new variant of this product in February of next year, which links into positive train control. We think that's a very large market that we will be looking to expand and grow into over the coming years. We have Yard Automation, which is a long-term set of products that RailComm, who we acquired, have developed. There are lots of opportunities there for expansion into large ports into mining infrastructure and to many other industrial sectors in the U.S., and that's a real focus for growth for us. And then remote condition monitoring is now driven directly by our team in the U.S. We've got a number of trials in progress, and we're hoping to see that materialize into more substantive contracts and growth as we move forward. We've obviously got a strong track record in the U.K., a product that you've known a little bit in the U.S. because we've been selling it in the U.S. for a number of years through a reseller, but now there's a real focus on how we can push that product further with our own sales team. So both parts of our rail business, seeing really strong demand, really good order books, and we're very confident in both those markets that we've got a strong team of people and that we're in a good place to continue to grow. Andy, can I ask you to give the updates on the other 2 areas, please?

Yes, will do. So our professional services vertical includes 2 main activities. So this includes our specialist rail and transport consultancy business. We're seeing continued strong demand in that part of the business, and it's a really important area of our group because that gives us a great shop window for the rest of what Tracsis offers, gives us really close access to our key customers, particularly in the U.K. This also includes our data analytics, GIS and earth observation business. And this is on this whole part of the division, the area, which we think is probably the biggest growth opportunity for us, which is around this concept of data insights. So we're seeing more and more demand from customers in the transport sector and also outside to have really precise data about their asset allocations, about their asset performance and condition. And that becomes really powerful when you can start to build that up with some visualization, or when you can start to layer in other data sources to give you a much more real time, much more sophisticated and a much more meaningful view of your operations in your network, whatever that may be. So we've got a number of capabilities in this space. We're getting a number of inbound requests from customers about how we can help them in this area. And one of our strategic objectives is to grow these capabilities increasingly in the transport space and the rail space that we operate in on the other side of the division. As I mentioned before, our Traffic Data & Events have been completely integrated this year. Two main reasons for doing that. One is to maximize our operational efficiency and our margin optimization in this part of the business. But it also means that we've got a completely joined up and focused approach to health and safety and also to carbon reduction. So we've set ourselves a target of being carbon-neutral by 2030. Over 70% of the group's carbon emissions comes from the vehicle fleet that these 2 businesses operate. So by bringing this together, it gives us real focus in this area, and we can start to optimize our operating footprint and bring together our efforts to achieve our ESG goals. And this business on the back of contract wins and a return to full activity levels and Traffic Data delivered a record revenue performance in FY '23. Just before we wrap up on the subject of ESG, we've made good progress again this year towards our ESG objectives. You will see in the annual report that we published in early December, full TCFD report alongside our sustainability reporting. And a key part of our environmental objective this year has been rolling out ISO14001 right across the group. So this is the environmental management standard and ensures that as we move towards our carbon reduction goals, we're doing that in an ISO certified way. And we had particular focus this year on our social objectives. Our focus in this area is around accessibility to technology. So we have sponsored and helped deliver a number of initiatives and activities around increasing access and increasing the diversity of people building their careers in tech. We find this is a really important area for our employee proposition. We get huge amounts of engagement from our people in this area. And sustainability in terms of what Tracsis is and what Tracsis does is a core part of what we do as a business. So with that, I'll pass back to Chris.

Great. So we've just got a couple of slides to finish the presentation now. So the first of those is on investment in next-generation Rail Technology. So we have a mix of approaches that we take in this space. One of which is working very closely with our partners to develop technology on an ongoing basis, in partnership with our clients and in partnership and alignment with their road maps. And during the course of this year, across the top, you can see some of the features we're adding into the RailHub platform, some of the features we're running into the TRACS Enterprise platform, our features are running into the Computer Aided Dispatch platform. And many of those are about responding to customer requests for -- we've got areas of our business, which we'd like to incorporate into a particular piece of software or areas where legislation is coming in. So something like fatigue management became much more of a legislative requirement. So we've got a mixture of drivers here that kind of drive the product road maps that sit behind these businesses. With TRACS Enterprise in particular, we've added more functionality around station rostering. We are developing a freight variant of that product. And as with all of our products, we're also trying to create them in a modular manner so that we've got an opportunity not to just have to deploy that complete end-to-end solution, but have optionality about more modular deployment, hence, faster deployment and easier deployment for our customers who often do not have the resource availability to be able to cope with a very complex all-in-one sort of go-live event. We've got plans for developing our Centrix IoT platform. Lots of questions in America right now about predictive analysis, about how the system be expanded to cover different types of assets. And how do we do more and more with the visualization capabilities around not just what we pick up from remote condition monitoring, but what do we pick up from other pieces of software and technology that sit across the Tracsis portfolio. And then finally, in the bottom right-hand corner, we have been developing our Hopsta smart ticketing app. That product is now complete. We've been UAT testing that over the last few months. We are now waiting for Great British Railways to give direction on the trialing of this system. What the expectation is that they'll be trialing a number of different technologies across the U.K. in different pilot areas, with a view to understanding what's the best technology, is there a single solution, are there multiple solutions, are there different way of integrating these technologies together. We think we've got a very strong product offering here that builds on the capabilities of our existing deployments. So just so everybody can remember, we've got smart -- you can access our technology via our smart card. You can access our technology via a contactless bank card. And this gives the option to have the technology via effectively like a mobility-as-a-service app on your mobile phone. Everybody is going to have a different view as to which technology they would prefer to deploy in the geography in which they're based. But we are working in partnership with the industry and with a number of train operators to understand what that rollout plan will look like. So that's an area of real interest for us and could potentially have the -- a big factor for growth for us over the coming months and years. So lots going on in the R&D space. And then to conclude in terms of the look forward before we open up for questions. We remain really confident in the long-term prospects for growth across the group. We've got record levels of order book across all different parts of the business right now and a growing month-on-month pipeline. So that is a really strong indicator that there is demand for our products and services. That is not just in the passenger space, but it's also across the freight and the infrastructure sectors as well. That growth is likely to be weighted towards H2 because of the SaaS transition that we're seeing in North America and also because of the phasing of some of our delivery milestones on the large SaaS contracts here in the U.K. So what are we going to be doing moving forward? Well, we're going to be continuing to invest in R&D and new technology, and we'll be continuing to focus on the successful delivery of the large SaaS projects that we have in our order book. We will be completing the transformation actions that we spoke about earlier in this presentation and embedding best practice so that we've got that ability to scale. We've got that ability to improve the speed of delivery, and hence, we've got the ability to speed up the pace at which we can recognize that revenue. We didn't do any acquisitions this year. It is our intention to continue to do acquisitions and for that to be a core part of our strategy moving forward. Those acquisitions will be in more focused areas. They'll be focused around rail software and technology. And then they will be focused in either the U.K., in North America or in Mainland Europe. We will continue to implement our ESG priorities. And as stated, our objective is to be carbon neutral by 2030. And this really ties into the M&A point, we're also keen to continue the international expansion of the group to really ensure that we're making the most of the opportunities that exist, not just in our current markets, but also in adjacent markets in other territories. So overall, a great year. We've got a very strong team of people across the organization who worked incredibly hard to make -- to deliver this success, and we think we're in a very strong position to benefit from the demand and growth that lies ahead of us. So thank you very much for joining the presentation. We will now open up for any questions that you might have.

[Operator Instructions] And we've got a question here, what's a normalized EBITDA margin for the business, taking into account mix changes, et cetera?

That's a good question. So the reason that we're making the changes and the transformations we are in the group at the moment is to return that EBITDA margin to being in excess of 20%, which is what the business has delivered previously. And then if we can deliver the growth that we see in the pipeline and if we can achieve that transition to an increasingly SaaS-based model of implementation, then we would expect to continue to see that EBITDA margin to grow up towards the mid-20s over the next sort of 3 to 5 years.

And another question about EBIT, which that might partly answer. From 2016 to 2022, you almost doubled your adjusted EBIT. But looking at the organic contribution by deducting all of the acquired operating profit from the 2022 adjusted EBIT number and recognized contribution from RailComm in 2020, you've only grown adjusted EBIT organically by about 2.5%. I acknowledge that COVID has had a toll on the business, and also that 2023 has been a great organic growth. But could you elaborate on this? And what is a prudent level organic profit growth that we, as shareholders, should expect?

There's lots of detail in there. I think -- I think it's absolutely spot on that we haven't seen the profit growth that matches the rate of revenue growth over the period. And again, that does come back to the previous question about why we're making the changes in the organization that we are, and why we think this is the right point in our life cycle and in our journey to make those changes. I think going forward, we would like to deliver -- from a revenue perspective, we'd like to deliver 10% growth from the rail side of the business. That may not necessarily be 10% every year, but over the cycle, an average of 10% growth. That may be slightly lower on the base side of the business. So the overall group growth might be slightly under 10%. But we need to get that leverage through to the profit margin. So I would expect that the profit growth over that period, you would expect that to be at least 10% and ideally growing further than that as we increasingly adopt that SaaS model.

And on Remote Condition Monitoring -- excuse my basic question. But what assets are you monitoring? And what are you checking for? And generally, what is the revenue model you operate?

Okay. So the model is split into 2 parts. There's a hardware model, which is selling the data, acquisition, straight data loggers that are installed line side across the railway. So in the U.K., there's somewhere in the region of 20,000 of those units now installed across the U.K. railway. They are typically on a sort of 10-year plus MRO cycle. So they operate in very harsh operating conditions. And so they do need replacing, as I said, every sort of 10 to 15 years. So of the circa GBP 6 million of Remote Condition Monitoring revenue that we delivered last year, about GBP 5 million of that is in hardware, and around GBP 1 million is in software. So the GBP 1 million for software is in our Centrix data acquisition platform, which makes us unique in that we have both the hardware element to collate the data, and then we have the software element to enable you to interrogate the data, set alarms, look at trends and performance, try and forecast when there's going to be asset failures or moments where you need to intervene as part of a maintenance cycle. The assets we -- so we've come sort of from a signaling background. So the assets we cover are typically points related, signaling related, level crossing related, very much electrical inputs that come into our system. But there are clearly lots of other things around things like vibration, there's an increasing look at things like subsidence, vegetation, flooding, overhead cable performance, all sorts of things that would like to be added into a platform like ours, and they are the types of areas where we are discussing with customers around what that road map might look like moving forward. So we've got a very strong starting point. We've got a very strong position, especially in the U.K. market, but we're always looking at how we can evolve that technology moving forward to capture more and more of the market opportunity.

Great. And on rail software, you bought Ontrac in December 2015. And back then, it was generating around GBP 5 million in revenue. Despite the fact that the number of users has increased by about 40,000 on Ontrac revenue -- sorry, has increased above 40,000 on the Ontrac revenue, it was just GBP 5.1 million -- sorry, GBP 5.2 million in 2022 according to the U.K. Company House Information, and the EBIT was below 2015 levels. Could you help me understand the quantitative metrics when it optically looks like Ontrac is gaining potence and performing very well?

Yes. So in the case of Ontrac, I mean that is a part of the business that through that period has gone through -- that transitioned from -- to now offering a product that's based on a single platform. And actually, that RailHub sale was a mixture of a perpetual license and then an ongoing support and maintenance agreement. So that's a great example of the partner business where year-on-year movements can be slightly up or down. But actually, the objective is to get that growth over the cycle at the right level. So we haven't yet filed the accounts for this year. But you will see in Ontrac's numbers for this year, it's delivered a good level of growth, double-digit growth on the prior year. So we're confident that we're getting that revenue growth in that part of the business. The RailHub product rollout has been very successful. We are gearing up for the next delivery of functionality and product enhancement for that product. So we would expect to see continued growth in that part of the business.

Great. And to go on from there. The question says, many thanks on the presentation and congratulations on this great set of results. Regarding North America, there have been many investment plans for rail recently, the latest of them being for the Northeast corridor. You -- Do you already see the effects of these plans in the order book? Or is it too early?

It's too early from an order book perspective, but it's not from a pipeline visibility point of view. So we have changed our sales team quite significantly in the U.S. over the last 12 months, deliberately to get us closer to our customers and more engaged in these type of conversations. So we've restructured the team where we've now got an experienced sales lead for Class 1s, which is the freight operators. We've got an experienced lead now for our transit business, which is the passenger operations that happen across a large number of U.S. cities. And then we've got a sales lead for industrials and ports, which is linked to our yard automation capability. And what we're -- the dynamic change we're seeing in the U.S. market is we are much more proactive in our engagement in conversations where we can see opportunities for new business introduction. So if you take the ports and industrials as an example, but the East and West Coast ports in the U.S. have seen huge increases in freight traffic driven by global demand. And as a result of that need, enhanced levels of automation and efficiency to be able to process all of those that increase in container shipment. And so that's an area where we're getting engaged. You mentioned the Northeast corridor. That's another area where we can see investment and we can see opportunities for us to be able to be part of the technology investment that will go with it. So we have not yet seen it in our order book, but that is absolutely part of why we think the U.S. is such an important market to us.

Tremendous. And the question that [ goes on to us ]. Regarding M&A, you mentioned Mainland Europe. Could you elaborate on this? What you're looking for a portfolio of customers first? What are the technological bricks you are targeting today? And do you have any specific country in mind?

Yes. So acquisitions in Mainland Europe are not about adding capability to what we've already got. Anything in Europe will be more about gaining access to markets that we can't currently access. So what we're really looking for in Europe would be access to new markets, which would then be delivering similar technologies and product solutions to those that we've already got here in the U.K. If you had to look at North America, that's going to be different. So North America is going to be more about building out the scale in our operations in the U.S. We don't want to do that like we have in the U.K., with lots of small sort of very geographically spread acquisitions. What we'd like to do that is through much more substantive acquisitions that enable us to build headcount, build scale, give customers increasing confidence that we're in the U.S. and here to stay, put in complementary technology areas that add to what we've already got. So it's a different approach in different geographies at different points in time. But yes, there's a lot of activity in that space and acquisition is absolutely a core part of our business model moving forward.

And in Europe, do you have a specific country in mind?

No. What we're looking for is we would like to find somebody that gives us a broad geographic base. So I would prefer not to be buying something that just gives us a footprint in Germany or just gives us some footprint in France, but somebody that's actually got a multi -- a multi-country footprint that enables us to really benefit from entry into several different marketplaces within Europe.

Great. And can you comment on current valuation metrics of potential acquisition targets? Are they mainly bolt-ons? Or would you also consider something more sizable? And how do you identify acquisitions?

Okay. So it's less about bolt-ons and more about more sizable. [indiscernible] targets is currently what we're pursuing. I mean if we find a bolt-on that has a particular skill set that we need or particular access to a customer that we can't do ourselves, then we will continue to add those to the group. But more sizable acquisitions are really what we're targeting. Our approach has always been one of building relationships with targets, and then trying to secure those businesses off market, i.e., not through a proper sales process, and sort of building a long-term trust relationship, almost starting from a partnership point of view and then that naturally evolving into a decision at the point in time where that business would like to -- the owners of that business would like to exit and become part of the Tracsis organization. That's not always possible, but that's how we try and approach our acquisition targets. And in terms of multiples and what's happening in the market, we are seeing more inbound inquiries in the last, I would say, 6 to 8 weeks than we've seen for a while, which is probably driven, I would imagine, largely by people being concerned about future funding or future availability of trying to manage the cash within those businesses. And we are starting to see multiple stuff to soften as well. So especially, there's been very, very high ARR multiples quoted, sort of 12 to 18 months ago, those numbers are coming down now. And we've always been very sensible in the valuations we've applied on targets, and we will continue to do so moving forward.

Great. With the SaaS revenue increasing, do you expect this to contribute a higher share of revenue in the future, perhaps towards 50%?

Yes, we'd absolutely love it to increase in terms of share of revenue. Whether we can get it to 50% or not, I don't know. But I think strategically, our goal is to where we have the opportunity to increasingly sell on that SaaS model. Now that's not going to necessarily work for all of our products and all of our offerings. But absolutely, that ARR metric is a key KPI for us. And year-on-year, we want to see that continuing to grow.

Great. And how should we think about Hopsta? Is it effectively a nationwide Oyster card? Can you do things like link your rail card to the app, which you can't do with debit card, [ PAG ]? And is the end goal for ticketless travel and charges based of geolocation?

Yes is the answer to all those questions. So that is the power of the Hopsta product. You can -- you basically create your own profile. You link that to your chosen payment methodology, and you add in rail cards or any types of concession that you're entitled to. The technology -- we're going to market is we are not going off the B2C market. We are not a consumer brand. We're going after the B2B market in partnership with train operators. So the vision we have for it is the technology will be the same across the whole of the U.K., but it meant -- but it will probably end up being individually branded train operator by train operator in each region to give you the understanding of who owns your customer data and who your key interfaces as a user. But it's completely interoperable across the -- will be completely interoperable across the U.K. The magic behind it is in the best fare guarantee that comes with that solution. Andy and I already have that system on our phones working. We can't actually use it to travel. We still have to buy a proper ticket in conjunction with it. But the functionality works. We're able to experiment with what it does. For anybody that's seen it, it has a really powerful reaction. And at the end of the day, it comes down to being a truly frictionless way of traveling without the need to preplan, without the need to prepay. And also give you the guarantee that you've got the best value -- you're paying the best value amount over a given period of time. So for us, we see this as very much kind of the evolution in the ticketing experience for people within the U.K. rail market. And we're working with Great British Railways and the train operators to understand how that can best be rolled out in a way that we don't confuse customers, but we take them through a journey where they understand how to use the technology and make the most of it.

Great. And on B2C Rail Software and delay repay, could you elaborate on the durability and defensiveness of the delay repay and the customer experience revenue streams? While I'm aware that the adaptation is ramping up, and it looks like a promising segment, why wouldn't the government in-source this over time? It seems like an area that's subject to less change. And I'd like to understand the durability of your position in the segment.

Yes. So on delay repay, when we've been talking to Great British Railways, we're not aware of any intention for them to in-source or centralize the way in which that operation is run. We're continuing to win new contracts in that space, as we've put into our recent financial results. So we've got an increasing dominance and market position. We've got a very well-established methodology that is -- gets very, very positive feedback from customers in terms of the experience and how easy it is to claim delay repay. So I don't think that's an area that's big enough for the government to want to change the course of direction. The smart ticketing piece is more complex. It's a very, very complicated marketplace. The government obviously wants to ensure that there's maximum competition there. So you've got Trainline has a very, very dominant market position as a B2C brand. You can buy train tickets directly from train operators. There are third parties like Uber who are trying to enter the market as well. So I think the overall objective of the government is to make sure that there's a playing field that is open to everybody. But ultimately, we don't want to confuse the consumer. So we will see under Great British Railways a much stronger, I think, focus on what these technologies are going to offer with a view to making sure that from a consumer point of view, they don't get confused, but are able to see that there is progress being made and that the industry is making use of the best available technologies that sit across the supply chain. So I think on the ticketing side, there will be a level of government intervention and direction. We don't believe that's going to be the case on the delay repay side. So for us, we see -- we bought the iBLOCKS business because we saw this as a potentially huge growing market. It is relatively slow in terms of how it is evolving and developing because there are so many stakeholders involved, but it potentially is a huge growth -- revenue growth opportunity for us, and we're getting a great reception to the products that we have.

Great. Many consumer businesses, particularly telecoms, rely on inertia and friction so customers don't have the most efficient price. And this must be a considerable source of additional revenue. Why would rail companies be keen to minimize fares paid by customers?

Yes. Well, the conversations we have with rail operators are that if we can get the right consumer offer there, we'll actually see incremental revenue coming into the industry rather than revenue going out of the industry. So I think the view is really, one, if we build a better consumer experience that's built on increased trust around the fact that you're getting a best value fare, that you're able to travel in volume and get discounts that reflect your true travel pattern, that actually what you'll end up with is a further recovery in passenger numbers. So if you look at the -- I can't remember the exact numbers at the moment on the rail landscape, but leisure travel is back at or beyond pre-COVID levels. But clearly, most leisure travelers are traveling off peak. On peak, which is where train companies use to make all of their money is still, I think, something like 15% down than what it was pre-COVID. And that's because people aren't buying season tickets and people aren't traveling 5 days a week. So if we can create a situation where people are able to go into a city 5 days a week for work, I know they're not going to be financially penalized because the system will only ever charge what it would have charged had they have a weekly season ticket. But I think you're in a position where suddenly people will be increasingly coming back onto the trains, it will generate more revenue. That revenue generates more -- creates more jobs and more sustainability for the sector. And we end up in a much, much stronger, viable long-term position. And then obviously, our technology is also multimodal. So you then start to link in bus travel with train travel with light rail travel, and suddenly you've got something where a consumer is -- really feels at the center of that experience.

Great. And how confident are you in the timing of revenues and growth for the rest of the year? A second half weighting always makes investors nervous.

Yes, I understand that. We've got good visibility for this year. We do still need to convert some things in the pipeline in H2. But we've got visibility to about 95% of our full year revenue so far. So that gives us the confidence. And we are seeing the size of the pipeline increasing at the moment. So those 2 factors give us the confidence that the that we can at least deliver the full year this year despite the H2 weighting.

Tremendous. And if a sizable opportunity arises on M&A, would you take some leverage? And if so, to what extent?

Yes. I think following on from what Chris said about the sorts of businesses we're looking for, I think we are looking for more scale opportunities on the acquisition front. And if that was beyond what we could self-fund, then we would look to come to the market to help fund the right acquisition. So that will be considered on a case-by-case basis. But I think what's important for investors is that we wouldn't be restricted by what we can just continue to self-fund if we find a really attractive, accretive growth targets that we need to come to market for them, we will do that.

Great. And at this stage, the final question. TouchStar plc seems to offer a complementary offering to the professional services division. Is this something for consideration?

I'm not aware specifically of that organization. I'll go and take a look in a moment. But there are -- there are lots of other organizations that have very similar capabilities to what we have in data analytics and GIS and what we have in consultancy, but we don't provide a generalist service. So the way in which we differentiate our offering is that our consultancy service is very much focused on the transport space, and in particular, on the on expertise in areas where, ultimately, our customers are using our software or our products as part of their day-to-day business. So an example of that would be timetabling or train planning or train control, where they're using our software or parts of our software in different parts of their operation. And we're either helping them to optimize the use of those products or we're helping them understand how better to use those products. So our consultancy operation is very much tied into the lot of the products and services that we provide. And our data analytics and GIS capabilities, although coming from an origin across -- in Ireland, which has been very focused more on the environmental sectors rather than the transport sector. they are building already capabilities in Ireland in conjunction with the transport authorities in Ireland and increasingly with conversations with people like Irish Rail and now into the U.K. where we think there's a rail carrier across of that capability tied to our deep domain knowledge within the rail and transportation space. So where we're trying to differentiate ourselves is, you come to Tracsis and we provide a service where we really understand what the data means, how do you utilize that data to then make really informed decisions to actually demonstrably improve the efficiency, the operational performance or the way in which capital is invested within the industry. So ours is very much focused around the core areas of competence that we have. And there are many other companies out there that offer similar services, but with a similar mindset, but in different geographies and in different sectors of the industry. But ours is very much focused around where we see our core expertise.

Tremendous. Many thanks, indeed. That's the end of questions. Chris, do you have any closing remarks?

Just to say thank you very much, everybody, for your interest in Tracsis. As I said at the conclusion earlier on, we've got a great team of people. We've got some fantastic products. We've got some fabulous long-term customer relationships. And we're just very much focused on making sure that we can deliver really positive outcomes for the industries in which we operate and that we continue to deliver good levels of growth and enjoy the journey that we're on. We've got -- it's great fun delivering some of the things that we deliver and it's a privilege to lead this business. So thank you very much for joining us, and we look forward to speaking to you in the near future.

Great. Many thanks, Chris and Andy. And to everyone listening, you'll now be taken to a web page to give feedback on today's presentation. If you can't complete it now, you could receive a follow-up e-mail. We'd be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.