Tracsis plc (TRCS) Earnings Call Transcript & Summary

Good morning, and thank you for joining us. As you're aware, we completed the acquisition of Mistral Data towards the end of August. And today, we'd like to explain why this acquisition is an important milestone in Tracsis ongoing transformation and what it means for the future of the group. Over the last few years, we have been purposely reshaping Tracsis into a more focused, software-led transport technology business with greater recurring revenue stronger margins and improved scalability. The acquisition of Mistral Data represents another significant step in that journey. This presentation will cover the strategic rationale for the acquisition, a fit within our portfolio, the opportunities it creates and our priorities as we enter FY '27 with a stronger platform for growth. I'm delighted that Andy and I are joined for the presentation today by Tom Grant. Tom is the Chief Operating Officer of Mistral Data and has led the business through its recent growth story. Later in this presentation, Tom will outline the Mistral product portfolio and how this aligns Tracsis' existing software solutions. I'm really pleased with the progress we have made since I took the reins as CEO in August last year, FY '26 and a year of substantial strategic execution, alongside delivering financial performance in line with expectations. We acquired this beauty enhancing our transport technology capability and strengthening our position in European markets. We completed the implementation of the One Tracsis operating model, bringing the group together under a common functional structure with greater alignment and accountability led to a series of product lines. We also completed the disposal of our Events business, sharpening our focus on software and technology markets where we see the greatest opportunity to generate scale and recurring revenues. And then, of course, most recently, we acquired Mistral Data, which significantly strengthens both our U.K. rail software position and our eventual profile. Taken together, these milestones have created a more focused higher quality business that is increasingly characterized by software recurring revenue and attractive margins. Today, Tracsis consists of 2 complementary divisions: the first is Rail Technology & Services, which is our principal software-led growth engine. This business provides scalable software, technology and hardware solutions across operations, ticketing asset management and safety. The second is data, analytics and consultancy, which delivers specialist data, analytics and advisory services supporting transport, cities and environmental decision-making. These divisions are supported by the on Tracsis operating model, which provides shared functions, common processes and stronger governance across the group. The result is a stronger foundation for integration, product development and scalable growth going forward. Mistral is a compelling strategic fit for 3 principal reasons: First, it strengthens our position in our core U.K. rail market. Mistral brings a highly complementary product set with minimal overlap and introduces 2 train operating company relationships that were new to Tracsis. Together, the enlarged group now serves 22 of the U.K.'s 24 train operating companies. Second, Mistral enhances the quality of our earnings. The business generates attractive margins of around 30% adjusted EBITDA and derives approximately 86% of revenue from recurring sources. As a result, the transaction is both earnings enhancing and marginally accretive from day 1. Third, it accelerates our transition towards SaaS. Mistral operates a modern cloud-native platform that enables faster product development deployment and scaling, and this aligns very well with our One Tracsis operating model. The acquisition was completed for GBP 48 million funded through existing cash resources and the group's revolving credit facility. Pro forma leverage on completion was around 1.5x, reducing to approximately 1x by the end of calendar year 2027 through strong cash generation. Before we consider the opportunities that arise from the acquisition, Tom will provide an overview of the Mistral business and its portfolio. Over to you, Tom.

Thanks, David. As mentioned at the start of the presentation, I'm the Chief Operating Officer of Mistral Data. I joined the business as Technical Director into 2021. I'm delighted Mistral Data is now part of Tracsis and pleased to have the opportunity to talk you through the business. Mistral Data was founded in 2021 within FirstGroup and has since grown into an established U.K. rail software company. Our solutions are embedded in day-to-day railway operations and support a broad range of critical activities. Our portfolio spans customer and revenue optimization operational planning and recovery, fleet and asset monitoring and business intelligence and cloud services. You may already be familiar with operational planning and recovery and asset monitoring from Tracsis' exiting portfolio. Commercially, our customer and revenue products help operators forecast demand optimize fares and keep passengers informed. Our business intelligence services combine operational, customer and financial data, providing a consistent view of performance and supporting faster, better informed decisions. Importantly, the assisted at the heart of our customers' workflows. They help operators manage passengers, staff, rolling stock and commercial performance in real time. That level of operational integration supports strong customer retention and underpins the high recurring revenue profile of the business. Mistral's particular strength is the combination of deep rail domain knowledge close and longstanding customer relationship and innovative and customer-centric culture and modern cloud-native technology. This combination allows us to understand complex operational problems and rapidly translate them into practical scalable products that deliver real value for our customers. And I'll hand over to Andy for the next slide.

Thanks, Tom. Turning now to the financials. As David mentioned in the introduction, the acquisition of Mistral significantly enhances the financial profile of the Tracsis Group. You can see from this slide that in recent years, Mistral has demonstrated strong and consent financial performance. For clarity, the numbers presented here represent the 12-month period to 31st of March. In the last 2 years, revenue increased by 30% from GBP 10.1 million in FY '24 GBP 13.2 million in FY '26, and adjusted EBITDA grew from GBP 2.8 million to GBP 4 million over the same period. Margins expanded from 27.7% to 30.3%. Perhaps most importantly, the business has a strong base of annual recurring revenue. And in the 12 months to March 2026, ARR grew by 19%, reaching GBP 11.4 million and representing 86% of total revenue. And this ARR growth has been broad-based across the Mistral product portfolio, as you can see on the right side of the slide, demonstrates the relevance of the solutions, resilience of the customer base. So this is a profitable, growing, high-margin software business with excellent visibility of future earnings. One question investors often ask is whether rail reform and changes in the ownership of train operators could affect demand. Mistral's customer base includes train operators that have already been nationalized and those who have yet to transition and what we find encouraging is that the business has continued to grow recurring revenue across both customer groups. In the 12 months to the 31st of March 2026, ARR from already nationalized operators by 14%, while ARR from operators yet to transition grew by 12%. This suggests that software purchasing decisions continue to be driven by operational need regardless of the ownership structure. Mistral also brings the London Overground relationship. FirstGroup awarded the operating contract in December 2025, and took over operation of the network on behalf of TfL in May of 2026. There's therefore no revenue contribution from London Overground included in the FY '25, FY '26 base of Mistral's numbers. So while we remain mindful of industry change, the evidence today indicates strong demand for operationally critical software solutions from a resilient customer base. The strategic benefits of the transaction are clearly visible in the pro forma financial profile of the enlarged group. So we're now back in track this financial years here. And in combination with the disposal of the Events business, annual recurring revenue as a proportion of sales increases from over 28% in FY '25 to more than 45%. Our Rail Technologies & Services division brings approximately 70% of the business up from around 56% and adjusted EBITDA margins improved from roughly 15% to approximately 20%. And this is important because the benefits of the Mistral acquisition extend beyond simply increasing scale. The combination of Mistral's recurring revenue characteristics and the disposal of events materially improves the quality the visibility and the profitability of Tracsis group earnings and to see how it ends our capabilities from a product perspective. I'll pass back to Tom.

Thanks, Andy. The addition of Mistral complements and strengthens Tracsis existing software portfolio. It expands our operations offering through Performance Analytics, incident management and the frontline operational tools. It strengthens our asset management capability with fleet diagnostic solutions. It enhances our ticketing and customer proposition through customer data management and revenue optimization tools and it also establishes a stronger passenger-facing capability through communications and engagement solutions. What's particularly attractive is that these capabilities are highly complementary with very limited overlap, providing a broader proposition of the passenger, operational and asset life cycle. I'm really excited about the opportunity this broader portfolio to better support our customers and about how the combined business can continue to drive innovation in the rail technology base. I'll hand back to David.

Tom, thank you. Having looked at how Mistral strengthens the portfolio, I'd now like to turn to the fall base of GBR and why we believe the enlarged group is well aligned with the future direction of the U.K. rail. It is clear that the industry is evolving towards a more integrated and data-led railway. Rail reform initiatives are focused on bringing together infrastructure, operations and customer information into a more connected operating environment. There is an increasing requirement for real-time decision support, predictive analytics and integrated operational data. And at the same time, the industry is seeking to move proven technologies beyond isolated pilots and into scale deployment across the network. The enlarged Tracsis portfolio is closely aligned with these trends and our existing customer relationships, embedded software platforms and specialist rail expertise position us well to benefit from this market evolution as GBR forms. The U.K. rail software market remains attractive and provides substantial room for growth. The core market most relevant to Tracsis is estimated at approximately GBP 185 billion and covers operations, customer and revenue systems asset monitoring of the safety software. Within this market, Tracsis is estimated to hold around 17% share and Mistral approximately 5%. So together, the enlarged group as an estimated market share of 22%. Importantly, that means we have meaningful scale in a market we know extremely well, while still having significant opportunity to increase penetration. Beyond this core market, there are considerably larger adjacent opportunities across rail software services and the broader U.K. transport technology sector. The key message is that we have a strong customer access today, combined with substantial runway for future growth. The rail market is fragmented. At one end, a narrow point solution providers with strong specialist capabilities but limited brand. At the other, a large global incumbent with extensive resources but often less agility and rail-specific focus. The enlarged taxis occupies an attractive position between these 2 extremes. We combine broad coverage across the rail software workflow with deep rail expertise and the agility of a specialist provider. Mistral further strengthens that position by adding complementary products cloud-native technology and established customer relationships. The market also benefits from significant barriers to entry, including long procurement cycles embedded customer relationships, proven reference sites and deep operational integration. These factors create strong competitive advantages and support long-term customer retention. FY '26 represents tangible progress against our growth transformation strategy. We delivered trading performance in line with expectations, completed the One Tracsis operating model strengthened our international platform, acquired this beauty, exited events and acquired Mistral Data. As a result, the reshaping phase is largely complete. Our focus now moves to execution and scale. The priorities are straightforward: integrate, standardize and scale. We will integrate Mistral and the wider software portfolio standardized technology around a common architecture and build increasingly repeatable growth in the U.K. before extending selectively into international markets. At the same time, strong cash generation and disciplined deleveraging remain key management priorities. So to conclude, we have a clear strategy and have translated that strategy into action. FY '26 was a year of significant execution. One Tracsis is completed, the events business sold on both this beauty and Mistral Data required. Mistral strengthens both our platform and our financial profile through highly recurring revenue, cloud native technology and complementary capabilities. The enlarged group now serves 22 of the U.K.'s 24 train operating companies, while holding only around 22% of the core market, demonstrating both strong market access and considerable future opportunity. The portfolio is now largely in place and the next phase is about execution, integrating, standardizing and scaling the business to drive sustainable, higher margin growth over the longer term. The key investor takeaway is simple: Tracsis enters in FY '27 and as a clearer, stronger and higher quality software-led business with meaningful headroom for growth. So thank you for your time, Andy and I are now available to answer any questions that you may have.

[Operator Instructions] So our first question is, what made Mistral worth GBP 48 million of Tracsis? And why do you expect the acquisition to generate better returns for shareholders than buying back your own shares as a sustainability -- sorry, at a substantially lower multiple?

Yes, let me pick that one up. I guess touching first on valuation. We obviously assess this very against relevant software transactions, other similar deals. Our view is that this is an attractive price for what is -- and hopefully, you've seen that in the presentation today high-quality vertical software business with a very high level of recurring revenue, 30% margin strong historic growth and a modern platform that arrives at a low level of technical debt. So this is a very high-quality pure-play software at it. And we believe the enterprise value is a fair reflection of the quality of that. And then you can imagine as a Board, we assess the acquisition opportunity against the returns we think it will deliver as well as the strategic benefits that it can generate for Tracsis shareholders. As you've seen, we think this will be materially into earnings enhancing and margin accretive immediately. And importantly, when we've looked at the investment case as a Board, we based that on Mistrals stand-alone earnings and business, we haven't baked any revenue synergies into that analysis even though we feel confident that those synergies exist. And opportunities to require an asset of this quality and at this level of strategic fit is scarce. So as a Board, we concluded that this offered a really attractive opportunity to create sustainable long-term value. Our focus is on reducing the leverage quickly, which, as you've seen, we think we can achieve in a 12-month period. And that doesn't restricts us from considering other shareholder returns as part of our broader capital allocation framework.

Thank you, Andy. Asked question is, what's the biggest growth opportunity you see across the combined software platform?

Yes. I think, look, we clearly see that in a couple of areas, I think, first and foremost, within our core home U.K. rail market. As you've seen from some of the market assessment work that we've shared with you, we now have a bind position of scale but also a position to leverage the respective positions and drive some cross-sell opportunity across the respective portfolios. So for instance, the Mistral team bring 2 new train operating companies that are not customers of tracks today. So we obviously expect to be able to position the Tracsis portfolio into those customers. And then equally, Mistral was serving around 7 or so of the train operating companies and Tracsis now bring access to another 15 or so. So there's definite cross-sell opportunity, and that will be something that the teams immediately focus upon. We would expect to see some immediate opportunity that the respective teams can pursue, as well as I'm thinking perhaps more medium term where we bring together the product road maps and start to more tightly integrate. I think as Tom sort of indicated in his section, opportunity to bring the broader offerings together, a bit more joined up and how we then present them into our core home market. So there are 2 examples to consider. And then we also believe that as we think about internationalizing our business, which is one of our growth strategy dimensions, Tracsis going forward, that the acquisition of Mistral will actually help enhance and potentially accelerate some of that given the cloud native readiness of the portfolio. And what that then means is that your ability to translate and position that into international markets is going to make it a little easier for us. But we see that more of a let's focus on the U.K. to start with. And then as we target selectively internationally, we will bring both the Mistral portfolio alongside the Tracsis portfolio as we look to position into opportunities in those international markets.

Thank you, David. Our next question is, if London wasn't online in FY '25 to '26, can we assume all the growth in Mistral over the past few years was selling more to existing?

Yes, there has been a really strong track record Mistral of organic growth from selling more to its existing customer base. That has included the growth and development of the Open Access operators within the FirstGroup portfolio that Mistral supports as well. And hopefully, as you saw from the slide, what's really attractive for us is that growth has been broad-based across the portfolio, both from a product perspective and a customer perspective. So really strong track record of organic growth, combined with the London Overground opportunity. And as David just touched on some growth synergy opportunities that we see here as well.

Thank you. Next, we have how much cross-selling opportunity is there between Mistral and Tracsis' existing customers?

Yes. Well, I guess we'd sort of maybe touched on that already. And hopefully, you're getting a sense of where we see the opportunity as you look across both the product portfolio and the access to the customer in our core market. We are -- well, we're in week 4 things since owning the business. So still sort of early days of bringing the teams together, getting to understand each compare pipeline of opportunities, for instance, and we're already identifying those cross-sell opportunities. I think when we get to results in November, definitely an area that we can help our investor community sort of understand with a little bit more definition as we start to crystallize and sort of size what those opportunities could look like. But how you do get a sense that we are creating a scaled position with a breadth of portfolio that, as Tom mentioned, because everything from passenger through operations through to asset-light cycle, and the opportunity that, that process in our market as it evolves into GBL, we believe is still of significant interest to us. How we size that and how we see what that sell opportunity could look like early stages for us. And therefore, we did not include in our investment cases and has mentioned to you, but certainly come results. I think we'll be in a position to give you a little bit more insight as the progress that we're making and how we see that opportunity to develop for us through FY '27 and beyond.

Thank you, David. We've had a few on GBR and reform. As you take shape, what changes are you seeing in procurement and how do you think greater centralization could affect pricing, margins and the adoption of new tool?

Yes. We felt important that we started to share with you how we're seeing start to develop and crystallize around us and hence, the material that we shared in the presentation today and a sort of emerging view that we are getting as a result of that. And it's been great to connect with Tom and his team to compare notes on collectively what we know, relationships we have, understanding a direction of travel, et cetera, is clearly an important aspect for us. I think worth stating that this has still got some ways to go. The railways bill, for instance, is still going through Parliament and has yet to be cast in stone. So there's clearly water still to flow here. But what we are starting to see through the development of the DFTO, for instance, which is where the train operating companies that have been nationalized are kind of sat in terms of ownership, as kind of a precursor of where they will ultimately end up as part of GBR. We also have the formation of things like GBRx, which is the technology arm, which is considering how to adopt technology more broadly at a faster scale so that it can be deployed more widely across the industry. So there are sorts of things that are happening around us as the market shapes and forms into what the future of GBR is going to look like. So still a little bit of gazing into the future as to where this is ultimately going to land but the sort of direction of travel is starting to emerge for us. I think what is true is that given the stated ambitions from the secretary state of how we are looking to run this combined track and train railway going forward with the emphasis placed on the passenger and the experience driving productivity and efficiencies through their operations is undoubtedly going to create a market for technology businesses like ourselves to help them deliver against those outcomes. So what we do expect to see is that there will be fewer procurement opportunities in the future. And they're likely to be of larger scale as they look to deploy technologies across the industry. We are coming from a backdrop of high levels of fragmentation where essentially, the operators have gone and done their own thing, good or bad. So we will see a level of consolidation across the suite of use cases that we serve. But importantly, we feel that the acquisition of Mistral in combination with Tracsis' own position gives us that real strength of capability both in breadth and depth and competitor positioning that we've shared with you today for us to be well positioned to capitalize on the opportunity as that market develops. So apologies for the long answer, but hopefully starting to see our emerging view and insight as to what's going on in the U.K. rail market and the importance of the acquisition of Mistral and how we look to integrate and position the combined group to really capitalize on the opportunity in front of us. And just to be clear, although there are still some areas of uncertainty in front of us right now. And we've been very cautious in the guidance that we've put out to our investors, and we continue to do that we remain over the medium term, really excited about the opportunity of what U.K. Rail will bring to this Tracsis business.

Thank you, David. I've next got 4 questions from one person, so I'll get through those. The first one is how concentrated is the Mistral customer base from a revenue perspective? And how would you describe the risk of customers switching to competitive software? And then to what extent did first ownership hold back growth with other TOCs? Why do you think purchasing is likely to remain at the TOC level despite the renationalization of TOCs? Finally, why no earn-outs or contingent element to derisk the transaction?

Okay. I'm just curiously writing those down so that I don't forget. So if I start from a customer concentration perspective. Obviously, we don't disclose down to that level of detail, but it's broad-based across Mistral. So there isn't a high dependency on a single customer, again, part of the attractive financial profile business. And clearly, with London Overground coming on Board as well, that will only further interest that diversification. In terms of the FirstGroup impact, difficult for us to really say and I won't put some on the spot by asking him to talk about commercially sensitive, things like that. But we think there's a net opportunity here from Mistral as a pure-play rail software business being part of a broader transport technology group in terms of our go-to-market offering, what we can offer to not just the FirstGroup or ex FirstGroup stable of talks, but the whole industry offering and our ability to serve that community of customers, but also be part of the leadership of where Rail Technology goes in the future. So that we think is a positive. And as David touched on from both sides of that equation, it brings immediate customer access for part of the product portfolio that we haven't previously had. Forgive me, I forgot number 3 of the questions. So I'll go on to the fourth bit. In terms of the contingent consideration and the structure of the deal, that we -- this was a transaction that we got to exclusivity with FirstGroup pretty quickly. We obviously knew about the Mistral business and have watched its progress with interest for a number of years. And clearly, FirstGroup is on existing customers is an organization that we have existing links with. So the opportunity from both sides of the equation for us to acquire an asset that we were really interested in and the FirstGroup to divest of an asset that was increasingly less core to than particularly as the top rationalization happens, this was a sort of mutually beneficial opportunity that we seized and move at pace with. And the deal structure, as we said was one we were comfortable that kind of business out, bringing it into Tracsis having a clean break at a valuation from an enterprise value perspective, sort of 12x EBITDA, just over 3.5x revenue we thought was quite attractive for a high-quality software business. So the overall structure we're comfortable with, and it means that we can now get on quickly with the process of integration and we're really starting to access some of those growth synergy opportunities that David has touched on. And [ Evy ], forgive me, you might have to remind me of what part 3 of the question was.

Yes, no problem. And the third question was, why do you think that purchasing is likely to remain at the TOC level despite the rationalization of TOCs?

Yes. Look, I think this is somewhat part of the crystal ball gazing of what GBR is going to look like. But our read of this is that GBR is still going to have a regional structure. So track and train will we brought together under kind of regional leadership as well as supported by kind of a central services function is like in the organization. That's got a long way to play out. And when you get under the skin of this, there's an awful lot of complexity around individual working practices, operations software suites and tools that individual regions are using. So we think there will be 2 elements to this going forward. There will be some central procurement, and there will be some opportunity for GBR to streamline and work with vendors to establish some common systems and processes. We think that would be accompanied by some regional decision-making for what's right for that part of the network and that type of organization. So for us, that's an attractive space to be in, in terms of level of opportunity the customer engagement and relationships that we bring. And as David touched on, we thought for Tracsis, it's important to have scale and breadth of offering in as that new environment take shape.

Thank you, Andy. The question is, how would you compare and contrast mistrials and tracks technology architecture? Will Mistral help accelerate the modernization of Tracsis techstack or products? And how long will it take to standardize?