Good afternoon, everyone, and welcome to the Cerillion Final Results presentation for the year to September 2025. Presenting today will be Louis Hall, CEO, and Andrew Dickson, CFO. All other participants are on listen-only mode. You're welcome to submit written questions either at the end or during the presentation using the Q&A tab at the bottom of your screen, and management will attempt to answer all your questions at the end of the presentation. Thank you all for joining today's call, and I'll pass you over to Louis Hall, CEO. Louis, please go ahead.
Thank you, Gareth, and thank you, everybody, for joining. I'm just going to spend a couple of minutes talking about what Cerillion does, who we are, etc., for those of you who don't know the company or haven't heard from us before. I'll keep this brief because I appreciate that a lot of you know the company and have heard from us before. Essentially, Cerillion provides what we call BSS, OSS software, to the global telecoms market, to telcos all around the world. That is to about 70 customers in, I think, 40 countries or something of that order. In terms of what is BSS and OSS, essentially, BSS and OSS software is the enterprise software that sits between telecoms businesses, network infrastructure, and their customers. It's the software that enables telcos to monetize those network assets.
That involves, for example, defining the products that their customers are sold, onboarding those customers either through CRM or through customer self-service or through mobile apps, whatever. Once those customers are onboarded, connecting those customers' services to the network that they're going to use. Once those customers are using those services, charging for those services, managing that usage, putting it onto bills, handling payments, receivables, collections, etc. We do this through a suite of modules that fit into the sort of industry-defined space that this software sits in. We sell that basically as a service basis. Our customers subscribe to use our software, typically for five-year term agreements. Part of the deployment is quite a large services project to implement the solution. These are complex solutions.
Even though we are much quicker at this than the competition, they still take 12 months, sometimes 18 months or so, to deploy. That can be a significant piece of services work. That is treated as a separate project and a separate deliverable, recognized on a milestone completion basis as opposed to the different recognition we use with the subscription side of the deal. Just very quickly, in terms of how we differentiate, we are in a market where most of the competition is much larger than us. Most of the competition is focused on a much more services-heavy, bespoke-oriented solution. Our main competitors are all delivering much more tailored solutions that take longer to deploy and have a higher long-term total cost of ownership.
Essentially, they're less flexible because they're, as opposed to our solution, which is a product and which is designed to be used by all customers, regardless of whether they're mobile, broadband, TV, satellite, whatever. We have a one-size-fits-all model. The software works out of the box on day one. All customers use the same software, giving them a very clear upgrade path going forward. There's a differentiator for us in the market, and that's our main USP. I'm going to actually, I will say a couple of things about the size of the market, because I think that's an important reference point for people who might not be aware of this. This is a huge market. These are figures from IDC. It's not a very fast-growing market, growing around 4% a year, but it's expected to grow to $60 billion a year in 2029.
Given the revenues we're reporting, if we only have a fraction of this market, we're still going to easily achieve our broadest ambition. This is an enormous market. Another thing to say about it is that telcos work the same the world over. It's a truly globalized business. The way that we interact with telecom networks in the U.K. or in France or Germany is the same as it's done in the U.S. or in Asia, in Japan or China or whatever. We're also interfacing to the same equipment in all these different places. We are able to embrace customers from Armenia, one of the wins we announced in 2025, straight to North America, straight to France or whatever. It's a truly global business.
Okay, in the interest of time, as I appreciate we need to leave time for questions and Andrew needs to spend some time on the numbers, I'm going to jog back to highlights of the year. If anybody has a question more about what we do or the market or whatever, then perhaps we'll handle that in questions when we get to the end. Just looking at the highlights of the year, we had a good year from a trading point of view. We achieved new highs across all the key financial measures. We're particularly pleased about total new orders, which were up 25% to around GBP 48 million. That pushed up our back order by 21% to a new record level. Andrew will talk more about that later on.
Obviously, EBIT, sorry, I guess it's not obvious, but EBITDA margins, margins in general, were up dramatically, quite significantly again. Andrew will talk about that in more detail. He'll also talk about the cash generation, which was also strong. In terms of the new order, a couple of points to make here. Within this 48 million number, there were two significant individual deals. One was the $11.4 million contract we won with Ucom, which is one of the national telcos in Armenia. Providing the full range of services to that telco, sorry, supporting the full range of services with that telco. This is interesting because this is a new customer for us, sorry, not just a new customer, but a new geography, a new market.
I think this is a part of the world, the Caucasus, where there are a lot of booming economies because of natural resource wealth. There are some quite big populations which together sustain some larger telcos. Armenia is a bit of a minnow in this part of the world. It is one of the smaller countries. That is a foothold into that region. We have prospects in our pipeline that are much bigger than this deal was. Now we have that reference. I think we can do more in that region. These are not necessarily the household names of the Vodafones and the AT&Ts, but they still can generate very large deals. The other deal that I want to talk about was a deal we won with an existing European customer, which has acquired one of the mobile operators in its home market.
This expansion, GBP 25 million deal, largest we've ever signed, is to migrate that mobile customer base onto the existing customer's existing Cerillion platform. That involves not just services, but license expansions, managed service expansions, and so on. Essentially, expansion of the subscription agreements. That was a really interesting example of how an existing customer can drive significant upsell. I think this is a theme in our development that the more of these larger customers we sign, the greater propensity those customers have to generate more revenue, and that becomes a self-perpetuating growth cycle. The final point on the orders is that out of GBP 48 million of orders, only $11.4 million, or around GBP 8 million, was with a new logo. Nearly GBP 40 million of that 48 was with existing customers.
Again, strength of the customer base, particularly as we start winning larger customers, is key to growth going forward. We come to some points because of our confidence not just in the order book that we have that we achieved in 2025, but our confidence in the pipeline going forward. We have increased the dividend by 17%, which is higher than the top-line revenue growth, but it reflects that confidence. The fact that we do feel we are very well positioned to achieve the 2026 numbers. Our guidance to the analysts has been to maintain 2026 consensus. We are very confident that is all possible. Moving on to, sorry, pressed the wrong button. Some operational highlights. We completed two new implementation projects in 2025. The first of these was Virgin Media in Ireland. Virgin Media, very interesting for us.
It is worth a couple of minutes or so on this. This is really a tier-one implementation environment and quite different in many ways to environments we have worked in the past in that this involved working with a major systems integrator, a company called Infosys, one of the world's biggest. They are present in a lot of the world's largest telcos, so very influential. Essentially, we provided our software with our industry-standard APIs. The integrator, Infosys, with a team of about 70 people, did most of the upstream and downstream integration themselves. That is important for two reasons. One is that we have a proof point that we can work in these big tier-one environments that are much more complex and involve other parties.
Also within Infosys, they were able to do that work relatively seamlessly without much support from us and deploy a team of 70 people onto that job. For them, they can see that working with Cerillion, they get to do lots of services work and make lots of money. Whereas if they were working with some of our more services-heavy, services-focused competitors, they would get a lot less of the services work. That, I think, is an important project to have been involved in. We also completed the project in Southern Africa with Paratus. Paratus were a completely different kind of customer. They're a growth business. They have a territory covering the seven Southern African countries, South Africa, Namibia, Botswana, and so on and so on. They provide satellite communications.
They provide broadband to business and have just launched a terrestrial mobile network in Namibia, which was what triggered the need for a new platform because the existing stuff they had would not support mobile. That gave us a foot in the door. We have implemented Namibia. We are now looking to roll this out with them to other territories as time goes on. On the operational side, we have also invested quite a lot in 2025. We have expanded the sales team, bringing in some heavy hitters from the competition, some people with lots of experience to help us try to better access some of these larger telcos. These are quite expensive resources, but what we are targeting is people coming from competitors who have networks, who know customers that could be contacted, might be priced away, and who essentially come with some level of pipeline.
We have seen this work quite powerfully, for example, with this was how we won that deal we were talking about earlier in Armenia. Also, there has been a lot of investment into R&D. We increased R&D investment by about 30% in 2025. That generated 17,500 or so mandates of work or equivalent of a team of 80 people working constantly just on R&D. A lot of the focus has been around AI recently. Last year, we were doing AI work around helping our customer staff to be more efficient. This year, the focus has been much more on enabling better customer service and more efficient customer service to our customers' customers, particularly through Agentic AI and the use of things like build query agents and so on that do the work of a customer service person, but much more effectively, much faster, and without the person.
You have a cost saving and a better service. Also, we've been working on creating a much more flexible environment in which our customers can use AI to make it easy for them to use either our AI agents or other AI agents provided by other third parties or things they want to build themselves. Also, be able to work with any of the LLMs, the language models that are out there. It's actually an interesting article from our product manager, which is out on the website today on this particular area. It's a rapidly evolving space. What we're doing is trying to build as much flexibility and future proofing as we possibly can so that we can offer real product solutions to our customers rather than a services-heavy bespoke play in each scenario. Great. Sorry. Excuse me while we roll through the slides. Okay. Apologies.
This is taking a little bit of time to get to the next place.
Just finally, for me, a few words on the competitive landscape. I won't go through this in a lot of detail because that'll take too much of the time that we have available and want to consciously leave time for questions and time for Andrew to talk about the numbers. There have been some changes in our competitive landscape in the last year. One particularly important change is that our number two competitor, a company called Netcracker, which is owned by NEC, the Japanese conglomerate, they're buying our number three competitor, CSG, from the U.S.. That is very positive in that not only does it take one of the top three competitors out of the market. When it comes to tenders, there are the top three and now the top two.
Obviously, it's easy for us to compete. Also, the fact that CSG have been absorbed into Netcracker means that a lot of the CSG customers we want will be assuming that that product line's end of life and wondering what the future is. Netcracker is an expensive organization. It costs a lot of money to own that solution. They're not going to all want to move on to that solution. We'll start looking at other options. That opens up a whole load of new prospecting for us. It also puts people on the market. We're already receiving CVs from people who are not looking forward to being part of the NEC Netcracker world. Another smaller competitor, a company called Optiva, recent announcement last few weeks that they're going to be acquired by another smaller player in Finland.
That takes a company that, to be fair, is much smaller and has been languishing for a long period of time. There is now another base of customers that are even more disgruntled, will be even more disgruntled, some of which are already in our pipeline. Others will enter it, I'm sure. Those are quite interesting changes. I'm going to hand over now to Andrew. We've come to the time. He'll talk about the numbers in some more detail.
Great. Thank you very much, Lou. As you can see, 2025 was another year of very strong financial performance with all key metrics up at record levels. Revenue increased by 4%, up to GBP 45.4 million. Over the last five-year period, the compound annual growth rate has been 17%. At the same time, adjusted PBT grew by 10%, up to GBP 21.8 million.
Part of the reason for the very strong growth in the year was a proportion of higher license revenue. As I think most of you are aware, any incremental license revenue drops through to profit at 100%. That is very beneficial when it comes to supporting profit in the margin. We also saw an increase in the services day rate. We talked about this at the first half results. This strong increase again continued in the second half of the year. It was again very beneficial for overall profit. This has meant that the adjusted EBITDA margin increased by 3.5 percentage points, up to 50.9% for the year. This is very strong financial performance. If you see, the margin over the past three years has been above 45%, which is very good for us to see.
I think going forward into 2026, the analyst consensus is still at 45%. Whilst performance has been very strong over the past few years from a margin perspective, we are flagging that it could potentially be a little bit lower in 2026. For example, if the license mix changes, and that could be that if services revenue could grow faster than license revenue in 2026, which could lead to a slightly unfavorable mix impact. Secondly, in 2025, we have benefited to a small degree from favorable effects. It was about one percentage point on the margin. Clearly, we cannot benefit from favorable effects in every future period. It could move against us in future periods. Finally, we have been investing very heavily both in recruiting new salesheads. There was a net increase of five salesheads in 2025.
We are expecting a similar increase again in 2026. These are expensive people. There can be a gap between making the initial investment and seeing the return come through. We do believe, given the strong growth we see in the market, it is the right thing to invest in the salesforce in order to make sure that we can deliver on our potential. At the same time, we have been recruiting more expensive delivery heads. As we win these larger, more complex projects, we need to make sure that we have the right people in place to retain the high quality of the work that we are undertaking. In terms of recurring revenue, the graph at the bottom left-hand corner, the dark blue graphs reflect recurring revenue that has been reported in the financial year.
This is made up of support and maintenance, managed service, and third-party hardware and hosting revenue. For the first time this year, on top of that, we have also given an annualized term license impact. Although our revenue recognition policy is to recognize license revenue upfront for the full term when it is available for use, the metric in the light blue here shows a proxy for recurring annualized license revenue. Effectively taking the total revenue by customer over the full contract term and dividing that by the term length. I think the key point here is you can see that has grown very strongly over the past five years. This total recurring revenue metric has been growing at 21% on a compound annual growth basis, which is higher than the 17% increase for revenue. You can see cash increased strongly, again, up to GBP 34.4 million.
I'll talk about that in a bit more detail on the future slide. This has enabled us to increase the dividend, so the total dividend for the year, up 17% to GBP 15.4 per share. In terms of the financial highlights, you can see the back order book was up 21% against last year to GBP 56.9 million. This is made up of two components, GBP 47.4 million of orders that have been contracted but not yet recognized. We're flagging that we estimate that about 33% of this balance will be recognized as revenue in 2026. On top of this, there's GBP 9.5 million of annualized support and maintenance revenue. Taken together, we think that the back order provides very good cover for revenue both in 2026 and also in future years.
In terms of the revenue that we delivered during the year of GBP 45.4 million, this slide here shows that most of the growth was driven by services, which reflected the increase in the services day rate on the key implementation projects that we generated during the year. At the same time, software revenue has remained robust at GBP 24.4 million and included a higher proportion of Cerillion license revenue, which was partly offset by lower margin third-party license revenue. As I said before, the adjusted EBITDA margin has increased up to 50.9%. This includes the impact of favorable effects, higher day rates on implementation projects, as well as the favorable impact from license revenue mix. Okay. Over the slide, in terms of cash generation, the table at the top shows a reconciliation of adjusted EBITDA down to free cash flow.
You can see that in the year, there was some build in working capital, and that was mainly driven by accrued income, which increased by about GBP 6 million on the prior year. This increase is linked to the way that we recognize the license revenue. License revenue is recognized upfront when the software is available for use. The customers typically pay on a quarterly basis throughout the term of the contract. Hence, when we recognize the license revenue, accrued income builds up in the balance sheet, which then unwinds over time as the cash comes in. I think it's worth flagging. We do have a very good track record of being paid by our customers. What we're selling is mission-critical software. We do have the ability to turn the software off if the customer doesn't pay.
Therefore, we do have a very good track record of that accrued income converting into cash over the term of the contract. Finally, the graph at the bottom shows a reconciliation of opening net cash to closing net cash. The key point here is that the free cash that we generated during the year was much higher than the amount that the outflows, the dividends, the small amount we paid for employee incentive shares, and lease payments. This is a story getting to closing net cash of GBP 34.4 million. In terms of the detailed income statement, a couple of additional points to mention here. Firstly, as Louis said before, we do continue to invest in R&D. We invested about 17,500 days in R&D over the year, which is up over 30% on the prior year. Of that, we capitalized GBP 1.8 million of development costs.
This balance made up about 70% of the total gross spend. Operating expenses at GBP 16.7 million remained broadly flat with the prior year. Whilst we did continue to invest in heads and payroll inflation, the impact of this was offset by higher capitalization of development costs as well as favorable effects. Over the slide to the detailed balance sheet, I think the key point here is that the balance sheet remains incredibly strong. We have still got net cash of GBP 34.4 million. There is no debt. During the course of the year, there was an increase in net assets of 23% up to GBP 59.6 million.
Thank you, Andrew. Looking forward again into 2026, we are very pleased to see overall unweighted pipeline. This is new logo, new customer pipeline increase a bit to GBP 275 million and our weighted pipeline increase to GBP 65 million.
I think the most important thing we've been flagging to investors about this pipeline is the quality of the pipeline at the moment and the proximity to closure and maturity of some substantial deals. I think we do expect to see some traction on at least some of that relatively soon. Without saying more than I'm supposed to say, that's one of the main drivers of confidence in terms of why we think we'll achieve consensus 2026 numbers and why 2027 looks good too. That is something we've been flagging. Oh, just one moment. Finally, hopefully finally. Here we go. In terms of just summing up, Andrew's relayed the numbers. We're very pleased to have hit those new highs again. New orders up 25%, really important in terms of this year and next.
The pipeline I have just spoken about is strong and quite pregnant, shall we say. We have talked about the financial profile, dividends. All in all, I think we are well positioned for 2026, and we are very confident. Gareth, back to you.
That is great. Thank you very much, both Louis and Andrew. That is all very good. I will now move to questions from the audience. Just as a reminder, if you would like to ask a question, please click on the Q&A button at the base of your screen and type in a question for me to ask on your behalf. We have already got quite a lot of questions queued up. I will try and cluster a few of them together, but generally, I will just take them in the order that we have received them. First question that came in was, one of your competitors, you talked about M&A a little bit.
The first question is, one of your competitors recently acquired Digital in the U.K.. What's your view about that acquired company? And why are you not currently pursuing that kind of acquisition?
It's a good question. That's not what I'm aware of, to be brutally honest. So unfortunately, I can't really comment. Have you come across that one, Andrew?
No. No.
They're certainly not a competitor that we would see. I'm not sure if that's a competitor or not a BSS vendor that we know. If someone can, if ever it is, can forward more detail, we'll take a look at it.
Yeah. Apparently, it was Hanson Technologies.
Hanson took over. We know Hanson. Hanson is much more of a competitor in utilities. It's a much more player in utilities. We don't really see them an awful lot in telco.
They have a telco billing business, but a much bigger business in utilities billing. I guess we used to see them from time to time, but we have not seen Hanson for a long time. They have got some legacy business in the U.K. market, for example, Tesco Mobile. That dates back probably 20-odd years. Digital may be involved in that. Yeah. I am not aware of that acquisition. Hanson do acquire lots of companies, so I am not surprised.
Fine. Okay. That is great. Thank you. I have got a couple of questions also sort of M&A related, but more on the multiples side. One question is, would you say that the M&A multiples in the sector are still on the high end?
A separate question, but I think related, and maybe you can sort of take them together, is how did the multiples of the two competitor acquisitions compare to your own valuation?
I think that the one that is disclosed is the CSG one. I think that multiple is about 2.7x EV over sales. I could be wrong, but my memory is it is that sort of order. I think at a, sorry, at EBITDA over sales, over revenue multiple, it is around 20-ish. That is a bit lighter than we are. I think someone else will have to help me out with what our current EBITDA over revenue multiple is. It is sort of in the ballpark. Obviously, we trade on a much higher EV over sales multiple. I mean, we are around seven or eight, I think, on EV over sales.
That's because the high margins mean that we're not as expensive at an EBITDA multiple level.
Sure. Okay. Another question. What's the minimum IRR that you're targeting for your AI-related product developments?
Sorry, just on that previous one, I should point out that CSG was trading at a much lower multiple as a public company because it has much, much lower margins. I mean, I think 12% EBITDA margin compared to 50%, and it was barely growing for the last few years. We would expect to see a premium over that. Quite different. Yeah.
Sorry. I think the thing about AI investment is we will see some incremental additional business with existing customers. The product we're building in AI is licensable. You need to buy a subscription to use those products and services. Essentially, we're selling them as SaaS products.
This is incremental, really, to the main. It's not going to be 50% more than you're already paying. We're talking about incremental bits of functionality. I think the way to think about AI is it's more about staying at the front of the pack and making our product set more attractive than the rest, such that AI is not a reason not to buy Cerillion. We want to be the most flexible, most open, most powerful user of AI in the BSS, OSS space. That's why we're investing the money in it. It's not going to be something which we double our revenues on, if you see what I mean. It's just going to become all of the front runners are working on this stuff. Anybody who wants to stay in this business will need to have these features.
Understood. Thank you.
A question about actually your personal share sale, Louis. You said your recent GBP 46 million share sale was your first since 2017. How should investors reconcile this significant reduction in your holding with your stated ambition to double the company's size and your long-term conviction in its growth potential?
Yeah, that's a fair question. I mean, to put it in perspective, I reduced the holding by a third. So I've still retained two-thirds of it. I think that at the end of the day, we do live in an uncertain world. We don't know what's around the corner. Lots of geopolitical uncertainty at the moment. I've been doing this for 25 years. At some point, it's just sensible to diversify to some extent out of one main core asset.
I'm sure that you guys on the call would all want to do the same thing with your investments. You would know everything in one stock. Whilst I firmly believe that we will double the size of the company, it's really just about a little bit of diversification. I have no plans to sell any more stock. I didn't need to sell the stock particularly. It wasn't that there was a particular driver. In a way, there's never a good time. It's something that has sort of been on the agenda for a number of years, really. It was just a case of at what point does it make sense. I'm sure you understand that dynamic.
Okay. Thank you. We've got three questions, which are all sort of related to revenue or the performance during the current year.
I'll ask all three, and then you can work out how to maybe split the answers. First one is, it looks like recurring revenue declined by 3% in the second half. What's the reason for this? Another question, your record GBP 47.6 million in new orders contrasts with 3.7% revenue growth. Your 12-month backlog conversion forecast has slowed from 45% to 33%. What gives you confidence to reiterate a goal of doubling the business in three to five years? Should we expect a material reacceleration of revenue in FY 2026, or are longer implementation cycles and capacity constraints the new norm? Separately, a third question about the weighting of revenue growth in 2026 between H1 and H2, which might be related to those two.
Okay. Let me take the first one on recurring revenue.
First of all, you might have to repeat the second question. Sorry. I've captured it. You're right. I mean, there has been a decline in recurring revenue in H2. Just to reiterate, I mean, the way we calculate recurring revenue is essentially to take the final month of the year and then annualize it. Clearly, there can be changes from period to period just due to the timing of revenue dropping in. Whilst we have benefited from new customers coming on board, and we have continued to benefit from indexation, as you'd expect, there has been some decline in revenue just due to other amounts dropping out. That's not unusual.
I think the long-term trend that we expect is that the recurring revenue should continue to tick up into the future, particularly because we have additional customers that are poised to come on board in 2026, which should drive additional revenue coming through.
Okay. Thank you. The other two were, your record GBP 47.6 million in new orders contrasts sharply with 3.7% revenue growth. Your 12-month backlog conversion forecast has slowed from 45% to 33%. What gives you confidence to reiterate the goal of doubling the business in three to five years? Should we expect, rather, a material reacceleration of revenue in FY 2026, or are longer implementation cycles and capacity constraints the new norm?
Okay. Let me start on that, and then maybe I can hand over to Louis. I mean, clearly, there is a difference between winning orders in the year and recognizing revenue.
Absolutely right. Revenue was up 4% in the year, but orders have been up significantly more to 25%, up to GBP 47.6 million. First of all, I mean, the increase in orders has been very helpful because it has meant that the back order book has closed at a record level of GBP 56.9 million. That was up 21% on the prior year. That gives us a huge amount of confidence coming into 2026 in that we do have a high level of revenue that has been underpinned both in 2026 and in future years. I think it is also right to say that the proportion of the back order that we expect to unwind in 2026 is slightly lower than it has been in previous years. We are flagging that of the GBP 47 million.
About 33% of that is expected to be recognized as revenue in future years, sorry, in 2026. Of course, the rest of it will be unwound into future years, which is very positive, taking a longer outlook. In terms of why we continue to feel positive about 2026, if we look at both the unwind of the backlog and we add on the impact of the support and maintenance run rate, and then adding on the impact of indexation, we think that gives us about 50% coverage of analyst consensus in 2026. We feel that that gives us a very good starting point. Now, of course, on top of that, there's a number of things which aren't included in that number. First of all, every year, we do get term license renewals coming through.
Now, those term license renewals and extensions are not included in the backlog because our accounting policy is to recognize that license revenue when those renewals and extensions are signed. We would expect that to give us some boost on top of the sort of the 50% coverage that I have talked about already. On top of that, every year, we do get a lot of services revenue, which is upselling to existing customers. For example, in 2025, we generated GBP 13.4 million of account development revenue. The previous year, it was a similar number, GBP 12.6 million. We would expect to generate sort of a similar number, a similar amount of account development revenue in 2026, which would be on top of the backlog amount. Finally, the amount that is missing on top of that is any impact from new customer wins.
As Louis was saying before, the prospective customer pipeline is at a record level. The quality of the opportunities has gone up. We are feeling very confident about signing new customer contracts in the near-term future. That should deliver a significant amount of additional revenue on top. That is the way that we view prospective revenue for 2026. That is why, at this point in time, we are feeling confident.
That's great. Thank you. The last section, you sort of touched on part of this already, but could you talk a bit about the weighting of revenue growth in 2026 between H1 and H2?
No, absolutely. I mean, it's a good point. In 2025, we experienced a stronger H2 versus H1. We are expecting a similar trend in 2026.
We think the first half will be about 45% with 55% revenue in the second half of the year. That is really driven by the expected timing of license revenue dropping through. If we were to sign a new contract, a new customer in the first half, we would not recognize any license revenue in the first half because it typically takes about six months between signing a contract and recognizing revenue. Naturally, therefore, we would expect to recognize a bit more license revenue in the second half of the year, for example.
Okay. Thank you. Got some more general questions, perhaps, for Louis here. First one is, you mentioned the sales heads increase of five people. This is coming off an existing base of how many sales heads?
Around 20. Okay. So 25% increase.
Another one, talking about diversification, are you comfortable enough with the current customer diversification, or will you try over time to decrease that risk?
Do you mean in terms of concentration in individual customers or regions? Are we talking about regional diversification or?
I'm not sure. I assume it's to do with regional diversification by end customers, the investor saying.
Yeah. I mean, unusually in 2025, we had a lot of revenue in 77% of our revenue was in Europe. It's normally about half that. I mean, having said that, Europe is by far the most diverse telecoms market in the world. It has so many different kinds of telcos and lots of rich small countries with multiple telcos, all driven by regulation, which is a good market. I think we can certainly—I mean, it's interesting.
Markets like the Caucasus is not a market we really thought of until recently, but there's a market I spoke about earlier where there is opportunity. We think we can do more in Asia. We think we can do more in North America than we're doing, and also more in the Middle East. We're sort of targeting those new sales hires at particular regions, mainly. That's very much our strategy, is to develop more presence in a region through putting some more resource on the ground. I think just one point for me to add to that. In terms of customer concentration, if you look at it in any one year, it's naturally going to be high. That really falls out of the way that we recognize the revenue. To reiterate, we recognize license revenue upfront when the software is available for use.
But then over the remaining period of the term contract, which is typically five years, we would expect the total revenue to be a lot lower than in the first year. There is naturally a level of concentration towards the start of the contracts, which then falls away. Therefore, moving from one year to the next, you would expect there to be a change in customer concentration, albeit we do have a handful of customers where we have a very good track record of upselling them to them sort of year after year.
Okay. Actually, on that point, we have had a couple of questions about revenue recognition policy and looking at a five-year contract as an example and talking that through. Is there anything else you wanted to say about revenue recognition and the way that you recognize sales across that timeframe?
Yeah.
Let me just expand on what I just said. A typical new customer contract is a five-year term contract. What the customer will see is really two components. They'll see an implementation component, which is usually 30-40% of the total contract value. That revenue is recognized over time on a percent completion basis. The typical period, as I said, is 12-18 months. The second element that the customer sees is the subscription fee. This covers everything else in the contract: the license revenue, support and maintenance, and managed service, and in some instances, third-party hardware and hosting. Looking at the subscription fee, whilst the customer pays the same amount, typically on a quarterly basis, under IFRS 15, we have to strip the amounts out and recognize them slightly differently.
The license revenue is recognized upfront when the license is available for use, but the other amounts are recognized on a straight-line basis over the course of the term.
Okay. That's great. Thank you. Another question on the pipeline, so the sales pipeline. Please, could you give a flavor of the size of potential opportunities in your pipeline since you say there are some who are much larger than current ones?
Yeah. I mean, it can't be too specific for obvious reasons. When we say substantial, we mean bigger than the biggest deal we've signed to date. The biggest deal we've signed to date is GBP 25 million. There's a single deal. What is true and is an important thing to be aware of is that the average size of the prospects in the pipeline has increased quite significantly.
We have seen one of the features of the last seven or eight years since IPO is the gradual increase in size of the biggest ever contract win. That is what really is going to power growth going forward. Someone asked about the three to five-year plan double again. It is by winning more of these larger telcos, which have a great propensity to generate upsell. That becomes a self-perpetuating cycle. That is really important.
Thank you. We have a question on the U.S. market, just following on from the geographic part of the conversation. Please, can you enlarge on the U.S. market? How is it different to Europe, and what opportunities does it offer?
I think it is different in that it is dominated by a handful of very large telcos like Verizon and AT&T and so on. On the one hand, that is a challenge.
Our largest competitor, Amdocs, earns about $1 billion a year with AT&T, for example. Are we going to take that business over in the near future? Possibly not this year. Might be a stretch next year. What we can do is win other business in AT&T, for example, or in Verizon or in T-Mobile, whatever. There are subsidiary pieces of business we could win that are not the main consumer billing for 100 million customers, around sub-brands, MB&O brands, wholesale billing, for example. There is a whole load of different stuff we can do in those organizations. Those big telcos have multiple BSS vendors. None of these large telcos just rely on a single vendor in this space. I guess that is one of the major differences, whereas Europe has lots of smaller telcos because they are nationally based.
I think, in general, Europe is more dynamic. There are more different types of telcos in Europe. The U.S. has been slow to adopt some of the more interesting models, like the greater diversity of BSS and so on. Of course, at the other end of the scale, the U.S. has a lot of very small regional players. There are sort of three counties in North Carolina and two in South Carolina, that sort of thing. That is quite a common model. There is not as much in the middle. There are not as many mid-sized players. Of course, mid-sized in that part of the world would still be a large telco in Europe, but there just are not many of those. Those are the main kind of differences.
Okay. Thank you. Perhaps one for Andrew again.
With respect to accrued income and its conversion into cash, have you ever had to write off accrued income or had a customer who did not pay?
I think the first thing to say is we do have a very good track record of being paid. What we are selling to the customers are mission-critical systems. The customer typically cannot operate their systems without our software. That gives us very strong leverage in order to get paid. I think going back in the company's 25-year history, 26-year history now, that remains the case. I think, naturally, from time to time, given the industry that we operate in, there will be customer disputes occasionally that crop up. In my time here, there has been one instance where a customer, there has been a customer dispute.
In that instance, we did have to write off a small amount of the accrued income. That was several years ago. We were able to fully manage that. We took the write-off above the line and still were able to generate the very high margins that we have reported. It is a very unusual event for that to happen. There have certainly been no instances of that over the last couple of years.
Okay. Thank you. Another question. From your experience, how difficult is it for a customer to switch from a full-stack software provider like Cerillion to a new one? Would it be too optimistic to think that as long as you maintain a healthy relationship with a customer for years, it is very unlikely that this happens?
Yeah. It is unlikely. It is hard. I mean, we have pretty much the shortest implementations in the industry.
Typically, projects with the larger competitors are three to five years. Typically, it'll take a year at least to choose a vendor. It is a big, long process. It is hard to move. It is really hard to move. I mean, these are mission-critical real-time systems. There is a lot of risk in moving.
Okay. Another question on the sales team. Could you provide a bit more color on the new sales hires in terms of which gaps they're filling, whether in terms of region or product type?
In terms of the frontline salespeople, it is targeting particular regions. One of these people is covering Middle East. Another one is covering that new market in the Caucasus. Another one, new head of sales in the U.S.. Also, on the pre-sales side, we've picked up a couple of good pre-sales guys from one of our competitors in Poland.
That helps with the European deals that we bid on. Some more diverse language skills in France and so on. Yeah, it's a range. Essentially, with the frontline salespeople, we're targeting people who have come from competitors with network, knowing a customer base that might be vulnerable, and essentially some level of pipeline, which is much more effective than bringing someone in from an adjacent sector, adjacent vertical, with no network in this vertical. That's a tougher conversion.
Got it. Okay. Understood. Thank you. We're running up against in terms of a time deadline. I've just got, I think, two more questions to get through in the time available. First of all, free cash flow to EBITDA has been about 60% over the last three years, much lower than in the previous three. Do you have a target for free cash flow conversion?
Or failing that, should we expect free cash flow conversion to improve going forward?
I mean, I think the important point here is the free cash flow conversion is tied to the way that we recognize our license revenue. Clearly, when we recognize the license revenue upfront in a typical five-year term, but the customer pays the cash over the course of the term, that leads to accrued income being recognized due to the disparity between recognizing the revenue and the profit and receiving the cash. I think the important thing is we do have a good track record of being paid. I think as we plan to continue to grow the business, that would impact cash conversion because you would expect to be recognizing revenue at a faster rate than receiving cash from previous contracts.
If we were a steady-state business, I think cash conversion would clearly be much better. We do plan to continue growing the business. Therefore, I think it's fair to assume that there would be an impact on cash conversion in future years. However, I think the important thing to note is that we do have a very good track record of being paid. There are no amounts in accrued income at the moment where we foresee risk that we're not going to be paid. We think it's just a matter of time before that accrued income does turn into cash.
Okay. That's great. Thank you. If a new customer adopts only a few of your modules from your entire suite, what would be your expectation of them adopting the rest of the suite over, say, the next five years?
It's very difficult to give a general answer on that. It's fair to say that most customers acquire most of the modules upfront. Perhaps sometimes customers, for example, would acquire all our main modules but wouldn't buy the charging module because maybe their network equipment vendor is doing that for them and they want to continue with that. Quite often, after a few years, customers will then buy the charging from us as well because it's much more powerful to have all that fully integrated with the rest of the suite. Sorry, apologies for that. It is hard to give a general answer. Suffice to say that most customers buy most of the modules.
Okay. That's fine. Good. I think we're up against it in terms of hitting the hour mark. Thank you very much indeed for your time, Louis and Andrew.
Thank you, everybody, for attending. If you get time, we would appreciate it if the audience could complete the feedback survey that will appear after the end of the webinar. If you do not have time to do that now, it will appear in a follow-up email. Just before we finish, I will hand back to Louis for any final closing remarks. Louis.
Thank you, Gareth. I would just like to reiterate that thanks to you all for attending and taking your time, especially on a Friday, to listen to us. Apologies if we sound a bit worn out on the voice, but I think this is about our 40th meeting this week, Andrew, something like that. Yeah, thank you for taking the time. I mean, really, my summary is we are very confident about 2026 and beyond.
We think there's a lot of room for growth here and a long way to go. Lots to achieve. Thank you very much. That's great.
Thank you, Louis. Thank you, Andrew. This is the end of the webinar.