Microlise Group (LSE:SAAS) — Interim Results for the six months ended 30 June 2026

0:00 Good afternoon, and welcome to the MICROLISE GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Please just simply type in your questions and press send. Before we begin, I'd like to submit the following poll. I would like to hand you over to Nadim Raz, the CEO. Good afternoon, sir. Hi. Thanks very much, and thank you everybody for attending this afternoon. So just a quick introduction. My name is Nadine Raslan, CEO for MICROUP, and joining me is Nick Whiteman, our CFO. Good afternoon. We're gonna cover just a quick introduction to the business for those of you that are from aren't familiar with MICROLISE.

0:52 Recap on h one FY twenty twenty six, our interim results. Nick will then do a deeper dive into the financial numbers, and then I'll end the session talking about marketing and strategy and some slides on outlook. So MICROLISE is a leading provider of transport management solutions. We are fairly dominant in The UK in the high end of the market. So those companies that have greater than 500 vehicles and trucks within their fleet, we have a 60% market share.

1:39 And overall, we have about two and a half thousand customers, and that represents a 300,000,000 ARR opportunity in just in terms of cross selling and upselling into our existing customer base. You can see there just a a small number of our logos. And as you recognize, they're all pretty much household names. And, again, that's that represents sort of 60% market share that we have in the upper end of that of that market segment. Our our mission is to really unify fleet operations, so really bringing together transport management, telematics, and other operational management tools under one platform, which we're branding MICROLISE ONE and really helps those organizations look after their entire operation, not just all of their assets, vehicles, drivers, etcetera, but all the inventory and the financial admin that's involved in all of that as well.

2:51 Our h one results, just some highlights. You know, we had a solid performance in the first half of of twenty twenty six through to the end of June. We have 47,100,000 direct ARR sales, up 12%. Our direct NRR was running at 106% with an EBITDA margin of 13.2. So a solid recovery from h two in in 2025. And just to illustrate in more detail the sort of thing that we do. So starting from the left hand side, you can see here the kind of industry challenges and pain points that our customers have. The industry is under lots of pressure to to deliver more, to deliver it faster, and deliver it for less money, and also to do that in a very sustainable way.

3:49 And we, you know, we we provide tools and services to help our customers do that. So dealing with their cost pressures, dealing with some of their labor pressures, there's not enough drivers available. The average age of the driver is over 50 in The UK. And so helping them utilize and make best use of that labor force is an important aspect of what we do. Of course, you're driving 44 ton trucks, so there's a lot of safety issues and concerns. We deal with those as well. And it's a heavily regulated industry sector, so there is a significant compliance burden and admin involved in ensuring that you are looking after vehicles and, of course, that you are looking after those drivers and making sure that they're adhering to the driving hours regulations.

4:41 Utilization of all of those assets creates a lot of uptime pressure. And, of course, there is continued pressure from customers to ensure that you deliver on time in a safe way without having any damaged goods, etcetera. So all of those are aspects and pain points that our customers have. And we solve those through two groups of modules. So we have our transport modules, and so these deal with the the actual movements of goods, the inventory, the delivery notes, the order management, the quotation for work, etcetera, planning and scheduling. So we have a variety of modules in in under that under that banner. And then we have a set of fleet modules that look after the actual assets, the vehicles, trailers, the drivers, making sure that they are being operated in a safe way, making sure they're being maintained, making sure that they are being utilized to the maximum as well.

5:45 And underpinning all of that, those modules, is a shared data layer because it is all about data that drives those large operations. If you've got 5,000 vehicles, 10,000 drivers. You need to have a lot of information to understand what's exactly is going on within your operation and and driving insights that allow you to make improvements across that operation. So some of the some of the distinct value that we deliver in terms of costs, it's not unusual for us to save between sort of six and sometimes even as high as 12% on fuel for our customers through better driving, safer driving, and and better utilization of assets.

6:33 On the safety front, it's not unusual for customers to see significant reduction in accidents leading to, again, savings on insurance premiums. But overall, the biggest benefit the customers see is the ability to do more, deliver more goods with the same number of vehicles and the same numbers of drivers and just making themselves far more efficient than they currently are. Of course, you have to do that while still remaining compliant. And if you do all of those things, then there is a real strategic advantage. Having real time visibility across the whole operation, which is usually very, very dynamic and understanding what's going on and dealing with issues very, very quickly gives our customers an advantage that allows them to go out with more business.

7:27 We have a land and expand strategy. So we have a lot of modules, but nobody buys all of those things all on day one. So the way that we work has always been that we have a team that's dedicated to onboarding new logos and new customers. And then we have another team whose job it is to help and grow those customers. So by upselling, cross selling additional modules into those accounts. And there there are some examples of some of the work that we've done and how we've helped our customers grow and thereby increase our share of wallet and the revenue that we get from those accounts. There are numerous case studies available if you follow that URL link at the bottom of the screen there.

8:16 But I'll just talk through one of those. So LFNE, it's a temperature controlled goods logistics provider. We contracted with them in 2023 at the point when they had 259 vehicles. They bought some of our compliance solutions initially. Over the last three years, we've grown with them by supplying them additional solutions. Recently, this year, they bought our TMS product, and that's enabled them to grow, but also for us to increase our revenue from that customer by 450% over the last three years. And and there are numerous examples where our land and expand strategy has enabled that growth of revenue from existing customers.

9:13 We're gonna come on to talking about the two aspects of the business, the OEM side and the direct side. And it's fair to say that the direct side is where we are focusing a lot of effort on growing and accelerating the growth that we're seeing in that side. We've generally had double digit growth on the direct side, but our aim is to accelerate that and make it grow even faster. And we've done that through several ways. One, at the end of twenty twenty five, we did some restructuring that enabled us to deliver 5,000,000 of annualized cost savings. We've done further savings in h one this year that's enabled us to then reinvest some of those things in more targeted aspects of the business that will drive that direct growth.

10:05 So some of the things that we are investing in currently are our product. So our MICROLISE ONE product, and we'll talk more about that on the later slide as well. We're investing in our TMS product. Now the TMS product is our highest value, highest margin product. It's also a very complicated product, and there are several things that we can do there that are going to drive faster uptake of that product, allowing us to sell more and implement more and get really driving revenue and profitability. And then lastly, in the mid market section, so those customers that have between one hundred and five hundred vehicles where we are less penetrated, we're about 30% market share in that area.

10:53 But we see lots of opportunity in The UK for us to grow that segment, and we are launching specific products aimed directly in that particular segment of the market. We're also investing in our architecture, which is gonna help reduce costs. And, of course, we're continuing to invest in security and AI both inside our products so they can provide AI tooling and analytics to our customers, but also AI within our business that drives more efficiencies in in drives more efficiencies in our normal operations as well. That's going to result in capitalized development increasing in 2026, which is really our build phase.

11:40 We'll see that growth and increased margins coming through in 2027. We can see some of those signals already, and that's pretty pleasing for us because we know we're on the right track. Specifically talking about our f y f y twenty six and our direct customer strategy. So expanding on what I said on the on the previous slide and adding more color to that, we are integrating all of our products onto one platform. And that's really to allow that common dataset to be available that glues all of those things together. So customers can see the entirety of their operation if they're using all of our products and really get insights that they just can't do if they bought products from different suppliers.

12:39 We've already launched some, data packs, to provide that at the early part of this year that'd be really well received, and we'll continue to launch more of those data packs throughout this year and into 2027. I also talked about expanding into the mid market. There is a £65,000,000 ARR opportunity in the mid market for us in just in The UK, and we've been developing that market for for some time and had a lot of success in it. But given the learnings that we've had, we believe that repackaging some of our products and refining that offer to the mid market will drive accelerated growth in that space.

13:26 And so we are launching a new offer next month that we're taking specifically to target that mid market section. And then talking about TMS. So our TMS software, we have been developing that and improving, reducing the sales cycle and looking at reducing the actual implementation cycle. It's a big complicated product, which is why it demands a higher value and a higher margin. And the more of that that we can sell, it will, you know, significantly shift the needle on both revenue and and profitability. And the focus on that is how do we go faster. We can see some of that activity bearing fruit already.

14:15 We have delivered more TMS deals in the first half of this year than we have done in the last two years. So we are seeing the pace of winning and delivering increasing and our investment is all about accelerating that. And we've been growing our go to market team both in The UK, Australia, and also in the APAC region. This is a it's a it's a business to business operation and people buy from people. And so to grow sales, we need to grow our GTM team, and we also need to grow our marketing spend. And that's the other area of investment that we're making.

15:01 And underlying all of that, where there is a focus on operational efficiency and margin expansion. So you can see that coming through with the margin recovery in h one compared to h two, f y twenty five. Our aim is to continue that into H2 through to 2027. I'm going to hand across to Nick now to take a more of a deeper dive into the financial numbers. Thank you, Nadim. I think the first thing really to call out is that H1 was delivered in line with management expectations, and the numbers are now showing the actions that we took at the back end of FY twenty five. The headline to keep in mind through this section and reiterating what Adim has already said is that customer direct customer ARR has grown, and margin has recovered materially, and we remain in in in a very strong cash position.

15:56 Key numbers really to call out here. Direct customer ARR has grown 12% to $47,100,000 EBITDA margin has increased to $13,200,000 from $5,200,000 in H2 twenty twenty five. Direct customer NRR is 106%. Churn remains very low at 1.1%, and our cash balance has increased 13.8% from where we were at the end of June twenty twenty five. If you just move on to the next slide, please, Nadim. This is our ARR bridge. So what what this is telling you is that it effectively bridges the two separate halves of our business, which is direct customer business and OEM business.

16:44 Direct recurring ARR is is compounding. OEM is is reducing as as we anticipated. ARR still grew two to 4% overall. I think the important thing to to kinda call out here as well is that our direct ARR has roughly doubled since IPO back in 2021. In terms of the the specifics on this, what we can see on the direct side, that has increased from 42,000,000 to 47,100,000. We've got 5,700,000 of combined existing and new growth, which which more than absorbs the drag that we've seen on OEM that I'll come to in a moment. The growth that we've that we've seen is is existing customer led, so that's 4,100,000 of the 5,700,000 from the installed base against 1,600,000 of of new logos.

17:39 We do expect those both to increase. As we go through the deck, you'll we'll see more around the mid market opportunity and how this can enhance our direct customer growth, both in the existing customer base and within new logos. I'm just touching on and then addressing the OEM side of things. That is a 3,100,000 reduction compared to the twelve months ending 2020, June 2025. Now there there are a number of reasons around that. It's a very similar story to what we had at the end of end of December. There are a few factors that are driving that ARR down. The main factor is relating to the number of renewals that we've received.

18:25 So this is second life contracts that the end user pay for. The way in which the relationship with the OEM works is that we will we will ship hardware to the OEM. They will determine where that vehicle or the unit is gonna be shipped to geographically. They will provide us a purchase order, which will indicate the the kind of commercial rate that they pay for that and also the duration of that contract. That contract is paid in full upfront, and that revenue is deferred and sits in the balance sheet and is recognized over the over the period of the of the service period. What we saw last year is we saw a reduction in the rate of the new contracts being renewed.

19:14 So there was a numb the the initial term expired. We'd seen a relatively consistent and stable level of the number of renewals that the second effectively the second life contract was giving us. That reduced, and that is what we're seeing in these numbers here. So we are expecting FY 'twenty six to be lower than FY 'twenty five. We're expecting a further reduction, albeit lower and slowing down in 2027. And then we are expecting that to plateau in back end of twenty twenty seven. So we expect that then to flat line moving forward. So I think the key thing really to point out here is that we do have good line of sight over the movement in those and the expiry of those first term contracts.

20:01 And then we are applying you know, very, very prudent assumptions around the level of renewal rates that we that we will get. We're trading in line with our forecast and our budgets at the moment. It gives us confidence that we'll see that working its way through. And then ultimately, as we continue to see our direct customer ARR grow, that will actually stimulate group wide growth from an ARR and recurring revenue perspective. Thank you, Nadeem. If you just move on to the next slide, please. So this is an illustration of our different revenue streams. So the graph on the right hand side shows the four main revenue streams that we have. The bottom two bars represent our recurring revenues. So the dark blue one is is direct customer. The lighter blue is is OEM.

20:50 And then the the top two chunks of the of the stack is is effectively our our nonrecurring revenue. The line going across the top is our direct customer ARR, which obviously shows continued upwards trajectory, which is, as we've said, that is where we see the growth in the business moving forwards. Specifics, recurring revenue stable at 30,000,000, so growing slightly overall from from where we were in the comparative period. That that now represents 76% of of overall revenue against a against a comparative period of 67. That has naturally increased our gross margin. So that's up to 67.1% from 65.6.

21:41 So you'll see that theme as we go through how the growth in our direct customer software revenue will help increase gross margins and will also drive drive through into EBITDA levels. With respect to the nonrecurring revenue, you will note that that has dropped. The key thing to point out here is that there was a completion of large contract in the comparative period. So that was a rollout of an Australian project in back end of twenty four and and into 2025, which which makes that comparative period very high. And what we've seen in in this year is is timing of project rollouts. So we're we're still we're pleased with the level of order intake that we're seeing overall, and there's more on that in a subsequent slide.

22:29 But it's really down to the timing and some kind of wider market conditions that we've that we've seen within the customer base and the wider macro environment. If you can just move to the next slide, please, Nadine. So this is our income statement on profit and loss account. Obviously, this is kind of more detailed in the specific line items. I won't go through this in detail because we've we've touched on a number of the parts already, but there's a specific some specific callouts that I'd like to highlight. You'll you'll note that OpEx has reduced. So that that that's a re as a result of the restructuring that we did and completed at the back end of twenty twenty five. I'm also pleased to say that we have also managed to achieve additional £500,000 worth of cost savings in h one through various initiatives.

23:17 We're expecting that to continue into h '2 and beyond. As a business, we are very, very focused on margin enhancement. We have multiple initiatives across various different functions in the business to make us more streamlined and and to take cost out. So this will capture functions such as procurement to drive out commercial savings, but also in a hardware engineering to design cost out of the hardware that we supply, but also infrastructure as well. So we host our own cloud hosted solutions, and we are working hard to rationalize the estate so that will give us effectively savings in terms of man time and people time in terms of managing and maintaining the estate, but also in terms of licenses and utility costs. So there are a number of programs that are going on that will start, delivering more results at the back end of twenty twenty six and into '27 and beyond.

24:15 If you could just move on to the next slide, please, Nadim. So this is our cash bridge. I won't go through every single bar because there's there's quite a few of them. I appreciate that. I think the the key things to really call out are the left hand bar showing the 11.1 is where we ended at June 2025. The middle light blue bar, the 16.7, is where we ended at the end of December twenty twenty five. And the furthest right bar of the 13.5 is the where we ended at the end of June twenty twenty six. The the key things really to call out here are we had a very, very strong h two performance in 2025. If you look to the left hand side of of the graph, you will notice that there's a blue bar with six point sorry.

25:02 Everything is quite small. I can't see it. It's around $66,000,000 of working capital inflow. That was a result of improved credit management processes and performance, but it has also reflected the pull forward of a number of collectibles that would have been forecast in 2026. So that is why we've got a cash outflow in the first half of this year. That was anticipated. And we are expecting there to be a net free cash flow outflow this year. And we also expect that to be moderated, but it will be an outflow in 2027 as well. And then towards the end of '27, that will become positive as we start realizing the incremental revenue and margin from the investment programs. The other point to call out from a cash utilization perspective is that there was a 2,000,000 outflow in relation to the restructuring that we completed in '25. So those severance payments were made in January and February 2026.

26:01 And I and I think, really, the other key thing to call out is that, see, we are we are cash generative. We have a facility with HSBC that is unutilized. That consists of a committed RCF and an an additional of $10,000,000 an additional $20,000,000 accordion should we need it for further investment, whether that's organic growth or M and A or whatever that might be. If you can just move on to the final slide, please, Nadim. So what what we're keen to illustrate here is we we our ambition as an organization is to get to 20,000,000 adjusted EBITDA initially. That is not the ultimate ambition. We wanna get to 2530% and above. What we're really trying to show you here is that last year, we we achieved an overall margin of 9.9% EBITDA margin.

26:55 That was 5.2% in h two. H one shows 13.2. So, you know, material change in in the level of EBITDA that we're achieving. What what we've tried to illustrate here is is some of the building blocks to get us to the initial milestone of of 20% EBITDA. And where where we see those coming from is revenue mix. So that means selling more to our direct customers and selling more software to our direct customers. So that will naturally drop through into EBITDA margins because our margins to our direct customers are significantly higher than those to our OEM customers. We've indicated here that in the medium term, we expect OEM revenues to be flat, and that will flatten out at the end of twenty twenty seven, as previously indicated. We're also, as mentioned before, we're working on a number of cost savings initiatives. So we've flagged here that we will be seeing increased margins from engineering changes to our proprietary hardware that will be launched in 2027.

27:57 To help fund that growth, we expect that we will continue to ingrown our get invest in our go to market teams. That will mean both in in the marketing team in personnel in terms of lead generation. It'll also mean further investment in in other marketing costs in in relation to tooling, advertising, exhibitions, but it'll also mean an increase in quota carrying staff. We think that there is significant market share that we can gain in in various areas. You know, we've we've got a big opportunity in the mid market space. We've got big opportunity in the TMS space where we think that we can we can drive further sales and and margin into the business. So we will continue to invest and and increase our quota carrying teams. So that is planned in '26, '27, and we'll continue to do that in 2027 and beyond.

28:48 The other piece, the final the final bridging item here is around efficiency and operational leverage. I've mentioned the various different cost savings and margin enhancement initiatives that we've got. That will continue to drop through into the into the p and l in the back end of 2026 and into '27 and beyond. It is now routine and business as usual for us to have margin enhancement as a key building block in our financial forecasting and budgeting processes. And the final step really is around operational leverage. So this really comes in the form of being able to do more with less. So this is relating to optimization of processes, so utilizing the tooling that we have, so business systems, automation, taking out waste, but also really utilizing AI technologies.

29:41 So we've rolled out AI capabilities across most of the business, and we're utilizing that in our development teams, both hardware and software. So as Nadine pointed out, our teams are becoming more efficient and more effective as a result of these team of these tools, but we're also using it in the back office as well. So that is helping us speed up a number of processes. So it's enabled us to add more value and do more things in the back office and do it more efficiently, but it's also facilitating us to be able to do things that we didn't have the capability to do before. So we are seeing benefits of this already. We do expect this to continue. You know, we're relatively early on in this journey, but, you know, we're very optimistic. We've you know, the business have is very enthusiastic about this new tooling. So we expect productivity improvements to increase and continue.

30:29 Thank you, Nadine. Thanks, Nick. So I'm just gonna spend a few slides on talking about marketing strategy. So this slide illustrates the commonality and also the differences across our across our different sales operations in different geographies. So some of the common things that we see that driving customer demand are regulation compliance. It's a heavily regulated industry across all of the different regions and becoming more so over time. We are obviously seeing customers looking for greater efficiencies and helping to improve their margins. And, of course, logistics is is getting more complicated. People do want faster deliveries, smaller orders, bigger volumes, and to do that at a lower cost and in a more sustainable way. And that adds more and more complexity to global supply chains in the way that even down to last minute, you know, last mile deliveries occur.

31:37 And all that is underpinned by data and automation. The more we can automate, the more efficient we can make organizations and really help help them increase their margins. So some of the key drivers that we're seeing across the different regions are in The UK. We already have a really big market share in the high end large enterprise customers, but the mid market still offers us another 65,000,000 of ARR opportunity, and that's where we are focusing our efforts as as previously described. And particularly TMS in that space is is is a an area that is more greenfield than replacing competitors.

32:24 So we see that this is a big opportunity in that segment of the market. France is mainly driven by safety agenda, and, of course, we've got the whole market to go out. We don't have a significant penetration in France as yet, so there's lots more for us to do there. Australia and New Zealand are mainly being driven currently by new regulations that are coming in this year and next year regarding taxation on roads and also driving hours regulations and vehicle maintenance, etcetera. So that's the key driver for winning new business in in that area. And you can see the relative fleet size in terms of heavy goods vehicles in the in in those regions and the towns relative to the those as well. So, you know, France has 20% more heavy goods vehicles than The UK and Australia and New Zealand combined, nearly double the the number of vehicles than in The UK, and the and the TAMs, obviously, increased accordingly.

33:36 Some of the things that we're driving in our GTM area, again, some of the investments that we're making there, we can already see some of the benefits occurring. So our pipeline has grown year on year. It's up 18%, so we have some confidence that that will fall through the funnel and lead to a higher order intake, and I'll talk about that in a second. There's much better execution in our GTM team. We're introducing better processes, more stricter frameworks, and we've also strengthened the leadership across all of those regions with with new hires to to really help embed those processes within the function.

34:23 And we can already see signs of that coming through with higher quality margin coming through. Our our analyzed margin value is up 14% year on year, and our direct MB growth is is up 11% year on year. I'm gonna talk a bit more deeply about MICROLISE one analytics because the data aspects is is what we see as our moat. We have enormous amounts of data about our customers across all sorts of different parts of their operations, and this is really helping us drive more value to them by providing other products that can help them analyze, automate, forecast better and and enabling them to really run their operations more efficiently.

35:22 So early part of this year, we launched our driver excellence data pack, which was all about how, you know, how can we help drivers to drive better, more efficiently, more safely, etcetera. It was very well received, but it did lead us to understand that some of our customers have very low data quality. What I mean by that is we get a lot of data coming in from other customer systems, and the consistency of of that data can sometimes be quite poor. So that's things like, you know, the driver's names, vehicle information, address details for deliveries, etcetera. And so we we also introduced another data pack, which helps customers understand their data quality and what they needed to improve upon in in readiness for our AI tooling that's that's coming towards the end of this year.

36:23 So we need to help customers get ready for AI capabilities on the on top of those data packs. And then we've launched several more data packs, some to do with fuel efficiency, some to do with actually showing customers pounds and pence of value that they've gained by using our products. And then we've also got video telematics and utilization data packs coming through. And next year, we're also producing data packs for temperature controlled customers as well. They are provided in two forms. So there is a now there's a standard form which people get as part of their upgrade package, and then there is a premium version that they can pay for and onboard. And and that's how those data packs and AI tooling is is being delivered.

37:22 And just to cover outlook, so we've got good line of sight through to the end of the year, and so revenues will be broadly in line, and adjusted EBITDA will be in line with current market expectations. The there is we aren't really seeing any margin erosion. The main thing that we haven't talked about so far is what's going on with supply chain and hardware. That remains that remains charging. We have good line of sight of that through to the end of twenty twenty six. We are already placing orders for tail end of 2027 because lead times are that long and through to 2028.

38:11 And we appreciate that there are challenges in 2027 where we currently can see issues with component availability. We have mitigating actions put in place already, alternative suppliers, alternative components, design resource available for designing out particular components, etcetera. And so we're looking to plug those issues for for 2027. But overall, we remain confident and optimistic in terms of our future growth, particularly on our direct customer side. And you can see that direct customer growth on the graph on the right hand side showing, you know, we've been pretty consistent in growing our direct customer ARR despite the volatility that we're seeing on the OEM ARR, and that's why we're really investing heavily in the direct side to accelerate that growth in 2027 and beyond.

39:14 On the last slide, just talking about the actual investment case, we have, you know, significant market share in The UK. We're looking to achieve the same kind of impact in some of our international regions. We're blue chip and very sticky customers, especially if they have multiple products from us. Our typical contracts with our direct customers are five years, so we have good line of sight going forwards on future revenue. There is a significant 300,000,000 TAM opportunity just within our existing customers and a 65,000,000 ARR opportunity just in that mid market in The UK.

40:06 We are growing consistently double digit direct customer growth over the last few years, and we expect to accelerate that with the investments that we're making. And we have a well funded balance sheet to be able to support that. We have cash available to us. We don't have any debt, and we have a further 30,000,000 facility available, should we need it for further investment and, inorganic growth through m and a. And I will stop there and and hand back. Perfect. Thank you, Adeel and Nick, for updating those investors today. Can I please remind investors to submit your questions just by using the q and a sub situated on the right hand corner of your screen? Free reference recording of today's presentation will be available in the investment company platform shortly after the meeting's ended.

40:51 Guys, as you can see, we have received a number of questions during today's presentation. Do mind if I could just hand back to you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end? Thank you. So the first question was what's driven the double digit growth in direct customers, and what do we see the biggest opportunities to accelerating that growth from here? So I think we have got great products, and that's part of the reason why our direct customer growth has has has developed so much. And we have a great range of products that help customers really use and understand their operations, understand all of their entirety of their operations. I think the key thing that's gonna drive future growth is our TMS solution. It is big. It's complicated.

41:40 It takes time to sell. It takes time to implement. But the more we can do to accelerate that sales cycle and accelerate the implementation cycle, the more of those projects we can do and deliver. And because it's our highest value and highest margin product, it will shift the needle more than selling any other product that we have. And it's and we can already see the signs of that in h one, and we are investing, you know, to to accelerate that going forwards. Next question was, your direct customer NRR remains high. To what extent do direct customer ARR growth being driven by upselling and cross selling existing customers versus winning new new business.

42:28 Nick, I don't know if there's any details you wanna provide in terms of how much of that 106% is is through upselling and cross selling. Sorry. Just getting myself off mute. Yeah. What what we what we tend to see is it it's it's around kind of 70 to to 80% that we that we see in in growth is attributed to the existing customers. Yeah. So the next question was, what gives management confidence in delivering accelerated growth from f y twenty seven? Well, I think, you know, I think if you project forwards the fact that we have a pretty low churn rate of 1%, most of our contracts are five years.

43:15 You know, we can already see contracted revenue going forward over the next few years through the growth that we are seeing on the mid market and in our TMS products and also some of our other products that should come through despite the volatility that we are seeing on the OEM side, particularly with the OEM flatlining, you know, will allow more of that direct direct growth to to come through and fall through to the bottom line. And, you know, we are we're confident that we will see that accelerating in in '27 based on the investments that we're making and certainly the the positive signs that we're already seeing from those investments in the early part of '27.

44:09 The next question was, what gives management sorry. How are you thinking about the economics of AI features? So we have had AI capabilities in some of our products for about the last five years. So AI isn't necessarily something new to us within our products. What's also making a difference is some of the analytical tools that are now available to sit on top of all of that vast quantities of data that we've been managing for the last twenty twenty or so years. And and it's really you know, the the the process of monetizing that is, as I said earlier, we we're offering some of the case those capabilities for free as part of the standard upgrades that we do, but there are premium options there as well.

44:59 And that's how we are monetizing those those AI capabilities. Next question was, do you have visibility on the end contracts through the OEMs? Yes. But we we we don't transact directly with the end customer. We only transact through the OEM. So the end customer buys extensions via dealers. The dealers then buy those through the OEM, and the OEM then buys that from us. So we are quite an arm's length away from the end customer, and therefore, those those renewals on the OEM side is the thing that we probably have the least visibility on, which is why it caught us by surprise in in in 2025.

45:49 But, obviously, we've we've taken a very prudent view of that going forwards and really taken a a hard axe to those numbers, and that's, you know, what you're seeing when we talk about it reducing further in '27 and flat mining towards the end of 2027. Can you please comment about the churn in your recurring direct ARR upsells and downsize? Any insights on NRR and GRR? Nick, I don't know if you wanna answer that particular question. Yeah. I mean, g r GRR isn't something that we that we've quoted at this point in time. As we said, not NRR is at one zero six in in our direct customer base.

46:37 So that that has reduced slightly, but we know why that is. So we we did have some contraction in the in a couple of large customers that that they basically grew quite significantly through through acquisition in in 2024, and then that subsequently contracted as they've rationalized those fleets in 2025 and beyond. In terms of specifically the churn, so 1.1%, so circa 600 k. There was some known churn in there. So there were some legacy hosting contracts that we inherited that when we acquired ESS, the TMS provider in 2024. So that was a low margin, effectively pass through cost sort of charging model that we had with with that particular customer that we exited for various different reasons. So, you know, the the what what we're seeing in terms of of the churn is not really a reflection of, you know, customer sentiment or anything. It's really kind of managed and and understood.

47:38 K. Next question is to do with what's the renewal rate of the OEM revenue at the end of the first term contract for those customers not renewing? What what's what's the reason for it? So I think it it varies. You know, we sell through OEMs globally. We are in a 197 countries, and the renewal rates vary significantly. In some regions, we can see 80% renewal rates. In some regions, we can see 10% renewal rate. And I think it's fair to say that what we're seeing is more a drop off in what we call the high priced regions. So South America, Africa, some of the Easter Easter Easter Asia Pacific regions and so on.

48:35 And they're high priced because the airtime in those areas is is more costly. And, you know, our view is that the reasons why those users who are often second or third life users because they're not the people that bought the equipment in the first place. They're probably the people that have bought it second or third owner down the track. Their view of the value of the the the the service that we offer and the service that that JCB or or MAN offer, you know, is not what it's it's not something that they consider of significant value in those regions at that age of product, and therefore, they're spending their money on something else. So we believe that's a macroeconomic impact that's causing that drop off on renewals.

49:30 I don't think that it means that the OEM isn't gonna install our tech at the in at the at the beginning of the production line. I think that it's it has a negative impact on the OEM themselves. It's not something that that they like to see because it also means that they're not covering the cost of getting that data back and and providing additional services on those vehicles and machines after that first five year term. So it has a negative impact on the OEM as well. So there are various discussions going on on how do we increase the level of renewals all the way from actually, do we just increase the initial term from five years to to eight years?

50:18 And therefore, everyone effectively gets it for eight years? Or do we bundle it in with other service contracts, again, to make it more attractive to end users? So there's lots of conversations going on. Nothing has been decided as of yet. There's no conclusions on that, but we don't think this is anything indicating an issue with not putting our tech on the on the product in the first place. Next question was, when will MICROI generate meaningful free cash flow after development expenditure, and what level of annual free cash flow do you believe the current business can generate in a normalized year? So I expect to say we're expecting free cash flow to be negative in '26 and '27 and then returning in 2028.

51:08 '26 is really a transition year to develop and accelerate our direct business. Nick, I don't know if you wanna add any more on the free cash flow side. Yeah. I think our ambition will be to get it to 20% and above. That that's really where where we want to focus as an organization, acknowledging, you know, we are a couple a few years out from doing that, but that's certainly where our our management focus is. K. Next question was with 30,800,000 cash and substantial undrawn facilities, what's the priority, acquisitions, investments, or shareholder returns? I think it's fair to say we we look at all of those options based on what's going on and what we feel is in the best interest of shareholders.

51:53 So we do pay a dividend already, and we have done acquisitions. And we have lots of cash and facilities available to do to do further acquisitions. So I think I wouldn't necessarily wanna sit here and say that we we prioritize one over the other. It depends very much on what we think is in the best interest of shareholders. Next and final question. Historically, ROCD has been poor and recently negative. What do you think should be capable what do you think we should be capable of achieving, and what level of return are you targeting on current investment programs?

52:42 So I think the the ROCE, I assume you mean return on capital employed. And and, yeah, I think your observations are are valid. As an organization, we, again, we we wanna be getting those kind of significantly above sort of ten, fifteen, up to 20%. In terms of the decision around a development prospect is creating value. Obviously, you know, there is a decision making criteria that we go through in terms of what it is that we're gonna develop. You know, clearly, the the return on that in terms of both from a cash perspective and from an accretive margin perspective is obviously key. But, obviously, a big big factor in this is what what the customer values as well, what what problems is it they're trying to decide, and that is a key factor in in the decision making process in terms of what what we actually deliver.

53:31 In terms of whether it is making whether it is making a return or not and creating shareholder value is we the way in which we manage projects is we have a clear line of sight around the actual investment, and that's gonna be whether it's people, third party costs. And we also have clear line of sight around the the revenue generation, whether that's actually recognized or forward looking pipeline. So that this is how we're measuring the the investment decisions and the development projects that we've that we're embarking on. Think that's the end of the questions. Perfect. Thank you to you both for answering those questions from investors today. Before we ask investors to share their feedback, which you know is particularly important to the company, Nadim, could I please just ask you for some closing comments?

54:17 Thank you. So thank you everyone for attending today. I hope you found it useful. I think I'll probably just leave you with this particular slide that shows what the investment case is and, you know, remind people on the fact that we have got a great track record of growing our direct customer ARR. And based on the slide that you saw earlier in terms of our our shift from OEM to more direct more direct business coming through, that should be able to allow you to project forward and and look at what we think we will be able to deliver both in terms of growth in revenue, but also sustainable EBITDA growth as well.

55:06 Thank you. Thank you. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback? On behalf of the management team of MICROLISE GROUP PLC, we would like to thank you for attending today's presentation, and good afternoon to