Cerillion plc Report Record Year Across Key Financial Performance Measures

Cerillion plc
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Cerillion plc (LON:CER), the billing, charging and customer relationship management software solutions provider, has presented its annual results for the 12 months ended 30 September 2023.

Highlights

Year ended 30 September20232022Change
Revenue£39.2m£32.7m+20%
Annualised recurring revenue2£14.8m£12.4m+19%
Adjusted EBITDA4£18.1m£13.8m+32%
Adjusted EBITDA margin46.2%42.0%+420bps
Adjusted profit before tax5£16.8m£11.9m+41%
Statutory profit before tax£16.1m£10.9m+48%
Adjusted basic earnings per share646.2p35.2p+31%
Statutory basic earnings per share43.8p31.7p+38%
Total dividend per share11.3p9.1p+24%
Net cash£24.7m£20.2m+22%

 

Financial:

·   A record year across key financial performance measures

·   Revenue up 20% to a record £39.2m (2022: £32.7m), driven by major new customer implementations, significant licence revenue and strong demand from existing customers

·   Annualised recurring revenue up 19% to £14.8m (2022: £12.4m)

·   Back-order book3 at £45.4m at the financial year-end (30 September 2022: £45.4m); now at a record £52.5m following the recent €12.4m contract win with a new European Tier-1 customer

·   New customer sales pipeline7 up 16% to a record £243m at 30 September 2023 (30 September 2022: £209m)

·   Strong balance sheet with net cash up 22% to £24.7m (30 September 2022: £20.2m)

·   Final dividend of 8.0p per share proposed (2022: 6.5p), bringing the total dividend for the year to 11.3p per share (2022: 9.1p), an increase of 24%  

Operational:

·    Major new implementation covering mobile services completed for Telesur in H2; second phase covering its fixed-line network is now under way

·    Record orders of £30.8m to existing customers, up by 85% year-on-year

–     reflects the benefits of recent larger customer wins and includes major new contract worth £15.1m signed in H2

·    Continued expansion of newer resource centres in Bulgaria and India, and sales team presence added in the USA

·    AI-based functionality introduced in latest product release, issued in November 2023

·    Pipeline of new business opportunities stands at a record high and includes larger potential contracts

·    Cerillion well-positioned for further growth in FY24 and beyond

Louis Hall, CEO of Cerillion plc, commented:

“It has been another year of strong growth and development. Revenue, pre-tax profit, and the new customer sales pipeline all reached new highs. Record orders to existing customers – some 79% of total revenue for the year – shows the importance of our existing customer base, and the recent closure of a €12.4m deal with a Tier-1 telco is another demonstration of our widening market appeal.  

“We continued to invest in our product set, introducing AI for the first time, and also expanded our resource base, particularly at our newer centres in Ahmedabad, Indore and Sofia.

“The market backdrop remains extremely favourable. Numerous factors continue to drive telco investment in the enterprise software layer that connects their network infrastructure to their customers and allows them to enhance monetisation of their network infrastructure assets.  In a slower growth environment for telcos, the need to extract more revenue from existing assets and improve operational efficiency are just as important drivers for improving or replacing the enterprise software layer as investment in new 5G and fibre infrastructure.

“Cerillion’s financial position remains very strong, supported by significant net cash, increasing levels of recurring income and strong cash generation. Together with a record back-order book and strong new customer sales pipeline, this leaves us confident about Cerillion’s growth prospects in the new financial year and beyond.”

CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REPORT

Introduction

Cerillion continues to perform very strongly and financial results for the year have set new record highs on key measures. Revenue increased by 20% year-on-year to a record £39.2m (2022: £32.7m), and adjusted profit before tax rose by 41% to a new high of £16.8m (2022: £11.9m), which was meaningfully ahead of the prior consensus market forecast, as reported in our October trading update. At financial year-end, the total value of our new customer sales pipeline had increased by 16% to a record £243m (2022: £209m), which reflects the growing demand that we are seeing in the marketplace.

This excellent performance was achieved against slower economic growth globally.  We believe that this backdrop is likely to stimulate market interest in our product-based SaaS solutions as telcos seek to maximise investment returns on critical 5G and fibre infrastructure, as well as on existing infrastructure assets and comment further on this below. 

New orders for the financial year under review increased slightly to £31.6m (2022: £29.4m), and the new financial year has started strongly with a major new contract worth approximately €12.4m signed with a new Tier-1 customer.  It is worth noting that key criteria in the selection process were the commercial, operational and financial advantages of our ‘out-of-the-box’ product model, and especially the ease with which our software enables new products and packages to be created and launched by our customers to their end-customers. Our highly-configurable, ‘out-of-the-box’ product solution enables much lower total cost of ownership and much faster time-to-market than the traditional best-of-breed or bespoke approaches. 

The recent Tier-1 new customer signing continues a trend towards winning larger customers.  As we have previously commented, this has multiple benefits. In addition to providing further proof points of the quality of our product offering, larger customers typically generate higher income over the long-term since they are generally more active, with broader and deeper requirements and larger budgets. Larger deals also typically have a higher software licence element and therefore tend to be margin enhancing.

New orders from existing accounts increased by 85% year-on-year to £30.8m (2022: £16.7m). This substantial uplift mainly reflected the presence of the larger customers that we have signed in recent years, but it was also driven by some large deals with a number of smaller customers.

In order to support the significant acceleration of the Company’s growth rate, we have continued to increase resources in our main operations in India and Bulgaria.  We also added new sales presence in the USA, Belgium and Singapore over the year.

Looking to the future, demand for billing, charging, customer relationship management (“CRM”) and digital customer experience solutions in the Company’s core telecommunications market is driven by a very broad range of factors.  These include the need to: realise greater value from existing infrastructure assets; improve operational efficiency; adapt rapidly to changing market conditions; and maximise value from new infrastructure investments in 5G and fibre rollouts. Cerillion remains well-placed to benefit from these drivers, and to grow, both in Europe and internationally. We also expect to gain from increasing market acceptance of SaaS-based product solutions.

The pipeline of potential new business opportunities is very strong, and the Company is well-positioned to make further strong progress in the new financial year.

Financial Overview

Total revenue for the year to 30 September 2023 rose by 20% to £39.2m (2022: £32.7m). As is typical, existing customers (classified as those acquired before the beginning of the reporting period) accounted for a very high proportion of total revenue, generating 99% of the overall result (2022: 98%).

Recurring revenue, which is derived from support and maintenance, and managed service contracts, increased by 23% to £12.9m and comprised approximately 33% of total revenue (2022: £10.5m, 32%). At 30 September 2023, recurring revenue on an annualised basis was 19% higher year-on-year at £14.8m (30 September 2022: £12.4m), boosted by a 41% increase in annualised managed service contract revenue (2022: 67% increase) as more customers contracted for these services.

The Group’s revenue streams are categorised into three segments: software revenue (including Software-as-a-Service); services revenue; and revenue from other activities.  Software revenue principally comprises software licences and related support and maintenance, and managed service sales, while services revenue is generated by software implementations and ongoing account development work.  Revenue from other activities is mainly from the reselling of third-party products.

Software (including Software-as-a-Service) revenue increased by 64% to £21.1m (2022: £12.9m).  This included initial licence recognition for recent, large new customer wins.  Software revenues accounted for 54% of total revenues (2022: 39%). 
Services revenue decreased by 15% to £15.5m (2022: £18.3m). This reduction largely reflected a reduction in concurrent implementation work on new customer projects. Services revenue comprised 40% of total revenue (2022: 56%). 
Third-party income increased by 62% to £2.6m (2022: £1.6m) and comprised 7% of total revenue (2022: 5%).

Gross margin was slightly ahead of the prior year at 78.6% (2022: 77.9%), reflecting the higher proportion of licence revenue recognised.

Operating expenses increased by 17.2% to £15.3m (2022: £13.0m). This included an unfavourable year-on-year foreign exchange impact of £0.6m due to retranslation of balance sheet items at year end.  Excluding this, operating expenses increased by 12%, reflecting strong focus on cost control.  Personnel costs were £8.7m (2022: £7.4m) and accounted for 57% (2022: 57%) of operating expenses.

Adjusted EBITDA for the year increased by 32% to £18.1m (2022: £13.8m), driven mainly by higher revenues, and supported by favourable foreign exchange rates. The Board considers adjusted EBITDA to be a key performance indicator for Cerillion as it adds back key non-cash transactions, being share-based payments, depreciation and amortisation.

We continued to invest in our product set, and the charge for amortisation of intangibles was £1.4m (2022: £1.9m). Expenditure on tangible fixed assets was £0.3m (2022: £0.6m). Operating profit increased by 43% to £15.3m (2022: £10.7m) due to the increase in revenue, as well as operational leverage.

Adjusted profit before tax rose by 41% to £16.8m (2022: £11.9m) and adjusted earnings per share increased by 31% to 46.2p (2022: 35.2p). On a statutory basis, profit before tax increased by 48% to £16.1m (2022: £10.9m) and earnings per share increased by 38% to 43.8p (2022: 31.7p).

Cash Flow and Banking

The Group continued to generate strong cash flows, and closed the financial year with net cash up by 22% against the same point last year to £24.7m (30 September 2022: £20.2m). This was after £2.9m of dividend payments (2022: £2.2m). Total debt at the year-end remained £nil (2022: £nil).

Dividend

The Board is pleased to propose a 23% increase in the final dividend to 8.0p per share (2022: 6.5p). Together with the interim dividend of 3.3p per share (2021: 2.6p), this brings the total dividend for the year to 11.3p per share (2022: 9.1p), an increase of 24%.

The dividend, which is subject to shareholder approval at the Company’s Annual General Meeting to be held on 1 February 2024, will be payable on 8 February 2024 to those shareholders on the Company’s register as at the close of business on the record date of 29 December 2023.  The ex-dividend date is 28 December 2023.

Operational and Market Overview

High points over the year included the completion of some major implementations. One was for Neos Networks, a leading UK business telecoms provider, where we replaced three independent systems, and another was for Telesur, the leading telecommunications provider in Suriname, where we migrated the telco’s mobile services to our platform. Our work for Telesur continues with the digital transformation of its fixed-line services.  In June 2023, we signed a major new six-year contract with an existing telecommunications customer, worth a total of £15.1 million, which just tops our previous largest ever customer win, signed in 2022. The £15.1 million win followed a £10 million contract signing in the first half of the year with an existing customer.

Our latest major new contract was agreed in November 2023 and is with a Tier-1 telco, based in Europe.  Worth an initial €12.4 million, we expect this engagement to grow significantly in value over time. It also supports our view that the trend towards signing larger deals with larger customers will continue as our product-based approach gains wider acceptance. As previously emphasised, contracts with larger customers normally involve higher recurring revenues and have much greater upsell potential, therefore they contribute significantly to the ongoing growth of the business.

As we grow across the globe, and global labour markets evolve, we continue to expand our operating locations, recruiting the best talent cost-effectively and supporting our expanding global customer base. We enlarged our teams at our newer locations in Sofia, Bulgaria and at Ahmedabad and Indore in India and have maintained a mix of remote and office-based working. The competition for technology professionals remained relatively strong during most of the financial year, but pressures eased significantly from the peaks reached in the prior year.  Nevertheless, we remain focused on potential inflation in people costs and continue to manage carefully the mix and location of resource.

Our investment in R&D exceeded last year’s levels and we have continued to advance our technology, launching two major new releases of our product set, as scheduled. The most recent of these releases was Cerillion 23.2, which went live in early November 2023. A key feature of this latest release was the introduction of AI.  This will specifically support the ease and agility with which our customers can create and release new product sets within our Enterprise Product Catalogue, by enabling non-technical telco staff to use natural language to define complex product bundles. These are then constructed automatically, significantly reducing the time and complexity of this key task.

Significant telco investment in critical 5G and fibre infrastructure continues and will continue to flow down to the ancillary systems that connect this infrastructure to customers and revenue. Against this macro backdrop, we anticipate that the current global economic slowdown will place more pressure on telcos to find efficiencies in their digital real-estate.  We believe that this is likely to encourage further market take-up of the flexible, highly configurable, product-based SaaS solutions that Cerillion offers, rather than the more bespoke solutions, or best-of-breed platforms, available from traditional vendors. In addition to this, we anticipate that telcos will seek to improve their digital real-estate in order to save costs, by improving business efficiency and consolidating multiple customer bases onto a single platform, as well as driving revenue from existing infrastructure assets, by providing the market with more innovative products based on those assets.

Cerillion’s ability to address the market through a range of flexible solutions remains compelling. As well as our proven ability to support end-to-end transformation projects, the Company offers the flexibility to provide individual product modules, or subsets of modules, to implement point solutions that address specific requirements. The Company’s solutions are also able to support a broad range of CSPs, from traditional network operators and virtual network operators (“VNOs”) to enterprise connectivity solutions providers.

Outlook

The Company is growing strongly, and its product-based SaaS approach leaves it well placed to continue to benefit from the broad range of positive market drivers, as discussed above. We are also encouraged by the increasing visibility the brand is gaining in what remains a huge marketplace. Our recent Tier-1 new customer win reflects this and Cerillion’s inclusion in two Gartner Market Guides* (which evaluated suppliers based on product portfolio, geographic spread and progress in the last year), published earlier in 2023, also highlights the Company’s growing reputation and the breadth and completeness of its product portfolio.

Looking ahead, the recent new customer win, ongoing implementation work with existing customers, and the major new deals signed with existing customers all create a strong platform for further growth.  The back-order book, now at a record £52.5m, underpins revenue visibility, and the new customer sales pipeline, also at a new high, contains large deal opportunities. This leaves Cerillion well-placed to deliver another strong performance in the new financial year and beyond.

Cerillion’s financial position remains very strong, supported by significant net cash, increasing levels of recurring income and strong cash flows. We therefore view the future with confidence and will continue to invest across the business to support ongoing growth.

A M HowarthL T Hall
Non-executive ChairmanChief Executive Officer 

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