Release Date: November 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cerillion PLC (LSE:CER, Financial) achieved new highs in key financial KPIs, with adjusted PBT up 18% and new orders up 21% to GBP38.1 million.
- The company has a strong global presence with around 80 customer installations in 45 countries, indicating a broad market reach.
- Recurring revenue has been growing at a faster rate than total revenue, with a compound annual growth rate of 24% since 2019.
- Cerillion PLC (LSE:CER) maintains a high customer retention rate, with most customers staying for more than five years, contributing to a stable revenue base.
- The company has a strong balance sheet with net cash up by 21% to GBP29.9 million, providing financial stability and flexibility for future investments.
Negative Points
- The sales cycles in the telecom industry are long, often taking 9 to 12 months or longer, which can delay revenue recognition.
- Despite growing revenues, the backorder book has been flat for three years, indicating potential challenges in converting orders to revenue.
- Total receivables have increased from roughly 40% to 60% of sales over the last two years, impacting net working capital and cash flow.
- The company faces pricing pressure in the market, although it positions itself as a cost-effective solution compared to larger competitors.
- Cerillion PLC (LSE:CER) has not made any acquisitions since its IPO in 2016, which could limit growth opportunities if organic growth slows.
Q & A Highlights
Q: Your new business pipeline stands at GBP262 million. What's the shelf life of the individual opportunities?
A: The sales cycles in telecom are quite long, typically ranging from six to twelve months, sometimes even longer. Opportunities are not kept in the pipeline indefinitely; if there's a significant delay, they are removed. However, they can remain in the pipeline for up to 18 months.
Q: Are the sales pipeline qualified leads? What percentage historically convert to sales?
A: The sales pipeline includes sales-qualified opportunities, which are rigorously vetted. While we don't publish a specific win rate, once we reach the shortlist stage, we typically close one in two or one in three opportunities.
Q: Has any of the amount from total new orders, which were up 21%, been recognized in the P&L yet?
A: Yes, some of the backlog has been recognized as revenue in the P&L.
Q: No major new contracts were signed in the latter part of the full year. Is this a timing issue, or is the competitive environment becoming more difficult?
A: It's a timing issue. There is no particular change in the competitive environment. The Virgin Media deal, for example, was closed in the summer but took time for contract negotiations.
Q: What are your chances of selling to a large telco?
A: We already have large telcos as customers, such as Virgin Media and Orange. Each new win in the Tier 1 space builds more credibility, enhancing our chances with larger brands.
Q: The back order book has been flat for three years despite growing revenues. Why is this?
A: This is due to the timing of customer wins. Many new orders were recognized as revenue during the year, so they didn't contribute to the backorder at year-end.
Q: Total receivables have increased significantly over the last two years. Why has this happened?
A: The increase in working capital is due to the way we recognize license revenue upfront, while customers pay over the contract term. Additionally, there was a timing issue with receivables and payables.
Q: The cash pile is growing. What are your plans for capital allocation?
A: While a high cash balance is beneficial for securing large contracts, we are looking at potential acquisitions. We prefer acquisitions over special dividends, as they are not the most tax-efficient way to return cash to shareholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
