Alfa Financial Software Holdings PLC

Hello everyone and welcome to Alpha's 2025 half-year results. I'm Andrew Denton, Alpha's CEO, and I'm joined as always by our CFO, Duncan McGrath, and our COO, Matthew White. In overview, Alpha has had an outstanding first half. We've continued to focus on growing subscription revenue, and we've seen that grow by 17%. We've also seen strong growth in subscription TCV at 12% versus the first half of last year. This year, for the first time, and in subsequent years, we will be publishing annual recurring revenue and net revenue retention. Duncan will outline the detail behind this, but in summary, we've seen annual recurring revenue of 42 million, which is up 16% on the first half of last year, and net revenue retention of 112%. I'm delighted with the growth in annual recurring revenue, and our net revenue retention figure shows that Alpha's industry-leading customer retention is just as strong in a SaaS-only world as we grow our customer base with new subscription sales. Subscription revenues now make up 34% of total revenues, and we have 23 Alpha Cloud customers, which is up from 20 this time last year. More generally, we've seen strong sales and delivery momentum continue through from the full year. The late stage pipeline is strong with seven prospects. We're working under letters of engagement or equivalent with six of those seven customers in the late stage pipeline. And really importantly, we are seeing normal levels of activity in the early stages of the pipeline. From a delivery perspective, we've again seen a strong period and I'm delighted to say that we now have nine customers live on Alpha System 6, which underscores our messaging around this breakthrough new version of our software. Alpha System 6 is a frictionless upgrade opportunity for our existing customers. As always, we continue to invest in product, people and planet. Our average headcount is up 7% with continued high staff retention at 97%. We've invested a total of $19.4 million into our software in the first half with particular focus on expanding our target addressable market with commercial finance and expanding our serviceable addressable market through developments in the areas of originations and automotive fleet. From a financial perspective, our full year expectations remain unchanged. We continue to be confident in our future prospects, and as a result, the board has declared a special dividend of five pence. So onto the financial highlights. Revenue was 62.5 million, which is up 22% at constant currency on 2024, first half revenue of 52.3 million. We've maintained our excellent momentum in subscription revenue growth at 17%, being around the same level we saw last year. And as I've already said, net revenue retention was 112%, which demonstrates outstanding customer retention. Our excellent performance in contracting new business is demonstrated by a total contract value of $210.7 million. This is up from $193.3 million this time last year. That's 9% growth in our TCV versus last year, with subscription TCV growth of 12%, as I've mentioned, and software engineering TCV growth of 12%. At 21.6 million, operating profit was up 33% from this time last year. Our operating profit margin was higher than normal, at 35% in the half, which was up from 31% in the first half of last year. This was driven by increased chargeability in our software engineering teams. EBITDA margin at 37% showed significant growth from last year's 33%. And finally, cash was at 23.9 million, up from 22 million this time last year. And I'll hand over to Duncan.

Thanks, Andy. The figures really speak for themselves, and the first half of 2025 was a very strong financial performance. Revenue was up 20% at actual rates or 22% at constant currency, with growth across all revenue streams. There was particularly strong growth in software engineering, which was up 72% on the back of significantly higher chargeability than the first half last year. Improved chargeability improved the gross margin percentage up 130 basis points to 64.2%. Operating profit grew even more strongly than revenue up 33% to deliver an operating margin of 34.6%. It is worth noting that I estimate that the FX hedges that we put in place to protect ourselves from movements in sterling versus the US dollar added 240 basis points to the margin in the first half. The effective tax rate of 26.0% was in line with last year, and so basic EPS also grew by 33% in the half. Diluted EPS was up 34% at 5.35 pence per share. Overall, a really strong performance, and given our confidence in the future prospects for the business, the board has declared a special dividend of 5.0 pence per share. Turning now to TCV. 2024 really was a standout year for our revenue and commercial teams, which was demonstrated by the 34% increase in TCV in the calendar year. We said in March that we expected to work through the TCV during 2025, and we have seen a 5% reduction in total TCV since the year end, but it is still up 9% on this time last year. Next 12 months TCV is up even more strongly versus this time last year, particularly in delivery and software engineering, due to the new contracts we won in the second half of last year. We've calculated TCV on a consistent basis for many years now, but a number of people have noted that because we only include three years of subscription revenues, which is a much shorter time period than our average customer life, that it may understate the impact of subscription on our business. There is a benefit in consistent measures that you can view over time, but not if it misrepresents the growing importance of the subscription revenues to our business. So to help this and reflecting our transition to a SAS business model, we've decided to going forwards supplement the TCV disclosure with the more traditional SAS metrics of ARR and NRR, which you can see on the next slide. On the left you can see our annual recurring revenue or ARR figures for the last three reporting periods. We calculate this using the average subscription revenues over the last six months and then annualise them. We exclude any revenues that we do not expect to last 12 months at the start of the contract. This picture shows what you would expect a very strong growth in ARR, up 16% versus last year, very much in line with the overall growth in subscription revenues. The graph on the right shows our Net Revenue Retention Percentage, or NRR, and gives a financial metric which represents the net impact of churn and growth in the subscription revenues. This is calculated by taking the percentage of recurring revenues from 12 months ago that we have retained, including where we have sold additional services. Whilst we are often asked by those new to the alpha story about churn, in reality, closer watchers of our story know that it is in effect zero. and this is demonstrated by an NRR figure for the last three reporting periods that is considerably in excess of 100%. At 30 June 2025, the 112% NRR was particularly high as we had some new subscription customers at very low levels this time last year. Over the last 12 months, these contracts have started to ramp up through implementation, a typical pattern I explained in some detail at our last results presentation, and hence the 112% NRR. We would not necessarily expect to be at such a high level going forwards, with the figures from June and December last year perhaps being better representative of a more normal level. So looking now at overall subscription revenues. Subscription revenues continue to grow each quarter. For the first six months they were up 17% versus the same period last year. The growth in our Alpha Cloud customers has been a significant contributor to our recent growth in subscription revenues and you can see that we've increased Alpha Cloud customers from 20 last year to 23 this year. We now have 16 customers on v5 or Alpha System 6 who are live but not on Alpha Cloud. We don't expect to convert all 16 to Alpha Cloud but would expect to convert the majority and so this can continue to be a source of growth for the next few years. 12% growth in subscription TCV also underpins our confidence that this revenue stream will continue to show strong growth going forwards. Turning to software engineering revenues. Last year we had a relatively low first half and a much stronger second half. The strength from the second half has carried through into H1 2025 and comparing this with H1 2024 gives us 72% increase in revenues. This revenue is largely off the same headcount base and is simply due to changing the nature of the work being performed, resulting in much higher chargeability than last year. And this is a significant factor in the very strong operating margin percentage that we generated in H1. The biggest contributor to this increased chargeable work was to new customers we won in the second half of last year, with chargeable development from new customers increasing from 1.2 million to 4.5 million. At the moment, we are anticipating this to ease off slightly in H2, but it's also potentially an area that we could outperform our expectations if we get client approvals signed off more quickly than we expect. Perpetual license accounting, both one-off and customized license, totaled $1.3 million this year, slightly down on the $1.6 million last year, so a relatively small drag in this period from the move to a SaaS model. TCV is up 12% from last year on the back of these new projects, with good coverage for the next 12 months. Turning to our final revenue stream, delivery. As expected, with the ramp up of new projects, our delivery revenues increased 10% versus last year. We have 11 projects underway where the customer is not yet live, and only when these contracts are live will they drive up our subscription revenues. Of course, as these projects come to an end, we would expect them to be replaced by new projects. Overall delivery for TCV is showing as flat year on year. You can see that the coverage for the next 12 months has increased significantly, and this is driving our increased recruitment needs. The after 12 months element shows a drop, but this is mainly a function of taking quite a cautious view of our largest implementation project, where we have only counted up to the end of 2026, which is the first phase of a multi-phase project, and including nothing thereafter. We fully expect the project to continue beyond that date and generate further delivery revenues. Turning now to expenses. Cost of sales grew by 15% over last year, largely on the back of increases in costs from headcount and salary increases. Hosting costs increased with the growth in Alpha Cloud. Sales general and admin expenses were up 11%. There's growth in salary costs, but more significant was the increase in profit share and share-based payments. FX has been significant in the period. We had net transaction gains of 1.1 million in the period. Within this, the impact of realised and unrealised gains on the US dollar FX hedges was 1.7 million, offset by other transactional losses of 0.6 million. The exchange rate at 30 June 2025 was $1.37, so we could see some reversal of these gains in H2 if sterling weakens against this level. Other income was flat at 0.3 million, and this was the income from our R&D expenditure credit that is shown on this line. I will cover it under modelling guidance, but the impact of not expecting FX hedges to repeat and the impact of higher headcount and salary costs and depreciation and amortisation in the second half will result in a lower operating margin in H2 compared with H1. Turning now to cash flow. In March, I estimated that cash conversion for the year would be 80 to 90% for 2025 as a result of accelerated receipts in 2024 on two projects. Cash conversion of 88% for H1 was in line with this estimate. For 2026 and beyond, we would expect to be in the range of 90 to 100%. Dividends paid increased 1.5 million on last year to 11.2 million. Overall, there was a net cash inflow of 3.4 million for a cash balance of 23.9 million at the period end. Now some words on capital allocation. Alpha remains a highly cash-generative business. As we have transitioned to a SAS model, this has reduced the upfront licence payments we received under the perpetual licence model, but this is making the cash flow smoother. We have a strong track record of returning excess cash to shareholders through dividends. Cumulative dividends paid in the last five years are now up to £153 million, and our overall dividend yield from ordinary and special dividends has been running between 3.5% to 5%. There are no immediate investment requirements for our current excess cash, and so we have declared a special dividend of 5.0 pence per share, up 19% on this time last year. Next, a brief update on modelling guidance. This slide is largely reiterating existing guidance, which remains unchanged as regards full-year out-earn, investment, cash flow and currency sensitivity. So I will just touch on two things now. Firstly, to reiterate what I mentioned earlier, that we expect to see a lower level of software engineering revenues in H2. And this, along with increases in salary costs and assuming no further gain on the FX hedges, means we expect lower operating margins in H2 than H1. So whilst we will see similar levels of revenue in H2 to H1, we will see lower operating profit. Secondly, a minor point, but due to starting up some projects in new overseas territories, we expect a small increase in our effective tax rate for the full year to 26%, 1% higher than the UK statutory rate. I will now hand over to Matt for an operational update.

Thanks, Duncan. We've had a great start to the year in every team across the business, and the result is fantastic performance now, and really good progress with our strategic objectives as we build for the future. We're strengthening our three differentiators, our team, our product, and our delivery. We're selling, as Andrew will describe later on. We're scaling our capacity to deliver for the future, and we're simplifying so that we can deliver even more alphas even more efficiently. Everything starts with our fantastic team, so our people are always the first differentiator that I mention. Our team is growing with an average headcount up 7% on H1 last year. In fact, we've recruited around 40 people this year so far to enable the delivery of that strong pipeline that Andrew will cover. And this headcount growth will feed into our H2 costs as set out by Duncan. And we put a lot of effort into making sure that we recruit very, very talented people. And because we recruit high quality people and because we have a growth mindset culture and because we're always striving to achieve more as a company, developing talent within our team will always be a focus for us. Ensuring world-class leadership at all levels is a particular focus at the moment, and that's why our Continuous Conversations initiative is really important. We're giving our people the tools to make one-to-one conversations across the business even more impactful for performance in current tasks, but also for development, for career goals and for well-being. And it's initiatives like this that have resulted in us retaining our gold accreditation from investors and people. And we've seen improvements in our ratings in every area. We avoid complacency, but we're really pleased with our engagement score and with our stellar retention rate. People sometimes ask whether retention at Alpha is too high. The answer for us is no. Retaining our talented team is hugely important because we're building something special here. And the higher our retention rate, the faster we can build on the experience within the business. Our Lisbon Smart Hub has shown that we can access talent beyond our long-standing office locations in the US, London, Sydney, and Auckland. And we've now started recruiting in the Gdańsk area in Poland. We're finding some great talent. In Lisbon, we recruited software engineers only, and we did find great talent. In Gdańsk, we're recruiting more engineers, but also for our cloud hosting operations teams. Our delivery track record is perhaps our most important differentiator. We delivered 11 upgrades in H1 and another five since then. More frequent customer upgrades is really important to simplifying and to ensuring quality delivery for our customers. And when we've spoken to you in the past, we've described Alpha System 6 as a low-friction upgrade, and we contrasted that, contrasted the move from V5 to AS6 with the upgrade from V4 to V5. We already have nine customers live on Alpha System 6, which clearly demonstrates the success of this strategy. Progress on all of our projects remains excellent. Our software maintenance remains first class and our cloud hosting operation remains both gold standard quality and super efficient. Maintaining the quality of our product and our delivery is hugely important in ensuring that we maintain our position as the premium provider in our industry. Partner-led delivery will enable us to access new markets and enable us to do more in some of our existing markets than we can achieve by growing the Alpha team alone. A key next step in making partner-led delivery a reality will be to deliver a minimum viable product of a partner-led delivery project for a UK equipment start project. Now, we're still waiting for the right project to come along here. Our pipeline as a whole is strong, but the right project in the right region and the right industry is required for this particular next step. But we haven't just been waiting. We're working on our US auto start product. We're making sure that we use our existing US auto projects to build our product for the future. And we're learning more about the lower tier US auto finance market, which we believe will be key for partner-led delivery in the future. While we expect partner-led delivery to contribute a relatively small proportion of our revenue, we do expect revenue for these customers to be weighted towards higher margin subscription. Our headline strategy for delivery is simplification. Our market opportunity is huge and simplification will allow us to deliver more alpha systems implementations more efficiently. So we're investing. in our Alpha Start accelerators for larger customers and our Alpha Start products for smaller customers. And we're investing in migration tooling to enable legacy portfolios to be converted to Alpha systems more easily. We're investing in automated testing to simplify the upgrade process for our customers. We're investing in our Alpha Cloud hosting operation to make it even more efficient as it scales. And we're investing in AskThea, our large language model chatbot for system documentation. All of this means that projects today require considerably less effort from our highly skilled delivery team than in the past. And that allows us to layer on subscription revenue from more and more customers more efficiently. And finally, we are extending our product differentiation. We're delivering new functionalities for our customers now with some really important product enhancements being carried out directly for customers for deliveries now. Our alpha development model is bedding in and we're seeing the results in some great KPIs. And we're also investing for the future. Our focus here is on US auto originations, fleet and commercial finance, all of which will increase the market that we can access. We're there with demonstrable products in all three areas, and we're making good progress towards our goals of sellable products by the end of the year. Really importantly, we're also working closely with customers in all three of these areas, and this is always our preferred way of working. We're confident that this will result in a product that's a great fit for the market as a whole. US auto originations and fleet functionality allow us immediately to service an additional part of our existing target addressable market in asset finance. So they increase our serviceable addressable market. The commercial finance market is something we've been working on for a while and investment in this area will continue into next year and beyond. At the moment, we're working with customers in the asset finance market who have commercial finance offerings. The longer-term goal, which may be a number of years away, is to open up a brand-new addressable market and to sell to standalone commercial finance customers. The potential for the long-term prospects here are really exciting. In the short term, the late-stage pipeline is also really exciting, and I'll hand over to Andrew for an update on that.