Q2 2026 Alfa Financial Software Holdings PLC Earnings Call
Speaker #1: International Software's 2026 half-year results presentation. As always, I'm joined by Matthew White, ALFA's COO, and in his final results performance before retirement, Duncan Magrath, ALFA's CFO.
Speaker #1: And for the first time, by Andrew Dixon, ALFA's incoming CFO. Duncan will take you through the financial review; Matt will cover operational delivery; and I'll return later to talk about the business, our sales progress, and our outlook before we summarize and open for questions.
Speaker #1: So, stepping back and looking at the first half as a whole, we are pleased with the progress we've made. Subscription revenue grew by 14%, subscription total contract value by $22%, ARR grew by 17%, and net revenue retention remained strong at $110%.
Speaker #1: Subscription revenues now account for 37% of total revenue. Which reflects the continued evolution of ALFA toward a larger, recurring revenue business. Sales activity has also remained encouraging.
Speaker #1: We secured 2 wins during the first half, and total contract value increased by 17% to $247 million. And we continue to see good activity across both the late-stage and early-stage pipelines.
Speaker #1: We are already working with 3 of the 9 prospects in our late-stage pipeline, which gives us confidence in our future opportunities. We have continued to invest in our product and delivery capability, during the period we invested $19.6 million in software, particularly in originations, fleet, commercial finance, and our AI capabilities.
Speaker #1: We also achieved 2 go-lives during the half, which is an important validation of both our product and delivery approach. Looking ahead, we remain confident in our full-year expectations.
Speaker #1: We see artificial intelligence as an exciting opportunity, to enhance our product, accelerate development, and simplify delivery. While continuing to create value for our customers.
Speaker #1: Turning to the key financial highlights. Revenue was $65.1 million, representing growth of 5% at constant currency. Total contract value increased 17% to $247 million, and ARR increased 17% to $48.5 million.
Speaker #1: Subscription revenue grew 14%, while net revenue retention remained very strong at $110%. Operating profit was $18.4 million, and operating margin was $28%. Excluding the impact of severance costs and FX hedges, operating profit was ahead of last year by 2%.
Speaker #1: With operating margin only slightly down on last year. Duncan will cover this later. Cash conversion for the first half was 76%. That was influenced by the timing of customer receipts, between the second half of last year and the first half of this year.
Speaker #1: Duncan will discuss that also in more detail shortly. Overall, these results reflect continued growth in our subscription business, ongoing investment in the product, and good momentum across both the sales pipeline and delivery organization.
Speaker #1: Before handing over to Duncan for the financial review as usual, I would like to welcome Andrew Dixon, who recently joined as the CFO and who will formally succeed Duncan on the board on the 16th of September.
Speaker #1: Andrew, perhaps you'd like to introduce yourself.
Speaker #2: Thank you very much. Since joining ALFA a couple of months ago, I've got to know people both in near and the US. I've been hugely encouraged by what I've seen, and I'm really looking forward to taking over from Duncan when he steps down the board in a couple of weeks' time.
Speaker #1: Thanks. Andrew? The first half of 2026 was a solid financial performance against last year, which was always going to be a tough comparator. Revenue was up 4% at actual rates, or 5% at constant currency, with growth in subscription and delivery revenues partially offset by a lower level of software engineering revenue, and the very strong first half of 2025.
Speaker #1: The gross margin percentage was down 400 basis points. Two things to note here. Firstly, last year we had a very high level of chargeable software engineering revenues, and secondly, the margin in this period is weighed down by severance costs.
Speaker #1: Operating profit was down 15%, delivering an operating margin of $28.3%, although very much impacted by severance costs and FX hedges. Excluding these, operating profit was actually ahead by 2%, with the operating margin only slightly down on last year.
Speaker #1: The effective tax rate of 26.0% was in line with 2025. Turning now to the cost lines in a little more detail. Cost of sales was up 16%, and SGA up 12%, but both lines are distorted by the severance costs and FX hedges.
Speaker #1: In the first half, we incurred $1.6 million of severance costs, including. Associated legal fees, and this was split $1.2 million into cost of sales and $0.4 million into SG&A.
Speaker #1: In relation to FX, we had a $1.7 million gain on the US dollar hedges in 2025, compared with a $0.3 million loss on the hedges in 2026, so the year-on-year swing on that line alone is 2.0 million pounds.
Speaker #1: Strip both of these out, and the picture is much more measured. Cost of sales increased 10%, and SG&A was up just 2%. Within SG&A, profit share is down 0.5 million, or 19%, simply reflecting lower profits with share-based payments also being down.
Speaker #1: Depreciation and amortization was as expected up 0.6 million, or 39%, and I will come back to the trajectory of amortization under modeling guidance. Other operating costs were up 6%, driven by the growth in headcount and the cost of expanding into new markets and territories.
Speaker #1: Turning now to TCV. Total TCV grew 17% to $247 million, up from $211 million this time last year. Looking at the revenue streams, subscription TCV and delivery TCV were both up 22%, with software engineering down 29%.
Speaker #1: The software engineering reduction reflects a lower level of chargeable development work needed for new customers. As the profile of new customers changes, so will TCV.
Speaker #1: Next 12 months TCV was up 12% to $101 million, from $90 million last year, again with growth in subscription and delivery, partially offset by the reduction in software engineering.
Speaker #1: As I flagged up last year, we now supplement the TCV disclosure with ARR and NRR, and I will turn to these next. Annual recurring revenue was up 17% at 30 June 2026 to $48.5 million, from $41.6 million.
Speaker #1: As a reminder, we calculate this by taking the average subscription revenues over the last 6 months and annualizing them, and we exclude any revenues which we do not expect to last 12 months at the point of origin.
Speaker #1: That 17% growth is very much in line with the underlying growth in subscription revenues. Net revenue retention was $110%. To help understand this, I've included a breakdown in the table.
Speaker #1: We are in effect a zero-churn business for modern ALFA systems, and so I've started the table at the base of 100%. We then have a 3% drag from one specific terminating V4 customer who gave notice back in 2018 and has not yet fully transitioned away from ALFA.
Speaker #1: We grew 6% from net upsell across the existing customer base, and grew 7% from new customers not yet live. It is the impact of new customers not yet live that I will return to in a minute, as I'm not sure that this future growth is sufficiently understood by everyone.
Speaker #1: So looking now at overall subscription revenues. Subscription revenues were up 14% on last year to $24.1 million. Looking at the breakdown, 73% came from customers already live on V5 or ALFA Systems 6, 20% from new customers currently implementing AS6, 4% from customers upgrading from V4, and the remaining 3% from V4 customers who've not yet upgraded.
Speaker #1: Subscription TCV was up 22% on last year, driven by growth from both new customer wins and the existing customer base, which underpins our confidence that this revenue stream will continue to grow strongly.
Speaker #1: We now have 44 customers contributing to subscription revenues, up from 41. Within that, ALFA Cloud customers on V5 or AS6 have increased from 23 to 24, with a further 3 in the late-stage pipeline, up from 1 last year.
Speaker #1: We have 15 customers on private cloud, and 2 remaining V4 customers. As I've said before, we do not expect to convert every private cloud customer, but we would expect to convert many of these over time.
Speaker #1: And that remains a potential incremental source of growth for the next few years. Staying with subscription, I want to dive a bit more into the growth from customers not yet live on ALFA.
Speaker #1: I've shown this slide before. It shows the history of our V5 and AS6 customer base, and I've previously used it to make the point that there has been zero competitive churn.
Speaker #1: I'm showing it again, but wanted you to focus on the customers in implementation at the top. We currently have 15 customers in implementation, of which 2 are V4 upgrades.
Speaker #1: So there are 13 new customers who will drive future subscription growth once they go live, and reach their full run rate revenues. All the customers in implementation started from 2023 onwards.
Speaker #1: I will show on the next slide how the customers in implementation, who we started work with in 2023, 2024, and 2025, will strongly contribute to the future growth in subscription revenues.
Speaker #1: Many of you will be familiar with the illustrative graph I produced a few years ago showing the typical lifecycle of a contract. I have shown a small copy of this at the top of this slide as a reminder and repeated the full slide in the appendix.
Speaker #1: This time, rather than using illustrative figures, I will be demonstrating with actual and internal forecast data. The previous slide showed all V5 customers and was organized by when we started working with them.
Speaker #1: I have taken the 2023, 2024, and 2025 cohorts, and excluded any of those which are customers upgrading from V4, so only including new customers.
Speaker #1: The 2023 cohort is deep orange, with 5 customers in it, the 2024 cohort is medium orange, with 6 customers in it, and the 2025 cohort is the light orange, with 2 customers in it.
Speaker #1: It shows revenue by half-years, with actual data from H1 2023 up to and including H1 2026. It then shows internal forecast data for the periods after that.
Speaker #1: You can see how the revenues build as customers move through implementation to go live. It is important to note that this only shows revenue from customers we started working with in those years, and so it is not total subscription revenues.
Speaker #1: It is intended to show how the new customers in implementation are a significant contributor to overall growth in subscription revenues. The overall percentage rate growth rates will be lower than this once you add existing live customers into the figures.
Speaker #1: You can see that the growth in revenues from the 2023 cohort starts to flatten off in 2027 and 2028, as those customers reach go live and hit their full run rate.
Speaker #1: If you compare the revenue for these 3 cohorts in 2026, to 2028, you will see that the revenue more than doubles over that period.
Speaker #1: These are revenues from customers we are working with today, and there is no contribution here from customers we are not yet working with. We can be pretty certain that unless the project stopped, this growth will come through into our subscription revenues.
Speaker #1: There is some risk over timing, so it takes longer to get projects to go live than we expect. The ramp-up in revenues will be later, but at the moment, this is our best view of the likely outcome for these cohorts.
Speaker #1: It is this growth in subscription revenues as customers reach go live which gives us confidence in the strength of subscription revenue growth over the medium term.
Speaker #1: Turning now to software engineering revenues. Software engineering revenues were down 17% from a very strong first half last year, although 43% higher than the year before.
Speaker #1: Within this, chargeable development work for new subscription customers decreased by 2.7 million, with development work for existing customers down 0.5 million. Offsetting this, customized license revenue was up 1.7 million to 2.8 million, reflecting the completion of the accounting on our last significant perpetual license sale.
Speaker #1: We are now into the perpetual license tail. We have 4.8 million pounds on the balance sheet at the half-year, which will be 3.9 million by year-end.
Speaker #1: This will steadily unwind, with 1.7 million recognized in 2027, 1.1 million in 2028, with the balance declining through to and finishing in 2031. There was no one-off license revenue recognized in H1 2026.
Speaker #1: TCV is down 29% on June 25, reflecting that lower level of future chargeable development work for new customers. I would note, though, that while TCV is down from December, our visibility of future work has improved since then.
Speaker #1: That work is not yet in TCV, and it is an area where we could do better than current expectations, if client approvals come through more revenue stream delivery.
Speaker #1: Delivery revenues were up 5% year-on-year. 54% of delivery revenue relates to new customers in definition or implementation, up from 40% last year, which again speaks to the volume of new customers moving through the pipeline towards go live.
Speaker #1: Partner days were 8% of our total delivery days, slightly higher than the 7% last year. TCV is up 22% on June 25, primarily driven by 2 new customer wins and you can see the improvement in coverage across both the next 12 months, but particularly in the period after 12 months.
Speaker #1: We are looking to recruit more people into delivery for 2027, as looking at TCV and our late-stage pipeline, we need to increase the people to deliver the growth we expect.
Speaker #1: We have 44 customers contributing to delivery revenues, up from 43. Within that, live V5 and AS6 customers have increased from 26 to 28, and we have 13 new customers not yet live, up from 11.
Speaker #1: Turning now to cash flow. Cash conversion was 76% for the half-year. This is lower than our normal level, but as a result of the very high conversion of 108% in the second half of 2025, which included 2.8 million of accelerated receipts in December.
Speaker #1: So this is a timing effect between the halves, rather than any change in the underlying quality of our cash generation. I have included the cash flow performance by half in the appendix to demonstrate this.
Speaker #1: Our modeling guidance for cash flow remains unchanged. Capital expenditure remains in line with the prior year. Net tax payments increased to 4.7 million. Last year, benefited from cash received on R&D claims, and we've had none of that so far in 2026.
Speaker #1: We paid 13.7 million of dividends in the period, made up of the 4.5 million ordinary dividend and the 9.2 million special, declared with the fullier results.
Speaker #1: Now some words on capital allocation. Alpha remains a strongly cash-generative business, and our approach to capital allocation remains disciplined. We continue to generate excess cash even after allowing for the investment we are making in the business.
Speaker #1: For the last 5 years, we've paid an ordinary dividend and then returned excess cash to shareholders through special dividends and buybacks. Having reviewed current market conditions, we've decided to retain the excess cash for the time being to provide us with optionality over how we use it.
Speaker #1: If in due course, we conclude that we have no use for it, we will return it to shareholders. Our policy of paying an ordinary progressive dividend remains unchanged, and the amount to be paid for 2026 will be announced with the full-year results.
Speaker #1: Next, a brief update on modeling guidance. Starting with the outlook for 2026. We expect continued growth in subscription revenues. Delivery revenues will grow more slowly than we originally expected, but we expect that to be offset by improved software engineering revenues, so that overall growth is broadly as we anticipated.
Speaker #1: Capitalized development costs are expected to continue at similar levels to 2025. As the capitalization of internally generated intangibles has grown and those assets come into use, amortization will increase to a similar level as capitalization.
Speaker #1: Cash conversion is expected to be 80 to 90% for 2026 as a whole, which is unchanged from what I said in March, notwithstanding the 76% in the first half.
Speaker #1: The effective tax rate is expected to be around 26%, slightly higher than the UK corporate tax rate, reflecting the overseas territories we now operate in.
Speaker #1: On currency, the sensitivity shown for a full 12 months and unchanged from previously disclosed, and ignore the impact of hedges. For profit, we are fully hedged on US dollars, so any movement in the US dollar exchange rate will have no impact on profit.
Speaker #1: We do not hedge account, and so revenue is unaffected by our hedges, and so a 1 cent movement in the average exchange rate for the second half would have half the full-year effect, i.e., 250,000 pound impact on revenue.
Speaker #1: I will now hand over to Matt for an operational update. Thank you, Duncan and hello everyone. I'm going to start as I always do with a reminder of our strategy, and it's a reminder it's not an update.
Speaker #1: Our strategy is stable, and it's consistent, and we see that as a very good thing. But I think that the reminder is important, because the most important thing to understand about Alpha is the context in which we operate.
Speaker #1: And that is, the market that we serve is extremely complex, highly regulated, infinitely demanding, and ever-changing. Our opportunity is huge with a leading player in a massive market, and we currently have only a small market share.
Speaker #1: So our strategy for creating long-term sustainable business value is designed to maximize and enable us to grasp that opportunity. And that strategy is to strengthen, to grow our differentiation by investing in our 3 key differentiators, our smart diverse team, our product, and our delivery methodology and tooling.
Speaker #1: Secondly, to sell to enable profitable growth by focusing on building our community of single-tenant SaaS customers, increasing our subscription revenue, and enabling incremental sales.
Speaker #1: To scale, to increase our capacity for developing, and delivering Alpha systems and to extend our reach, and finally, to simplify, to enable more concurrent Alpha systems implementations, more efficiently.
Speaker #1: And I'm going to focus in a little more on this final aspect of our strategy, simplification, this morning. Reducing friction in the implementation of Alpha systems has been a key element of our strategy for a long time, doing so will lower the cost of delivery, shorten the time before customers go live, and allow subscription revenue to begin flowing sooner.
Speaker #1: Just as importantly, it improves the economics of projects for customers. We are, and we have always been, the premium provider in our industry. By reducing delivery costs, we will enable prospects that may previously have been too small or too cost-sensitive to justify an Alpha implementation to afford an Alpha the premium offering.
Speaker #1: To repeat our market share is actually very small, so the amount to go after is huge. So we expect reduced cost per implementation to result in us being able to reach significantly more customers.
Speaker #1: AI provides fantastic tooling for increasing the efficiency of the implementation process. The technology is improving quickly, and we're seeing real benefits. Data migration, provides a great example use case, in one example we've seen the effort required for development of data transformation code reduced by 75%.
Speaker #1: And AI provides a fantastic tool for reconciling the migration output as well, our AI-enabled Alpha recon tool is one of our biggest incremental sales opportunities.
Speaker #1: But importantly, most of the work carried out as part of an implementation of Alpha systems is done not by the Alpha team, but by customers or by implementation partners.
Speaker #1: The role of the Alpha team is generally to provide expert assistance in implementation tasks, and our implementation partners are also investing in AI as a simplification technology.
Speaker #1: And they're competing with each other to find the most impressive efficiency gains. So again, the reduced the result of this is reduced implementation cost and increased addressable market.
Speaker #1: Moving on to our product and our market, as I said when presenting our FY25 results, we see AI amplifying the value of Alpha's product.
Speaker #1: Alpha systems value has never simply been the code base. It's the combination of decades of domain experience, embedded within a SaaS platform built for one of the most complex vertical markets in enterprise software.
Speaker #1: We provide a governing, control plane for the world's largest and most complex finance organizations, at its core, sits a robust ledger and system of record for auto, equipment, and commercial finance, providing a vast, well-structured data framework.
Speaker #1: Around that are deterministic transaction processing, configurable workflows, embedded authority models security, resilience, integration capabilities, scalability, performance, and extensibility, and the embedded and configurable workflows are standardized, they're auditable, they're repeatable, reversible, and integrated.
Speaker #1: Now, these aren't just technical features. They form a trusted operational platform for highly regulated businesses. And customers can rely on us to evolve with the pace of technological change, allowing them to focus on enabling investment in the economies that they serve, rather than being distracted by fast-moving technology.
Speaker #1: And alongside all of that, there's Alpha Clouds, SaaS delivery and implementation track record. Those provide huge competitive advantage. And while we expect AI to enable efficiencies, including headcount reductions for our customers, Alpha systems is price, based on the number of asset finance contracts managed on Alpha, rather than per user.
Speaker #1: So our revenue model is not impacted by increasing customer efficiency. Next, a few words on Alpha systems AI functionality. Our Alpha systems AI products now live under one umbrella brand, Thea.
Speaker #1: Thea Core is the layer within Alpha systems that allows Alpha innovations to communicate safely and efficiently with AI, regardless of the underlying service. Importantly, this is only available for Alpha Cloud customers, providing a compelling case for upgrade for customers not yet using our SaaS offering.
Speaker #1: An example of a quality-of-life feature built on Thea Core is Thea Notes. This provides a summary of notepad entries for an agreement, which is hugely powerful for many of our customers.
Speaker #1: Thea Lens provides intelligent document processing functionality. Alpha can already work with third-party IdP solutions, and we're now working on our own functionality in this area, powered by Thea Core.
Speaker #1: And Thea Connect provides a model context protocol, or MCP server. This is not yet been launched as part of our marketing agenda, but it is available, for example, use cases an MCP is an emerging standard for connecting AI assistants to business systems.
Speaker #1: And it's now firmly part of conversations with our customers and with prospects. Thea Connect is likely to be key in allowing customers to plug AI tooling directly into Alpha processes.
Speaker #1: Moving on from AI, and we've progressed with our key market expansion exercises in fleet, commercial finance, and US auto originations, all three are progressing with customers, which is our preferred methodology for investment.
Speaker #1: US auto originations is exciting because of the scale of the opportunity. Every US auto finance provider requires originations functionality, and this is a new addition to our offering, the value is substantial.
Speaker #1: Fleet is exciting because it opens up the European auto finance market, where auto fleet management often sits alongside retail finance. Our first implementation of our fleet functionality is progressing well.
Speaker #1: And commercial finance is an adjacent market, which will, in time, increase our TAM. And we're stepping up our marketing efforts within the commercial finance world.
Speaker #1: We're also investing in our portal for customer and dealer access, again, with customer partnership. And we've completed a pilot accelerating software development using AI tooling.
Speaker #1: We've had some excellent results. We found many compelling use cases, and we're now moving into a BAU phase. We expect our usage of this exciting tooling to continue, to increase the pace at which we can deliver new features for customers.
Speaker #1: We continually assess the shape of the team required in order to deliver efficiently for customers. We've seen reduced demand for customer-led enhancements of our software, and we've reshaped the team in response.
Speaker #1: In the first half, this has resulted in 31 non-voluntary departures from Alpha, mainly from product engineering. We've continued to recruit where demand is stronger, including into cloud hosting operations and into delivery, with both graduate and experienced hire recruitment.
Speaker #1: We've refreshed our new hire induction material, and we're now rolling this out in all regions. The new approach enables new hires to be onboarded more efficiently and more effectively.
Speaker #1: And our cross-company program of AI literacy ensures that all areas of the business have the resources that they need to maximize opportunities for efficiency.
Speaker #1: For example, every business area has AI champions as points of contact to roll out and adapt learning and development materials for their group. We have a fantastic team and a culture of delivery and of growth, all focused on building this special company together.
Speaker #1: 2026, people initiatives include our culture playbook, ensuring that we maintain and grow our culture as we scale our team internationally. Our unrivaled track record of delivery continues, and it's this ongoing delivery that layers new subscription revenues onto our model.
Speaker #1: In the first half, we achieved two go-lives for new Alpha systems six customers. The first was for an existing Alpha V4 customer, which upgraded onto AS6.
Speaker #1: The go-live involved migrating portfolios in two different countries onto a single segregated instance of Alpha Cloud. The upgrade allowed our customers to simplify their internal systems infrastructure, as well as to access the product benefits of the latest version of Alpha.
Speaker #1: The second new customer go-live was for a limited new business pilot, but with a ramp-up in new business volumes expected over the coming months, and with migrations of the existing finance book expected to follow in due course, the result will be our largest Alpha Cloud implementation.
Speaker #1: So we expect this customer to be an important part of our growth in the coming years. We've also sold a new subscription upgrade product to our first customer.
Speaker #1: This is a win for our customer, as well as for Alpha, for our customer access to upgrades on a subscription basis makes costs predictable and upgrades easier to access.
Speaker #1: For Alpha, the new model increases subscription revenue and assigns to us the benefits of increasing efficiency. We're confident a further sales of this product in the future.
Speaker #1: So we have the leading product, an outstanding team, and a clear track record of delivery in a complex vertical where competitors frequently fail. Our market opportunity is huge.
Speaker #1: Our simplification agenda accelerated by advances in AI tooling will enable us to reach more customers and layer high-value recurring subscription revenue onto our model more efficiently.
Speaker #1: And investment in our product is expanding our opportunity. So we're really excited about the future. And I'll hand over to Andrew Denton for an update on the prospects for future customers.
Speaker #2: Thanks, Matt. I'll continue with the business and the sales update. We're pleased with the progress we've made in the pipeline since our full year results.
Speaker #2: During the first half, we converted two prospects into wins, demonstrating the continued demand for Alpha systems, and the effectiveness of our sales strategy. At the same time, we maintained a strong late-stage pipeline of nine prospects spanning multiple geographies, customer types, and industry segments.
Speaker #2: Importantly, several opportunities have continued to advance through workshops, and contracting activities. And we are already undertaking paid work with some of these prospects. This remains a key indicator of commitment and provides a strong foundation for future conversions.
Speaker #2: The pipeline is geographically diverse across the Americas, Europe, the UK, and broader international markets. We continue to see particular interest in our investments in originations, fleet, and commercial finance.
Speaker #2: Reinforcing our belief that expanding the product's capabilities increases our addressable and serviceable markets, and strengthens Alpha's competitive position. And we've been particularly pleased with the level of incremental sales driven by our new commercial finance modules.
Speaker #2: So looking forward, demand for asset and automotive finance remains software remains strong. What continues to differentiate Alpha is the combination of our people, our product, and our delivery track record.
Speaker #2: These advantages have underpinned our success to date, and remain central to our long-term strategy. Artificial intelligence is creating exciting opportunities across our business. As Matthew explained, we are using AI to accelerate software development, simplify implementations, improve internal efficiency, and create practical functionality for our customers within trusted Alpha workflows.
Speaker #2: We are particularly pleased with the progress of our Thea AI product group. We continue to invest in market expansion through originations, fleet, and commercial finance, and we believe these investments will continue to support future growth in both delivery and subscription revenues.
Speaker #2: While foreign exchange remains a headwind given the success of our North American business, our expectations for the full year remain unchanged and we continue to see a significant opportunity ahead of us.
Speaker #2: So to summarize, the first half of 2026 has seen continued progress across the business. Subscription revenues grew 14%. Subscription TCV increased 22%. ARR grew 17%, and net revenue retention remained strong at 110%.
Speaker #2: Subscription revenues now represent 37% of total revenue, demonstrating the ongoing transition of Alpha towards a business with a larger recurring revenue base. Sales performance was encouraging.
Speaker #2: With two new wins, growth in total contract value to $247 million and a healthy late-stage pipeline of nine prospects. And we continue to see strong interest across the markets we serve.
Speaker #2: And good activity in the earlier stages of our pipeline. We continue to invest in our product, in our people, and in delivery capability. Investment in originations, fleet, commercial finance, and AI is expanding our addressable market and strengthening our competitive differentiation.
Speaker #2: While AI is helping us simplify delivery and accelerate development. Most importantly, we remain confident in our future prospects. The combination of a growing subscription base, a strong pipeline, expanding market opportunity, and continued product innovation positions Alpha well for the remainder of 2026 and far beyond.
Speaker #2: Thank you for listening.
Speaker #1: Thank you very much, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press star one on your telephone keypad. And just make sure that your line is not muted in order to let your signal reach our equipment.
Speaker #1: Press star one for questions. Our first question today is coming from Harvey Robinson of Pioneer Librum. Please go ahead, Harvey. Your line is open.
Speaker #3: Good morning, guys. Thanks for the presentation. A couple of questions from me. At this stage, just on the pipeline and sales opportunity that you referenced, has there been it feels from the trading update to now that there's a bit more optimism, certainly tonally, in your descriptions.
Speaker #3: I mean, the pipeline's obviously cut at the half year. Has there been any sort of material moves within that since the period end? And the second question really is about the Q2 go-live and how that affects the chart that Duncan talks to.
Speaker #3: Because you specifically call this auto finance customer as a fairly low-key go-live now, but potentially a very large customer going forward. In Duncan's slide 14, is that in the light orange band?
Speaker #3: And does that really sort of manifest in their I'm just trying to work out whether that's hitting those numbers yet in any meaningful way.
Speaker #3: Well, that's more post-28.
Speaker #2: Thanks for those questions, Harvey. I'll pick up the first one. And obviously, Duncan, on the second one, you're quite right to see the glint in my eyes.
Speaker #2: I talk about sales and without going too hard on it, we definitely have seen some positive movement in the late-stage pipeline since we drew a line under it for these results.
Speaker #2: So we're feeling good about it. We've got the three that we mentioned that we're doing paid work for. It will be fantastic to get those through to a position where in Alpha's definition of the word sold, they're sold.
Speaker #2: And we're optimistic that we have the raw material to replace those with hopefully another three. So yes, well observed. Duncan, are you happy to talk about the Q2 go-live and the effect on your various graphs?
Speaker #4: Yeah, I'll talk about the graphs. I might, if Matt wants to color around the go-live, then Matt can do that. But yeah, it's very much one of the items it's a 20 it's part of the 2023 cohort.
Speaker #4: And you can it's one that's a partial go-live. So it's one of the ones that you can see in orange. So yeah, you're right.
Speaker #4: There is a lot of future ramp-up for that. At the moment, I think it's worth talking about this client a bit because I think it helps a little bit with the way that subscription revenues do ramp up within that graph.
Speaker #4: So quite often, you'll get hosting revenue first. As environments get fired up and people start doing volume testing, when things are not live, we don't get any maintenance payments from those contracts.
Speaker #4: But we do get some license payments. So a typical structure would be hosting coming on first, then a bit of license as more volume as more contract volumes come onto the system, and then at the back end, obviously, once contracts become live, we get the maintenance payments.
Speaker #4: But so there is more to come from that, but we're also it is also contributing well in the current year because of the hosting volumes.
Speaker #4: But Matt, I don't know if there's anything else you wanted to add.
Speaker #2: Yeah, thanks, Duncan. And thanks, Harvey, for the question. It's an exciting customer for us. And I think I talked a little bit about it in the presentation.
Speaker #2: The live for a pilot, the pilot means a subset of dealers. So some of their new business is coming onto Alpha. The next step will be to go-live for all dealers.
Speaker #2: So that will mean all new business coming onto Alpha. And they're working towards a migration of the legacy book as well. And that's the point at which the full subscription revenues will hit Duncan's orange charts, as you say.
Speaker #3: Okay, thanks, guys. That's great. Thank you.
Speaker #1: Thank you for your questions, sir. Ladies and gentlemen, once again, for questions, please press star one. And now go to Gautam Pillai of Peel Hunt.
Speaker #1: Please answer.
Speaker #5: Good morning, all. Thanks for taking my questions. My first question is on the NRR bridge. And excluding the customer churn you talked about, you're tracking it around 113% a point up from last year.
Speaker #5: What is the right level of NRR in steady state? That's my first question. I have a couple more. Second question on the new opportunities you flagged.
Speaker #5: Across US auto ordinations, fleets, and commercial finance, which can become financially material first? And what measurable milestones should us use to judge the progress?
Speaker #5: Is it pipeline additions, implementation revenues, or subscription ARR? And finally, one question on AI. You speak about AI expanding Alpha stam. By reducing implementation effort and onboarding friction, over the medium term, do you see AI as a efficiency or a margin opportunity?
Speaker #5: Or is it a sales acceleration opportunity in a way to penetrate customer segments that historically were not available or uneconomical for Alpha? Thank you.
Speaker #2: Thank you very much, Gautam. Good morning to you, sir. Nice job in spreading the questions between us. So I'll pick up the new opportunities first.
Speaker #2: Duncan, can pick up the normality of NRR question and perhaps Matthew, you can speak to AI. But I'll probably get excitable and chip in.
Speaker #2: So on the new opportunities, I think the way that we're characterizing those, Gautam, is one of them is which is US originations. It is an expansion of our serviceable addressable market.
Speaker #2: Whilst we look at fleet and commercial lending, as increasing our target addressable market. And so in terms of how they monetize and which monetizes first, they're all subtly different, which is very pleasing because we sort of covering off every type of go-to-market.
Speaker #2: So if we start with US originations, that's the increase in serviceable addressable market. And I think as we've picked up in the presentation and before, the nice thing about that is the go-to-market strategy is really straightforward.
Speaker #2: All of the success that we've had in contract management system sales within North America and all of those people need origination software. And we believe that we will be very well positioned within the competitive dynamic for that part of the market.
Speaker #2: So essentially, you could see that as almost like a super incremental sale. Fleet, as you know, we have a customer already. It's with one of the it's one of the two wins that we have announced in the half.
Speaker #2: A very major logo. And as you know, we really do like doing work and building new software and intellectual property hand in hand with a customer.
Speaker #2: So a very simple answer to your question is that right now, fleet is monetizing as we speak and we've seen that in the increase in revenues for the UK part of our addressable market within the first half.
Speaker #2: And finally, without going on too long, commercial lending is a tale of two go-to-markets. I pick out in my narrative that we have been delighted with the incremental sales success that we've had with those modules because they're also applicable in our home asset finance market.
Speaker #2: It might perhaps take a little bit longer to realize a standalone commercial lending sale although we've noted that within the pipeline, we do have discussions with an organization that perhaps could be that first one.
Speaker #2: In terms of the milestones and what to look out for, well, you know that these are very important investments for us. So in our disclosures to the market, of course, we will keep you apprised as we have done to date with how we're doing.
Speaker #2: And how that stuff is being monetized within our world. Duncan, NRR?
Speaker #4: Yeah. Thanks, Andy. We initially started reporting NRR about a year ago. And I think I said back then that the normal level might be sort of around about 108%.
Speaker #4: But I think I've improved wrong by that. And without setting a heroic targets for Andrew to Dixon to follow after me, I think you're the 113% if you strip out the V4 the V4 customer.
Speaker #4: I think in the medium term, it's not a bad figure to be around. If I look back over the NRR that we've tracked internally because we've tracked it since the beginning of 2024, we varied between about sort of 103 and a peak of around about 108, 109.
Speaker #4: But over the last 12 to 18 months, it's very much been trending between 105, 106, and as high as 115% at one point, not a period end period.
Speaker #4: So we didn't disclose that. So and I think why would that be? I think that the figures that we've shown an upsell on existing customers of anywhere between 4, 5, 6 percent seems reasonable.
Speaker #4: And then the growth very much from the customers in implementation that we were talking about. And I think that could accelerate. But I think, yeah, 112, 113, round about that with potentially sometimes a little bit higher depending on what's happening.
Speaker #4: There will be offsetting that, there will be a little bit of drag occasionally from we've still got two V4 customers to come off. So there'll be a bit of a drag from that at times over the next 24 months.
Speaker #4: But barring that, I think an underlying 112, 113 is a sensible number.
Speaker #1: Thanks, Duncan. And on the AI questions, you're right, Gautam. AI is an efficiency and a margin-enhancing opportunity because of the internal capabilities that it provides, particularly as we grow.
Speaker #1: So as we grow as an organization, then we have opportunities to limit the growth of SDNA. But more exciting than that, as you imply, is the opportunity to reach additional customers.
Speaker #1: As we add efficiency into the implementation process for our effort, but perhaps even more importantly for the effort for our customers and for system integration partners, in implementing Alpha Systems, I talked about migrating data from legacy systems to Alpha in the presentation.
Speaker #1: Other examples include document generation. So there are a lot of documents that need to be produced by the system, generating the templates for those is made easier.
Speaker #1: Even things like building test plans. First-level support is also made easier through AI technology. So the opportunity to reduce the friction in the implementation process are many and varied and very exciting for us.
Speaker #1: And open up additional addressable market.
Speaker #3: Can I follow up on the system integrators partner point? And in the deck, I saw that partner days remained at around 8% of the total delivery days.
Speaker #3: Can it scale more than this? And faster? And do you have confidence that the partners can increase implementation capacity without weakening the quality of delivery?
Speaker #2: So the 8% that you're looking at in the deck is the amount of effort that we are providing as part of our implementation teams to customers using partner people.
Speaker #2: In addition, many system integration partners work on the client side, on the customer side within our implementations. So that 8%, which is a number that will vary over time, it isn't in itself representative of the amount of resource that our partners have.
Speaker #2: With skills and expertise in Alpha Systems, and we're seeing that expanding, and we're seeing the expansion increasing over time in the number of people who are available from partners to assist with the implementation of Alpha.
Speaker #2: And that in itself increases the increases the capability of the world as a whole to implement Alphas and reduce that friction further.
Speaker #4: Specifically on your sorry, Gautam. I'm just going to pick up on your question about I would characterize as confidence in the quality, you can see perhaps partners working in well, many ways.
Speaker #4: We also talk about integration partners who are creating third-party products that we integrate with. But Matthew touched upon in terms of AI capabilities how we can help with AI, those customers that are doing the systems integration.
Speaker #4: And we've always worked alongside systems integrators. And you could perhaps describe that as being a slightly more commoditized role than the specialist role that we do in that core Alpha delivery.
Speaker #4: We are partnering, as you know, with people in that core Alpha delivery part of our world. And we are being exceptionally careful with choosing who we work with in that respect.
Speaker #4: We have live conversations about partner accreditation. We're making sure we do that due diligence. And in a rather extreme example, the chief revenue officer and I visited the main operational center of one of our key partners in Tunisia.
Speaker #4: Just to see how they do things and make sure they operate in a way that is consistent with our values and our quality standards.
Speaker #4: So rest assured, we are being extremely careful with who we partner and being very careful to ensure they have the right quality.
Speaker #3: Great. Thanks, everyone. And thank you to Duncan and I'd just like to congratulate you on the retirement. And thanks for all the time you've given to the analysts and the investor community.
Speaker #4: Thanks very much. Yeah.
Speaker #5: Thank you. What's your question, sir? Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, please press star one at this time.
Speaker #5: We do not appear to have any further questions coming in at this time. Mr. Dent, now let's turn the call back over to you for the additional closing remarks.
Speaker #5: Thank you.
Speaker #4: Thank you. And thank you for your help. I'd like to leave you with three main thoughts as we close this session. The first one being that our subscription business continues to build momentum.
Speaker #4: It's really important with respect to our strategic execution and with ARR up 17%, contributing 37% of our revenue subscription TCV up 22%. And that net revenue retention that we just discussed of 110%, we are seeing clear evidence of the long-term value creation inherent in our business model and the strategy that Matthew described.
Speaker #4: Second, as we've also discussed in the Q&A today, the investments we have made over a number of years in our people, our product, and our delivery capability are creating meaningful opportunities.
Speaker #4: That expansion into originations fleet and commercial finance together with the work in AI is increasing our addressable market, our serviceable addressable market, and our ability to execute at scale.
Speaker #4: And finally, while the wider macro environment remains uncertain, the demand that we are seeing the strength of our pipeline and our delivery track record gives us continued confidence in Alpha's medium and long-term prospects.
Speaker #4: We've got a great business, a differentiated proposition, and outstanding team and a significant opportunity ahead of us. And speaking of outstanding team, I just want to add my thanks to Duncan as he goes into his victory lap for everything that he's contributed to our business in his time here.
