Summary

  • Direct-customer ARR rose 12.1% to £47.1m, but an 18.0% fall in OEM ARR and a 34.3% decline in non-recurring revenue pulled H1 group revenue down 10.4% to £39.5m.
  • The FY26 consensus range implies £42.6m–£44.7m of H2 revenue and £4.8m–£5.9m of adjusted EBITDA; the test is conversion and cash collection, not the headline size of sales opportunities or a ten-year contract.

A higher recurring percentage can accompany a shrinking business

Microlise's headline mix improvement is real, but it needs to be read in pounds before percentages. Recognised recurring revenue increased by £0.4m to £29.9m. Non-recurring revenue fell by £5.0m to £9.5m. That bridge explains almost the entire £4.6m reduction in group revenue, from £44.1m to £39.5m.

The recurring share consequently rose from 67% to 76%. Part of that is a genuine quality improvement: more of each pound of revenue now comes from software and services that repeat. Part is denominator arithmetic: hardware, installation and professional-services activity contracted. Gross margin improved from 65.6% to 67.1%, yet gross profit still fell 8.3% to £26.5m.

This distinction matters because annual recurring revenue is not recognised revenue. ARR annualises June's monthly recurring charge. It was £60.8m at the period end, 3.6% above the £58.7m comparable. H1 recurring revenue was £29.9m. The two numbers describe related but different clocks: contracted run-rate at one date and revenue delivered across six months.

Direct customers improved the mix while OEM renewals removed scale

Direct-customer ARR rose by £5.1m to £47.1m. OEM ARR fell by £3.0m to £13.7m. Direct customers therefore represented about 77.5% of total ARR, up from 71.6% a year earlier. That shift should improve the economic mix if direct subscriptions retain their higher margins and cross-sell potential.

The quality signal is not uniformly strong. Direct-customer net revenue retention fell from 114% to 106%, while group NRR fell from 106% to 98%. Direct churn remained low at 1.1%, but management also cited managed churn among smaller acquired customers, normalised fleet expansion and less incremental expansion from some large accounts. New customer additions were nearly flat at 218 against 216.

Cross-selling fleet-safety products and the transport management system drove much of the direct ARR gain. Those contracts deepen the operating surface inside a fleet, but ARR growth becomes useful to the income statement only as services are delivered. On the OEM side, lower renewals were the central problem, and management does not expect the decline to plateau until late FY27.

Consensus requires revenue acceleration, not another margin leap

Microlise put FY26 market consensus at £82.1m–£84.2m of revenue and £10.0m–£11.1m of adjusted EBITDA. Subtracting H1 leaves a second-half revenue requirement of £42.6m–£44.7m. That is 7.8%–13.2% above H1 and roughly 6.8%–12.0% above H2 FY25.

The EBITDA bridge is less demanding sequentially. H2 must contribute £4.8m–£5.9m after H1's £5.2m. Pairing the low ends gives an implied H2 margin near 11.3%; pairing the high ends gives about 13.2%. The published ranges are not paired forecasts, but the arithmetic shows that consensus does not require margin to exceed H1. It requires the restructuring recovery to persist while revenue returns.

That recovery is visible. Adjusted EBITDA rose 148% from £2.1m in H2 FY25 to £5.2m in H1 FY26, and margin recovered from 5.2% to 13.2%. Yet EBITDA was still 16% below H1 FY25. A £5m annualised savings programme reduced more than 100 roles, but Microlise is reinvesting part of the benefit in cloud infrastructure, product development, the TMS module, a mid-market offering and sales capacity. Capitalised development spending rose from £1.4m to £2.4m.

The second half therefore has two jobs: recognise more revenue and avoid giving the savings back faster than new recurring gross profit arrives.

A £20m contract and a £30m facility are not present revenue or cash

The ten-year renewal and expansion contract with total contract value above £20m is commercially important. Its expected revenue contribution begins only near the end of FY26. Total contract value spread across ten years cannot be booked as current revenue, counted as ARR without the relevant recurring charge, or treated as cash received.

The same discipline applies to liquidity. Microlise had £13.8m of cash and no drawn debt at June. The facility comprises a £10m committed revolver and a £20m accordion. Committed liquidity was therefore £23.8m; the accordion is additional capacity, not money in the bank.

Cash evidence was softer than the balance-sheet headline. Adjusted operating cash generation was £3.1m, equal to 60% of adjusted EBITDA. Reported operating cash flow was £1.3m, and cash declined by £3.0m during the half. A £4.8m receivables increase, £2.4m of product and development investment, £1.0m of property and equipment purchases and £0.8m of lease payments absorbed cash. Management attributed the working-capital outflow to billing and project timing, including receipts pulled forward into late 2025. H2 collection will test that explanation.

Sources