Cerillion plc (LON:CER) Chief Executive Officer Louis Hall caught up with DirectorsTalk Managing Director Darren Turgel to discuss whether 5G is the main factor in service providers upgrades to BSS-OSS systems, how their partnership strategy will impact the business in the future, key factors in securing large contracts, key drivers of recurring revenues continuing to rise and their M&A strategy.
Q1: Is 5G the main factor in the acceleration in service providers upgrades to BSS-OSS systems?
A1: 5G is certainly a big factor and there’s no doubt that the 5G investment cycle is now finally well underway. Investment in network upgrades inevitably will lead to telcos to look at the ancillary system that surround those networks and those are the systems that we as BSS-OSS providers are focussed on.
So, I think 5G is a major factor but also, I think the pandemic has shone a spotlight on the importance of telco infrastructure in general, particularly broadband infrastructure so I think that has also helped strengthen the pace of telco investment in BSS and OSS.
Q2: How will your partnership strategy impact on Cerillion’s business in the coming years?
A2: We have an important partnership with Nokia and I think that this is essentially important in two ways, not just with Nokia as an equipment vendor but with other channel partners.
Obviously, channel partners increase our global sales reach, they’re very important from that point of view but they also increase our delivery of capability and capacity.
I think, at the end of the day, channel partners that can go and implement systems as well as sell them then enable us to get more customers live faster. Obviously, that then grows our recurring revenues more quickly and enables us to therefore grow much more rapidly.
Q3: What are the key factors in the company being able to secure large contracts?
A3: I think there are two main factors here.
One is that the contracts we’re signing today are increasingly contracts that include a broad service wrapper so they’re typically SaaS contracts to provide the software solution as a service. That has the higher intrinsic value than a contract purely to provide software modules installed on customers’ premises or a support and maintenance contract. So, that’s one factor, there are more things going in the bag.
The other factor is as we do larger deals with larger customers, the next larger deal with the next larger customers becomes easier so that’s just a credibility factor here that I think customers then have confidence to go with us where larger customers may not have previously had confidence before we achieved that milestone.
Q4: Do you see the proportion of recurring revenues continue to rise in the coming years? What are some of the key drivers of this transition?
A4: There are two factors, one big factor is the SaaS revolution so providing software as a service is a much more recurring revenue base model than traditional on-premises software delivery models. That inevitably means that there’s more recurring revenue in our mix and there’s pretty much exclusively term licence delivering software on a subscription basis rather than traditional licence and support and maintenance. That does make a big difference.
The other factor is that because the trend is to sign larger deals with ever-larger customers, those deals have bigger licence fees because our end customers have bigger customer bases and that in turn directly drives a higher proportion of recurring revenue through higher SaaS managed service wrappers around that service.
Q5: What is Cerillion’s M&A strategy?
A5: I think that whilst we are still actively pursuing opportunities on the M&A front, the last 12/18 months has been difficult because we haven’t been able to get in front of companies that we’re looking at. With acquiring relatively small technology businesses, those tend to depend quite heavily on a relatively small number of key individuals and again, if we can’t get in front of those key individuals, it does make it difficult to get to the final stages of that process.
So, we do expect that to pick up again once we’re through the pandemic and travel becomes more straight forward.
