Earnings call: LTG reports resilient performance with strong cost control

In the latest earnings call, LTG (Learning Technologies Group) presented its interim results for the first half of 2024, demonstrating a resilient performance despite a challenging macroeconomic environment. CEO Jonathan Satchell and CFO Kath Kearney-Croft outlined the company's financial health, noting a slight organic revenue decline but an increase in adjusted EBIT. The company, which specializes in digital learning and talent management solutions, also reported strong cash generation and minimal net debt.

Key Takeaways

LTG's organic revenue fell by 3.8% to GBP 250.3 million, while adjusted EBIT rose to GBP 43.3 million.SaaS and long-term contracts represented 76% of the total revenue, showcasing the company's strategic focus.All major contracts over $5 million were renewed, and investments in AI continued, with positive early feedback from customers.Despite challenges like inflation and cautious customer spending, the company sees opportunities in upskilling and reskilling.The board decided on a flat dividend of 0.45 pence, keeping future distribution options open.

Company Outlook

Management expects improved business confidence to drive future growth.Opportunities in upskilling and reskilling are seen as strong, despite current macroeconomic pressures.

Bearish Highlights

Transactional revenues, especially in content services, and SaaS subscriptions have declined.Acquisition of new customers has been challenging, and revenue softness is noted in government contracts.

Bullish Highlights

Growth in leadership and advisory services, particularly in Latin America.Positive developments in AI initiatives, including the Content AI project.Rustici, part of the Software & Platforms division, performed strongly.

Misses

PeopleFluent faced a decline due to higher-than-expected churn rates.Revenue impact from paused classified contracts due to regulatory challenges was approximately $200,000.

Q&A Highlights

Satchell forecasted software revenue stabilization around GBP 30 million after a product revamp.The company is deauthorized from winning new classified work but remains engaged with existing classified customers.A mandate for share buybacks has been acquired, but the company prioritizes deleveraging over incurring debt for share purchases.



In conclusion, LTG's interim results reflect a company navigating through economic headwinds with a focus on cost control and strategic investments in technology. The management's outlook remains cautiously optimistic, with a clear emphasis on leveraging global capabilities and AI innovations for future growth.

Full transcript - None (LTTHF) Q2 2024:



Claire Coley: Good morning, everyone and welcome to the LTG Interim Results for 2024. My name is Claire Coley, and I will be supporting the session today. We will start the call with the results presentation from LTG's Chief Executive, Jonathan Satchell; and CFO, Kath Kearney-Croft, a Q&A will follow. Please send in your questions at any time during the presentation, typing them in the questions pane within the software. I will read out your questions for Jonathan and Kath to answer. So now I will hand over to LTG's Chief Executive, Jonathan Satchell to begin the presentation.

Jonathan Satchell: Thank you very much. Good morning, everyone, and welcome to our interim results for 2024. First, I'd like to just cover a couple of the highlights and then I'll hand over to Kath to go deeper into the financials. It is unsurprising to say that has been another resilient year in a tough macro backdrop. I actually look forward to not having to say those words. I'm looking forward to a situation where I'll be able to say we're back to growth, confidence in the business community has returned and everything is hunky-dory, but it's specially at the moment, it isn't like that. But I think we need to look at in the context of the general macro environment, I'm going to talk more about how I think that specifically affects learning and talent development businesses later. But I also want to call out that even though we are seeing disappointing revenue performance, we genuinely expected as we budgeted in the autumn of last year that we would see a flat year this year. We saw the trend of that in the early stage of the year. But certainly in Q2 and beyond, we have seen that deteriorate modestly, such that we have a 3.8% organic revenue, constant currency decline over the first six months, certainly confidence in America is not where we basically to be and I will talk more to that later. But having said that, normally, when you see businesses have revenue decline unexpectedly, you will see margins diminish and all those other associated difficulties. And I'm proud to say and call out to the team for a great performance in terms of our absolute EBIT is up, okay, only about 5% is still up. Our margins are modestly up we said they would be, and they continue to trend upwards over the coming half year. Of course, cash generation, something you would expect from us is reliably high and that has resulted both in terms of trading cash generation and the extraordinary proceeds that we received from Vector for us being back to sort of effectively no leverage whatsoever as of August of this year. All of those things I'm proud of and I call out to the team for what they've done to continue to achieve them. But we are very focused on preparing ourselves for sales growth and execution, as we move forward in this difficult environment as the environment improves. The other thing I'd say to you is that what we're seeing is, whilst customers are cautious about their spending, they're still very much loyal to us in staying with us. So we renewed every single contract of about $5 million that was up really on H1 and we, of course, continue to invest in AI. We started that journey last year. What we're now seeing is further investments in new R&D but also the beginning of deliveries of AI to our customers. And again, I'll talk more to that later. So let me now hand over to Kath, where we'll go more into the financials. Kath?

Katharina Kearney-Croft: Thank you, Jonathan, and good morning, everyone. 2023 results are as presented in the year and include the performance of TTi Global staffing contracts disposed of in October 2023 and line engineering disposal on the second of January 2024. H1 2023 revenue on a like-for-like basis, excluding the disposals was GBP268.2 million. And in the macro backdrop, we saw a resilient performance for the first half of 2024, with revenue of GBP250.3 million. On an organic constant currency basis, revenue was down 3.8% and with SaaS and long-term contracts, reflecting a higher proportion of the group at 76%. We continue to experience softness in transaction and project-related work primarily in content-related content and services and some softness in SaaS subscriptions. Adjusted EBIT was GBP43.3 million compared to GBP41.1 million on a like-for-like basis, reflecting the same drivers of revenue and benefiting from the commercial transformation program in GP Strategies (NYSE:GPX ) in combination with 2023 actions delivering sustained benefits into 2024, continued focused cost control and share-based payment releases due to levers and non-performance. Adjusted EBIT for the group in H1 was 17.3%, improving 200 basis points on 2023 like-for-like comparison. The group continued to drive strong operational cash generation and delever the balance sheet with leverage at the end of June at 0.5x on a covenant basis before the sale of the sector in July. Looking at the chart on the left-hand side, we see the split of our transactional and SaaS and long-term contract revenues. With a challenging macroeconomic backdrop affecting transactional revenues, we have continued to see resilience in the SaaS and long-term contracts moving to 76% of total group revenues, although on an absolute basis, there was a decline in revenue, which I will cover in the subsequent slides. The chart in the middle reflects our reporting segments for content and services and software and platforms, which remained broadly the same with prior years and I will also cover these in more detail in the subsequent slides. The chart on the right-hand side reflects our diversified footprint and we continue to remain predominantly exposed to the U.S. market with slightly lower exposure to the U.K. and the rest of the world including the revenue reduction related to the sale of the Lorien business, predominantly in the latter two regions. Our geographic footprint continues to enable us to deliver global companies with localized delivery. In the first half of 2024, revenue decreased on a constant currency basis by 2.9% in Content & Services, driven by the ongoing challenging macro affecting the volume of learning projects and GP Strategies for both transactional revenue and a lower number of learners in some managed learning services contracts. PRELOADED also experienced delays in sales conversion, including cancellation of some pipeline opportunities. However, good growth in the pharmacy partially mitigated the impact and we are pleased to confirm that all major clients and contracts above $5 million were renewed in H1 2024. Adjusted EBIT for Content & Services reflected the improvement in profitability in GP Strategies, particularly compared to the GPLX integration challenges faced in H1 2023. And the continued focus on cost optimization across the group, resulting in a 250 basis point improvement for content and services in total. In Software & Platforms, we have experienced some softness in SaaS subscriptions with revenues declining due to combination of the higher churn and people fund from customers with less complex needs, lower revenue in reflective due to softness in technology sector customers, lower-than-expected new customer bookings in Open LMS and some higher-than-expected churn in bridge combined with lagging renewals. In Breezy, we continue to see stability in SaaS revenues and softness in transactional revenues related to job postings in the small and medium business market. Rustici continues to perform strongly with higher utilization of its products partially offsetting the softness in other brands. Adjusted EBIT reduced as a result of the revenue reduction, but was largely mitigated by continued cost optimization the benefit of 2023 actions delivering in 2024 and share-based payment releases, resulting in an 80 basis point improvement in adjusted EBIT. We're pleased to report continued improvement in H1 operating cash conversion since the acquisition of GP in late 2021. Adjusted operating cash flow increased to GBP2.3 million with operating cash conversion improving to 70% compared to 65% in the prior year. This improvement reflects a lower working capital investment, lower lease payments due to an optimized footprint and reduced R&D capital expenditures due to significant functionality build-out in Breezy and Bridge in 2023, partially offset by ramping investment during H1 in AI-enabled products. Net interest paid was significantly lower as we paid six months interest for 2022 in H1 2023 and higher cash balances, rates and strategic cash management initiatives improved interest received. Higher tax paid in H1 partially related to a 2023 catch-up in Q1 and the lower earn-outs and contingency payments compared to prior year reflected the 2023 performance for the remaining couple of acquisitions with earn-outs, one of which had a small final earn-out for H1 paid in H2, including the GBP16.9 million proceeds from the disposal of Lorien Engineering, free cash flow for the first half finished at GBP29.9 million, GBP24.3 million higher than the prior year. The graph at the top of this slide reflects the movement in net debt across the year with the key changes being the GBP29.9 million free cash flow, as explained on the prior slide and the final dividend payment of GBP9.6 million paid in June. We have continued to delever and improve balance sheet strength, giving further optionality in capital allocation, which the Board continues to keep the review. Following the disposal effect in July, we have additional balance sheet strength with negligible net debt as at the end of August and a further voluntary $25 million payment was made in July. Adjusted diluted EPS for continuing operations increased by 6% compared to H1 2023, primarily due to lower net interest costs. Whilst H1 2024 diluted EPS has improved versus prior year, the outlook for the full year is minded the Board to declare a flat dividend of 0.45 pence leaving optionality for the final dividend. As with prior announcements for including some technical guidance to help with modelling. For finance charges, we continue to have a term loan structure in place and interest is charged on gross debt. With the benefit of cash on deposit and in interest-bearing accounts, we're forecasting a net interest rate of 5.5% for the year. Adjusted tax and FX is in line with our prior guidance. And a reminder of the treatment of non-core assets is here. This year, the reported 2023 comparatives will continue to include Lorien and a TTi Global staffing contracts that were disposed of late last year. And we have shared like-for-like comparisons to aid understanding. With the disposal of Vector on the first of July, Vector will remain as part of continuing operations in the P&L for H1 and held for sale on the balance sheet as of 30 of June. And with that, I'd like to hand back to Jonathan.

Jonathan Satchell: Thank you, Kath. So moving forward from a financial highlights to a strategic review. The first thing I'd like to do is talk a little more to how we feel the macro is effective is and why. So I think if we can understand that a little better and share that with you, then it gives us a chance to recognize when the upturn might occur and what the factors will be that will contribute to that. So looking from a headwinds perspective, I’m sure none of will be surprised that inflation has had an effect on all companies' budgets. Bear in mind that although we work across the spectrum size of business, main revenue by far comes some very large multinational organizations and government. And it's fair to say that we're seeing across the piece at lower learning and development willingness to spend, not cutting into what I would call core infrastructure, compliance aspects et cetera, et cetera, but just that more discretionary, do we need to do it now spending is definitely being curtailed. And I think I've said before that one of the areas that we see most common in terms of that abatement is in D&I related training. We also, without question are very correlated to global growth. So when growth is muted, there are also challenges from our perspective in terms of persuading clients to spend more money. And there is a natural aspect of that because what you also get with global growth is greater employment trends, more people moving jobs and that drives the need for upscaling, reskilling and general learning and development requirements across the organization. There is a counterbalance to that, which I will come to. And then finally, I think we all recognize that the question mark of where AI will impact most and what it will impact is causing pause for thought not only amongst us or suppliers, but of course, on our customers as well. And we are in really interesting collaborative and constant dialogue with our customers about this and that's causing some really interesting and positive things to happen. But nevertheless, does cause an element of cautious spending or taking longer to make commitments to certain things that could that be disintermediated by AI, et cetera. So I think you have to recognize as a constant. We don't like stasis in our industry where our business is not changing they don't need to develop their people as much. The good news is there's an immense pace of change in general across the business community across the world, but there are also particular industries that are phenomenally affected. So for instance, automotive energy. We recently noticed tobacco as well as become -- we are doing very well in the tobacco industry. And then there initiatives very much looking to what their businesses will become. So be under no illusion that where there is change required and to the fundamental business model, learning requirements follow. There is definitely a whole skills and upskilling agenda that we're very involved with and we missed an extreme interest in how to do that in the most efficient way. So it's not just about -- we know we need to change skills about workforce. It's about we identify those? How do we identify the gap? Are we speaking to before about the AI tools that we're developing that can very much assist with that? And then finally, we have got still a situation where the trend towards the younger workforce is that they don't stay in roles or companies for as long and they move and moving employees tend to drive more training requirements. So those are the overall situation, that's the overall backdrop that we're in. But I would say to you that confidence needs to return for us to start to see a significant change in the situation. GP Strategies, as you know, is our largest business. We talked about the fact that we bought it three years ago and we're proud of the fact that we've won doubled their margins, but it has seen some revenue softness as I'd say, I repeat it. Very much holds on to its existing customers who are delighted with what it does for them. But finding new customers and adding those to the roster has been more challenging in recent times. And indeed, in certain sectors, we misanticipated it because, for instance, I very much thought that U.S. government would be countercyclical and resilient. It's actually our largest revenue reduction this year in government contracts that nothing related to the DCSA matter, which I will come on to, but just normal federal government contracts, they're all just a little bit more contemplating of their budgets, the forthcoming election and spending is a bit -- as indeed, I think it was in the U.K. prior to the U.K. election as well. But we are experiencing strong growth in our leadership and advisory practice across the world. And we're also experiencing really good growth in our Latin America region where we provide most of our services as well. So we're pleased with that. But in managed learning services, learning experience LX is the business that, as you know, we created out of emerging LEO with the GP content business. We're still seeing some softness, although LX is showing a much improved content pipeline in the last three months. And as I mentioned, the government division is down. However, when we look at what we're focused on and we're very extremely focused on execution and excellence within our GP business as we are across all of our businesses. We believe there are real opportunities to come. The first is, without question, AI, and I'll talk to that more in a moment. But we believe that there is an opportunity with our near global footprint, not totally, but we have a good spread of capabilities across the world. And there are organizations that are really looking for that geographically dispersed capability and that gives us a differentiated advantage. And we continue, of course, to pursue the holy grail of cross-selling, not an easy thing to do, probably more impeded by the current environment but we are dealing with warm welcoming clients to talk to you about either products and services rather than just needing to go out hold as it were. Our AI initiatives continue at a pace. If I talked on just specifically to this slide and to the ones within GP, we have had some fantastic feedback on our Content AI, it is probably doing more than we expect in terms of the perimeter of its scope. And customers have received it very well. It is both curating and analysing content for them also then giving them the opportunity to serve up the appropriate content in the right time, right place and we are rolling it out at a faster pace than we expected. So we're still in pilot mode but we have many paid pilots up and running and the feedback that we're getting from those customers who are discerning and demanding just a sort of pilot customer you want is tremendous, including a very well-known global technology company that has praised what we have managed to achieve with Content AIQ compared to what is seen in the market elsewhere and probably one of the most knowledgeable and discerning customers you could have in this regard. We're also very focused on making sure that our customers and us understand what's going on out there. That's not easy. It's evolving very quickly, but we've lent on capability and credentials. We're constantly evolving and iterating the training courses that we provide, but our human plus AI training program has got really good momentum and is being well received by large organizations who are, as you would expect, very concerned about how to implement AI appropriately. We're already beginning to see the dissatisfaction with poor implementations, which I think might help actually because it means we can very credibly come in and provide sage and why wise advise about how to do things properly and lessons learned and so on. And we continue, as you might expect from an organization of this nature to win significant recognition for what we're doing. And I think it's always worth recognizing that and it's certainly very much appreciated by us and by our customers. So if I go into the Software & Platforms in more detail, we said we were going to stop giving you too much granular breakdown because the feedback we've had at the university over the last couple of years is that it becomes a bit confusing, but then we’ve had feedback that don't go too far the other way and just talk Software & Platforms in its bland nature. So we're trying to find the happy medium and I'm sure we'll get some feedback whether we manage it or not. Rustici continues to be a very strong performer. Its growth is exceptional. It will exceed budget this year for about the fifth or sixth year is running, maybe all eight years of our ownership has been a bit like that. And we there, as you know, sits at the very heartland of how organizations launch and track their content, and not just learning content, but association content around that. You can't really estimate how privileged to position that is, and we are doing a number of AI related matters in that business at the moment, where it's probably one of our -- it's our largest single AI investment. Those are a whole new AI targeting built into that business and we are going to be launching a number of AI related initiatives later this year. Some of which are already in very early stage piloting with very well-known friendly customers which suffered some renewal churn that we weren't expecting in H1. We came into the year feeling very confident about where Bridge was going. We had two larger clients that churned unexpectedly and that sets us back a bit. We are -- we've looked at how that happened without us knowing about it. We've factored the sales teams in the way that they go out and handle account management and account to suit. I feel good about what we've done there. And we're also very much more self-aware about what I would call our client company size sweet spot is. And we recognize that those two customers probably were more towards the enterprise end of the market and therefore, some of the functionality was deficient for them. So you also need to make sure the product absolutely product market, product customer fit is good. We're getting great feedback again about some new initiatives that we've launched. You might recall a couple of years ago, we bought a very small business called [Pythia], the people from that business still very much with us. They were AI experts at the time. They've continued to become even more so, and they are really helping us develop the whole skills focused AI product again, back to this aspect of customers are really looking for us to be able to pinpoint what someone doesn't know what they need to know and how to deliver it. Rustici is absolutely constant stable story. MRR for the software product, the recruitment product remains absolutely stable. It's growing very slightly but I would call it completely robust and stable, but there's no serious growth in it. But we continue to not see any -- we could see the odd occasional spike of transactional revenue, which is basically job adverts come on the vacation month, and we think is just a sign of something and then it just pieces away again. So there is nothing to suggest that we're seeing job hiring increasing in the states. And of course, you know that from the macro news that you received from there. Again, we are focused on building out certain AI functionality of the type that I would say is more table stakes will keep that product relevant and matching up to its competitors. Open RMS, as you know, has been through a leadership change. We're very pleased with that. It took, as it does, they were internal transfers of leaders, but they joined very late last year and effectively the first six months of this year, they've been getting their feet under table. They've done a thorough analysis of the business. I agree with our analysis, some of it has been really insightful. And we, of course, are now taking actions based on what we've learned and so I am comfortable we'll see ARR growth across the year. We started to see it in Q2, but that business is just on that sort of cost of turning a corner and I would expect that to return to growth next year. And then finally, PeopleFluent, which, as you know, has been a business that's been in decline ever since we bought it eight years ago, knowledgeably, I'd also remind you that we've just a very small part of that business that we broke out a bit in autumn of 2018 has just sold for $50 million. That was better. We have another business called Affirmity that we broke out at the same time in 2018, which is growing nicely in the affirmative action planning space, not directly in the learning space and that's a highly profitable business. However, the PeopleFluent software business as we would tell it that what was left is still in decline and we saw a higher-than-expected renewals churn. So we only retained that business has been in the 70% gross retention rate of up for renewal customers in any one period that declined into the 60s during H1, which was a surprise to us. We don't believe that will be repeated in H2, but even so that put us back further than we expected on PeopleFluent. We are actually doing something you might be surprised to expect this, but this system is still a $40-ish million revenue business. And we have chosen to point some AI investment at that business because the new technology enables us to do something that's always been a disadvantage for us with that product. That product is I'm very capable and very comprehensive, but it's built on old technical architecture, which makes modifying it within its own code, very challenging and difficult. So we've tinkered around the edges but not done a wholesale rewrite of that product. What we're now doing is building outside the product, a very clever portal type interface that APIs into the products, so it's fully connected to the product. So you get all the benefits of the configurability and the functionality that certain people for own customers really like, but we're now going to release something that gives the user a much better experience. And it's not available yet. I've seen a mock-up of it. I've seen some dummy screens but development is going at a pace. And I more expect that to help us with attention than to necessarily help us win new customers in the initial phase but we are excited by what that can do. And in relativity of investment to the opportunity for improving retention that the financials and economics work very healthily indeed. So we obviously spoke to you about a concerning issue in July of this year, when we did the trading update, which was the agency, the DCSA, the Defense Counterintelligence Security Agency of the Department of Defense of the U.S., a very serious agency that oversees our foreign ownership of their business because GP Strategies does a lot of federal government work of which a proportion of it is classified. We got into a situation, I can't speak too much of it I'm afraid. I don't know much about it. I'm not allowed to know. But of the general aspects I know GP was found to -- there were two issues. The first was how far in ownership, it was considered that in our commercial transformation program, we were exerting too much control and influence me, my colleagues were existing too much -- having too much involvement in the way GP executives run that business. And because the facilities clearance license sits on the very top of the business across the entire company, not just relating to the classified contracts or anything. It covers -- if we're doing work in China or in the U.K., it covers that work as well and the staff and the people that do that. So that is challenging. It's not that we didn't know it. We walked into it with our eyes open three years ago when we went through our CFIUS process, but we believe there will be more flexibility than there now is. So we need to effectively leave the GP executive team to run that business to their own devices with limited guidance from us and we hear back about what is happening, but we're not as directly involved as I spend lots of time with all the MDs of the other businesses across the group. That will change, and that's important. But that was the first aspect of DCSA situation. The second one is nothing to do funny enough with our foreign ownership but has to do with access to data by foreign national. So if people are American owned, it would still be the same situation. There are certain non-classified but confidential piece of information called export classified information that should not be seen by foreign nationals in -- by the U.S. government and on certain systems such as their ERP system, that information could be seen. Now I just want to be clear, not making any light of it. It's not benign information. It is important that these regulations are followed. But this is not classified information as in top secret or anything. No one has data like that has been breached. But it's, for instance, things like time sheets or contract details of classified contracts. So they relate to those things that might be seen by people in our India based finance service centre. That's taken a while, so it's a gnarly problem because that sort of data sits and is available to people, and it's very difficult to completely segregate it. We've done a really good job or they've done a really good job of doing so. And the biggest way of resolving it is actually to move lots of [indiscernible] and barrel, all of those federal contracts both non-classified and classified to a new government approved system called system [GCSI], I think it's called. So it's a new ERP system. We are -- everything will go away from our Oracle (NYSE:ORCL ) ERP system and the problem will literally be resolved at that point. At the same time, we've chosen -- we were already on the trail of doing this to reorganize ourselves. So very much with DCSA’s approval and support, we are creating a government subsidiary business within GP. So, it will be nested underneath GP 100% owned subsidiary, but it will be entirely separate. It has its own Chief Executive on its own systems. It will be divorced from GP Corporation in terms of systems and staff. It has modest implications in terms of duplicated costs, probably around $1 million a year. And -- but the price that we received for that is that we have a focused government business that will do all of the work, both classified and non-classified. We have separated commercial business known colloquially with amongst us GP commercial now, which will be about $350 million of revenue that will not to be subject to FOCI regulations once the government subsidiary is fully set up and has its new license within that business and all the contracts have been novated. Now the one thing I can't say to you is timing on this. We are absolutely reliant on DCSA and other U.S. government departments going through the approvals process. We would not be so presumptuous as to believe that we will necessarily get that approval, but we believe that we have the right credentials to do so, notwithstanding the temporary suspension of our current license. I'm giving you a lot of detail here because I think it's helpful. And so we hope that sometime during H1 of next year, license will be approved. We're already forming the government subsidiary. Some contracts will already be in there because they are federal government contracts and they can be worked in there, but we will not get the full benefits of this restructuring until that license is approved in the government subsidiary and the classified contracts moved from the corporation to the subsidiary. At that point, everything changes. As it stands at the moment, we continue to operate as usual. There is a small existing classified contract that has been paused, which has had approximately $200,000 revenue impact this year, so not meaningful, but it's still frustrating. But we are not expecting, based on renewal timing and our expected path to this new government subsidiary, we are not expecting any other slide contracts to incur that challenge. That's the most fulsome update I can give you. Perhaps the other thing just to say is when we last talked to you about this, I was very much one step removed from DCSA, I had never interactive with them directly. I was always just told what their interactions with GP were and it was handed on to be second-hand. I have had the benefit of two interactions directly with DCSA. I hope they have felt our respect for the regulation and what needs to happen and the progress that we're making. We certainly have that feedback. And we have done as much as we can to recognize accommodate respect their instructions and we are making good progress, but there are no guarantees. Okay, let's just think about the outlook from where we are. It's disappointing to me that we've needed to adjust our guidance that's not something that downwards. That's not something anyone ever wants to do. But I would just emphasize, not trying to sort of be a [tough] on shorter on this, but where we've benefited at times from the strength of the dollar, we are suffering from the weakness of the dollar currently relative weakness at [132]. So 70% of our revenue approximately is derived in dollars and similarly in profit. So we are -- we've had to adjust our guidance from a major FX headwind perspective. However, there is also due to some adjustments in GP's expectations for the rest of the year. There is a small amount of adjustment that has gone in from a GP perspective that causes us to leave that we will trend towards the bottom end of the EBIT range, not necessarily bottom end of the revenue range. We remain very focused on our portfolio, active portfolio management. We've demonstrated that we could do that with TTi Lorien and Vector. There will be more to come over time. And I'm, of course, when you consider that at the end of 2021, our net debt was over GBP180 million and for it to be effectively actually results today. I feel very, very comfortable about that, and that speaks to margin improvement, cash generation and so on. So even in this higher interest rate environment, we have really delivered on deleveraging effectively; I think rather glibly of GP, it cost a 6% dilution to the issued share count when we bought it. And we took on a lot of debt. Now that, that debt is effectively neutralized, I think of us now having a very large asset in GP, not without its challenges, but we we're navigating through them and don't forget the more than doubling of margin and profitability that I'm proud of, and I think that's a great deliverable that we can attest to. And if you look at that and think that just over 2.5 years on, we are -- we have already delivered on that business transformation and we effectively now own it for free or we've paid for it already. Then I think that's a different context in which to view this, but I certainly think it's a very positive one. And we are positioned to take this group, which has the right geographic positioning, the right expertise, the right capabilities and certainly the right people who I'm very grateful to. We are positioned as things improve to take this market and deliver the growth or we can. So without further ado, let's turn to questions, please.

A - Claire Coley: [Operator Instructions] So Jonathan, first up, we have three questions from Kai Korschelt at Canaccord. I'm going to start off with question number one. So the first question is, how do you plan to stem the decline in software? Are there any remedy that people flow or shall we assume this is going to continue?

Jonathan Satchell: I think I might have touched on it already. So I think I'd probably refer you back. Yes, we've seen a greater decline in people through into H1. We don't think necessarily that will continue at the same pace in H2. And as I say, we are implementing a major project -- product revamp initiative that's caused by the new technologies that are available to us now. We believe that will do more for retention than necessary both for new sales, although we will be attacking both and that's our strategy. And it's worth doing. People going to distil a large revenue base. Many of you will know that I've said I think it might trend down and settle around about GBP30 million level, which is GBP10 million below where it is now. I -- at the end of the year, where it is now. And I still stand by that with all the data that we have available to us about the types of clients that plans that will make up that $30-ish million of revenue, I think with the improvements we're making to the product, that's very likely.

Claire Coley: Okay. So question number two, I think you've answered a fair amount of this one, Jonathan, but if you've got anything to add, it's on the U.S. regulatory. Is this business currently generating any revenues? Or is it just not winning new contracts, trying to understand if a resolution here could be positive for growth next year or not?

Jonathan Satchell: Yes. So we are deauthorized from winning new classified work. We are not bidding for it, obviously, that would be inappropriate. I would say to you that there's a certain coincidence and irony here that we've seen a slowdown in the amount of new government work that's being bid for. So I'm not note about it, but perhaps the timing is helpful in that regard. And I would certainly want as we see perhaps U.S. government spend settles after the election, perhaps also with general macro backdrop improving and the conditions improve, I would very much want to be in a situation where we are validated again in our new government subsidiary and able to attack that those opportunities with [gusto]. And just to remind you, other than the moderate pause in a contract that I mentioned are existing classified customers continue to work with us and are allowed to.

Claire Coley: So the final question from Kai is on capital allocation. Have you considered a share buyback over potential M&A given the low valuation of the shares?

Jonathan Satchell: I think it's taken fourth minutes, Kai for the questions come up. Of course, we expected this question, and I'm not being glib about it, but it just seems to we get asked this a lot, as I'm sure you might imagine. So look, we're making steps towards this until the AGM in May of this year, we did not have the mandate to be able to do it. We do now have that modest mandate to do a share buyback. I'm delighted -- our priority for capital allocation was swift, swift deleveraging. Look, we're there. We've told you this at the end of August, we had GBP1 million of net debt. I'm certainly really pleased about that. I think given how we've thought about our capital allocation right the way up until now, bear in mind, share buyback has never been something that's been on the company's agenda in prior years, which, of course, is being considered by the Board very actively and naturally now. But I would give guidance that our general view about it is that whilst we've always been prepared to take on leverage, I think rather successfully and efficiently to make acquisitions which have been earnings accretive and become more accretive over time. I think we would feel less comfortable, not necessarily saying we wouldn't do it, but we feel less comfortable about using lever -- about actually incurring leverage again or using debt to purchase our own shares. That's not a no. But I think if we're in a situation whereby as we expect to be, we'll certainly be net cash potentially through further disposal or indeed through trading cash generation, then I think share buyback becomes very much more towards the top of the agenda.

Claire Coley: That's all the analyst questions answered for today. So we're now going to end.

Jonathan Satchell: Thank you, Kai.

Claire Coley: Thank you, everybody, for joining us. Thank you.

Jonathan Satchell: Thank you.

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Source: Investing.com