Discl: Held IRL 10.15% and in SM

Here is my take on CAT's 1HFY26 results.

SUMMARY

Expectations and valuations aside, just evaluating the results on the numbers, I thought this was a very solid and robust performance. Have attached updated charts that underpin the summary below.

Positives

• Improvement in Rule of 40 to 33% from 31% HoH, and YoY
• It was a strong, above trend, revenue half of US$67.7m, with all segments contributing
• ACV was US$115.8m, up 19% YoY CC - a noticeable higher than trend increase and almost purely organic
• Average Pro Team ACV moved to $28,299 from $26,804 2HFY25
• Lifetime Duration - on trend increase at 8.1 years, up from 7.8 years 2HFY25
• Nice above trend addition of Pro Teams to 3,878
• Sharp move in the Net Additions to Pro Teams this half - this is really positive
• Continued strong traction in upselling - nice jump in Multi-Vertical Customers HoH
• Costs remain well under control and continued trending downwards towards management medium term targets - no concerns
• YoY profitability improvement was good - (1) Management EBITDA grew 56.6% (2) EBITDA grew 8.4% as acquisition costs kicked in
• US$8.2m Free Cash Flow was generated, US$3.5m debt was repaid - Balance Sheet is now debt free, excludes impact of Impect acquisition capital raise and SPP

All the operational metrics are trending nicely and this is before the impact of Impect (pun totally intended) kicks in. There is everything to like from this from my perspective.

Negatives

• ACV churn headlines was concerning at 4.9%, still below CAT’s 5% target, but once the Russian exit is stripped out, churn is a 3.9% - not a concern at all
• Fixed Costs jumped 18% to US$25.1m, but this was due to unplanned additional Payroll Tax from the vesting of share-based payments occurring in 1HFY26, driven by the sharp increase in the CAT share price
• Depreciation & Amortisation was up a fair bit - US$16.2m vs US$12.9m 1HFY25 and US$14.0m in 2HFY25 - this was US$2m of accelerated expenses of S7 devices and Thunder as they approach EOIL and ~$1m of intangible amortisation related to Perch - this caused the Loss After Tax to slip to (US$8.6m)
• HoH profitability improvement was not as impressive (1) Management EBITDA grew 15.0% (2) EBITDA fell (7.3%). Overall, these felt like accounting-driven around the D&A, so am not concerned

I am unconcerned with the “negatives” - they look mostly accounting driven.

I was puzzled by the price movement today, noting that the tone from the US markets overnight meant today was going to be a nasty day regardless. Unless I have completely missed something, I did not see anything in the fundamental results that would cause a worry to warrant the 11% price drop.

Tempting as it was, I did not top up today given the expected volatility this week in Tech, but will have a closer look if it gets closer to ~4.00.

DETAILED CHARTS

Rule of 40

33%, comprising 19% ACV Growth, 14% EBITDA Growth

Revenue

• US$67.6m, A$102m, surpassing A$100m revenue for the first time, up 16% YoY CC
• A noticeably strong half

• All segments contributed
• P&H stands out, growing 21% YoY
• T&C grew 16%

Annualised Contract Value, Lifetime Duration, ACV Churn

• ACV was US$115.8m, up 19% YoY CC - a noticeable higher than trend increase and almost purely organic - excluding Perch and Russian Exit, ACV grew 18% YoY CC
• Average Pro Team ACV moved to $28,299
• Lifetime Duration - on trend increase at 8.1 years

• ACV churn headlines was concerning at 4.9%, still below CAT’s 5% target
• But the Russian exit has distorted the churn - when stripped out, ACV churn is below 4% and mostly flat - not a concern

Customer Growth

• Nice above trend addition of Pro Teams to 3,878
• Sharp move in the Net Additions to Pro Teams this half - this is really positive

• Continued strong traction in upselling - nice jump in Multi-Vertical Customers HoH
• Net additions were 95, down from 180 in 1HFY25, but higher than the 78 from 2HFY25
• Growth trajectory is also really positive

Costs

Costs remain well under control - no concerns

COGS growth trajectory is significantly flatter than revenue growth

Variable Costs are mostly flat against rising revenue - Variable costs as a % of Revenue fell 3% YoY to 49% vs management’s longer term target of 45% 

Fixed Costs jumped 18% to US$25.1m, but this was due to unplanned additional Payroll Tax from the vesting of share-based payments occurring in 1HFY26, driven by the sharp increase in the CAT share price

Excluding the Payroll Tax impact, fixed costs would have been 35% of revenue, trending downwards towards the 25% target

Profitability

• The Profitability position is quite muddied by the adjustments made
• Depreciation & Amortisation was up a fair bit - US$16.2m vs US$12.9m 1HFY25 and US$14.0m in 2HFY25 - this was US$2m of accelerated expenses of S7 devices and Thunder as they approach EOIL and ~$1m of intangible amortisation related to Perch - this caused the Loss After Tax to slip to (US$8.6m)
• YoY improvement was good - (1) Management EBITDA grew 56.6% (2) EBITDA grew 8.4% as acquisition costs kicked in
• HoH improvement was not as impressive (1) Management EBITDA grew 15.0% (2) EBITDA fell (7.3%)
• Overall, these felt like accounting-driven around the D&A, so am not concerned

Cash

• US$8.2m Free Cash Flow was generated, excluding the Perch transaction settlement of $3m cash, plus advisory fees
• US$3.5m debt was repaid - Balance Sheet is now debt free
• This is BEFORE the Impect acquisition, capital raise and SPP, so I expect the cash position to be much better than this - the SPP alone raised $13.3m and some portion of the main placement was for working capital

TNE is also down big. I don't follow that stock but it also had 19% growth. I think there's a market sentiment/rotation thing going on.