Microlise H1 FY26 trading update: Direct Customer ARR rises 12% as margins recover

Microlise Group's H1 FY26 update is a mixed but broadly reassuring read. Revenue and adjusted EBITDA declined year-on-year, but the higher-quality Direct Customer business continued to grow at a double-digit rate, margins recovered sharply from H2 2025 and cash generation remained healthy.

Most importantly, the Board still expects FY26 adjusted EBITDA to meet current market expectations.

For investors following Microlise Group PLC, the key question is whether growth in contracted recurring revenue can increasingly outweigh continued weakness in original equipment manufacturer, or OEM, revenue.

Microlise's key H1 FY26 figures

Metric	H1 2026	H1 2025	Change
Annual Recurring Revenue	£60.8 million	£58.7 million	4%
Direct Customer ARR	£47.1 million	£42.0 million	12%
Direct Customer NRR	106%	114%	Down 8 percentage points
Churn	1.1%	0.5%	Up 0.6 percentage points
Group revenue	£39.5 million	£44.1 million	Down 10%
Recurring revenue	£29.9 million	£29.5 million	Up 1%
Adjusted EBITDA	£5.2 million	£6.2 million	Down 16%
Net cash	£13.8 million	£11.2 million	Up 23%

ARR, or Annual Recurring Revenue, is the annualised value of recurring revenue at the end of the period. Microlise calculates it by multiplying June's monthly recurring revenue by 12.

The headline numbers show why this update needs a closer look. Group revenue fell by 10% and adjusted EBITDA was 16% lower than a year earlier. However, Direct Customer ARR rose by 12%, while the balance sheet finished the period with more cash.

Why revenue declined

Microlise expects H1 revenue of £39.5 million, compared with £44.1 million in the prior-year period.

Management attributed the decline to three main factors:

• Lower OEM revenue, which had previously been flagged.
• Reduced non-recurring revenue following the completion of a major customer rollout in the prior year.
• Component availability and project timing delaying some hardware deployments.

These pressures mainly affected OEM and non-recurring revenue rather than the Direct Customer operation.

OEM ARR fell from £16.7 million to £13.7 million, primarily because of lower renewals. This remains a clear weak spot and shows that the overall ARR growth rate does not tell the whole story.

On the other hand, recurring revenue still increased by 1% to £29.9 million and represented 76% of total Group revenue. A larger recurring revenue base should generally offer better visibility than one-off hardware and deployment income, although it does not remove execution or customer retention risk.

Direct Customer growth remains the main attraction

Direct Customer ARR increased by 12% to £47.1 million, supported by renewals, expansion activity and new customer wins.

Microlise also signed a significant 10-year renewal and expansion agreement with a long-standing customer. The contract has a total value of more than £20 million and is expected to begin contributing incremental revenue towards the end of FY26, while improving visibility into FY27.

That is encouraging, but retention metrics softened. Direct Customer net revenue retention, or NRR, declined from 114% to 106%. NRR measures the change in recurring revenue from existing customers after expansions, reductions and churn, but excludes new customer wins.

A figure above 100% means expansion from retained customers more than offset lost or reduced business. Therefore, 106% remains positive, but the decline from 114% indicates that the pace of expansion has moderated. Churn also increased from 0.5% to 1.1%, including the previously flagged effect of managed churn.

Margin recovery is the key profit signal

Adjusted EBITDA was £5.2 million, down from £6.2 million in H1 2025. Adjusted EBITDA means earnings before interest, tax, depreciation, amortisation, share-based payments and exceptional costs.

The more encouraging comparison is with H2 2025. Microlise's adjusted EBITDA margin recovered to 13.2%, versus 5.2% in the preceding half, while adjusted EBITDA increased by 148% sequentially.

Management said the recovery reflected benefits from the FY25 restructuring and further cost-efficiency work, alongside continued investment in go-to-market activity.

This matters because Microlise improved profitability compared with the previous half despite lower OEM and non-recurring revenue. It provides some evidence that the restructuring is working, although investors will want to see the recovered margin sustained as sales investment continues through H2 2026 and into FY27.

Cash provides useful flexibility

Net cash stood at £13.8 million on 30 June 2026, up from £11.2 million one year earlier. Microlise attributed this to healthy cash collection.

The Group also has a £30 million undrawn debt facility, comprising a £10 million committed revolving cash flow facility and a £20 million accordion facility. An accordion allows borrowing capacity to be increased under agreed conditions.

The combination of net cash and undrawn facilities gives Microlise financial flexibility while it invests in sales, product development and customer projects.

Product investment and AI capabilities

Microlise said its Microlise One strategy and rollout of new artificial intelligence platform capabilities are progressing to plan.

H1 developments included a unified API Management Platform and Integration Mapping Tool, intended to simplify customer onboarding and integration. The Group also continued investing in AI-enabled products and customer experience improvements.

These initiatives could support scalability and future cross-selling, but the announcement did not disclose their financial contribution. Investors will need to watch whether product investment translates into stronger ARR growth, improved retention and better margins.

Component availability remains the main near-term risk

Global component shortages continued to affect pricing and the availability of important hardware components during H1.

Microlise has visibility over DRAM supply through the end of Q3, but uncertainty remains around components required for Q4 OEM hardware deliveries. This could delay some new OEM customer launches and shift the timing of associated revenue.

That timing risk is particularly relevant because the Group's disclosed FY26 market consensus includes revenue of £84.2 million to £84.3 million. However, the Board's explicit outlook statement focuses on adjusted EBITDA, which it still expects to be within the £10 million to £11.1 million consensus range.

Consensus net cash is £10.5 million to £11.1 million. These figures are market expectations cited by Microlise rather than new formal guidance.

What investors should watch next

The update contains several meaningful positives: Direct Customer ARR grew by 12%, recurring revenue now represents 76% of Group revenue, margins recovered significantly from H2 2025 and net cash increased.

The negatives are equally clear. Total revenue and adjusted EBITDA remain below the prior-year period, OEM ARR declined, NRR weakened and churn increased. Component availability could also delay Q4 OEM projects.

Microlise expects to publish its interim results in late September 2026. The main points to watch will be margin sustainability, the timing of delayed hardware revenue, customer retention and whether sales investment produces stronger growth heading into FY27.

The Board remains confident that FY26 adjusted EBITDA will meet market expectations and that growth can accelerate in FY27. The Direct Customer business supports that confidence, but delivery will depend on continued expansion activity, improved margins and the eventual completion of component-delayed projects.

Readers can review the figures and management commentary in the original company announcement.