Software Circle Reports 88% Surge in Adjusted EBITDA and Strong Revenue Growth in FY25 Trading Update

Software Circle’s pre-close trading update for FY25 (year ended 31 March 2025) landed today, and it’s fair to say the numbers paint a picture of a business hitting its stride. The headline grabber – an 88% surge in Adjusted EBITDA – is certainly eye-catching, but as always, the devil (and the delight) is in the details. Let’s unpack what this VMS (Vertical Market Software) consolidator is telling us.

The Top Line: Growth, But With Nuance

Group revenue clocked in at approximately £18.3 million. That’s a solid 13% increase on FY24’s £16.2 million. This growth was fuelled by the acquisitions made during the year (Bethebrand, LinkMaker, and Total Drive).

However, the organic story requires a closer look:

• Core Acquired Units (Ex-Nettl): Healthy 5% organic revenue growth. This suggests the existing portfolio is generally performing well.
• Including Nettl Systems: Overall organic revenue declined by 7%. The RNS pinpoints this squarely on a reduction in non-recurring revenue within Nettl. This isn’t necessarily alarming – non-recurring revenue is, by definition, lumpy – but it does highlight the impact a single business unit can have on the overall organic figure.

Profitability: Where the Magic Happened

This is where Software Circle truly shone in FY25. Forget the top-line noise; the bottom-line transformation is impressive.

Operating EBITDA: Efficiency Gains

Despite the overall organic revenue dip, the Group expects to deliver a whopping 22% organic growth in Operating EBITDA. This metric reflects the profitability of their collective operating units before central costs. The key takeaway? Significant operational efficiency gains. They’ve squeezed more profit from their existing (and new) assets.

Operating EBITDA margin jumped to 26% (FY24: 17%). Adding the £1.1m contribution from acquisitions brings total Operating EBITDA to an anticipated £4.8 million – a robust 71% increase year-on-year.

Adjusted EBITDA: The Key Metric Soars

This is the figure management focuses on and where that 88% surge lives. Adjusted EBITDA (Operating EBITDA less central administration costs) is expected to hit £3.2 million (FY24: £1.7m).

Crucially, the Adjusted EBITDA margin improved to 17% (FY24: 10%), comfortably exceeding their stated aim of surpassing 15%. This margin expansion is a clear signal of successful integration, cost control, and the inherent scalability of their model as they add more businesses.

The Engine Room: Acquisitions & The Flywheel

FY25 saw Software Circle actively deploying capital, adding three new businesses (Bethebrand, LinkMaker, Total Drive). This brings the group total to nine VMS companies, employing 160 people across five revenue segments.

The acquisitions are feeding directly into their growth trajectory:

• Run-Rate Scale: Annualised revenue run-rate now exceeds £20 million.
• Run-Rate Profitability: Adjusted EBITDA margin run-rate is expected to be around 20%, indicating further margin improvement potential post-FY25.

The “acquisition flywheel” – buying businesses, improving their operations, generating cash, and reinvesting that cash into more acquisitions – appears to be spinning effectively.

Cash Flow & The North Star: OCFPS

Management consistently emphasises that maximising Operating Cash Flow Per Share (OCFPS) is their “number one financial priority”. It’s the measure of how effectively they convert earnings into deployable cash, per share.

FY25 OCFPS is expected to be 0.5p (FY24: 0.6p). The RNS rightly calls the slight dip “inevitable” following the equity capital raise in September 2023, which increased the share count. This context is important – it’s dilution from funding growth, not an operational cash flow decline.

The firepower for continued growth is evident:

• Cash Balance: ~£8.2 million.
• Debt Facility: £10 million available.
• M&A Pipeline: Described as “healthy”.

The strategy is clear: reinvest this capital into “further cash generative acquisitions, while improving operating performance,” to drive compound growth in OCFPS over the long term. They firmly believe OCFPS is the clearest indicator of shareholder value creation.

Looking Ahead: Compounding in Action

This trading update is undeniably positive. Software Circle has demonstrated:

• Strong Acquisition-Led Growth: Successfully integrating new businesses and scaling the group.
• Impressive Margin Expansion: Significant operational improvements driving profitability (Operating EBITDA up 71%, Adjusted EBITDA up 88%).
• Financial Discipline & Firepower: Hitting margin targets, maintaining a strong cash position, and having ample dry powder for future deals.
• Focus on the Long-Term Metric: A clear commitment to compounding OCFPS through their acquisition flywheel and operational excellence.

The slight organic revenue dip (driven by Nettl’s non-recurring items) is a footnote against the powerful profit growth story. The market will eagerly await the detailed full-year results in July for more colour, particularly on the performance of the newer acquisitions and the pipeline’s conversion rate.

For now, Software Circle seems to be executing its playbook effectively. The flywheel is turning, profits are surging, and the cash is there to fuel the next stage of growth. One to watch closely.