Bravura Solutions Limited (BVS) Earnings Call Transcript & Summary

Good morning, and welcome to the Bravura Solutions Limited Full Year Results Call. Please note that this call is being recorded. [Operator Instructions] I would now like to turn today's call over to Andrew Russell, CEO of Bravura Solutions. Please go ahead.

Good morning. Thank you for joining us for the presentation of the Bravura Solutions Limited full year results 2023. My name is Andrew Russell and I'm the CEO of Bravura Solutions. I'm joined today by Chief Financial Officer, Neil Montford; and Chief Strategy Officer, Justin Morgan. Today, I will present to the following agenda; FY '23 results summary, financial results detail, key presentation takeaways and then follow-up with some Q&A. I will begin with our presentation headlines. Today's presentation will outline our FY '23 performance and our progress in stabilizing and resetting Bravura. The key messages to our shareholders from today's presentation are simply these. Bravura Solutions remains a strong business with market-leading technology, world-class customers and talented staff. With the new Board and management in place, we are now in the process of rebuilding shareholder value using the solid products and customer base. FY '23 was a year of underperformance and great disappointment for our shareholders and we acknowledge it will take time to rebuild trust. Similarly, it has created uncertainty and concern for our people and our customers. And over the next few months, we will communicate openly with all stakeholders to update you as we stabilize the company, restore it to profitability and rebuild value. Following the $80 million capital raise in March, the business is well capitalized. Furthermore, our cash burn has reduced in Q4 following tighter expense focus by management. Our results are above or in guidance communicated to the market at that time of the capital raise. We are now making progress on resetting the business, rightsizing our cost base and positioning Bravura to have a positive cash EBITDA run rate by the end of FY '24. We have simplified our short-term executive incentives to align with this goal and our long-term incentives are in line with increasing shareholder value. We will present a 3-year strategic plan in late October, which will outline our strategic pathway for improved earnings performance, profitability and product and customer focus. We will also provide FY '24 guidance at that time. Turning to our financial results. The business has delivered or exceeded market guidance given at the time of the capital raise this March. The headlines are gross revenue, $249.6 million, ahead of guidance, contracted recurring revenue of $140.5 million, EBITDA, loss of $8.1 million, within guidance, adjusted net profit after tax, loss of $23.1 million, in line with guidance. Bravura reduced the cash burn in the second half of '23 to deliver a strong net closing debt free cash position of $75.7 million at 30 June, 2023. In summary, following the $80 million capital raised in March, the business is well capitalized. Furthermore, our cash burn is reduced since then and our results have met or exceeded guidance as indicated to the market at that time of the capital raise. Turning to our organizational change program progress. We are now making progress on resetting the business, rightsizing our cost base and positioning Bravura to have a profitable run rate by the end of FY '24. Bravura's cost base is too high. Employment costs are our biggest expense and we are working through an organization change program with total expected annual savings at $40 million. The cost to achieve these savings are $27.8 million, all of which will be completed by 30 June, 2024 with full year realization of $40 million in FY '25. The cost-out program has delivered $2 million of savings in Q4 of FY '23. This equates to $25 million gross annualized expense reduction, which is over 60% of the total expected savings. We have taken an impairment charge of $233.4 million in FY '23 to account for the underperformance of the operating business units and importantly, to ensure that the balance sheet reflects the fair value of the assets as the business transforms and grows in FY '24 and beyond. Turning to the FY '23 summary and progress. Our transformation program has already generated $25 million in gross annualized expense reductions to right-size the business. Management has identified a further $15 million in annual gross savings in FY '24 to be executed. The Bravura Solutions mission has always been that software is at the heart of what we do. We must restore our focus on this and deliver to the vision going forward. We need to actively reengage and listen to our customers' strategic requirements and operational pain points as well as restore our world-class quality first engineering and product competency. The Bravura product suite remains market-leading and mission-critical to the operational success of our customers. We will ensure that we capitalize on this strategic advantage and proactively industrialize our core product offerings, while at the same time, growing our lifetime customer value. Prime examples of what can be achieved when we get it right are illustrated by our recent success of migrating Aware's 1.1 million members on to our Sonata Alta platform and our recent in parallel success in migrating over 500,000 members on to our existing Sonata platforms. It has been a difficult year for our team. We thank all of them for their resilience, determination and their ongoing commitment to deliver excellence and customer-focused outcomes in a change here of the environment. Bravura was named Large Employer of the Year at the Financial Times Adviser's Diversity in Finance awards early this year, an important recognition, proving that a culture of inclusiveness and equality remains the center of Bravura and its people. We are committed to maintaining a strong culture and desire to be a world-class technology business. The team's priorities will be to ensure a simplification of our international operations and focus on quality product and technology delivery in FY '24. Now, turning to some detail of our financial results. Firstly, revenue. Contracted revenue -- recurring revenue has grown over the last 3 years. Contracted recurring revenue comprises revenues contracted to the contract term and typically includes maintenance, managed services, hosting, cloud and SaaS. In FY '24, we are anticipating a drop in license fee revenue with other revenue flat. Further guidance will be provided in our 3-year plan in October. Turning to EBITDA. Bravura's cost base is too high. Employment costs are our biggest expense, as we've said, and we have outlined we are working through an organization change program. The EBITDA impacts have been driven by increased headcount as a result of meeting customer obligations and anticipated wins in pipeline that did not materialize, increase in overhead costs and costs associated with cloud migration. Our employee expenses have peaked and run rate operating expenses are now trending to driving Bravura back to profitability. You see from the charts, our expenses peaked in Q2, and the decrease is highlighted on the Q4 monthly breakdown that reflects the $2 million in annualized savings in FY '23, which have a $25 million annualized run rate heading into FY '24. The preliminary July employment expenses are continuing the trend. As we have mentioned throughout the presentation, the organizational change program is underway to reduce our cost base and return the business to profitability. In aggregate, we have identified a gross $40 million in annualized cost-out opportunities. Now to be clear, $25 million has already been realized through organizational realignment in FY '23. A further gross $15 million of annualized cost-out opportunities have been identified and we are now executing to our plan in FY '24, which includes capacity reduction, offshoring and reducing our office footprint. We have included a provision of $11.9 million in FY '23 for cost to be incurred in FY '24. Total program costs for FY '24 are $20 million to generate annual recurring run rate savings of $15 million. Our operational change program is focused on returning the business to profitability. Our cash burn is reducing over the past quarter. Our FY '24 change program can be funded now that we are well-capitalized with over $75 million in cash and debt free. Our plan is to ensure the business will return to positive run rate cash EBITDA by the end of FY '24, with a forecast cash burn of $30 million to $35 million in FY '24. Further detail on our FY '23 financial performance, including operational results, cash flow, balance sheet can be reviewed in the appendix of the results presentation deck. I would like to conclude with the FY '23 results takeaways. Bravura remains a strong business with market-leading technology, world-class customers and talented staff. With the new Board and management in place, we are now in the process of rebuilding shareholder value. Our plan is to achieve a positive cash EBITDA run rate by the end of FY '24 as a base for profitability in FY '25. We forecast that it will cost the business circa $30 million to $35 million to achieve our restructuring plan, but we are now well-capitalized to go over $75 million in the bank. And finally, we will present a 3-year strategic plan in late October, outlining the strategic and product road map for Bravura. We will also provide FY '24 guidance at that time. So in closing, what to expect from here. Firstly, we are resetting the business and fast tracking the organizational change programs to get Bravura back to profitability and customer product focused. Our 3-year strategic plan is being developed. We intend to provide detail and insight on our customer product-focused operating structure, product roadmaps by market and FY '24 guidance, following the first quarter of FY '24 trading. Thank you for your ongoing support and interest in Bravura Solutions. We have much to do, and I look forward to updating you on our progress in October. I will now open to Q&A.

[Operator Instructions] Your first question comes from Bob Chen with JPMorgan.

Just a couple of questions from me. I think just on the cost savings plan, I think you've identified another $15 million to come through next year. How should we think about how that staged through '24?

Bob, it's Neil. It is staged pretty much through the whole of '24. There are certainly some aspects to that where the timing is uncertain. So, property related and some of the people changes as well. So -- but it's all -- it's through the full year.

And then just the comment earlier about how some of the contracts that was previously expected to end up materializing. Like what drove that? Did you lose that for a competitor? Or are they being delayed? Like can you give us a little bit more color on what happened there?

Bob, Justin here. The client contracts have moved further to the right, one and generally, the decisions made by the client relationships to their own operating models.

Okay. So, they haven't necessarily been lost. It's just been pushed along?

One on has moved to the right, one will not be coming back.

Our next question comes from Olivier Coulon with E&P Financial Group.

Just on the cash expenses, so $24 million of cash expenses in '24 in terms of the one-offs. Is there any further cash expense to land in FY '25 from the $20 million that's actually going through the P&L in FY '24?

Oliver, it's Neil again. It's a great question. So, the cash in FY '24 is $24.2 million. Of that $24.2 million -- while, I've got the numbers, $4 million relates to cost expenses that were incurred in FY '23, but the cash payment is going out in FY '24.

But do you think that by the time you get to the end of FY '24, your cash and your P&L expenses on the program basically match out, do they?

At the end of that, including FY '23, they will match out. The total is $27.8 million across the 2 years.

And just on -- can you comment on, I guess, the stability of the employee base, obviously, over FY '22 -- late '22 and FY '23, there was a lot of unwanted attrition, particularly, I guess, in the Indian office. How are you seeing that? Is it a lot more stable?

So, I'd say that the Indian office is certainly stable. I think there's still a degree of attrition across the worldwide. The Indian office definitely improved. There's a degree of attrition across the rest of the organization. It's not excessive, but it's -- I guess it's expected off the back of significant cost-out program.

But just further on to that, Oli, is that the business is internally looking forward to seeing the 3-year strategic plan. They've seen the change is a positive thing over the past couple of months. And once again, we look forward to presenting that not only to the market but also internally to the team.

And then sorry, I may have misheard a bit. Did you say FY '24, you expect relatively stable revenue apart from a small decline in license fees? Is that right?

That's the statement we made, yes.

And obviously, we know that there's some roll-off of revenue from those clients in the U.K. Is there any revenue growth assumed from new clients or offsetting revenue is effectively just existing clients where you've got pretty good line of sight on their projects and what they're doing?

I'll take that, Olivier. Thanks. I guess we -- our assumptions for the revenue growth next year are nothing to be added. So, we take a conservative approach based on where the market protection is and the rebuilding that we're going through that we've already started. So, we have made no assumptions of any new client wins in that expectation. And clearly, we are hopeful and we'll be working towards that, but we haven't made any exceptions at this point.

And then just a final one for me. So leases, are you terminating any leases? Or you're just letting leases kind of run out?

So we have -- in Sydney, we have reduced lease space and that's coming through shortly. So, I guess it's both. We are considering and progressing on a number of other locations. And we will be -- we expect to be terminating leases earlier or signing leases or whatever makes the most commercial sense. So, we're looking at all of our property currently.

Andrew here again, just like other businesses in the marketplace where formulating our hybrid strategies as the world has changed in the use of office and the increasing use of technology to run an international business.

So do you think is there any scope for potentially more savings there than you've assumed? Or you're pretty well pegged it and what you need in the go-forward model on that?

Not at this stage, Oli. Once again, we're going to -- we'll provide more guidance at our Strategy Day at the end of October.

Our next question comes from Scott Hudson with MST.

A couple of quick questions. Could I just clarify your comments around returning to, I guess, profitability exit rate at the end of FY '24. Is that at the EBITDA line?

Cash EBITDA in line.

And then in relation to the, I guess, savings target, I think you sort of highlighted a $40 million of annualized savings, but you made another comment about a $15 million savings line. Could you sort of clarify what you meant in relation to that $15 million?

So, the $25 million is delivered at the -- right at the end of June. And then the expectation for further savings this year is $15 million annualized. So, the total of those 2 at the end of FY '24 is that we'll leave with annualized growth gross cost savings of $40 million.

So, can I just understand sort of stable revenue base exiting FY '23 with a $25 million of annualized cost savings and yet your I guess EBITDA for FY '24 is still expected to be negative. Is -- what I'm missing?

There's significant costs to be incurred to achieve those cost savings, which would include, include, in some cases, your running costs around property leases potentially.

Understood. And then I guess...

So, those -- Scott, those will drop off, obviously, going into FY '25.

I guess, obviously been a lot of change, both at sort of executive level and I guess, across the broader organization, what feedback, if any, are you getting from your core client base?

Well, part of my role since I've been in inter capacity as well as now the permanent CEO is spending time with our clients in both regions. We've been explaining the change. And basically, the key message is it's business as usual. Clearly, we understand the uncertainty that's happened over the period of the last 12 months. But now it's basically, ensuring that we re-build trust with them. And that's by doing what we're saying we're going to do. And one of those is being more customer focused and working with them and their strategic plans on the software and the product development and that's what we're intending to do across both regions.

Last one. I mean have you seen any negative impact on your pipeline of opportunities given that, I guess, the turmoil at least the business has sort of gone through over the last year?

I haven't seen anything from the pipeline perspective, but understandably, we've got to show that we are back to being customer focused. We've got a refreshed Board, new Chair, new CEO. The first point of call is getting -- showing that we've got well capitalized now. We're executing to our plan, and the next stage will be coming back to the market with the 3-year plan. And in concert with that, I will continue to be engaging our customers and communicating with them as we develop [ guidance ], restore value for shareholders and for staff and customers alike.

Our next question is a follow-up from the line of Bob Chen from JPMorgan.

Just a quick one on how you guys are thinking about CapEx. I think previously, there was an expectation also of a defined program. Like how is that sort of tracking? And do we expect that to come off further into the next couple of years?

The R&D CapEx?

Yes, that's right.

So, I would say the CapEx is down slightly on where it has been, but we are looking carefully at what the CapEx should be going forward, and that will come out in the 3-year strategy. So, we need to be very clear on the key priorities and to focus on those, which I don't feel necessarily as an organization we've done that well enough. So -- and we'll be taking customer thoughts as well into account and doing the full market discussion to ensure that we have -- we spend the CapEx appropriately and it develops better products and solutions for our clients.

And just building on that, Bob, in our 3-year strategy presentation, Investor Day session late -- in late October will be work around our product road map and how that aligns with our clients, et cetera, so the 2 will sort of play into that session.

Our next question is a follow-up from the line of Olivier Coulon with E&P Financial.

On PPE CapEx, well down this year. I just wanted to also clarify the -- you said the cash EBITDA in the appendix, I'm pretty sure you said that's inclusive of leases, inclusive of capitalized development spend and is it inclusive of capitalized PPE spend as well?

So, there's a glossary on Page 25. So, that the answer is yes.

And just what did cause the reduction in PPE spend? I think normally, you're kind of closer to $5 million. Is that just you kind of stop spending out lease -- offices and the like?

So, there's some of our hosting cost would be in there as well in terms of the spend.

Yes, because I guess you're going to an outsourced solution on most of that aren't you?

Yes.

Seeing no further questions at this time, I would like to turn the call back over to Andrew Russell, CEO of Bravura Solutions for closing remarks.

Thank you. Thank you, everybody, for your interest in Bravura and the questions this morning. I look forward to updating you on our progress in October. All the best.

This concludes today's conference call. Thank you for joining us. You may now disconnect.