Bravura Solutions Limited (BVS) Earnings Call Transcript & Summary

Good day, and welcome to the Bravura Solutions First Half '24 Financial Results Conference Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Andrew Russell, Group CEO and Managing Director, to begin the conference. Andrew, over to you.

Good morning. Thank you for joining us for the presentation of the Bravura Solutions Limited FY '24 First Half results. My name is Andrew Russell, and I am the Group CEO. I'm joined today by our Chief Financial Officer, Neil Montford. Today, I'll present to the following agenda. Firstly, our results summary, then financial results details, some key takeaways and then followed with questions and answers. Today, I'll outline our performance and progress in resetting and energizing Bravura. The key messages to our shareholders are: We are making good progress on resetting the business, rightsizing our cost base, focusing on our clients and people, with the business now returning to profitability in the first half '24 on a cash EBITDA performance basis ahead of forecast. There remains more work to do. However, our progress to date has delivered fast-paced organizational transformation. Our forecast annualized FY '24 gross cost out is $40 million, which includes $27 million delivered in the first half of '24. Following the capital raised in March 2023, the business is well capitalized and stable. We have a closing cash balance at the 31st of December 2023 of $88.3 million. At our AGM in November 2023, we outlined our 4 key strategic pillars as our areas of priority focus in FY '24 and '25. Our first pillar is to ensure that we align our business around our core. Consequently, we have now implemented our new operating business structure to align our business to our clients and products in EMEA and APAC. And finally, we are upgrading our full year EBITDA guidance to $18 million to $22 million from $10 million to $15 million. Now turning to our financial results in detail. The business has now stabilized, and we are executing to our strategic pillars. Our FY '24 focus remains determined on rebuilding trust and shareholder value. The headlines are gross revenue of $127 million, up 7.4% versus the first half '23. Contracted recurring revenue, $73.4 million, up 10% versus the first half '23. Earnings before interest, tax, depreciation and amortization was $7.9 million, and that was up $11.5 million versus the first half '23. And adjusted net profit after tax loss of $1.7 million, which is up $12.6 million compared to the first half '23. And Bravura has a strong net closing debt free cash position of $88.3 million at the 31st of December 2023. In summary, the improved financial results are reflective of the ongoing execution of the organizational transformation strategy. The cost to execute our transformation has been lower than expected, and our cash burn has been reduced with the business returning to profitability earlier than our forecast on a cash EBITDA [indiscernible] performance basis. Further detail on our first half financial performance, including operating results, balance sheet and cash flow can be viewed in the appendix of the results presentation deck. We have 4 strategic building blocks for execution. The FY '24 year is all about reset and energized. For Bravura to be successful, we believe we need to align around the core regions, products and clients. Given that we are a market-leading technology, which is mission-critical to our clients' operations, we can accelerate our financial performance and grow by aligning with our existing clients as they execute to their strategic growth pathways. And at the same time, we must build a quality software business. That means we are data-driven and make good investment decisions to transition back to benchmark enterprise software product margins. In terms of aligning around the core, we have now implemented our new operating structure. We have made internal appointments for CEOs of EMEA and APAC, who have end-to-end P&L accountability. Our new operating structure has been well received by both our clients and employees. It recognizes that although we will ensure to keep our global consistency, we are locally focused on clients and products in our 2 important but different operating regions. We are rebuilding trust with our clients in EMEA and APAC. We are purposely and regularly reengaging our clients to update them on the changes and improvements we're making as a business and seeking their feedback on how we can be better partners with them. We are making good progress on resetting client focus and energizing the business. Focusing on our people, rightsizing our cost base and positioning Bravura to grow the cash EBITDA margin in the second half of '24. It is important for clients that Bravura is a sustainable supplier. Our revenues have tracked throughout our forecast. Reducing our cost base has been fast paced to rightsize our operating expenses and reduce our cash burn. We want to reassure our clients that we are focused on creating value in terms of delivering world-class software as our priority. Partnership, collaboration and satisfaction in the consistency of our delivery for mutual success are the values we will measure ourselves against. Given that Bravura's cost base was unsustainable, we have quickly identified opportunities to reduce costs through organization realignment, external cost minimization, optimizing our operating model and rightsizing to benchmark to other world-class technology peers. Our transformation program has already generated $25 million in gross annualized expense reductions in FY '23. In the first half of '24, we have executed an additional $27 million in annualized gross savings. In the second half of this year, we forecast realizing an additional $13 million in annualized gross savings. The revised FY '24 organizational change program is tracking to deliver $40 million in total annualized gross savings. Consequently, the ongoing organizational change program is tracking to deliver $65 million total annualized gross savings with total cost to achieve them of $21.2 million. Undoubtedly, in FY '25, we expect to continue our strategy of executing throughout our strategic pillars. Consequently, we will be seeking to continue to improve our ways of working and optimizing our operating model, which will ensure an ongoing trend in cash EBITDA margin improvements in FY '24 and '25. Now turning to our guidance. Firstly, revenue. We are forecasting that our revenue will remain resilient and land around the same as FY '23. There is no updated revenue guidance. In terms of profitability, our transformation program is now forecast to deliver $40 million in gross cost-out savings in FY '24. Consequently, we wish to upgrade our full year FY '24 EBITDA guidance to $18 million to $22 million, and that's from $10 million to $15 million previously advised. I would like to conclude today's update with the following takeaways. We are successfully executing in line with our strategic pillars for FY '24 and FY '25. The business is transforming at a fast pace, and we have realigned around our regions, products and clients to better performance and accountability. The business is now stable and well capitalized, which allows us to formulate a capital management strategy in the second half of '24. And finally, the business has returned to profitability. [indiscernible] deliver a growing cash EBITDA margin in FY '24 and FY '25. 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 execution progress and improving financial performance later in the year. I will now open for Q&A.

[Operator Instructions] And your first question comes from the line of Olivier Coulon of E&P Financial.

Congrats on what is an exceptionally strong result. Can you just give us an idea of how much of the annualized cost out that you're obviously not going to harvest this year goes into FY '25, so the incremental benefit of that?

[indiscernible].

So you've taken out $27 million in the first half, right, taking out another $13 million. Obviously, it depends on when you took that cost out. If you took it out in November, you're going to have harvested a lot less than if you took it out in July. And then obviously, the $13 million is going to be a function of when you take that outright. So what do you actually expect of the $40 million annualized taken out this year, how much is harvested this year as you get the benefit in the actual result versus how much annualizes into next year incrementally?

If we look at the $27 million, and I think we've [indiscernible] but if you look at $27 million, a significant amount of that came through in November. And then for the $13 million, we have some of that coming through in February, some coming through in March and then some in June. I'd say the second half is reasonably well spread, the first half is definitely towards the end [indiscernible].

And just on, I guess, revenue, so it's a good job, you've managed to take the cost out without impacting the revenue trajectory. I mean fairly amazing, to be honest. But in terms of the drivers, how are you seeing those on a go-forward basis in the second half and beyond? Are you starting to get any wins on indexation, client renegotiation, cross-sell modules, all of that?

To the final part of your question, the answer is yes, we are. And we are also seeing some headwinds in the professional services side of our business. And that's from customers that are winding down professional services off the back of their own performance and desire to maintain profitability. So we are definitely seeing increases across most of our contracts, but we're also seeing headwinds in the [indiscernible] and that's why we're guiding to last year's FY '23 result, which is [indiscernible].

Okay. And I mean, at the moment, you're quite significantly understating the $16 million. Are you still of capitalized development cost, CapEx and leases, at least when you compare it to the first half outcome. Is that guidance still valid because it implies a very large uptick in the second half?

It is still valid? The $16 million guidance, which is a bridge to cash EBITDA includes $2.2 million of revenue, that is not cash accretive. So it's a license fee recognition in the first half that doesn't create any cash [indiscernible] over a 3 to 4 year. So we've included that in our cash EBITDA bridge. But the forecast is exactly on $16 million, in that -- including that amount.

Your next question comes from the line of Jules Cooper from Shaw and Partners Limited.

Look, absolutely remarkable turnaround in the performance of Bravura. [Technical Difficulty]

Sorry, Jules we seem to have lost you. Looks like we have lost Jules.

Your next question comes from the line of [indiscernible].

Congratulations on a great result. Just 2 for me. Maybe if you could just -- dive a bit more into the revenue. So this guidance for flat revenue implies second half will be slightly down on the first half. Is there any headwinds there that you're expecting that you didn't see in the first half?

Yes. So just first, it's been some timing with revenue in the first half and in the second half, we're seeing some headwinds in terms of slowdown in some professional services revenues with our EMEA customers as they look at their own businesses and cost out programs. That's why we're keeping revenue forecast the same.

Yes. Okay. That makes sense. And then at the AGM, [indiscernible] to putting price your contracts and that being a bit of a slow burn with the older contracts. Just wondering to see how you're progressing there?

If I understood your question, it was just a bit not clear just on the line, but if it's in terms of our contract process, yes, all of our contract renewals as they come up, we're engaging with our clients and making sure that we're getting value for Bravura as well as value for them.

Congratulations on great results.

Your next question comes from the line of Ross Barrows from Wilsons Advisory.

Just to -- one is really a high level one. So could you just maybe share some insights just around at a customer base is responding to, I guess, your underlying operational improvement, but also the incremental engagement that you're having with those clients?

Thanks, Ross. It's -- firstly, I think that as mentioned in the speech this morning, our clients have been very responsive [indiscernible] in terms of our new operating structures, which focuses on our 2 different markets and the different life stages that they're in is the first point. Second point is, we've made a very big consistent effort, particularly with our engagement to really show that we want to be client-focused, and we're listening to our clients in our particular regions. And I think that, that has been well received. We are not always going to agree, but we're certainly going to ensure that our software is delivering value, and they understand that. From a product development perspective, we're trying to engage at all levels in both of our markets to work through what their strategic pathways are and that's why we are very focused on aligning with our clients and growing over with them over the next couple of years.

The other one was just around -- just on the cash flow. I think it was mentioned -- referred to, I guess, a little bit before, but the payments for capitalized software development fell from $8 million to $1 million. So could you just talk about that metric, but that's more broadly how you're approaching R&D because I think you're absolutely going to increase the focus there on making sure that anything that came out the other end of R&D was highly applicable and relevant to clients. So some commentary on that, please?

We have pretty specific R&D projects that are relatively small, very well controlled. So very much to your point, Ross, we been very careful and precise in how we spend the R&D dollars. You've seen some of the history of the business where there's significant R&D, we've written that -- a lot of that off relatively recently. So it is controlled. There is a little bit more in the second half. So the annual budget is $4 million. And to Andrew's point that you just made, we are actively engaging with clients to work out an appropriate way forward on R&D to make sure that we're delivering what they are looking for rather than perhaps what we would love to develop internally that may not have [indiscernible] market. So we're looking at what we can deliver quickly into our current customer base.

So it feels like the $8 million was probably too high and the $1 million is certainly been ranked in and reality might be somewhere in the middle over the coming years then?

Yes.

Your next question comes from the line of Scott Hudson from MST.

Apologies, I jumped on this a bit late, you've probably covered this early. But maybe could I just get an understanding on, I guess, what's changed relative from November to now in terms of, I guess, the cost out and the operating performance of the business?

Thanks for your question, Andrew here. We're just progressing with the transformation strategy and the business is under change at this point in time. We've been pleased with the progress that we've been making. And the provisions that we have had for in terms of the cost to get the cost out has been lower. And obviously, that has the downstream implications of improved cash flow performance. So we are still very focused on delivering in the second half. Internally, we know that we're not out of the woods. We've got to get the business really humming, and that's a combination on operating under our new structures, to be very client focused, but also to be people focused because we've had quite a bit of change within the organization, and I commend our employees for their resilience. But we've got a clear pathway forward, which people are [indiscernible] I feel that there's momentum in the business, and we're just going to continue executing in the second half.

And there's clearly some obviously getting some decent efficiency out of your workforce given you're managing to hold revenues steady despite, I guess, the lower cost front. I mean are those sustainable efficiency gains that you're achieving?

At this point, we've outlined our revenue guidance, and we just see that to be around the same level as FY '23. We're trying to become more efficient as a business and operating structures and having full P&L accountabilities in our 2 different markets because we've got different customer sets in different stages of the life cycle of the products. And I think that, that drives further efficiencies within the business. But this doesn't stop. We're just going to continue to get better, and that's the focus when we talk about our pillar -- our fourth pillar of building a quality business, and that's ranging from getting the right people in the right roles all the way through to metric reporting and having a culture within the organization that when we're outlining what we're going to invest in, we're expecting that it's going to be returning for our customers, our clients as well as for shareholders. And that's the culture that we're trying to breathe through the organization.

Your next question comes from the line of [indiscernible].

Just as we look forward to learning more about the capital management strategy, is there anything you guys would share in terms of how one should think about the -- either the approach around M&A go forward, the key areas that are being highlighted engagement with customers and internally, I guess, also given the new management team at the top in terms of what deficiencies or areas of investment there might be on the product portfolio? How should we just think about that today whilst [indiscernible] capital management strategy?

That's all right. I like also to hear our youngest shareholders [indiscernible]. I think all the buckets that you mentioned in terms of the capital management strategy, exactly the considerations and the work that the management will be undertaking over the course of this next period. So we can come back with a very coherent strategy that makes sense for where Bravura is and the opportunities that potentially lie ahead for Bravura and then the overlay of getting the best return for shareholders given where our cash position is right now. And we'll come back to the market once we understand all of that.

The next question comes from the line of [indiscernible].

Just a follow-up from me. Maybe could you provide some more detail on the 2 different businesses. It appears a lot of the cost out is coming out of the wealth business. So maybe a bit more color there would be helpful.

So in terms of the 2 different businesses or the performance of the businesses?

Yes. Just the cost out coming from the 2 of them. And I guess, what to expect from here?

So it's a good question. I don't think we've got into any particular detail in terms of where the cost is coming out of -- I probably don't have anything specific to add on there. The cost out program is having to be business-specific before it's been at a group level. It is now with the new structure that we've got in place, we're expecting to see more focus across those 2 businesses, but we are -- we've been driving it at a great level.

And there are no further questions at this time. So I'd like to hand back to our presenters.

Thank you very much for making time this morning, and I look forward to coming back to the market later in the year. All the best.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.