Bravura Solutions Limited (BVS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bravura Solutions Limited Fiscal Year 2024 Financial Results. [Operator Instructions] At this time, I'd like to hand the conference over to Mr. Andrew Russell, Group CEO and Managing Director. Please go ahead.

Good morning. Thank you for joining us for the presentation of the Bravura Solutions Limited FY '24 Full Year Results. My name is Andrew Russell, and I'm the Group CEO. I'm joined today by our Chief Financial Officer, Neil Montford. I'll present the following agenda: results summary, financial results detail, key takeaways and finish with some Q&A. The key messages to our shareholders are we outperformed our upgraded EBITDA guidance, delivering a full year result of $25.8 million and cash EBITDA of $10 million. Revenue at $250.4 million was in line with guidance. The business is well capitalized and stable. We had a cash balance at 30th of June '24 of $90 million, further increased by GBP 24 million because of last week's announcement of an updated commercial partnership with Fidelity International. We have also recently announced our intention to return up to $75.3 million of capital to shareholders, which is surplus to Bravura's long-term capital requirements. Noting that this is subject to receiving the necessary ASX waivers and is also dependent on the outcome of the ATO class ruling being sought. We also wish to announce a second capital management initiative today in the form of a $20 million on-market buyback. We have transformed the business at scale and pace. Having rebuilt the foundation of a quality business, we are now able to explore revenue growth opportunities in all the markets we operate with both existing and new clients by consistently providing value and executing a plan which builds trust. In FY '25, we expect to see a continuation of the improvement in our financial results. Our top end guidance for FY '25 is for EBITDA to increase by 55% to $40 million and cash EBITDA to increase by 220% to $22 million (sic) [ $32 million ]. We expect revenue to decrease in FY '25 to a range between $235 million and $240 million. The lower revenue is due to the removal of one-off license fees and lower professional services fees. The increased cash EBITDA guidance despite lower revenues reflects a significant improvement in profit margins that positions the business well for future years. We have planned and executed a fast-paced transformation of the organization. This is evidenced by materially improved financial results, which have exceeded our updated guidance in FY '24. The foundation has been rebuilt with clients at the forefront to enable sustainable growth. The financial headlines are gross revenue $250.4 million, up 0.3% versus FY '23; EBITDA, $25.8 million, up $26.1 million versus FY '23; and cash EBITDA of $10 million, up $37.8 million versus FY '23. These improved financial results reflect our successful organizational transformation. The cost to execute our transformation strategy has been longer than forecast and the pace faster, enabling the business to return to profitability prior to expectations. Further detail on our FY '22 financial performance, including operating results, balance sheet, cash flow can be reviewed in the appendix of the results presentation deck. Our Reset and Energise transformation strategy focused on 4 strategic pillars: firstly, realigning the business around our core; secondly, improving our market-leading technology; third, positioning to grow with our existing clients; and fourth, building a high-quality business. In terms of aligning around the core, we have successfully implemented our new operating structure. We have made internal appointments of CEOs at EMEA and APAC who have end-to-end accountability. Our new operating structure has been well received by both our clients and employees with recognition of the need for global consistency while intently focusing locally on our different client and product needs in our 2 operating regions. Trust is built by doing the things we say we are going to do. We are still in the process of rebuilding trust with our clients, and we appreciate we have more work to do. We are actively listening to and regularly engaging our clients regarding the changes and improvements we are making and seeking their feedback on how we can be a better partner with them. Evidence of improving trust and engagement is that all FY '24 expiring contracts were renewed with improved economics. We recently announced an updated client commercial partnership with Fidelity, which benefits both Fidelity and Bravura's long-term strategies as well as our shareholders. The new agreement, which takes effect immediately, will allow Fidelity to build off Bravura's investment in Sonata, which underpins Fidelity U.K. advisory solutions and personal investing platforms. The license allows Fidelity to use, modify and further develop Sonata to meet the evolving needs of its advisers and retail investors. This will provide improved flexibility for Fidelity to deliver to their specific product road maps, time frames and at their expense. As part of the new agreement, a small number of Bravura's team, who are already supporting Fidelity in India and in the U.K., will transfer to Fidelity over the course of the next 12 months to ensure ongoing business continuity. In parallel, Bravura will continue to provide technical and operational expertise to Fidelity as it maintains and develops Sonata to meet its future needs. This milestone agreement allows Fidelity to continue to leverage best-in-class technology while allowing us to streamline and simplify our enterprise Sonata software platform for the betterment of our existing and new enterprise wealth clients. Fidelity, however, remains a key client and one we are excited to work closely with in the future. The new agreement has resulted in Fidelity paying Bravura GBP 29 million in FY '25 for the Sonata platform license. The license fee is one-off with $24 million already received and the remainder expected to be paid in the first half of the calendar 2025. Professional services revenues will consequently be lower as Fidelity establishes internal capabilities for maintaining the Sonata software. The revenue impact to Bravura in FY '25 is AUD 1.5 million (sic) [ AUD 1.4 million ]. The estimated annualized revenue impact is up to AUD 9 million. We have made excellent progress in resetting the business, and we are now increasing the cash EBITDA margin in FY '25. It is important for clients that Bravura is a sustainable partner. Our revenues have tracked to our FY '24 forecast. Now the business is stable, we will explore opportunities to grow top line revenue. This may take time to realize as the business changes gear from a reset and stabilize strategy to a growth mindset. Our focus in FY '25 is to build a platform for revenue growth by rebuilding trust with our existing clients that once again believe Bravura is a long-term sustainable software and strategic partner. We're identifying and endeavoring to build a pipeline of potential revenue growth opportunities as well as competing hard in both EMEA and APAC for new client wins. We believe we are well positioned to deliver revenue growth in FY '26. We have quickly and successfully executed a transformation plan to rightsize the organization, reduce our external cost base and enhance our operating model. We delivered $42 million of gross cost-out on an annualized basis in FY '24, which brings the total since inception to $67 million. This will be fully realized in FY '25. The P&L cost to achieve these in FY '24 was $1.9 million, delivering a much improved performance in FY '24. Turning now to an update on our capital management. On the 1st of August, we announced a proposed return of capital to shareholders following our previous announcements regarding a review of our capital management strategy. We have commenced the process of engaging with the ATO and we'll be seeking a class ruling from the ATO to confirm the Australian tax implications of the proposed distribution for shareholders. A detailed explanation of the proposal and confirmation of the time line and timetable will be included with the Notice of Meeting release prior to our AGM. If required approvals, waivers and a favorable ATO class ruling are obtained, shareholders are expected to receive their payments within 3 months of the AGM. We have also announced the second capital management initiative today in the form of a $20 million on-market buyback. We wish to also advise that the Board intends to resume dividend payments as soon as sustained profitability has been achieved. We wish to provide the following FY '25 guidance. Firstly, revenue. We are forecasting revenue will reduce in FY '25 to a range between $235 million and $240 million. The lower revenue is due to the removal of one-off license fees and lower professional services fees. Profitability. The impact of the transformation gross cost-out program will now be transparent with both material improvements in EBITDA and cash EBITDA forecast above FY '24 actuals. Our full year FY '25 EBITDA guidance range is $36 million to $40 million, which is up to 55% on FY '24. Our full year FY '25 cash EBITDA guidance range is $28 million to $32 million, which is up to 220% on FY '24. 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 '25 and are now changing gear to focus on exploring and then building a pipeline of revenue growth opportunities. Our FY '25 priority is to step up our client engagement to solve client pain points with our software and professional services offerings. The business is generating cash and is well capitalized, which allows us to return capital to shareholders in FY '25. And finally, we forecast the business will deliver a materially improved cash EBITDA result in the range of $28 million to $32 million in FY '25. I would like to thank the Bravura team for their resilience, determination and ongoing commitment to client-focused outcomes in a fast-paced transformation environment. Our results to date are a recognition of your commitment, skill and hard work. Our core message to our clients and shareholders is thank you for your ongoing support and belief in Bravura solutions. It is an exciting time for the business as we turn our strategic focus to leading, client satisfaction and revenue growth opportunities. We have much to do, and I look forward to updating you on our progress and again, improved financial performance in FY '25. I will now open to Q&A.

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

Great job on the cost-out that you guys achieved over the year. Just in terms of the guidance for FY '25, obviously, you've got the cash EBITDA guidance there as well. Just the reported EBITDA guidance, can you talk a little bit about the variance there, like, in terms of the amount of the CapEx that you're sort of thinking and also on the right-of-use amortization that you're sort of backing out there to get to the reported EBITDA?

So we haven't guided specifically on those categories. So we're not proposing to break those down. It's a relatively small bridge between EBITDA and cash EBITDA.

Okay. Only because it seems like the difference between the two seems to have reduced a little compared to FY '24.

In FY '24, we have spent a little bit more, perhaps, than usual on PP&E because we've moved premises and we've downsized significantly, as you're aware, so we've spent a bit refurbing new and smaller premises. And that won't repeat. So if we're doing anything further from a premises perspective, we're likely to be moving from leased offices into serviced offices, and they'll come fully fitted.

Okay. Great. And then I think you also put that comment in there that you're still focusing on some potentially more cost-out in '25 as well. Is that within that cash EBITDA guidance range? Or would that be incremental to that guidance range?

It's absolutely within that guidance range. So nothing incremental about the guidance, it reflects our expectations on further efficiencies in FY '25.

Okay. Perfect. And then just finally, obviously, good to see a fair few contract renewals through '24 as well. How does that sort of shape up for FY '25? And is there any opportunity to maybe regain some of the lost revenues through price increases on FY '25 contract renewals?

I guess there's always opportunity to gain more. Our guidance is based on the expected outcomes of those FY '25 contract renewals. If we can get more, obviously, we'd love to, and our clients wouldn't want us to. So we will continue to negotiate appropriately with our customer base in FY '25. But it's our best expectation, obviously, in terms of how successful we'll be and what we'll be able to deliver to them in the year.

Okay. And sorry, just one last one. Just on revenue, sort of more medium-term outlook for the business. Like, how is that sort of pipeline of potentially new contracts or new customers looking for the business overall?

Well, I think this is what FY '25 is about, as I was trying to articulate, now that we've got the business stabilized and in good shape, now starting the process of engaging with all our clients about our product suite and aligning our business with their strategic road maps. And that will be just ongoing conversations, which we're already proceeding with both in APAC and EMEA.

Our next question comes from Olivier Coulon from E&P.

Congrats on the result. Just on the up to $9 million comment, I thought that wording was interesting. Does that assume that basically you're getting no professional service work if it's up to $9 million, and presumably, there's a view that maybe not as much as that is on the Fidelity contract change?

No, that includes the professional services revenue, Oli. Basically, it's a very new deal, as you appreciate, so we'll be working with Fidelity over the course of 5 and 6 months, and we'll be seeing how they go with embedding the Sonata platform into their business and what help they will require from the Bravura team. We're expecting there will be quite a bit of work. That's our estimate for professional services on an annualized run rate basis.

All right. So just to clarify, that's the -- at the moment, it's greater than $9 million, is it, and professional services, there's still going to be some retained in that $9 million reduction number?

I guess we're in a partnership with Fidelity, that continues, and we'll be working collaboratively together on Sonata. So we then can't say exactly. As in any year, we don't know what level of professional services any client is going to provide. It's our estimate of the maximum amount that we feel could drop. And as much as this is to help with an estimate for you guys in terms of FY '26 and beyond, the maximum we feel that our revenue from Sonata can drop by is $9 million. We're not able to disclose what that total revenue would be, but the maximum drop that we see is $9 million, and we obviously hope it's less. And we believe that we'll be working collaboratively with them from both sides actually in terms of how they develop their version of the software and how we develop ours.

Yes. Okay. I appreciate that color. I noticed you had another $1.6 million pretax of the restructuring costs that you took effectively above the line. You didn't kind of add it back in the underlying number. Is there an expectation that you have more kind of restructuring expenses that will hit the P&L in FY '25? And is that captured in the guidance?

I think there's always a little bit of cost around that but won't go against the provision that we have. So there's a small amount that will go through to the P&L, and that's just how the accounting works on restructuring provisions, but it won't be a material amount. So an example might be that if we're parallel running, we can't pull both sides of that parallel running. We will come for the parallel running piece against the provision and it comes through to the P&L. But it won't be material, a small amount is reflected in the guidance of FY '25.

Yes. Okay. And then your commentary on FY '26 that you're hopeful of returning to revenue growth, does that require a new logo? Or do you think, within the existing opportunity set of your current clients, you might be able to return to growth?

Well, when you refer back to our strategic pillars, we think that there's big opportunities to grow with our existing clients now that we have stabilized the business and we're rebuilding trust. But at the same time, Oli, we're certainly going to be out there competing for business in the APAC market, as you're aware. And certainly, when RFPs come to market in EMEA and other jurisdictions, that will be our combined focus. But as I said, given the quality of our client base, we believe that there's opportunity for growth and we're going to be prosecuting that over the course of the next 12 months.

Our next question comes from Brendan Carrig from Macquarie.

I might just delve into a couple, to be a bit more specific. So can you maybe just talk to a bit more detail on where this leg of cost-out is coming from in FY '25 and the realization profile? So sort of how we should be thinking about any residual annualized benefits that flow into FY '26, just given that you've obviously done a very, very good job and continue to beat expectations on the cost-out. So just trying to get a better handle on how we should be forecasting those.

Well, we've obviously had the low-hanging fruit of the business and brought it back to rightsizing relative to our revenue lines. Now the process for management is exploring to the next level. And as we have discussed in previous times, we think that we can get more efficiency out of the business when you benchmark us to world-class peers. We've got some optimization work to do as we explore our centers of excellence, and India is something else that we need to look at and we'll continue to run the ruler over other big-ticket items such as our premises across the globe. That's how we're looking at the additional cost-out for this next year.

And just the profile of that, so is that going to be more first-half loaded? Or will it be progressive over the course of the 12 months? And so then there'll be a benefit flowing into '26?

It would just be progressive over the course of the next 12 months. Management's identified areas that we want to explore. But it's a combination. Now that we've reset the business, that we're trying to position ourselves to building a pipeline for growth. We're very much focused on the fact that we've got a good profitability power wave through the business, and we want to keep that moving. But we're focusing on the top line and positioning our business well to grow with our existing clients.

Okay. And then on the top line, so you've repriced $55 million of ARR across about 24 contracts, I think it is, from those slides. Can you maybe just give a bit more quantification in terms of the uplift that you did get across that $55 million? So I do note that in FY '25, you're talking to a $4 million uplift for both indexation and contract renewals, but yes, are you able to sort of segment down what the contract renewal benefit was in totality from that $55 million of ARR that was renewed?

I think it's a good question, but we don't want to go into that process, going into individual contracts that would have renewed during the year, and we don't want to do that.

Well, it's an aggregate of 24 contracts, Neil.

There's a number of significant contracts in there. So we don't want to break them down.

There's risk as well.

Yes.

okay. And maybe then how to think about FY '25, are you able to give a rough quantum of the amount of ARR that's up for renewal in FY '25?

We haven't disclosed -- we're not disclosing that yet.

Okay. And then the guidance for FY '25, does that assume no license fees or new client wins?

It assumes no license fees.

But some new client wins?

We always have an assumption of client wins. And some of our clients can be small in comparison, some of them large ones that we had in the past as well. So we do pick up new clients every month, but some of them are relatively small and they might be for individual services. It might be through Garradin or Midwinter. So there will always be client wins. I think perhaps you're talking about logos. We aren't assuming any logos because the period, as you're aware, the time frame of winning those and then going live and where we are already in FY '25, it would have limited impact on our FY '25 numbers currently.

Okay. That's clear. And then sorry, one last one, just on the software development spend of $2.6 million, $2.7 million, I think it was, in the year, is it sustainable at those levels? And if you do want to start growing the top line, do you think that maybe that development spend needs to tick up? And what, I guess, opportunities do you think that you have to be able to get clients to fund any of that incremental increase if it does transpire?

Well, I think that's a super question. Probably there's a couple of observations for me. The spend that we highlight is the amount that's capitalized. And to be very clear, we only capitalize the spend now if we believe that there's a clear picture of opportunity for that spend over the longer term. So we continue to develop the products to meet clients' needs, and that is going through the P&L. Those costs go through the P&L. They don't get capitalized. So our overall product investment actually remains significant. What we're not doing is looking at projects that are speculative and don't necessarily have a business case, call them, which, in the past, I think there's a degree of the bench being available to do that work. So we're not doing that piece anymore. We are investing appropriately in areas where we see returns, generally. I guess, in the short to medium term, we'd like to get to a position where we can look longer term. I'd say workplace in the U.K. would be one area that we are very focused on and this investment case has been developed for that, and we may look to seek Board approval for all that. So yes, absolutely, if we see the opportunity and the business case makes sense for us and for either current or potential customers, we will be taking that forward.

Okay. So maybe to summarize, if I was to think about your both expensed and capitalized now and compare it with the top line before you came in as management, the expensed amount has declined by less than what the capitalized amount has.

That's correct.

Yes.

Okay. That's helpful. That's clear.

Thank you.

Thank you.

Our next question comes from Ross Barrows from Wilsons Advisory.

Just a couple for me. Andrew, you've been engaging with customers a lot over the past year, I guess, both locally and offshore. Can you just give us a bit more color around how those conversations have been going? And maybe any insight around lead times or sales cycles, whether they're in line with what they have been in the past or higher or lower?

Thanks for the question, Ross. Yes, I have spent quite a bit of time over the course of the 12 months. And I'm pleased to say that, and it wouldn't be lost on you, the engagement when I first commenced following the capital raise and the performance of the business are chalk and cheese to the conversations that I've been having in this past [ months ]. There have been our customers, and the main one has to be a world-class supplier of technology for them. They want to see us profitable and they want to see a pathway out of our financial position that we're in. And the conversations now reflect that they see the traction that we're making. The next steps now are aligning our product road maps with their strategic product road maps and hear the conversations that the teams are having with our existing clients on the ground, both in EMEA and in APAC. In terms of new logos, one of the things that has been pleasing is where we had some noise about the business, now we're back to profitability, and we've got a pathway ahead, and we're doing what we're saying we're going to do. We are being put into consideration for RFPs. In the APAC region, I believe that we are very well positioned both with our Midwinter opportunities and the strength of that product offering and how we're winning RFPs; and then secondly, off the back of the strength of the performance of the software, Aware Super, when other customers come to market, I believe that we'll be right at the front end, fighting as hard as we can for new business. But once again, it comes down to the economics. But we're certainly in the mix for new business wins in APAC. And I believe we'll be in the mix for potential RFPs in EMEA when they come up in the next 12 months.

And just quickly on the lead times of the sales cycle, any change there?

No changes. I've got no further commentary in terms of the lead cycles. All I know is, from an APAC perspective, if you return to the bigger-ticket enterprise deals, we're using our Midwinter opportunity to get our foot in the door through Digital Advice with the major players in this market, and that puts us in a very strong position from a relationship perspective given the quality of that offering if there are enterprise deals that come to market. In the EMEA region, we still believe that there is great opportunity to focus with our existing clients. Now we're back to profitability. The engagement on the ground is strong. We have got a suite of different product offerings that I think could be well set and we're having the conversations, and those will be ongoing over the course of '25.

Thanks for the quick follow-up on the cost side, it's been explored pretty well, and you've obviously got guidance for the market. But maybe just an observation from a head count perspective, it seems like it's down 20-odd percent year-on-year and maybe 25% or so from the peak. Just thoughts about recalibrating the business there and making sure and ensuring -- just managing growth, making sure that you're able to deliver, I guess, on the potential growth that you might be able to capture.

Well, it has been a fast-paced transformation, as you outlined. Part of the program has been realigning our business around our core markets, and that's really giving us good insights in terms of how we get better efficiency and resource allocation. I think across both our regions, we've continued to perform well from a service perspective to our clients. And I think now that we are well positioned to be able to execute just as well in FY '25 and '26, we still benchmark ourselves to world-class peers and we still continue to look at opportunities of how we can improve our cash EBITDA margins, and that's one of the things that we'll keep exploring over the course of '25 and '26.

Our next question comes from Jack Daley from Shaw and Partners.

Just a quick one, I think a lot of things have been covered, just on the contract renewals. Are you able to give us a sense at all just on the duration of these contracts that you've been signing there?

We haven't disclosed that. All I can say is that the contracts that have been up for renewal have got improved economics. Some have got similar terms than they had previously. Some have been extended, and it's just a mix. That would be my commentary.

[Operator Instructions] Our next question comes from Scott Hudson from MST.

Andrew, Neil, apologies if you've covered this before, I was late on jumping on the call. Could you maybe, Neil, give us a sense of what the exit cash EBITDA run rate was exiting FY '24?

Yes. So the exit run rate was 10% at the end of FY '24.

10%. Sorry, what, in terms of, I guess, relative to your guidance of $28 million to $32 million? What was the...

I didn't quite catch that.

Mid-teens is the cash EBITDA margin guidance for FY '25, if that's the question. Sorry, a bit hard to hear.

Yes. Sorry, I was just asking what the exit run rate from a dollar basis in terms of EBITDA-wise or cash EBITDA-wise.

In FY '24?

Yes. What was the exit run rate of cash EBITDA?

It was 10% of revenue.

And then I guess in terms of the guidance for FY '25, you've got, I guess, a headwind of that $6 million of license fee revenue in FY '24 and you've quantified the estimated cost savings that you will be delivering through FY '25.

The license fees have no specific costs. Sorry, I was struggling a bit to hear you. But if the question is that the license fees have any impact on the cost base, they don't.

And there are no further questions at this time. I'd like to hand the call back to Mr. Russell for closing remarks.

Thank you for your time this morning, and I look forward to updating you at our next results announcement. All the best.

This does conclude our conference call for today. We thank you for participating. You may now disconnect your lines.