Bravura Solutions Limited (BVS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bravura Solutions Limited 1H '25 results announcement. [Operator Instructions] I'd now 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 F '25 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. I'll be presenting to the following agenda: results summary, financial results detail, some key takeaways and then finish with some questions and answers. The key messages to our shareholders are: we continued to successfully progress our Energise, Build and Grow 3-year strategy. Our operational business improvement execution is delivering cash EBITDA profitability improvement and margin expansion through both revenue growth and cost reduction to our guidance forecast. The business has a strong balance sheet with a first half '25 closing cash balance of $151.8 million. In addition to the previously announced $73.2 million capital return to shareholders in January, we are announcing a further special dividend of $40 million or $0.089 per share and reinstating our dividend policy with a first half dividend of $7.2 million or $0.016 per share. The dividends plus the recent capital return amount to a total cash distribution to shareholders of $0.268 per share in FY '25. And finally, we're upgrading our guidance again for revenue, EBITDA and cash EBITDA given our ongoing solid trading performance. Given our successful and fast-paced transformation of Bravura Solutions in FY '24, we are delivering materially improved financial results in FY '25. The underlying financial headlines adjusted for the Fidelity International transaction are: revenue, $127.5 million, up 0.4% versus the corresponding period in FY '24; EBITDA, $23.8 million, up $15.9 million; cash EBITDA of $20 million, up $20.3 million versus the corresponding period; underlying net PAT $11.3 million, up $13 million; and the net closing cash balance of $151.8 million. In EMEA and APAC, the team continues to reestablish trust with our clients through consistent high-performance execution, business improvement and client focus. After resetting the business in FY '24, we are now seeing profitability improving as well as profitability margins growing as the full year gross cost-out savings are being realized. We continue to outperform our guidance targets. We believe we are balancing well the requirements of investing in our technology and people with our desire to drive the business to achieve benchmark software business profitability margins. Further details on our first half '25 financial performance, including operating results, balance sheet, cash flow can be reviewed in the appendix of the results presentation deck. Our Energise, Build and Grow strategy remains focused on executing the basics of being client solutions-focused, driving margin improvements, employee engagement and high performance. As mentioned in previous market updates, management are executing to 4 important strategic pillars. Firstly, EMEA and APAC market focus, supported by our centers of excellence in Poland and India. Secondly, powering great outcomes and solutions for our clients through our market-leading technology and people. Third, positioning to grow with our clients. And the fourth pillar is building a high-quality technology business. We are executing well as a team with focus and we are starting to see the results of our hard work. We want Bravura to be a great place to work. We are committed to investing in our people. And we are building a team that is proud to work for Bravura and desires a high-performance culture. In both our markets, we are working collaboratively with clients to align our product road maps for agreed work plans and execution focus. In parallel, we are exploring opportunities to grow with our existing as well as potential new clients. We are committed to the continuous improvement of our technology solutions and leading the thinking in wealth, workplace, digital advice and superannuation technology innovation. We have internal programs currently underway that are focused on delivery of material improvements in our engineering development capabilities through our technology centers of excellence in Poland and India. We are pleased with the progress we are making with energizing the business in the first half. We are focusing on ensuring we are well positioned for our client contract renewals as well as exceeding our clients' expectations on service. The business development progress we are making with Midwinter in APAC is cementing ourselves as the leading digital advice software provider. In EMEA, we are making progress with contract renewal discussions, and we are receiving positive feedback from our clients on Bravura's reinvigorated operating performance and client focus. We have reset the cost base of the business, and we are now seeing both cash EBITDA profitability and margin increases in the first half as the full year FY '24 gross cost-out benefits are realized. As you can see from the left-hand side graph on the slide, the significant turnaround in cash EBITDA performance over the past 18 months is the result of maintaining our baseline revenue, rightsizing our cost base, and improving our productivity. Our focus in FY '25 continues on building a platform for revenue growth by strategic aligning and executing well with our existing clients who believe Bravura can be their long-term strategic and sustainable software partner. We believe we are well positioned for further improvement in our financial performance in FY '26. Our revenues have tracked above our FY '25 guidance. We are focused on filling the revenue valleys previously announced in our initial FY '25 revenue guidance, which included forecasting lower project revenues, EMEA professional services headwinds driven by tighter FY '25 budgets of our clients and the loss of the annual run rate revenue because of the GBP 29 million Fidelity International software license transaction. Now the business is delivering materially improved financial performance. We are in a stronger position to identify and execute revenue growth opportunities with our clients. Our revenue guidance upgrades are due to a combination of the APAC Digital Advice proposition gaining market traction and in driving increased project work, as well as the EMEA client demand being stronger than we expected. FX tailwinds are expected to contribute circa 40% of the forecast FY '25 revenue upgrade growth on our current forecast. Turning to our capital management update. Our capital management strategy is to retain sufficient working capital and return excess capital to shareholders. We have recently paid $73.2 million capital return to shareholders, which is directly attributed to the net market capital raised funds from March '23. We're announcing today a special dividend of $40 million, $0.089 per share, which is the profit after-tax on the Fidelity transaction announced in August 2024, whereby we agreed to grant Fidelity International a perpetual software license for GBP 29 million. Additionally, given the improved financial performance of the business, we are announcing a first half dividend of $0.016 per share, $7.2 million. The dividends will be unfranked and the dividend reinvestment plan remains suspended. The record date for the interim dividend is the 31st of March 2025. The special dividend record date is to be confirmed. The payment date for both dividends is expected to be the 16th of April 2025. The dividends plus the capital return amount to a total cash distribution to shareholders of $0.268 per share in FY '25. The previously announced on-market share buyback will be suspended. For prudent operational working capital management, we will be establishing a working capital debt facility of $30 million. We have good visibility on our working capital requirements. And given the expected ongoing and sustained improvements in our financial performance in a stable operating environment, we are comfortable in reinstating our dividend program. Turning to our guidance update. We wish to provide the following upgraded FY '25 guidance. Firstly, revenue. We are now forecasting revenue will range between $248 million to $252 million. Profitability, we are forecasting EBITDA will range between $46 million and $49 million. And we are now forecasting cash EBITDA will range between $38 million and $41 million. I'd like to conclude today's update with the following key takeaways. We're successfully executing to the 4 strategic pillars of our Energise, Build and Grow strategy. We are realizing improved financial performance with momentum. The business is well capitalized, which allows us to execute a prudent capital management and repatriation strategy, which will return $0.268 per share to shareholders in FY '25. And finally, we have again upgraded our revenue, EBITDA and cash EBITDA guidance for the full year FY '25. I truly appreciate Bravura's team's continued determination and commitment to achieving client-focused outcomes and fast-paced business transformation. I would also like to sincerely thank our clients for their continued strong support of Bravura and belief in our business. We have much more to do. It is an exciting [ time ] for Bravura as we continue to successfully execute our transformation strategy. I look forward to updating you on our continued progress. Thank you, and I will now open for Q&A.

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

Just a few questions from me. Just firstly on the upgraded guidance for the year. On the revenue side, I mean, it looks like the second half you're expecting it to be a little bit sort of softer than the first half. What are you guys factoring in for your guidance for the second half? Are you thinking about new projects landing then? Or is that going to take a little bit longer?

Thanks, Bob. A good question. So it's Neil here. Historically, our second half is always a little bit lower than the first half and that's around the timing of the professional services, particularly around holidays. And we also see demand tends to drop off a little bit as our customers suspend their budgets for the year. So that's -- we're assuming that happens again this year. I guess we've also highlighted the Fidelity impact previously, which is $1.5 million in the second half. So we expect to see limited revenue from that client in the fourth quarter in particular, but we have an ongoing relationship with them as we've highlighted before.

Okay. Great. And then just looking at your segment margins for EMEA and APAC, they're sort of in that sort of low 30s to mid-30s EBITDA margin. Is that sort of the longer-term sustainable margin that you're sort of working with now? Or do you feel like there's more efficiencies that you can get or more to higher incremental margin deals that you're sort of chasing after as well that will change that profile?

We definitely want to improve them, Bob. So I think, yes, we see that as a baseline and we're motivated to improve those percentages.

Yes. Okay. I mean, just on the cost base, I mean, you guys have done a lot of really good work on controlling that cost base. I mean, how much of that is now sort of fixed versus variable and sort of fluctuates with new projects?

That's a good question. I mean, we'd like to think that it all fluctuates with new projects. And there's obviously corporate costs that are reasonably static, but the majority of the cost base should be flexible. There's always a question of timing as to how we can do that flexibility. We don't want to hire in for new work too early, because I think we've seen in the business a couple of years that created some problems. It was probably a sensible decision at the time. So we don't want to hire too early. Equally we want to keep good people when we see things coming in, so there's always a lag. And it's a value judgment that we make constantly. But we -- there is definitely flexibility in there. And if we see -- particularly if we see professional services not coming through, we have to address that.

Yes. Okay. And just sorry, just one final one. APAC Digital Advice, I think we've been talking about the opportunity there for a little while. I mean, can you go into a little bit more color on maybe where we might be at with some of the pilot projects or some of the projects that you're sort of working on?

Andrew here. Well, I think the team is doing a great job. The proposition standing up in the market has been a leader. There has been some recent announcements in terms of clients that we are currently working with. We believe that there's further customization work that those clients want to match their individual customer journeys, which we are spending more on professional services work. And the RFPs that are coming to market, we are considered at the top of the tree in terms of consideration. And as you know, this has been our strategy given the importance of advice in this marketplace to build relationships with the key players in the APAC market, and that puts us in a good spot when a registry system decision may come.

The next question is from Olivier Coulon from E&P Financial.

Can you hear me?

Yes.

Congrats on the results. I mean, just on potential registry opportunities, is there any RFPs that are near term or live currently as far as you're aware?

Nothing to report. As you know, Oli, there's a lot of movement in the market between insourcing and outsourcing, a lot of things in the press as you are well aware. But as we've mentioned, we're just continuing focusing on our Digital Advice and building relationships with all the market players. And we believe that we're well positioned when registry conversations and system invitations come to market.

And then, I mean, on the EMEA business, I think it's a credit to your team that you've stabilized the business so quickly considering you're obviously on the watch list for some of those very large institutions. The view that you're going to try to partner with them for further growth, is there potentially material type of projects that could come out of that? Or is it really incremental sort of work that you're targeting in the short to medium term?

Well, our strategy really has been to reestablish trust with those clients that we're a sustainable software supplier. The truth of the matter is that our software is market-leading and it's performing well, and the team are executing well with our clients. We're spending a lot of time aligning ourselves with their product road maps. So we've got good strategic alignment going into FY '26. And as we've highlighted before, we believe that the workplace opportunity in the U.K. is something where Bravura has got a lot of skills and experience to leverage from the APAC market into the EMEA market. And we're positioning that and having those conversations in an ongoing fashion with our key clients. And when we've got some more detail on that, we'll be able to communicate that. But at this point, things are going well.

The next question is from Tim Lawson from Macquarie.

Just first in terms of the guidance, you've given us that guidance walk versus August versus operational versus FX, which is helpful. But can you just comment on the more recent guidance movement? How much of that is OpEx versus currency?

I think it's probably a similar basis. We haven't specifically got into that one. We just did the sort of the initial guidance for the year to where we're at the moment, but it would be similar.

Yes. And just with the implied OpEx, whether you measured on a sort of versus the sort of cash EBITDA or the EBITDA line, you're still suggesting that you'll get sort of 6% decline in OpEx to the EBIT line and 9% to the cash EBIT line. Can you just sort of talk a little bit -- can you unpack that a little bit. And this is obviously a net number, but how much -- are you putting costs in anywhere at the moment versus just the ongoing reduction in the efficiencies you've been having, which is the pure cost-out? Like are you actually adding costs anywhere?

Yes, we are adding costs. And obviously, we're doing it carefully. But a couple of main areas is that we've enhanced the product team a little bit in go-to-market. The other one that I think was referred to a few minutes ago is the Advice business in APAC. So we do have a number of customers that have signed with us and some potential. So we're building out our ability to implement those customers. And hopefully, they'll be pleased to hear that if they're listening on the call, but that's a key area that we're investing in, so areas that we see as assisting with revenue growth in the future and also delivery currently.

Yes. And then just last question for me. Just on the sort of resourcing in the sort of sales teams. I mean, are you now at sort of target resourcing, in particular, in EMEA? And how long have you been -- if you are at your sort of target levels, how long has that been the case? And how long the sales pipeline takes to sort of come through once you're fully resourced?

Andrew here. If your question is, if I understand it, are we resourced up from a sales perspective to be able to execute the opportunities? Well, we believe that we've got a good team on deck in EMEA as well as in APAC. A lot of the work on an enterprise sales perspective is through the CEOs and the senior management and they're long sales cycles. And it's -- as we've mentioned over the transformation period, the big thing for Bravura is being about rebuilding confidence in the market, confidence that we're in EMEA and confidence that we can execute. And we believe that we're starting to show that consistency of delivery now, which puts us in a better spot to have conversations about growing revenue.

So have you been bulking up those sales teams in the last 6, 12 months? And how long that would that take?

Nothing material. We've brought in a new sales director in EMEA and he's been on deck for 4 or 5 months and doing a great job. And the team in APAC, all the senior leaders in the team, have been advocating for our proposition across the marketplace and that's putting us in a good spot.

The next question is from Ross Barrows from Wilsons Advisory.

I had a couple of questions. One was around the engineering improvement programs you mentioned before. Could you just expand on those, if you don't mind, and maybe give some practical examples of how that -- the benefits of that will flow through the business?

Yes. Well, as you know, that we've got 2 centers of excellence, one in Poland and in India. We're spending quite a bit of time in terms of seeing that as an expansionary location for us. One of the costs of the business is the higher the defects that you've got with code releases, for example, have downstream cost implications for our clients and then obviously creates a fair bit of rework for the engineering and the testing teams. So the strategy for a world-class software business is to try to lower that defect count when you're doing the code releases. And what we've seen where we've had -- the senior leaders have focused on a quality program over the course of the last 12 months. We're starting to see the fruits of that effort with our recent code release for our clients for the Sonata has been tremendously strong, and that's been commented both on our clients, which we're going to see downstream in cost improvements for them with the execution of the upgrades, and then also for us in our engineering workshops. And consequently, that will have efficiency improvements over the longer period.

That's good color. Just another one in terms of, I guess, looking backwards, looking forward. So I guess the past 18 months have reflected the outcomes of the changes you've made and you and the team have implemented and they've been material and very successful. But also one could argue that the controls they have a lot more influence over. And I guess looking forward, it's more the uncontrollables, the top line, the revenue and getting the clients to engage. You've already spoken about it a little bit, but maybe just elaborate a bit more about, I guess, the incremental traction that you're seeing, the difference in the conversations you're having versus 6 or 12 months ago, and I guess, the openness and eagerness for them to engage with you.

I think, Ross, as you know, trust by definition is continually doing what you're saying we're going to do. And we've been clear and transparent with our clients. We've talked them through the journey that we have been on and explaining the why. And what we're seeing is a consistency of delivery on the [ code phase ] with our clients in terms of our day-to-day execution, working with them on road maps and doing what we're saying we're going to do. And that just builds confidence. The leadership team in EMEA, in particular, where we've got some major international players in building strong relationships with their senior leaders. Clearly I would imagine many watching our results today and obviously our financial security and position plays extremely well. And that then allows us to have conversations about how can we grow together as a business. And I used the example of workplace earlier on the call where we think that there is a big opportunity for us. In the APAC region, we think we're very well positioned, particularly in the Digital Advice space, and that's a good lead-in product if there are conversations on registry systems at a later date. But all of those things together put us in a good spot for further growth and then actually having conversations with new logos, which is something that we haven't really been able to do given the history of where we've come from in the past 18 months. We're not out of the woods yet, and it still takes a lot of effort on the ground, but we're seeing some green shoots with the hard work that the team is putting in.

And maybe just a quick one. I think you've covered this a little bit, but maybe if there's any additional color you could add that just in terms of the cost reduction and head count. So it has been material, about 7% in each of the past 2 halves. And your comment before sounds like you're very comfortable to be able to execute should and when the pipeline conversion gets underway in a meaningful way. Is it fair to say that those numbers should be stabilized around there? Or you did mention a couple of comments around adding a few people, but it doesn't sound like there's a meaningful change to head count expected when things start to improve and the pipeline converts?

I think our overall assessment is that, we're just focused on making the business more efficient and productivity is rising. We've made comments before that our fourth pillar is building a quality business. And we know what benchmark profitability margins are, we're not there yet, but where the business is progressing well. And clearly, we'll be making strategic calls depending on the pipeline of work that we've got or we see coming down the pipe.

The next question is from Scott Hudson from MST.

Can you hear me okay?

Yes, Scott, can.

That's great. Just in terms of, I guess, new revenue wins, can you give us a sense of what the incremental margin is on revenue growth?

Well, we're just moving the business to improve margins. And in any particular case, it would just be depending on the opportunity. But as we said, we just continually see improvement in our financial performance. The rate of the margin improvement will probably be slowing down as we progress into FY '26, but we don't see anything where we're going to be adding material cost to the business.

And in terms of getting to the sort of the initial target of 20% cash EBITDA margin, I mean is that -- ultimately from here, is that going to be driven more by revenue? Or is there still a solid mix of revenue and cost benefits that will get you to that initial target?

Well, I think that we still got identified of areas within the business. Now we're going down to that second level where we have benchmarked ourselves and we're trying to become more efficient. And I mentioned to people earlier on the call how we're improving our engineering and there's been a really good progress with that, which obviously has efficiency implications within the business. We're not targeting any particular number at this point. We're just progressing the business. We've given our guidance targets, and we're going to run as hard as we possibly can in the second half to deliver against them. And then we'll look a little bit ahead into FY '26 and see how the landscape is and what the market is looking like for Bravura.

That's great. And then just lastly, in terms of the dividend going forward, is there any sort of set policy that sort of the Board is working towards?

I think it's fair to say that at a high level, the Board is looking to a yield being quite strong from a dividend perspective. There is an internal policy as to where that's at. I don't think we're disclosing it externally. But I guess we're -- if you look at the percentage of NPAT that the dividend we've just declared is, that it's a reasonably significant percentage. I think it's probably -- if we look at competitors, it's quite well aligned. I'd say -- certainly, I'd say, towards the top end. So -- and that's where we would see it. We absolutely want to maintain flexibility to do what's right from a shareholder and also company perspective as well. I don't think we're going out formally to announce the dividend policy. But it's certainly yield-based. I think that the dividend that's been declared for the first half is indicative of what we would like to try and return.

The next question is from [ Mark Simpson ], a private investor.

Sorry about that. Artificial intelligence is transforming fintech. And I was wondering how Bravura Solutions views AI in the context of its business? And do you have plans to integrate AI into your solutions for customers?

Well, it's certainly a hot topic at the moment. And the team who are a lot smarter than me are working with our clients and discussing how, from a commercial aspect, can AI benefit them and also integrate with our current software that we provide. I don't see in the short term us making any significant investment in AI that's going to materially impact the cost or the expense base of the business. I think that there's certainly avenues that we can partner with providers of technology. But it really comes back down to what is the benefit and how it's actually going to help our clients deliver technology services and create efficiencies within their business. And there's a range of different ideas there, but they haven't been progressed in any real detail as yet.

[Operator Instructions] Your next question is a follow-up from Olivier Coulon from E&P.

Just on workplace, I think in the past you've given some kind of detail around what a registry contract might look like depending on the member -- the fund size. Workplace, is there any metrics that you can share with us as to what that could look like were you to win something?

We're not in a position to really disclose anything at this stage. But as I've said before, Oli, we've got ongoing conversations in this space. We're trying to step up our leadership, particularly in the EMEA market now that there's a new government in and talk of how that policy may take place. But we think that we're well set, both in our pension dashboard product offering and also the work that we've already done with our Sonata clients there, to extend into workplace. And let's see how conversations progress over the next 12 months.

Okay. And then just a second one, I know that there's a focus on reducing the level of customization and duplication of work given how many different versions of the software that's out there. How far along are we in that program of work to try to move the business to a more standardized offering that might use configuration, for want of a better word, rather than bespoke customization?

Well, I think generally, as you allude to, our philosophy is to try to simplify our business and improve our engineering. And you might have heard earlier on the call where I made some comments in terms of the progress that we're making certainly with our latest Sonata code release. And we have plans in place to try to simplify just our engineering and our number of code bases right across that Sonata business, and that will just take time over the course of the next couple of years. But it is certainly a focus for us for quality, and it's pleasing to see the progress that the team has been making and the cost-favorable implications it's now generating for our clients who are receiving the upgrades.

There are no further questions at this time. I'll now hand back to Mr. Russell for closing remarks.

Thank you very much. Thank you for your time this morning. I look forward to updating you all again on our continued progress. All the best.

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