FINEOS Corporation Holdings plc (FCL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the FINEOS Corporation Holdings plc FY '20 Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kelly, Founder and Chief Executive Officer. Please go ahead. Mr. Kelly, your line is open.

Thank you. So welcome to our first set of annual results and then listed as a plc on the Australian stock market. We've had a very good year in the market, and I'm joined here today with Tom Wall, our CFO. And I'll introduce myself, Michael Kelly, I'm the CEO of FINEOS. And I founded it nearly 27 years ago. So I'm going to start today's results announcement on Slide 6, which has been issued yesterday to the ASX. So hopefully, everybody has a copy of the slide deck. And -- So Page 6. The highlights of our financial results at this financial year, we closed out at EUR 87.8 million in revenues, so well above the prospectus forecast of EUR 74 million, and 18.6% up actually, and almost 40% up on our last year's numbers, EUR 62.8 million last year, so 40% on the revenue side. And the subscription revenue within that, which is a growing area in terms of our move to subscription 3 years ago, subscription was EUR 27 million, slightly down than our prospectus forecast of 6.2% and -- but well up our FY '19 results, so almost 40% up on the previous year. And pro forma EBITDA was EUR 15.7 million. Again, that's an increase over the prospectus of 80%, and over the FY '19 number of 88%. So a pretty good set of revenue and EBITDA numbers. And really, the important thing that we focus on in the revenue growth is the subscription revenue, which is obviously annually recurring. Our contracts are 5-year contracts and they tend to grow in subscriptions as the implementation is rolled out. So that could be 1 to 2 years of subscription growth, and then it tails off to fixed tenant price and [ over the ] remaining 3 years. We also renew that every 5 years, so that continues on then for another 5 years with the client. Our pro forma NPAT was EUR 2.3 million, again, up on the prospectus of a loss of EUR 2.3 million, and again up on FY '19 where we had a loss of EUR 0.8 million. And we had EUR 28.4 million invested in research and development and that was up 7% on our prospectus forecast of EUR 26.5 million. And up 24% on our previous year. So again, research and development is hugely important to the growth of FINEOS building out the product department. And I'll talk a little bit more about that through the presentation. So overall, gross margin was 66.6% and slightly up on the prospectus forecast of 65.1%, slightly down on FY '19. And we can talk about that as well as we go through this -- through these results. If I turn to Slide 7, just some of the achievements of the business over the past year. We just finished, in the last quarter, a major upgrade of our largest client in the U.S. on FINEOS Claims and into the cloud. So as you know, we've been selling FINEOS Claims in the cloud for the past 3 years, but we've had a residue of clients who needed to upgrade to the cloud version. And we've just closed out a very serious upgrade on to the cloud with our largest client. So certainly in the northern hemisphere, the cloud upgrades have been going extremely well. And most of our clients in the northern hemisphere are either in the cloud or on their way to the cloud. Now everybody wants to move to the cloud in the northern hemisphere. And head count was up 31.8%. So huge growth in headcount, which meant a lot of pressure on our HR business partners and, indeed, on the various leadership parts of the company that we're expanding so quickly. But we still managed to have 90% retention in terms of the employee retention rates. So again, employees tend to be engaged in their work, and FINEOS is very, very busy, and they do enjoy working with us. It's a very much a team and people-oriented culture. And so 90% retention, again, is good in our industry. We won 9 new named client wins, which is a record for FINEOS. And so during the year, I can go through the detail of those, but we had some quick wins in the early part of FY '20. And that continued on through the year, and we closed out in the last quarter with 2 new wins. So 9 in total, which is a record for FINEOS. And we obviously phased into the pandemic then in March last year and got everybody working from home, and that situation has continued around the world, and our offices are all mainly closed. So that was a good result from our perspective in that our whole staff now work remotely. And we use the usual technologies and so on to keep everything moving. So we didn't really notice any downside to that in terms of productivity. In fact, in other cases, productivity was up. But obviously, we are looking at the health and wellness of our teams and making sure we stay connected and that they have all the support they need to continue on working from home. And overall, on the product consulting side, we still have a huge amount of demand growing. We have 91% of our product consulting utilization rate. So again, a bit higher than really we were predicting. But very healthy situation in terms of our customers and customer demand. So overall, the financial performance was a good year's results. Obviously, top line growth of 40%, and well up on the prospectus forecast as well. The software side grew to EUR 29.5 million on software. And again, the subscriptions grew slightly less than we were predicting, really a timing issue in terms of subscription milestones. Within the software we have initial license fees as well, a small amount of that left in the forecast as well going forward. But we do have [ warm ] client, mainly who has a partnership agreement and they tend -- we had some initial licensees in that contract. As you can see, the services side was well up, and 40% growth in our services. And that was largely due to the demand from projects and clients who wanted us to go faster and actually wanted the product further embedded into their organizations. And at the time, all the way through the year, we were very, really focused on getting our strategic customers, particularly the very large ones, up and running with the system. So we have lodged in terms of scaling the teams and undertaken to work for these clients. If I move to Slide 9, Slide 9 gives you kind of an overall view of the revenue highlights between '18 and last year's FY '20. So continuous kind of growth. And as you can see, the services are well up on the previous year. But overall, revenues are up as well in terms of the 40% growth, as I've said. And the subscriptions like -- the subscription licenses are slightly down on the perspectives but were well up on the previous year, almost 40% growth in prescriptions in 1 year. And so again, it's quite pleasing from our perspective in terms of driving our strategy. There is ILF, as I've said, in the future. So we had a couple of million in ILF there during -- through the year. And there's more milestones of that to come with 1 particular client. And -- the -- I suppose the important point in terms of this revenue growth is that, as we laid out in our prospectus, we've had a number of of sales of our new products, particularly the Absence product has helped us in terms of the new name wins. In a lot cases, the Absence products sold with the Claims product as part of an Integrated Disability and Absence Management solution that many of the large employee benefit carriers wanted in the U.S. And so that was one of the clients [indiscernible] of our perspectives in terms of cross-selling the Absence product into our Claims base, and also selling further new ops and some Claims deals. But we also have said that cloud upgrades were going to be a part of the growth strategy for the year. So very pleasing in terms of seeing a number of clients moving to the cloud and closing our largest client in the U.S. moving to the cloud. In ANZ, I think we laid it out there carefully, as well, that Australia and New Zealand were slower to the cloud on core systems, but we are now seeing the signs of cloud adoption in Australia and New Zealand and they will follow in a very similar manner and style to the way that the U.S. market has moved. So we are targeting cloud conversions in Australia this year. And I hope to see the number of cloud customers grow in the region. If I turn to Slide 10. You can see the research and development view of FINEOS. So we did invest slightly more than we had said in the prospectus. Well, we thought that it was warranted given the demand from our clients for more services and more product as well, particularly at the top end of the market, some of the carriers have really wanted to partner with us around the product to drive it on. So they see it as a very strategic product. And they are now looking at us are asking us to work with them in terms of further improvements to the product, things even that we didn't envisage that they would like to say because some of these carriers have massive volumes and delivering far more capability, more automation. And so we're happily obliging in terms of investing in that because we think it's overall very, very good for the product and for the rest of the product base. So we've invested slightly more in the R&D side. But overall, it still is, as a percentage of revenue, it actually came down. So it's still kind of within the guidelines of what we would expect. And the good news is we didn't need to use our own cash for that as well because we did so well on the services side, we were able to avoid that and continue to invest without feeling that we were burning cash. If I move to Slide 11. So the geographic mix of our revenues has definitely changed. As you see in FY '19, and -- which was the year coming into our IPO, we were very much 50-50 between 2 regions, the ANZ and the APAC region and the North American region, with only 10% of revenues in the EMEA region. And our focus on our strategy, as you know, was to focus in on the North American market, where we had invested with Sigma to build out the whole [indiscernible]. And we took a -- very much a U.S. first strategy and -- over the past 2 to 3 years. And as you can see that's starting to pay off because North America is nearly 60% of our revenues in the past year. Most of our deals were in North America. And [indiscernible] a few declines, big implementations in North America as well. So with North America being over 30% of the global market, it makes sense for us to try and grow leadership and dominance in our segment of the global insurance industry within the North American market. Also, we're aiming at the top end of the North American market. So the largest type carriers are the carriers we're turning to win. And those carriers would be multinationals. So even though we're doing a lot of focused work around what they're doing in their home office and their head offices, we do expect that we'll start in the future to work with their international divisions where they have subsidiary companies in various countries around the world. So hopefully, the good news of FINEOS will spread to more of a global effect. But as I said, the pure focus we have at this time is North America. It's not that we haven't grown in the other regions. We actually have but I'm just giving you as a percentage of overall growth, the number has increased in North America substantially. If I move to Slide 12, you can see the spread of revenues across our client base. And suppose the good news here is that there's no one client above 20% anymore on our revenue list. And so overall, what's happening is all of the clients and all of the business we've won over the past 1 or 2 years has started to creep up in terms of each client's contribution. And that will continue, we think. So we always have 2 or 3, maybe very large client revenue situations. And then those clients, once they're implemented, they start to die back. And somebody else steps into that kind of revenue leadership now for FINEOS. But overall, you can see on Slide 12, that there is a nice even spread across our clients, quite a few of the top 10 client base would be very large multinationals. So we do intend to continue to do -- on the long-term business with those carriers. And as you can see, the spread of it is evening out and there's no big risk in our client revenues in terms of one client having a dominant position. I'll move then to Slide 13. So again, this slide just covers more around our people and the breakdown of our teams and so on. So you can see on the top left-hand corner, the breakdown of employees by function. And we have quite a large research and development team, and 43% of our people are actively advancing the product. And that's quite high, I think, as an industry standard. But it's something that we're committed to, and given that we have ambitious growth plans, and we need a very strong product to be the #1 in the marketplace. We did change our -- all of our teams in professional services to product consulting. We renamed that group because we see that as a -- the -- our people would be very much advancing the product as well in the market. And they're product experts really, that's their core skill. And we've built on that as well because of the work we're starting to do with SIs or professional services type teams and some of the larger SI type companies have started to work with us. We wanted to really distinguish between a FINEOS expert and a product consultant. And then SI, what they were doing, particularly in the customers' eyes, we wanted to make sure that the FINEOS team was apparent under the roles that we were in. We're very much proud of going into those product expertise roles. Well, the employees by region, again, EMEA is still the biggest, biggest base with Ireland and Poland and Spanish offices. And we opened an office in Madrid earlier in the FY. And we've started to grow the Spanish team. We found a good place to go for people. And as you know, we have very Polish team already in [indiscernible] be had that for several years. And of course, Dublin. Dublin is the main R&D center for FINEOS, Dublin in Ireland. And 91% utilization on the staff numbers. It is on the high side in terms of making sure we take care of our people with quite a few of our staff are 100% dedicated to certain clients, which -- that tends to write-up the number a little bit. But we were quite busy and everyone that's everybody was going to be active with delivering to customers in our product consulting team. And as I said earlier, a very good retention rate as well in terms of employees. And turning to Slide 14. Again, this slide is something that we used in our prospectus and our IPO, and it hasn't really changed. We're staying very much focused on Life, Accident and Health as an industry. We see lots and lots of scope for further growth as carriers need to go digital and also to comply with regulation. And so if anything, COVID has accelerated the carrier situation where they cannot rely on the old legacy systems that they have relied on for the past 30, 40, 50 years and they must adopt digital core systems such as AdminSuite. So very much a focus on increasing our sales teams. We will continue to migrate our clients to the cloud and then cross-selling our products to our clients. And of course, we're looking to win new clients. And with the new products that have come indeed with the SaaS product offering in the cloud, we are seeing more demand for FINEOS, both for in this -- Integrated Disability and Absence. And indeed, we're starting to promote the AdminSuite as well, the full policy, billing plans and Absence product. We're also looking to expand our sales and marketing teams. And we just made that recent acquisition, which I'll talk about a little bit during this presentation. And one of the good reasons for doing that would be the sales and marketing opportunity to expand it. And so we did mention M&A as part of our strategy in our updates. And we're very, very pleased with the acquisition of Limelight to help us to do that -- to grow the business. And really, our goal is the same. We want to be that end-to-end platform, that employee benefit carriers, life, accident and health carriers can move to and abandon those old legacy systems. And as we have explained, FINEOS -- you can move to FINEOS on the FINEOS Platform for part of your business R&D and we go forward for all of your core systems you can actually move across to FINEOS. And that's very much our main goal with the full AdminSuite and also with the Limelight acquisition, in terms of expanding our footprint and our product capabilities. So I move into Section 2, which is the financial performance. So on Slide 16, I have that on the screen now. And I'm going to hand over to Tom Wall, our CFO, just to call out a few highlights and just a couple of notes there on this particular page. So over to you, Tom.

Thanks, Michael. Good evening, everybody. I suppose one of the key things here is that the market update we gave a few weeks back, that's all in line [ or did or ] closed, accounts all done so and submitted. So that's always good from an overall perspective. The key points I know to be gone through, it's been a very strong year from a revenue perspective, given that close to 4 months, 5 months of that was under a COVID background. Also a strong point, a substantial amount of services revenue growth that we've seen throughout the year. And a key element in there, as we've called out in the notes, has been around the element of additional staff we've taken on board. The staff mainly on that stuff would have been around the product consulting, which is our revenue side. And there's about 58% of the growth in those staff would have been in those areas. We've obviously had services growth of 48%, which, again, as we've indicated, the previous discussions is a lead indicator for future revenues on the subscription side. The key element of that would be -- is from a margin perspective, we would have added consultants more to full-time staff. Reason being because that's a flexibility, time on board. And from an overall perspective, we've done that on a regional basis. From a U.S. point of view, that's probably 38% or so of that has been growth in North America. We've also added staff in Spain, and then obviously staff in Ireland for different functions. From an overall point of view, as we've indicated, the R&D is still a key element for the business from a go-forward point of view. The continued investment. And that was running around 32% for FY '20. We envisage that situation going forward as well. A high level of investment still required from that point of view. As we can see overall then from a margin perspective and a headcount perspective, strong activity. And as it has already been called out, the initial license fees, there's still an element of that in the FY '20 results. We also envisage that going forward as well. The other elements then from a cloud operations, we've continued to invest in that as we have more customers coming online from a cloud perspective. And that team has increased substantially through FY '20, and we envisage that's going increase again for the year -- from an FY '21 perspective, given the amount of customers the support and then the go-lives that we get the envisage from January next year from the new product offerings we have in place in line with the U.S. elements. Some of the housekeeping on here. When we're looking at the overall numbers, we can see that the delivery cost line has gone up by 7.4%, which is the nonbillable element, the overhead element training pieces that would come about from our services staff. And when you look at the cost of sales increase, which is substantial from an absolute point of view, 56%, the majority of that is to do with contractors. And again, that changes the dynamic from a margin perspective go forward. Contractors will have more direct costs, higher daily rates, but they won't have the overhead revolvers, travel time and other pieces on that. The other part then is that from the IFRS perspective, we had a reclass with the depreciation, which was moved into depreciation from the building lease accounts. And we renewed leases this year as well with regards to Microsoft. As we take new staff on board, we're incurring extra costs on that from a leasing perspective as of Microsoft licensing. There the key messages that we would have on the -- on Slide 16, move forward to Slide 17. Again, cash is always keen from every business perspective. We've done well for the year, even considering the additional R&D investment. When we raised the EUR 62 million, we're down to probably about a net EUR 40 million as we close out the year. The trade debtors, some of that is a little bit higher at the end of the year, from an overall perspective. We got some substantial receipts in the July period. Some of that there into timing for the first week, and that will be back on track from an overall perspective. The other part in there from a fixed asset perspective, the research and development still continues to be capitalized around the 60% mark, in line with the IFRS requirements and guidelines. And the impairment of that is obviously split in coming through as well, which is increasing. From an overall perspective, then the R&D increase, which we've seen over the year gives us more, I suppose, final products to release the market in line with then the sales and the future sales. That by itself, then will lead through to some of the R&D tax credits that we receive. But as the product gets to a more finalized space, some of those credits will start reducing over time. And we reduced that down there, I think, about EUR 1.2 million or so on a go-forward basis. Deferred revenues reflect the subscriptions and then the timing point of view of cash overall from the balance sheet perspective, we would have had previously a renewal in January of each year. And that is now moving as the deals are closed. So it's more even spread throughout the year from an overall cash perspective on suites. Going on to Slide 18. So again, this is around the cash flow. It shows the funding that we received in of EUR 62.9 million. The proceeds that related to that were utilized, and the IPO costs in that were EUR 5.8 million, and we repaid the European Investment Bank loan. So that puts us into a debt-free position, which is always good from a business perspective. And again, from the 4Cs that people have been looking out over the year, H2 was cash positive. And again, we're working towards that go forward. The other part on there was substantial investment in that year was R&D with EUR 17.5 million of that being directly capitalized. And then the property and fixed assets about EUR 1.3 million. There'll be the key points on the financials. And obviously, the accounts have been furnished and gone through in detail. So we can take questions later on those. Thank you.

Thank you, Tom. And so I'll just move out to the closing kind of a slides on Section 3 and talk about the outlook. First of all, I'd like to say that it's been a really good year in terms of our growth and in terms of all the hard work that's going into building a strong, powered team. I think people have really responded very positively to our IPO and to our growth strategy. So we're very lucky to have such a strong [indiscernible] and the fact that we grew so many new people in the year, whereas, Tom says, the COVID had struck, and it did basically brew trepidation into quite a lot of [indiscernible] during March, April. But the tendency to settle down a little bit on that front as well. I think we're getting use at a new normal as a business and business as people. So a very, very good year. And delighted with the results. It's lot of hard work. Through the year, we did also spend a lot of time talking to various companies, quite a couple of companies contacted us, but we also went and spoke to quite a few companies we were partnering with and so on in terms of further growth and so on. So we're creating partnerships and trying to build the business and build our ecosystem around FINEOS. With one of the clients, the software vendors that we started partnership with this Limelight Health, and we're delighted to have closed out the acquisition of Limelight last week, and only raised AUD 85 million to support and help us complete that acquisition. So we were thrilled with the reaction of the market and our investors in terms of the backing and support to help us acquire Limelight Health. We've also got a security purchase plan in play at the moment to raise an additional AUD 5 million. And we'll be closing it, I think, on September 4. But Limelight Health is very complementary to the FINEOS AdminSuite. So it brings us the ability to do growth rating and underwriting, which is right at the front end of new business and the AdminSuite. We've already been partnering with these guys, and we've even created a small link between our products and the fact that they're in our #1 market in the U.S. and indeed, Silicon Valley based as well, it was quite attractive to us in terms of having a company that we could add into the FINEOS AdminSuite and FINEOS Platform and indeed have a team of people of such caliber and entrepreneurial as the Limelight team for the bottom [indiscernible] of 25 people. We're excited to move into the integration phase now. And we're only 5 days through that or 6 days now. So we'll be talking some more about how that's going to go over the next 12 months. And indeed, with the -- pulling the Limelight numbers into our numbers as we go forward. But it will take us 6 to 12 months to do proper integration with Limelight. We're truly aware part of the extra overhead that the M&A work will take making sure we get that right. But we do believe we've got a very, very strong start in terms of culture, product [indiscernible], market appeal and feedback from all 3 of those kind of segments. And deployments to prop the market. And indeed, our people have been very positive, and of course, our investors, as I've mentioned. So FINEOS stand-alone, without the Limelight business, we are targeting 20% top line growth as we move forward into the next 12 months, and 30% on discrete subscription side. As you know, we have very much focused on trying to become more and more a SaaS product player. And that is evident, as you can see in our last set of results with a 40% increase in subscriptions on the previous year. So this year, we're targeting 30% subscription growth for this financial year. And we have a good pipeline. The COVID, certainly, has made the market smaller and has changed the dynamic because you would sell many people in -- on finding situations on COVID benefits and so on in the North American market and the other markets that we're dealing with. So the market is smaller for carriers from a premium perspective. But it's also a service market. And what I mean by that is it's very much the time where the carriers are -- the light is on the carriers in terms of their ability to serve their clients and their customers. And therefore, the areas such as Claims, Absence Management are really, really important for carriers to have that rise into space. Through the year, we would have really highlighted our market growth in Absence, particularly. And we did a lot of blogs. We built a calculator for federal COVID benefits. And we made all that available as well. So if you go to our website, you'll find out all that stuff. But it certainly has helped us to increase our profile in a pretty challenging time. So we're very pleased with that. So overall, as Tom said, our financials look good. We've got no debt, and we have EUR 40 million in the bank, which we're pleased with. And we were able to finance 90% of the acquisition through the raise we did last week on the ASX. So very pleased with the overall year, very pleased with the Limelight acquisition. And then lastly, I'd just like to mention as well that Peter Le Beau, who was with FINEOS for the past 10 years as a nonexecutive director, and indeed, he took the chair of FINEOS a few years back and became the Chairman and sat on that position for about 4 years, I think. Peter won't be standing in for the next election. He went back to a nonexec Director position when Anne O'Driscoll joined us as Chair, and -- the past 6 months before the IPO. Peter has remained on so that it was a proper handover and has helped us guide the business forward and brought the historical view from the Board to Anne and to Martin Fahy who joined the Board as well, and David Hollander, who joined us during the year. So Peter won't be standing at the AGM for reelection. So that concludes the update that I have, and Tom. And we're happy to take questions if there's any questions people would like to ask about the results?

[Operator Instructions] Your first question comes from Tim Lawson with Macquarie.

Just one question for me. I appreciate you've given us a revenue guidance for FY '21. But could you please expand just on the comments maybe with some color around the pipeline? So order book or closing deals, I appreciate the additional information in the perspectives, but you did have sort of EUR 270 million-odd sort of [indiscernible] at that point. So just trying to see where maybe any comments you can give on those sort of areas would be much appreciated.

Yes. Tim, sure. I mean, we won't be giving great detail about the forward-looking numbers. As I said, we're targeting the 20% top line growth and 30% on the subscription side. And in terms of our pipeline, we will bring quite a lot of revenue into the next financial year. And we have a very strong approach to booking revenues underway into a financial year and in the first quarter as well in terms of extending SOWs and indeed, in making sure that we hit milestone deliveries that will give us additional subscriptions from carriers, particularly the big carriers who have quite a few [ go-loads ] coming up over the next 6 months. [ 1/1/21 ] is a key date in the States for quite a few of the clients because they want to [indiscernible] for legislative changes that are coming in. At that time, next year, some of the states and the state [indiscernible] come on force. So again, we can see the subscriptions will grow in this as we go out with those products. In terms of new pipeline, we did notice, in the pipeline and the sales work we were doing, even though we closed more deals than we were expecting in the FY, and the particular type of deals. So they're very much around the claims in the Absence space. And we were able to cross-sell the Absence product as well to our base. So that product has grown for us. We do see that we'd continue to do claims and ops deals into the new year. But we're also targeting the policy of [ Insights ] as well, and we're starting to bring them into the market in the States, certainly. So that's going to come more into play we hope. Initially as cross-sell to existing clients, and we head into existing customers in terms of across our cross-sale site. So with quite a bit of -- a big pool of customers in North America that we can cross sell into. And then in terms of new name opportunities. As our new names are people we haven't dealt with before, at the top end of the market, there's still some large carriers not using FINEOS. So we are targeting them hard at the exact levels. But we do see the mid-market and the lower market, we see more activity around that. So I think it's not a huge amount that we have to sell to in terms of new [ wins ] to meet our numbers. We're really focused in on the cross-sell and the upsell to existing clients because we can see that the market is a different market. And there are some vendors that are not making their numbers. But it is a good place for us because we know carriers are under a lot of pressure from the -- both from the technology perspective and, particularly because of COVID, they need to be online and doing business in a digital way. And they've all realized that, and that's something that's changed and not going to change back to the old ways. And also the regulations continue to change, Tim. So we do see that we'll continue to grow the new business as well. But I can't give you any detail in terms of that. But there -- it's a different market that we're looking at since the IPO, but it's a market that we've come to terms with, and we've been able to navigate and still grow the business.

Your next question comes from Brendon Kelly with Moelis.

A couple of questions from me. Firstly, just interested in your views on whether you're seeing any kind of change in the shifting at the time for taking on major IP projects amongst the insurers? Because by the sound of things, everyone is recognizing that they need to modernize their systems, but just wondering what actual willingness is at the moment, just given the smaller premium pools?

Yes, Brendon, happy to answer that. So at the top end of the market in the States, I mean, it's an unusual global situation financially, I think when we look across the global economies and what's happening with interest rates and so on. But at the top end of the market in the U.S., carriers have taken a long-term view. They do have serious funds available to them. And the way that they're viewing the spend is very much around operational efficiency. So they're building business cases to reduce their cost base. And then to adopt like digital technologies to help them to do that. So we're seeing continuous spend in selected areas, and particularly around core systems, we're seeing that because they do see that if they can reduce legacy footprint to reduce their IT spend and to reduce their business inefficiencies. So it's an efficiency and operational excellence type approach. It's also around their customers and clients. The competitive market has actually increased in the States, particularly we're seeing robust premium and tougher kind of clients in terms of the employers looking for better deals, and they're also being measured on their ability to service the larger employers. So it's a smaller pool, but it's more competitive, and carriers are using their technology as a competitive weapon. So there's a lot of activity that -- from the service point of view that carriers are trying to compete on. It's very much -- they're very much saying, look, we -- if we can service the market really well because of our technology, and of course, we're compliant as well with the regulation. So, hey, that's a pretty great situation for us given the Claims and the Absence products. I think it will switch in the future back to a growth market once we see how the economies play out. And we will start to see some growth in employment and so on. So that growth market will start to look towards things like new business and new product lines that they want to add and that's where we see the full FINEOS AdminSuite and indeed a Limelight suite coming more into play in a growth market. So I hope that explains the kind of -- the question, but it's a good question, thanks.

Yes, that's very useful. And then just in relation to the guidance, I understand that's all pre Limelight. Can you help us understand what kind of growth rates we can expect from Limelight and the EBITDA contribution?

It's too early for us at this stage to give predictions on the Limelight side. We have kind of factored in kind of a merger type budget to bring the 2 businesses together. We have product work to do with them as well to make sure that we both kind of -- we get the sleep working and stuff like that over the next 12 months. So it's a bit early in terms of us giving exact numbers on the Limelight side. So if we do expect them to make a good contribution. And I think the integration of the 2 products and indeed, the 2 businesses will -- we've seen quite a positive reaction overall from the marketplace. They have 5 large clients that they're working on now. And what I saw in the first week, we're only operating a week together, I saw positive reaction from their clients to the FINEOS acquisition. So give us a more few weeks, and we'll come up with some views on that in terms of the Limelight side.

Sure. And I understand maybe it's early to give guidance on Limelight, but can you maybe just help us understand what that are -- just how the cross-sells are likely to play out and whether that's something you've started to look at already and how we can expect that to play out?

Yes. Look, we, as part of due diligence, we went through our whole customer base, and we worked out what they were using for corporation [ on the ratio. ] so we have a full landscape of what our client base uses in that space. And quite a few of them use legacy and spreadsheets, but some of them use other products as well. And of course, we have one customer in common, which is Principal Financial Group where Limelight had the front end, and we had the Claims and the Absence piece of Principal. So I do think that there's plenty of cross-sell opportunity between the 2 of us, we can try and sell into their base and vice versa. And also, I think we now have positioned ourselves as an end-to-end vendor for when carriers begin to come more and more, we think, for end-to-end solutions onto Claim. So I think the best is yet to come on this in terms of the go-forward over the next year or two, but I can't give you any more detail than that, just to say that the reaction has been quite positive. And we are the first company in the Life, Accident and Health space in the States to come out with a platform that will be capable of [indiscernible]. We're 100% focused on our own industry. And I think that's a huge positive in terms of where we're going from as pure play Life, Accident and Health platform.

[Operator Instructions] Your next question comes from Jules Cooper with Ord Minnett.

Michael, just one from me. Look, I know it's early in the year. And if we just park Limelight Health to one side for a minute, just directionally, if we look at that EBITDA contribution of EUR 15.7 million in the '20 year, you've called out R&D growing in line with revenue, the cloud ops costs going into the business, sales and marketing, so an extra overhead for Limelight and integration. Just how should we think about, directionally, what EBITDA -- how should -- should it increase in dollar terms, should be the margin? And just how do we sort of think about that to the core FINEOS business, excluding Limelight, please?

I guess we are spending quite a bit and investing quite a bit just in terms of the R&D side, and we'll have the integration as well as the 2 products. And we did take quite a few contractors, as Tom said, in terms of the consultants that particularly we took people on quickly and even on the product side as well. We took in some contractors to try and grow the terms as quickly as possible. We're focused in on the EBITDA and the margins and so on as we move forward to try and maintain the kind of EBITDA margin levels? But last year was a particularly good year. So I'd like to take a little bit of time and look at that on the go-forward situation. I don't know, Tom, if you have anything to add on that?

Yes. I think what we're looking at, at present, here is to -- we've got to do the integration from an overall perspective. So over the next few months, we're looking at both FINEOS as stand-alone from an operational point of view. We do have additional costs to put in as part of the IPO. And obviously, we can take them out in the pro forma basis as well as the extra contractor costs that we're going to have going through on this. So we're going to try to maintain them as much as we can, but we still have some discussions they have on FX as we go through from a business perspective. There's a few elections to take place country wise. So we still have some variables in there. I suppose it's easiest way to say that. And over the next couple of months, we can give an indication over where that's looking for the year.

Okay. That's very helpful.

Thanks, Jules. I think overall, we feel like the business is in a much better position than it's ever been before. As Tom says, we're not carrying debt. We do -- we are an agile business. We do like to kind of make moves quickly in terms of opportunities that we see. And if it takes spending some extra money or so on, that's why we've got the investment with us. We're well covered. So we want a little bit of flex in terms of the go-forward. It's a big opportunity in terms of the market. And we want to make sure we're doing the best we can to move as quickly as possible. And what I said was fairly challenging times out there. So it's not a normal market. But we think we're navigating it pretty good at the moment. And that's the way we want to stay. So I don't spend too much time focusing on the EBITDA in terms of maintaining or growing or whatever. Yes, we just want to make sure that we're in a very agile position for top line growth.

Yes. I think, Jules, just to reiterate that, the focus has been about the market share, getting the product aligned and then with Limelight as well to allow additional activity. So we do definitely keep [indiscernible] here on the bottom line. But the focus on this is to grow that to make sure that we continue to take the opportunities that are in the marketplace. So there's always going to be a trade-off on these things, no matter what way we go with this.

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

Thank you. Yes. So thanks very much, everybody for dialing into the call. We appreciate the support we've been getting from investors. And as I said, we were delighted with the reaction to the Limelight acquisition. It's very, very encouraging. So from our perspective, we continue to do the best we can to grow the business going forward. We'll be integrating Limelight into FINEOS and over the next few months we will replace the Limelight brand with FINEOS, and we'll have the full end-to-end suite, but we'll also have several best-of-breed product components that we can sell separately in the market. So that's really the look-forward situation. So we look forward to catching up with you again on our next update. And again, as I said, from Tom and myself, thanks very much for your support.

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