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

Good morning or good evening, ladies and gentlemen, depending on where you're dialing in from today. My name is Anne O’Driscoll, and I am the Chairman of FINEOS Corporation Holdings plc. On behalf of the FINEOS Board, I'd like to welcome you to this Virtual Annual General Meeting of FINEOS Corporation Holdings plc. This is our second AGM since listing in August 2019. The COVID-19 pandemic has caused us to adapt to new ways of doing things, including the need to hold our 2020 AGM virtually rather than a physical location. Indeed, because of the current level of COVID-19 restrictions in Ireland, our team there cannot even be in one place. Should anyone have difficulty in maintaining in connection with the hosting platform for this meeting, please be assured that the meeting materials are all available on the ASX announcements platform and will also be on the Investors section of the company's website. The time is now 8:00 a.m. in Ireland and 7:00 p.m. in Sydney, where I am based. I have been advised that a quorum is present, and as such, I formally declare this meeting open. In a moment, I will pass over to our CEO, Michael Kelly, to provide a brief overview of the 2020 financial year, including the key operational and financial highlights as well as an update on the current year's performance to date. We will then move to the formal business of the meeting and the resolutions for your consideration. Now firstly, I would like to thank the security holders for the support of the year, including the participation in our recent capital raise to support the acquisition of Limelight. I would also like to welcome those new investors, both institutional and retail, that have ventured to register during the year. Secondly, I would like to thank Michael and the leadership team for all they have achieved during a very busy year, managing multiple client wins, delivery commitments and the company's first acquisition, all against the backdrop of a global pandemic. It is a testament to the defined core values of the FINEOS playbook being team players, high achievers and customer-centric, that the performance and success of the year has been so positive despite the transition for all employees to work from home since March. Lastly, I would like to introduce and acknowledge the other members of the Board present of the webcast today: Tom Wall, Executive Director and CFO; and our other nonexecutive directors -- sorry, nonexecutive directors: Gilles Biscay; Martin Fahy, who is also Chair of the Audit and Risk Committee; Dave Hollander; and Peter Le Beau. Now for Peter, it's a very special day because actually, it's his last official attendance at FINEOS events and he is retiring, as noted in the Notice of the Meeting as a director today. Also present are Vanessa Chidrawi, our company Secretary and Lorcan Colclough, representing our auditors, Mazars. I'll now hand over to our CEO and Founder, Michael Kelly, who is obviously also on the Board. Thank you, Michael.

Thank you, Anne. I would also like to welcome everyone present on the webcast today. Like many companies worldwide, this past year has been a challenging one, adopting to new ways of working and engaging with clients and prospects. The pandemic has not only brought to light ways in which we can do things better, but for the industry as a whole, it's highlighted the need for digital transformation in order to keep up with customer and employee expectations. Thankfully, we, as a team, were well positioned and responded quickly and efficiently to the new ways of operating. We continue to sign new deals through the second half of the financial year, including new contract wins with the Prudential Insurance company of America and the State of Massachusetts Department of Family and Medical Leave. Total new wins were a record 9 for the year, as you will see in the operating highlights on Slide 4. We also grew headcount by 32% to a total of 875 people at June -- at the 30th of June 2020 and maintained a very high utilization rate of 91% despite the transition of all employees working from home. On the financial front, as you will see on Slide 5, we achieved record results that beat market and prospectus forecasts, growing overall revenue at almost 40% on the previous financial year, with subscriptions revenue growth of 38%. Services revenue had an exceptional year as we grew to meet increased client demand, achieving 47% year-on-year growth. We continued to invest in research and development, which remains an important component of our overall growth strategy, and we expect to maintain this level of investment going forward. I would like to take this opportunity to thank all our clients and our tremendous FINEOS team for their contribution to our growth and excellent achievements in FY '20. It has been very rewarding and encouraging to watch the performance of the company for our clients, for our employees and for you, our security holders over the past year as we grow -- continue to grow into FY '21. Turning to Slide 6. Looking at the highlights from the first quarter of this financial year. We had a busy start completing the acquisition of Limelight Health in the U.S. and raising AUD 93 million from an institutional placement and share purchase plan for retail investors. We have commenced the integration process and are progressing well. The addition of the Limelight team in the U.S. has driven our total headcount up to 1,040 at the end of the first quarter. Looking at the breakdown of revenue in the first quarter. 64% is attributable to SaaS-related subscriptions and services revenue. We expect this figure to continue to increase as we transition more clients from on-premise FINEOS claims to the FINEOS platform and as we also sell new products and new name deals. Slide 7 gives a snapshot of the geographical split of revenue in the first quarter. As you can see from the graph, the revenue contribution from the North American region continues to grow in line with our targeted growth strategy. It now represents 67% of total revenue, another key performance indicator, which we expect to continually increase. Turning to the outlook for this financial year on Slide 8. We continue to target 30% underlying growth in subscription revenue, allowing for foreign exchange impacts, noting our increased exposure to the U.S. dollar. The outlook for services revenue, while still growing, is under more pressure from tightening client budgets, especially in the ANZ region. We are also seeing delays in timing of some new deals closing as a result of factors such as the pandemic and the degree of uncertainty in the U.S. as the presidential election comes to a head. We do expect, however, in the new year, to have a clearer view on the impact of these factors on FY '21 outlook. And we will keep the market updated accordingly. Similarly, Limelight client budgets are experiencing some cutbacks, which has led to lower than previously anticipated revenue contribution for FY '21. We are in the process of onboarding their clients, and as I already mentioned, undergoing a thorough integration process. Our pipeline remains robust and has increased following the acquisition of Limelight. Existing client implementation projects remain on track, and we are committed to delivering to the respective time lines to reach the target milestones in place. In summary, turning to Slide 9. The acquisition of Limelight that was completed just over 11 weeks ago puts FINEOS in the advantageous position of having a complete end-to-end product suite from quotes to claim for insurance carriers in the North American employee benefits market. This allows us to increase our total addressable market and gives us yet another unique advantage over other operators in the market. Our focus will remain on spending the right amount to support the necessary research and development required to advance the product as well as the necessary investment in sales and marketing in order to maintain our market leadership position in core SaaS product solutions for employee benefits in North America. This is our primary market, and we continue to see the opportunity to grow into the global market-leading position in the industry. The need for digital transformation in insurance -- the insurance carrier industry could not be more obvious. It is, as it should be, a top priority for insurance carriers to guarantee their future viability and success. This is a huge opportunity. And FINEOS is excellently positioned to support this move from legacy core systems to become the industry SaaS platform for group and individual life, accident and health insurance. This concludes my address on behalf of my fellow directors and the FINEOS leadership team. I would like to thank all of our security holders for your support, and we look forward to another successful year for the company. I will now pass back over to Anne to commence the formal business section of the meeting. Thank you.

Thank you, Michael. I would now like to open the floor to general questions for the Board and management. And of course, the floor in this sense is virtual meeting. So you will have the opportunity to ask questions pertaining to each resolution when we get to the formal business of the meeting. [Operator Instructions] So if there are any questions at this point in time, which I can see there are not. Ladies and gentlemen, we will now progress to the formal business of today's meeting. I have been informed that the Notice of Meeting was sent to all registered security holders within the notice period required. I'll now table the Notice of Meeting, and I will take the notice convening the meeting as read. Now turning to voting on the resolutions. During the course of the meeting, I will put various resolutions to the meeting, and where appropriate, I'll provide an opportunity for discussion on each resolution. I will endeavor to give all security holders who wish to pose a question or make a comment a reasonable opportunity to do so through the portal moderator. [Operator Instructions] Voting on the meeting will be decided on the poll, which I now declare open. This means that each shareholder present in person or by proxy has one vote for each share they hold. There was technically only one shareholder, CHESS depository nominees, and I hold the proxy for that shareholder. However, we do ensure that the voting interest of CDI holders are represented in the proxy. So you can see that even though there is technically only 1 shareholder. The poll will be taken at the end of the meeting and the results announced to the ASX shortly after the close of the meeting. I've been advised that all proxies received have been checked, and I declare them valid for voting at this meeting. The number of proxy votes received for each resolution will be displayed on the screen prior to the vote being taken free charter. These figures will be as at the closing time the receipt of proxies, which was 8:00 a.m. meantime on Monday, the 2nd of November. There are a number of voting exclusions that apply to these resolutions being put -- to the resolutions being put in today's meeting. They were outlined in the Notice of Meeting. So turning to the first note item of business. It's the financial statements and reports. This is the first item of notified business is to receive and consider the financial report, the directors' support and the auditor's report of the company for the year ended 30th of June 2020. There's no formal resolution for this -- required for this item, but I do invite questions and comments. [Operator Instructions] So are there any questions or comments on the financial report or the reports of the directors and auditors? And I'll give a little bit longer on this one just in case somebody is trying to get used to the process. But if it stays blank on the other resolutions, we'll move along. So just in case anybody has a question. Okay. There was actually no question being asked on that item of business. And so our auditor, and indeed, the Chairman of our Audit and Risk Committee get a lead pass from questions on that item. So we'll move on to auditor remuneration. So the second resolution is to have a vote on the auditor remuneration, and I put that resolution to the meeting. And the resolution is that the company's Board of Directors be authorized to fix the remuneration of the auditors. For those of you who are based in Australia, this is a standard resolution required under Article of Law. So I now open this item for discussion. Are there any questions? Okay. So you can see the slide on the proxy votes for that resolution, and it was comfortably passed based on the proxy holders. And as indicated in the Notice of Meeting, the open proxies are -- were held by me and will indeed be voted in favor of that resolution. So in that case, they're 827,000 odd and open once they will be added to the total of 4 in respect of that resolution, and the same will happen on the others. So with no questions on that. I'm actually going to hand back to Michael because the next item of business relates to my reelection, and it's inappropriate for me to chair that part of the meeting. So Michael, back to you.

Thank you, Anne. Yes. Thank you, Anne. The next item of business relates to the reelection of Anne O’Driscoll as a Director. I now put the resolution to the meeting, that Ms. Anne O’Driscoll, being a director who is retiring by rotation in accordance with Article 104 of the company's articles and Listing Rule 14.5 and being eligible, offers herself for reelection, be reelected as a Director of the company. I now open this item for discussion. Are there any questions? If not, voting proxy statistics on this resolution are shown on the screen. As advised, voting on this item will be via poll at the end of this meeting. I now hand the chair back to you, Anne.

Thank you, Michael, and thank you to all the security holders who voted in favor of my reelection. And given those statistics, I feel safe proceeding with the rest of this meeting. So thank you for that. So the next item on business is also reelection of a director, in this case, it is the reelection of Tom Wall. So I now put the resolution to the meeting. Tom, as most of you know, is our Chief Financial Officer and is an Executive Director. So I put the resolution to the meeting being, that Mr. Tom Wall, being a director who is retiring by rotation in accordance with the Article 104 of the Articles and Listing Rule 14.5 and being eligible, offers himself for reelection, being reelected as a Director of the company. I will now open this item for discussion. Are there any questions? And for those of you looking at the screen and it looks a bit odd, it's because the lights have gone off in my room, and somebody is endeavoring to get them switched back on. However, I can still read what is in front of me. Hopefully, we'll be back with you shortly. There is no sign of any questions on Tom's reelection. So I will move forward, and we will move forward to the next item on the agenda. And my lights are back on again, which is very good to see. So the next item is -- welcome back to the Board, Tom. The next item is item 4, which is the grant of options to Tom under the equity incentive plan. So this item relates to the approval of option to issue options to Tom Wall, CFO and Director, under the company's long-term incentive plan. The offer of options to Tom was made in August, at the same time as grants are made to other senior executives. But of course, being a director, that offer was subject to shareholder approval. The exercise price for all options issued at the time was equivalent to the bank prevailing share price. The value to Tom will need to accrue to the extent that the share price grows, thus, aligning his interest with those of all the security holders. So we -- so that, that alignment is a very important thing for our senior executives, and Tom is one of those. So as Tom as a director, the ASX Listing Rules require that a shareholder approval be obtained prior to the options being issued to him on the terms and conditions outlined in the Notice of Meeting. So I now put the resolution to the meeting that for the purposes of ASX Listing Rule 10.14, shareholders approve the grant of 150,000 options under the company's 2019 equity incentive plan by the company to Mr. Wall. And now I open this item for questions, and the proxies will appear on your screen. And in this case, you may notice that there are significantly fewer votes cast in respect of this item. That is because they are voting exclusion statements, and in particular, shares, which Michael Kelly is beneficially entitled to are excluded from participating in this item. Because technically, Michael is also eligible to participate in the equity incentive scheme but doesn't at present. But that is the reason that there are fewer shares cast on this item. And I'm talking like that, waiting to see if any questions come up. And the screen questions is still blank. So we will move on to the next item, noting that item 4 -- and those are the proxies for item 4. Now item 5, we're moving on next to item 5, and 5.1 and 5.2 are connected items. And I would like to just make an introduction in respect of them. They are designed to enable FINEOS to have access to new capital on the same basis as other companies listed in Australia. These resolutions were also put to and passed at the 2019 AGM, and due to the interaction of Irish Company's law and the ASX Listing Rules we expect them to be recurring. The item of business relates to the authorization for directors -- the first item is the authorization and issue -- sorry, authorization of the directors to issue and unlock securities between now and the next AGM. It's a very lengthy resolution, which is set out in the Notice of Meeting, and I was planning -- it's an ordinary resolution and unless somebody indicates through the question, the moderator thing, that they want have read out, I propose that we don't read it out and that we actually move to notify you of the results of the proxies on that item and go forward with that. So I now open up to questions for anyone wanting me to read out a very long resolution. Again, there is no sign of any questions. Then 5.2 is to, what's called by the lawyers, approval to disapply preemption rights. So this is to enable us to disapply preemption rights and to harmonize with the 15% issuing capacity allowed for by the ASX Listing Rules. So essentially, it enables us to do what we did when we were raising capital for Limelight, which is to undertake a placement and share -- well, placement and not have to do a full-on proportional rights issue to everybody at the time. And a placement as we did with Limelight is a very efficient way of getting certainty of an amount of capital in a quick period of time and very cost-efficient relative to doing a full thing. So that is why we applied for that to line up with the issuing capacity available to Australian companies. We understand that, that is slightly different from European companies, but we are listed in Australia, and therefore, we want to compete on the same basis for capital with Australian companies. Again, it's a very long resolution, and I don't propose to read it, but rather to just display the proxies, unless somebody wants me to read it and indicate so on the question line or has a question. And again,-- I do know this question system is live because we have tested it and continue to test it, but there's no sign of anyone asking any questions. So you should now be able to see the proxy results for item 5.2. We have already, and substantially vote in favor of that -- proxy holders vote in favor of the resolution. So that's item 5.2. Now item 6 is actually somewhat covered already because item 6 is then moving to ratify the issue of security. So essentially, because we undertook a placement, we used up a lot of our capacity. And as explained in the Notice of Meeting, that 15% capacity, as is common practice with Australian companies in an AGM following, using their placement capacity, because it's a 1-year world, normally, we actually get to ratify it. There's quite a bit of a complexity with the interaction with Irish law with this. But it is quite a standard resolution in Australia. And then the process by which we can issue shares and anniversaries for Irish purposes is all set out, for those of you who are legally minded, in the Notice of Meeting and the detail related to that. So item 6 is to consider, and if thought fit, pass the following as ordinary resolution of the company: that, for the purposes of ASX Listing Rules 7.4, shareholders ratify the prior issue and allotment of 19,953,052 fully paid ordinary shares in the company on the terms and as outlined in the explanatory notes accompanying the notice. And again, if anyone has questions on this item, please put your questions into the system. And we will proceed to show you the proxy results on that item as well. And this is a state absence of any questions showing up on the screens for me as well on that item. Okay. Well, it's, kind of, really sad to do all this preparation and work with people to get ready for this and not have a single question, but so be it. So based on that, I will now conduct to poll and finalize the poll for the meetings and as the proxy holder for the one shareholder. And we'll be able to conclude that form in seconds. I have it here beside me. And I will sign that on behalf of everybody who gave me their proxies. And we will proceed to finalize the poll. [Voting]

Trusted company Secretary here. So I now, based on that, declare the poll closed. The results of the poll will be announced to the ASX. But as no one else was participating in this, essentially, what you've seen on the screen will be what we will be releasing to the ASX, and that will formally happen as soon as the ASX platform is available to do that. So that brings to an end the formalities of the meeting. And I now declare the meeting closed, and hope -- and wish you all a safe and well evening, day, wherever you are. And thank you for your participation. Thank you.