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

Thank you for standing by, and welcome to the FINEOS Corporation Holdings plc 1H '21 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kelly, Founder and Chief Executive Officer. Please go ahead.

Thank you, Rachel, and hello, everybody. Welcome to our results announcement today. I'm joined here by Tom Wall, our CFO; and also our Head of Investor Relations, Orla Keegan. And we're all in different locations on the other side of the world as it happens today in Ireland, but we're in different locations. So hopefully, I'm going to kick it off with the results. So if you turn to Page 4 of our presentation. And I guess, we'll start with the fact that we did our first ever acquisition of Limelight Health in the U.S. and a group benefits software vendor, Insurtech, based in Silicon Valley, and who had a group employee benefits, new business and underwriting solution. And this was a piece of technology that was missing from our own FINEOS Platform and FINEOS AdminSuite. So this was very much a strategic acquisition, which helped us to bake out our full end-to-end solution and be able to offer the employee benefits market in North America, a quote to claims end-to-end solution. The integration has gone pretty well. And the first phase of it is really around the sales and marketing side. And what we've done is we've integrated our sales teams and marketing teams. We've sunset the Limelight Health brand, and we've integrated the market positioning of the Limelight Product. It's now called FINEOS New Business & Underwriting. And during the half, we had some great go-lives with some of our larger clients and on the smaller clients, and some platform upgrades as well, which we announced in some period ago, about 2 months ago. And this has really helped to drive our annual recurring software revenue. So that on the 31st of December, our annual recurring revenue was EUR 38.3 million. We also had a very good half in terms of employee retention. And our employee retention rates are well above 90%. And of course, most of our staff around the world were working remotely given the pandemic, the global COVID situation. So again, really good results in terms of our people making good deliverables to our clients and keeping the progress and momentum of the business growth has grown. In total, we finished up the year with 1,043 staff, and there was a contribution of about 125 staff coming in from the Limelight side as part of that acquisition in August. So an increase of 40.8% on the corresponding first half of FY '20. So quite a bit growth in staff numbers. And indeed, another highlight was the growth rate of revenues in the North American market, moving up to 71% of our total revenues compared to 55% of our total revenues in the first half of FY '20. And really proving out the fact that we are growing fast in the North American market, which is the biggest market in the world with over 30% of carriers in the world -- and revenues in the world coming from that market. So if we can become #1 in that market, we'll obviously grow faster and then, obviously, we can move into a much more wider global expansion. In terms of financial highlights, our overall revenue for the half was EUR 52.6 million, and that's a 20% organic growth rate on the first half of FY '20. And 30% growth rate, if you add in the Limelight revenues and their contribution. And subscription revenues organically grew at 35.1% over the first half of FY '20 and 51.5%, if you include the contribution from Limelight Health as of September to December that -- in the period. Services revenues were 15.9% organically over the first half of FY '20 and 23.3%, if you include the Limelight contribution. And pro forma EBITDA of EUR 5.1 million in the half versus EUR 8.9 million in the corresponding half of FY '20. Moving to Slide 6. And just in terms of revenue highlights. As I said, we grew 30.1% in the -- over the corresponding half of FY '20. And this was despite the negative impact of EUR 1.5 million in foreign exchange losses that were exposed due to the dollar, the U.S. dollar movement. And really, the growth has been driven by the client wins that we would adopt through 2020. And also the contribution then from the Limelight side, which was EUR 3.9 million in the half. So overall revenues, as I said, EUR 52.6 million. And that growth rate of 20% overall and 35% in the -- on the subscription side was really, from our perspective, we're quite pleased with that, given the overall climate in the global market and particularly in North America during the half where we would have seen, particularly the larger carriers would have been putting costs in nondiscretionary spend and indeed cutting headcount as well. We've seen some layoffs in the states and the various carriers in terms of employees due to the overall market contraction as a result of the pandemic. So we're very pleased in terms of the result and the growth rates that we've achieved. And one, I suppose factor to, just to mention, call out was the 15.9% growth rate on our services side was a bit slower than we have done previously. And really, there are two things to point out here. One was the FX loss primarily majority with the services side. And also, we had a large project come to a successful conclusion on one of our on-premise largest client in the Southern Hemisphere. We were implementing our payment systems for them for the past 2 years and converting from a very old payment system. So we have had quite a big team on that project. The good news is that there was no -- it was just a ramp down in terms of services people, and there was no effect on the subscriptions. So the subscriptions on that side have remained the same, and we look forward to doing new programs and big projects and selling a new software there as well. If I move to Slide 7, this gives a picture of the research and development investment that we've made. And I guess, I should start by saying that over the past 5 years, we've invested over EUR 130 million in our research and development program for the FINEOS AdminSuite and the build out of the FINEOS Platform. And so we have been above the norm in terms of percentage or in the investment against the revenues. But as I said, we've been growing very, very healthy as a result of the build out of our suite and platform. So very pleased with that. In the half, we increased the R&D side. A couple of reasons for that would have been that our larger clients wanted us to build products faster. And these large clients are going to be -- we're going to be putting large numbers of employers and very high volumes onto our systems. And through that half of the year, that was just before a couple of them went live, and we really needed to make sure that the product was robust and ready. We also invested slightly a little bit into the medical claim side of things because we had a deal coming as well, but residing medical claims to the FINEOS Claims product. So we put some R&D into that as well. So we did increase research and development in the period. And the research and development overall growth would have been 27.6% ahead of the corresponding period in the previous year. So a big, big increase in the R&D investment. And again, I think, the good of the product, given the success of all the go-lives that we'd have had with clients. If I move to Slide 8, so Slide 8 really covers the geographic mix. And I've already said that 71% of our revenues have been coming from the North American market in the period. And indeed, the -- when we look back at the regional picture in FY '20, the corresponding North American revenues would have been 55% and 39% in APAC, and APAC has gone down to 24%, as you can see. So as I said, North America has been the primary market for us and being the big growth opportunity, the biggest market in the world. That's where we're placing the strategy and our R&D investment is very much focused on North America at the moment. North America is ahead of the rest of the world as well when it comes to cloud computing and SaaS computing. So I would say that there are 3 years, maybe 4 years ahead of other markets in terms of the adoption of the cloud in the states. Most of the vendors in our space would be cloud first. If not, totally cloud, and we at FINEOS have been proud for the past 4 years on a North America cloud course for the past 3.5 years. So we basically really committed fully to the SaaS platform on the cloud. If I move to Slide 9, on the people side. You can see the breakdown of employees by function and indeed, it comes out here as well that the size of the R&D to 46% of our R&D or 46% of our total staff is in R&D, followed by product consulting at 37% and then cloud ops, and general and admin, sales and marketing. And you can also see the employees by region as well, with EMEA being the largest region with employees. And that's very much because we do the bulk of our research and development in Ireland where they're headquartered. And we've got attractive government systems and so on and support for that in Ireland and a very good workforce there as well in terms of technology. Ireland tends to be the place where most of the North American companies come and base their headquarters. So we have obviously been dealing with the pandemic and from a people perspective and we've been very conscious of that from our people side of things. We pulled our utilization slightly back on the previous year. And we're just watching that very carefully with people, with most of our staff and lockdowns. So we've a lot of aids and assists in terms of helping people to cope with the personal circumstances in lockdown, and we are managing that very well as an organization. Very, very high retention rates, as I've mentioned already, well up into the mid-90s in terms of retention. And overall, we've been growing the workforce and training people. So big focus. And as always, company is on the people side. And indeed, making sure that the people are really tied in this playbook, which really describes our culture and our strategy that keeps us all aligned on heading in the same direction. I mentioned earlier about the services side coming back a bit. And if you turn to Slide 10, that becomes apparent as you look through the customer base there, on client -- if the client that pull back on the services side as we finish that program. They've gone from being 22% of our total revenues in the first half of FY '20 to becoming 9% in the corresponding, about the half we've just finished on and we're reporting on. So if you look across the FY '21 first half, you can see that there's no one client that has any dominance in FINEOS anymore, but we've really got several large clients are in big programs with us at the moment. And as our subscription fees grow as well, we've got a much more balanced portfolio as we move across, which I think is a good thing that we're not totally kind of tied in, it won't put client readiness at risk. If you move on to Slide 11. So looking back then, I think it's been a good first half of the FY for us. Obviously, we've been integrating Limelight, which is no more. It is now FINEOS New Business & Underwriting and behind that team are all FINEOS people. We've done a whole lot around the implementation of our software, particularly for some of the bigger carriers. And the success of those implementations will bring more and more subscriptions as we grow the volumes on our platform in those times. And we've also been doing some platform upgrades, both on an on-premise to the cloud platform, which is a onetime upgrade that our on-premise claims customers go through, but also some platform upgrades as well where we continually invest in cloud automation and in cloud technology. And we continue to upgrade our cloud as well. So even our customers who've been on FINEOS Platform have seen the vast kind of improvement over the past 18 months as a result of our cloud investment. We're continuously making the system better and faster and so on. So that's all been very, very good in terms of the heads down approach in the FINEOS team. The Limelight integration, as I've mentioned on Slide 12, is covered. And we bought them for strategic reasons. We will be integrating their software into the FINEOS Platform and the FINEOS AdminSuite. We have already identified the integration points. We have great synergies identified in terms of the FINEOS Platform and the cloud and also the FINEOS app core. So Limelight will sit into the FINEOS AdminSuite in the same way as FINEOS Claims or FINEOS Policy, FINEOS Billing. And we'll have that kind of one user experience that end-to-end process. So we're very excited about the future of the new business and the underwriting system. The revenue contribution from Limelight has been a bit lower than we would have expected. A very much -- as a result of cutbacks in the North American market where carriers have seen, but they really are focused in on servicing their clients, retaining their business, staying up with legislative changes and keeping systems away from the end of life. And there's less money being invested in new business and new initiatives because that market is contracted. Hopefully, that situation and the economy will turn around in the coming months into the new year, next year. So Limelight also had 1 cancellation. One of its new customers decided that they were going to stop, and they didn't go ahead with the program. They decided not to spend the money. So because that system hasn't been live, the client had the right to cancel that deal. So that was a bit of a disappointment as well. But as I said, overall, Limelight and the new business underwriting system is a very strategic piece for the FINEOS AdminSuite and the FINEOS Platform. And so we continue to invest and to deliver that as part of the full suite. And if you turn to Slide 13, you can see how we present the FINEOS AdminSuite. Today, the new business is made of the quote, rating and underwriting components that we've required and that will be sold as a standalone as Limelight have been selling it as a stand-alone best-of-breed solution in the same way as we sell claims or claims and absence. And we'll continue to sell Limelight as a stand-alone best-of-breed, but we will also present and sell it as part of the full end-to-end solution, thereby giving the carrier the same user experience and the same end-to-end process on quotations to claims. Slide 14 just covers off the FINEOS Platform, which, again, you can see where the Limelight piece fits in. And all of the platform benefits and all of the platform technologies around FINEOS Engage, which is our API suite, that allows portals and third-party systems to engage and connect into FINEOS as well as FINEOS Insight, which is all around analytics and data, operational trends and machine learning and automation. So those 3 kind of key components of the whole platform, the new business and underwriting system will benefit from all of that as we invest more and more in that in the future. So very much the focus today, though, with FINEOS is the FINEOS Platform as in the cloud platform and our underlying architecture and our AdminSuite and the FINEOS Engage. FINEOS Insight is more -- once you get the clients up and running, you really get the opportunity to drive the power of the data and the insights from that data. So there's very much a future revenue and opportunity from the other insights. We totally intend to get the best out of that as well as we move our strategy forward. So I'll turn to Page 15, and this page is very much geared around our growth strategy. And it hasn't really changed. It's really very much to grow and upsell to the many clients we have using FINEOS today as the claims product, either on-premise or FINEOS Claims in the cloud on the FINEOS Platform and to cross-sell the other components like Absence, which we've successfully cross-sell many times now, and our FINEOS AdminSuite components. And indeed, as FINEOS New Business & Underwriting and underwriting component, which we started to bring around our client base, shown on -- what we've got there as well in terms of another FINEOS product that we could sell in. And we've also got the focus obviously on winning new business and new clients. And we would have announced a new customer today in the region of the ANZ region. A very important one as well because it's a first cloud customer in the region on the FINEOS Platform. And indeed, it also brings the medical claims aspect into the FINEOS Claim side. So as I said earlier, we did a little bit of research and development in the first half of this fiscal FY in anticipation of winning this deal. And so again, a very important deal for us for the region. And indeed, ANZ, we have seen a fairly quiet region over the last year, 2 years with the M&A activity and then followed by the COVID situation. But we are true believers in the economies that we see future growth in those clients. And then from there on, it's -- it expands into new markets. And indeed, really kind of double down on the FINEOS Platform with the FINEOS Engage and FINEOS Insight products as well coming in to stay and really to become the industry platform for life, accident and health. So that covers my side of it in terms of the highlights. So I'm going to hand over to Tom Wall, he'll cover the financial performance. Over to you, Tom.

Thanks a lot, Michael. And welcome, everybody, to the call from a FINEOS perspective. I suppose the context on this has been -- it's been a busy year. It's been a tough market environment as we work through it. So it's great to be able to present strong numbers. But obviously, the devil is always in the detail as we go through the information that's on here. So to call out a few key points, I think, have already been referred to. With the overall revenues, our total revenue has grown 30% year-on-year. It's been a strong year. The integration of Limelight into the overall numbers. And I suppose one of the big call outs we would have in there is the the large percentage movements that we would have. So cost of sales. One of the things that we found in regards to the implementations of the large projects would have been shorter time lines to bring staff on board, which meant that we would have taken contractor staff in. And from an overall perspective, that would increase the cost of goods sold, but it doesn't have any -- incurred the same overheads as delivery costs as in training, sick time holidays. That good stuff is in there. On top of that, as we have more customers and there's more subscriptions, revenue has been generated. We've also ramped up the AWS charges directly through our environments and the S3 buckets from a storage point of view. And again, we would have added more staff in that and allocated them through. So from an overall perspective, that growth in cost is substantially 53%, but it's in line with the revenues and the split overall. To call out the other parts, regards to research and development, overall, we're looking at 37%, 38% of our revenues this year in FY '21 will be still invested in the R&D. As a percentage, that will go down as revenues grow. But in absolute terms, I think, as Michael has called out, there's still a lot of activity out there and features and functions required for the business deliverables and is positive as it gives us additional base in the platform to move forward and sell forward as well. Sales and marketing has been one of the things that we would have put out around the prospectus time. So with the advent and the inclusion of Limelight into the business model, we've added small sales folks in the U.S., which is in the local market. And that's very beneficial from an overall perspective. But again, from an overall cost perspective and investment point of view, that will increase. A small adjustment there in regards to the delivery in cloud ops. So when we look at cloud ops support, we've grown the headcount in that area from 37 up to 70, and that's to facilitate the support in each of the regions from a North American point of view, from an Asia Pacific point of view and from an EMEA perspective so that we can provide 24/7 support for the customer base. At a time when we had set the teams up on the cloud upside, there was reclasses from the professional services group into cloud ops. So the comparative number in cloud ops is in the 0.8, it should be EUR 1.8 million, and then the other number, EUR 6.3 million, which is a reclass. And that would bring the cloud ops increase up to about 139% over the period. And then a small change of 7.5%, 8% in the delivery. And we would have expected that from a delivery point of view with more contracted staff being added. The overall performance for the year has been strong. Again, we've had more amortization because we've been capitalizing more R&D from the business perspective. And when we've taken Limelight on board, we also have the historical R&D that was taken on, which is about $2.9 million or EUR 2.5 million, and that will be amortized over 3 years. So the other policy we would have is Claims and Absence would be over a 5 years and policy and billing is over 10 years from amortization perspective. Other key parts in here. With AWS, there's a lot of focus on that from a business perspective around working to get the economies of scale and also bringing on board the Limelight AWS platform usage. Throughout the year, we've also been very focused on costs as part of the integration, not just on the FINEOS business, but also on the Limelight business. Focus specifically has been around office space, as Michael alluded to earlier on. We've had a change from an overall perspective with the staff from last March 15 and 17 or moving to work-from-home environment as a result of COVID. So that's successfully transferred, but it also meant we had an opportunity to close out some additional office space, both in Dublin from an additional space that we had and also in Atlanta from space we had there. And we're working through some additional office space that are in place and Limelight on the West Coast. The other thing that also came through for this year was the reduction in travel. Again, that's something that from an over -- reinstatement is going to take a bit of time to find out when we get back to normality on that. But we do reflect that, that's going to be substantially less as we go forward. So I think that the main call-outs as in -- we refer back to the services revenue is growing substantially to 23%, the organic about 15.9%. And one other thing just to call out that we still have some ILF-type activity, which is the older model. So that's in about EUR 1.2 million, EUR 1.3 million for this financial period. And again, that relates to some of the older contracts that we have in place. But they are winding down substantially as we go forward. So that's Page 17. On Page 18, it's really just to call out the acquisition costs and then the activity from the Limelight goodwill. So obviously, from an overall perspective, the overall cost was circa 2.6%. And from over a P&L point of view, there was EUR 1.8 million came through from the acquisition cost side. If we go to Page 19, on the actual balance sheet itself. So cash at bank is at EUR 30.7 million. And in June, it was EUR 39.8 million. So approximately an EUR 8 million movement on that. Big movements on here, or I suppose, key points. Trade debtors came down substantially. We had a situation in June '20 where there was substantial -- debt is outstanding, but we were still getting paid from some of us employers, not employers, but customers in North America via check. And when we cleared that up, that expedited the process of payments and clearance. And also in December, we had a billing of a large project in a collection. So that's the big reason for the 50% movement year-on-year. The other material parts, obviously, as we've gone through, we're carrying about EUR 58 million from an R&D perspective. From a capitalization perspective, we've now rolled in Limelight to have the same process and procedures from a recording perspective as FINEOS, so that has been standardized and integrated. And that's coming in around the 60% mark from the capitalization perspective. So over the 6-month period, that's grown by EUR 8 million from a research and development perspective. The goodwill. We've called out the elements in there with regards to the technology, the goodwill and customer relationships that have come through as part and parcel of the PPA process. Creditors also reduced at that stage. Again, from a seasonality point of view and paying the builds basically. Deferred revenue from a cycle point of view, we are now seeing that. Historically, we would have had a substantial amount of renewals in January and February of the calendar year. There's still a renewal process taking place in January and February, and the deferred revenue tends to run down as of December time frame. But with the billing now at different stages as the deals are signed off, the subscription amounts kick in, and they vary. So it's getting to a more average approach throughout the year from a billing perspective and the deferred revenue. And the volatility at the end of the year should reduce as we go forward on that from an overall perspective. Go to Page 20 on the cash flow statement. So from an overall perspective on here, the cash flow was positive at EUR 3.4 million. We used -- we got cash in for the funding of the Limelight deal, which is about EUR 93 million in total. Some of that we funded ourselves, and then we raised cash as well from an overall perspective. So there was EUR 56.2 million in there from an overall perspective. And then the R&D capitalization of EUR 11.8 million. So we closed the year at EUR 30.7 million. And from an overall point of view, we monitor the cash closely from an overall process perspective and validation. And I think they are the key points that I wanted to call out from the overall perspective. And I'll pass over to Michael Now. Thanks a lot.

Thanks, Tom. So I'll kick over to Page 21 and finish it out here with just a few kind of key points. The total revenue, including the Limelight contribution, is expected to be in the range of EUR 102 million to EUR 105 million, and that's after impacts of foreign exchange in Note 2 on that page. So we're also projecting that we will continue to grow our subscriptions at the 30% rate. And as we grow as a product business on a platform SaaS business, 30% growth rate is really important that we keep up the subscription growth rate and put our focus on that as a product company going forward. So we continue to see healthy growth rates in that subscriptions revenue. Quite a good -- a lot of it is booked as well in terms of some of our existing clients, but will roll into further subscription payments as we hit milestones in certain banks through this year and into next year. And the Limelight Health contribution will be EUR 4 million in terms of FY '21. We have in and around the right headcount in terms of delivering the year commitments. And as you know, since we did our IPO 2 years ago, we have scaled our team substantially from the R&D and the consulting side. We're now coming to a more of a plateau level where we look at the value and the momentum side of that team. And we're seeing the revenues now patch up with the cost base and quite substantially. And then I suppose we should call out the fact that we went public with a new deal with Partners Life in the ANZ region. And that gives us a first cloud client in the region. It gives us medical claims as well as part of the rollout. It's not a very big deal. It's more than out of the box where we're really using all of ANZ content and so on. And -- but it is the first cloud deal. We'll get regulator approval as part of this with the APRA people on the regulatory side. And hopefully, it will be a good sign then for the rest of our base to start moving to the cloud in the ANZ region, which, to date, most of them have been waiting for somebody else to do it whereas than go through the regulator. So I think that's a good sign. And so happy to take questions. The rest of the presentation really is open now to the floor. Thank you.

[Operator Instructions] Your first question comes from Tom Godfrey from UBS.

Can you hear me okay?

Yes. Perfectly.

Great. Maybe if I can just start with one around what you're seeing in terms of the new deal environment, particularly in the U.S. market. It sounds like it continues to be a pretty tough and volatile operating environment for the large carriers over there. But just if you can sort of speak more to that statement around new deals continue to push out, but the pipeline remains strong, maybe just some of the conversations you're having with CIOs in the U.S.

Yes. Sure. Like, as time goes on, obviously, we bake out our product more and more and make it more ready for selling. The whole idea of injecting in the R&D side is to make the product easier to sell, easier to upgrade, easier to use and so on. So we continue with the R&D side. In terms of the deals and what we're seeing in the marketplace, we did indicate, following our last call, that we were seeing a slowdown coming. So that has come through a bit in the sense that carriers have been putting costs in terms of just overall spend. They've been spending, but they've been spending less and much more focused as well in terms of things that they have to do, undertaken a little bit more time in terms of making decisions. I think from our perspective, because we're in the claims, the absence management space, particularly, we have regulatory software that they need. There's more paid leaves coming into the various states have been approved in FY '22 -- or sorry, in calendar '22. There's a few more states that have to be ready with employers and their product carriers have to be ready for state legislation in 2022. Some states are coming to market as well, looking for a software to do pay upon delivery. So what we're seeing is that the regulatory compliance side of the market is holding up and because carriers have to do this. And we did see one deal push from the half into, hopefully, this half because of the stage that we were talking to, they're prepared to do business with us, but then they get that, that they have to go to RFP because the deal was larger than they were allowed to go without an RFP. So we have to go through an RFP there. And hopefully, that one will come through for us. But there are other deals in the pipeline as well and indeed Limelight were talking to people as well. So we do see that there will be a pickup in the second half, we think, on the new deal front. But we can't predict exactly when.

Got it. And maybe just following on from that. I'm just keen to sort of understand how conversations are going around sort of cross-sell and upsell in terms of the broader AdminSuite. You've obviously got best-of-breed on claims, absence and now the sort of front-end products with Limelight. But are you getting much traction in terms of rolling out the broader AdminSuite across your installed base?

The AdminSuite, that's obviously going to be a big sale. So all the carriers we've been implementing and moving to the cloud, many of them are AdminSuite prospects. So it's an easier decision for them to take AdminSuite as a result of, say, implementing FINEOS Absence and Claims or just FINEOS in the cloud because that product is pre-integrated with the FINEOS Claims and Absence product. So -- but most of the action has been really around implementing what we already sold in a year or 2 years ago for the claims and the absence piece from the cloud piece. So I think we'll see that coming, Tom, in terms of the cross-sell opportunities for AdminSuite. We are -- we did see like 9 deals in terms of the absence side where we were able to sell claims and absence together, like either the cross-sell or the paid leads to an existing claims carrier or indeed the whole -- both of those products together. So we've seen that cross-sell working very well. And when you demonstrate the software to the carrier and they see the way that the software flows and the way that business flows through from one component to the other, it becomes pretty obvious that it's the right thing to do is to buy the next module because it's its sister. So I do expect that the big bet we placed on AdminSuite will pay off in the next 2 to 3 years. And I do think that once these big implementations are finished, we'll start to get more of the AdminSuite into these carriers.

Got it. And maybe just one for Tom. Can you just sort of dig into that declining gross margin year-on-year, especially in the context of the positive revenue mix you've generated and then also the declining sort of product team utilization? Is it really just that step-up in contractor costs? And how should we expect that to normalize over the next 6 to 12 months?

Yes. It's -- it really is a step-up in the contractor side. If you think about it from an overall perspective, Tom, the cost of goods sold element will increase more, but you don't have the overhead element in there from a contract perspective. So that mix will change as we go forward. But that's probably one of the main challenges. And from a margin point of view, we do see that probably improving a piece because we would have had some smaller deals with regards to sort of Limelight and some SI-type activities in there as well.

Your next question comes from Siraj Ahmed from Citi.

I just have a few questions. The first thing, I mean, you spoke to the demand environment for IDAM and disability. Just on the services side, clearly, you're expecting a decline in the second half. I mean based on your experience in previous cycles, when do you expect that to rebound? Is it still too early? Just keen to understand where you see the profile of the services revenue.

Sorry, the line isn't great. But am I right that you're asking us, when do we see services growing again? Is that what you said, the question that you gave?

That's right. That's right. That's right, yes.

Yes. Services from our side as -- like we see services as secondary to subscription growth. And very much the services are to deliver faster subscription growth by implementing software by doing upgrades and stuff like that. In the case of the services revenue going to 15% this time for this half, there was -- as I said, there was an impact directly of EUR 1.5 million on the services side from FX. And then there was a pullback of a very large project having successfully implemented a big payment system for a big carrier in New Zealand. And so that was a kind of a one-off services project and it wasn't necessarily leading to the next thing. So we will see services grow, and it will be the EMEA region. It will be down to upgrades to the cloud and then these moves towards the FINEOS AdminSuite. And one of the things that's kind of happening as well that I probably should point out is that we're feeling a lot of pressure from systems integrators from the older type firms and big integrators who want to work on the FINEOS projects and who partners with us. And what they want is the services revenues front, and they want us to train them up so that they can do the work. And before that, as a product business, we expect then that we would partner with them in terms of finding new opportunities to grow our software licenses. So there's some of that going to take place as well. In the case of Limelight, they had a very big partnership with EY. And one of the cases on one side, the -- most of the implementation people were actually EY people. But they were working through the Limelight book, and therefore, the margin was quite low in that services. So our services of course are very important for us. And they are secondary to the license fees, and we do want to grow our software license fees, and we do see healthy growth opportunities. Given the amount of money we've invested in R&D, we really want to see that payback continue.

Got it. And just one follow up on that. Are you seeing any rate or pricing pressure on the services side? Have you had to do lower rates?

No. That's one of the points. It's a great point. Thanks for drawing it out. But over time, what we will see is a higher services margin because we would pull our people into the very close work around our product as product consultants. And the lower cost or the lower kind of revenue-type services, we will hand off to the SIs and things that could be off-shored as well, we'd be handing off. So we want to try and increase, but we may not have as many services people in terms of growth rates of people as we would have done in the past. Percentage-wise, we do want to increase the revenue per head on our services people because they have that scale, and they'll stay very close to the product, and so I think services margin, from our perspective, we want to grow that margin. Now what I said, there will be a period of time where we might have to give away some margin to train the SIs under the FINEOS brand. So they work with us on a project or 2, and then they'll break away and do their own work under their own brand. While they're working with us on a project or 2, we will see a bit of strain on our margins when we compare them to historic margins on services. So as I said, there's kind of -- there's a dynamic at play where we're going to increase our services margin over time and increase our subscriptions and be much more like a product company, change the complexion of our overall revenues to be much more product-dominated revenues than services revenues.

That makes sense.

Sorry, Siraj. Just one other thing there, Siraj, that I think when we're looking at the FY '20 results, we actually grew the services revenues year-on-year by 48%. So when you look at this as a go forward, it's looking to just get more to a plateau on the revenues from a services point of view. I think, as Michael has said, we're trying to change the split on that as well. But we've had a substantial growth in the prior financial year to get to this level. So it's still at a high level of activity.

Yes. We still need a lot of services people, and we'll still grow as we sell AdminSuite and so on. There's a huge amount of work coming on services, but we will have that size working with us as well.

Yes. That makes sense. Just two more. Michael, one of the things that the Partner Life announcement is the expansion in medical, which is quite positive. But can you help us quantify the opportunity?

When you -- yes, the opportunity is -- we've been looking at the medical as an opportunity now in the region, in the Asia Pacific region, particularly where in countries like Japan and Hong Kong and the ASEAN region, medical-type claims are done alongside -- or medical-type products or so alongside life assurance. And it's almost like the medical go together in the region. So that's not the same as in the U.S. market where we've got that dominant position where we're doing life assurance products, but we're also doing supplementary health products, but not the medical side because medical is very complex in the U.S. and it's separately sold and separately managed. In Asia Pacific, though, the opportunity really is that as we move more and more towards the medical side, then it opens itself into countries like Japan, as I said, Hong Kong and the ASEAN countries. The Asia Pacific market generally is more medical -- life and medical. So I think it's a good step forward to have a reference in the region. So -- but we're delighted with that medical piece. So I haven't got a number for you in terms of the size of the market. I can tell you, obviously, that the Japanese market is either the second or the third biggest market after the U.S. and in terms of life and health. So that's kind of an interesting market for us to see if we can work in that marketplace going forward. And we do have a salesperson in Hong Kong, who is a Japanese speaker. And we have been scarring the region looking for the opportunities around the claims side. And indeed, as our product, AdminSuite, becomes more individualized, we look in the region as well for AdminSuite opportunities. And ideally, we see the multinationals at the place where we can get those initial sales. And when you look back to North America, we do have some quite big multinationals that have subsidiaries in the region. So it's a long term, fairly a large opportunity in the region.

Got it. And one last one for Tom. Tom, the revenue guidance is quite clear. How do we think about EBITDA margins in the second half?

I think that we were looking at, from a statutory point of view, about EUR 3.2 million for the first half. So we're looking for similar range for the second half.

Your next question comes from Tim Lawson from Macquarie.

Just in terms of the government RFP in the U.S., is there timing on that? And also where you are with your engagement with QInsure?

The RFP in the U.S., Tim, we expect decisions on that during this next half coming. And as regards to the QInsure announcement, we made an announcement of QInsure in Brisbane, we're going to move to the cloud. That's their intention. And QInsure are owned by the QSuper guys who are in the merger talks at the moment on the super side with Sunsuper. And that was kind of delayed decisions, but the intention is to move to QInsure to the cloud. So we're hoping that they'll make it second into the cloud after the Partners Life one. So we actually believe by the end, that market will move to the cloud. It's not a question of -- it's a question of when. And what we're seeing in the market is that the cloud players like Amazon and Microsoft are making big inroads and people like Salesforce and so on. So that journey has started for a lot of life assurance to move to the cloud.