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

Thank you for standing by, and welcome to the FINEOS Annual General Meeting. [Operator Instructions] I would now like to hand the conference over to Anne O'Driscoll, Chairman. Please go ahead.

Thank you. Good morning or good evening, ladies and gentlemen, and welcome to the Annual General Meeting of FINEOS Corporation plc. My name is Anne O'Driscoll, and I am the Chairman of the company. I'm pleased to act as Chairman of the meeting today. It is now just past 8 a.m. in Dublin and the nominated time for the meeting. I've been informed that a quorum is present, and I'm pleased to declare the meeting open. So to start with, I'll provide you with a brief update on the business, and this will be followed by an overview of the company's performance for the 2021 financial year and our growth strategy presented by our Founder and CEO, Michael Kelly. Then we'll progress to the formal business of the meeting where the resolutions presented in the Notice of Meeting will be put to the shareholders, or more appropriately, for security holders as there is only one shareholder. We will allow time for the questions regarding the resolutions before proceeding to vote on those resolutions. I would like to start first by introducing you to the directors who are present in this virtual meeting. Unfortunately, with the way we're set up, you won't actually see anyone other than Michael and I at this point. So Michael, our Founder, Chief Executive Officer and Managing Director, who will address you shortly; Tom Wall, Chief Financial Officer and Executive Director; Gilles Biscay, Non-Executive Director; Martin Fahy, Non-Executive Director and also Chair of the Audit and Risk Committee; and Dave Hollander, Non-Executive Director. Dave -- Martin and David are both standing for reelection today. Also present are Ms. Vanessa Chidrawi, Company Secretary; and representatives of the company's external auditors, Mazars, including the signing partner, Mr. Lorcan Colclough. For the second year running, we are holding this meeting wholly online due to COVID-19-related restrictions. Thankfully, the incidence of COVID-19 diagnoses in our team has been minimal across the globe, and our people have continued to work productively while working remotely. Indeed, in recognition of the wishes of a number of our people and the trends in the global technology workforce, we are committed to supporting a flexible hybrid model, mixing office and remote-based working into the future, depending on people's preferences and roles. This is just one aspect of our employee value proposition, which we are refreshing as we have grown from circa 650 people and contractors when we listed in August 2019 to 1,075 in September '21, and we face into the Great Resignation wave across the global technology sector. Other aspects of our employee proposition that we are refreshing and formalizing include our new diversity, equality and inclusion policy and then upgrading our Leadership Essentials program, devolving our recognition programs into the business and uplifting our succession planning and development. A lot of work is going on in those matters at present. Meanwhile, FINEOS has continued to grow strongly since listing in August '19. Total Software revenue in the year to June '21 was EUR 41.9 million, up 42% in the year and 80% in 2 years. Supporting this growth were a record number of new contracts won in calendar 2020, which are now being delivered with a number of major client go-lives under our belt this year. It is a credit to our team and our products that these implementations have gone so well. During the 2021 financial year, we also made 2 acquisitions: Limelight in August 2020 and Spraoi in May 2021. The technology within these businesses is supporting the build-out of our platform modules so that we now provide end-to-end solutions and insights to clients in the life, accident and health insurance space. We are also grateful to you, our security holders, for your support in providing the capital to undertake these acquisitions and the recent capital raise to fund the ongoing development and implementation of our FINEOS Platform with our clients. We remain confident that our platform is supportive of the drive for ongoing digitization and increasing efficiencies of insurance processes in our markets, and we are committed to partnering our clients and potential clients in this journey. I will now hand over to Michael for his CEO presentation, with thanks to him for the efforts he has put in leading the team over the last year. Thank you very much.

Thank you, Anne. Good morning or good evening, everyone, depending on where you're joining the webcast from today. I will provide a brief overview of the 2021 financial year, including the key financial and operational highlights as well as an update on the current year's performance to date. I will then pass back to Anne for the formal business of the meeting. Turning to Slide 4 of the presentation, I'm pleased to report that in FY '21, FINEOS achieved record financial results. In summary, total revenue for the group was EUR 108.3 million, up 23.3% on prior year. Importantly, Subscription revenue grew by 48.6% to EUR 40.1 million, reflecting strong organic growth as well as contributions from acquisitions made during the year, which I will touch on a little later. Growing our higher-margin Subscription revenue is a key focus for us and achieving this level of organic -- sorry, level of growth in a year that was challenging for many markets, including the one we operate in, was a great achievement. It is also a testament to our FINEOS team and the long-standing relationships we hold with our clients who continue to partner with us and invest in the FINEOS Platform to support their core business needs. Services revenues grew by 13.9% to EUR 66.4 million, off the back of an exceptionally strong prior year. We continued to maintain strong margins at the gross profit levels of 66.5% and achieved earnings before interest, taxes, depreciation and amortization of EUR 7.9 million on a pro forma basis. This EBITDA was down on the prior year EBITDA of EUR 15.7 million, and much of that was due to acquisition transaction costs and absorbing losses related to Limelight Health that was acquired in the first quarter of the year. At year-end, we carried no debt and had EUR 14 million in cash. Following the capital raise completed in the first quarter of FY '22, our cash balance increased to EUR 50.4 million as of the 30th of September 2021. This position provides strong financial foundations and strategic flexibility as we pursue our medium- and longer-term growth opportunities. Slide 5 reflects some of the operational highlights from the year. We now look after over 60 carriers across North America, APAC and EMEA. North America is the region in which we have purposefully pursued and achieved the most growth with revenue from this region making up 73% of the group's overall revenue for the year. This is evidence that our growth strategy is working and our proposition as a global market leader of core systems for group and individual life, accident and health insurers is strengthening. As Anne mentioned, FY '21 saw us complete our first acquisition in Q1, followed by a second in Q4, both acquisitions were executed remotely during lockdown periods. Needless to say, it was a busy year, and we have had -- and we have been hard at work integrating both companies and their teams into FINEOS. I won't go into the detail of both as we have covered this at large in previous presentations, but what is important to point out is that through acquiring Limelight Health and Spraoi, we have not only increased revenues and number of clients, but we have now a stronger FINEOS Platform for life, accident and health insurers. Naturally, we have increased our total addressable market by being able to serve clients on the entire journey from Quote to Claim with enhanced machine learning capabilities in the FINEOS Insight and FINEOS Engage modules. We've also gained great talent from these acquisitions and appointed a number of their leaders to fill open positions within our North American region. During FY '21, we exceeded 1,000 in headcount and held strong employee retention rate of over 90%. However, we are noticing a harder market for hiring now, albeit our attrition levels remain low and well ahead of the industry norm. Slide 6 covers some of the initiatives and objectives we are focused on with regards to our people and ESG. With the unusual past 18 months that we've all experienced, people engagement and well-being has been more important than ever to focus on, and we have put additional resources into supporting our global diverse team. We also launched an updated diversity, equality and inclusion program called Embrace in the second half of the year, which has been received very positively by our team. As a technology company, our carbon footprint is naturally low. Pleasingly, however, we have been able to significantly reduce this further and will continue to contribute to climate action plans in the countries we operate in by reducing travel journeys and embracing the hybrid working model of remote working and adopting energy-saving practices whenever possible. Moving to the first quarter of this financial year, Slide 7 shows some of the highlights from the quarter, which has been very, very busy. Some of the financial highlights include completing the capital raise that I mentioned earlier and growing the annual recurring revenue, or ARR, to a strong EUR 49.1 million at the 30th of September 2021. On the sales front, we strengthened our sales team in the U.S., hiring a Senior Vice President of Sales, who had worked for us previously, and recently a new deal for the FINEOS Engage product -- we recently signed a new deal for the FINEOS Engage product. Operationally, we reopened the Dublin office for the first time since it closed in early 2020, albeit the vast majority of people are still working remotely. We see this trend continuing for the time being as we continue to work through the ongoing effects of the global pandemic. Product Consulting utilization increased to 91% over the quarter, up from 87% in FY '21, reflecting the continued demand for our teams and high level of services work still required to support cloud upgrades and implementations. Slide 8 displays the split of revenue across our main operating regions. In keeping with our strategy of focusing investments in growing our North America region, revenue from this region has risen to 77% of total revenue for the quarter, as our clients there continue to be the most active and lead the way in the FINEOS Platform implementation and cloud upgrades. This is the region that has returned to post-COVID norms the quickest, enabling more in-person client engagement and sales activities, such as our recent significant presence on sponsorship at InsureTech Connect, the largest annual conference for insurance technology in the U.S. We expect to continue the regulatory -- continue to see the regulatory changes that will help to drive the adoption of the FINEOS Platform for employee benefits market in the U.S. Turning to Slide 10. In terms of the outlook for the rest of the year, we are on track to achieve guidance issued at the full year results announcement in late August of FY '22 revenue in the range of EUR 125 million to EUR 130 million. As I highlighted in a previous slide, our ARR at the 30th of September has grown to EUR 49.1 million, which reflects growth of 7% on the ARR of EUR 45.7 million at the 30th of June 2021, and puts us well on track to achieve our target of approximately 30% growth in subscription revenue for FY '22. In summary, we are well positioned both organically and financially to -- operationally and financially to execute our growth strategy into FY '22 and beyond. The 2 acquisitions made during FY '21 improved our FINEOS Platform and our position in the marketplace. Coupled with the continued investment we are making in R&D, we are in a very strong position to benefit from the opportunities that lie ahead in the industry and continue to increase our SaaS subscriptions revenue, ultimately delivering more value for you, our security holders. Lastly, I would like to thank our clients, partners and, in particular, acknowledge and thank our people for their contribution, dedication and flexibility in overcoming the many challenges that the last 12 months has presented. What FINEOS has achieved in terms of growth and expansion in FY '21 has been driven by our people, and we will work as a team to continue to drive our growth and success in the years ahead. This concludes my address. On behalf of my fellow directors, thank you all of our security holders in FINEOS. We look forward to sharing our progress with you as we continue our journey and execute our mission to become the global market leader of core systems for group and individual life, accident and health on a single technology platform. I'll now pass back to Anne to commence the formal business section of the meeting. Thank you.

Thank you, Michael. Thank you, Michael. And before we move into the formal resolutions, there is an opportunity for general questions to be answered. And so if anyone would like online to ask a question, and there are none on the screen at the moment, but if you would like to ask a question, the floor is open to you. But please remember that only security holders, i.e., the one shareholder, CHESS Depository Nominees Pty Limited from the line of the proxy, and holders of CDIs are entitled to ask questions. And please feel free to type your question into the question box now if you would like. And look, there were -- given there's no questions appearing at the moment, and there will be opportunities to ask questions on each resolution as we go through, and if you have a pressing question at the end, we can manage that then if you put it into the system. So given there are no questions still appearing, we'll move into the formal business of the meeting. So I've been informed that the Notice of Meeting was sent to all registered security holders. I hold a copy here today. So I table that Notice of Meeting, and I'll take the notice as convening the meeting as read. And indeed, we'll do that with some of the longer resolutions as we work through them. So during the course of the meeting, I'll put various resolutions to the meeting and, where appropriate, I'll provide an opportunity for discussion. There will be an opportunity for questions on each resolution, as I've said. 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. May I ask that you keep your questions related to the matter at hand and as succinct as possible and, obviously, identify yourself as you do that through the system. Hopefully, put your real name up in the system as you go through. This means that each shareholder present in person or by proxy has one -- sorry, voting at the meeting will be decided on a 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 is technically only one shareholder, and I hold the proxy, as I've said, for that shareholder. The poll will be taken at the end of the meeting and the results announced to ASX shortly after the close of meeting. I have been advised that all proxies received have been checked, and I declare they're valid for voting at the meeting. The number of proxy votes received for each resolution will be displayed on the screen prior to the vote being taken for each item. These figures will be as at the closing time the receipt of proxies, which was 8:00 a.m., Greenwich Mean Time on Sunday at the 7th of November. There are a number of voting exclusions that apply to the resolutions being put to today's meeting. They were outlined in the Notice of the Meeting. The first item is -- of business is the receive and consider the financial report, the directors' report and the auditor's report of the company for the year ended 30th of June 2021. That annual report, annual auditor's report, directors' report were all released in August, and there is no formal resolution required for this item. But I invite questions and comments, if there are any coming up. Again, for this item and those that follow, may I request that you ensure that you identify yourself as you're typing in your question. Are there any questions for the management of the company or questions to the auditor? As I indicated in the opening, Lorcan is present from Mazars and can take questions on that as well, if required. I would also point out that no questions were received in advance of the meeting for shareholders, so there are no such questions to be addressed. So it's up to those present to raise a question if they'd like to. Well, that looks like, again, there are no questions coming through. So as I say, there is -- it's the first item on the agenda. We'll now move on to -- there's no vote on this item. So given there are no questions and no vote, we'll move on to the next item. The next item, and this is different from Australia in the sense that this is not a recurring resolution at the AGMs in Australian companies, but it is under Irish corporate law, and we are meeting -- this is a general meeting of an Irish company. So the second resolution, our second item of the business is the vote on the auditor remuneration, and I put that to the meeting. And that resolution is that the company's Board of Directors be authorized to fix the remuneration of the auditors. I now open this matter for discussion or questions. Okay. So we'll now show the slide for the proxy results on that item. So I believe you can now see the voting proxy statistics. And as advised at the beginning, voting on this item will be via a poll at the end of this meeting. The next item. So the next item is the reelection of Director -- Non-Executive Director, Dr. Martin Fahy. Martin is present at the meeting. And the next item -- I'll note that the resolution to the meeting that he be reelected, i.e., that Dr. Martin Fahy, 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 himself for reelection so that he'd be reelected as a Director of the company. Are there any questions on the reelection of Martin? And a blank screen again. So the proxy votes on that resolution are being put up for you. And let's see that the proxy votes are in favor of that resolution. But as I say, the poll is not closed until we finish the meeting. Next item is the reelection of David Hollander. David is also on the line today, and I will put the resolution to the meeting. That Mr. David Hollander, being a director who is retiring by rotation in accordance with Article 104 of the articles and Listing Rule 14.5 and being eligible, offers himself for reelection and that he be reelected as a Director of the company. Are there any questions on the reelection of Dave Hollander? We know you're out there. No questions. Okay. We'll disclose the proxy votes on that, and you'll see that there's strong proxy support for David's reelection until the close of the poll. The next item on the agenda is the approval of the FINEOS 2019 Equity Incentive Plan. This plan was put in place at the time of the listing and has had only minor amendments made to it. But for the purposes of the listing rules, we need to get it approved on a regular basis. The minor amendments to that were set out in the Notice of Meeting. So I put the resolution to the meeting that for the purposes of Listing Rule 7.2, Exception 13, and for all other purposes, approval is given for the issue of securities under the company's Employee Equity Incentive Plan on the terms and conditions outlined in the explanatory notes. Are there any questions in relation to this item of business? Again, we'll put the proxy results up for the information of people attending the meeting. And again, voting will be determined by a poll at the end of the meeting. There being no further -- no questions on that item, I'll move into Item 5.1. Now 5.1 and 5.2 are lengthy resolutions. And given that we've taken the Notice of Meeting as read, I don't propose to reread the full text of these resolutions. But I do [indiscernible] to the next AGM. I would point out again for those Australian resident shareholders, security holders, this is not a resolution that exists under normal Australian AGMs because directors have the authority to issue shares subject to certain limits. Under Irish corporate law, no such authority to directors without having such a resolution put to the meeting. So the intent here is that directors have the capacity to issue 33% of the aggregate issued shares. My understanding from our Irish legal advisers is that 33% is a standard within the Irish company -- listed company practice. And there's no expectation that we will issue that many shares, but it's just a recurring thing. We can't even issue shares in execution of -- on vesting of options, for instance, if we don't have this authority. So that's why this is so important, and it is a recurring resolution at the AGMs of FINEOS. [Audio Gap] that's the resolution we put to the meeting. And as I said, I don't propose to read the full amount out. But if anyone has any questions on this item, please feel free to make those now. Okay, if that's the case, with no questions appearing, we'll move on to Item 5.2. Now Item 5.2 is even longer than 5.1, and I certainly am not proposing to read out the full text of it. So this item of business relates to the approval to disapply preemption rights under the company's articles of association to harmonize with the 15% issuing capacity under Rule 7.1 in the ASX Listing Rules. I put this resolution as such as in the Notice of Meeting to this meeting. And again, this is something that's unusual for Irish companies and -- but it doesn't have to be passed in Australian companies because Australian listed companies have the authority to do this under the listing rules and don't need to do it separately at their Annual General Meeting. So this is actually putting FINEOS on the same standing, if you like, as other listed companies within the market in which it's listed. So the -- it's basically the 15% list rule capacity that exists under Listing Rule 7.1. If there are any questions on this, please feel free to make those questions known now. Again, nobody seems to want to ask a question at this meeting on that topic. And the voting proxy results will be shown and you will be able to see those results, which are supportive of the transaction -- I'm sorry, of the resolution, and the voting will formally take place as part of the poll at the end of the meeting. So then we move to Item 6, which is ratification of the issue of securities. Now this is quite a normal resolution in Australian listed companies and is occurring here as well. Essentially, we are refreshing the 15% capacity and refreshing that capacity in respect to the placement that took place in September this year. So that is refreshing the capacity for the 16,279,069 ordinary paid shares, which were then obviously put out as CDIs and so that we have the full 15% from the close of this meeting and based on shareholder support. Are there any questions on this matter? Apparently not. So that, ladies and gentlemen, brings us to having put all 6 items in front of you today. And so we will now conduct a poll on the resolutions and shareholder proxies will complete -- well, that shareholder proxy, being me, will complete a voting card to hand to the Company Secretary who's here beside me. But meanwhile I'm doing that, I'm happy for anyone to actually ask any questions, again, as a final opportunity, while you have Michael and myself and the full Board present. Happy to take some questions. Well, ladies and gentlemen, there are no questions coming forth. This concludes the formalities, and I now declare the meeting closed. I would like to take this chance to thank my fellow directors, Michael and his management team for their diligence and commitment to this business. I would also like to thank you, our security holders, old and new, for your continued support and for your time and interest today despite the restrictions posed on us by COVID. And we hope that we will be able to meet more of you in person in the near future. Take care. Thank you very much. This concludes the meeting.