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

Thank you for standing by, and welcome to the FINEOS Corporation Holdings plc FY 2022 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kelly, Chief Executive Officer. Please go ahead.

Thank you, Darcy, and welcome, everybody, to our FY '22 results presentation. I'm joined here today by Tom Wall, our CFO, and we will both go through this presentation. I will start off and give an overview of our performance. Tom will go into detail on the financials, and then I'll finish up with some overall comments and commentary in terms of where the business is today. So if you turn to Slide 3 of the presentation that we sent out, I want to start off by saying that we've had another year of very strong growth in FINEOS. Very pleased with the overall revenue of EUR 127.2 million, which is up 17.5% on our previous year. And really pleasing in that result appears the very good growth rate on the subscriptions revenue for our SaaS platform of EUR 53.8 million, up 34.2% on the previous year. Services revenues grew to EUR 71.4 million, up 7.4% on the previous year. And gross profits were EUR 83 million, and gross profit margin 65.3% margin. So that again is up 15.3% on the previous year. EBITDA EUR 6.7 million. And again, EBITDA margin is 5.3%, and it's up 28.8% on the previous year. The annual recurring run rate at the end of the financial year is now running at EUR 56.4 million. So again, showing strong growth of 23.4% on our previous year. If you turn to Slide 4, I'll focus in here in terms of the growth of the revenue over the past 3 years since we did our IPO. So although we've basically -- we've achieved the guidance that we gave a year ago, which was really pleasing in the prevailing environments that we're operating in. The total subscriptions revenue was EUR 53.8 million. So the 34.2% growth, which actually exceeded guidance and overall, I think with the ARR at EUR 56.4 million, we see ourselves in a continuous healthy growth rate on our subscriptions revenue, which is really the focal point of our strategy to grow our product revenues and turn this into very much a product business. And this would be typical above 50% product revenues and growing as we grow over the next few years. In terms of the core revenue, the subscriptions revenue, as I said, is up 33.5%; and ILF revenue, which is the initial license base that are kind of tapering out in our numbers, a small number, but it's up 15.8%. And that's really related to our original partnership with Spraoi, which has become New York Life Group Benefits. And so the total revenue is up EUR 16.6 million in terms of the organic revenue. But when you add the acquisitions, we're up to EUR 17.5 million revenue. If you turn to Slide 5, I want to point out the phenomenal growth rates that we've had in North America. We're really leading our strategy out of the North American market, where cloud and Software-as-a-Service platforms are probably the most advanced in the world. And North America for us and for most companies, I think, is the biggest market in the world, with over 30% of global insurance operating out of the North American market. So we firmly saw North America as our growth opportunity. And indeed, if you're #1 in North America in a software sense, you can usually say you're #1 globally. So again, strategically, our focus is growth in North America. And today, we're doing almost 80% of our total revenues in the North American market. So that has moved up from 45% when we did our IPO and set out our strategy in our prospectus. So again, that's really, really pleasing. And in terms of the North American market, we continue to see a change in the regulatory environment, the competitive landscape, the employment environment as well in terms of employee engagement and retention, great resignation. And everything that is going on in that benefits market in the states, there's actually good news within this on the platform. If you turn to Slide 6, you'll actually see the growth in subscriptions in North America, which really have been phenomenal, very, very pleasing. They have actually multiplied as predicted by over 10x since the IPO based on the deals we've done coming into the IPO and subsequent deals in terms of new sales and cross-sells. So we've achieved a 67.3% growth rate in FY '22 on the previous year. And again, North America is very much the powerhouse in the driver of our growth strategy to date. In terms of research and development on the following page, Page 7, the R&D figures for us in terms of investment leveled off over the past couple of years. So you can see from this diagram that we had a big jump in FY '22 to just the phenomenal asked from some of our larger clients. Those clients have thousands of systems in the back office and front offices, and they have many very, very complex legacy type environments. So we were asked to step up a couple of years ago and deliver more in terms of dependence implementations and integrations and so on. And therefore, we would have grown our R&D more and also our services more a couple of years ago. In terms of the R&D profile now, we see that steadying off because we're very much focused on a single market, the employee benefits market in North America. And all of our systems are up and running and live. And what we're seeing now is the opportunity that we have to continually grow our subscriptions through the growth of those platforms and also the cross-sell opportunities and the growth opportunities going forward. So in terms of the R&D investment this year or last year, 34% of our revenues went into R&D. I just want to point out that we measure these R&D investment of salary monthly, We don't add the overheads as well. So that's 34% based on salaries, just to point that out. And over the past, I suppose, 5 to 6 years, we've invested about EUR 200 million into our platform. So again, very large investment, which we believe that many of the benefits still have to come in terms of revenue growth. But we also believe firmly that R&D is really important and that we needed to grow the platform, so we could support the large customers on the market that we are chasing in terms of the employee benefits. Geographic mix of revenues on the next page, Page 8, and clearly shows the North American market as the biggest market. And also, what you can see is the other two markets have contracted against the North American market. But in real terms, they've also contracted as well, APAC and Europe. So again, I'll talk about that as we go through the presentation. But the main factor I wanted to point out was the huge growth in North American revenues in the past couple of pages. On the people side, we have our employee diagrams there, which show you how our employees are spread by function and by geographic region. So I won't go through that. But again, you can see that the R&D side of things, we have quite a big team on the R&D function. We have also had very, very high consulting utilization results as we went through last year, 89%. And retention still remains very high. Post-COVID, the great resignation and so on. We put a lot of focus into retention. We've also been putting a lot of focus into growing the Indian operation that FINEOS acquired through Spree, We're building on that, and we have a kind of pro Indian hiring policy in terms of our overall growth strategy. And as part of our retention strategy, I think most companies are following similar lines, apart from maybe some of the very big tech companies. We've implemented a remote-first hybrid model, which our people are very, very comfortable with. And indeed, they really enjoy working from home and having that flexibility and the ability to be measured by the results rather than the hours that they are present in the office or on the systems. So overall, very good in terms of our people. 20% of our resources are contractors, and we'd like to keep that kind of number of contractors. It gives us flex in terms of any increase in demand or decrease in demand. I'll turn now to Page 9. And just to -- sorry, to Page 10. Just to mention on the people side, the ESG focus that we have, we put a lot of efforts into this. And we really try to make sure we're engaging with our people and that there's more definite stand just to work. And there's also the social causes and charitable and so on in terms of the environment. So we look at the holistic relationship we have with our people and the environment. And our principal objective is to drive organizational health to create a great place to work on a competitive advantage. So we have a team of people who focus on ESG all the time and they meet regularly and we get updates from them and we take suggestions from everybody in the business in terms of how you think we can improve in here. We're very pleased with the number of awards that we've won over the past year. So we're getting the recognition. First of all, I guess, we're actually entering [indiscernible] recognition from some of these award bodies. And secondly, we're actually winning awards. So very, very pleasing in terms of last year. And in particular, the Prestigious CIPD Award for our embrace DEI program, which we introduced and I mentioned last year in the results call. We're also using technology and focusing in on social recognition within the teams. Better ways of working and making sure that our teams are fully connected with what we do in terms of purpose, values, vision and our overall mission. And also making sure that we recognize people in terms of the contribution that they're making, and we call that out regularly. So -- that's it in terms of the top line overview from myself for the moment. I'm going to hand over to Tom Wall, who will cover off the detail on the numbers. So over to you, Tom.

Thanks a million, Michael. Everybody, welcome to the call today. So I'll probably reiterate a good few points that Michael has already made. I suppose one in the context we need to add for the overall performance of the business is that from a marketplace point of view, it's still being tough out there in regards to closing deals. And in line with the strategy and previous focus, we've given. We've outlined the fact that majority of our activity for this FY have been with existing customers. And I know that's something that the marketplace always looks at from a metric perspective, especially with the SaaS-related business on new names. But the majority of our activity in growth has been with existing customers. So from an overall perspective, as Michael has alluded to, the growth and the activity is mainly in North America. We called out the fact check from an APAC perspective and also from EMEA point of view, we've had, I suppose, a retraction on where we've had revenue-wise, but that reflects the marketplace. And again, from an APAC perspective, it's been one of the laggards from an adoption on the SaaS and the cloud-based activity. Going through the main points overall. We would have given message out before around the services revenues and the engagement of SIs across the business. So the growth of 7.4% in revenues from EUR 66.4 million to EUR 71.4 million it's a strong number, and we still managed to retain the overall gross profit margin, which is at 65.3%, which also reflects some of the SI work that we've done and transferred throughout the year. Throughout the year, we've also integrated spree, which came on board in May '21. And another part, obviously, from the impairment and investment perspective on the business, it's still worth being invested in the product, and that lines up with the R&D. If we go down then from an overall EBITDA perspective, it has grown by 28% year-on-year. But again, when you look at the overall results of the numbers, we've had substantial FX impact throughout the year, which has impacted top line but also a cost base for different regions that we deal in. Other part from a deal point of view when we had done our IPO in line with the strategy, we have signed 3 deals at that time in May '19. They're all coming to fruition as well and have generated substantially more revenue than we would have outlined at the time, which again goes in line with the strategy of cross-sell. [Technical Difficulty]

Please hold while we get the speakers back.

Apologies for that. I just got cut off from the Chorus guy. So there's always something new coming in for these calls each year. So as I've gone through just on Slide 12 with the key elements from an overall perspective. We still invest with substantially in the AWS elements. We have R&D and one of the changes that I was just alluding to there on the call was the impairment adjustments that we put through, which, again, is we have separate cash-generating units of CGUs. And when we do our validation each year of impairment, which we do every 6 months for the business, we established that in the long run, the original investment required some adjustments on the impairment side. It's a noncash activity, and it's a EUR 12.6 million number, which obviously affects the loss after tax performance number. If I go to Slide 13, and apologies guys for the disruption there that Chorus actually came in and switched the call off. So I'm not quite sure if all the updates have come through but we can probably catch up later on, on the call in that perspective. On Slide 13, it's calling out the key areas. And obviously, from an overall impact on the EBITDA, the logical one to quarter versus the cloud operations and support. That's shown an increase of 48%, and the impact on that was about EUR 5 million from an overall perspective movement year-on-year. That's in line with the focus we've had from an investment perspective, whereby when we have extra subscriptions being generated across the business, extra activity, new product lines been added. We've always had to invest upfront in that activity. Also for this particular FY, we've invested in automation processes and third-party software. The likes of silicon monitoring tools like New Relic, which again allow us to access the systems a lot quickly using the AWS platform. But what we have to do is incur some of those costs upfront. The intention on that is that from a go-forward, that will ease off as in we'll have done the investment cover from an APAC, EMEA and a North American perspective. The other avenue there, obviously, from a delivery perspective, the costs have gone up as well, which would be in light with the headcount changes, the additional revenues that we got in there, but also there's a degree of FX for U.S.-based costs and headcount in there from an overall perspective. Sales and marketing costs have grown by about 12%. And from an overall rationalization point of view, that will steady up for the rest of this year, but obviously, from a go forward, there will be some investment in that as well. R&D costs have leveled out a piece, as Michael called out, to around 34%. The other thing is we would look at comparatives in the marketplace to see what other companies are doing. And we see ranges of 30% to 36% from an overall investment perspective out there. And from the R&D and the existing product perspective, we obviously see the value add in that with the growth in the subscription revenues. The path on the cloud is also its investment in the infrastructure from a go-forward point of view to great economies of scale. And also from that perspective, as Michael alluded to earlier as well, with the event of the purchase of spree is to focus on the Indian cost base and access to lower cost staff in that region as well, which, again, is not just a head count number, but it's the cost per head has an overall impact on that. Going to Slide 14. The main call-out on growth from an overall perspective is what we see around the cash position, which from our overall free cash flow improved substantially in FY '22. And from an overall cash percent perspective, we closed the year at about EUR 44 million. Sufficient cash to run the business going forward, which is a positive for us from an overall point of view. Some of the elements that sometimes [indiscernible] just when we get the payments in, we received a substantial amount of payment in week 1 of the new financial year. And you can see that the trade receivables have risen by 15%, which again was some material billings that took place in May and June time frame. One of the things in here, which obviously doesn't always get a lot of light is the tax losses that we took on board with the likes of Limelight from a U.S. perspective. That has meant from an overall federal tax perspective. We created some tax assets on that, so the deferred tax asset. That gives us benefit down the line and also from a global tax structure. So when we get to the profitability stage from an Irish perspective, that we have substantial losses that we utilize against that, which is also a good benefit from that perspective. We've called out the goodwill from an overall point of view, and the impact of the impairment. Deferred revenue, again, that's increased in line with the billings that are taking place and obviously from the subscription revenues going up -- that would be an expectation that the deferred revenues will go up as we recognize them on a monthly basis. Last slide, from my perspective is Slide 15, on the operating cash flows. So the trend on that is continuing to improve. So we're seeing an increase in the operating cash generated from the operating activities. Closing the year with EUR 44 million in cash is a strong position for us. I mentioned about the July collections and the trends on the free cash flow improving from that perspective. And the cash being sufficient to run the business for a substantial period of time from an overall point of view. They are the key points that I have. Apologies for the disruption on the call. I'm not sure if anything was missed, but we can pick it up later on. They are the main points for me, Michael.

Thank you, Tom. So summing things up in terms of the go forward. We're in a very good position to continue the healthy growth rates that we have. And even though we're looking at an uncertain prevailing environment. Obviously, we've come through the COVID period that we've made into this new situation with the various issues around supply chain, the war in Ukraine and Brexit and so on. So effectively, we have most of our revenues and most of our growth rates in North America, which obviously is extremely important in terms of staying strong and the growth rate that we've set ourselves up to do strategically. We also want to call out that a few weeks ago, we finally got our New York Life case study released in terms of the time it took to do that probably over a year. So If you could go on our website, you can actually get a copy of the case study. But we believe this puts us into a very strong situation in terms of having a fully implemented digital transformation for a large employee benefits carried in North America, where we've eliminated legacy systems as well as obviously putting in a brand new system, which the New York Life people called the unified platform. So we're hoping that, that's going to be really good in terms of the go forward. We've also been really pleased with the Spraoi acquisition we made last year. And in those teams -- very, very quickly and very effectively into the business. And indeed, the products are very, very complementary. So we're excited about what we're doing there. We've been investing heavily in the Limelight product. And we both run like 2 years ago as an insurer tech in the West Coast of America and so that we could fill the gap that we had around new business underwriting. And so what we've been doing is very much turning that product into another component of portfolio end-to-end famous as well as obviously having it as a stand-alone product that we can sell independently. And we're quite pleased with the [indiscernible], so we sold that product to them and that system has been implemented jointly with EY, and we've put some really good accolades from that client in terms of their satisfaction. In terms of the IDAM product, which continues to be a big, big part of the employee benefits requirements in terms of the industry, which is the integrated visibility and absence management component and around claims and options, we've basically been driving that program and that product across our business in North America. And there's more and more change coming in that environment. It continues to get a high degree of focus from our clients. We're also looking at areas outside the pure carrier market. So we're looking at the employer-based market where we can sell the software directly to employers who will not buy from the carriers or outsource to the lead management, they'll actually in-source it. So we're looking at that market as well. And it's a very, very strong fit for the product that we've already got. So a key strategic rationale in terms of looking back last year. As I said that in the early part of the presentation, overall, North America being the key market for us, and we're definitely executing on that. I will say as well that we are seeing the kind of the change up in the likes of ANZ where core systems are now seen as -- cloud-based core systems are now seen as the way to go. And indeed, the regulators very much on site. And indeed, we've seen a settling down of the Australian market, in particular, after COVID and also the M&A that took part before COVID. So quite optimistic about that as well in terms of the go forward. As we kind of -- we've gone through the past year or 2, we've continually executed around cloud upgrades, major product upgrades, and we continue to work in this -- on the SaaS side with our clients. And as Tom said earlier, that is impacted on the cost basis, the likes of cloud ops, where we've had to increase the teams to make sure we have global coverage in place for the amount of activity we have going on in the cloud. In terms of the key priorities for going forward, we have quite a few multinationals and we are working with them in terms of the implementations we're working on now, but also having discussions around what else we can do with those multinationals and other places. These are very significant carriers and not only with the areas where we're working today -- an opportunity for cross-sell within those areas in terms of the products we have, but also other various other countries as far as there's opportunities. So we will work those with those partners and look for new opportunities in terms of the cross-selling. The IDAM and the frame side is still very much the dominant area of our business in terms of revenues. But as I called out, New York Life have just issued a case study, and that certainly opened a lot of eyes as being the first truly purpose-built platform for employee benefits for group volunteering and options management. And so we are receiving quite a bit of praise and indeed in trust in business as a result. New York Life will continue to promote that case study jointly with us as they see it being a big change in their environment and gives them a competitive advantage as well. So we continue to have our focus on the platform subscription revenues. And we will continue to migrate our existing clients of their existing on-premise systems. And there's still quite a lot of that work to do, quite a lot of customers, particularly in the APAC region. And we'll be migrating to the new platform. Overall, though, in terms of our focus, we're very much focused on new customer wins as well. And our pipeline has grown, but it has been continually slow to get conversion of deals. There's also a bit of competitive environment, and there's also systems integrators involved as well. So it's a more complex environment we face. We're kind of prevailing kind of environmental issues as well in terms of the macroeconomics and so on. But, I think we'll be optimistic in terms of the carriers coming into profitability in terms of the results and growing again. So I think we're cautiously optimistic, but still proceeding with caution, as I said. The overall opportunity as well in terms of regulatory and the way that, that is continuing to change in North America was very positive for us. It does cause a strain in turns to the R&D and the extra work we could do, but obviously, it causes the carriers who don't have FINEOS even more pain. And therefore, I think we're on a trend here to positivity and for future growth. So it's very focused on the sales and marketing side, very focused in terms of new name business. And we continue to see a large pipeline of cross-sell and upsell of the existing base. So Slide 19 just covers the New York Life achievement, 9 million customers, 4.1 billion are premium managed on FINEOS, and we replaced 6 legacy systems over the last 2 years and upgraded the FINEOS on-premise claims system into the FINEOS AdminSuite. If I turn to the last slide, Slide 20. As I said, the outlook we have is cautiously optimistic. And we're projecting a revenue of EUR 135 million to EUR 140 million for FY '23. There's a good pipeline in terms of what our sales team have built so far. And we're hoping to see some new business, new name and indeed, quite a few cross-sell opportunities as we move forward. And we still see, as I said, of the backlog of cloud upgrades as probably the largest opportunity in terms of the next 12 months, but also cross-sell opportunities where we implemented our platform and there's an opportunity to expand. We raised cash last year and we're in a strong position cash-wise, as Tom said. But we are actually moving towards a free flow cash situation for FY '24. And we signaled that in the last quarterly update. But again, just to reiterate that. So I'll leave it at that in terms of the update. And I just finally want to say thank you and a goodbye [indiscernible] Tom Wall, who's leading FINEOS to the [indiscernible] And we'll be welcoming Ms.Susan O'Connor to the next update we do on this. She's joined as our CFO. So thank you very much.

[Operator Instructions] The first question comes from Garry Sherriff from RBC.

Can you hear me okay?

Yes.

Go ahead.

A few questions. The first one, just about the FY '22 North American subscription growth at South quality is just super strong. So I just want to try to get a sense how much of that growth was from New York Life? And what was the remainder?

Yes, that's a good question. Actually, we have a special deal with New York Life because we're a charter client. So I would say that not a huge amount of that growth was New York Life, Garry, because they had -- we have a partnership that they could move their full book to FINEOS as part of the overall partnership over the years. So I can't take you the detail of it was.

No, that's fine. That's actually better than -- that's fine. I actually thought or likely the bulk, but it sounds like it's not. Now second question, yes, perfect. Second question was really around -- you've given a sales guide for '23. I mean how should we think about that sales mix and the quality? I mean, I assume it continues to grow, the subs revenue, but just trying to get a rough idea. I mean do you have many existing clients migrating on to your cloud product in FY '23, really just trying to firm up the quality of the FY '23 sales guide?

Yes. I think the FY '23 is predominantly cross-sales to existing clients. So as I said, we are cautiously optimistic that within I suppose, conservative as well in terms of what we see out there. I'm making sure, as usual, that we deliver to our guidance. So most of it is in existing customers where we've got cloud upgrades happening for the number of clients in FY '23. And we've also got cross-sell opportunities as well with those customers and other customers from some of the other components. So most of -- the vast majority, 90-something percent is cross-sell from the existing clients in terms of the overall number. .

Okay. Yes, that's great. And the final question, you mentioned the regulatory landscape and the climate landscape and how that benefits you. And you also mentioned briefly about potentially selling directly to companies other than insurance carriers. Can you just give us some more detail on that? I mean, how progressive is that opportunity? Are there certain sectors you're focused on are we likely getting revenues from that in '23? Or is this a medium-term story? Just first time I heard it, so I'd be interested to hear about the strategy of potentially selling outside insurance carriers.

Yes, sure. Look, I think in the U.S.A., and in other countries as well, most of the larger, what we call jumbo employers, our national employers as some of the carriers refer to them [indiscernible] in the States. A lot of them are self-insured. So a lot of them actually manage the risk on the capital on the P&C, so they call it Self-insured on the Life side. So that's a segment of the market that is quite big. It's really the larger type employees in a way. We've got thousands and thousands of hundreds of thousands in some cases, where they'll actually ensure their own business. So there's an opportunity there anyway. But the opportunity in terms of FINEOS is around the option side, where employers will maybe outsource or take the employee benefits on the list side from a carrier. And then they may say that they want to wonder options and they move management themselves. So a lot of them in-source staff. And what we've seen, obviously, we know our competitors in the absence management software space, sometimes all up against us in the carrier world. And we have sticked to a meeting in terms of being very calm and focused and make sure we address and talk to the carrier first. But now there's an opportunity to sell our options directly to the employers. It's been the same stuff. It's all the same regulatory compliance and adjudication of rules. There is an extra piece of work around letters and correspondents and things like that, but it's insignificant and compared to the size of the sector platform. So I think employers are outsourcing their options, I think something like 33%, 34% of them overall in the USA outsource Absence management to the carrier. And the carrier has the software and long hours. But then there's probably about 20% to 25% of employers that in-source and directly run it themselves. So that segment of the market is available to us to go sell -- in terms of the options product. And as I said, down the line, maybe some version or with me. And at the wholesale for if they manage all of that stuff themselves. But our focus here is on the Absence side in terms of the initial steps.

Okay. And just a final follow-up to that. Are those jumbo employees that you refer to the one's was running the absence management the cells. Are they not government or are they private -- it's not the government, Yes. That's all was looking...

Yes, they're both. To be honest, they're both. But a lot of private companies financed along with, as we said, over 20%, maybe than 25% managed their own lead internally. And they have a lot of administrators. They have people in various roles, lead manager, assistant lead manager, lead director, whatever. And all they do is manage the rates. And so it's a complex area given the 50 states in the U.S. and the legislative changes that are happening all the time, including them internally as well, the wrongly put laws and -- so when you pull it all together, it's quite a complex area. It's costing them a lot of money. And the other piece of software that can basically help them to do the adjudication and manage that at an efficient low-cost. So those particular employees are open to us. We're obviously not interested in competing with the carrier. We're not offering risk or anything like that. It's complementary, if anything. So it's an area that we're looking into. And we'll pursue that but only with the jumbo carriers, and hopefully, in the next year or so, we'll see some action there in this perspective.

Your next question comes from Tim Lawson from Macquarie.

Just in your strategic pillar slide on 18, you talked about dental, vision and the direct-to-employer absence management. Just checking is sort of -- are you hiring that more than you have in the past? And is that sort of the potential investment there considered in your cash flow breakeven comment?

Dental and vision is considered in the cash flow breakeven. We've put that on We can cover dental and vision from a new business underwriting policy and billing and partially in the frame but the dental and vision investment that we're going to make -- we will make in the future will be along claims adjudication. And there are no plans for that at this stage. We're really, really busy with the options side. And we definitely see that as the stronger near-term growth earlier for FINEOS. So we want to continue on that, as legislation keeps changing, and it becomes more and more difficult for carriers and employers to manage the lease. We have -- we're taking into account the fact that we will -- as soon as we get a kind of a charter customer on the employer side, we will have a little bit of investment to do, as I said, around the correspondence and guidance and stuff like that, that it's mini skewed in terms of the overall platform. So it should not actually affect move towards a cash flow position in FY '24.

Yes. Okay. Can I confirm New York Life, your largest customer, is that right?

Can you say that again. Sorry, I didn't.

New York Life is your #1 customer in terms of revenue?

They're not, no, New York Life would be definitely in the top 3 or 4, but they're not the largest client by revenue. Over the years, they have been the largest clients by revenue. Obviously, as we were in a huge amount of build work and we are scaling the product through the last 5 years or so, but they're not the largest customer today. In terms of subscriptions, they'll definitely be in the top 3, but we do have others who are bigger. And that is the opportunity where we fulfill is in that New York Life. They got a kind of a special charter deal. So there's a huge amount of services involved in building the product and doing a lot of the work for them. That's the only thing we're changing that model now because we have the platform to focus on the subscription growth and to get better value, better margin and so on in subscription and increase, obviously, the subscription fees we charge to others. So New York Life definitely paid for the platform to get to where it is today, and they're enjoying some element of a lower price but not anything significant -- and everything is indexed as well, but he's been a great partner as hopefully at the case study.

Yes. Just a couple of other questions on customers. So has there been any customer churn? It just looks like your second half revenues set a bit mostly from the services. I was wondering whether there's any customers that are sort of left or your retention is still good?

Yes, we've had churn on the Limelight new business underwriting side. So those impacts will hit us in the next FY. And that's been unfortunate because we didn't have as a new Limelight, obviously, is in the middle of COVID. And the clients were implementing at that stage. A couple of them pulled out at this very early on because they -- obviously, they're seeing the FINEOS take over is something that they had a thought, maybe all for different vendor or something like that in other areas. So this is complex. And then also in terms of customers are certainly one customer is going a long time on long life and do stuff. And that -- the impact of those terminations are hitting us in our next FY. And therefore, as well as Tom has indicated, we did go through and accept an impairment on the overall asset. Over the past 2 years, online, I'd say we've invested in live in the product. And this SIs turning that corner in terms of having that as part of our full suite. And we definitely needed the whole new business underway increases. But yes, that we have lost strongs on that side of the house that [indiscernible].

Yes. Does that explain why the -- if you annualize second half subscription revenue, you get to a number that's more than the June ARR?

Not quite sure about that question. So the second half of...

I don't know the subscription revenue in the second half of EUR 28.6 million. So if I just simply annualize it over 57 and that you've called out in your slides, an ARR of 56.4%. So below that second half, it just looks a bit unusual.

Yes, there's some impact there and there's more impact next year. So we're -- yes, and that should be the end of it in terms of first half and the early half if I say the early half of next year, that will close in all that, and we don't -- we expect them to show the Limelight fees. But unfortunately, as I said, it has been one of the things that has pulled us back. However, we definitely needed that product, we could'nt get that product in time. And now as we have is reference to the customers. We've got a great partnership with EY on this and we're developing, right. So we're the first -- the first vendor to have that quote point, and that's really, really important for the industry.

Just a couple of other quick questions. Deferred revenues are up materially. Just trying to understand exactly what's going on there.

That's just due to the timing, Tim. Just timing, Tim, in regards to when we would raise the invoices on the subscription charges. So they increase. And obviously, then we recognize them on a monthly basis going forward.