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

Good morning, ladies and gentlemen, or good evening, if you're joining us from Australia. Welcome to the Annual General Meeting of FINEOS Corporation plc. My name is Anne O'Driscoll, and I am the Chair of the company and pleased to act as Chairman of this meeting today. It's now just past 9:00 a.m. in Dublin, the nominated time for the meeting. I've been informed that a quorum is present, and I'm pleased to declare the meeting open. I can confirm that the meeting has been properly constituted. So I would like to thank you for joining us via the online platform today. You will see at the bottom of your screen that the platform contains a Q&A function. The function can be used to submit questions and comments at any time throughout the meeting. When you submit a question or comment, please indicate which resolution it relates to so that it can be addressed at the appropriate time. Now moving on to the agenda. I will first introduce the members of the Board to you, which is actually today only Michael Kelly, our Founder, CEO and Managing Director; and myself are representing the Board. Our other directors are based in the U.S. and have varying times, 4:00 a.m. and 2:30 a.m. and things like that for them. And so it is Michael and I that will be representing the company, the Board today at the meeting. And so I will do a short address, and I will then pass the microphone over to Michael for a more in-depth discussion of the company's performance during the past year with a particular focus, obviously, on the calendar FY '24 being our reporting period. We'll then progress to the formal business of the meeting, where the resolutions presented in the notice of meeting will be put to shareholders for consideration, and we will allow time for questions on each of the resolutions before proceeding to vote on them. So then, we will -- so present today, as I said, are Michael Kelly and myself. And we also have in attendance, Shelby Coleman and John McKnight, one in Australia and one in Ireland, who are our joint Company Secretaries; Ian Lynagh, our CFO; representatives our company's external auditors, Forvis Mazars and representatives of our lawyers, William Fry. Before you would begin, as you are no doubt aware, Bill Mullaney is stepping away from the Board after the AGM. Bill's contributions since joining the FINEOS Board in 2023 has been very positive, and I believe we've all benefited from his knowledge and insurance and professional services. We wish Bill the very best of luck and thank him for his service to FINEOS. We are currently undertaking a search for a new nonexecutive director, and we'll keep you informed of our progress and -- on that and obviously release the successful candidate's name to you in due course. So FY '24 was a very successful year for the company with much achieved. Financially, the results were very good, demonstrating a business that is on track to become a higher-quality Subscription revenue business with improving margins. Operationally, the business also made great strides with numerous important milestones achieved. Particularly pleasing for our leadership team and the Board has been further important milestones achieved by our flagship FINEOS AdminSuite product as well as FINEOS Absence for employer product. Michael will talk a bit more about those. Our partnership and success with top-tier insurance carriers is a great sign for the future and clearly demonstrates the benefits to carriers in the market of partnering with FINEOS. We also continue to grow our partnerships with a number of important systems integrators in FY '24, which is important as these firms play an increasingly influential role in acting as advocates for FINEOS as well as progressively contributing to our product and implementation services. This provides the company with new business collaboration and scaling options for anticipated future growth. Of course, aside from having our market-leading purpose-built platform for employee benefits, our key assets of FINEOS will always be our people. We currently employ over 1,000 people worldwide and demonstrating our strong company culture, we are proud to consistently maintain retention rate of over 90% and the utilization rate in the order of 85%. As we grow, we will continue to monitor our staff needs in new and existing geographies, which will help us broaden our skills and efficiency. I'll now pass over to Michael to provide you more in-depth update into the financial and operational highlights for FY '24. Over to you, Michael.

Thank you, Anne, and welcome, everybody, to our AGM. As Anne noted in her address, I believe the company has made outstanding progress in FY '24, and we achieved some notable milestones that I will share with you today. Turning to Slide 4 of the presentation. Here, we provide you with a snapshot of some of the key financial highlights from FY '24. We were pleased with the 6.6% growth in Subscription revenue and 9% growth in the annual recurring revenues. Subscription revenue now represents over 52% of our total revenue, and we anticipate that it will become an even larger overall percentage for our total revenue in the coming years. Gross margins also rose strongly in FY '24, some 4.6 percentage points. While as our first quarter of 2025 results recently demonstrated, the trend in cash receipts remained strong, up 40% on the first quarter of FY '24. Importantly, our cash balance at the 31st of March 2025 was EUR 35.4 million, reflecting our disciplined cost out and cash management focus. Having a robust financial balance sheet and achieving sustained positive cash flow remains a key financial priority. Moving to Slide 5. We are very proud of what the business has achieved in FY '24 and noted continued growth in the usage of FINEOS AdminSuite by our client base. However, I want to specifically call out Guardian, who went live on our technology within 1 year, and also New York Life, who expanded their line of business usage to also include voluntary benefit insurance products. These are great achievements and a compelling verification about how far our investment in and deployment of FINEOS AdminSuite has progressed. We are also particularly pleased with the investment in strengthening our new business and underwriting product component as a cloud-native SaaS product, which puts FINEOS AdminSuite right at the top of the most compelling core platforms for the employee benefits industry. Our FINEOS Absence product, which combined with FINEOS Claims provides our IDAM solution for U.S. employee benefit market. The U.S. employee benefit market continued to go from strength to strength in 2024. Product usage continues to scale with existing clients and was also licensed by new name clients, including Voya and Equitable. Lastly, we expanded into the adjacent direct-to-employer market, and our initial 2 clients are live, an employer with 50,000 employees and another with 40,000 employees, both went live during 2024, providing vital customer reference points for further success in this adjacent market. So as we described to the market in November 2024, our product platform road map is now largely complete in terms of core functionality requirements. And this allows our R&D investment to focus to shift more predominantly to embedded AI, artificial intelligence, automating capabilities and features to make FINEOS AdminSuite easier to onboard, upgrade and integrate. We continue to make the enhancements necessary to remain ahead of the market and to support our clients as they move away from existing legacy core systems to the FINEOS platform. This means we will continue to be well placed to win new business from existing clients via cross-sell and upsell opportunities as well as gaining new clients. Some of the other notable milestones we achieved during FY '24 can also be seen on Slide 5. In terms of our cost-out program, we remain focused on achieving greater cost and automation efficiency across the business. Demonstrable improvements in our gross profit and margins confirm that our focus on customer success and efficiency is on track. Turning to Slide 6. You can see that we have a clear set of priorities for 2025. We have strong ambitions for this year. So far, we are on track with all of these. Turning to Slide 7. In terms of the outlook for FY '25 that we provided in February, we are comfortable to reaffirm the existing guidance range for total revenues to between EUR 138 million and EUR 143 million. We continue to expect Subscription revenue to be higher than our services revenue as we focus on this recurring higher-margin revenue growth. Strict cost management and cash flow generation, as I've already touched on, is a key part of our outlook, and we remain focused on achieving positive free cash flow for FY '25 in aggregate and then to be cash flow generative thereafter. Finally, our pipeline of business remains strong as our market reputation continues to grow. From a macroeconomic perspective, the topic of tariffs is very prominent. We -- with the execution of currency exchange -- with the exception of currency exchange fluctuations, FINEOS has experienced minimal impact so far on our business outlook for FY '25. However, should circumstances change, we do have contingency plans in place, which should mitigate some anticipated impacts should the focus of tariff application change. So in closing, I would like to thank our employees, our customers, my fellow directors and all of our security holders for your continued support and strong contribution to the success of FINEOS in FY '24. We are committed to delivering another successful year in FY '25. This concludes my address. I will now pass over to Anne to commence the formal section of the meeting. Thank you.

Thank you, Michael. And I will move on to the next slide. So here we are, and we're moving on to questions in the general section. And there are some voting instructions, I think, before we go through that. And there's some slide. So we can take questions on the general business, and we do have one question already online.

Yes, we do, Anne. I'll just read it out for you if you'd like. So there is a question on general business from Stephen Mayne. It is, if we were to move from being dual listed to only being listed in the U.K. or Australia, which listing would it make sense to drop? How big is our Australian footprint in both shareholders staff and revenue share?

Okay. Thank you for that question. Well, Mr. Mayne, the first item involves the misunderstanding. We are actually only listed in Australia. So it's an Irish incorporated company and our shares are listed in Australia through CDI. So the SEL code is actually CDIs. And so we are solely listed in Australia. In terms of the Australian footprint, we report our Australian revenue proportion in our annual report. In FY '24, Australia and New Zealand combined was about 22%, I think, and I could find the actual figure for you, but it's in the accounts. So it's 22% or thereabouts. It was higher when we listed, but our growth in the U.S. has far outstripped the growth in Australia and New Zealand, highly reflective of the size of the capacity. So that's where we were. So revenue by market, APAC, which is largely Australia and New Zealand -- sorry, not 22 million -- 22%, it was EUR 22 million of our EUR 133 million turnover, and that's all in euros because that's our reporting currency. In terms of staff, as noted by Michael, we have about 1,000 staff at any one time. And our footprint in Australia and New Zealand, which are managed together, is about 100 to 120. And so that's revenue share. Shareholders, as I said, are largely based in Australia, given that that's the sole market that we're listed in. And obviously, employee shareholders and things, including our CEO, who still holds approximately 50% directly and indirectly based in Ireland. Thank you. Now there's another question, I believe, as well. that's later. So are there any -- are there any other questions on Section 1, the general business side?

There have been no questions received in relation to general business.

Okay. That's fine. Well, then we'll move on to the next slide, please. So here are the voting instructions to which I referred earlier on. And they're all on screen for you to work through there. And hopefully, generally, that has already occurred, but you do have the option to vote at the meeting. We have received a large percentage of the shareholding has been voted through proxies, and those proxies will be voted on voted by me, and you'll see them in the slides shortly in accordance with voting in favor, where they are either open or directed and voting against on if they are. Technically, for those who don't understand the structure, we actually have one shareholder, which is CHESS Depository Nominees Pty Limited, and I'm the proxy for that shareholder, but we do record all the proxies and instructions as if people held direct shares. So the instructions are there. I think that's pretty straightforward. And should you have any major questions on that, we can actually deal with those in the meeting, and we'll turn to the next slide. So as obviously clear, somebody has already found the way through to the Q&A, but basically there is a Q&A icon on your screen, you can type in pin or enter shareholder registry number to verify you the shareholder, type your question. And if asking a verbal question, we can submit that as well, but you'll need to be invited and reach to the microphone [indiscernible]. And so if prompted, please do so and ask your question in that fashion. So there are various options are there. And obviously, we will try and answer all the questions in the meeting, but if something is at a level of detail or complexity that's not relevant to the meeting or difficult to deal with in the moment, we will undertake to address those questions offline. Thank you. So if we can now move to the next slide, and we turn to the formal business of the meeting, and we'll work through that. We'll work through that. And so there we go. Sorry, I just actually lost my spot. We -- all questions, of course, should be addressed to me, and I'll either deal with them personally or give them to Michael or Ian, who are here to represent management as well if you need to do that. Voting today will be conducted by way of a poll on all items of business in order to provide you with enough time to vote. I will shortly open the voting for all resolutions. And as mentioned, all undirected proxies or open votes that have nominated the Chair of the meeting as the proxy will be cast in favor of each resolution in the notice of the AGM. So are there any questions on that process?

No questions received.

Okay. Well, in that case, we will continue on. And as I said, the formal item 1 is the financial statements. We have -- the first item of business is to receive the 2024 annual financial report for the year ended 31 December 2024. There is no vote on the item, but the reports are available, and we can take questions from -- we have no questions in advance from the auditor either, but we can take questions on the directors' report and the auditor's report. And as I say, the company's auditor for 2024 Emer O'Riordan and Forvis Mazars is present and, if needed, can address questions on the conduct of the audit and the preparation and conduct -- content of the independent auditor's report. And we have -- I understand -- are there any questions in this section? So feel free to type in a question now if you'd like to.

No questions have been received, Anne.

All right. And no questions for the auditors either within that?

Correct. No questions.

Okay. Well, then in that case, and as there's no vote required on this section, we'll proceed on to the first item of business, Item 2, which does require a vote. And this, again, is a vote that for those of you in Australia, you wouldn't see, but we are an Irish incorporated company, and it's required here that there is a vote each year in the auditor remuneration. That vote in the standard form is actually allows people to delegate the setting of the auditor's fees to the directors. So that is the resolution before us. If there are any questions, please ask them. And again, the annual report common with Australia, the Irish annual report does include the amount of fees paid to Forvis Mazars. And so I'm happy to take questions on resolution on Item 2.

No questions received.

Okay. If you please proceed to put up the results of the proxy voting. So -- and our shareholding -- total shareholding is in the order of 300-odd million. So we have a strong vote in favor of this with 52,000 CDIs abstaining, 292 million in favor and 8,500 approximately against. So based on that, it is likely that the resolution will pass and the polls close, and we will announce the results of the poll -- the final poll to the ASX shortly after completion of the meeting. And given the time in Australia, we'll hopefully get it onto the platform this evening, but otherwise, we will be present tomorrow morning. So voting is open and will remain open during the course of the meeting. So -- and if you are voting, the proxies on the screen here, CDI holders can vote via the online portal. However, you're reminded don't click on next until you have completed your vote for all resolutions to ensure that all your votes are counted -- votes are counted on each resolution. So with that, we'll move on to Item 3, which is the reelection of David Hollander. And as noted in the notice of meeting, David is being eligible, and he's retiring by rotation and being eligible for reelection is actually standing for reelection as a Director of the company. David joined the Board in October 2019. He chairs our Audit and Risk Committee, and he had a background -- has a background in UI in consulting in the insurance space and is on a number of U.S. insurers as well. So he's got relevant U.S. market and insurance experience that is relevant to us and also for us, as I say, as Chair of our Audit and Risk Committee. So that is the resolution for the meeting. Can we put up the proxies as we take any questions on this matter?

We do have a question from Stephen Mayne. He has said the best practice is to disclose the proxies to the ASX formal interest and have director candidates give a short campaign speech. Will you do this next year to allow for a more fully informed debate about Board composition? Also, will an archive of the full AGM webcast be made available on your website?

We can put a recording up. But other than that, we wouldn't contemplate, for instance, putting up a transcript given the nature of the meeting. I think a recording actually provides more context for people rather than reading a flat transcript. So we will consider that. In terms of director presentations, we can also consider that. We just need to try and manage timing and cost -- so the cost of flying in multiple directors to attend when we make people available if needs be to shareholders on an ongoing basis. But we will contemplate that, but certainly it's being 4 a.m. in the morning for them at the moment, it's not very conducive to helpful presentations, but it's something to think about.

There are no further questions.

Thank you very much. So on the reelection of Dave Hollander, the proxies are now on the screen -- sorry, in terms of releasing the proxies early, the proxy votes closed on Monday night. I'm not sure there's much to be served in putting these up. We put the Chairman and CEO addresses up shortly before the meeting and putting these up at the same time, you're talking about a matter of 20 minutes in the difference. It works well for our perspective to allow the voting at the meeting to occur and people to turn up if they want to participate. But again, something we can consider, but it's not seen as significant to us to announce any earlier than our Chairman and CEO address. So the voting is 99.09% of the votes cast have been voted in favor of reelection. Those are the proxies received and 0.91% of 2.65 million against, with 36,000 CDIs abstaining. And as I say, the polls are open, but that is the starting position and the final position will be assessed after the polls close at the end of the meeting. With that, we will move, I believe, to question -- sorry, to Item 4, which is the approval to change the aggregate limit fees paid to nonexecutive directors to EUR 800,000. So that resolution for the purposes of ASX Listing Rule 10.17 and all other purposes, approval be given to change the total aggregate annual amount of the remuneration that can be paid to nonexecutive directors to EUR 800,000 from AUD 800,000 effective immediately, noting that EUR 800,000 approximates $1.4 million as of the 8th of May when we were publishing, finalizing the notice of meeting. Are there any questions on this?

Yes, there is a question on this resolution from Mr. Stephen Mayne. What is the plan in terms of actually increasing the individual pay for directors, assuming this resolution passes? And was this a negotiation conducted with the controlling shareholder?

On the first item, we have no plans to increase the current amount paid. However, we are in the process of recruiting a replacement director and that director, depending on their location, will impact the fees. And with the weakening of the Australian dollar over the past time, we have found that we have very little capacity when 3 of our -- for the last 18 months, 3 of our NEDs have been based in the U.S., and I've been the sole director based in Australia. And the going rate of a standard NED fee in the U.S. is higher than the equivalent in Australia has been over the past few years. And the exchange rates have meant that at stages our directors are paid more. The other directors are paid more than I am as Chairman. So it's actually a lot driven by the exchange rates and the country of residence of the directors. And we had a situation earlier this year, this calendar year, where I was concerned that we'd actually have to stop paying me probably first if we -- the Australian dollar weakened any further. Given that close to 80% of our revenues are in the U.S., it's really important for us to have U.S.-based directors. And given that our reporting currency is euro, our -- so we continue to have euro-U.S. exchange exposure, but that's something that we look at in our business. It made sense to move to euro as the reporting as the currency limit. And then in terms of the size of the change, this limit -- the current limit of $800,000 was set in 2019 when we listed. There has been no change to that in the period since. So -- and we have no plans to make any substantial changes to the individual case, but we don't have the space at the moment to have overlapping, have a director who's retiring from the Board, have a successor come on to the Board. We really just don't have that space at the moment, and that's not ideal. So that's why we moved, and we don't intend coming back to the market very often seeking changes.

There are no further questions on this resolution.

Thank you. Can we show the proxies received for this? Okay. Thank you for that. So as of the close of the proxy voting, we have 115 million in favor of this resolution. We have 2.78 million against, so 97.64% in favor, 2.36% against and 87,500 abstained. So that will be subject to whatever gets voted at the meeting and will be published as part of the polls -- as part of our announcement after the meeting polls are closed at the end of the meeting. So then based on that and if there are no further questions coming through, we'll move to the next item of business. And the next item of business, Item 5 is an amendment and adoption of the Equity Incentive Plan. And my eyes missed when we were publishing our AGM that amendment has an extra E in the middle of it, which irritated me when I found it. That's my last I keep myself not picking that one up, but it doesn't actually change the substance of anything because the resolution is correctly worded. So that for the purposes of Listing Rule 7.2, Section 13B and for all other purposes, the shareholders of the company approved the amendment and adoption of the Equity Incentive Plan on the terms and conditions set out in the explanatory statement, which accompanies informed part of the notice of this meeting. The main change to the plan has been the timing of when options, which is our primary equity in the first [indiscernible] equity incentive form when they go back into the pool. So we have a 5% limit running over 3 years of how the issued shares that we can have on issue of options. And those options are generally issued as a 3-year period. They're issued based on the VWAP in the lead up to the allocation, and they then got a 3-year life and before people can vest and exercise. And what was happening was that our limits were very tight because there was also unintentionally a whole 3-year period before ones could go back into the pool. So we have very limited capacity to issue options on an ongoing basis to our key people, and we have changed it. The word -- and again, because we are an Irish company, this Equity Incentive Plan operates under Irish law, even though it is then also subject to the listing rules. So it's one of those complexities that we work with. And so it is Irish law compliance and then we work through compliance with the listing rules. Are there any questions on this item?

There is a question, Anne. So from Stephen Mayne, did any proxy advisers issue a report with recommendations ahead of today's meeting? And did any recommend a vote against this proposed Equity Incentive Plan? If so, what reasons did they give? And did this translate into any material protest votes? And don't say proxy adviser recommendations are confidential.

Well, actually, the confidentiality of proxy adviser recommendations is a frustration to me as the Chair of relatively small listed company because they are only available on Subscription. And that -- those subscriptions are very expensive. So I don't actually have access to those proxy advisers. But I can say there was no substantial vote against this or our other resolutions, and we've seen the other ones to date. And the major shareholders that we -- well, we speak to any of our major shareholders who want to. And they -- when they spoke to me leading up to the AGM, they were in favor of this. So we did talk to our largest shareholders and consult about doing this, and they were okay with it. Thank you.

There are no questions on this resolution.

Thank you. So can we show the proxy results for this, please? So there, Mr. Mayne, you can see that 99.88% of the voted shares are in favor of this resolution, 0.12% or 136,000 against and 74,500 abstaining. I would note there is a substantial voting exclusion on this thing -- on this particular resolution. Michael Kelly, our CEO, is eligible to participate in the plan. He does not, but he is drafted, so he is eligible to participate. And as such, these votes do not count in respect of this resolution. And so that's why you'll see a substantial drop in the number of shares voted on this resolution. And likewise, the smaller shareholding of our nonexecutive directors were not voted -- were not able to be counted in favor of the votes for the AGM for the increase in director fees on nonexecutive directors. So are there any questions on this item?

There are no further questions.

Thank you. With that, we will move on to the next item of business. Now the next item of business, 6.1 is also a related set of resolutions here. And these resolutions in our first few years of being listed caused some degree of complication and questioning by proxy holders, proxy advisers, by our shareholders. They are now recurring resolutions that people understand, and they are all driven by the fact that we are an Irish company. And under Irish law, you can't have -- you can't issue shares without essential in all basic terms because there are laws around, and I'm not one and certainly not an Irish one. And we can't -- you can't really issue shares without going to a general meeting. As those of you in Australia well know, there is a standard allowance for listed companies to issue up to 15% of the issued capital and also deal with the equities that are issued under approved incentive scheme without going back to shareholders. With the suite of resolutions here, the whole goal of these is to get us to be on parity with the other people that our shares have been traded against July on ASX. So the net result of all of these is to give us the capacity to issue up to 15% in any year before going back to shareholders for approval or for ratification. Now we know we've had capital issues in the past that get ratified in this process as well. And that doesn't happen. We haven't issued any capital in the last 18 months. So there's nothing to ratify in terms of existing new issues, but this is solely to get us to the 15% capacity, the same as the other Australian listed companies. So are there questions on this item?

There is one question from Mr. Stephen Mayne. When disclosing the outcome of voting on all resolutions today, including the final item on placement capacity, can you please advise the ASX how many shareholders voted for and against each item similar to a scheme of arrangement? This will better provide a gauge of retail shareholder sentiment on all resolutions and insight into the chronically low retail shareholder participation rate.

It's not feasible for me to do that because most of our shareholdings are held through custodians. So we can have 3 major shareholders in one custodian and have signed up with one vote. So I can say that in total, the individual number of votes cast is under 100, but that doesn't necessarily reflect -- so for instance, if you're -- my personal shareholdings on a number of shares are actually held on an investment company platform. I can give directions on how they get voted, but they just get amalgamated with everything else that goes on in that platform. So I actually -- I think it's a very different situation to a scheme arrangement, but I can say that's under 100 individual votes came through. Beyond that, I don't see the point in publishing the information because I actually think it could potentially misleading. Any other questions on this item?

There are no further questions on this resolution.

Thank you. Can we now have the proxies for item 6.1. Again, 99.6% in favor was 290-odd million shares of CDIs voted. And as you can see, there is no substantial objection coming through in respect of this item. Can we move on to the next item, please? So 6.2. And again, these are very long resolutions, and I am not going to read. It's there in the notice of meeting for anybody. And this is again a related item. So can we put up the proxies with response to this? So again, very similar figures, slightly lower figures than this. There are a small amount, 2.8 million against and 111,000 abstaining, but 99.05% in favor. Are there any other questions on Section 6?

There are no questions have been received.

Thank you. So that brings to an end the resolutions being put before this meeting. And the poll is still open, and we encourage all people to attending the meeting to ensure that their votes are cast now, if not already cast. So please ensure they go through. We'll now allow a minute or so before the polls are closed. If you have any other questions that haven't been addressed or that came to you late or you had an issue putting them into the system, please type them in now, and we can address them before we close the meeting. Are there any other questions coming through?

No, no further questions have been received.

Great. So thank you, everybody, for your attendance. With that data [indiscernible], we'll now process the poll. The results of the poll will be announced to ASX once they are available. As I said, the platform is still open. So as long as there's nothing else popping up the ASX announcement platform, we will endeavor to get them up tonight. Otherwise, they'll go up first thing tomorrow morning. So 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. And it's a great team of people working hard to deliver value for everyone. I would also like to thank security holders, all of you, for your continued support and for your time and interest today. Thank you very much.