Iress Limited (IRE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Iress Ltd 2025 Full Year Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Russell, Iress CEO and Managing Director. Please go ahead.

Good morning, and thank you for joining us for the presentation of Iress' FY '25 Full Year Financial Results. My name is Andrew Russell, Group CEO, and I'm joined by our Chief Financial Officer, Cameron Williamson. Today, I will outline our FY '25 performance, the progress we are making in reshaping Iress and how we are positioning the business for disciplined growth and margin expansion. I will present to the following agenda: FY '25 key messages and financial highlights, FY '26 strategy overview and closing with the FY '26 guidance and the key takeaways for our shareholders. The key messages for our shareholders today are: we delivered FY '25 results ahead of guidance. We have successfully simplified Iress into a focused wealth and trading and market data software business. The simplified continuing business revenue grew 6.5% and adjusted EBITDA increased 14.9% with improving second half momentum, positioning us well for FY '26. We have strengthened the balance sheet and reinstated dividends with a fully franked dividend of $0.13 per share declared by the Board. We have a clear stage pathway to structurally higher margins and stronger cash generation. We are executing at pace with our Q4 exit run rate toward a 25% cash EBITDA margin already more than halfway delivered. Importantly, our ambition for Iress is significant, grounded in customer focus, disciplined execution and capital responsibility. During FY '25, we continued the divestments of Superannuation and QuantHouse. Iress is now a simplified focused software business centered on 2 core software businesses with international reach. This sharper focus improves accountability, capital allocation and strategic clarity. It also provides a stronger foundation from which to grow deliberately, not aggressively. Having simplified the business, you can now see the strength of our continuing business. Revenue increased to $504.3 million, up 6.5% year-on-year. Adjusted EBITDA increased to $132.6 million, with margin expanding 192 basis points to 26.3%. Underlying profit after tax increased to 34.3% PCP. This is a meaningful milestone. After a period of transformation and simplification, earnings growth is now outpacing revenue growth, demonstrating operating leverage emerging in the simplified business. Our ambition is to continue lifting profitability towards benchmark software margins, but we will do so in stages, ensuring resilience and durability, while positioning the business to start realizing revenue growth. Operationally, we are seeing improving execution across all segments. Global Trading and Market Data delivered solid revenue and earnings growth. We successfully delivered ASX Single Open, a complex and systematically important market initiative, demonstrating our execution capability in mission-critical trading infrastructure. APAC Wealth returned to stronger second half momentum. U.K. Wealth and Sourcing delivered strong EBITDA expansion. Net Promoter Score improved 15 points. However, we have much more work to do and customer-first focus is a key CEO priority and operational focus. Sustainable growth will come from deepening client partnerships and delivering consistent product improvement that our clients value. I will now ask Cameron to speak to the financial results in detail.

Thanks, Andrew, and I'm pleased to take you through the financial results in further detail. I'll touch on the headlines first. Our underlying profit after tax for the year was $73.9 million, and our earnings per share, our underlying EPS was $0.396 per share. Both of these were up approximately 16% versus the prior year. This does include the contributions from divested businesses. The continuing business and the go-forward business saw a notable improvement in revenue growth, which was 6.5% or 4.5% on a constant currency. There was favorable currency through the year. And this compares to 2% to 3% for the last 2 to 3 years, which drove ongoing margin expansion to the bottom line. Through the year, we completed 2 further divestments, Superannuation and QuantHouse, bringing to 6 the number of divestments that we've done in the last 2 years. Proceeds from those divestments totaled $71 million and have been used to retire debt with leverage now sitting at 0.5x and at a comfortable level, creating financial flexibility for the group going forward. The Board has declared a final dividend of $0.13 per share, which brings the total 2025 dividend to $0.24 per share and a payout ratio of 61% within the target 50% to 70% payout ratio. This highlights the improving strength in the business and is delivering ongoing dividend growth since being reinstated. 2026 will see a transition in our headline EBITDA reporting from adjusted EBITDA to cash EBITDA. And I have a slide coming up, which takes you through this change, we feel better reflects the free cash flow generation and capital deployment across the group. Turning to the continuing business trends from the continuing business. As I have mentioned, revenue growth continued, up 4.5% on a constant currency basis and a market uptick from prior periods. All businesses saw growth through the year with the Global Trading and Market Data business, a standout, delivering more than 6% growth for the year. Expense management remains a heightened focus. 2025 saw an uptick in costs on 2024, largely non-wage and R&D OpEx, as staff costs were held broadly flat. The second half was an improvement on first half and the trend line into 2026 is favorable with further expense savings already achieved Q1 to date in 2026. We see a disciplined approach to cost management in 2026, while not holding back in areas of investment, where there is a clear pathway to growth, all of which is driving good momentum in our profit metrics and margin expansion, as can be seen on the adjusted EBITDA and UPAT graphs on the slide. Andrew will touch on 2026 guidance shortly, but we see strong growth continuing into 2026. When looking at our headline UPAT and NPAT results for the year, there are a number of other non-operating items to highlight, too. Our D&A expenses are 21% lower, substantially due to asset sales and a smaller global footprint. Our net interest continues to trend down on lower debt levels and favorable terms on new debt facilities that were entered into in early 2025. Our tax expenses are higher by 46% this year as we've seen a normalization in tax rates in 2025, which we see continuing into 2026. Our non-core expenses that are excluded from our EBITDA cost base continues to decline. It's about half the level that we saw in 2024, largely due to materially lower transformation-related costs. Our M&A-related costs were broadly at similar levels to 2024, but are expected to decline into 2026. In aggregate, we expect these excluded items to be about half the level again in 2026, somewhere between $10 million and $12 million. Overall, the earnings quality continues to strengthen in Iress. Turning to the balance sheet now, our net debt sits at $66 million as at 31 December, and that's more than $250 million lower than the same time 2 years ago. Our leverage is 0.5x, creating meaningful capacity for flexibility in the group's capital management going forward. This strength is allowing further investment to be made into the core business with 2025 seeing a market increase in our software CapEx to $27.3 million or approximately 5% of revenue versus the historic 2% to 3% in past years. This is primarily due to the investment that we have made in our new buy -- EMS buy-side trading platform, which Andrew will touch on shortly. This was a significant investment made in 2025, providing additional growth potential. With an improvement in operating metrics and a strengthening balance sheet, we now have an ability to invest in platform modernization and return capital responsibly. The balance sheet now supports our strategy. It does not constrain it. We are now delivering consistent EPS growth and a growing dividend, which we see continuing into 2026, and we are well positioned to fund growth, while maintaining capital discipline. As I've mentioned, we are transitioning in 2026 to a new headline reporting measure, cash EBITDA. Cash EBITDA represents our adjusted EBITDA less CapEx. with CapEx defined as software CapEx and PPE, but excluding lease incentives, which are funded from landlords. We believe this change better reflects the economics of Iress' free cash flow generation and capital deployment. For FY '25, our cash EBITDA was $102.7 million with approximately $33.5 million CapEx. Software CapEx deployment remains disciplined and will be fully funded within the capital envelope of the group. We believe this reporting change provides greater transparency and reinforces our commitment to capital discipline with balanced product development and revenue growth. And further details on our 2025 financial performance are included in the appendix to this presentation as well as the downloadable analyst pack available on our website. And with that, I'll hand it back to Andrew, who will take you through the remainder of the presentation.

Thank you, Cameron. Over the past year, we have been engaging with third parties to assess whether a change of control transaction could deliver compelling and certain value for shareholders. No offer has been received. Today, we announced that we are determined the most attractive path to maximizing value for our shareholders is to focus on the disciplined execution of our strategy. We are confident in this strategy, our earnings trajectory and margin expansion opportunity and remain fully committed to delivering long-term value in the public markets. Turning now to FY '26, our strategy is clear and focused. It is built on 4 pillars: product-led execution, capital discipline, customer focus and ambition delivered at pace. We are accelerating and expanding our business efficiency program to reset the operating model and unlock operating leverage. Second, we are sharpening client-first execution, improving delivery cadence, responsiveness and clear accountability across the organization. Third, we are investing in targeted modular modernization of our wealth and trading platforms to lift product velocity and strengthen competitive positioning. Fourth, we're aligning pricing and monetization more directly to the value we create, ensuring revenue growth converts into margin expansion. This is not big bang transformation. It is stage disciplined pathway to structurally higher margins, stronger cash generation and improved return on capital. FY '26 is about execution. execution on cost discipline, execution on delivery and execution on client outcomes. If we execute with consistency and discipline, margin expansion and earnings compounding will follow. Our ambition is clear: to build a durable, high-quality software business with consistent cash generation, strong returns and compounding earnings power. We're executing a material reset of the cost base through our business efficiency program, now we have simplified the business. This improves operating leverage, accelerates margin expansion and structurally positions Iress closer to global software benchmarks. Execution pace has been strong with the majority of identified efficiencies already implemented by February 2026. The benefits are already visible in cash generation and earnings momentum into FY '26. Importantly, cost discipline is only one lever. In parallel, we are modernizing our wealth and trading platforms to lift product velocity and competitiveness, while increasing transparency on our client road maps and rebuilding trust through consistent delivery. Turning to our wealth business, we're investing in targeted modular modernization of our market-leading wealth platforms. Our priorities in FY '26 include the Xplan user interface modernization and our sourcing business uplift. These initiatives are focused on improving usability, performance and workflow efficiency for our advisers. Importantly, this is not a full replatform. It is a deliberate modular modernization. We are remediating, where required, modernizing where value is clear and sequencing our investment. Client benefits include a more intuitive and reliable user experience, AI-enabled workflow simplification across advice and compliance, improved engagement tools for end clients and greater flexibility and intelligence in sourcing. This improves client outcomes, while strengthening our ability to package, price and monetize capability over time. Execution cadence and delivery discipline are key focus areas in FY '26. Turning to the Global Trading and Market Data business, our focus in FY '26 is on strengthening core platform capability and accelerating product innovation. Key priorities include the new global EMS, expansion of Iress workplaces, growth of Iress FIX Hub and enhanced data intelligence capability. Client benefits include multi-asset, multicurrency workflows, improved analytics and regulatory reporting, centralized and secure data access and unlocking AI and machine learning capabilities over time. We operate in complex regulated trading environments. Execution quality matters. Our successful delivery of the ASX Single Open during FY '25 demonstrates our capability to execute in mission-critical infrastructure environments. Our ambition in trading is clear to build a stronger, more competitive and more scalable global platform, while maintaining disciplined capital deployment. AI is a structural shift in financial services software. Our view is clear. It is a tailwind for Iress, not a threat. Our deep client embedment, high switching costs and complex regulated wealth and trading workflows create a durable moat. That positions us to deploy AI safely at scale and in a way that strengthens rather than fragments our platforms. Our AI strategy operates across 3 layers. First, infrastructure, secure, scalable foundations that enable safe, agentic AI deployment in regulated environments. Second, internal efficiency, AI augmented engineering and enterprise productivity to accelerate delivery, reduce technical complexity and structurally lower the cost of software development. And third, product strategy, embedding AI directly into wealth and trading workflows to enhance adviser enablement, order [indiscernible] compliance, improve front office decisioning and support average revenue per user uplift. We recognize AI is strategically critical to our clients. Our future platform architectures are being designed to both deliver embedded AI capability and integrate seamlessly into clients' broader AI ecosystems. Our approach is disciplined, remediate first, modernize second and monetize third. We are ambitious about AI's potential but we're measured in deployment. The focus is on practical execution, margin expansion and sustainable revenue growth. So turning to our FY '26 guidance. Our guidance is as follows: Revenue is expected to be in the range of $520 million to $528 million. Cash EBITDA is expected to be in the range of $116 million to $123 million. UPAT is expected to be in the range of $84 million to $90 million. We expect an exit run rate cash EBITDA margin of plus 25% by Q4 FY '26. And this guidance reflects ongoing CapEx investment in our core platform modernization, which is expected to be at similar levels to FY '25 and also realization of further business efficiency benefits. Importantly, this is a stage step in our margin expansion journey, not the end [ state ]. We're building towards structurally higher software benchmark margins over time. In FY '26, we are positioning the business for sustainable revenue growth for the years ahead. I would like to conclude with the following takeaways. We have successfully simplified Iress and strengthened earnings quality. We have -- we are delivering improved financial performance with clear operational momentum. The balance sheet is strong and provides financial flexibility. Our strategy is simple, product-led execution, capital discipline, customer focus and ambition delivered at pace. And if executed with discipline and ambition, Iress can evolve into a high-quality cash compounding software business with meaningful valuation upside. I'd like to thank the Iress team for their commitment and resilience. FY '25 marks the completion of our simplified phase, and we now move forward as a more focused, disciplined business positioned to execute and build real operational momentum. We also thank our customers for their continued trust. We're energized to demonstrate the strength of our technology through partnerships that will drive meaningful advancement for both our clients and Iress. There is more to do to accelerate product delivery, strengthen our competitive position and lift performance. That is our focus in FY '26. Our ambition for Iress is significant, grounded in disciplined execution, capital responsibility and a clear customer-first approach. It is an exciting time ahead for Iress, and we look forward to updating you on our continued progress. I'll open now for Q&A. Thank you.

[Operator Instructions] Your first question is from Nick McGarrigle with Barrenjoey.

Just a question on the underlying continuing business growth. I mean, can you just give us a sense of that 6.5%, what was related to new client wins, pricing and then maybe what you're seeing in terms of trends on volume churn, which I think were a bit elevated in kind of '23, '24.

Yes. Nick, it's Cam here. Yes, of the 6.5%, we did have some currency benefits in that as well. So we talk about 4% to 5% growth in revenue, of which that compares to 2% to 3% that we've seen in the last couple of years. The improvement really has come about through lower churn rates that we saw. You've called out the '23, '24 years, where we did see more aggressive churn in our numbers. We will -- we are looking at the business with a net retention revenue lens going forward. So we'll be in a position to share some of that in future reporting periods. But we have seen an improvement in the overall churn rates across the group. New business continues to be sort of at the fringes. A lot of the growth that we're seeing at the moment is still price driven. But as Andrew has talked to, our product development is an added focus at the moment, and we are looking at how do we drive new revenue streams into the group going forward. We did have some wins, but certainly, the bulk of the revenue growth is still pricing driven at this point.

And just in terms of the outlook into this year, my understanding is you've kind of [ given noticed ], where you can push price that increase this year will be circa 6%.

Yes, it's slightly different per region and different parts of the business. They are quite bespoke, but they're sort of in that sort of range in APAC. I think some other areas have got enterprise contracts that are running on different pricing as well. Blended rate is slightly lower than that, Nick. So when you're looking at it, you've got the headline rate, you've also got the actual rate, which incorporates all of the enterprise contracts into that. So it's going to be somewhat lower than 6%, but you're right in terms of what we're seeing in APAC in our wealth and trading businesses.

And then I guess in terms of -- you've guided to the 25% cash EBITDA margin exit rate. It feels like you're running the cost-out program that you're running versus the revenue guidance that you've given, you'd end up potentially with more than 25% if you ended up executing on the $29 million to $32 million of annualized cost out by the end of the year.

Yes. The $29 million to $32 million, if you recall, we put out something in the middle of last year, which is about the stranded cost project -- program. The business efficiency program has clearly superseded that, and it incorporates the stranded costs. So some of those costs came out at the back end of '25. I wouldn't look at the full run rate effect to all come out in 2026. It's probably somewhere about $6 million to $7 million that had already come out of the business cost base leading into this year. So just make sure you calibrate the quantum into the right year. But yes, we are aiming for more than 25%. Clearly, that's a goal. We'd like to get there. We're just being measured in terms of how we get there. We've got a big capital program underway in terms of -- on the product side. We're just making sure we've got enough capacity to do that. A lot of the capital program is getting funded from these efficiencies. So we're confident we can deliver it, and we'll just see how we progress as the year goes on.

And then in terms of the -- any potential reinvestment of those costs as we look into '27 to develop the product road map? Or do you feel like there's further efficiencies that you can use to redeploy back into product development and maybe I think we've spoken about maybe modernizing some of the infrastructure beneath the products as well. And then I guess, as an extension to that, any kind of comments around modern solutions to the replatforming problem, which obviously wasn't solved kind of 3 to 5 years ago.

Thanks, Nick, Andrew here. We've got a clear product road map for FY '26. All the funding we're making the business efficient and benchmarking ourselves to world-class software businesses. That will allow us to develop faster our product velocity. We think that we can fund everything within the current capital envelope. Clearly, we're aligning our product strategy to ensure that we're driving value for our customers. And one of the tailwinds of AI is that also allows us to remediate faster and at lower cost, which is something that's going to be significant to this business.

And one last one. I've had a couple of questions from investors just around provision release and where that was in the underlying versus statutory P&L.

Sorry, Nick, just provision.

There was -- I think there was -- provisions were down period-on-period. Just if that was a revenue benefit that you booked into the -- where you booked that into the P&L. Was that kind of caught up in the transformation and what that related to?

Yes. So sorry, this is insurance recoveries on some of our legal provisions. So we've -- there is a bit of a disconnect in terms of recording the provisions in one period. So you can't actually record the recoveries until they're virtually certain. The accounting standards are a little bit higher than on the liability side. So we have a mismatch in terms of recognizing the provision, but also then receiving the benefit from the insurer. So this year, this 6-month period, we had some relief from the insurer, as some of these claims started to play out, and they were put through as a contra in terms of that number. So you'll see that as a lower number than what you saw in the half year, and that largely reflects the insurance benefit that we got in the back end of the year.

So that is just [ that ] offset costs that were in the first half? Or is there a -- or is there in the adjusted EBITDA?

No, these are all below the line. These are costs associated with discontinued businesses. So they're not part of the continuing business. They're legacy arrangements to do with disposed businesses. So they are all below the line, but there was a benefit to that, that fed into our statutory result wasn't in our UPAT or our adjusted EBITDA number.

Great. Yes. Sorry to labor that. That was just a question from a few clients. So worth clarifying. I appreciate that context.

[Operator Instructions] Your next question is from Oliver Coulon with E&P Financial.

You might have covered this on the intro. But the beat relative to guidance, given that you only gave that in November, was that a function of that $6 million to $7 million of cost out coming out faster than you had assumed? Or was it a revenue surprise?

I mean, it was substantially cost based -- cost driven. We did go a little harder in that back end of the year in terms of rounding up the costs. And so that sort of fed into our beat. And there was some surprise in terms of revenue. But if I have to do an attribution, you'd be doing probably 80% cost and 20% revenue in terms of the contribution.

Yes. Sorry, [ and that question] [indiscernible] provisions, is that the super admin business that you obviously got a kind of legal tail on in terms of remuneration?

Yes. Some of which have been resolved, some of which we're still working through.

Is there any other kind of areas of potential risk to the balance sheet from contract disputes, et cetera?

No. Sorry, Oli, no, there's nothing else at this point.

Yes. I appreciate that. And sorry, in terms of the -- I guess, people weren't very happy with the fact that there was like a sudden uplift in CapEx to 5% plus of sales and now it sounds like you're taking that back down, albeit obviously, part of that allowed you to deliver the trading update during the year. Is there -- like is the FY '26 base the right base to look at as a percentage of sales? Or is it going to fall from there? Or is it going to rise from there in terms of the profit [indiscernible].

I think when you have a look at it, we did the analysis a couple of years ago, we're at 2% to 3% of revenue. We didn't feel that was sufficient enough to drive new revenue streams in the business going forward. We needed to get that up to somewhere between 5% and 7% in a meaningful sense, albeit there's a pathway to get there. This year, we're at the very lower end of that range at 5%. A lot of work has gone into the new EMS buy-side trading platform. But as you've heard today, there's a lot of modernization still to come. And so we don't expect to see an uplift in the CapEx investment, but we certainly see that being a framework for us to deliver the modernization in a sequential way, ensuring getting the right balance between execution and revenue growth going forward. Andrew, I don't know if you want to add to that, but that's kind of the take where we're at.

I think that's right, Cam. So our whole approach is a product-led execution, and we're going to be very disciplined with that because we're going to be ensuring that we're aligning our product road maps to our clients' strategy. And all investment will be focused on delivering value to them as well as value to Iress.

I may have missed it, what's the assumption around the [ GBP ] in particular, because that's obviously a major cost that's kind of moved against you recently?

Yes. So the guidance, Oli, in terms of numbers on a constant currency basis. So we've got the average rates for '25 in the appendices. So you can work off those and relative to spot, you can kind of get a sense of whether we're ahead or behind currently. But we've guided on a constant currency basis.

[Operator Instructions] There are no further questions at this time. I would now like to hand the call back to Mr. Russell for closing remarks.

Well, firstly, thank you. Thank you for making time this morning. I hope that you can see that we're delivering improving financial performance with clear operational momentum. We've got clear focus on our product-led strategy. We've got a lot of work to do. And I look forward to meeting you over the course of the meetings over the next couple of days. And then importantly, showing you the progress we're making as a business. All the best.

That does conclude our conference for today. Thank you for participating. You may now disconnect.