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Operator: Thank you for standing by, and welcome to the FINEOS Corporation Holdings Plc Full-Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kelly, CEO. Please go ahead.
Michael Kelly: Hello, and welcome, everybody, to the FINEOS' FY '25 Results Presentation. I'm joined here today by our CFO, Ian Lynagh. And between the 2 of us, we're going to give you an overview of the results presentation that we published on the ASX this morning. So, I'll kick on to Slide 2. And this slide really covers off our playbook, mission, vision and purpose. And it's what gives FINEOS the real clarity and alignment within our team in terms of our focus on life accident and health and in terms of our vision, in terms of protecting people from illness, injury and loss and making that accessible to everybody. And of course, our purpose, working with our carriers and employers to help them care for the people that they serve through the delivery of superior insurance technology. And more and more, we see in the life accident and health world, a move from just being insurance and protection and giving payments to more caring in terms of return to work and helping people recover from illness, but also prevention and trying to keep people healthy before the kind of the situation where they need protection even eventuates. So, we're seeing more and more of that trend of prevention in the marketplace from our own carriers. And indeed, we see that as a very positive situation. I'll turn now to Slide 3 and cover the highlights for FINEOS last year. So, subscription revenues have grown to EUR 75.6 million, and that's up 8.2% on FY '24, representing 54.6% of our total revenues. And our ARR coming into this year was EUR 78.3 million at the 31st of December, up 10% from the EUR 71.2 million on FY '24. And then total revenues was up 3.9% on FY '24, total revenue of EUR 138.4 million. But on a constant currency basis, it's up 6.3%, and it would have been EUR 141.7 million if we had reported on a constant currency basis. So, slightly above the midpoint of our guidance that we gave last year. And the gross profit of EUR 105 million. Again, gross margin, 76.2%, which is really healthy. Gross profit is up 5% on FY '24, and the gross margin is up from 75.4%. And really, we're operating at a really good gross margin level, and that's part of our target for next year, which I'll talk about at the end. Our EBITDA was EUR 30.4 million, and the EBITDA margin was 21.9%, again, representing a healthy jump of 50% up on FY '24 and the margin being up 15.2% in FY '24. And our cash position at the end of the year was EUR 27.8 million, and that was up again by over EUR 8 million. Positive free cash flow within that was EUR 6.4 million. And obviously, there's no debt in this company as well. On the EUR 6.4 million, there was an extra cash received from share options that had converted as well towards the end of last year. So, added to the EUR 6.4 million is the EUR 1.6 million in the note at the end of the page there, which brings us up to the EUR 27.8 million. Turning to the next slide, Slide 4. We're looking at the operational highlights. And of course, the free cash flow is something we promised the market in November 2024 when Ian and I came down and we did a roadshow. And we're delighted we've come through with that and a very healthy number it is, too. But we're also thrilled that we've hit a net profit as well. And we didn't promise that to the market in FY '25, but we're certainly very, very pleased with it. And really, what we're seeing in our business is we're demonstrating higher margins from the cost efficiencies and the growth that we're generating out of the business. So overall, very pleasing in terms of this business coming back into free cash flow and profitability as we move forward. Last year, we won 4 new name North American carriers, licensing the FINEOS AdminSuite for claims and Absence. I just want to stop here and point out that we have rebranded our products because as of 25.4 release of FINEOS, we actually released the full AdminSuite to all of our clients in the cloud. However, most of them are still only using claims and Absence. So, what we decided to do to make sure that our clients fully understood that underneath the water, you might say, even though they're using claims and Absence today, but underneath the covers, they have the full access to the full AdminSuite when they license the product, which is phenomenal really to be able to give them that opportunity with no pre-integrated or no big SI project that they can just switch on extra components of FINEOS. And their users and their IT people are seeing a multiplier effect out of that. So, we won 4 new names last year, albeit a little bit later than we would have liked. And certainly, the conservative nature of our industry and just what has been going on in the markets over the last 12 months or so, the deals were a little bit slower coming in. But again, we're delighted. And every deal we win is a very long-term contract. So, we signed our clients up for 5 years, and we end up doing business into the long term and actually expanding and cross-selling across the customer base. So, there's really growing evidence that FINEOS is market-leading in this employee benefit space. Group voluntary and Absence is our real key focus, and that's why we're winning the deals. Two existing U.S. clients also contracted to upgrade from the on-premise version, the old version of FINEOS Claims to the FINEOS AdminSuite for claims. And one of those was a top 10 group carrier. So again, a sizable deal for us in terms of the uplift and the momentum on both of those is going really, really well. So again, we're feeling our carriers really leaning in and increasing their commitments to us. And really, what we're doing is replacing very old infrastructure that they have with a modern core platform, cloud native, embedded AI and so on. And I'll talk about that as I go through. So, we're seeing that significant momentum growing into a lot of activity in terms of go-lives, upgrades and so on within our services and our product groups. And all of these things are moving much quicker for us as we drive the efficiency in our business and really deliver the benefits of that to our clients. So, we've also built the AI -- sorry, the SI partnerships. And we're increasingly seeing the SIs now coming up to speed and actually delivering customer success with us -- with our customers. So, you probably will see some publicity over the next few months where we'll try and bring our SIs into some of the [ PEA that ] audit we do on customer success with FINEOS and so on. So, that's going nicely. And again, we're looking to our SIs in North America now to give us the introductions and help us build relationships with our SI partners in other markets. So again, we've built that kind of confidence with our SIs, and they're very happy to lean in and work with us. You would have seen recently an announcement with PwC, where we work with EY, we work with Capgemini, and we work with other SIs as well, Deloitte's and so on. So, all of this is coming to fruition in terms of us moving more to becoming a product company. And then we're gaining a real multiplier effect from embedding AI in our product. So, we have a kind of a head start on anyone in terms of people in the industry doing proof-of-concepts and stuff like that with AI. We have a real system with a huge amount of data underneath it, which is kept real time. It's all compliant, it's secure. And therefore, when we put our agents to work on FINEOS, we're seeing the results very quickly. And our carriers don't have to spend any additional time and money looking around the corners or trying to build stuff themselves. So more and more, we feel that the embedded AI in FINEOS is going to help carriers kind of relax and go forward. But we are in a very regulated environment, and our carriers are quite concerned about AI as well in terms of not automating decisions and stuff that need to be taken by humans. And maybe causing any issues with the regulators or indeed with their clients. So, AI is definitely something that we are seeing as a huge asset for FINEOS, and we're going to basically grow the business off the back of that as we keep embedding. On the next slide, Slide 5, this one covers our people. And I won't go through this one too much, except to say that high numbers of utilization, very high employee retention rates and we're down to 1,009 people at the moment. And 16.9% of those are actually contracted in. So, we've kept flex in our workforce, which means we can cut back on our workforce or grow our workforce depending on how things go and so on. But we are in a very strong position with contractors and with partners who supply resources to us, and they've skilled up on FINEOS and are very dedicated to us. So, a good story there in terms of the people side. Slide 6 is the revenue breakdown. And again, no surprise really that North America is our biggest region. And indeed, 80% of our revenues are coming out of North America. We've had some nice wins at the end of the year, and our customers are increasingly doing more business with us in that region. However, we are very keen to look at other regions and to start the work around building ourselves up in the other regions. The EMEA region, we did lose a legacy customer, a smallish customer by U.S. standards, but still we lost that. So the revenue went down in the U.K. But again, that customer was non-strategic to us. They've been around for a long, long time with us. And services revenues, we're not aiming for a big growth in our services revenues. We're really aiming for the growth on the product side. So, they've kind of leveled off as well. So, that kind of concludes my section for the moment. I'm going to hand over to Ian, who will cover off the financial slides with you. Thank you.
Ian Lynagh: Thank you, Michael, and welcome, everybody, to this full-year briefing of FINEOS. And what I'll do now is give you a bit more insight into the financial performance of the company. So if we move now to Page 8. With respect to the revenues, obviously, as Michael just said that our focus is very much on that product revenue subscription fees, growing that ARR. We've signaled to the market repeatedly over the last few years that we see services remaining reasonably flat. Didn't expect to be quite as flat as that EUR 62.2 million versus EUR 62.2 million. So, spot on the same. But the subscription revenue, what's driving that is those 4 new customers. We signed up 2 of them at the end of Q2. We signed up another 2 at the end of Q4. So, they didn't fully contribute to the growth, but they were a factor in terms of that growth. The 2 migrations, one of them was quite significant, as Michael said as well. That's going from on-premise to the cloud. And then we had the traditional upsell with customers, including indexation of pricing and some have moved up a level in terms of what they're consuming for us. So, we're very pleased with that growth in the subscription fee, which in turn gave us an ARR growth of 10%, which is very, very positive. As stated before, the initial license fee, you can see a year-on-year reduction in that. Initial license fees pertain singularly to our on-premise customers. So any time they require new licenses, then we charge a fee for that. But we have less and less of them. We have less and less activity there. So, you can see consequently the revenue going down. And as we move forward into FY '26, I don't see it getting any higher than that. I see it going down, snitching again, but it is progressively declining. So, that's the revenue side. Cost of sales, we've seen an improvement in that compared to FY '24. We did have some software costs increases. And we also had to make a provision for an estimated software spend. And just to explain what that actually means because that actually also impacted the NPAT number we gave within this presentation. And that's with our main platform provider, Amazon AWS. Back in December 2022, we signed a 5-year contract with them with a committed spend. Any of you that are familiar with the way they contract, the more you commit to, the bigger the discount you get. We made a commitment. But due to the efficiencies we've been driving over the last few years, we're spending less than that was originally anticipated. So, that's meant that when you look at the full duration of the spend, it means we're probably going to spend less in the 5 years than we originally estimated. So, we had to make a provision for that in the accounts, but the plan is we go back and renegotiate with Amazon AWS for another 5 years, sometime during the course of this year. But to comply with accounting practices, we just had to put that provision in. The full size of that provision is about EUR 2.7 million. And of that EUR 1.0 million is allocated against cost of sales. So really, that's what's impacted the cost being there. In terms of overall operating expense, our initiatives around driving efficiency, around labor being in lower-cost regions, looking at better automation through the application of AI as well as just getting economies of scale has seen the ongoing OpEx going down. So, you see a good positive outcome there year-on-year in terms of approximately EUR 5 million reduction, 6.3% reduction. And then EBITDA, very positive move on that, over EUR 10 million increase compared to the previous year. That brings us up to a margin of 21.9%. And as you know, we've committed to the market to achieve 25% in FY '27. So, we're well on track. If you go back to FY '23, that was around 9% last year, 15.2%, 21.9%. So, you can see we're really focused on trying to drive those numbers through. And as Michael said, ultimately, we've got a net profit after tax of EUR 1 million. We never signaled that to the market. We weren't targeting that directly. We were very, very focused on achieving the positive free cash flow. But needless to say, we're delighted with that and we only see that trajectory improving year-on-year. And that's a massive turnaround, obviously, from a EUR 5.8 million loss that we incurred in FY '24. Moving on to the next page. Another commitment that we made was to keep on increasing that annual subscription fee. You can see the CAGR now is at 12.3%. As I mentioned in the previous slide, we've increased our ARR by 10%. So, that's the key figure that we're looking at as well. And then, of course, we've got the big increase in terms of subscription fees. So, we increased the percentage of that. And to achieve the targets that we're talking about in '27 and '29, we need to keep on increasing that percentage. So again, we're extremely focused on that, whereas we're not as focused on revenue in terms of generating that. That's not because we don't want service revenues. It's because we want to work with the Sis. They will invoice directly. The more sophisticated we make the product, the less services are required for some of our very large customers who are going to generate even larger recurring revenue for us moving forward. They want to take on self-service capabilities rather than get the service from FINEOS for obvious reasons in terms of their cost management. So, all those things impact service fees, but for the right reasons. We had signaled back in November 2024, that kind of trajectory, that kind of scissor movement where revenues will go up and costs go down, and we flagged that we're going to see that crossing over. We're almost a touching point there in FY '24, but you can see the crossover in FY '25. And obviously, that's why we're able to relay a profit as well as a positive free cash flow situation. So, we expect to see that margin continue to increase. That trajectory is not going the opposite direction moving forward. It's going to keep going that direction. If we move on then to Slide 10, just looking at the OpEx, which you saw the headline, up above. If you look at all the line items there, excluding research and development, which I'll come back to in a moment, we can see a decrease in costs. Common theme is with respect to the headcount and where they are actually located. But there are some other elements there like on the G&A, we also see FX movement. There was a share option charge increasing it or decreasing the cost, but that was offset by an increase in software costs. And we had to get more software in the organization to run our business. And some restructuring costs that we incurred is another theme you've seen there, which is one of the consequences of moving some of the workforce to lower-cost regions. Our overall headcount year-on-year is reasonably consistent. It's just the work is getting done in different regions without degrading the quality of the work. That's been really important to us. So as we've said before, we've had overlap of resources to make sure handovers work pretty well. We have a high demand environment where customers expect an excellent service and excellent outcome. So, we've got to make sure we've been managing that very tightly, and we have. With respect to R&D, we've seen some higher software costs, which includes the provision. So, there's another EUR 0.8 million put against that in terms of that provision that I mentioned earlier on. Slightly lower capitalized R&D costs but only slightly lower, and we had restructuring costs. Most of the restructuring that we did in FY '25 related to our R&D teams. We have resources in higher cost regions, and we decided that we would look to relocate those roles into lower-cost regions. So consequently, the restructuring cost was also higher with respect to the R&D team. We, as always, reserve the right, and we will signal if events dictate that more investment is required in R&D. We are a technology company, then we will look to do that. But still in all, if we move on to the next slide, what you can see is that R&D as a proportion, and this excludes overhead costs. This is people costs. R&D as a percentage of the overall revenue is continuing to improve. We've signaled that in FY '27, we're looking to get that down to 30%. So, you can see the trajectory there is moving in the right direction. Last year was at 37% -- sorry, the year before last at 37%. And last year was at 34.7%. So, we see that continuing to improve and getting more into industry norms in terms of that percentage. We're still going to invest heavily in R&D. And as we've signaled before, we will continue to invest in the AdminSuite. There's always capabilities customers will require, particularly those customers that need to move off legacy may require some extra functionality to enable the FINEOS system to take on that business, which makes perfect sense for us in order to increase the annuity fee. But progressively, we're investing more in AI and digital capabilities and capabilities to enable better self-service and better onboarding onto our product set. So it's really exciting that we can actually switch that focus to allow customers to move on to our product set in a more effective way. So, I don't expect to decrease the amount of money we're spending in R&D, but certainly as a percentage of revenue will decrease as we've signaled and as has been evidenced here. We move on now to Slide 12. I don't want to dwell too much into the balance sheet. The next slide is going to talk about cash, and I'll talk about cash there. So, development expenditure, that's really the capitalized R&D spend is a little bit ahead of amortization. We expect that to balance out maybe in '27. It will be similar figures. There's a bit of catch-up taking place there. We've seen a slight increase as well in trade accruals, but that's really due to an increase in payroll, share option exercise gains, et cetera, and a little increase in deferred revenue, again, because of the fact that we're signing up subscription fees. So, we have some new name customers signed up towards the end of last year. So, they will be put in there along with other provisions. And there is a provision, EUR 2.4 million in relation to the software spend -- apologies, so EUR 2.7 million earlier on, I believe, it's EUR 2.4 million. So, moving on now to Slide 13. So the net cash generated from operation activities, a vast improvement there, EUR 38.6 million versus EUR 18.8 million due to the increased revenue, decreased costs. We're very, very positive. We've got some additional cash in from share options that are exercised at EUR 1.6 million. As Michael mentioned earlier on, if you add in the EUR 6.4 million, which is the positive free cash flow, we generated EUR 1.6 million on top gives you that EUR 8 million difference at the bottom line there, which is a 40.4% increase. So, we're very proud of that. We knew that, that was very important to the market. Very important to us, too. Prior to IPO, we were always a profitable company. It's very much in our DNA. We made the [Technical Difficulty] recurring revenues and getting back to a positive cash generative situation, which we plan to continue to improve on as the years go by. So, that's it from me. I'll pass back to Michael for the outlook and key priorities.
Michael Kelly: Thank you, Ian. Okay. I'm going to switch over to Slide 15. And I'd just like to mention that we won a very prestigious award for our embedded AI in the FINEOS AdminSuite from the Irish Technology Association. This was an award, which was competed for by all comers. We have a lot of multinationals from the states, particularly in Ireland. It's a hub for EMEA, but also local companies. And we were really called out for the kind of thoughtful way we put the AI into the system and how it was agentic and assisted in terms of driving better outcomes and presenting users of FINEOS with an opportunity to really improve the -- I suppose, taking the CRUD out of the back office and driving more positive outcomes for customers and clients. So, we were delighted with that. That was towards the end of last year. In terms of key priorities, though, going forward, we're still very focused on Guardian who are ahead of schedule in terms of their own goals that they set for themselves. We'll continue to drive new business onto the system and make sure that everything goes on this year. But also, we're starting the migration from the middle of the year. And we're excited about that because we're in the business of legacy system retirement, and they have a multi-billion book that's going to come across to FINEOS. We're going to continue to scale and upsell large customers and again, with a focus on benefit realization of the product they have, but also looking at legacy migration and taking their legacy systems out, which with some of these carriers, the scale that they're at is a multi-year project. We've been at it now for 3 or 4 years, but we've still got some time to go. But as they grow their business on FINEOS, our fees increase. And I want to point that out in this call out, our fees are not based on per seat SaaS-type fees. Our fees are basically aligned with our customer success. So as our customers grow their business, we grow our business. And we're very much in partnership -- in a long-term relationship with these clients. We'll also increase new business sales. And our partners are starting to work with us now to identify opportunities where they think our product can fit. And so we're going to see more activities with the Sis. And as we progressively embed AI in the FINEOS platform, we're going to continue to see improved platform performance. And already, the feedback is very positive. And let's put it this way, we're in very early days in this. We're in a regulated environment, highly regulated with very conservative insurance carriers. They take years to make decisions. So, you can imagine when you bring something like this in that they're very, very keen to make sure that it's all compliant and it fits with the regulator. So again, this is going to take a few years over -- in the coming couple of years, but we're getting our customers more comfortable with this. And we have a couple of big customer meetings in March in Sydney and also in New York, and we'll be talking about this a lot more with them. We're going to continue to drive internal efficiencies through the usage of AI. And I think every company is adopting AI and taking advantage of that across the whole spectrum of the business. And then pipeline in terms of deal conversions of FINEOS Absence for employer. We have actually done a lot of work in this area in terms of making the product deployable with employers in a much simplified fashion. But we're also talking to some of our carriers about partnership around this and how we could work together because our primary goal is actually the carrier market and to make Absence a real part of the employee benefits industry. Turning to the last -- or the second last slide, I think it's Slide 17. So, revenue guidance for this year, we're going to put it out there at between EUR 147 million and EUR 152 million. And this is really supported by the strong pipeline we have in, albeit, as I said last year, we saw that pipeline. It just took a long time to get negotiations and decisions and so on done, but we're very optimistic about this year. We continue the strategy of driving operational efficiency within FINEOS, and we're going to continue to drive up that positive cash flow and profitability in the business for this year. We're also continuing to drive sales in North America, but we're actually looking to expand our product outside of our target market of North America. And we do see some opportunities to do that, particularly with the multinationals in different countries. And so we're looking at that as well at the moment. And the pipeline remains solid and very much FINEOS being the market leader in employee benefits in North America today. So switching to my last slide, Slide 18, Subscription fees. Ian and I put these guidelines out in 2024, and we're still confident we'll make these guidelines in terms of subscription fees moving up to 65% of the total revenues in FY '27 and 75% or thereabouts in 2029. R&D investment will decrease, as Ian said earlier, to 30% next year and 25% in 2029. And again, as Ian said, we reserve the right to expand that R&D if we see new opportunities. But that's the way things are trending in terms of percentage of total revenue for R&D spend. And then the gross margins and EBITDA. They're almost where we said they'd be back in 2024. They're almost there now, as you can see from last year's results, but we'll drive them on and we'll get them up to 80% for gross margin and 40% for the EBITDA. So, making FINEOS a very strong company in terms of future growth. I just lastly would like to point out the Slide 19. We have an investor roadshow, which we'll be hosting on the 25th in Sydney, and all the details are made available. And if you contact Howard or Jacque and Automic, you can get all the details. We're looking forward to it. So, that's it for me and from Ian. I think a positive year, looking forward with a very positive attitude in terms of the future. And we're open for questions now. Thank you.
Operator: [Operator Instructions] Your first question comes from Tim Lawson with Macquarie.
Tim Lawson: I just had one main question. With your subscription mix targets for FY '27, I won't worry about the '29 ones, just the FY '27 ones. If you look -- if you think about the sort of revenue guidance you've provided today for 2026, and I appreciate that's an overall revenue guidance rather than calling out any sort of subscription versus services number. It just seems to imply a very significant acceleration in the calendar year of '27 to hit those targets. Can you just sort of help us unpack your assumptions behind, both that near term and then the sort of medium-term number, please?
Michael Kelly: Yes, Tim. Thanks for the question. I'll start off, Ian, on that one. But the way that this business is set up is, as I said, long-term contracts with milestone events in terms of things we have to do with customers as they grow their business with us. Our focus through '26 and '27 with our existing clients is going to be very much on migration and growth of their use of our product, plus the cross-selling as well. So, we've kind of got locked in revenues and foresight of events in the next year that should give us a nice lift in terms of our subscription fees into 2027. And we've got a nice pipeline as well, some of which we didn't convert in 2025, but we will convert in 2026 and beyond. So, we're feeling comfortable about the 65% revenue -- sorry, percentage next year. Do you want to add to that, Ian?
Ian Lynagh: Yes. So what you're seeing there in terms of what we report in '25 was a higher contribution, almost a 5% increase year-on-year in terms of the recurring fee, subscription fee. So, we're looking to see steps continue to move as we move forward. We've also seen that the subscription fee percentage as a proportion of revenue has increased, and we expect that percentage to increase in terms of year-on-year growth on the annuity to grow in '26 as we move into '27. So, we definitely see '26 as being a stepping stone to achieve. It's not all going to be laid on '27, Tim. Secondly, to Michael's point there, we still see a significant contribution of that growth coming from existing customers. And as they upsell and a lot of them are getting very significantly through their programs of reducing legacy systems and some are really starting to get very engaged around and pushing us hard. Michael mentioned earlier on about Guardian starting halfway through the year. We have other very large customers out there pushing hard to make that happen. So, we see that as a big factor in terms of that growth. So, we do have line of sight. And the way we put our plans together is very much on a bottom-up basis as we look at the individual transactions for customers. So, we recognize that it is a significant growth, but we do have line of sight of it. It's not 100% guaranteed, but it's still there to be had.
Tim Lawson: So, maybe just on that, are you sort of seeing across there for the '26 year an acceleration throughout the quarters? So, are we thinking that sort of -- obviously consistent with what you've given as guidance for in FY '26. But is the fourth quarter, for example, or second half even materially accelerated versus the first half?
Ian Lynagh: I think the caveat you'd have to put in there is that these customers move at their own pace. We certainly have plans in place to close business in the first half of this year and we believe that will materialize. But it could get pushed out a bit. But firstly, if it closes in the first half, then that gives a lift to the second half automatically. And so if that second half, obviously, will get an automatic lift, and we do see more business closing in the second half as well. So, we see both halves contributing, but the first half contribution helps the second half. So just by mathematical calculation, the second half will have a better revenue outcome than the first half.
Tim Lawson: Yes. I was trying to think that -- I'm trying to think about that split effectively. If you were to annualize the second half, are we going to be effectively materially -- well, I expect we will be, but like significantly above on an annualized second half, what your guidance range is because that's sort of the math that need to work to hit those '27 targets unless you have an acceleration in '27 itself, of course.
Ian Lynagh: You want to?
Michael Kelly: Yes. We do have both. I mean, we have big bumps in '27 as well, which we've already got locked in, in terms of our revenue forecast with existing customers, but we have them coming in, in the second half of '26 as well. And as Ian says, pipeline, we're closing now. So, you'll see more deals coming through in the first half as well. So, we're coming off the back of a good ARR, Tim. 10% growth on that, and we still see deals closing in the next couple of quarters. And then we see the second half getting even better in terms of the upside. But next year is going to be another opportunity for growth with existing customers. So, we don't make these forecasts, willy-nilly, based on a lot of new name wins and potential and so on. We're very much looking at our customer base. We're growing large chunks of business on FINEOS with these large carriers. So, we're able to be a bit more comfortable in terms of predicting. These guys are like oil tankers. They take their time to move. But once they get going, it's very hard to turn them. So you know where they're going. And we can predict that in terms of our numbers with that growth that we're seeing on our platform.
Operator: Your next question comes from Richard Harrisberg with Canaccord Genuity.
Richard Harrisberg: Michael and Ian, congratulations on really great result. I also just had a question on the revenue outlook. I was just curious you kind of touched on it before as sort of an existing growth in your customer, their own sort of book, which drives your revenue going forward as opposed to being on a per seat basis. How much of that sort of future revenue growth is underwritten by that, which I guess is a question on how much you expect general insurance premiums to increase on average based on historic?
Michael Kelly: Yes. Well, we're expecting -- Richard, nice to talk to you again. Thanks for your question. But we're expecting by the volume of business that's coming across in terms of migrations we're working on, we're expecting their usage of the system to grow and their volume on FINEOS as in their premiums on FINEOS to grow. And that basically gives us a clip of the ticket every time we can crash through a milestone tier in our pricing. And so that's where -- that's what gives us that kind of stickiness and that long-term confidence. These are 5-year contracts with these carriers. So, they're really locked in. And to be honest, they put us under enormous pressure to get the product into shape so that they can get this migration done because their legacy systems are creaking and they know they're not going to carry them into the next world that we have with AI and so on. So, that's kind of given us the confidence in terms of the growth that we can see coming on the platform. And we also see cross-sell and up-sell to existing clients. And again, we have some of the biggest customers in the segment, the main we have in the States. So again, we'll see upside there. They won't buy a cross product until they feel that they're over the line on the products that they've already got as in it's already done and they've got everything over and so on. So, that's one thing that we've kind of been sitting patiently to kind of wait for. There's no point in selling or sending sales guys into them when they're in deep throes of migrating to FINEOS. So that kind of gives us, again, the confidence that, like, we're all positive in terms of the focus. So the system is a large system of record, very complex in terms of what it does, highly regulated. And these carriers need to get off the junk that they have in the back office, large 50-year-old mainframes wrapped up with a lot of technical debt. So, they're as motivated as we are to get them over to the cloud-native FINEOS platform.
Richard Harrisberg: Yes. That makes a lot of sense. I guess maybe a different way to ask the question, just purely based on growth in volume of existing customers and excluding cross-sell, up-sell or sort of new customers signed. Is that growth what sort of gives you the confidence to get to the EUR 147 million on the lower end of the guidance? And then on top of that, the reason for the range in the guidance is the strong pipeline you guys are seeing there?
Michael Kelly: Probably a good way to look at it. I'll let you answer that, Ian. But that's -- we've been conservative how we've managed expectations in the market. We don't want to upset anybody. So, we've left a range. And we are confident in terms of the projections and stuff like that, that we do put out. Do you want to answer that in any kind of other way, Ian?
Ian Lynagh: Yes. I think, Richard, and Michael also, a large proportion of our confidence is derived from existing customers scaling on the system. 40%, 50%, our confidence will be around that singular element of those. So more we stay focused on those customers, the more we deliver the capabilities. We want more, we collaborate with them and Sis to help them migrate across, that provides a very strong bedrock for us in terms of how we move forward. In terms of the range, I mean, there are other factors in the range as well. We both alluded to the fact that opportunities can slide up and down. We see that. They don't often go away, by the way, but they do slide up and down in terms of time line. So, that's one of the reasons why we'll be giving a range. And another reason would be that when we look at the opportunity profile, sometimes you've got a small deal, a medium-sized deal or a large deal. And the size of those deals in terms of the revenue they can generate for FINEOS can be quite significantly different. So, that's another reason why you give a variance in terms of the range. I think the other area as well, the last one I'll mention is just around the services fees. We work on a particular deal with an SI, and they want to take on a much more expansive role. And we're looking at some of our SIs like PwC, for example, whose skill sets progressively growing so they can take on more work. So on particular day, they may take on more work than we had originally anticipated or may have performed last year. And then that can have an impact in terms of service revenues we obtain. But as long as that's contributing towards the growth in subscription revenues, we can work with that. So, all those factors contribute towards that range.
Richard Harrisberg: Really appreciate all the extra color there. Maybe I'll just ask one more question. It was great seeing the operating leverage come through and especially with some of the cost efficiencies you've been putting through the business. Just looking forward to FY '26, do you think those costs are sort of expected to remain around these levels? Are there sort of further areas you can squeeze out there? Or what's the right way to think about that?
Ian Lynagh: Yes. I'll take that one, Michael. I think for your planning, as you're doing you are modeling yourself and the rest of the analysts on the call and investors, I think you should be thinking about our cost overall, perhaps increasing in the range of 3% to 4%. I referred to Amazon AWS there earlier on in the conversation about driving efficiencies. We've driven a lot of those efficiencies through the product set at this point in time. So as we expand our footprint with customers, we will see the cost of sales going up with respect to that infrastructure bit. So, that's happening. Unfortunately, like everybody else, we're suffering from third parties increasing costs, and we've also put through some salary reviews. But I would plan out about 3% or 4% increase in overall costs. But internally, we're still looking at ways of driving even that down. But from a planning point of view, I'd look at it that way.
Richard Harrisberg: Congrats again on an inflection year in the business.
Ian Lynagh: Thank you.
Michael Kelly: Thanks, Richard.
Operator: Your next question comes from Siraj Ahmed with Citi.
Siraj Ahmed: Can you hear me okay?
Michael Kelly: Yes.
Siraj Ahmed: Just first thing, maybe I missed this. Just the split between subscription and services that you're expecting next year. Can you just help us with that? I think the revenue guide that is. Yes.
Michael Kelly: We guided next year. We set a set of targets for next year where revenues would -- or sorry, subscription revenues, product revenues would be 65% of the overall total revenue, meaning services is 35%.
Siraj Ahmed: Sorry. For FY '26?
Michael Kelly: For 2027.
Siraj Ahmed: Yes. Sorry, I got that, Michael. Michael, just trying to think about next year, right? Can you give a split maybe just on the revenue next year, just between subscription and services?
Ian Lynagh: I think if I could just jump in there, Michael. I think as I said, deal size can vary a bit. But I guess if you look back in time, we were approximately 50% in terms of subscription fee 2 years ago, last year, 55%. We've got to get to 65% by FY '27. You can kind of make your own assumptions of what we're trying to target as a stepping stone to get there. But we do see some variability about it. We've given guidance on total revenue, but we have to see what happens. But this year it has to be a stepping stone to getting towards FY '27.
Siraj Ahmed: Okay. The reason I'm asking is maybe just a follow-up to that is, so ARR of EUR 78.3 million, right, at the end of the period. I'm guessing it's a bit lower now because of FX? Or is it still the case at EUR 78.3 million?
Michael Kelly: Everything is lower, including the service. So, everything gets hit by FX. So it's kind of -- the percentages will still hold. But yes, revenues are going to go up and down in real terms based on FX.
Siraj Ahmed: Sure. Yes. So the reason I'm asking is, let's say, EUR 78.3 million, it seems like -- so let's say, services is flat to slightly up. You sort of need to get closer to maybe EUR 85 million of subscription revenue, especially the step-up that you're talking about for next year, right? When you're starting at EUR 78 million, that will be like a 108% sort of conversion, right, above this versus EUR 105 million this year. So is that just confidence in the pipeline, Michael, like you mentioned that your pipeline is quite strong and you think quite a few of them will close? Or is it like you mentioned, quite a few customers are going live and so the volumes just organically picked up? Just keen to understand that conversion, right, from ARR to subscription revenue?
Michael Kelly: I think it's mostly growth that we see on the platform in terms of volumes, which will lead to subscription thresholds increasing. That combined with some cross-sell is mainly what we see in front of us in existing clients, Siraj. And then, obviously, the new business, new names are kind of gravy on top as they start converting. Now, we're hoping to see a better kind of uptick in terms of new name as well, particularly in our domain market in North America. I think I have flagged in the past that because of some disastrous attempts for core system replacement from some competitive core systems vendors who came in from other domains, carriers really got burned and it kind of caused a lot of angst in the market and made it difficult for carriers to come back out again and to look to do a major migration of their legacy. We have just taken the brunt of that in terms of the backlash of that is that the carriers will freeze because they have to reset. A lot of them have gone back to legacy, those carriers that had those disasters. But they've learned a lot. And I think the next time they come out, they'll recognize a vendor that is purpose-built and ready to go for them. And of course, as we keep doing things with our own carriers, we're proving out the product and proving out that our carriers are getting good efficiencies on the product. So again, it's a slow-moving industry. It's a very big product. These projects are big. But it's very sticky on long term. And that's what's, I suppose, something that we want to call out as well. It moves slow, but it's very solid.
Siraj Ahmed: Got it. Last one, just on gross margin. So, you're just clarifying, so the full year gross margin this year had a negative impact from the provision, right, which sort of unwinds next to next year from sounds of it. So, you're already at 76%. FY '27, you've retained 75%. I think that should be going up, isn't it? Just trying to understand whether there's something I'm missing.
Ian Lynagh: We would expect a slight improvement in gross margin as we go through this year. But we don't want to go ahead of the target we set for FY '27, albeit we've already achieved it. But keeping around about that mark for this year, we expect it to be reasonably consistent with last year with perhaps a slight improvement.
Operator: Your next question comes from Jules Cooper with Shaw and Partners.
Jules Cooper: Michael and Ian, can you hear me?
Michael Kelly: Yes.
Jules Cooper: Yes. Absolutely. And great set of results and outlook. Michael, I just wanted to sort of dive into -- I think it was on Slide 16, the third tick mark there where you talk about a focus on legacy system migration. Now, there's a huge opportunity in the industry and particularly with your customers given their scale and I suppose, the small footprint today that you've got with those customers and you're making good progress. As we think about AI, we are hearing from lots of different vendors and customers that the improvements in velocity that they're seeing in real time, and it's only going to get faster. Do you think that -- and I know when you're migrating a book, it's not just about the speed of coding, there is all the people side and the project, the change management, et cetera. But do you sort of see this as a real moment where you can kind of unlock those legacy books that before the cost and the risk was just prohibitive and held people back? Just like to sort of get your perspective on that, if I could.
Michael Kelly: Thanks, Jules. Yes, I do actually see it as a kind of moment of truth for these carriers. For years and years, they've been reluctant to take those big back-end systems out of those systems of record that they have. They've gone through the dot-com. You would have imagined they would have wanted to reinvent them so that they were totally Internet-type systems, but they did. They built front end. They've gone through the mobile phone and they built front-ends to do mobile phone transactions and a lot of technical debt around the old back-end systems. They've gone through the cloud, and some of them have been innovative enough to port from a mainframe to a cloud, Amazon or Microsoft or whatever they've done, but it's still the same old system. But the AI revolution is basically going to really threaten those old systems because AI performs on data and having the data in a real-time full kind of rich sense is what AI will drive on. And also having a modern system with the kind of workflow automation that you would expect in a modern system really gives AI all the tools that it needs to perform and move on. So in the future, we see the back office. The work in back offices is being reduced, all that paperwork and all that kind of CRUD work, I call it, that's going to be reduced. And it's going to give people more time to focus on the customer and more time to do other services as well for the clients. So over the next few years, I think AI is really going to change the industry. And being a system of record that we have today as a modern cloud-native one, we're ready to go in terms of the AI operating with us. We are in a regulated environment. So, we'll have to go as quickly or as slowly as the regulators allow, and also what's comfortable with carriers because a lot of them are very ethical and they don't want to mess around with customers. We will not be making decisions about claims. We will not be turning down underwriting opportunities for any kind of bias reasons, and we have to be really careful in terms of how things are done in FINEOS. But we're at one with our carriers. They all feel the same about this, but they all do realize that the world doesn't stand still. And those old workhorse systems that they've had for many years, they've basically gone past their sell-by date. Those who still think that they should keep them and work away are probably the ones that will disappear in the future. And the others that modernize and go forward will actually have the revenues and margins and so on to be able to buy those books of business. That's my own opinion. So, I just want to put that out there for how we think about it.
Jules Cooper: Yes, you painted a really good picture there of like the pressure to migrate and move those books of business. I guess my question was more in the mechanics of it, the things that have held them back in the past as they've gone through all these.
Michael Kelly: Okay. Yes. Okay.
Jules Cooper: Is it sort of making it easier -- mission at the Board table to go, hey, we could actually do this now half the cost and half the time and with half the risk?
Michael Kelly: So like, we've introduced AI, believe it or not, on to the back-end books of business that they've got and our SIs are working on that. So, we're using LLMs to basically stack and get ready, employers that are going to come across to FINEOS. We've been building out then on our side, tooling to allow us to validate and read all of that in. So, that will make it easier as well. And we've been working with one of our big carriers on that in partnership, and that is going well as I said of tooling. And then last but not least, you know we put a lot of money into building out the full suite and making it easy to onboard on FINEOS. In other words, that it's purpose-built and the carriers can easily put business over. We don't have a huge big project at the front end of every time we do an implementation, which is what those carriers who failed ended up doing, having to build software with those vendors. We don't have that. So, we're making it much easier to onboard, upgrade, integrate and migrate to FINEOS. And so the time has never been more crucial for them to move, but it's also never been easier in terms of our industry and the domain we focus on. Is that what you were getting at?
Jules Cooper: Yes.
Operator: Your next question comes from Sinclair Currie with MA Moelis Australia.
Sinclair Currie: Just had a question about competition. There's been some movements among your competitors in the M&A. And I was interested maybe a little bit of an overview of how you see the competitive environment? And if you could throw in any statistics maybe around what percentage of RFPs you've been successful with or something like that, just to bring that to light, that would be really interesting?
Michael Kelly: Yes. Sinclair, so look, the competitive environment within the employee benefit space, core system space in North America, it's kind of leveled off a little bit in terms of the core vendors. You would have seen that Vitech was acquired by Majesco. Majesco has kind of multiple systems that they've acquired over the last several years, addressing multiple variants of the markets across all kinds of insurance, P&C and whatever. Now, they've added pensions and the pensions book to their business. Vitech has largely retreated from the group benefits market over the past 12, 18 months, and they're really trying to focus in on their pensions portfolio. So that Vitech-Majesco, it was a merger rather than an acquisition, I believe, and purely kind of at an agreement between the 2 PEs that own the business that they would basically collaborate. So, obviously, that takes one competitor out when it comes to RFPs and stuff like that. But we kind of had seen Vitech. We hadn't seen them in the market much anyway. And look, 5 years ago, they would have been the guys that were up and coming because they're coming out of the pension space and into the group space with their admin system. And 5 years ago, we weren't ready because we were still hard at it with New York Life. Going back to what I said to Jules. We migrated 6 books of business of old systems for New York Life to give them a EUR 4.5 billion book of business on FINEOS AdminSuite for group, and they went live with voluntary this year as well. And Absence, that's the only carrier that has fully eliminated legacy. And they're still standing on the FINEOS platform for the last 3 years running that full book. So when we talk to clients, they kind of get great confidence out of that, and they do talk to New York Life and so on. And they're a good reference for us and a good client, a good partner. But a lot of our other carriers on the big end of the market are also in the process of migrating as well, and they're moving quickly to the platform. So, I think momentum is building. So, we're not seeing other vendors really of any significance in the space. But again, we see tool set P&C type vendors coming in and out, and it depends. It depends on the carrier. Some carriers get very excited about really techy, techy type software. But that tends then to be a big project build, and that's going to cost them a lot of money. So it's not necessarily the best outcome for them. But look, everybody makes their own decisions. So, I think as a mainstream vendor now in our space, we've got market dominance in terms of a big slug of the employee benefits market, and we're kind of getting the new business deals as well, and we're getting the cross-sells. But we still see several years ahead of us, where we really want to become that true partner to the employee benefits industry, that big system of record. But like with the AI and everything else, that's going to change into much more intelligent and automated system for the future carriers that will go on our system.
Operator: We have a follow-up question from Siraj Ahmed with Citi.
Siraj Ahmed: Michael, somewhat linked, can you just touch on the whole agentic stuff that you're trying to demo in late March? How do you think about pricing this thing? What's the economic model you're thinking in terms of this?
Michael Kelly: Sorry, Siraj, I'm finding it very difficult to hear you. Can you hear that, Ian? If you can, go ahead and answer.
Ian Lynagh: Is it the economic model with regards to AI? Is that what you're referring to, Siraj?
Siraj Ahmed: Yes. For the agentic features you're rolling out, right, in late March that you're announcing?
Ian Lynagh: Yes. I mean, the pricing model we have for our core systems is based on the premium income that the customer has with regards to all core systems, except for apps, which is based on the number of employees. The agentic AI is bolt-on add-ons that's sitting on top. Depending on the nature of it, it will be charged in different ways. So for example, we do document intelligence, document summarization. So the pricing of that is based on the number of documents that you summarize and provide intelligence on. So it's going to be very much on a unit price volume based. We're giving customers the opportunity as well to decide, for example, if I just talk about documents, which documents types, which cases they apply it against? So, they can pull the lever up and down and decide to what extent they want to use that AI capability. We also have case intelligence. So, that will be the agentic AI capability. And again, they can decide the cases or the customers, et cetera. But it will be very much on a volume basis with the opportunity for the customer to pull the lever up and down, a bit like a fuel pump. You decide how much petrol you want to put in the tank.
Michael Kelly: Yes. And just to mention, we're not putting a huge emphasis on charging for all of this because we see it as built in. It's embedded. And so we really will -- it's a usage-based model, but we're not looking -- like we have to keep modernizing and keep bringing a more compelling platform to our clients. They're already paying us good money for the product. So, we'll continue to look at opportunity to increase our fees by cross-selling and up-selling. But we'll also deliver modernization within the platform continuously. And that goes back to the R&D program that we have. So, we're looking to really make a sticky long-term relationship with these carriers so that they feel very comfortable with us as partners.
Operator: There are no further questions at this time. I'll now hand back to Mr. Kelly for closing remarks.
Michael Kelly: Thank you, Darcy, and thanks, Ian, as well for today and coming along on this call. I appreciate all the questions from the analysts and indeed, everybody who's listened to us today. As I said, we're feeling pretty positive about this year and next year. And we're looking forward to the opportunity to present to everybody at the end of March. I think it's the 24th of March. So, please come along to that if you can, and there will be a few of us down there at the time. So it's an opportunity to meet some of us as well in-person. Thanks, Darcy.
Ian Lynagh: Thank you.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.