The insurance software company is out with what they are calling FY23X results this morning – the company is transitioning into a calendar year reporting period from 1 January 2024, making the numbers today a little messy. They have been pushing for more subscription-based revenue growth, a strategy that will yield value down the line (aka Altium). However, it has weighed on near-term growth, with revenue for the half down marginally vs 1HCY23. Services revenue weighed on the top line; annualized recurring revenue (ARR) though grew 9.9% to €65.3m, and guidance suggests this is a growth run rate the market can expect to see going forward.
Costs have also been an issue for Fineos. The company raised money in the half to transition and invest in cost reduction strategies, which supported an increase in Gross Profit Margins from 66.9% to 71.5%, alongside EBITDA margins improving to 8.1%. Despite this, the company posted EBITDA of €4.9m, short of the ~€7m expected, though we expect the swing into positive EBITDA to be taken well.
Guidance commentary is mixed; subscription revenue is expected to grow in the low to mid-teens; however, the company has noticed a lengthening in the sales cycle, saying the pipeline remains strong, if not just delayed. They did flag a shift in thinking from many large carriers as they look to replace legacy systems while the company will be free cash flow (FCF) positive from this half and self-funding thereafter.
- There is little more than to call this result a messy one for Fineos and we suspect there will be plenty of interest on the conference call this evening. After staging a strong recovery through December & into January, Fineos shares have since fallen 20% over the last 5-weeks, which will provide some cushion
MM is reviewing its position in FCL following the result
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