FINEOS Corporation Holdings PLC

ASX:FCL

Earnings Call Transcript

[Operator]

Thank you for standing by, and welcome to the FINEOS Corporation's Holdings plc FY '23 Results Briefing. [Operator Instruction]. I'll now hand the conference over to Mr. Michael Kelly, CEO. Please go ahead.

[Michael Kelly, executive]

Thank you, and good afternoon to everybody. Welcome to this year's results presentation for our FY '23. I'm joined here today by Ian Lynagh who is our CFO, he stepped into the role a few months ago. Ian has been with the company over 20 years and has a huge experience in this industry, having lived and worked in the U.S. as well for us driving our sales on our commercial side several years ago.

And we're delighted that he has stepped into the CFO role. So Ian will be giving more detail on the results through this presentation, and he'll join me for questions and answers as well at the end. So moving along, I will go straight into Slide #3 on your presentation. And just to cover off the highlights. Last year, we had a subscription revenue of EUR 62.4 million, up almost 16% on the previous F year.

And as we've been messaging now for a couple of years, we see this growth start as the most important growth start for FINEOS as we become more and more of a SaaS product business. So very pleased in terms of the growth rate of the subscriptions revenue. And indeed, we walked into the this FY that we're in today with an annual recurring revenue of EUR 67.3 million as of the 30th of June, up 19.3% on the 30th of June 2022. Our total revenue for the year was $125 million and in line with guidance. EUR 1.7 million in terms of the drop on FY '22, but very much reduced from the services perspective with the growth rate really showing through on the subscription side.

Our gross profit for the year was EUR 85.7 million, and the gross profit margin was EUR 68.5 million. Again, gross profit was up 3.2% on FY '22. EBITDA, EUR 2 million, EBITDA margin, 1.6% and EBITDA was down 70%, a small number, but it was down 70% on the FY '22 number. And the margin of FY '22 was 5.3%. And our cash position at the end of the year was EUR 25.5 million.

In August, just a couple of weeks ago or less even, we decided to raise an additional capital amount of AUD 40 million. And we received a very, very positive demand for that particular raise. Well oversubscribed. And thank you again to all of our investors, both existing and some of the new people, who've joined on board as well.

So I'll move along now to Slide 4. And just covering off operational highlights, I think the past year and even into this year have been very much focused on implementing FINEOS and onboarding our clients, particularly our large clients on our SaaS platform. And really, it's been about scaling the system for both new businesses and indeed migration of business across from legacy systems to help these clients to eliminate the legacy and broken processes and so on that they have in their back office and to move into a much more digital streamlined approach in terms of dealing with their customers and the whole operational side of how they run their business. So heavy kind of lifting in terms of the programs that we're involved in with -- particularly with our large clients, who have massive volumes and multiple legacy systems.

We also secured a major contract with one of the top 10 carriers in the U.S., Guardian Life. And again, this was a carrier who were actively trying to do or not trying as close actively engaged in kind of a digital transformation over several years and came to the conclusion that they needed a proven purpose-built solution and chose the FINEOS admin suite to implement that system over the next 12 months and beyond.

So a significant contract win for us in the year, which we're delighted about. Overall, America or North America continues to be our main market. Revenues, again, were very high at almost 80%, 78.1%. And the reason for that being that the North American market is the largest employee benefits and life accident and health market in the world with over 30% of the global volume in terms of size and companies and so on.

In March, we visited Australia, Ian and I, and we talked about the process that we were going through around cost reductions following the two acquisitions that we've made in the previous 2 years and indeed taking account of a lot of the efficiencies that we were driving.

So we have that -- we've continued that cost-out strategy and we had -- at March, we had a target of -- or sorry, 10% cost reduction or EUR 10 million cost reduction in our cost base. So we have made significant progress by the time we came in March. And we've continued that and will continue that as we move through this year as well. Our head count hasn't really changed that much, but the dynamic of our head count and the location of our head count has certainly changed.

And as we move to our head count towards lower cost geographies and continue to deliver at the same time, training people and so onboarding people. So we've been able to get some really good efficiencies by doing that. And last but not least, in terms of a highlight, we had three new client wins in the year, plus a direct-to-employer sale as well, which is our first sale into that marketplace. And we see a TAM of about EUR 200 million in that space. So a good positive step forward in the year for us, and we do have product work to do now to make sure we deliver that customer and indeed begin to start to convert the pipeline of customers that we would have in that space.

I'll turn to Slide 5 now. So Slide 5 just shows the subscription revenue growth over the last several years. And as you can see, again, the 15.9% showing through at the EUR 62.4 million that we achieved last year with the ARR, the run rate was being 67.3%. Subscription revenue did come back. We signaled that halfway through the year and very much because a strategic deal we stuck with one of our largest customers, whereby we stopped building custom software with them and began to look at a kind of a longer range product investment partnership whereby they are helping us now to build our product out for employers with over 100,000 employees.

So a very strategic move for us, but it did have that the impact of reducing our services revenues in the FY. If you turn to Slide 6 now, you can see the geographic mix of our people, and that hasn't changed very much at all in terms of the past 2 years. So I'll move on and skip to Slide 7. And again, here, we show our North American revenue growth. And as you can see, very healthy growth rates in our U.S. and Canadian market were up 17.9% on FY '22 in terms of the subscription side of the revenues. And as I said, there was services revenues have been reduced because of that one big change up in the way we operate with one customer.

I'll skip on now to Slide 8, and that shows the R&D investment. And again, as we've been doing over the past few years, we are investing ahead of revenues. So that means that our R&D has been almost 40%, 38.8% invested when compared with our revenues. And that compares to 34% in FY '22. So a heavy year of investment in the product. And we believe that's the right thing to be doing in terms of the outlook and what we can see in the future for FINEOS in terms of growth rate.

I'll skip to Slide 9 now. And again, this one just shows you the breakdown of where our people are and the type of people we have. So utilization rates were 86%, which are slightly down on last year, but still keeping people very, very busy. And also bringing in the rewards for that in terms of revenues and subscriptions. The Indian side of our operation has been growing. And we intend, as part of our cost-out strategies to really drive the Indian operation up and to move more and more stuff to India as we grow.

We still have other locations as well, which are very attractive in terms of cost and established IP and knowledge of our products as well. So we will be growing all regions as we grow. But certainly, we see the Indian operation has been a good place to continue to grow from and to keep that focus. In terms of environmental government and social side, FINEOS is committed here, and it's something we all believe in. We've really been focusing on the kind of movement towards measuring and really achieving more and more in this area. So we established a council through the FY, which effectively just coming up with the strategies and the measures and monitoring this for us as a group of people, and these people have been chosen from different parts of the business.

So as well as being a council to run it, they're also a council to make sure that they communicate with everybody in the business and really get the message across. We also did some external benchmarking and assessed ourselves against industry peers. And we defined our initial KPIs. And we also got some funding. A percentage of what we're spending now has been kindly funded by Enterprise Ireland. Which is our partner. It's a government agency that has basically partnered us all the way through our growth from the very early days and has put money behind us from time to time when they are aligned with us. So very pleased with that funding.

In terms of the future focus around ESG, we want to develop an ESG value proposition, set realistic targets and goals around ESG and the needs of our customers and begin our preparations for regulatory compliance and reportings around ESG as well.

So I'll move on then to Slide 11. And again, this is another really important tenant in FINEOS for how we kind of embrace and manage and engage our people. So we're very committed to the whole DEI an inclusive process. And key successes through the year were very much our DEI process embrace was giving -- was given several awards and recognized for being ahead of the curve in terms of how we manage our DEI and include people.

We also have a women in tech focus in FINEOS under the interest group. And we also have joined the Reconciliation Action Plan for Australia. So very pleased to be part of that given our long tenure in Australia. And we've come up with other ideas or our big idea mentorship program and ongoing education in this area and really focusing to make sure that we make every team member feel very valued and with the ability to contribute to the goals that we set.

Our future focus, again, supporting neurodiversity in the employee life cycle, disability awareness program, both in the work and product impact in terms of what we do as a business and continue to measure the impact of the program and execute our RAP action plan. So with that, I'll stop now from this section, and I'm going to hand over to Ian to cover the numbers in a little bit more detail, and I'll come back to you after that. Thank you. Over to you, Ian.

[Ian Lynagh, executive]

Thank you, Michael, and thank you, everybody, on the call for your support and continued interest in FINEOS. I'll now spend a few moments going through the financial slides. So I'll go to slide talking about our income statement.

Next slide, please. So as mentioned, our subscription fees, which is our key revenue area has grown by 15.9%. But that's been driven by as a combination of wins during the year, including upsells in terms of upgrades to the cloud from existing customers. We had three of them during the year. We had three new names as Michael mentioned earlier on, we also had cross-sells as well in terms of taking on new core products.

So we continue to grow in double digits and are very happy with that growth rate there to see in subscription fees. We have seen a drop in service fees, as mentioned. And as you've seen in terms of our guidance, we believe service needs with lower growth rates moving forward for a priority of factors, including the inclusion of system integrators, including the fact that customers want greater self-service as the products become more mature.

But nevertheless, in terms of the reduction from year '22 to '23 that company that Michael mentioned in terms of our major investments being made, we're going to see a return from them from FY '25 through to FY '27 in terms of substantial growth in their subscription fees as a consequence of the R&D investments they're making with us. So it was the right decision to make.

We'll continue to see initial license fees, to be a lower level revenue because that's very much associated with our on-premise customers. And that's decreasing grew obviously, as they move to the cloud, but it's only when they could buy additional licenses because they have additional users for our claim system, it's on-premise. But nevertheless, we expect to see revenue continuing for that for the next couple of years or so. But it will be depleting. We don't have that concept of model in terms of pricing within our cloud-based customer base.

Cost of sales has reduced. So that's for a combination of reasons. One is, as part of our overall cost-out program. We had some expensive contractors, particularly our large client mentioned today, a while ago. That gave us little margin. So we took them out. We've spoken before about the flexibility [indiscernible] in or about right now, 17% of our workforce is actually contracted.

So as we find our business moves in different directions, then we can flex that as well. So that's an example of the flexing the benefit we can get from it. And also, as mentioned earlier on, placing people in different parts of the world based on the role that they can perform to give FINEOS better price advantage. So that's given us a gross margin of 68.5% for the full year there. And we see that continuing as we move also into FY '24.

I'll talk about the operating expenses in a little while, it's on the next slide, so I won't go through to that. EBITDA is down, but that's really a reflection of the fact that we've increased our investment in R&D year-on-year. And we also had a reduction in service revenues, as mentioned above.

Next slide, please. So in terms of operating expenses, as we mentioned during our road show in March and at the half year, we did give salary increases in FY '22. We haven't perpetuated that into FY '23 as part of our cost out program. So we do see increases in costs across the board there. And a key part of that would have been the salary increases that we gave during the beginning of FY '23.

But on top of that, we had the increased investment in research and development, both in terms of numbers of bodies and that salary increase, hence, the increase you see up there. And most of our sales and marketing team is actually based in the U.S. So the exchange rate that we had stroke at time of budget didn't work entirely in our favor with the exchange rate between the U.S. dollar and the euro. So that impacted the cost for us there as well.

Product consulting, seen an increase also primarily due to the fact that salary increases and also a large proportion of our people are based in the U.S. So similar reasons to sales marketing above. Somewhat more minor increase in cloud operations, but we see that moderating quite a lot moving forward because part of our R&D investment is very much around increasing automation. That will mean that as we increase our base with our customers, existing and new, we won't need to grow that cloud operations function from a cost perspective as great as has happened in previous years.

And under general administration, we had a number of different increases there around IT costs. We had some share option costs as well, particularly around the time of IPO. We issued quite a lot of share options to staff. We have some insurance costs as well, which we managed to keep under wraps as we move into FY '24, which is good. And last, we also had an earn-out payment to this pre-owners as part of that acquisition. And that isn't perpetuated into FY '24 as well. That was included in our operating expenses for FY '23.

What you can see in the bar chart on the right-hand side is further evidence as mentioned by Michael, a moment ago, of the problems that we'd already put in place towards the end of calendar year 2022, delivering the dividends in the second half of the year. And again, we see that continuing as we go into FY '24 as previously announced as part of the raise activity there last week.

Next slide, please. From a balance sheet perspective, the points I'd really like to just call out, obviously, the cash was at EUR 25.5 million versus EUR 44.3 million. Things have changed. Obviously, since the raise of last week. We obviously got reflected here. We took out the raise very much from a working capital basis. So we're working very hard and right now is free cash flow as we move into the second half of the fiscal year and also making sure that we're generating cash from increased business.

Now that we have a full product range that is attractive and competitive in the marketplace are as reflected based on some recent announcements. Trade receivables is slightly down, but that's a positive insofar as we had a really good collection of outstanding invoices in the second half of the year, and that's always a good sign that customers are happy when they're paying the bills on time. So we're happy too because of that. The other one I'd point out here would just be deferred revenues has increased as well, which was reflective of the increased subscription fee we got the year and in particular the increase in ARR as mentioned earlier on by Michael. So quite a lot of our revenues in terms of subscription fees come in or June -- in January, as mentioned. But for new clients as they onboard with us, we basically have that happening at the time of contract signing so that dependence we have in January will gradually change over time, but it will be a very gradual change.

Next slide, please. From a cash perspective, that generated cash has increased year-on-year, which is positive. Obviously, continued investment has occurred during the year. So we can see that there as well. We were impacted by FX, particularly with the U.S. dollar as mentioned earlier on. And that's left us in a net cash position, as mentioned earlier on of 25.5%. So nothing more to be said on that. So I'll hand it back to Michael. Thank you very much.

[Michael Kelly, executive]

Thank you, Ian. So yes, just to finish up this presentation today. I'm going to move to Slide 18. Ian just talk about key priorities. Very much focused on the customer success. And as a business, we really do embrace that and make sure that we deliver for our clients. This is coming through in lots of ways, but in particular, it's moving away from their legacy systems. You would have seen that we issued a case study with New York Life just over a year ago and we eliminated six of their legacy systems, and we had their full book of business running on FINEOS, collecting EUR 4.2 billion in premiums for 9 million clients and paying out all the claims across the business.

That has put us in good stead in terms of being a vendor in the group market that has shown that they can get rid of legacy, which shows product maturity and dedication and focus to the particular industry. And this is something the group market has been lacking over the years. And indeed, I think our Guardian win is good proof of the strength of FINEOS. So we're looking forward to more legacy elimination.

And today, we are scaling very successfully with our existing clients and moving away from their legacy systems. We also want to increase new business sales as well as cross-selling to our existing customers. And the cross-selling can only happen at times when jobs are done and segments of their book have moved across. So sometimes, we're busy working with them and our SI partners to migrate away from the older systems, and that takes time. So that does impact the cross-selling.

We want to gain more efficiency across the business, and this is part of our SaaS strategy anyway. But it's also, as a result of the two acquisitions we made, we did carry extra cost for a couple of years. And indeed, we did scale the business quite rapidly. And so we're taking the opportunity now to continue our cost-out program and drive more and more efficiencies through the year.

We obviously want to achieve cash flow positivity in the second half of this FY and for the full year next year. And we also want to execute our mission to really that singular focus to become the global market leader in group voluntary and absence management, employee benefits.

I'll switch to Slide 19. And the outlook for us, we are still growing and moving very nicely across our customer base in terms of proving out our platform. We expect revenues to be in the EUR 131 million to EUR 135 million range with subscription revenues growing into the kind of low -- or the mid-teen -- low- to mid-teens percentage rate. And low-ish growth in terms of services, mainly due to the fact that we've got quite a lot of interest in FINEOS from SIs, and we are moving more and more to give the SIs more of the work on the services side to really embrace the partnership and to build FINEOS as that platform of choice for the group market.

We did announce that cost out of EUR 10 million in March and largely we'd achieved a lot of it as we were doing that road show in March, back in March. And we achieved EUR 8.7 million in the full year of annualized savings, and we'll continue to hit that target through this year on the $10 million out strategy that we have. But we do increase our R&D, we do have the [ write-off ] that supposed to increase it based on growth opportunities and in particular, the Direct-to-Employer and the second Admin Suite deal are areas of focus where we're actually investing as well to make sure we achieve what these clients want and that we build the product out for them and indeed for the rest of the market.

We're expecting to see -- to see the positive cash flow, as I said earlier, on the -- in the second half and for FY '25 in aggregate. And with 7 of the top 10 group carriers already at FINEOS clients and over 60 clients in this space globally we do remain positively and strongly positioned for future growth. And that very much is our singular focus as a business as we move forward into our FY '24.

To finish up, I'd say, Ian and I are going to do a road show on the first week of September. So hope to see you all and very much if you haven't booked a meeting with us.get hold of Howard at [ Atomic ] and get into our diaries, please. So very happy to come along and meet everybody in a couple of weeks. And lastly, but not least, thank you all to all of our investors, our staff, our Board and everybody involved in FINEOS growth strategy and look forward to keeping the momentum going in the future. Thank you. We'll take questions now.

[Operator]

[Operator Instruction]. Your first question on the phone comes from Shaun Ler with Morningstar.

[Shaun Ler, analyst]

Just a couple of questions from me, please. I guess the first one is just on the FY '24 revenue guidance. If we strip out the $10 million to $14 million Guardian Life revenues for FY '24. It kind of implies that revenue kind of go backwards. So could you perhaps talk to what are your assumptions over there? Are we seeing some client losses, price reductions further drop off in services revenue, like what happened in the first half or anything, any other things that we should note?

[Michael Kelly, executive]

I'm happy to kind of start off here, in terms of that one. Yes, Shaun, nice to talk to you again. I think from our perspective, the shifting of services towards our SIs as part of that. And we do -- we have given guidance on Guardian, and there is a partner on the Guardian program as well. We have kind of our services in some areas have kind of slowed down in terms of various projects through the FY '23.

And I guess what we're trying to do is give the market a cautious kind of concrete estimate for the go forward. So that's the kind of range that we're putting out there in terms of our forecast. But we do have projects and things that are coming to an end. We did, I think, flag that we lost some Limelight business in the past and some of that services subscription comes to an end as well. So there is a little bit of fall off from those customers that didn't go live on that Limelight project, our product. And indeed, in terms of limelight, we've been investing quite heavily over the past 12 months to re-architect that technology and to bring and that much more into the FINEOS platform.

So we've had to do some heavy lifting and to bring those clients along. So it's really -- it's a cyclical thing in terms of how things kind of are finishing off and a little bit of closing out with some clients that didn't go live on that product. And then it's the SIs as well. And we do have a lot of demand on services for the SI. So that's how I'd answer it. Do you want to say anything about that,Ian?

[Ian Lynagh, executive]

Yes. I think it's important as you look at FINEOS revenues that you very much separate out the subscription fees from the service fees. And we're very focused on the growth of subscription fees at any point in time as a company, we're running tens of projects with customers in within the region, 20, 30, 35 projects at any point in time, they're continually [ abetting ] and flowing. So you have to replenish that service fee with new projects, which is part of our normal business, and it always has been. So it's not quite right to just add on the full value of The Guardian on top of the previous revenues because part of The Guardian revenue needs to replenish service revenues from projects, where customers are going live, which is success because that's what generates the subscription fee.

And as mentioned a few times, we see over time that system integrators will take up more services. We also see customers want to take on more services. And as we mature our products out further, what we're aiming towards and very much aiming towards is that the implementation time line and the effort to implement who could reduce. So we're attacking that services revenue stream. We see it growing year-on-year, but it's not what we're putting our full focus. The focus is very much on the subscription fee to generate that greater ARR capacity.

[Shaun Ler, analyst]

Maybe my second one is, perhaps, could you provide some updated statistics on, say, product or sale or product hub. So maybe you could perhaps talk to how many customers have more than one core products currently with us 2 to 3 years ago? And maybe sort of in conjunction with that, could you also perhaps talk to the degree of customer concentration now in the business again versus 3 years ago?

[Michael Kelly, executive]

Ian, do you want to take that first or... .

[Ian Lynagh, executive]

Yes. Yes. So I suppose, Shaun, if you look at the way that our operations function, we have some customers that are very, very large. So you have upsell, upsell for us would very much be to have an existing core FINEOS products such as claims or absence which is obviously where we started our journey. They may transfer over a certain amount of their legacy systems. And our system needs to be very functional rich to enable to do that over a period of time.

So first 6 months, the system that goes across then later on, another system goes across. And as that upsell is taking place, then we're increasing our subscription fees charged out to those customers. So that's happening on a continuous base, particularly with some larger customers. Then again, within that existing product set, what you have is that they may move new lines of business onto our systems that it could have short-term visibility in the U.S. context. They may move on to long-term visibility or they may move on to voluntary products, et cetera. So we see that as a journey of expansion with a number of customers. We have around us. So it's very much a land-and-expand type program.

So we've had that happening on a continuous basis. We don't make a big deal about it in so far saying the customer has taken on a new contract with us because they happened to, is just part of the normal, normal progression. We have a number of customers that use us for absence as well and combined absence and claims, as you know, it's got IDAM, Integrated Disability Absence Management.

So that's our greatest cohort. And now that we have the policy and billing product in a much better place in terms of competitive advantage with the R&D investments we've made. We've seen -- we've taken on our sector for Guardian as mentioned there in that. And we're heads down now focused on making that a very successful implementation with full go live in January 2025, and with the analyst support there as well, we see a lot of interest in the market around what's going on in that space because it's all joined up now.

We're the only vendor in the market that can take you all the way from the front right to the back in terms of the claims administration with one system. So it's an exciting time. We just -- we think the journey is very much just going to ramp up moving forward. So watch the space, Shaun.

[Operator]

Your next question is a webcast question from [ Lev McGollen ], who ask, can you talk about subscription revenue growth with existing clients in the next few years? It doesn't seem to be a big increase in subscription revenues from existing clients FY '24 implied in guidance. Can you explain why this is?

[Michael Kelly, executive]

Yes, I'll take that one. So we -- I've tried to kind of give certainly an indication through the presentation that we're heavily focused on scaling existing clients, particularly the larger ones on what we sold them already. So they've got the business, they've got the system implemented in many cases over 2 years. They are scaling rapidly in terms of new business and their results of our customers are coming through very positively in their quarterly announcements.

And now they're eliminating the legacy systems. So in a sense, you could say, well, they don't need any more of FINEOS product yet because they're using up what we sold them. And -- but I suppose in terms of the future, there is a long-term opportunity with all of our clients as we replatform them on a modern system like FINEOS to continue to eliminate legacy in other areas with other FINEOS' products.

So over time, I think you'll see us continuing to pull in the subscriptions and to get faster as we continue to bake out our product, making it easier to onboard and easier to -- for these customers to make that decision to move to FINEOS and move other things to FINEOS. So I think over time, you'll see it in the next 2, 3, 4 years.

FY '24 we're very much heads down scaling these big carriers, and we're very excited about where the product is today. And as Ian has mentioned, with the new components as in the younger components of admin and billing and the employer market as well, we've got a lot in front of us. But we believe that our success will be very much delivered through our customers' success. And therefore, we're not really heavily traveling them with lots and lots of new sales when we haven't completed the existing deliverables and so on.

So I think over time, you're going to see a very good trajectory of subscriptions. But this is a long-term business. This is a marathon. It's -- we may be running it in a series of sprints, but it's definitely a marathon and this is big, big ticket of software, replacing legacy systems, which are often 30-, 40-, 50-year-old. And these -- our clients are the kind of #1 brands in the North American market as well, the very largest. So we just have a bit more work on the delivery side, which as well is why we're bringing in the SIs to help us to go a bit faster. And hopefully, that will come true for us as well. So hopefully, that answers the question.

[Operator]

Your next question is a question from Marcus Hughes, who asks, what is the GP margin on the subscription software business?

[Shaun Ler, analyst]

Yes. I'll take that one, Michael. Market is approximately 85%, and we see that continuing, perhaps even improving, but certainly continuing as we move into FY '24.

[Operator]

Your next question is from Marcus Hughes, who ask. Do you calculate and disclose the net revenue retention achieved from your cloud-based customers?

[Ian Lynagh, executive]

We do calculate, but we don't currently disclose it. Let me take that one away and we'll see what we are happy to disclose or able to disclose as part of the road show in September that Michael mentioned in a couple of weeks' time.

[Michael Kelly, executive]

I'd just add to that, Ian, that I'm not aware of any customer that has left FINEOS Cloud, since we have gone live. So once we go live, we secure the customer long term. And we did that measure before we came into the IPO 4 years ago, and it was less than 1%. We have made some acquisitions, which have kind of muddied the water a little bit because there were start-ups and so customers had the option before they went live to pull back and that happened in terms of those newer acquisitions. But we bought those companies very much for the long term and the strategic side of the end-to-end that we're looking for as a business. So we have a saying in FINEOS, you've got to slow down before you speed up, and we've just been going through that process with those acquisitions. But very, very little. I'm not aware of anybody who has left the FINEOS Cloud, since they come on to it. So it's a very sticky business and a very long-term business.

[Operator]

Your next question is from Marcus Hughes, who ask. I know your strategy to run down the services revenue stream through your -- using system integrated. Have you signed any deals with SIs? And if so, how quickly can the SIs become productive, implementing the FINEOS product?

[Michael Kelly, executive]

Yes. Our goal is really not to run down the services. It's to maintain it, but to grow it slower. But to grow the subscriptions revenue faster. And therefore, it becomes a much lower percentage of the overall revenue base and also reduces risk completely when you have long-term 5-year contracts on the subscription side.

We have signed the global contract with EY, and we've got two more in the pipeline at the moment. We're already partnered up with a couple of the other audit SI-type practices on initiatives with customers today, but we're going through a process with them in terms of moving towards partnerships. And indeed, some of the Indian SIs and the bigger consultancies, we're also building out a program with them. So we're very much going through that kind of older model of big services and large teams of consulting with a smaller footprint of product moving towards a much bigger footprint and product and many SIs working around us to help us to go faster with our product growth.

[Operator]

Your next question is from Marcus Hughes, who ask. Of your total customer base? How many are on-prem customers? And how many are on cloud-based products?

[Michael Kelly, executive]

We don't give the exact numbers, but the vast majority of our clients are in the cloud or moving to the cloud. So we don't have a huge amount of on-premise. We have signaled that eye care in Australia is the next local customer to move to the FINEOS Cloud. And we obviously have QInsure and also Partners Life in the cloud today in the region. And that's the region we'd point to when we talk about on-premise customers, Australia and New Zealand is where we see most of our clients still on-premise. But I think everybody accepts that the move to the cloud is inevitable and that they're waiting to do it. There's still a tightness in the Australian market as the fallout from all the M&A and so on.

The market itself is not that strong in terms of the areas we're in, in terms of growth. But it does look like it can improve in the next couple of years, which is really important. But we do have a big footprint in the market and looking forward to those clients upgrading to the cloud as well.

[Operator]

Your next question comes from Brendon Kelly, who ask. Can you talk about the composition of the pipeline. If you could talk to the modules and the demand from new versus existing clients? And can you tell us if there is any demand for the limelight and machine learning modules?

[Michael Kelly, executive]

Yes. Thanks, Brendon, for the questions. Yes, we're seeing a steady pipeline of claims and absence we are seeing nice pipeline in the employer market as well. Those are not big deals. They tend to be on the smaller level. And also on the claims side, they tend to be smaller. We've -- we sold security in there recently in Canada, we announced that one and that has gone extremely well.

The good news is those projects go really quickly, and we start to look for the cross-sell and then in terms of other opportunities. We are talking to customers -- existing customers about new lines of business that they could bring on to our platform, and we do see that coming in the next -- hopefully in this FY very much for FY '25, which we see as a nice growth here.

And then we are seeing some interest in our admin suite from existing clients. And so we do have a pipeline in that area from existing clients and also on the Limelight and Spraoi products, particularly the Limelight product, where we've done a fair bit of investment in terms of the architecture and technology. We're starting to see that too, that pipeline develop as well nicely. So we're still very much convicted that the products we bought and the products we've built will continue to be sold.

[Operator]

Your next question comes from Brendon Kelly, who ask. Can you talk to if there has been any change in the level of activity in the pipeline, i.e., are insurers more willing to transact conditions have normalized?

[Michael Kelly, executive]

Thanks again, Brendon, for the question. I'll take that one again in. I think -- I think what we're seeing certainly in North America is a healthy market in terms of our clients. And generally, the industry is doing quite well given the backdrop of the complete -- the ending of COVID and recovery and then interest rates as well have been very positive. Again, I think if you look at the customers we have and the results they're reporting are very, very positive as well.

And we'd like to take a little bit of the credit for that they're talking about the technology investments that they're making, particularly in the absence and disability world. And that's very much FINEOS. We do see though that these clients want to get off legacy systems and they want to move out of that old fashioned world. So that's where we're kind of cost -- very much in the scaling with those customers. I think longer term, there's great opportunity with these customers. We -- we've got 5 of the top 10 of these large group customers using our IDAM platform in the cloud with a scaling and so on.

And so we've eked out a market leadership, and we're very -- I suppose, well known in the marketplace for the fact that we have that absence product as into market-leading product now in the industry. The backdrop to that, though, is that there's been a number of vendors, who've moved into the market on the admin side over the past 5 or 6, 7 years coming in from different domains. And largely, those vendors haven't been doing well, and they've had project cancellations after tons of investment from the carriers.

So that we're very easily chosen and a lot of hope behind those decisions at the time. What we're witnessing is though big change-up in terms of carriers stopping those projects or parking those projects or putting those projects into more kind of tactical type areas and not relying on them for the future. There's a little bit of exhaustion as a result of that, I think, in the marketplace and a little bit of trepidation.

And I think the market is watching to see, well, what FINEOS is going to do different. And I think they will also need a little bit of time in some cases for recovery. We were delighted with The Guardian and that day, they decided that they wanted to go for it and took all their learnings and did an market evaluation quickly looked at the opposition and chose FINEOS.

So I think over the next 12 months or so, it should be quite interesting to watch as FINEOS continues to deliver. And the carriers, who haven't done and haven't achieved what they set out to achieve start to kind of fall back in terms of their expense has been high and maybe losing market share to some of our clients. So we'll see how it goes, but that's what I'm hoping will happen over the next 12 months, Brendon.

[Operator]

Your next question is a phone question from Brendon Kelly with Alceon.

[Brendon Kelly, analyst]

Hey, guys. Thanks for answering my question via text.

[Operator]

Your next question is a follow-up from Shaun Ler with the Morningstar.

[Shaun Ler, analyst]

Just a quick follow-up, please. I was just wondering, is there a correlation between the number of case studies that are published and new client wins. I say this in the context that client wins have somewhat picked up after the New York Life case study release. I'm just trying to figure out if there's an element of client advocacy here that the market is missing or our recent client wins mainly just due to the -- being more certain after the COVID period that you talked about a while ago?

[Michael Kelly, executive]

Yes. So I'm happy to take that. There is a shortage of case studies generally in the market in our domain because there hasn't been an awful lot of great achievements over the past few years. Certainly, our competitors haven't published anything like the New York Life story. And we intend to do more case studies with our existing clients as we scale the business.

So it's a domain that is not well served and hasn't been over the past several 10 years or more with core systems. And as I said, there's been a number of vendors, who jumped in opportunistically to see if they could kind of become the vendor of choice. But we haven't seen any case studies. And I think what your point is well made in that there's a lack of case studies. And that's something that, hopefully, over time, we'll start to correct. Thank you.

[Operator]

If there are no further questions at this time. I'll now hand back to Mr. Kelly.

[Michael Kelly, executive]

Okay. Thank you. And thanks, Ian. That was your first results call, and thanks for going through that so well. Appreciate everybody dialing in. As we said, we'll both be down in a couple of weeks to do the road show and looking forward to meeting everybody. We're happy to take follow-on questions and obviously keep in touch with our investors and analysts as well. Really do appreciate the support. So thank you and look forward to meeting everybody in a couple of weeks.

[Operator]

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