Thank you for standing by and welcome to the FINEOS Corporation Holdings plc FY23X results briefing. All participants are on listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr. Michael Kelly, CEO. Please go ahead.
Thank you, Melanie, and hello, everybody. Welcome to our FY23X update on results. We are moving to a calendar year for reporting, and therefore this is really a report on the last half of last year, a six-month financial year. I'm here today with Ian Lynagh, our CFO, and we're going to walk through the presentation that has been sent out and registered on the ASX earlier this morning. So I'll move ahead to slide 3, please. Overall, the company is moving more towards a product revenues business where we're driving the kind of valuable subscriptions revenues up and really focusing in on becoming more and more of a software-as-a-service business. I was very pleased that our subscription revenue has continued to increase during the half or the FY last year. It's up 10.5% on the previous half, half one 2023.
So subscription revenue is now 54% of our overall revenue, and that trend will continue to grow in terms of us becoming a product company. Our annual recurring revenue was EUR 65.3 million at the end of the FY, and it's up 9.9% on the 31st of December, 2022. And total revenue for the period was EUR 61.1 million, down 0.6% on half one 2023. Gross profit was EUR 43.7 million with a gross margin of 71.5%. So gross margin is growing, and it's up from 66.9% in half one 2023, so about 6.3% in total. And EBITDA was EUR 4.9 million, a margin of 8.1%. EBITDA margin is up 4.2% on half one 2023. And lastly, our cash position at the end of the FY was EUR 28.1 million with no debt on the business. So I'll turn to slide four now and just talk about some of the operational highlights.
As you know, we closed a very important deal for our full suite, AdminSuite, to Guardian Life in the U.S. last year. That program is moving along nicely for us. Guardian is a different business to New York Life Group Benefits in that Guardian is solely focused on the SME employer market in the United States. We've had some more work to do to AdminSuite to make it more, I suppose, fit for purpose for the SME market as well as the mid-market that we already support at New York Life Group Benefits. That program is going very well, and indeed, New York Life have just announced their intention to go into the voluntary benefits market in the second half of this year.
This was always part of our original charter and our original deal that we would support group, voluntary, and absence on a single platform to support the way that the employee benefits market has been changing over the past several years and indeed seems to be accelerating towards that multiple-type product approach on a single platform. We're very, very well positioned in that space. This really proves out the platform at New York Life's move into the voluntary space. They would have had a moratorium on moving into voluntary because when they decoupled from Cigna after the sale, there was a moratorium agreed legally that they couldn't enter the voluntary benefits market for a period of time. All of that is very, very good and pleasing.
Also, our APAC clients started to move towards the cloud, and they're now seeing the early benefits of those cloud migrations as we started to move during the half, and we'll continue that process into this year and next year, hopefully, as well. So that is important for these carriers in the region, particularly in Australia and New Zealand, to move away from that legacy world into the FINEOS platform. So again, that was a positive in the half. Securian in Canada, which purchased FINEOS, the FINEOS platform for claims management, had moved off the platform in a five-month period, which is a record in terms of a carrier moving to the platform and doing business. We spent the last few weeks of that doing training and testing and stuff like that.
So it really does prove out that the platform is very fit for purpose in the Canadian market as well as the North American market. And then the success we've been having in the cost outs, which we announced last year, we've continued to focus in on those strategies that are making us much more efficient and driving much more cost outs as we went through the year and into this year and indeed into next year. This will continue as a theme in FINEOS as we've become more and more SaaS-like as a business, and we gain the multiplier effect and really increase the margins of this business as we move forward. Our total headcount at the end of the half was 1,059. As you know, we've been growing headcount in the lower-cost countries as we needed to invest, and that is part of the cost-out strategy as well.
We don't envisage headcount growing by very much. If anything, it'll probably come back a little bit as we move into this year. Then lastly, we were very grateful to our shareholders in terms of the raise that we had last August where we raised AUD 40 million. And I personally participated in that to the tune of AUD 5 million to basically get us into a very strong position on the cash side of the business. Those would have been the operational highlights of the half. I'll move now to slide 5. And as you can see, this slide really focuses in on the growth of the subscriptions revenue. And as I said earlier, subscriptions were up by 10.5% on H123, and our ARR is up 9.9% on the same period.
Reflecting that, the only problem that we've had, I suppose, in terms of headwinds is that we have been kind of up against it on the Limelight side in terms of some customers leading us. And we had been rewriting that product over that period that we're reporting on and into this period to get us through some challenges with the product itself around architecture. And I'm pleased to say that we're coming towards the end of that, but unfortunately, we did lose some subscriptions revenue and some services from customers that churned on that older version of the product.
Services revenue is down 6.9% on the H1 period for 2023, but we're coming through a period where we would have had a bubble in services on the previous year, half one 2023, where we had grown our services teams quite rapidly for one large strategic client who then came around to the decision to, instead of going for customization, to go for product and to enter into a strategic relationship with us to grow our product, which I'm pleased to say that strategic relationship is going extremely well. But the downside has been that it does kind of put a wrinkle in our numbers when we look back at our services because they're down on the period now that I'm just reporting on when compared to the previous half.
The geographic mix of revenues you can see as well dominated by North America again in FY23X, but we did see some growth, particularly in ANZ on the cloud upgrades. We also saw New Ireland as well revenues grow in the EMEA market. Good to see the growth outside the North American market, but North America continues to dominate our overall revenues and continues to be our primary focus as a business as well. I'll move to slide seven. You can see that R&D investment was moderated and slightly decreasing as a percentage of our overall revenues. We've been kind of leveling off in terms of the R&D spend and the investment. Indeed, within the envelope of spend, we've been moving teams across to different areas of the full platform towards digital and data. So some work going in there.
But also, if you recall, on our last update, we did announce that we'd be investing in the direct-to-employer market where we had to bake out some extra features that employers would want with our absence product. And indeed, we'd had some R&D work on AdminSuite around the Guardian program as well. So overall, very much a steady state and leveling off as a percentage of revenues. I'll move to slide 8 now. And again, you can see how our people are broken down by function and by region there. And as you know, the regions that are growing are the non-North American regions where we're basically going to the lower-cost countries to recruit. And that strategy will continue where we'll offshore things like cloud operations, support, product consulting, and engineering functions as well into the lower-cost region.
In particular, India, we've been growing our footprint there quite well. When we bought Spraoi, which was our second acquisition, we bought a team from India which were very strong on the engineering and the artificial intelligence front and machine learning. We've been able to build off that. That was a really good outcome from that M&A situation that we went into with Spraoi. We built India up and continue to do so. Our contract resources have gone down slightly as a percentage of overall people as well. But you can see our utilization and our employee retention rates are still very, very good as we keep our people engaged and working tightly with us on our vision and our mission as a business.
To that end, our DEI and BRAIS program is hugely important to keep FINEOS really focused on staff engagement and maximizing the kind of benefit of having people working with us and making FINEOS a really good place to work and making it inclusive as well. So you can read all about that in our annual report, but we're driving some really good successes there that are listed out. And you can see our future focus as well. But we've always been an inclusive company, but we really formalized this, and we've got our people involved in terms of workgroups and so on. And this area is really, really important to us as a leadership and as a team. I'll move to the next slide, which is our focus on ESG and more or less our social conscience.
And again, as a business, we focus in on this and really want to be good corporate citizens as a business. And again, we've written extensively about this in our annual report, but we have had some really good achievements. We keep our focus on this. Again, we have focus groups, and we have strategy on our ESG. And you can certainly read more about that in our annual report. And on this slide, we just call out some of the key successes and our future focus. So for now, that kind of finishes me in terms of the update. I'm going to hand over to Ian Lynagh, our CFO, to just go through the financials before I come back to you and talk about some of the important strategies moving forward. So over to you, Ian.
Thank you, Michael, and welcome everybody to our results conference. I'll try and give you a bit more insight to the numbers and some of the activities that Michael has referred to during his portion of the discussion. As said, our subscription fees are up. That's our primary revenue stream. That's what's going to generate the most value in the company. We're very happy to see that happening, and we're keeping ongoing focus on that. Yes, the services is somewhat down. The main explanation there being that company that transferred into an R&D strategic relationship with us. But also, we're seeing ongoing desire by customers to have a level of self-service. And we've also seen some level of uptake as well with SIs who are providing more services directly to customers rather than us providing those services to them. With respect to the initial license fees, as said before, that's very much a legacy from the past.
We charge those fees for on-premise customers. That's a diminishing pool. And only when they want to add on extra users for some kind of specific need they have will we see some increment in initial license fees. So none happened in the last half year. Some may happen in the future, but it's going to be more sporadic in terms of that. The cost outage programs have helped us quite significantly as well with respect to a decrease in cost. We also referred before to the fact that as we watch the revenues as they move, we have a flexible workforce. It was about 18%, 15%, fluctuates a bit in terms of contracted resources. So one of the levers we pulled in terms of the revenue position was that of contractors. And we have different types of contractors.
This was a high-cost end contractor relationship we had in there, and we saw a cost outage of EUR 1.7 million in terms of that. Also, the relocation of resources to lower-cost regions where appropriate paid off well. And we continue to mature out our usage of the cloud. And happier and happier, we saw a decrease in our spend on our platform, AWS. Despite the fact that we use more of it, we had more customer presence in the cloud, but we became smarter in terms of how to utilize that resource. And we also recontracted with them based on our spend to get better discounting. So that's part of the dividend we're seeing there and the improvement that we're seeing in gross margins. I'll move on to the next slide now, please.
So in terms of just talk a little bit more about the operating expense, I mean, the general theme you're seeing there is that the operating expense has improved insofar as we've decreased that cost right across the board. And that's what we're looking at. We're not just looking at one part of the company in terms of how to drive that efficiency, how to get better outcomes. A lot of that was driven by negotiating better deals with third parties such as Amazon AWS was referenced earlier on, but also the relocation of staff, as we've repeatedly said, to lower-cost regions. But what we're very much focused on now as well as another key strategy in terms of that is having built out our product suite and got it into a more mature situation in the cloud. We're looking at how do we drive more efficiencies?
How do we get better automation, smarter ways of doing things? To Michael's comment earlier on, that cost outage that we announced about a year ago in terms of EUR 10 million, we see that being thoroughly achieved, but we see it also increasing and moving forward as we progress into the next fiscal year also. So right now, we've seen an improvement in the gross margin, and we expect to maintain that if not improve that as time moves forward. There are some other areas there as well where we've got some efficiencies, the share option charge. Quite a lot of share options were distributed to staff, particularly after IPO. They've matured out in terms of the cost to the company, so that's given us a benefit there as well.
In terms of the R&D tax credit, we have mature products, but we're also doing some R&D work in different regions outside of Ireland, so that's had an impact there as well. Next slide, please. In terms of the cash to bank, it's up on the same period on the previous period, helped obviously by the equity raise. So thank you very much for that. But we do see very much, as we move forward, the free cash flow. We've reiterated that in terms of being positive for this six months and for the 12 months on and thereafter. So we're very much trending towards getting that back into that right situation where it is positive and back towards a profitability scenario with the company as we continue to drive out these costs and focus on the revenue side of the business. Trade receivables are down.
We had some significant license fees towards the tail end of the first half of last year, particularly Guardian, which has been mentioned repeatedly. So that's just the rhythm of the business. And conversely, the same with deferred revenue. As you're aware, the lion's share of our subscription fees are invoiceable December through January. So that's just a timing issue again in terms of what it is to increase in terms of deferred revenues. So next slides, please, Paula. So again, just reiterating the cash situation, we raised the equity for working capital purposes. We're still sticking with that mantra. It's very much around pushing the company through this next period with strong deliveries and successful deliveries taking place with our customers. We've moderated the R&D expenditure. We're continuing to reduce costs elsewhere.
So that's helping us quite significantly in terms of keeping the company in a very safe position as we transition across and move those customers into expanded IDAM usage, also Guardian in terms of go-live towards the beginning of next year. That's going to put us in a much healthier position then for ongoing growth as we move forward. That's it from me. I'll transfer back to Michael.
Yes, thanks, Ian. So just in summary, in terms of our key priorities moving forward in this new FY, which is a calendar year, as I said at the start, delivering Guardian is absolutely vital for FINEOS in the marketplace. We've seen several cancellations and stoppages of admin system implementations on the group side from various vendors who've come into the market from either property and casualty or pensions. And these have been stopped after quite a large spend in some cases from the carriers. Indeed, our own Guardian win was as a result of the stop of a program with a P&T type vendor that had been running for four years. So it's vital the group market sees a vendor coming through that can actually handle the way this market is so rapidly changing with a purpose-built end-to-end system for their industry.
That's very much where we see ourselves moving forward. Guardian is extremely important to us. It also brings us down market into the SME market, which is, again, quite a good piece of the employee benefit market to address. As we know, SMEs make up a huge proportion of overall employment in most countries. That's where we're heading with Guardian. We also are driving customer success around clients moving away from legacy systems. Again, in the employee benefit space, this is a new phenomenon in terms of carriers being able to move away from older, rich, functional systems to a purpose-built platform like FINEOS. We're really proving that out. I mean, you can read our case study on our website from New York Life, but we have several activities going around migration and scaling with carriers today.
We want to increase the business in terms of the cross-sell and upsell, but we're very much in a stage, particularly with our large carriers, of proving out our product and scaling our product. And our larger carriers are absolutely hungry to scale on FINEOS and not to look around at cross-sell opportunities for us until they get off their legacy for the particular products that they bought from FINEOS. And it's a great success in many ways, but it does take their eye off future things with us while they're focusing on the success of the programs we're running today. So again, it's very much a confidence builder in terms of FINEOS on our platform. The other area of which we entered into in the half was the direct-to-employer market.
We very much entered into this with the same absence product that we run in the carrier space, but we do have to round it out with extra facilities and features that the employers need that carriers would normally have in-house. So we're doing that, and that's going well as well. And this gives us an opportunity for a revenue at the lower end of the market. And it also gives us a product which we can bring into the small end of the carrier market as well where a more out-of-the-box solution is required. We're also launching the rewritten part or the rewritten Limelight product, or as we call it, new business and underwriting. And I suppose lessons learned in terms of looking back. But looking ahead, we have actually invested in the latest technologies on Amazon Native Cloud, SaaS-like kind of behaviours of this product.
It very much has given us an opportunity to build out a product component in a very modern way. And this, for us, has been extremely pleasing. And we're very excited about bringing this product into the market. And we expect that to happen over the next few months into this year. So yeah, I just want to emphasize that that is an exciting step forward for us as well. We want to continue to drive our clear strategies for operational efficiencies, as Ian says, and deliver out further cost reductions. So cost reductions that we're seeing that we've seen over the past six or eight months are delivering better cost reductions in this FY. And that will continue to grow as we operationalize or sorry, as we automate and we make changes to give us that multiplier effect and that kind of path to better margins.
So that is going to be an ongoing theme in FINEOS. We're really striving for operational excellence as a business. As Ian also said, we've built out our product functionally over the past four or five, six years. There was a hell of a lot of functionality to build, but it's very much coming towards the end of the functional build and really into the automation and the SaaS-like behaviours and into APIs and connectors and data and so on. So we're excited about that as well as we move forward. Last but not least, we are the only end-to-end platform in the North American market from quote to claim for group voluntary and absence. We are very focused on this as a mission to grow FINEOS into the market leader. We're already market leader by number of clients, by revenues, and so on.
But we really want to get this whole platform deployed many times in the North American market and really get the benefit of the investment for our shareholders. I'll turn to slide 18. So as we've mentioned, we have had a kind of a couple of quarters move out. Our pipeline has moved to the right. So we're forecasting a EUR 130 million-EUR 135 million revenue for this calendar year and financial year. But we still expect double-digit growth in terms of the subscription revenues. And we'll continue to focus on growing that valuable subscriptions business whilst we work with SIs who'll take more of the services as we move forward. But this strategy that we have is really to get this business up into high product revenue as an overall percentage of total revenues.
Not saying goodbye to services, and those services will go up in value in terms of what they are. But we also are bringing in SIs, and they're working alongside with us. So services revenues will remain flat in the FY. Guidance reflects both the continued lengthening of the sales cycle, as I said, and a bit of Limelight churn that we've been experiencing for the past period. We're on track for successful delivery and replacing legacy systems, which again, as I said, really proves out the functional capabilities, particularly the FINEOS IDAM product where carriers are very excited about moving across and saying goodbye to their legacy systems. And we continue the strategy of the cost savings. So as I said, when we see cost savings in one FY, it usually kind of we bag that, and we take that through to the next FY.
And it usually means a better saving as well because we continue to refine that. And we continue to, therefore, expect positive cash flow in the six months to the 30th of June this year and also for the following 12 months in aggregate. And we're continuing to be self-funding thereafter. As I said earlier, we raised the AUD 40 million back in August, and we're very pleased that we did. And this business is very viable and looking forward to future growth in margins and in terms of free cash flow and profitability as well into the future. So whilst our pipeline has moved, it does remain very, very strong. So I'll finish the overall formal presentation, and very happy to take questions, Melanie, with Ian from anybody who wants to ask.
If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask a question. If you wish to ask a question via the webcast, please type your question into the ask-a-question box. Your first phone question comes from Tim Lawson with Macquarie. Please go ahead.
Hi, gentlemen. Thanks for taking my questions. Just in terms of the revenue guidance and the cash flow guidance, just in terms of the if you were to hit the bottom end of the revenue guidance for the calendar year 2024, is that still going to be enough to get your positive cash flow guidance? I just want to know how much sort of buffer there is there.
I'll take that one, Michael. The answer to that, Tim, is yes. Obviously, at the bottom end, the revenue will be tighter. But the answer is still yes that that is achievable. And as mentioned also, we're going to continue with further cost outage type activities as well within the organization.
Yeah. And just in terms of that cash flow guidance, I mean, what sort of working capital assumptions are you making? Are you assuming any sort of benefit from working capital to hit those cash flow targets?
No. No. It's purely on trading. So nope.
Then in terms of the sort of, because you've given us the revenue guidance, but the sort of degree to which you've already put in place sort of costs/margin improvement initiatives to hit those cash flow targets. What's already done that will annualize through in terms of a cost number?
In terms of the guidance we're giving around free cash flow at the moment, the assumption is that the revenues we have here can be met by where we are right now in terms of our cost guidance. As mentioned before, we can always pull a lever with regards to services go up or down. We have third parties that we can look at. In terms of R&D, we've moderated the cost in R&D. Effectively, the lion's share of what we're doing in R&D is to meet current demand. So that can be very static as we move into a new year. But we can pull levers with respect to other parts of the organization. And we believe that the cost base we have in now is very workable.
As I mentioned a few moments ago, I think we can even improve on that somewhat as we gain greater efficiencies, not just redistribution of work to different lower-cost regions where that is appropriate to happen, but also with the further maturity of the product, it's the extra focus on the cloud service itself and how we can do things quicker in a more automated way. So we're still very excited about what we can achieve more in that arena too.
Yeah. I'd say as well, Tim, we're continuing to drop our cost base. So we're coming in off a very good number. We can see this year, and we're continuing to drive down our cost base. So cost is in our control, and we have a lot of initiatives to drive down cost. And it's around efficiencies and getting better multiplier effect. So we have a lot of road there in terms of how we can operationally improve. And yeah, thanks.
And then just a final question from me, just on the revenue guidance for the December 2024 year. Just how much sort of pipeline conversion is assumed in that guidance?
We don't normally give that out, do we? Yeah. There's a very small amount, Tim. I mean, we come through every year, and we get increases in subscriptions. We get increases in work. We're basically walking in with a very strong order book every year. So there's a very small-to-sell type piece, particularly new business sales, very small we put in. So we tend to try and be conservative. And that's the way that the market has been as well in terms of we do feel that the carrier market is certainly moving more incrementally at the moment rather than big transformations, with the exception of Guardian with FINEOS. But a lot of things have slowed down. Some of the carriers have made cuts as well. One company cut 5% of their workforce, one of the larger employee benefits carriers there in January. Some of them are doing extremely well.
I'm happy to say that they seem to be our ones. On the existing kind of migration strategies, they seem to be going well. But we just see more of an incremental market in terms of spend at the moment on the new business side. So we've been conservative.
Okay. Thank you.
Thank you. Your next question comes from Siraj Ahmed with Citig roup. Please go ahead.
Thanks. Let me just ask four questions. This first one, Michael, I think you previously mentioned you might look at price increases this year given a lot of customers haven't had any. Just sending an update on whether you've moved ahead with that.
Yeah. We have had some price increases, Siraj. And yeah, kind of some of our contracts are kind of limited to indexation according to CPI. And in some cases, that's worked in our favor given the high CPI rates in North America as well as Europe. But yes, we've taken the opportunity to increase prices wherever we can. And some of our contracts are coming to the end of their five-year cycle as well. So we'll go into negotiations on those as we move forward too.
So Michael, can you just help us? In that mid to high teens sort of growth that you have assumed—sorry, low to mid teens for subs—how much would that be priced? Should we be thinking 5%-7% or something?
No, a bit less. A bit less, Siraj. Wouldn't be quite the 5%, I'd say.
Okay. Thanks. And in terms of the second thing on New York Life, that absence module expansion sorry, voluntary, is that in the guidance for calendar year or for FY 2024?
Yeah. I mean, what that means for us, Siraj, we have architected and built that into the system. New York Life, we're absent for a couple of years, decoupling from Cigna. They had a lot of IT work to do, the team that we work with, to get off Cigna financial systems like Oracle, move to SAP, and that kind of thing. When they came back to us, they were pleasantly surprised to see that the base product had moved as well towards the whole voluntary side, which was the way we were travelling. And they're going to go live with the product at the end of the year for voluntary benefits. There isn't a big upside for us in the subscriptions on that because it's a green field. It's a new entry into the market. So they'll start low.
What it does act as is a proving point for the base product and really sets the standard. We'll probably end up updating our case study with New York Life in the early part of next year, which they've discussed with us. That's where the benefit is, really. There is some services work we've to do with them this year, but it's not a big lift for us now to get into that space or to bring them into that space for the mid-market.
Thanks. And third one, on a back end of cloud migration, I know you've had success, but any update on the others, Michael? I mean, clearly it's not there in the guidance from the month, but yeah.
Yeah. Absolutely. We have achieved the one. Our QInsure have gone live with our cloud upgrade, and I really enjoy the benefits of that. And as you know, icare have bought FINEOS as well for part of their claims book, and that'll be in the cloud. We have been negotiating with one of our clients, one of our larger clients in the region. And we pretty much had that deal done and ready to go, which is one of the reasons why pipeline has moved out to the right. They decided that they would wait before presenting our deal to the board a couple of months because of just the climate in terms of the overall environment around cost-cutting and stuff like that. So that has kind of delayed us on pipeline.
But that's going to be a significant one we expect in FY 2024, just delayed a little bit, which is very annoying for us given the guidance we've given out and so on. But definitely, there's that. And then there's others as well. One of our bigger clients on the life and health side has been consolidating FINEOS systems after a number of mergers and acquisitions over the past two or three years. And that is all coming to one big system on-premise. So they should be ripe for a cloud upgrade. And the discussion should start later this year, hopefully, with a next FY 2025 type program. And then there's others as well that are looking for budget. The market still seems to be tight. Money seems to be an issue with some of the life and health carriers.
Yeah, it's a slow market, but we're moving in the right direction. These carriers have no choice. They've got to move to the cloud. It's going to become more and more prevalent in the market. We're going to see more focus from regulators in your market locally around cloud and migrating away from legacy or bespoke type systems that boards are being held accountable for in terms of the customers' data. I think you're going to see a bit of a push towards that. We see ourselves benefiting somewhat from that.
Just last one. In terms of Limelight, how much of revenue is left? I know you're launching a new product, upgraded product, but just trying to understand how we should dimension. Is there much revenue left in that business?
There's not an awful lot of that revenue left, unfortunately. So I mean, I'm not going to give out numbers or whatever, but it has been disappointing in terms of what happened to that business. And yeah, I think we've gone in heavy over the past 12 months or so and rewritten and really kind of took the opportunity to leapfrog ahead of even our own platform in terms of technologies. So we do have pipeline for that product, which is the good news. And we are excited about that product. We needed that product in terms of being able to go quote to claim. So it did fit part of the jigsaw. And I guess as well that there's quite a good market for that product going in with our AdminSuite, policy, and billing as well. So that's the way we see things going forward.
We're in a positive mood over that particular product.
Right. Thank you. Thanks.
Thanks, Siraj.
Your next question comes from Brendon Kelly with Alceon. Please go ahead.
Hi, Michael. Hi there.
Hey, Brendon.
With the existing larger clients in the U.S. that are ramping up their usage, just came to understand if there's any contract or project milestones over the next six to 12 months that might see those contract values or that ARR shift materially?
There may well be. I can think of one of them. There may well be something that could happen. We're certainly starting to come through the kind of end of the migration that will lead us to talking about what's next. We'll have to run that migration all the way through this year, but we can certainly start the discussions within the next three to six months. There's another one of them that has about 20% of their book on FINEOS. They're very, very large. And they are really keen to move and migrate everything off their old systems to FINEOS. I was over there three weeks ago in New York and spent time with their president for North America and their EVP for group business. And they want to move off legacy as quickly as possible.
We're actually talking to them about how we can accelerate that migration because as they migrate, they will crank up on the license fees that we've already sold. And this is the one where we have that strategic deal where they have the opportunity to pull into FINEOS completely. We've been building out product for the upper end of the employer market with those guys. And we have an opportunity to double our subscription fees just by getting them off their legacy systems. And indeed, we'll have further opportunities with them into next year and the year after with other lines of business and maybe even other components from FINEOS. So we're also talking to them as well about how we use our AI product, the Spraoi product, to clean up some of the data and help them to accelerate into the FINEOS product.
This is something strategically we're looking at because if we can accelerate data migrations off legacy into FINEOS, then that can only be good news for FINEOS, both from a subscriptions perspective but also from a next project perspective. It allows us to move faster and get to the next thing. These are areas that we're putting our minds to in terms of how we move forward. The answer to that question is very possibly yes. We should see more upside through this year and further into next year.
Understood. Thank you. And then just to follow on from that, I mean, you've called out some pretty heavy investment into Limelight and then Spraoi, the machine learning solution, and voluntary as well. Just keen to understand just how far along the journey you are in the investment and how market-ready those products are. And secondly, just keen to understand if you build a pipeline around those solutions.
Yep. Yep. Absolutely. We've come through quite a good part of the journey in terms of those product solutions, particularly the Limelight piece. We're going to be launching that in a few weeks' time. We have a study starting with that with one particular prospect in about six weeks. So that product is coming through nicely, and it'll definitely be road-ready in the second half of this year, hopefully leading to implementations and some go-lives as well. The Spraoi product, we've been working that product now for some time. We have refined that product so that it works with the FINEOS platform. But we've also been working with AWS strategically on the machine learning side. We are based in Dublin headquarters, as you know, and AWS have their EMEA R&D centers in Dublin as well.
And so we get to participate in some pretty important and nice machine learning-type R&D activities with them, which we want to bring in to enhance what we're already doing with what we bought at Spraoi. So if you look at our overall R&D levels, given the kind of envelope that we're working within and the market we're working in, we're in good shape. And we won't be increasing that at a headline in terms of overall spend. But we are redistributing teams, and we are working in different areas of the platform as parts come to kind of natural completion. And as I said in the presentation, over the past 5 or 6 years, we've been really building out functionality to make FINEOS easy to onboard and to implement.
You can see that coming through with what I mentioned around Securian and indeed Guardian as well, who will go live later this year towards the end of the year. We'll be delivering the first release of their product go-live system in a few weeks' time. So yeah, we're really heads down, just focused on the one space. And as I said, it's a very incremental-looking market at the moment with carriers kind of a bit shell-shocked from some of the programs that have been cancelled over the last few years on the admin side from vendors that have entered in from different domains.
Yep. Sure. And just a pop line on voluntary and also direct-to-employer, if you could.
Yeah. Voluntary is a much smaller element of the overall U.S. market, but it is the important piece. It's more profitable for these carriers on the group side, and it also moves the equation to more of a defined contribution model, more of a flexible model for the employees. We're also seeing an overlap between voluntary and absence or paid leaves from states where insurance companies are offering insured paid leaves from the state. And so they're offering new products around absence, which is really playing into our hand of being able to have that voluntary element in terms of our billing and policy and also the absence piece. So it's a growing market. It's a trend, and it's something that we really have to support on the same platform as the group system. But it's a small piece of the jigsaw right now, but it's going to grow.
As you can see, New York Life moving in is just going to increase it. But it also gives us an element of the market where some carriers have a voluntary book of business, but they don't necessarily do the group piece. They do the accident, critical illness, and whatever. So we can go in after that as well. So it does expand our footprint a bit with some of the carriers that are in the multi-line place. So overall, it just makes the product more rounded out and opens us up to more opportunities.
Cool. Thanks for that.
Thanks, Brendon.
Thank you. Your next question comes from Jacob Loi with Citi. Please go ahead.
Hi, Michael. Hi, Ian. I just got a couple of few questions, if you don't mind. Is the previous guidance that was issued for the EUR 131 million-EUR 135 million for the full year to June 2024 still relevant, or should we now be thinking about the current guidance from today's presentation is the new it will supersede that?
Yes. Correct. The current guidance will supersede that.
Okay. Yeah. So in terms of the new guidance, currently where we are is EUR 65 million ARR. And to get to a low EUR 70 million of subscription revenue based on the lower double-digit growth and then given that you haven't mentioned as much new business, how do you kind of sort of bridge how you'll get to that low EUR 70 million?
Well, we're continuing the cost outage as we go through this year. That will deliver more opportunity for that free cash flow.
Sorry. In terms of subs revenue?
Sorry. What's your point on subs?
Yeah. Sorry. Your ARR, EUR 65 million-EUR 70 million.
Oh, yeah.
I'm misunderstanding. Yeah. So you mentioned there's maybe just under 5% full price. Is that implying that you mentioned that in terms of the pipeline, there's not much new business. So how do you sort of aim to bridge that sort of so we've got that under 5% for pricing?
Yeah. Look, I said it was less than 5%. By the way, the price increases wouldn't have been, I think Siraj said, 5%-7%. I said it was less. But yeah, we've taken a conservative view of our pipeline in terms of when things convert. We're having good conversations today. And we basically we're setting our stall out the way with the same guidance that we put out the last FY, the EUR 131 million-EUR 135 million, just in terms of the climate we're seeing. And we're hoping for an uptick. But yeah, we've work to do in terms of the business closing. And as you say, we don't have a huge amount of new business in that. We do have deals that we were looking to close from January onwards, the last month. And they've been delayed a bit.
So again, we've kind of taken a conservative view of that as to when they'll close. But we were fully expecting them to close in January. And all the indicators going into the last quarter last year were that those deals were going to close. So we've had a couple of hiccups in terms of their side, them not being able to pull the trigger on the deals. But we do expect they're still assuring us that they can go ahead and so on. But yeah, we've taken a conservative view.
Yes. Thanks for that. And just my last one. So how should we sort of think about medium-term margins? So there's been a bit of accretion from this result. But how should we sort of see, I guess, over the medium term?
Yeah. Medium term, we expect margins to continue to grow. And this business will become a very profitable business in the next two to three years. And we'll prove out the complete SaaS model, which will give us that multiplier effect as we get more and more standardized with this model. And as I said, and Ian said that as well, made reference, we put a lot of money into functional capability in the last few years. We're now really standardizing and getting the automated benefits for increasing our margins. And then there's other cost strategies as well that we're driving. So margin, we believe, will continue to increase in the medium term. And as I said, profitability as well will come on that. And we're not dissimilar to other vendors who've been moving in the insurance space that are listed.
You could look at their results and what they're calling out in terms of the challenges but also the positives. We wouldn't be too dissimilar from the strategies that they're applying. They're also forecasting nice margins and growth in margins going forward.
Great. Thanks.
Thank you. Your next question comes from Siraj Ahmed with Citi. Please go ahead.
Michael, can I just follow up Jacob's question just in terms of previous guidance and new guidance? Because in December, the AGM, you said it sounded like you're tracking towards the low end of your June half guidance of, or June year-end guidance of EUR 131 million-EUR 135 million. So if conditional was thicker, June half would be at the high EUR 60 million, let's say, EUR 68 million ARR or something, right? Nothing seems to have changed. I get that some things have slipped, but that's still on track, isn't it?
Well, we're no longer given guidance on that. But yes, some of it has slipped. And that's what caused us the pain in terms of the overall revenue kind of slippage on our guidance. But these are deals that we are. These are people already working with, deals that we expected to close. And there's two or three of those deals at the moment that we're looking at getting closed. So it's just delayed. We've taken a conservative view then for the rest of this year. But yeah, there has been some movement to the right on those deals.
Okay. So should we be thinking December half is better than June half this year in terms of revenue? Just trying to understand how to phase it. Because you have Guardian Life going last year.
Ian, can you answer that in terms of the June half this year versus?
Yeah. We should see an uptick in the June half of this year, Siraj. That's the expectancy.
Sorry. So in this calendar year, 2024, December should be better than June, or is that the way to think through it?
Yes. Sorry. This year.
I'm not really clear with it. Yeah. You're talking about this year, aren't you, in terms of the first half?
Yeah. Calendar year, 2024. Okay.
Are you talking about the first half of this year?
I think he's talking about the first half of this year versus the second half of this year in calendar 2024. The answer is we expect revenue to keep growing in the second half as well.
Yeah.
Okay. Okay. Got it. Got it. All right. Thanks.
Thanks, Siraj.
Thank you. Your next question is a webcast question from Hai Nguyen
Yeah. That's a great question. So we have been allocating capital to trying to get to market parity and market leadership around our product and our platform. And we've invested, as everybody knows, we invested way ahead on the R&D side to get that product ready. As we move forward, we will continue now to apply capital towards more automation and more kind of margin kind of growth in terms of the platform itself but also digital and data and also kind of rounding out some of the policy billing and the new business platform. So we are changing the complexion of how we allocate our capital. But we're not increasing the overall R&D investment profile as we move forward.
But as we move forward into next year and the year after, as we start to come into that free cash flow profitability situation, we'll start to look at geographic expansion and also increasing our sales and our marketing to kind of reuse and to sell what we already have and to scale the business. So I think we've been putting the focus into the product very much over the past few years. We'll continue to focus on the product to make sure that we keep it ahead with things like machine learning and automation and so on and making sure the user and the customer experience is really strong on it. But we'll also then be putting and allocating money towards the sales, the marketing, and investing in that side of it in future growth. So you'll see the complexion will change.
And overall, as I said, we're expecting our product revenues to continue to grow substantially. And they will become the largest part of our overall revenue. And our R&D will continue to go down as a percentage against that overall product revenue growth.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Kelly for closing remarks.
Okay. Thank you, Melanie. Thanks, everybody, for coming on the call today. As I said, we're very confident in terms of how we want to move forward in this program. We're seeing some really good results. We don't have control over pipeline, unfortunately. We're in a very lumpy business in terms of the type of deals we do. We're dealing with a market that is not quite right yet in terms of recovering from past atrocities, you might say, investments and things like that. We're hoping that they will see us as the white knight in the core system space within employee benefits as we move forward. We'll bolt in the direct-to-employer growth opportunity that's there as well. Then I think you're going to see FINEOS continuing to grow and to become much more profitable as a business going forward.
Appreciate everybody calling in today. Ian and I expect that we'll be down at some stage to do a roadshow probably later this year. We'll be sending out more details of that at some future date. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.