Aptitude Software Group plc (APTD) Earnings Call Transcript

And welcome to our H1 2025 results presentation. So today, I'm going to begin with a brief executive summary, and then I'm going to hand over to Simon, our Commercial Finance Director, to take you through the financial highlights. After that, it will come back to me, and I'll be walking you through the progress that we've made in our business across the half. So if you want to move to the next slide. Perfect. Thank you. So in H1, we continued to deliver against our strategy, transforming Aptitude from an on-premise to an AI SaaS business model. And the structural changes that we've made as part of that over the past 18 months are now showing up in our numbers, customer satisfaction and also business progress. As an example of business progress, Fynapse continues to gain momentum, contributing more significantly to pipeline and market traction. As an example, we added 4 new Fynapse clients in the half, bringing the total to 9 alongside several other new logo wins and expansion deals across our existing client base. In addition to that, our partner model is also starting to scale, streamlined to focus on a small number of key partners, which is also helping us reach Tier 2 and 3 opportunities. And while macroeconomic headwinds, deal timing shifts and adverse foreign exchange movements have created downward pressure on revenue, we remain on track to meet full year profit expectations. So I'm now going to hand over to Simon to take you through the financials for the half year.

Yes. Thank you, Alex. So if we can go to the next slide. Thank you. So starting with one of the key metrics for Aptitude, annual recurring revenue, which at 30th of June '25 grew 3% year-on-year to GBP 49.8 million. And this growth was underpinned by success within our AI autonomous finance offering, consisting of AAH and Fynapse, which grew by 13% in the 12-month period. Combined with this, the existing client base performed well with upsells in H1 '25, such as HCSC, complementing the H2 '24 sales at the likes of Macquarie and Chubb to drive a net retention rate for the 12 months to 30th of June '25 of 101%. This coming despite a continued elevated level of churn, which we do expect to reduce in future periods. We continue to benefit from a strong balance sheet with cash as at 30th of June '25 of GBP 23.7 million and net cash of GBP 17.1 million. This enabling us to continue to provide shareholders with returns through consistent dividends as well as the share buyback program with shares to the value of GBP 6.3 million having been purchased up to 30th of June '25. We'll go to the next slide, please. So this slide looks at the profit and loss accounts, where total revenues were 7% lower half-on-half at GBP 32.8 million, with the majority of this reduction being within nonrecurring implementation revenues as we move further toward a partner-first implementation model. And as a result of this, we continue to see improvements within our revenue mix with 82% of revenues in H1 '25 being recurring. This is compared to 78% in H1 '24, thus providing us with increased revenue visibility. And this improved revenue mix in combination with cost reductions generated as part of the business model transformation have resulted in an improvement in profitability year-on-year with adjusted operating profit of GBP 4.9 million in H1 '25. This represents a margin of 15%, an improvement of 3 percentage points year-on-year, with our focus being on continued improvement to increase this into the 20s over the medium term. And looking ahead for the 2025 full year numbers, we are seeing some downward pressure on revenue due to adverse foreign exchange movements, combined with macroeconomic-related deal deferrals. But despite these factors, as Alex set out at the start of the presentation, we remain on track to achieve profit expectations as we benefit from our improved revenue mix and the tight control of the cost base demonstrated by the business model transformation, as previously mentioned. I'll now hand back to Alex to talk through the progress made across the half.

Thank you, Simon. So as Simon has presented, the improvements in our financial performance are being driven by 3 key factors. So that's the structural change across the business. That's the accelerating growth of our AI-led autonomous finance offering and also combined with improved client satisfaction. So now what I want to do is take a few minutes to walk you through each, starting with the business transition. So if we can move to the business transition slide. Perfect. And then just one more. Perfect. That's great. Okay. So I guess since we last spoke, we have made and obviously, myself and the team have made real progress in our business transition. So I think it's important to take a step back to provide a bit of context. So in March 2024, we kicked off a fundamental transformation of Aptitude, and we ultimately set out to move from a compliance-heavy services-led software vendor to an AI, SaaS, cloud, partner-first platform business. And at the heart of that shift is Fynapse, which is both our growth engine and also the strategic foundation for our future product portfolio. By March of 2025, we're around halfway through that transition. And today, we've made significant progress and expect to be materially complete by the end of the year. And over the past few months since March, we've been very busy with a focus on 2 major areas. The first has been embedding the new product operating model across the full portfolio. And as I explained in March, we began with Fynapse in eSuite in November and now the rest have now followed. And then the second, we have been in the process of redesigning our services organization around a fully partner-led model, again, moving away from direct services to partners. There is still also important work to do to complete the transition across the remainder of the year. And as a couple of examples, this week, we optimized our cloud operations team. In Q3 and Q4, we'll be rolling out the new services model to support and enable our partners more effectively. And we're also continuing to tighten our go-to-market execution, especially in marketing and also partner enablement. But I think it's really important to say that these are not just structural fixes, they're delivering real results. So if we take Fynapse as an example, we optimized the product and engineering team in November and yet accelerated delivery. So features that used to take 12 to 18 months are now shipping in just 6 to 12 weeks. And we expect to see similar results across the rest of the product portfolio following the broader rollout of the new operating model. And I think -- just to say, I think please don't underestimate the amount of change, amount of cultural change effort and work that has gone into transforming our business and importantly, we are going to be ending up at the end of this financial year with a much better business than when we entered this transitional phase. So now what I want to do is talk a little bit more about our AI autonomous offering, which is Fynapse. So if you want to move to the next slide, yes, perfect. So look, I know that I've spoken about what Fynapse is multiple times, but I think it's really important to come back to it. The work that we've done through -- because of the work that we've done through the 2024 relaunch, combined with, again, all the work that we've done with the customers and partners obviously, since the relaunch of Fynapse in 2024, I believe, has brought Fynapse to life in a very real and tangible way. So Fynapse is the AI native nervous system of the enterprise. It basically connects fragmented data systems, it applies real-time finance logic and supports intelligent workflows. And what that does essentially is enable finance and operations to move faster with confidence. I think it's also important to highlight that it doesn't replace an ERP, a data lake or a CRM. It works alongside them. So Fynapse ingests data from those types of systems. It enriches it with real-time subledger logic, automation and embedded AI. And then that unlocks tangible business outcomes. As examples, it supports a continuous close and real-time reporting, and that's important because it helps finance and operations shift from being reactive to real time. It also supports automated reconciliations, and that helps in turn to reduce manual effort. It also supports predictive insights such as servicing live margin -- sorry, live margins, cash and customer health data. And it also importantly supports improved collaboration across an organization because basically, what it does is it links finance with sales and operations on one real-time source of performance truth. And now to the AI question because it is an important one. The rise of AI doesn't reduce the need for Fynapse. It makes Fynapse essential. AI needs structured finance quality data, embedded rules and clear lineage to be effective. And that's exactly what Fynapse provides. And in highly regulated industries, that foundation is critical. Fynapse is built with compliance, control and auditability at its core, shaped by years of experience with global banks, insurers and also telcos, and it's not something easy that others can replicate. So Fynapse isn't disrupted by AI. It enables it, helping it to power the next generation of intelligent finance. But where does Fynapse play and why do we win? So if you want to move to the next slide. Perfect. So what makes this opportunity so compelling is its broad relevance across all industries and regions. Every organization is under pressure to modernize finance, to move faster and to sweat or realize the asset that is AI's potential. And Aptitude has a strong track record of supporting complex regulated industries from global banks to telcos and to tech giants, which gives us a unique edge in environments where control and scale matter. And with 74% of finance leaders planning to adopt AI and low-code tools according to a piece of Deloitte Research over the next 2 years, Fynapse is built for this moment. It's designed for sectors that we already know deeply, but importantly, it's composable AI native architecture also open doors into new regulated markets like health care, energy, pharma, and that's also where partners play a key role because partners will help to expand our reach into those net new sectors. So Fynapse is the AI native finance grade layer that traditional ERPs can't deliver, and we're already proving it. PayByPhone achieved finance transformation in just 6 weeks, not years. T-Mobile, they're processing currently 150 million journal lines in an hour. And at the beginning of next year, we'll be processing 400 million journal lines in a 3-hour window, enabling real-time visibility at scale. And then Chubb is rolling out Fynapse as its global subledger and which will provide obviously a key foundation for its finance modernization program to support automation and control across the enterprise. But what sets us apart? Again, we don't compete with the ERP, we complement it. And we don't ask clients to rip-and-replace. We help them modernize what they have. And we do that at speed. So in weeks, months, not years with simplicity and at scale. And our partner-first strategy is a force multiplier, enabling resell, delivery and scaled go-to-market execution -- sorry, globally. And that combination, which is a differentiated platform, a global need and a growing ecosystem of partners is what gives us a right to win and a scalable path to growth. So now what I want to do is talk through some of the Fynapse momentum and partner acceleration. So if we move to the next slide, that would be great. Thank you. So Fynapse continues to gain traction despite macroeconomic pressure and deal timing shift. In H1, we secured GBP 7.4 million in total contract value across 4 Fynapse wins, including a health care insurer, HCSC, another KPMG managed services deal, Humm, which is an Australian payments provider and a global parking payments organization, which is PayByPhone. So these bring the total number of Fynapse clients to 9 since its relaunch in 2024. It's also important to add that with these new clients, we also create opportunities with Fynapse to expand over time, selling additional modules and unlocking more value as their use of the platform grows. Momentum is also building in the partner channel. As we talked through in March of this year, we moved to 100% partner-led model. Again, that means exiting direct services and fully aligning to a scalable, high-margin SaaS organization. And that pivot is still early, but it's already showing results. As examples, 70% of our H2 and 2026 pipeline is partner involved and partner source annual recurring revenue has grown from 10% in 2023 to 30% at the full year of 2024, and we're on track to hit our target of 45% in 2025 with a longer-term goal of 80% of annual recurring revenue sourced by partners by 2027. And we're also seeing increased investment from our partners like KPMG, who view finance transformation as a priority across their client base. And I would say that's combined then with growing engagement from Microsoft, Deloitte, EY, Avanade and HSO as some examples, all of whom are enabling their teams to sell, to deliver and build Fynapse-specific capability across and within their organizations. But now let's talk about our wider product portfolio in existing client base. So if we move to the next slide, that would be great. Thank you. So what continues to underpin Aptitude's strength is our ability and also, I think our ability to scale Fynapse is the combination of our established product portfolio and also our strong base of over 100 high-value clients. In H1, we saw momentum across both existing clients and net new wins. So from an expansion uplift and renewal perspective, we secured a Fynapse win at HCSC, which is a long-standing Aptitude client. We also experienced some expansions across eSuite and aRev with RMG and Axon as examples. And we also had key renewals delivered at HSBC, CAA, Specsavers and Intuit as examples. In addition to that, we also closed net new wins across our portfolio. So we had a revenue management win with Packsize, a partner-led eSuite deal and a new KPMG managed services deal combined with Assure to support the delivery and enablement and implementation readiness to support future clients being onboarded to the managed service. Churn across legacy products remained within expected levels and was offset by improvements in how we manage and support our clients, and we expect to see churn reduce from 2026 onwards. And to give some examples of the improvements across the organization that have fed into improving customer satisfaction. And if we take account management as the example, we have made meaningful changes to the way that we engage with our existing customers. As an example, we have 7 new account managers hired to increase coverage. We have structured account planning to proactively identify expansion opportunities, and we also have stronger integration between account management and the wider organizational functions. I think it's also important to highlight that it's not just the changes to the account management team that are helping to positively impact customer satisfaction. They also reflect a wider shift in how we support and engage clients across Aptitude because every function from product and engineering to professional services and marketing is being reshaped to improve the overall client experience and long-term value delivery. And then looking ahead, Fynapse remains central to our long-term retention and expansion strategy. And we're enabling this through using Fynapse to modernize and consolidate existing products. We're offering modular upgrades for phased adoption, and we're also executing our AAH migration plan where we have a target to migrate 1/3 of the AAH base by the end of 2027 supported by a structured transition plan to Fynapse. And to date, 3 clients have successfully migrated with 12 more targeted across 2025, 2026 and also 2027. And as this strategy matures, we expect continued improvement in net retention driven by better product cohesion and a stronger client experience, leading to improved upsell and cross-sell activity. So to close, H1, if we move to the next slide, that would be great. Thank you. So in H1 2025, that has been a period of focused execution. We've made strong progress across our business transition with improving margins, growing recurring revenue and tighter cost control. Fynapse is scaling. Our partner-led model is gaining traction and profitability is improving despite macroeconomic pressure. We are building a modern AI SaaS-first business with the operational discipline and foundations to scale. So thank you very much for your time today. Okay. So I think just to close, obviously, thank you very much for joining our presentation today. We believe that we've made solid progress in the first half strategically but also operationally. Fynapse is gaining traction. Our partner-led model is scaling. And obviously, as you've heard today, the transformation is well underway and will be near completion by the end of this year. And therefore, we are entering the second half with focus and confidence. So thank you very much for your time today.