FINEOS Corporation Holdings plc (FCL) Earnings Call Transcript

Thank you for standing by, and welcome to the FINEOS Corporation Holdings PLC First Half '26 Results Briefing. [Operator Instructions] I'd now like to hand the conference over to Mr. Michael Kelly, CEO. Please go ahead.

Thank you, and welcome, everybody, to today's call. I'm joined here today by our CFO, Ian Lynagh, and we're going to go through our first half year results and give you an overview and some color behind the results. So I would ask you to turn to Slide 2, please, and we'll start off. So, as you can see from Slide 2, we've had a very good performance in the half. Subscription revenues of 41.9% -- of EUR 41.9 million, up 15% on June 25 and 57.8% of total revenue now, in line with our strategy to drive up our subscriptions as a percentage of overall revenue. Our total revenue was EUR 72.5 million, up 7.9% on June '25; up 7.2% to EUR 72 million on a constant currency basis. Gross profit, EUR 54.6 million, and gross profit margin, EUR 75.4 million (sic) [ 75.4% ]. Gross profit is up 6.3% on the previous corresponding period of June '25. EBITDA, EUR 17.4 million, and EBITDA margin expanding to 24%. So EBITDA is up 32.3% on June '25 and the EBITDA margin is up from 19.6%. So again, expanding our margins in line with strategy. Net profit after tax is EUR 1.9 million, up 254.6% on June '25, where the loss was actually EUR 1.3 million. And cash was up to EUR 39 million, up 11.9% on June '25, and of course, no debt. The positive free cash flow was EUR 10.9 million and really indicating that we're continuing that momentum of positive free cash flow and cash generation in this business. And the ARR was EUR 87.8 million, and the net retained earnings, 115%. So both very strong numbers and again indicating very strong and sticky customers who are continually buying and expanding their footprint with FINEOS. Our ARR is up 14.9% from EUR 76.4 million, and the NRR is up 15.3% since June '25. So overall, we're very pleased with those results and those headlines. And I suppose what's causing the kind of growth is a number of things, but certainly, new name sales in the half. We had 2 of those, FINEOS AdminSuite for Claims, the MAIB in Australia and one other in the States. So, that kind of continues to drive that market leadership. But very, very pleasingly for us, we had 2 more sales of AdminSuite, one to OneAmerica, and in that one, we signed a 10-year contract. So OneAmerica were very keen for a long-term contract for AdminSuite because they can see themselves using this for 10 years and well beyond. And of course, there was one other smaller client in the U.S. who also bought AdminSuite. They didn't want to publicize their name due to being owned by a large Blue Cross Blue Shield in the States and not having their permissions. So we're really seeing the benefits of the AdminSuite now, and customers are going to see more and more opportunity to expand into the AdminSuite. And very pleasingly, again, OneAmerica licensed FINEOS AdminSuite for quote underwrite rate, plus the FINEOS Employer Connect, and both 10-year contracts. And I'm calling that out because both of these products are derivatives from acquisitions we made, Limelight Health and Spraoi. So it's really pleasing that we've actually reengineered and got those products in the full suite end-to-end. So we're looking forward to seeing OneAmerica really driving home now that full suite of products that we have out there. And it's proved that our R&D and our strategy is coming together very nicely. On the customer side, we've had multiple on-time go-lives with ACC in New Zealand, one of our largest clients in the Southern Hemisphere, doing a 2-year migration from an on-premise major scheme in the country to the FINEOS AdminSuite for Claims. And that just took 2 years, was on time, on budget, and they're thrilled with that program. And indeed, the publicity is on our website, if you'd like to go and see it. Our FINEOS Customer Connect events have been in New York and Sydney in the last few months. And we have one coming up in Toronto, and we have another one in November in Sydney, just to let you know. And these are proving to be very useful because we're demonstrating product. We're showing our clients where the product is going, our road maps. And more importantly, I think we're bringing customers with us to talk about their experiences on their transformation. And this is going down very, very well. We've got some really good case studies with Guardian and New York Life, but also other customers are joining in. So building positive momentum. And we're gaining a multiplier effect from embedded AI in our product. With our deep domain focus and our market leadership, baking the AI in at the core is just helping us to accelerate our growth and making our product far more attractive and sticky with our clients. So if you turn to Slide 4, this is just a look back, and we're pretty proud of the growth we've had since we launched on the ASX in August 19. And as you can see, we very much have driven to the strategy we laid out in our IPO prospectus of growing our business in North America, which is 33% of the global insurance market, and by far, the biggest market in the world. If you can prove yourself in North America, you can pretty much prove yourself in every country. North America is leading in the technology space, and a lot of the multinationals and so on are in North America, very highly competitive market. So it's very pleasing to see the market growth in North America up to 80% in the previous trailing 12 months. And of course, we also promised that we would turn FINEOS from a services business into a product company. And we're well on the route there. As you can see, over 300% growth in subscription revenue since we IPO-ed. And again, that's very much down to the expansion of the product and the R&D that we've invested through our IPO and ongoing profitability in the core business, the underlying core business. And indeed, when we IPO-ed, most of our clients were on-premise. Most of our clients, the vast majority are now on the cloud or moving to the cloud. But that's just one step in terms of the growth strategy. Of course, the next step is to grow the FINEOS AdminSuite footprint across our whole customer base. And today, only 4 of our 60 clients have AdminSuite, the full product, the policy and billing product in place. So we have a lot of runway ahead. And with the very strong customer success we've been having, our customers really trust that we can bring them to the place where they can actually finally say goodbye to those legacy systems. Our people headcount, we put that in this presentation every year, but it hasn't changed that much in the last few months, and it just gives you a breakdown there on Page 5. And the geographic mix of revenues in terms of the region for the past 6 months, again, you can see the North American market is the -- by far, the biggest space that we've been growing and where we've really doubled down on our strategy for growth for our full suite. APAC revenues actually increased by 1.1%. And indeed, the subscription revenue in the APAC market grew by 17.6%. We are seeing good progress in the APAC market, particularly around cloud upgrades and our customers starting to move to the cloud. And we -- in the recent event we held back in March, the FINEOS Customer Connect in Sydney, we had a couple of clients, icare, ART, sitting on stage, telling about their transformation and how they use the FINEOS in the cloud. So again [Audio Gap]

7.9%. In terms of cost of sales, we have seen an increase by EUR 2.2 million compared to 1H '25, but we have had some level of higher employee costs and contractor costs. And you've seen that the gross margin, in its own right, has gone down a little bit. But that's partly because we brought on new resources. We put more them [ on to the ] sales side. We allocated our effort against that. So I would see that normalizing as we move to the full year insofar, as those resources will be up to speed in the second half of the year. We won't need to double up as much. So this is just part of growing pains as we've relocated resources from higher-cost regions to lower-cost regions. Secondly, we've also got in place a provision for an infrastructure spend. And I've mentioned this before, this is actually with Amazon AWS. We signed up to a 5-year contract with them, which completes in December 2027. We have done so well in terms of managing costs and driving efficiencies in terms of use of their infrastructure that the commitment we made in that contract, we're not going to achieve within that time period. However, we are in negotiation with them at the moment, whereby for the deficit or the shortfall in that spend, what we're looking to do is actually buy forward services for beyond the end of December 2027 at a heavily discounted price. That transaction is not yet completed. And when it does take place, it will be in 2027. But the aim is to remove that provision from the accounts. And what you can see there in terms of that at the moment is that, that provision is EUR 0.5 million that's put in against that cost of sales. So the plan will be that, that will come out as we move towards the full year. And that moves me on then to EBITDA. So you're seeing there that EBITDA has increased significantly. It's up 32.3% from 1H '25. We set a target for FY '27 of 25%, and we're already achieving 24%. So I expect that to improve as we go through the full year, simply because within the full year, we'll continue to manage costs very well and we'll also grow revenue. So all the business we gained in addition to the traditional throughput of business, business we gained in the first half will flow into the second half, and the additional business we gain in the second half will also be registered to the extent it exists in the second half. So, that EBITDA margin will increase again for the full year. But it's very pleasing to see the 24% when we set an expectation of 25% for FY '27. The net profit after tax, that's a very good sign in terms of our journey in terms of moving forward to be a profitable company, a cash-generative company. We don't see ourselves looking back. So albeit it looks like a small number, EUR 1.9 million, compared to a deficit of EUR 1.3 million, it's a very significant step. And again, if you look at the provisions that we made with respect to infrastructure, Amazon AWS, another EUR 300,000 has been added in as well there in OpEx. So that's EUR 800,000. So if you added that EUR 800,000 back in because it's not real money, it's not money we've spent, then you're up to EUR 2.6 million in terms of net profit after tax. That said, we need to get rid of the provision in terms of moving forward, but I just thought I'd point that out. If we move now to Slide 9. So we're looking here at -- as a product company, progressively, we want to grow the subscription revenues. That very sticky customer base that we have plays a big part in terms of our ability to project revenues moving forward. And as you can see, that's constantly increasing. We're making comparisons here against the cost base. And the cost base has increased slightly against the corresponding period, but it's increased a level more against the second half of last year. We know about the increases in fees. Michael has already mentioned subscription fees and ARR and NRR. NRR is something that we've introduced as a measurement due to requests from various investors and analysts just to show and reiterate the importance of our existing customer base in terms of upsell and cross-sell to our continuous growth as a company. So we're going to keep that up in terms of relaying that from now on. But in terms of the total cash spend going up, part of that is the increased headcount in lower-cost regions. As you know, over the last 2 to 3 years, we've done a significant level of restructuring, but we also had to replace resources. So our headcounts remain reasonably constant, but where they are has changed significantly as a proportion. As you can see on the people side, we have over 37% of our people in what we would deem to be lower-cost regions. This also is reflected in the comments I made on cost of sales in terms of taking on more resources, but the resources as well are coming into the product group. So its product delivery support is where those resources are coming in. So we have that in place. We also provided salary increases. But the overriding element there is that -- in terms of the cost as well is that we have moved the payment for insurance and internal software licenses, which is about EUR 3 million, from a payment in the third quarter of the year to the first quarter. And the reason we made that shift was because up until 2024, our fiscal year started in July. We moved our fiscal year to start in January. So we wanted to make sure that when we're spending money on services in a particular fiscal year, we wanted that money spent to reflect the duration of the fiscal year as opposed to forward buying into another fiscal year. So that's a one-off shift. And the important thing about that shift, of that approximate EUR 3 million expenditure is that it won't reoccur in the second half of the year. We just moved it forward to the first half of the year. So, that explains the shift in costs there. We're still very, very much under control, very much in line with our expectations. If we can move now to Slide 10, looking at the operational expenses. So I mean, that's reflected of the cost control. You can see that R&D is down due to lower employee costs, again, reflecting the lower cost regions I mentioned earlier on. A higher capitalization of R&D, this criteria you have to meet around high R&D. That's happened simply because of the extent of innovative capabilities we're building out, particularly around AI now as well. So, a higher proportion had to be allocated towards that capitalization side of the fence. And we didn't have a repeat of restructuring costs as we had in the first half of last year. So, that helps in terms of reducing the costs. We're somewhat up on sales and marketing costs, and that's intentional. As we've mentioned before, we've spent the money that you investors have provided to us into R&D, developing out that product, maturing out that product, getting our position in the market into a much more prominent space. But what we're doing now is, looking at how we expand out in terms of sales and marketing and sell more of the product, get more in the face of our customers and new name prospects. So this is part of that expectation. We expect to spend more also in sales and marketing as we go into the new year. And really, where you're seeing the change there in terms of expenditure is related to our events, the FINEOS Customer Connect events that Michael mentioned earlier on. We had 1 last year, and we're planning out 4 this year. So we've had 2 already, one in New York, one in Sydney in March. Michael mentioned, we have another one coming up in Toronto in September. Indeed, we have another one in Sydney coming up in November. So playing out very well in terms of relaying our product strategy with our customers, getting their feedback and also getting customer testimony at those events as well, particularly with an audience that includes other customers and prospects where they explain the journey they've gone on with FINEOS and how that's working out for them. Cloud operations, in terms of our continuous focus on reducing costs, driving efficiencies, We've seen a decrease in terms of internal infrastructure usage just through more efficient usage. Hiring of people in lower-cost regions has helped drive that down. And in terms of G&A, the real factor there is FX movement. Our reporting currency is euro. Approximately 70% of our revenues comes in U.S. dollars, and we receive revenue in 6 different currencies. So we're always subject to the FX movement side of things. But on the flip side, about 50% of our costs are in euro, and approximately 35% of our costs are in U.S. dollars. So there's always an argument about the currency and the approach we should take. But in the meantime, there will always be FX movement for a global company like ours. If we move on now to Slide 11. Again, we've made a commitment in terms of FY '27 and FY '29 in terms of overall R&D spend as a percentage of revenue because obviously, when we IPO-ed back in 2019, as referenced above, the whole thesis there was to build out a product to service the life accident health industry all the way from quote to claim. So we were spending very much ahead of the curve in terms of revenues coming in. We've now rebalanced that through '25 now into '26. So our expectancy is that we'll continue to reduce the relative cost of R&D as a percentage of total revenues. You've seen a slight rise there. As demand comes in from customers in terms of what we're delivering to them, so we can secure that additional fee, we will toggle a bit. Some of our flexible resourcing mentioned on the people side there, it's also in R&D. So we can toggle that up and down a bit. But overall, if you look at each half year there, you're seeing our spend is remaining reasonably consistent. So we're keeping a very strong focus on that and intend to keep that percentage moving in a general downward direction, in line with the expectations with respect to the guidance. If we move now on to Slide 12, the balance sheet. The bits I'll point out will just be around trade receivables. So obviously, you're seeing that our subscription fees are going up, some services for bigger customers at a reasonable level as well. So we've seen an increase in trade receivables. We are comparing against the second half of last year on the balance sheet as opposed to the previous corresponding period, 12 months in the past. But that's a good indicative sign in terms of the increased revenues that we're going to secure within the marketplace. And indeed, if you look at the deferred revenues, what you also see there is a big increase. To put that in context, we invoice typically yearly in advance for subscription fees, monthly in arrear for service fees. And with the subscription fees, almost about 40% of invoices go out in January and about another 20% go out in the second quarter. So there's a skew in the first half of the year in terms of those subscription fees, 60% versus 40% in the second half. We do see that balancing out a bit more, and that's already started happening where it may even out a bit more throughout the year. But it's always that magnetic pull back to that first quarter as customers expand with FINEOS. If their fiscal year is a calendar year, and typically it is, they may wish to reset contracts for the beginning of the year. That works well for us because, again, just mentioned the FX volatility that any company has that deals globally. We can get the invoices out early on in the year, and that gives us predictability around that proportion of revenue as we look forward through to the rest of the year movements. So we move on now then to Slide 13, the cash flows. So this year, in terms of net cash generated, you can see a decrease of 24.7%. And the explanation around that part of it was defined in the 4C for Q2. But just to provide a bit more color around that, there's 2 invoices, 2 large invoices amounting to approximately EUR 8 million with 2 large U.S.-based insurers, where the payments were delayed into this quarter. One of them was with an insurer that actually changed their payment -- their online payment system. They had teething problems, and that delayed payment, and that payment has been secured, so -- as they teased out those problems. So it was just a delay in payment. The second one was a situation again with another large insurer. And we renewed our 5-year contract with them. It's for the larger proportion of that amount. We managed to secure an uplift in subscription fees, and that contributed towards the ARR. The contract is signed. And we also managed to change the pricing approach for the Absence product to a per employee per month type basis. So, as they grow, we'll grow in line with that because previously, it was on a per user basis. That took a while to negotiate. These things generally do. When you're looking to extract more money from customers, it usually is a negotiation. And also, because of the size of the contract because it's a 5-year contract, multiplied by that singular invoice amount, it goes to a lot of sign-offs. There were about 10 sign-offs within that. And it was just frustrating for us, delayed the process, but it's done and dusted now. So if you look at that EUR 8 million, that was delayed. And you look at the EUR 3 million that I mentioned earlier on in terms of insurance and software payments, that would have made a difference of EUR 11 million. And you can work your way down, even taking out the exchange rates, you see a positive impact in terms of the bottom line. I think that will all be flushed through as we get into Q3. And of course, we're still producing quarterly cash. So you'll see that at the end of the quarter. So we're very, very positive about that cash flow movement overall, knowing the dynamics of what happened with respect to those couple of invoices. And I'll leave it at that, Michael. I'll pass it back to you.

Thanks, Ian. Pretty comprehensive overview there. So I'm going to move along to the outlook and the key priorities. And if you turn to Slide 15, this is a new slide in the presentation, which really kind of is for our ASX investors to take a view of the investment thesis for FINEOS. So I think we're coming off a very good half. We're increasing our revenues, profit and cash, as you can see. We have no debt. And actually, we have a deferred tax asset, which is quite significant, given the losses we've had over the past several years building out the AdminSuite. So that's there to be had. I'd also point out that our headquarters is in a low corporate tax operating center or country where the headline tax is 12.5% on profits when we do have to start paying tax, which obviously is a great position to be in as well. Recurring revenues are increasing. And as Ian said, they are, 57.8%, and we're on our way to the 65% we said we'd achieve in FY '27. I want to point out the strength of our customer relationships, the size of our customers, blue-chip clients, who are tying up 5-year agreements. And in the case of OneAmerica wanted a 10-year agreement with us, based on GWP, gross written premium growth and lives on our Absence product. Very long-term sticky clients, blue chip, who are totally reliant on the mission-critical system we provide them. And that is giving us increasing visibility on long-term profitability and growth and cash generation as a business, which means that we've got a great operating leverage ahead of us. We're already, as I said, growing our EBITDA and our cash. But we haven't cut our costs and cut everything to the bone to arrive at a margin or increasing margin. We've continued to invest. But we are getting far greater efficiencies as we move along now going forward and particularly now with AI. And as we operate in the North American market, we tend to stay very, very current with technology trends, which is one of the huge advantages of being an American market leader versus anywhere else because things happen just faster over there and clients want things quicker. So, that gives us a competitive edge as well on a global basis. Our operating expenses are declining as a proportion of revenue. And really where we're getting that leverage is through revenue growth and continuous efficiencies that we're driving within the business. We have a large North American TAM, and we've talked about this all going back as far as November 2024, where we said there was a $200 billion premium market in North America, a serviceable addressable market that we can target with the products that we already support of $125 billion in premium. And our own clients, who are some of the most substantial customers or carriers in the employee benefits world, already account for about $50 billion of that, of which we've only penetrated just a bit more than 10% of that opportunity within those customer sites. As I said, we've got 4 full suite clients out of 60 customers. Two of the top 10 of these carriers are now AdminSuite clients. And of course, we see more opportunity to convert clients across to our full suite and really get the benefit of all the historical investment we've made. We are the market leader in this employee benefit space in North America, and we're really driving the customer success. So we're driving those partnerships to deliver more revenues, more trust and more kind of new business in terms of opportunity to work with our carriers and our partners. It's a cloud-native product. And again, we were early into the cloud because we were very much competing in North America. We had the cloud well before any other country. Many countries didn't go into the cloud until much later because of data residency, and the technology itself had to move to them. And our cloud is very much built on the AWS cloud, which is secure, scalable and future-proofed. And because we've embedded AI in the product safely, it's right there at the heart of the core. So everything we're doing in our base product, we can take advantage of AI more and more, and we're showing that to customers, which is coming through very loud and clear. So the embedded AI for FINEOS is a real advantage. We see it across our whole suite. And of course, our suite is now in production with New York Life on a USD 5 billion book for group voluntary and absence management. We are implementing very, very quickly now in terms of deployments. And really, we've shifted the focus to maximizing the benefits of FINEOS when it's already implemented. So we immediately talk about operating models and so on with our clients and how we actually help them really transform and get -- help their bottom line. And as I said, AI is an accelerator. It really, where we see the advantages in FINEOS, it provides more intelligence and assistance and automates a lot of stuff to our argentic side as well. Our AWS partnership is really good for FINEOS, and we have a strategic partnership on a global basis, very much at executive level, at technology and engineering level, and at sales level as well. Our SIs are becoming more and more confident and are growing the teams on FINEOS. So, as Ian said, we give them as much services as we can, and we're pretty okay and open with them around how do we cut the cake in terms of services. To be quite honest, we're not looking for services, and we are upping the kind of quality of services that we do in terms of helping customers to maximize the benefits of the product. So the services revenue ultimately in total would have grown on FINEOS surely in terms of the new business growth and the subscription growth, but we've given a lot of it away to our SI partners who really appreciate it and indeed who work closely with us. And then, we're building B2B partnerships as well that are complementary and that help our customers. So overall, I think feeling very positive about the business. If you turn to Slide 16 and our key priorities for the second half. We definitely want to get OneAmerica up and running as quickly as we can. That's going very well, and of course, our other AdminSuite clients as well. So they'll go live early in 2027. We've also continued to scale with Guardian and really hitting that legacy system now, where we've actually developed the FINEOS [ Migrator tool ], and that will assist them to get off that legacy. So, that one is going well as well. Upselling to existing large clients, again, we've got customers who've got mega portfolios spread across multiple legacy systems, and we're well down the road with that as well in terms of growing that FINEOS footprint and migrating stuff across to FINEOS. We also want to grow our new business sales, as Ian indicated. We definitely want to invest more in sales and marketing. We want to progressively embed the AI across the whole platform and expand the internal use of AI as well within the company, which obviously gives us great efficiencies and so on. And we're already seeing the kind of uptick in terms of what that is doing for our bottom line. So, all very positive. And then, of course, FINEOS Absence for Employer. We're working with some carriers as well around how do we work and get this product into the employers in parallel and in partnership with some of our carriers as well. Again, the employer market is very much small deals. But really, our main focus is with our carriers who are our partners in this growth trajectory of FINEOS. So I'll move on to Slide 17 and talk about the outlook and the guidance. So again, as you can see, we're well on target to hit the range in terms we gave at the start of the year. So as Ian said, we're reiterating that we will be within the range with a healthy number at the end of this year, supported by a strong pipeline and locked-in long-term revenues with existing clients who are scaling on the FINEOS AdminSuite and fully committed. We're growing profitably and generating cash through the year. And indeed, we want to drive the North American employee benefits domain on the sales side. We want to explore opportunities, too, of new product lines where carriers are actually talking to us about various product lines that they like FINEOS to look at. So again, that will be another expansion opportunity and will be more revenue for us as well. And then, as we said, invest in the marketing, more events, more case studies, more customer success stories, and indeed, more sales and revenue. So if I turn to Slide 18, before I talk about this slide, I want to go back to November '24 when Ian and I visited Sydney, and we made some declarations and promises to you as investors in FINEOS. We said by the end of 2025, we would be cash flow positive, free cash flow. We delivered. We are saying that in FY 2027, our subscription fees will make up 65% of our total revenues. And as you can see, we're well on target. We'll bring the R&D investment into a 30% range in terms of total revenue, in terms of spend and investment. And our gross margins will be 75%, which, as Ian has already said, we've achieved that last year, and we're on it again this year. And EBIT margins of 25% moving up to 40% in FY '29. So we reiterate that guidance around what we want to do, particularly in FY '27. So hopefully, you see that we're delivering on our promise, and you see FINEOS as a good investment. Thank you. I'll open it up for questions.

[Operator Instructions] Your first question today comes from Siraj Ahmed from Citi.

I have 3 questions. Just first one, very strong ARR growth, right? Just want to confirm that this includes the new wins in the cross-sell that you called out, like OneAmerica?

Go ahead, Ian.

Yes, it does.

Yes, because I was just confused because your NRR growth is actually higher than the ARR growth. So I just wasn't sure if it includes some of the new wins. Okay. So that's good. So just looking ahead, right, I mean, Michael, your comments sort of indicate the pipeline is very strong. You just had a very strong half of ARR growth. Do you reckon you can repeat that in the second half? Or is that a bit too tough?

I think we'll see, Siraj. We are optimistic about the second half and into next year as well. As you know, we have got a business that is long-term lumpy deals. And it does take time to kind of get deals through some of the very largest carrier companies in the world. So we've kind of done -- we've given a prediction that we're well within -- and we'll see how it goes through the year. But as I said, like we're optimistic. We've come in with a very good half. And as you say, the ARR is heading in a very positive direction. So I'll leave it at that for the moment. Thank you.

Yes, Michael, the reason I'm asking that is -- sorry, just the reason I'm asking that is, I mean, you sort of need your ARR growth to pick up to get to your FY '27 targets, right, which like Ian mentioned, it needs to accelerate from here, sort of needs to get like 20% plus subscription growth. So just can you help us build that bridge, right, from where you are right now to FY '27 to get to 65%?

Do you want to do that, Ian?

Yes. So your start point, obviously, is the ARR at the half year. As I was speaking earlier on, we expect to get a level of new win during the second half of the year. We expect no churn during the second half of the year. So, that will be a higher figure. The services fees for next year will -- in terms of our expectation setting, will either be in line with what we achieved this year. And I indicated earlier on that, that will be in line with what we achieved last year. Or it could toggle by 5% next year. Again, that SI bit really makes a difference as deals flow, if there's more SIs involved and they become more versed in our product and they may take on more services. And the reason we allow them to do that is that they influence buyer decisions. So it's not that we're giving it away. We're giving it away in exchange for them helping us make greater sales. So if you talk about that up and down, that service bit and your modeling a little bit, then you know that what we need to achieve in terms of the subscription growth is probably bringing it up to about EUR 107 million, EUR 108 million in terms of actual revenues for next year. We're going to be going into the new year with 80%, 85% of that achievable, would be the target we're setting ourselves. So then, we've got to bridge that gap. We have a number of customers then, in terms of, as we've always said, upsell is the key element for us, and that really is scaling what customers already have as opposed to try to sell them something new. So, as they move their legacy across to FINEOS, we see that as being the biggest growth area. If I look back at the last 12 months and look at that ARR growth and just look at it through the lens of upsell, cross-sell and new name, the upsell element of that growth is about 80% of the growth. The cross-sell is about 15% and the new name is about 5% as it comes in, and then obviously, those new names become existing customers moving forward. So we see a significant amount coming through upsell, and we see a significant amount of that coming from a handful of customers. So we very much have line of sight of how to achieve that in terms of those particular trajectories.

Okay. Sure. And just last one, in terms of just confirming 2 things, Ian, as you mentioned, services is flat for the year, which would imply that second half is slightly up half-on-half. And secondly, your FX assumptions for the revenue guide is 1.175 -- the spot is right now 1.15. So just confirming that, that should be like maybe EUR 1 million benefit to your revenue number?

Yes. The revenues in the second half of the year traditionally are higher than the first half because the second half benefits from deals closure and other increases in the first half, plus the fact as we win more deals, then the services will go up as well. So definitely, the services and the overall revenue expectation for the second half of the year will be greater. Sorry, what was the second part of your question there, Siraj?

Just on FX, right? I think your guide assumes 1.175 right? The spot rate is 1.15. So there should be a benefit if this holds, right, in terms of the second half?

Yes. I mean so far, the benefit will be about EUR 1 million or thereabouts. But as I said earlier on, the more we invoice particularly for subscription fees. When the invoice is actually released, that's when the FX is set n terms of what we put out there. And so it's about EUR 1 million to date, but I don't know what's going to happen in the second half of the year.

Your next question comes from Tim Lawson from Macquarie.

Just a couple. Just to confirm on your medium term, FY '27, FY '29, the percentages across the year rather than exit rates, just to make sure.

The guidance that we've set, Tim?

Yes, the 65% subscription fee in '27, '25 to '29.

Yes. That would be at the end of '27 and end of '29.

So that's an exit rate rather than the percentage across the year, to be clear.

Yes, yes, because of the lumpy nature of our business and the lumpiness of the invoicing cycles, so.

For the full year revenue, when we look back at the end of the year, we'll say 65% of that was subscriptions.

Sorry. Okay. That's why I'm getting confused. So the way you say that, Michael, I'm assuming, therefore, across the full year FY '27, the number that you report, 65% of that will be subscription fee rather than looking at the mix on the day you leave the year?

No, correct. We will be on the 65% as we look back.

Okay. Across the full year. Okay. That's right. That's good. And can I just pick up on the pricing changes. You talked about that contract you renewed and renegotiated and a bit of a slow pay, which I mean it's good to get price increases even if they pay a bit late. Can you talk about what that might mean if you apply that across your book? I mean, how much do you feel like you've got existing contracts that are underpriced effectively?

Yes. That's a -- yes. You -- yes, no go ahead.

Yes. So around about 4 years ago, Tim, we switched the pricing to GWP and per employee per month. Obviously, what would have happened in the interim is we had already signed up to 5-year duration contracts with customers. So we couldn't make that switch in the middle of that 5-year period. We had to wait until we got to the end of the term to make that switch. In the interim, as we gain new customers, we put them straight on to the new model. But there have been other customers that we have in the mix that have come towards end of term. One of them was mentioned there earlier on in terms of that delayed payment, where we went through that switch because they were on a per user basis prior to that. So at this point in time, the majority of our customers are on that growth model, value-based pricing as opposed to per user-based pricing. Per user-based pricing was always something over the last 5 years or so that we hit against just in terms of general automation, but the need to move away from it with the advent of AI has been accelerated and customers get that as well. So they may haggle over pricing, et cetera, but -- and the fact that they need to switch, but you understand, particularly with the advent of AI needs to happen. So we're materially across the line. I would say we -- let's call it, 90% or thereabout across the line. The rest should be resolved within the next 12 months.

Yes. And to add to that, Tim, we do have other contracts that are coming up for renewal. And so we can get increases on those as well. So the vast majority of the growth we see '27 and beyond is already in our base.

Yes. Okay. So it sounds like it's only about 10% of that, that remains to get repriced. So it's probably not going to have a huge material impact.

Not that end of it, no. There's other contracts that are due for renewal. And again, we can crank up pricing based on their GWP usage and indeed the lives. So we still see an opportunity to continue to do that. And of course, as we lay in new products and features and stuff, sometimes we charge some extras as well for those. The AI is a good example. So yes, there's continual opportunity to cross-sell and upsell.

Yes. Yes. And then just with the ACC renewal, can you just -- when we look at the APAC revenue growth, it's been broadly sort of around that sort of EUR 10 million, EUR 11 million sort of number for quite a number of years. Does that reset cause that number to grow into the next half? Have we seen the sort of full annualization of that repricing impact or that contract impact?

Ian?

Yes. So albeit the revenue has remained at that type of level or grown a little bit year-on-year, the mix of that revenue has changed quite materially. Initially, within the market, going back to the IPO days and slightly beyond, the majority of revenue we're getting from the market was services revenue. So what we're seeing is that we're getting more high-quality recurring revenue in terms of subs. So ACC in its own right, we effectively doubled what we were getting out of them. But that contract was signed 2 years ago, and we got an uplift when we went live in April. So it's higher quality revenue that we're getting there. Again, we're working with partners in the region also. So they're picking up some of the services, so we're splitting that out. So it's much more sticky and particularly as we move to the cloud, and we're starting to see that movement now in the region, we've got a number of customers that are in the cloud or in discussion with us about moving to the cloud.

So the subscription revenue for ACC would have doubled, but the overall total revenue would not have doubled. Is that the message?

Correct. Yes. Correct.

Just staying on the sort of revenue, I've got one more question on after this as well. Just you talked about the sort of broadly flat services, partially because you're passing more work to SIs. Do you have a feel for -- like if you combine the SI sort of take and what you're still writing, like how much is that actually growing by? Like how much are they actually doing with you, the SIs? Because ultimately, that's what's going to drive your confidence in the subscription number.

So are you asking what kind of revenues are the SIs getting for our implementations? It certainly will be combined double digits, Tim. We don't know the exact numbers because they contract directly with the customer. But they will be looking after significant tranches of work that historically FINEOS would have performed, such as program governance, integration, data conversion. So it will be double digit. I would make a...