- Underlying EBITDA: $128.3 million, down 12% from the previous year.
- Reported EPS: Negative $0.764, driven by significant write-downs.
- Second Half Underlying EBITDA: Up 16% versus the first half.
- Operating Costs: Down in the second half versus the first half.
- Headcount Reduction: 15% of total headcount, with an additional 6% due to the MFA transaction.
- MFA Sale: $50.5 million in October.
- Revenue per FTE: Up 28% versus last year.
- APAC Wealth Management Revenue: $130 million.
- APAC Wealth Management Underlying EBITDA: $47 million, with a margin of 36%.
- APAC Trading & Market Data Revenue: $178.5 million.
- Superannuation Segment Underlying EBITDA: Negative $2.5 million, with a margin of -4.6%.
- Net Loss: $137.5 million, due to the write-down of UK goodwill.
- Revenue Growth: 2% overall, with recurring revenue up.
- Cost Increase: 6% overall, driven by higher non-staff OpEx.
- Adjusted EBITDA for 2023: $106.1 million.
- Leverage Ratio: Declined from 2.8x to 2.5x.
- Net Debt: Down $55 million from mid-year.
- Target Leverage Ratio: 1 to 1.5 times within the next 12 months.
- R&D Software CapEx: Targeting 5% to 7% of revenue over the next 2-3 years.
- Dividend Policy: Revised to pay out of NPATA, with dividends on pause until target leverage ratio is achieved.
- 2024 Guidance: Underlying EBITDA of $137 million to $147 million; Adjusted EBITDA of $117 million to $127 million.
- Exit Run Rate for 2024: Underlying EBITDA of $160 million to $180 million; Adjusted EBITDA of $140 million to $160 million.
Release Date: February 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- IRESS Ltd (ASX:IRE, Financial) reported underlying EBITDA of $128.3 million, which is at the top end of their revised guidance.
- The company has seen improved customer sentiment, reflected in higher NPS scores.
- Significant cost management initiatives have been implemented, resulting in a 15% reduction in headcount.
- The company has successfully sold MFA for $50.5 million and is progressing with other asset sales, including the UK mortgages business.
- Revenue per FTE has increased by 28% compared to the previous year, indicating improved efficiency.
Negative Points
- Reported EPS for the year was negative $0.764, driven by significant write-downs.
- Underlying EBITDA was down 12% compared to the previous year.
- The superannuation segment reported a negative underlying EBITDA of 4.6%, primarily due to high remediation costs.
- The company has experienced significant inflationary pressures, particularly in tech infrastructure, market and data fees, and software and hardware licensing.
- Net debt and leverage ratios have increased, although they have improved slightly in the second half of the year.
Q & A Highlights
Highlights from IRESS Ltd (ASX:IRE) Earnings Call
Q: Can you provide an update on the status of the ancillary modules in the Australia wealth segment?
A: Marcus Price, CEO & MD: The descope of ancillary modules seen in the first half has not continued. Clients have settled down, and we are now having value-based conversations about their installed set of modules.
Q: Are there plans for further asset sales after the Platforms and mortgages divestments?
A: Marcus Price, CEO & MD: Yes, we still have the managed portfolio to manage. We are optimizing the UK business and evaluating the strategic fit of other components.
Q: Can you explain the current state of the superannuation business and its margins?
A: Marcus Price, CEO & MD: The technology component has a good pipeline, but the administration part is undergoing remediation. We do not expect the current run rate to continue indefinitely.
Q: How have you allocated the previously unallocated costs across segments?
A: Cameron Williamson, Group CFO: Costs are allocated based on a combination of revenue and direct profit. This method better reflects the support provided to each business.
Q: What is the outlook for the APAC trading and market data business given its high penetration rates?
A: Marcus Price, CEO & MD: We see growth in new products like the FIX Hub and in Asian markets. Despite a tough year for traders, we expect 5% to 7% growth in the medium term.
Q: Can you provide more details on the Platform sale process?
A: Cameron Williamson, Group CFO: The Platform business sale is close to an announcement. We are working with a credible party that will be a better fit for our customers and people.
Q: When do you expect to implement usage-based pricing for Xplan?
A: Marcus Price, CEO & MD: This year, we are focusing on module optimization and introducing Salesforce for better customer metrics. SaaS-based pricing will follow as we make technical changes.
Q: How confident are you in achieving medium-term revenue growth goals given the headcount reduction?
A: Marcus Price, CEO & MD: We are confident, especially in wealth. The industry has restructured, and we see new areas for growth, such as advice in superannuation.
Q: Can you explain the drop in second-half operating cash flow and the CapEx guidance?
A: Cameron Williamson, Group CFO: The drop is due to cyclicality and lumpy transformation payments. CapEx will build over time, aligned with our product road map, and is expected to increase by $20 million to $25 million over the medium term.
Q: What is the EBITDA breakdown for the UK managed portfolio?
A: Marcus Price, CEO & MD: The managed portfolio UK is split between mortgages and other segments. The UK wealth management business has shown improved performance with new leadership.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
