Release Date: August 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted EBITDA for the half-year reached $67 million, a 52% uplift and at the top end of the expected range.
- Operating leverage improved significantly with margins up 760 basis points.
- Debt reduction program successfully decreased debt by $240 million, reducing debt servicing costs by over $10 million.
- Pro forma revenue growth of 4% driven by new pricing frameworks and product enhancements.
- Full-year guidance upgraded by 9% from the May update, with new guidance for adjusted EBITDA in the range of $126 million to $132 million.
Negative Points
- Superannuation business underperformed with revenue down 7% and adjusted EBITDA at negative $3.6 million.
- Recurring revenue in the Superannuation segment decreased significantly due to client losses and restructuring.
- Trading and global market data faced challenges with lower trading volumes and fewer IPOs.
- Transformation costs remain high, with ongoing expenses expected into the first half of 2025.
- Stranded costs from divested businesses remain a concern, with ongoing efforts required to manage and reduce these costs.
Q & A Highlights
Highlights from IRESS Ltd (ASX:IRE, Financial) Earnings Call
Q: Following the completion of the transformation plan, do you feel like most of the low-hanging fruit has been dealt with now and it will be harder to get incremental cost there?
A: Marcus Price, CEO: Significant resets have been made in the cost base, but there are still incremental efficiencies to be gained. The focus on earnings and disciplined cost management will continue to expand our earnings.
Q: Can you talk a little bit about the terms of the three contracts renewed in the UK?
A: Harry Mitchell, Group Executive - Wealth & UK: These are renewals of blue-chip clients with minimum revenue lock-in over five years, with potential for upside growth as these businesses expand.
Q: Can you elaborate on the new pricing frameworks in APAC wealth and how they might benefit the business long-term?
A: Marcus Price, CEO: We are standardizing pricing methodologies across the group to create more equitable and consistent frameworks. This will be a long-term program aimed at improving client contracts over time.
Q: Can you give us a state of play on the Super business, particularly around recurring and non-recurring revenues?
A: Marcus Price, CEO: Recurring revenues are license-related and predictable, while non-recurring revenues are driven by new programs and client expansions. We have exited some funds that were not commercially viable, and the business is undergoing restructuring.
Q: What does the final quarter of the transformation program look like in terms of initiatives across the business?
A: Marcus Price, CEO: We will continue cost reduction efforts, particularly in superannuation, and focus on contract renegotiations and new product initiatives aimed at driving revenue growth in 2025 and beyond.
Q: Can you provide an update on the status of the UK wealth business and its inclusion in the managed portfolio?
A: Marcus Price, CEO: The UK wealth business has performed well, and the concept of a managed portfolio is becoming less relevant. We will have more to say about the future of this business at the end of the year.
Q: Can you elaborate on the difficulties faced by the Super business and the strategic options being considered?
A: Marcus Price, CEO: The Super business has faced regulatory and commercial challenges. We are working on cost reductions and contract renegotiations. The business remains under review, but it still holds significant potential.
Q: What is Iress' exposure to digital advice, especially as industry funds ramp up procurement in this space?
A: Marcus Price, CEO: We have a digital advice solution live with one Super fund and are seeing good progress. This is still in an experimental stage, but we see significant opportunities for growth.
Q: Can you clarify the guidance on adjusted EBITDA post asset sales and the impact of stranded costs?
A: Marcus Price, CEO: The guidance includes one month of the UK mortgages business. Stranded costs are being addressed, and adjustments have already been made. We will provide more detailed guidance in February 2025.
Q: Are there any risks to existing revenue from recent mergers in the superannuation industry?
A: Marcus Price, CEO: We are more likely to acquire than lose funds due to industry consolidation. The funds we have exited were not commercially viable, and we are seeing growth in non-recurring revenues from new fund integrations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
