FINEOS (ASX:FCL) share price jumps 15% on solid FY21 result

Here’s how FINEOS fared in its FY21 results…

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The FINEOS Corporation Holdings PLC (ASX: FCL) share price is gaining upwards momentum today.

Investors are buying shares in the insurance software company with ferocity on Thursday after it released its full-year results for FY21.

At the time of writing, FINEOS shares are up 16% to $4.27. As a result, the software company is again trading around levels witnessed in April this year.

FINEOS share price shines on top line gain

  • Revenue up 23.3% to €108.3 million (AUD$175.6 million)
  • Annual recurring revenue reached €45.7 million at 30 June 2021
  • Gross profit of €72 million representing an increase of 23% from FY20
  • Proforma earnings before interest, tax, depreciation, and amortisation (EBITDA) down 49.6% to €7.9 million
  • Net Loss after tax widened from €227,183 to €12.485 million

What happened in FY21 for FINEOS

The market is certainly exhibiting excitement for the FINEOS share price following its results today. In fact, trading volume for the day so far is roughly two and a half times its monthly average.

According to its release, the software company achieved total revenue of €108.3 million in the financial year. This represents an increase of 23.3% on FY20. Likewise, subscription revenue surged 48.6% to €40.1 million. Such an increase bodes well for the company, as it grows its portion of revenue that is recurring.

It wasn’t by chance that FINEOS managed to up the ante with respect to revenue in FY21. Rather, it was the expansion of its life, accident, and health core systems — reaching over 60 carriers. Intentionally, the United States now accounts for 73% of total revenue, rising from 59% in the previous reporting period.

Furthermore, the successful acquisitions and integrations of Limelight Health and Spraoi during the year contributed to the strong growth. Specifically, Limelight Health added €9.2 million and Spraoi contributed €0.4 million.

Much of this reported growth was from cross-selling and up-selling to FINEOS’ existing customer base. Indicating that the company is not purely ‘buying revenue’ through acquisition, FINEOS reported organic growth of 12.5%.

Another positive for shareholders, the company appears to have marginally de-risked its client concentration. In FY20, ~74% of total revenue was comprised of the top 10 clients. Whereas, in its latest full-year result, this figure has been reduced to 65%.

Finally, losses widened due to acquisition costs — in addition to increased spend on research and development (R&D). Though, this doesn’t appear to be weighing on the FINEOS share price today.

What did management say?

Commenting on the result, FINEOS Chief Executive Officer Michael Kelly said:

FINEOS’ growth journey continued into 2021 as we grew revenue, clients, headcount and product offering. We’re now positioned as the number one player for group employee benefits in the North American market, measured by revenue, by number of clients and by the end-to-end “quote to claim” product that we provide.

Our primary focus was and continues to be increasing our subsription revenues as we grow FINEOS into the global market leading software-as-a-service platform for life, accident, and health insurance.

Additionally, regarding the company’s acquisitions during the period, Mr Kelly said:

We are pleased with the revenue growth, specifically our higher margin subscription revenue which grew
by 48.6% to €40.1 million. Within this, organic growth was a strong 32.4% with the balance from the two acquisitions we made during the year (Limelight Health and Spraoi). This year’s revenue growth was
attributable to successful client implementations, cloud upgrades and add-on cross sales.

What’s next for FINEOS ?

Heading into FY22, the company is guiding for €125 million to €130 million in revenue. Positively, subscription revenue is expected to increase approximately 30%.

FINEOS management mentioned that these growth projections are supported by a robust pipeline of significant cross-sell and up-sell opportunities with existing clients. These are in addition to some fresh client opportunities also being presented.

Meanwhile, the R&D costs aren’t expected to decrease for the next year. Instead, R&D expenses will continue as the company integrates its acquisitions and works more on product development.

Additionally, the company will be focused on further cloud upgrades in FY22. In particular, several migrations are slated across the United States and ANZ regions during the year.

FINEOS share price snapshot

Although the FINEOS share price is gleaming green today, the past year does not mimic the same performance. Over the past 12 months, the FINEOS share price has fallen 21.5%. For comparison, the S&P/ASX 200 Index (ASX: XJO) has gained 22.3%.

Should you invest $1,000 in FINEOS Corporation right now?

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended FINEOS Corporation Holdings plc. The Motley Fool Australia has recommended FINEOS Corporation Holdings plc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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