FINEOS (ASX:FCL) executives highlighted improved profitability, stronger cash generation, and continued progress shifting the business toward higher-margin recurring subscription revenue during the company’s FY25 full-year results briefing. CEO Michael Kelly and CFO Ian Lynagh also outlined FY26 revenue guidance and reiterated medium-term margin and mix targets, while discussing industry demand for legacy system replacement and the role of embedded AI in the firm’s platform.
FY25 financial performance: higher margins, positive free cash flow, and return to profit
Management reported subscription revenues of EUR 75.6 million, up 8.2% from FY24, representing 54.6% of total revenue. Annual recurring revenue (ARR) at December 31 was $78.3 million, up 10% from $71.2 million in FY24.
Gross profit was $105 million, with a gross margin of 76.2%, up from 75.4% in FY24. EBITDA rose to EUR 30.4 million with an EBITDA margin of 21.9%, which management described as a significant improvement from FY24 (EBITDA margin of 15.2% cited on the call). The company also reported net profit after tax of $1 million, a turnaround from a $5.8 million loss in FY24.
FINEOS ended the year with cash of EUR 27.8 million, up by more than EUR 8 million, and noted no debt. Free cash flow was EUR 6.4 million, supported by an additional EUR 1.6 million cash receipt from exercised share options, management said.
Revenue mix shift: subscription growth, services held flat
Both executives emphasized that FINEOS is prioritizing growth in subscription revenue and ARR while expecting services revenue to remain “reasonably flat.” Lynagh noted services revenue was essentially unchanged year over year (62.2 versus 62.2 as referenced on the call). He attributed subscription growth to several factors, including four new customers (with two signed late in Q2 and two late in Q4), migrations from on-premise to cloud, pricing indexation, and customer upsell activity.
Initial license fee revenue declined year over year, which Lynagh said reflects the shrinking on-premise customer base. He said he expects initial license fees to continue to “progressively decline” in FY26.
In Q&A, management reiterated targets first outlined in 2024: subscription revenue as a percentage of total revenue rising to 65% in FY27 and approximately 75% in FY29. Asked about the pace required to reach the FY27 mix target, Kelly and Lynagh emphasized visibility from existing customers’ contracted milestones, migrations, and upsell/cross-sell opportunities, while acknowledging that deal timing can shift because carrier decisions take time.
Cost actions, cloud provision, and operating leverage
Management credited higher margins to cost efficiencies and scale, including shifting work to lower-cost regions, automation, and increasing use of AI internally. Lynagh also discussed a provision related to Amazon AWS committed spend under a five-year contract signed in December 2022. Due to efficiency improvements, FINEOS expects to spend less than originally estimated, requiring an accounting provision of EUR 2.4 million (he corrected an earlier reference to EUR 2.7 million). About EUR 1.0 million was allocated to cost of sales, with additional allocation to R&D.
Lynagh said the company intends to renegotiate the AWS agreement for another five years during the current year. He also pointed to a year-over-year reduction in operating expenses of roughly $5 million (a 6.3% reduction). On FY26 costs, Lynagh suggested modelers assume total costs rise by about 3% to 4%, reflecting infrastructure scaling, third-party cost increases, and salary reviews, even as the company continues internal efficiency efforts.
On R&D, management said spending will remain significant in absolute terms, but should decline as a percentage of revenue as the business grows. Lynagh cited R&D people costs (excluding overhead) as 34.7% of revenue in FY25, down from 37% in the prior year, and reiterated a target of 30% by FY27.
Operational highlights: new carriers, migrations, SI partnerships, and AI
Kelly said FINEOS won four new North American carrier customers licensing the company’s AdminSuite for Claims and Absence, though he noted deal cycles were slower than expected given industry conservatism. He emphasized that contracts are typically five years and can expand over time through cross-sell and increased usage.
Two existing U.S. clients contracted to upgrade from on-premise to the cloud-based AdminSuite for Claims, including one described as a “top 10 group carrier.” Kelly also described momentum in go-lives and upgrades, supported by systems integrator (SI) partnerships. He referenced work with firms including PwC, EY, Capgemini, and Deloitte.
The company also highlighted its embedded AI capabilities, including an award from Technology Ireland for AI in the AdminSuite. Executives said FINEOS benefits from having a core system with real-time data in a secure, compliant environment, enabling “embedded” AI that carriers can adopt without building their own tools. Management stressed that carriers remain cautious given regulatory requirements and the need to keep human decision-making for certain actions.
In response to an analyst question on AI pricing, management said the base core system pricing is largely tied to premium income (except Absence, which is priced by number of employees), while AI capabilities are expected to be offered as add-ons with usage-based pricing (for example, document intelligence priced by number of documents processed). Kelly added the company is not placing “a huge emphasis” on charging for every AI feature, framing AI as part of ongoing platform modernization and customer retention.
FY26 guidance and priorities: migrations, upsell, and expansion beyond North America
For FY26, management guided to total revenue of $147 million to $152 million, citing a strong pipeline while noting that deal timing can shift. Kelly said priorities include continued execution with Guardian, which he said is ahead of schedule on its goals, and a Guardian migration beginning mid-year involving a “multi-billion” book of business moving onto FINEOS.
Other priorities discussed included scaling and upselling large customers, accelerating new business with SI support, continued embedding of AI for performance and internal efficiency, and further work to make the Absence product more deployable for employers. Kelly also said the company is exploring opportunities to expand outside North America, including with multinationals in other countries.
Management reiterated longer-term targets presented previously, including gross margin moving toward 80% and EBITDA margin toward 40% over time, while noting the company is already close to some of its earlier targets.
About FINEOS (ASX:FCL)
FINEOS Corporation Holdings plc, together with its subsidiaries, engages in the development and sale of enterprise claims and policy management software for employee benefits and life, accident, and health insurance industries worldwide. The company offers FINEOS Platform, a Software-as-a-Service core insurance platform. Its FINEOS Platform comprises FINEOS AdminSuite, a comprehensive core insurance suite; FINEOS Engage, which makes connections across customers and partners to create frictionless engagement and agile business relationships; and FINEOS Insight that allows insurers to use customer-centric data models to gain real-time analytics data.
