Xplan owner Iress’ transformation project has improved revenue and reduced costs, leading to an improved profit margin.
Announcing its 2H24 results on the ASX on Monday morning, Iress said adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) had increased 52 per cent to $67 million from $44 million in the previous corresponding period, while EBIDTA margin for the group had increased to 21.7 per cent from 14.1 per cent.
The company’s APAC wealth division stood out with a 37.8 per cent EBITDA margin versus 28.5 per cent in 1H23.
The business transformation has led to a 4 per cent increase in pro forma revenue – which covers group revenue minus the businesses that have been divested – to $302.4 million versus $291.3 million in 1H23. Statutory revenue decreased 1 per cent from $311.6 million to $309 million due to asset sales during the reporting period.
Iress attributed the performance to the implementation of a “refreshed pricing framework” and investment into sales and account management capabilities.
However, the move to increase revenue from existing clients has disappointed long-term users of the firm’s Xplan software.
Iress CEO Marcus Price told an investor call on Monday morning that one of the key pieces of the business transformation has been a review over how the firm contracts its work.
“We found there to be a long history of divergent pricing methodologies throughout the group,” Price said.
“What we found is we are looking to standardise those and looking to produce more replicate and consistent frameworks.”
Price said there is an expectation of further revenue uplift over time and the aim is for a “fairer and more equitable” pricing arrangement across the group.
“That’s a long-term program; contract renewals don’t come up every day but we’re actually going to work through in a disciplined fashion over a number of years around properly structured rate cards [and] commercial terms that are consistent for all clients,” Price said.
Iress amended its headline performance measure from underlying EBITDA to adjusted EBITDA – which it considered to “better align with Iress’ business unit accountability” – from this report onwards.
It had reported underlying EDITBA, which discounts non-recurring costs, of $128.3 million in its FY23 results.
Shares in Iress dropped slightly by 0.57 per cent to $10.43 at close of market on Monday. The firm will reinstate a final dividend for FY24 in February, the first pay out from the company since February 2023.
The group reported $17.3 million net profit after tax, a strong turnaround after earlier this year posting a net loss after tax of $137 million for FY23, largely due to one-off losses as part of the transformation process.
FY24 EBITDA guidance has been upgraded to between $126 million and $132 million, which has been adjusted for the sale of its UK mortgages business.
Previous guidance was between $122 million and $132 million which would have equated to $135 million to $141 million without the sale of the mortgage business.
Iress reduced its cost base by 4 per cent to $236.9 million through an 11 per cent headcount which reduced staff costs by 5 per cent (a real value of $8 million), with the full benefit expected to be realised in the second half of the year.
The software provider also cited reduction of operational expenses outside of staff, which offset inflationary impacts from third-party venders. Annualised revenue per employee grew from $300,000 in 1H23 to $360,000.
Iress also noted improvements in the UK business, which has seen improved earnings and the renewal of several clients with a contract value of $84 million over the next five years.
Iress UK wealth division group executive Harry Mitchell told the investor call these contracts are “blue chip clients” currently within the UK portfolio.
“[Those clients] were at risk of departing Iress some time ago, so we’ve secured them,” Mitchell said.
“The terms are based on the fact there is minimum revenue locked in over the period for five years across those three contracts.”
The completion of the sale of the UK mortgage business on 1 August generated a total gross cash consideration of £85 million ($167 million) and net sales proceeds of $147 million.
The firm said proceeds from the sale of the OneVue platform business and portfolio management service Pulse were used to retire debt.
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