Aptitude Software Group H2 2024 Earnings Call Transcript

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March 26, 2025

There are 2 speakers on the call.

Operator

Thank you very much, and, obviously, good morning, everyone, and welcome to Aptitude Software's results presentation. My name is Alex Curran. I am the CEO of Aptitude Software. So I'm joined today by Simon Kelly. So, Simon, would you like to introduce yourself?

Speaker 1

Yep. Thanks, Alex. I'm Simon Kelly, and I've been with Aptitude for over eight years. During that period, I've held a variety of senior finance roles across the organization including working closely with and in support of Alex as finance director for North America when she was a CEO of that region. I've since moved into the commercial finance director role where I continue to work closely with Alex and the wider SLT.

Operator

Thank you very much, Simon. So in terms of the agenda today, what we want to do is, first of all, I'm gonna provide a little bit of background on on aptitude. So where we've come from, where we are today, and the plan for 2025 and beyond. And then I'm gonna hand back over to Simon, and he will walk you through the financial highlights. And then I'll pick it back up, and then I'll be walking everyone through what we're seeing in the market, the improvements that we've made across the the business to support the the business transition and the achievements of 2024 before closing, and then obviously opening up to a q and a as as well.

Operator

We just want to move down to the the next slide. Fantastic. So for those of you less familiar with Aptitude, what I want to do first of all is essentially provide a bit of background on on the organization. So, Aptuit, we have a rich, strong heritage, and we've been very, very successful in the regulatory and compliance software market where we've consistently had first mover advantage also outperformed the the larger larger vendors. That success has enabled us to build a global client base where we have over a hundred high quality enterprise customers.

Operator

So I guess that that success then enabled us to gain access to the CFO office where we were able to track, monitor trends, and we began to see, I would say, a a clear shift from compliance solutions, to to finance platforms. And in response to to that shift, we invested, we launched Finapse, our AI powered finance platform, opening up a a £3,000,000,000 total addressable market. And with a strong balance sheet, growing partner momentum, attraction behind finance, which I'll talk through today, you know, we are in a strong position to capitalize on on the opportunity ahead. So this slide gives you a a quick snapshot, of the Aptitude clients. A number of them use a range of of Aptitude's products, but from this, you can obviously see the size, the complexity, the global nature of this of this client base, and also the key core sectors that that we support.

Operator

All of these organizations trust aptitude to and obviously the products that they use to to support their financial processes, their their end of year close processes. And every one of them, I think it's important to highlight that every one of them is a a finance prospect because every single organization that you see see as a snapshot, but on the screen, every single organization that you see are facing the the the same challenges that led us to to build the platform. So that then brings us to today, a pivotal moment in scaling Aptitude as a partner led and SaaS organization. So in in 2024, Aptitude delivered on what we said we would. We met market expectations.

Operator

We've been rewiring the business at speed, and we've been executing the shift from regulatory and compliance from on premise to to a SaaS business model. And we've essentially transformed the way we operate, how we go to market, and how we build product. And finance is gaining traction. You can see that from the net new logos and also the Ah migrations over the twelve month period. You can see that reflected in the pipeline that's expanding.

Operator

And, also, we have key partners that are fully engaged. And, again, we'll we'll talk a little bit more about those those partners as we go through the presentation today. I think one thing has become clear over the last twelve months, and that's that partner led isn't just the right strategy. It is the the only way to scale faster, to to to fully capture the finance opportunity and essentially build a a stronger growth engine with a better long term revenue mix. But across 2024, I would say we've been we've been straddling a a hybrid model.

Operator

So part aptitude led services and part partner led services. And what we've experienced during this hybrid model and obviously recognized over the last twelve months is that that is not going to take us where we want to go because partners don't get excited unless they're fed, and that means shifting more services work their way. In addition to that, the hybrid model also leaves us too concentrated on tier one enterprise deals. And, again, they're important. They matter, but they take time and move slowly.

Operator

And our partners, as I've talked about over the last twelve months, provide access to tier two and tier three, so smaller, medium sized organizations where deal velocity, volume, and repeatability live. And that's why we're making the decision to accelerate the strategy that we set in motion in 2024. So that is moving away from heavy aptitude led services and fully committing to a partner led delivery model. And that means giving up more services revenue in the short term to unlock faster growth. And to support that, we're going to be increasing investment in our go to market and partner teams to to support the scaling of of that model.

Operator

So while this brings a short term adjustment to our 2025 financials, it sets us up to grow faster, to grow higher recurring revenue, and to also strengthen margins and profitability over time. So I'm now going to hand over to Simon, who's going to walk you through the financial highlights.

Speaker 1

Thank you, Alex. So in 2024, we've seen growth in our annual recurring revenue, which at £52,100,000 represents a 2% increase from the prior year and continues to provide us with good visibility of future revenues and cash flows. This growth was underpinned by new business success from within our existing customer base and especially through our AI autonomous finance offering, which grew by 12% in the year. This strong performance from the existing client base in turn resulted in an improvement in the net retention rates increasing to 99% from 98% in 2023. We continue to benefit from a strong balance sheet, making us financially robust with cash as of December 31 of GBP 30,400,000.0 and net cash of GBP 20,300,000.0.

Speaker 1

This allows us to continue to provide our shareholders with returns through consistent dividends and the share buyback program as announced this time last year. The buyback has progressed throughout 2024 and is continuing as planned with shares the value of GBP 4,000,000 having been purchased up to 12/31/2024. And all of this underlines Aptitude's position of strength to drive ARR growth through AI autonomous finance throughout the period of transition and beyond. So despite the 6% reduction in total revenue to GBP 70,000,000, Recurring revenue, the strategic focus of the group grew by 2%, driven principally by the growth within AI Autonomous Finance. This is offset by a reduction in nonrecurring revenue due to a combination of more partner led implementations as well as the successful go lives and resulting project ramp downs of a large number of aptitude insurance calculation engine clients following the passing of their respective IFRS 17 adoption deadlines.

Speaker 1

The combination of these movements has resulted in an improvement in the revenue mix with recurring revenue up to 78%. This shows an improvement in the quality of our earnings and a resulting improvement in our margins. And our improved revenue mix, in combination with tight cost control, have enabled profit levels to improve year on year despite this reduction in revenue, with operating profit of GBP 9,900,000.0 representing a margin of 14%, an improvement of one percentage point compared to the prior year. R and D investment has reduced slightly from their peak levels in 2023 and is expected to significantly reduce in 2025 based on the implementation of the new product and engineering operating model. This combination of growth through AI autonomous finance and improving revenue mix and a carefully controlled cost base result in Aptitude continuing to have a robust platform to provide returns to shareholders.

Speaker 1

So as mentioned, in 2024, we delivered on market expectations. Due to a shifting focus to operating under the partner first approach, we now expect 2025 to remain in line with the levels seen in 2024 before returning to growth in 2026 and beyond as the benefits of the part first approach and the improved revenue mix that this will drive start to bear fruit. Revenues are expected to remain at prior year levels due to a combination of factors. The shift to a partner delivery model reduces the nonrecurring revenues expected to arise from new business, with the impact of this being felt more keenly in H2 as we see preexisting Attitude led implementations being replaced by partner led new business. In combination with this, recurring revenue is up against an FX headwind when compared to 2024.

Speaker 1

Given the way Aptitude hedge U. S. Dollar recurring revenues at the point of invoice and that they are invoiced annually in advance, we have good forward visibility of the weighted average FX rate on these U. S. Dollar revenues.

Speaker 1

And there has been an adverse movement when compared to the weighted average in 2024. The implementation of the partner first approach and the resulting growth of our partner ecosystem requires additional investment into the go to market and partner teams in order to accelerate financing success. And the ongoing business transition provides the headroom for this necessary investment as well as setting the rest of the business up for success under the new model. The combination of these revenue and cost factors result in the expectation that profitability will also be in line with 2024. And as we exit 2025, the organization will be in a materially improved position to support a return to growth in 2026.

Operator

Thank you very much, Simon. So now let me take you through the market, the business transition, and the 2024 achievements. So if you want to move to to the next slide. So back in back in March of of last year, I obviously shared and walked everyone through the attitude would be starting a business transition. So moving from a non premise compliance software provider to a SaaS business.

Operator

I would say that we are now well progressed through that journey. But before I talk about what we've done and the progress that we've made and the progress that it's also supported, I think it's important to also talk through the market shift and, obviously, why finance. So finance is going through what we believe to be a a profound transformation. So CFOs are under significant pressure to to not just drive revenue, to mitigate risk, but they're under pressure to serve as a strategic AI copilot for for their entire business. But they're struggling because of two things.

Operator

Number one, they have lots of outdated systems. They have lots of processes, but lots of manual processes, and they have lots of data, but fragmented data data, sorry, and silo data. And they also have no software solution on the market to support them. But, obviously, you can't run AI on on spreadsheets or across manual processes. And in terms of systems, yes, there are traditional ERP vendors, but I would say that they are essentially built for record keeping and fall short in delivering real time AI driven finance solutions.

Operator

And even when an organization needs to use a general ledger as an example for kind of partial automation, they are looking at, you know, very elongated project timelines. And, obviously, the cost of implementing those solutions is typically tens of millions, if not hundreds of millions, and typically then also often ends in in disappointment. So the old tools don't match the new expectations, and the traditional stack can't support the AI shift. And we know, and as we've seen within the market, that finance leaders, they need more than automation. They require an AI enabled finance platform that sits at heart of their organization and that actively via AI informs decision making, delivers real time operational insights, make sure that those insights are at their fingertips, and enables organizations to implement those solutions rapidly.

Operator

That solution didn't exist, and so therefore we created it. So finance is the market's only true AI enabled finance platform, and the shift that we are seeing impacts every finance team across all industries, making the opportunity both fast and, obviously, compelling. And we're not just launching a product, we're defining a new category. And as Jamie Dimon recently noted, the impact of AI could be as transformational as the steam engine, the Internet, and we absolutely agree. And nowhere is that transformation more urgent or more valuable than in the finance function.

Operator

But to support and benefit from this market, we've needed to fundamentally change our business model to support it, which I'll now talk about. Okay. So I would say, look, over the last year, we didn't just merely adjust the organization. I think as it said as says on the slide, right, we we completely rewired the business at at at speed, at pace. And we've overhauled go to market execution.

Operator

We've overhauled product development, client experience, and partner engagement to move aptitude from a regulatory and compliance organization to a platform organization that has a client partner first mindset. As I said, we've at pace. And today, as I sit here as a CEO, I lead and sit in a significantly improved organization with notable progress across key functions. So what I want to do now is talk about what we've done across heaps and key areas that you can obviously see on this slide, but also talk through, you know, what's still left to do across the remainder of of this year. So if I start with go to market.

Operator

So as I've spoken about, our our sales approach was fragmented. It was regional. That obviously led to, you know, lots of different inconsistent processes. But following that, we've obviously globalized the team across the the last twelve months, and we've rebuilt from scratch both the sales and partner functions. And we have really kind of laser focused them on a set of priority regions, sectors, and strategic partners.

Operator

And I would say in 2025, we've reduced that focus and kept that focus even tighter. That change, those improvements have improved the way that we we engage with with the market, and and the engine is is working. I would say, you know, we've made good progress. There's still a little bit more to do in that area across 2025 being primarily making sure that we embed the changes that we have already made. And also just as importantly, making sure that we continue to shift very quickly or continue to shift very quickly to a much more data centric kind of KPI led approach across the go to market function.

Operator

So if we take client success, next, so, support, account management, professional services, all operated independently. That did create silos, led to inefficiencies, and and an uneven client experience. So we've unified those teams under one team to make sure, obviously, we have a a clear accountability for implementing and embedding that client first mindset. And, essentially, we we have also, you know, been rebuilding the account management team to ensure that we continue to to improve retention. In terms of what we're gonna be continuing to do across 2025, again, embed the changes that we've made, make sure that they're working, evolve, tweak as we go.

Operator

But across 2025, the main focus will be on continuing the modernization of our services function to make sure that we can enable our our partners to to lead at at scale. And then if we move to to product and and engineering. So so previously, across our product and engineering functions, I would say they were fragmented, operated in silos, and followed a I would describe it as a a project based delivery model that had slowed down momentum and and I would say diluted accountability. In 2024, across 2024, we've been unifying product and engineering under one leader, and we've adopted a product first operating model. And that has significantly improved the efficiency output and quality across Finapse.

Operator

So we've started with Finapse. We've also rolled that out across 2024, also across our esuite product. And in terms of what we're gonna be doing in 2025 is we're gonna be completing that transformation across the entire product portfolio. So that means we'll be rolling out the product first model and, again, embedding a partner and client first mindset across the entire team. And, again, not only will we see increased velocity and quality, but we'll also see continued efficiencies across that area as well.

Operator

So I'd say product and engineering, go to market, and client experience have definitely been the priority areas of focus in 2024, and we've obviously made some significant progress. And looking ahead, we'll be cementing those changes we've made in those key areas, and we'll also beginning we'll begin to work through some of the remaining parts of the business that also needs to evolve to support our new business model. But what progress did we achieve with finance and a wider product portfolio in 2024? Okay. Perfect.

Operator

Okay. So since becoming CEO in December 2023, I focused on aligning the business around the finance opportunity. Do I wish for more momentum and sales as I sit sit here today? Absolutely. Yes.

Operator

I do. But I would say consider this. In July 2023, finance was yet to be properly bought to the market. In 2024, we changed that. In 2024, we were defining a new category, educating the market on a superior approach to finance transformation, accelerating the the the build of the product, and revamping our our go to market function simultaneously.

Operator

And the pipeline reflect reflects our our progress. So in July mid July twenty twenty three, we had limited opportunities. Today, we have 15 times the active opportunities and 10 times the opportunity value with 70% of our pipeline tied to partners. And month on month, we see that pipeline or the number of leads coming into or generated into our pipeline increasing. Beyond pipeline growth, we've shown tangible momentum.

Operator

So we now have six finance clients, so including Chubb, HCSE, One Digital, Inspired, and KPMG, three of which are existing accounting hub clients, again, showcasing the migration opportunity. We've expanded relationships with 21 existing clients, which reinforces not just our position within the CFO office, but it also helps to support future adoption across our a hundred plus client base. And we've also refined our go to market execution approach as I've obviously just just spoken about. But that's important to highlight because as part of that, what we did was streamline our partner strategy from 60 partners down to a group of high value partners like Microsoft and HSO. And across 2024, we also surpassed our 30% of partner sourced annual recurring revenue target in the year.

Operator

And I would say that this success stems from three factors. We have a product the market craves. We have completed a business transition that has sharpened the execution focus, and our partner centric approach has meant that we've been able to expand our reach, and we'll continue to expand our reach and educate the the market. So I'm now going to spend a little bit more time going through the key finance clients. So we now have six finance clients, including a mix of net new logos, Ah migrations, and our first formal reseller agreement with a strategic partner.

Operator

And, obviously, as you can see from the chart on the left hand side, our pipeline has grown significantly since 2023, July mid July twenty twenty three, I should say. And the line shows basically the unweighted average value of the current pipeline. So I'm not going to cover each client in detail today, but I do want to highlight HCSC, a key win secured in the first quarter of this year. So HCSC is a $50,000,000,000 organization. It was an existing Aptitude accounting hub client, and they've now made the decision to migrate to to finance.

Operator

The sales cycle was rapid, so it was around five month timeline, and that was obviously helped and supported by the fact that we have obviously been successful in converting Chubb and also T Mobile. And, also, I'd say just the level of effort in the sales cycle was was very low. Again, I think that also continues to demonstrate how quickly Ah clients will will purchase Finapse. But, obviously, you know, why why did HCSE buy Finapse? So h s HCSE purchased Finapse to migrate from Ah, obviously, to Finapse, but also to support their acquisition of of Cigna.

Operator

The CFO has been very focused on simplifying and and rationalizing the finance infrastructure following, obviously, their purchase of of the the the piece of Cigna business that they announced at the back end of of last year, and that is translating in them being able to essentially decommission a number of different Oracle systems based on their use of of FinApp. So when they use FinApps to migrate their existing Ah instance across, they can obviously move away from paying for for Oracle hardware. And in addition, when it comes to the Cigna rollout, Finapse is being used to onboard and support the complexity that's currently in their their PeopleSoft GL, and then they will be able to obviously reduce reduce the cost based on on that reduction of of complexity in in that general ledger system. But I would say HCSC is a strong example of how finance clients can win twice. So a, obviously, by reducing costs, but secondly, to support, obviously, the creation of their their modern finance architecture.

Operator

But, again, the progress that we've made in 2024 does confirm product market fit and also shows that our strategy is working. But now we need to accelerate through partners to scale the organization. So I think it's also important to highlight that throughout 2024, we also secured a number of wins across our broader product portfolio. As you can see on this slide, we onboarded several new logos, which then also drove significant upsell and cross sell activity across our existing base. So I wanted to spotlight two examples of net new logos.

Operator

So if we start with Macquarie. So for those of you not familiar, Macquarie is one of the largest Australian banks. They selected the Aptuit Accounting Hub. So the Aptuit Accounting Hub, you know, does continue to resonate with very traditional large financial services organizations. So, typically, those organizations that want an on premise subledger.

Operator

So Macquarie selected Aptitude to to address essentially some limitations created by their Oracle Fusion ERP rollout, which had led to a series of different manual workarounds and some some reconciliation processes that that needed needed to be addressed. So the Aptitude Accounting Hub was evaluated. We went through a proof of concept process. And, again, this gives an example of of how long a tier one net new logo occasionally or typically takes. So this is an eighteen month sales process, but the Aptune Accounting Hub is being used to automate a series of very complicated accounting processes, support data lineage traceability, and also is able to process over 200,000,000 journal lines per day.

Operator

So, you know, a very strong, example of an aptitude accounting hub at NetNewWhim. The second example is Sonasource. So Sonasource is a code quality security software provider, and they selected the RevStream product to essentially support the complex billing scenarios that they are working through and also to support the growth that it's experiencing. So they needed a revenue recognition engine that would scale with their business. I think it's important not only to highlight Sonar, but also what you can see from this slide is that you can see that the Revstream product, again, continues to resonate with the market as you can see from, obviously, the HubSpot and Imperva wins on on the left hand side.

Operator

So all of these wins highlight the strength of the broader product portfolio, and I think it's important to to to flag that every one of our hundred plus clients represents a future finance opportunity. And as an example, we still have 37 Ah clients that have not yet migrated to to finance. Several are already active in our in our pipeline, and we are on track there for to obviously migrate a third of of that base, across the finance by the end of twenty twenty seven. And I would say in line with our plan, you should expect to see a continued healthy blend of finance new logo wins and client migrations driving growth. Perfect.

Operator

Perfect. Great. Cool. So in 2024, as I said, we did we did what we said we would. We delivered on expectations.

Operator

We rewired the business, and we committed to a partner first SaaS led model. The last twelve months have proven that this is the right path, and by enabling partners to take on more services, we're unlocking faster growth, higher quality revenue, and accelerating our go to market execution. Binance is gaining traction, sales cycles are shortening, and our pipeline is expanding. And we're now accelerating execution to scale a high margin SaaS business that delivers long term value and positions Aptitude as a leader in AI powered finance.

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Aptitude Software Group H2 2024
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