Software subscriptions jump 31% as migration to the cloud gains momentum
Companies: Sage Group plc
Accounting software firm Sage Group released a trading update for Q1 on Thursday reporting solid organic revenue growth of 5.1%, recurring revenue growth of 9.6%, and a hefty 31% increase in software subscriptions.
The FTSE 100 firm said performance in "all major" countries was running to or exceeding plan, except for the USA where revenue declined slightly and France where SSRS (Software-related services) revenue declined markedly.
Software subscriptions increased 31% to 1.1m, whilst organic software and SSRS revenue declined 10% as more customers migrated to a Saas (subscription-as-a-service) model.
Migrating to a cloud-based business model is essential for Sage to remain competitive with emerging players like New Zealand based Xero, one of the hottest Fintech startups in the past decade.
Topline revenue growth of 5.1% doesn't include growth from the US business, which was 5.9%, as the firm is in the process of evaluating a potential sale.
CFO Steve Hare said Thursday's results were in-line with the Board's expectations and reiterated that FY17 would start "more slowly" with growth increasing throughout the year into FY18:
"Management is clear that FY17 is all about delivery. The strategy is working: our customer for life engine continues to drive high-quality revenue growth and we are starting to see encouraging signs of new customer acquisition as we continue to invest in the business."
Mr Hare is confident that Sage will achieve its guidance for FY17 of "at least" 6% organic revenue growth and 27% organic operating margin.
Sage shares fell 5% on Thursday morning before regaining 2% shortly afterwards.
