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SLI’s results reflect the business’s transitional status. Substantial savings were made to sales and marketing expenditure, which underpinned the company’s first year of profitability. We continue to forecast margin compression in the near term as the business begins its transition to an indirect sales model. Successful implementation of this shift remains the critical determinant of the business’s prospects.
Sli Systems
A recovery in growth remains stubbornly elusive, with falling revenues and rising losses in line with our forecasts. SLI Systems is treading water from a momentum perspective. However, operational metrics provide signs of encouragement, with ARR increasing slightly, and a substantial uptick in client retention rates. As of H218, SLI will employ a more indirect sales strategy, which could improve uptake of the solutions available. Double-digit revenue growth and 10% margins would imply 20% upside.
SLI Systems had a strong half in the six months to 31 December 2015, with annualised recurring revenue growing 23% (10% on a constant currency basis) to a record NZ$35.6m. Significantly, gross margin increased to 76.4% from 74.7% year-on-year (y-o-y), while the retention rate by value remained steady at 87%. SLI has mapped out a pathway to profitability, noting that it had been cash flow neutral in the first half and that its NZ$5.6m cash on hand was sufficient to bring the company to cash flow break-even.
SLI Systems has announced that it expects to report H116 revenues of NZ$17.3m, up 29% year-on-year, in line with our forecasts. The company also announced it has appointed Martin Onofrio as chief revenue officer (CRO), with immediate effect. Mr Onofrio brings 25 years’ sales and executive leadership experience. He was most recently chief revenue officer at Silicon Valley-based Attensity Corporation. His recruitment closely follows Silicon Valley-based CEO Chris Brennan's appointment last month.
SLI Systems is a fast-growing SaaS company operating in the hot field of e-commerce, but seemingly priced at EV/Sales multiples closer to those of mature industrials. It is currently in the investment phase and therefore pre-profit, but its revenue base is sustainable, high-margin and recurring, and should therefore generate substantial returns provided it can reach profitable scale. The company has recruited a new CEO, Silicon Valley executive Chris Brennan, who brings a consistent track record of growing early-stage companies. Founding CEO Dr Shaun Ryan will move to the new role of chief innovation officer and remains an executive director with his interests aligned with the company.
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