NetDimensions (AIM: NETD, OTCQX: NETDY) has announced that H1 revenues grew by 16% to $10.6m, indicating that the group is on track to meeting our FY15 forecasts. The average new deal size more than doubled, reflecting the group’s focus on winning larger customers in its targeted high-consequence industries, along with the higher level of services associated with these larger deals. Given that the company's US peers continue to trade at significant EV/sales premiums, we continue to believe that NETD's shares could warrant a significant re-rating.
H115 statutory revenues grew by 16% to $10.6m as invoiced sales lifted 8% to $9.8m. We note that SaaS and annual licence deals are paid in advance and SaaS revenue is released over the corresponding period, while services revenues are recognised on the achievement of milestones. The average deal size for direct new clients (ie first year revenues) rose by 125% to $209k and the number of active users at the end of the period lifted by 5% to 3.9m. Invoiced sales to clients across the group’s targeted high-consequence industries (industries where there are stringent requirements for regulatory compliance and hence training) represented 92% (H114: 83%) of total invoiced sales. We understand this included a number of prestigious names in the financial services, healthcare and manufacturing sectors. In our view, this indicates that NETD's products are faring well against its larger USbased talent management systems (TMS) competitors, which include Cornerstone OnDemand (NASDAQ: CSOD), Saba Software (recently taken private) and SuccessFactors (owned by SAP). NetDimensions won a Secure SaaS deal with an unnamed financial services firm, which covers 15,000 users. This is an extended enterprise deal (the solution is offered to the customer's own customers) and also involves the group’s analytics product. There was also a large deal with a healthcare client in North America, covering 21,000 users.
We are maintaining all our forecasts. We note the group is typically H2 weighted, and in FY14, 60% of revenues were in the second half. On that basis, FY15 revenues would be slightly ahead of our FY15 forecasts.
If NETD can manage the growth effectively, we continue to see significant upside, as the shares trade on an EV of 1.5x our FY16e revenues, compared to the group’s larger US peers (its key competitors), which typically trade at 4-8x revenues.