Sopheon’s interim results reflect a return to a stronger second half weighting, as flagged in July’s trading update – although EBITDA is $0.5m ahead of the number in that announcement. Alongside the delays in closing some license contracts in the first half, management reiterates the strength of the new business pipeline and the supportive underlying market conditions, and notes customers apparently reverting to a year-end buying pattern. With a sharp increase in the proportion of SaaS business in the pipeline – reflective of industry procurement trends - we expect to see higher recurring revenues over time (bringing greater visibility) and enhanced lifetime customer revenue. Chairman Barry Mence comments that the future prospects for Sopheon ‘have never been brighter’ when highlighting the positive trends for the Group in the outlook statement – and we note the pipeline and the long-term value being built within the growing SaaS business.
Sopheon’s experience of a step up in the proportion of SaaS contracts in its pipeline is in line with broader, longer term market trends. Whereas its business model has historically featured predominantly perpetual licences, this previously-flagged migration towards a SaaS model is now accelerating.
In addition to customer behaviours driving a more H2 bias for deal closings, the Group highlights unexpected client personnel changes, customer scope expanding from point to enterprise solutions and rampup time of its newer sales resources as contributory factors to the H1 delays previously highlighted in July’s trading update.
Having closed further new business post the half year end, current revenue visibility is stated as $25.4m compared to just over $27m a year ago following the very strong Q2 2018.