Sopheon’s trading update confirms that some of its customers are delaying decisions on contracts because of uncertainty prevailing in their own markets and businesses. At the time of the interim results, Sopheon’s management expected a return to a stronger second half weighting for the full year numbers. That is still the case and the Group continues to highlight the strength of the new business pipeline and a higher proportion of SaaS (Software as a Service) opportunities. Nevertheless, the anticipated signings of a number of opportunities have now slipped into 2020. With revenue visibility currently at $28 million, we conservatively move our current year revenue estimate down 13% to $29 million with a knock-on effect on EBITDA (down 29%). We also assume that buying cycles remain extended during FY 2020E and therefore take a prudent view on our numbers for that year as well with revenue and Adj. EBITDA estimates reducing by 10% and 40% respectively.
Current revenue visibility for FY 2019E is $28 million with a further $9.9 million in remaining opportunities with 2019 target close dates. Of that latter amount, up to $2.7 million represents perpetual license fees and $4.8 million represents potential orders for multi-year SaaS or other recurring commitments. The balance is for associated consulting services.
Some of those additional perpetual licence fees may be signed in the remainder of the year which would add to our reduced revenue and Adj EBITDA estimates. Additionally, further SaaS deals may yet also complete but without significant revenue recognition in FY 2019E.
The update confirms that in a number of the delayed signings, Sopheon is already the preferred vendor. It also notes varying reasons for the extended buying cycles - some relate to potentially expanding initial contracts while others are company-specific delays. The former group includes a ‘very substantial’ new SaaS deal with a top tier global customer which is now expected to sign in the first half of next year.
This is clearly a frustrating time for Sopheon as its pipeline of new business continues to grow (up c. 60% since the end of last year) but the willingness of customers to sign on the dotted line is hampered by macro influences and their own more direct reasons. The delays mean that Sopheon’s FY 2019E will fall short of the revenues that we had anticipated, and we take a similar view on FY 2020E at present. Sopheon remains in a robust financial position with $19.2 million of cash on its Balance Sheet at the end of November 2019.