Sage Earnings 2011 Reveal Strengths and Weaknesses In A Challenged Market

Sage reported earnings today. From what I can see the overall activity was impressive — especially compared to a market where companies like Microsoft are out selling ERP software at an 85% discount.

The recurring bright spots in the US appear to be payments where Sage is reporting 15% growth (over 40% growth in cross selling payments into existing customers).

Selling software and related services is the low spot for North America– 3% contraction.

After touting the opportunities for Healthcare in their 2010 annual report ( well positioned to take advantage of stimulus) – Sage announces “Sage Healthcare business in North America is no longer core to our strategy”. Of course Sage Healthcare sale was completed in November 2011.

Sage One appears as if it’s going to the a low end (think Peachtree) common SaaS offering across many of the Sage offerings. While there’s no timeline for launch in the US (it’s already available in Ireland and UK) Sage have already been publicly calling for accountant’s to take a look — so my guess is you’ll see something pretty soon.

Sage one 2011

Specifically called out in the earnings were Accpac and Simply products. Also I was very surprised to Sage indicate in North America “the market for certain other products, such as construction and CRM, remain challenging in the year”.

I am not so surprised at construction – as North America is in the mother of all real estate slumps – as I am by CRM.

After hearing for years that CRM is the “way to the light” – I’m a little surprised that strategically Sage doesn’t have a “front and center” commanding CRM offering to tout. My guess is that if there’s one place that the move to SaaS is kicking Sage’s revenues – that it’s in CRM. I’d also look for M&A activity in the CRM area with possible divestiture of weaker performing CRM assets.

Weakness: Did Sage North America Lose 65,000 Support Customers From 2010?

One item that caught my attention in the North America results is the reported number of support contracts. Unfortunately Sage doesn’t provide sufficient detail around this number to know exactly what makes up the change – or whether it actually represents a decrease worth worrying about.

Assuming that Total Support Contracts is the count of customers on maintenance, by reviewing the 2011 financial report slide deck with 568,000 total North America support contracts against 2010’s reported 633,000 it would appear that around 65,000 support customers were lost.

During 2011 the Sage Healthcare practice was sold. I’m unsure whether Sage backed out those support numbers though I’m assuming they didn’t since the transaction only closed during subsequent FYE 2011. If they have backed out Healthcare numbers then the drop is certainly more explainable.

Also notice that in 2011 Sage reported that in North America they added 11,000 new support contracts while in 2010 they added 32,000 new support contracts. This reduction of 21,000 customers seems abnormally high. I’m asking Sage for comment on whether there’s some other change in how they are computing these on contract customers.

Here’s the recorded earnings call which you can listen to by clicking below:

Here’s the slide decks for your comparison:

FYE 2011 Sage North America Support Contracts

Sage 2011 NA Contracts

FYE 2010 Sage North America Support Contracts

Sage 2010 NA Contracts

Sage Earnings Slide Deck – 2011 (PDF)

Sage Earnings 2011 – Press Release (PDF)

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Comments

  1. Thanks for the analysis Wayne. From my perspective, Sage CRM is really heating up across most fronts so it’s interesting to see that comment. Does Sage have a history of divesting under-performing assets / product lines?

    I know they did it recently with the Healthcare but, other than that, is it a common practice?