Sage Half Year 2013 Earnings And The Continued Transition To Recurring Revenue

sage may 2013 midyear
Sage last night reported their six month interim earnings. The 15% growth rate in Americas looks strong but I’m not certain it tells the entire story.

Sage’s earnings report contains the following narrative for the earnings in Americas (which is no longer simply called North America – perhaps to include the results of their recently acquired Brazil division).

 

Total Americas revenue grew by 15% to £230.3m (H1 2012: £200.0m*), with organic# revenue growth of 4% (H1 2012: 1%).  Organic# recurring revenue grew 7% (H1 2012: 2%), while organic# SSRS revenue contracted by 4% (H1 2012: 3% contraction).

SSRS = software and software related services. SSRS services include stand-alone software licence sales (including new licences, upgrades and migrations) and professional services, hardware and business forms.

Organic = Organic revenue excludes the contributions of current and prior period acquisitions, disposals and assets held for sale.

Sage notes that their earnings are transitioning in North America to recurring revenues. I believe this is inferring that software sales are slow (in fact declining 4% in Americas according to this report) but that Business Care renewals remain strong overall (average of 81% renewal across all of Sage).

The contraction also reflects the continued transition to recurring revenue, particularly in North America.  We continue to see good growth in SSRS revenues where market conditions are supportive, as illustrated by the UK, with legislative change driving payroll and training revenue, and with Sage ERP X3.  SSRS revenue includes stand-alone software licence sales (including new licences, upgrades and migrations) and professional services, training and business forms.

Sage Key Performance Indicators

Key Performance Indicators – these are some Sage created metrics established last year (think of them as Sage’s version of Netsuite Non-GAAP earnings in that they’re not comparable to any other company and presumably  spotlight  metrics Sage is strongly confident of achieving).

sage kpi

Notable items that I’ve seen in this half year report:

  • The number of cross-sell customers integrating Sage’s payment services into their core accounting grew to over 12,000 with an associated increase in cross-sell revenue growth of 18%.
  • The transition of the revenue base in North America to recurring revenue has continued in the period. Sage Business Care, our premium support offering, remains the primary driver behind this transition.
  • We have seen strong momentum from Sage 50, particularly in Canada, and Sage 100, due to good renewal rates and success in moving customers to higher support tiers.
  • Sage ERP X3 also delivered strong revenue growth in North America.
  • Our payment services business continued to leverage cross-selling into the accounting base. The number of cross-sell customers integrating Sage’s payment services into their core accounting grew to over 12,000 with an associated increase in cross-sell revenue growth of 18%.

Sage’s Announced Three Step Plan To Drive Accelerated Growth

  1. Focus our business
  2. Capture the technology opportunity
  3. The benefit of subscription

In some respects it looks like Sage is trying to move two  SaaS enabled products into a position where they can start to grow and become more global products which produce meaningful future revenues. While doing this Sage is also cloud enabling certain existing products using Microsoft Azure.

I do not expect to see Sage make any meaningful investment in products which are not global in nature – aka code once, use everywhere.

The two “pure cloud” new products which Sage seems to be placing their future bets for revenue growth:

Sage One (Presently a SaaS low end product for micro businesses)

Looking ahead, the next important milestone is the release of a more advanced version of Sage One in the UK & Ireland. It will be launched towards the end of this calendar year following a soft launch in the summer and will bring more features, depth and sophistication. This will open up the 5 to 25 employee business space, leading to higher price points and user numbers per customer, whilst giving existing Sage One users a migration path as their businesses succeed and grow.

 

Sage ERP X3

Our solution for the mid-market is Sage ERP X3, which is a global product and offers a comprehensive feature set. The product is performing very well internationally, growing organically# 26% outside of France, supporting global organic# revenue growth in the period of 8%. We continue to invest in Sage ERP X3 in order to secure our target of double-digit growth.

Sage Half Yearly May 2013 Report

About Wayne Schulz

Wayne Schulz is a consultant who writes about the ERP industry and technology related news.