CIMdata PLM Industry Summary Online Archive
6 September 2007
Financial News
Sopheon Results For The 6 Months To 30 June 2007, Business Review And Outlook
Sopheon plc ("Sopheon") announced its unaudited interim results for the six months ended 30 June 2007 together with a business review and outlook.
HIGHLIGHTS:
• Revenue: £3.1m (2006: £3.0m)
• Loss for the period: £0.1m (2006: loss £0.2m)
• EBITDA: £0.1m (2006: loss £0.0m)
Completed twenty-one Accolade license transactions including extension activity, compared to twelve during the same period a year earlier. A weaker dollar and a very large order booked in first half of 2006 affect comparison year to year.
Extended solution footprint by acquiring Alignent, the industry's leading provider of strategic product planning and roadmapping software, and gained additional opportunities for market penetration when named the preferred transition partner to IDe, a competitor that terminated its business activities.
Introduced enhancements to Accolade system, which include enabling companies with product portfolios comprised of thousands of projects to generate analytical reports five to ten times faster than was previously possible.
Sopheon's Chairman, Barry Mence said:
"Sopheon is fortunate to be in a position of strength as we face new and unique market opportunities. That said, we are very aware of the need to maintain focus on organic growth and achieving high customer satisfaction, while engaged in core integration activities resulting from our recent M&A activity."
CHAIRMAN'S STATEMENT
FINANCIAL
Consolidated revenues for the period amounted to £3.1 million (2006: £3.0 million). Of the total revenues reported in the period, the ratio between license, maintenance and services was 9:7:9, which is broadly consistent with the business mix for the year 2006. Sales activity levels during the first half of 2007 were considerably higher than in previous years; twenty-one license transactions were completed, compared to twelve during the same period a year earlier. There were two primary reasons that revenue growth did not reflect the increase in sales transactions. First, results were affected by a substantial decline in the value of the US dollar. Second, as we have noted previously, revenue performance in a particular period can vary depending on the timing of individual transactions; in the first half of 2006, our European business closed the largest sale in the history of the Group. No singularly large sales were closed during the first half of 2007.
Gross margin, which is arrived at after charging direct costs such as payroll for client services staff, was 72% for the period, again consistent with the performance in the year 2006 but down from the 76% recorded in the first half of 2006 which was enhanced by the large license sale referred to above. Also, our ongoing margins continue to be impacted by the involvement partners have in delivering certain services assignments and we expect this to continue for the foreseeable future. We actively encourage partner involvement as part of our business strategy to grow awareness of and deployment capability for Sopheon solutions around the world.
Tight cost controls, the weaker dollar and higher levels of R&D capitalization as set out in note 5 have resulted in overheads falling to approximately £2.3 million (2006: £2.5 million). As a consequence the loss for the period improved to £0.1 million (2006: £0.2 million). The loss includes interest, depreciation and amortisation costs amounting to approximately £0.2 million (2006: £0.2 million). The EBITDA result, which does not include these elements, was £82,000 (2006: £27,000 loss).
TRADING
During the first half of 2007 we gained eight new license customers and closed thirteen license extension orders, in addition to a number of consultancy and services contracts. Repeat orders from the customer base continue to increase in number, as well as in value to our business; ninety-six companies throughout the world now license our software and many continue to buy additional products and services from us. We expect to break through the milestone threshold of one hundred licensees for Sopheon software in the current quarter. This total does not include new customers added through the acquisition of Alignent, which has of course taken us above 100.
The level of activity in our US business suggests that the Group is entering a new, intense stage of growth. In order to help accelerate this transition and ensure effective management of the associated expansion, we have taken steps to fortify our senior-management team. During the second quarter we added executive leaders for our North American sales and client services organizations. Each brings considerable experience from Lawson Software and Oracle respectively.
As further described below, the acquisition of Alignent closed on 21 June 2007. Including Alignent, full-year revenue visibility incorporating booked revenue, contracted services business and the run rate of maintenance contracts, stood at approximately £4.9m at the mid year point. We will update this information in our next trading update to shareholders scheduled for 25 October 2007.
CORPORATE
On 11 June 2007 Sopheon announced the acquisition of Alignent Software Inc ("Alignent"). Further details of the acquisition are set out in the notes to this statement. Based in California, USA, Alignent is one of only a few suppliers worldwide that specializes in the provision of strategic product and technology roadmapping software for complex global companies. Alignent's flagship offering, Vision Strategist, is generally recognized as the leading application of its kind in the marketplace. The software has a proven track record of helping large organizations improve strategic product planning. The acquisition of Alignent will help to drive expansion of Sopheon's business in two areas. First, for the company's nearly 100 existing clients in chemical and consumer packaged goods markets, it will extend Sopheon's solution to include strategic product planning. Secondly, Alignent's roster of industry-leading customers will give Sopheon instant credibility in a range of new markets such as aerospace, defense and high-tech manufacturing, helping to accelerate Sopheon's entry into these industry areas. Sopheon expects the Alignent business to make a positive EBITDA contribution from the first year following the acquisition.
On 13 August Sopheon announced that it had entered into an agreement with Integrated Development Enterprise, Inc. ("IDe") under which Sopheon was to offer transition services and support to IDe customers previously covered by IDe maintenance and support contracts. The agreement followed a decision by IDe, a former competitor of Sopheon, to discontinue its business. Terms of the agreement afford Sopheon exclusive access to such IDe assets as its customer list, software code and documentation, but Sopheon is not committed to assume any of IDe's obligations. The terms and conditions of any customer transition will be as agreed between Sopheon and the particular customer and could include transitioning to Sopheon's Accolade software and services. IDe's client base of 18 companies is approximately one-fifth the size of Sopheon's and similarly includes many Fortune 1000 businesses. Sopheon is engaged in discussions with several of these companies and indications are positive that a number will make the decision to switch to Accolade.
MARKET & PRODUCT
The market outlook for product life cycle management (PLM) applications remains strong. Analysts are forecasting compound annual growth rates ranging from 9% to 14% from 2007 through 2011. Expectations for the product portfolio management (PPM) submarket in which Sopheon's Accolade software system is classified are particularly high. An August 2007 report from an IT advisory firm noted that product portfolio management is the fastest-growing segment of PLM, and projected that it will continue to grow at a compounded annual rate of 15% through 2011. This expansion is attributed to increasing recognition among manufacturers that the decision support provided by solutions such as Sopheon's Accolade is needed for new product success.
We continue to make important progress in the evolution of Accolade's capabilities. In May we introduced enhancements that included a substantial increase in the power of the system's portfolio engine. The latter improvement was specifically designed to help Fortune 1000 companies that are managing complex portfolios encompassing thousands of projects. It enables such users to generate analytical reports five to ten times faster than was previously possible. Other changes to the software were aimed at strengthening project-related communication among product development decision-makers and team members, and at furthering Accolade's ease-of-use, an attribute area in which the Sopheon system is already recognized as leading the industry. These enhancements were principally driven by feedback from current Accolade users, including our recently formed Product Advisory Council. Existing clients were particularly enthusiastic in their reaction to the improved capabilities.
Evidence is growing of the significant business opportunities surrounding our acquisition of Alignent and its strategic product planning and roadmapping solution, Vision Strategist. Since completing the merger transaction in late June, we have signed two new Vision Strategist clients. We have also had communication with principal decision-makers and process owners at a cross-section of Alignent's existing accounts, including Boeing, BAE Systems, Corning, Lockheed Martin and Motorola. A number of key renewals have been signed, demonstrating that Vision Strategist users continue to see value in the solution. On August 30th we convened a virtual meeting of the Alignent client base during which we shared our plans for further development of Vision Strategist, including its integration with Accolade.
We have also begun aggressively pursuing new business in the aerospace and defense markets, an effort that has included adding a person experienced in this sector to our direct sales team. He will focus on the sale of both Vision Strategist and Accolade to these new markets.
Sopheon is receiving consistent, positive affirmation from business analysts and other independent thought leaders concerning its decision to expand into the strategic product planning and roadmapping market. This reinforcement has been complemented by endorsements of the newly acquired Vision Strategist product offering. An article in the May issue of Research Technology Management magazine by a foremost authority on enterprise strategic and technology planning characterized Vision Strategist as the only commercially available tool that comes close "to meeting all the unique requirements" of real-time technology roadmapping,
We have previously acknowledged the importance of partnerships to achieving our goals for market expansion. While our reseller network continues to struggle for traction, a number of consulting partners are now showing interest in supporting Sopheon in its strategic efforts to migrate clients previously served by Alignent and IDe.
OUTLOOK
We would clearly prefer to be reporting a larger period-to-period increase in revenues. However, the fact that we were able to achieve similar revenue performance as 2006, in spite of the weaker dollar and the lack of a singularly large sale closing during the first half of 2007, is in our view a key sign of growing maturity of the business. Our bottom line performance continues to improve, and our balance sheet is in good shape. Looking forward, the sales funnel is robust, with a number of potentially large deals in the prospect population.
Strategically Sopheon has taken an important step forward through the acquisition of Alignent. We look forward to leveraging the substantial opportunities for its strategic product planning solution among existing Alignent customers, Sopheon customers, and newly identified prospects in aerospace and defense markets. In addition, we believe that the agreement with IDe will build on Sopheon's history of continued growth in the expanding product portfolio and innovation process management market. In parallel with commercial activities, we continue to invest heavily in product development. Based on these efforts, we will introduce new versions of both Sopheon's Accolade system and Alignent's Vision Strategist by the end of the year.
We remain confident that 2007 full-year performance will show substantial improvement over 2006.
Barry Mence 6 September 2007
CHAIRMAN
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