Earlier today, UNIT4 held an analyst call to discuss its full year 2012 results. While overall revenue only rose 4.5 percent, the company was at pains to point out that its transformation to a subscription based business hides the long terms growth. During the formal presentation, the company said that what it describes as ‘subscription and SaaS’ revenue now represents about 10 percent of its overall business. Traditional on premise new license sales represent 16 percent.
Despite the modest amount of revenue from subscription sources when compared to the whole, the company clearly signalled that this is its model for the future. It should come as no surprise then that UNIT4 was peppered with questions about FinancialForce.com, its pure play cloud offering. Numbers from the presentation and discussion:
- Annual subscription run rate accelerated from €46.8 million to €57 million between June and December 2012.
- SaaS/subscriptions grew 25 percent in 2012, expected to be 30 percent in 2013. Taking out FinancialForce.com, UNIT4 grew subscription revenues by 17 percent.
- FinancialForce is on a current €17 million run rate. The company projects this will rise to €70 million by 2015.
- The company lost €9 million on FinancialForce in 2012 but implied break even by 2015.
- UNIT4 expects to continue investing in FinancialForce.com from its own resources with no mention of additional external funding.
- FinancialForce now employs 150 people, many of which are located in the US.
- Despite being US centric, the company counts customers from 45 countries.
- FinancialForce.com is now seeing many more enterprise deals.
- UNIT4 is not averse to seeing FinancialForce.com grow by acquisition.
- FinancialForce.com has proven that a European applications vendor can go to the US and succeed in the cloud market. This should be welcome and an encouragement to others in the SME space. Xero, BrightPearl and FreeAgent have all made moves in the last year or so to establish a presence in the US.
- Having visited the company’s San Francisco offices, met a number of its staff and listened to management’s plans over the last couple of years, my sense is that FinancialForce.com can do very well. Its plans are ambitious but there’s nothing wrong with that in a market where there is plenty of opportunity.
- Riding on the back of the Salesforce.com platform has accelerated time to market in a way that is not possible for other vendors who have to build out their own infrastructure. The flipside is that FinancialForce.com is captive to Salesforce.com’s own development. This has, at times, held it back but again, my sense is that as it grows Salesforce.com management will pay more attention to FinancialForce.com’s needs.
- While still considered an SME play, the company is making inroads at the enterprise level. That’s important because it elevates the company’s ability to take a seat at the bidding table. In the short term it won’t win too many of those deals and will likely find that it is not sufficiently feature complete in some areas. Even so, that will encourage the company to run as fast as possible to address functional white spaces.
- Its acquisition of Appirio’s professional services business in late 2011 has clearly paid off. That line of business continues to be expanded while its relationship with Rootstock for manufacturing also helps to broaden the addressable market.
- It was good to hear UNIT4 affirm continued investment in the business. It is always tempting to resist bold investments when you have a significant recurring revenue business. It is encouraging to see that management is transparent about what this means and how it works. The stock chart shows that well run companies that act in this way are rewarded – even when in transition. That bodes well for the future.
Disclosure: FinancialForce.com is an ongoing product strategy client