In the last few days, both Agresso (which includes CODA) and COA Solutions have posted what should be regarded as ‘cautiously credible’ results. I would not necessarily blog about this type of thing here but it is worth doing so against the backdrop of what is happening among the larger players where both SAP and to a lesser extent Oracle have demonstrated their share of troubles in the last 2-3 quarters.
Agresso and COA play against each other in broadly similar spaces, namely government and not-for-profit although each sells into the commercial sector as well. Those segments have lagged in cutting back IT investments though it is my understanding that this segment is starting to feel the chill wind of economic pressure.
A few numbers from the press releases. First Agresso:
- Total revenues declined by 2% to €187.1 million (H1 2008: €190.5 million)
- Share recurring (contract) revenue increased from 42% to 47%
- Without restructuring costs, EBITDA rose by 6% to €34.0 million (H1 2008: €32.1 million)
- Restructuring costs reduced EBITDA by 5% to €28.8 million (H1 2008: €30.4 million)
- Net profit was reduced by negative (IAS 39) valuation of interest derivates (-/- €6.4 million)
- Without restructuring costs, EBITDA margin climbed to 18.2%
- Strongly increased operating cash flow through effective working capital management: + €47.7 million (H1 2008: + €30.8 million)
Next COA:
- Revenues increasing by 7.4% to £59.8m (2008: £55.7m).
- Earnings before interest, taxes, depreciation and amortisation (EBITDA) were £12.8m (2008: £12.4m).
- £11.1m positive cash movement during the year (2008: £8.1m)
- Operating cash conversion in excess of 100% of EBITDA
- Annuity based revenues represent 51% of annual turnover
- 615 new customers including 227 new customer wins and 388 acquired customers (from the Belmin and ASR Computers acquisitions)
- Renewal rates for support contracts continued to exceed management’s goal of 95%
- As of 31st March 2009, the backlog of professional services orders increased by 7.8% to £6.9m (2008: £6.4m
- Year-end headcount increased 20% to 558 (2008: 464)
- Off-shore development staff headcount more than doubled to 85 (2008:40)
The comparisons are not precise but they provide an indication of what well managed vendors are doing in the recession – preserving cash as afar as possible. COA’s revenue number reflects the full impact of acquisitions so don’t run away with the idea they’re bucking general market trends. Instead however, I’d suggest that readers think more about how the business models of these companies reflects their established user bases from which they can continue to draw relatively high margin maintenance revenue streams.
Both companies have investments in saas and their different approaches to this issue are interesting. Agresso is marching ahead with aggressive investments for Coda2Go while COA is taking a more measured approach, looking to discover the sweet spots where it can leverage the expertise it acquired with Belmin, watching how the market develops – especially in the area of spend analytics – and then making a move. The likelihood is that COA will look for appropriate acquisition targets but not before it further develops its managed services business which the company tells me is running way ahead of expectations.
The next year will be challenging for both companies on a number of fronts but each will weather the economic storms as they ride their respective high margin lines of business. But of one thing we can be certain: the days of the green field mega deal that pumps huge amounts of cash into the coffers up front are just as much over in the mid-range as they are in the large business markets.
