TIDMSPE
RNS Number : 2550T
Sopheon PLC
24 March 2021
Embargoed Release: 07:00hrs Wednesday 24 March 2021
SOPHEON PLC
("Sopheon", the "Group" or the "Company")
AUDITED RESULTS STATEMENT FOR THE YEAR TO 31 DECEMBER 2020
Sopheon plc, the international provider of software, expertise,
and best practices for Enterprise Innovation Performance , is
pleased to announce its results for the year ended 31 December
2020, in line with market expectations, together with an outlook
for the current year.
financial Highlights:
-- Revenue of $30.0m, maintained in the face of challenging year
due to COVID, whilst embarking on a SaaS transition (2019:
$30.3m)
-- ARR(1) rose from $15.9m at the start of 2020 to $18.0m at the end of the year
-- Full year 2021 revenue visibility(2) is now at $24.5m (last year at this time: $21.2m)
-- TCV(2) of signed contract bookings up 1.25X, and TCV of SaaS bookings up 2.74X
-- Adjusted EBITDA(3) of $5.9m (2019: $6.4m)
-- PBT of $1.7m (2019: $2.5m)
-- Net cash of $21.7m (2019: $19.4m) and the Group has no debt
-- Dividend to be maintained at 3.25p per share (2019: 3.25p)
Operational Highlights
-- 10 new customer wins including DuPont, LG, Hochland, Clif Bar
and Mondelez. Six of the new customers signed had deal values over
$1m.
-- SaaS First and SaaS uplift programs introduced to assist
clients in moving to the cloud. Over 50% of new clients signed SaaS
contracts and four existing clients converted to SaaS as part of
the SaaS Uplift program.
-- Continued investment in cloud-native SaaS capabilities for Accolade
-- Gross retention of 91.5% (2019: 94.2%) with customers taking
cost decisions earlier in the year, with a return to improved
levels in the second half
-- Greg Coticchia, who has been working with us for some time
and demonstrated his capability and value add to the Group, to join
Board and spearhead cloud strategy as CEO. Andy Michuda to become
Executive Chairman, focusing on partnerships and M&A alongside
governance. Barry Mence to step down to become a Non-Executive
Director.
Barry Mence, Chairman, commented: "With a solid revenue base
already in place for 2021, plus our strong balance sheet, a superb
customer base and a team of great people - I am confident that
Sopheon has a great future, and that the SaaS transition is exactly
the right strategy to pursue. The board is excited to be appointing
Greg Coticchia as CEO - he is already having significant impact on
the business, and his experience and track record in software and
innovation are invaluable. I can think of no better person than
Andy Michuda for the role of Executive Chairman. My own commitment
to Sopheon is undimmed, and I will remain a non-executive director
and major shareholder in the company as we go through this exciting
new chapter in the Sopheon story. We also continue to believe in
sharing success with shareholders, and I am therefore pleased to
announce that we will again maintain our dividend at 3.25p per
share."
For further information contact:
Barry Mence (Chairman) + 44 (0) 1276 919
Arif Karimjee (CFO) Sopheon plc 560
Carl Holmes/Giles Rolls (Corporate
Finance) + 44 (0) 20 7220
Alice Lane/Sunila de Silva (ECM) finnCap Ltd 0500
About Sopheon. Sopheon (LSE: SPE) partners with customers to
provide complete enterprise innovation management solutions
including software, expertise, and best practices, that enable them
to achieve exceptional long-term revenue growth and profitability.
Sopheon's Accolade(R) solution provides unique, fully integrated
coverage for the entire innovation management and new product
development lifecycle, including strategic innovation planning,
roadmapping, idea and concept development, process and project
management, portfolio management and resource planning. Sopheon's
solutions have been implemented by over 250 customers with over
60,000 users in over 50 countries. Sopheon is listed on AIM,
operated by the London Stock Exchange. For more information, please
visit www.sopheon.com .
(1) Annual Recurring Revenue
(2) Total Contract Value
(3) Adjusted EBITDA is defined and reconciled in Note 5 to this
report
(4) Revenue visibility comprises revenue expected from (i)
closed license orders, including those which are contracted but
conditional on acceptance decisions scheduled later in the year;
(ii) contracted services business delivered or expected to be
delivered in the year; and (iii) recurring maintenance, hosting,
SaaS and rental streams. The visibility calculation does not
include revenues from new sales opportunities expected to close
during the remainder of the year.
Sopheon and Accolade are registered trademarks of Sopheon
plc.
Chairman's Statement
I am very proud to report a growth in contractual bookings over
the previous year in a period of unpredictability and unparalleled
disruption. We are reporting $30m revenue in 2020, matching the
prior year, and with several other indicators showing rising
commercial traction, even in the face of dual headwinds. Besides
the global shock caused by the pandemic, this was our first full
year of prioritizing Software as a Service (SaaS) contracts for our
new customer engagements. Each of these factors created downward
pressure on revenues, highlighting the strength of our achievement.
The pandemic introduced new challenges to sales and retention; and
our strategy to make selling new SaaS contracts a priority reduces
revenue recognition in the first year compared to traditional
perpetual licenses, trading this for a higher quality and
predictable ongoing recurring revenue stream in the future. Other
key metrics, core to measuring the progress of our cloud
transition, are encouraging - Total Contract Value (TCV) of sales
booked in the year was up a quarter, and we nearly tripled the TCV
of new SaaS contracts booked. Six of the new deals signed exceeded
$1m in initial TCV, and Annual Recurring Revenue (ARR) closed at
$18m, an historic high up from $15.9m a year ago. Retention did
suffer during the initial stages of the pandemic, then rebounded
later in the year. Furthermore, we achieved all of this while
continuing to deliver a solidly profitable and cash generative
year, also reporting new highs in cash balances and closing net
assets.
Sopheon is a business in transition. As our CEO Andy Michuda
explains in his report, we are embarking on the development of new
cloud-native products, which will contribute to the growth of our
well-established enterprise solution, Accolade. These new
cloud-based applications will bring value to personal and workgroup
productivity alongside the corporate value points we are well known
for. This strategy and investment will lead to multiple benefits.
Our new applications will address needs of a work-from-home trend
that is now unstoppable and will introduce a low cost, high volume
market "pull" sales model by targeting innovation professionals in
our target markets. This parallel sales model will produce upsell
enterprise opportunities; and our strong enterprise brand and
reputation will in turn feed the cloud-based application sales
funnel. Our cloud products will integrate seamlessly with our
current enterprise solution - and over time, we expect many
existing enterprise customers to adopt the cloud applications. In
addition, we fully expect to add new cloud capability and market
presence through acquisitions. We will move rapidly when the right
opportunity is identified.
In this context of transition, I have the bittersweet task of
noting that this will be my last report as Chairman of Sopheon. I
have been in this role since inception of the company. It has been
a privilege to lead such talented employees, and to build a
business that is making a real difference to so many major
corporations. Yet, as we embrace change in our own business, the
time has come to pass the baton. I can think of no better person to
take on the Executive Chairman role and to steer Sopheon through
the coming years than our CEO, Andy Michuda. As well as governance,
Andy will focus on partnerships and acquisitions. He will be
replaced as CEO by Greg Coticchia, who joined us in October 2020.
We also welcome Greg to the board of the company. As we have
previously shared, Greg is a recognized entrepreneur, business
leader, professor and author, with over thirty years' experience in
software products and services. He has great experience in leading
the strategic transition we face and is now fully embedded and
supported by our senior leadership team. The board and I are
delighted with these two appointments. The changes I have described
will take effect on 31 March 2021. My personal commitment to
Sopheon is undimmed, and I will remain a non-executive director and
major investor in the company as we go through this exciting new
chapter in the Sopheon story.
Outlook
Although SaaS will dominate new deals and represents our future,
I should emphasize that we fully expect to continue to sign some
perpetual licenses, driven mainly by existing customers. Adding our
year-to-date license sales and consulting services backlog to ARR
takes overall revenue visibility for 2021 to $24.5m at the time of
this report, compared to $21.2m a year ago. With this solid revenue
base already in place for 2021, plus our strong balance sheet, a
superb customer base and a team of great people - I am confident
that Sopheon has a great future. We also continue to believe in
sharing success with shareholders, and I am therefore pleased to
announce that we will again maintain our dividend at 3.25p per
share.
Strategy and Market
Sopheon was founded with a mission to provide our customers with
world-class product solutions that contribute to exceptional
long-term growth and profitability through sustainable innovation.
Our Accolade solution digitalizes Enterprise Innovation and other
strategic initiatives that provide competitive advantage in the age
of digitalization
Learnings from 2020
Our clients entered the journey to migrate their Accolade
application to the cloud. The R&D-intensive industries that
Sopheon targets started to accept the cloud in earnest in 2019.
Sopheon entered 2020 with the introduction of new programs to
assist our clients in moving their data sensitive applications
managed by Sopheon's product, Accolade, to the cloud. Customers
have responded favorably:
-- We introduced a SaaS First program to interest new clients to
favor SaaS contracts over the traditional on-premise in perpetuity
agreements. The market was very receptive to the offering,
resulting in over half of our net new clients in 2020 signing SaaS
contracts. We are confident this shift will deepen into 2021.
-- We introduced a SaaS Uplift program designed to assist active
maintenance-paying clients to transition to the cloud. Our offering
reduces cost to the client by removing the need for them to manage
our software in their environment. It also enables faster access to
new features and capabilities. Four clients converted to SaaS in
2020 as part of our introduction program, validating our business
case and ROI proposition. With this success behind us we enter 2021
expecting to increase momentum in this uplift program, targeting
our substantial base of perpetual on-premises clients.
Convergence of physical and software innovation has created a
new unmet need. Software start-ups and high-tech leaders are
disrupting every industry with new operating models. This has
forced traditional companies to invest in software engineers to
create "smart" products to compete. As a result, a new challenge
has emerged. Companies are struggling to manage the governance
between the physical and software aspects of their products to
orchestrate the cross-functional product development lifecycle and
go-to-market activities. If companies don't adapt and introduce new
agility they will struggle to compete. We see this as a significant
opportunity to Sopheon.
Accolade offers customers the agility and adaptability to handle
disruption. At the time of writing our annual report last year, we
knew very little about COVID-19 and its impacts on our business.
What we know now is that while many industries have been devastated
by COVID-19, others have thrived. Some of our target market
segments were directly impacted, but the majority of our client
base was not hurt by COVID-19. Sopheon has fared well due to our
target focus on industries that were minimally affected, with
several clients expanding their use of our Accolade software to
support their newly created virtual work environment. As our CFO
Arif Karimjee describes in the financial report, we did however
experience a lower than normal client retention rate in the first
half of 2020, as some customers took short-term cost actions.
Retention rates rebounded in the second half of the year and we
expect this to continue.
While the COVID-19 disruption did delay a few buying cycles
during 2020, Sopheon booked more in net new contract value in 2020
than in 2019, which demonstrates the resiliency of Accolade's value
proposition during times of market disruption. In addition, we
successfully completed several new client deployments, including
Mondelez and Orion Engineered Carbons with entirely remote customer
engagements and support activities.
Sopheon's longstanding focus on specific verticals was evident
again in 2020, with 100 percent of our ten net new clients coming
from our target industries of chemical, consumer goods, aerospace
and defense, high-tech and industrial manufacturing. New clients
are well-known market leaders, among them DuPont, LG, Hochland,
Clif Bar and Mondelez. While our net new pipeline was very active
and opportunities continued to move through our sales process we
did notice a slow down at the front of the pipeline (suspect
development) through mid-2020 but that trend has since shifted in
the fall and we exited 2020 with the strongest net new pipe in the
history of the company
Growth Strategy
Our growth strategy focuses on three key areas:
-- Organic growth through strong ecosystem networks
-- Transformation to a SaaS business
-- Non-organic growth
Organic Growth through Strong Ecosystem Networks
Leverage blue-chip references: to extend our Accolade software
as the product of choice to digitalize enterprise innovation in our
target markets. Sopheon's roster of customers is a Who's Who of the
world's leading companies creating a strong and influential
ecosystem. The strong brand of our solution is evidenced by the
addition of new customers in food and beverage, consumer goods,
chemicals and defense sectors, even in the face of COVID-19. We
have continued to concentrate on our core industries to grow market
share where we hold preferred positions due to strong competency in
our product, best-practice content and expertise of our people. I
am proud to share that 100 percent of our new sales in 2020 came
from these core verticals, proof of our team's dedication to
executing on our strategy.
Sopheon's long history and experience in these verticals allows
us to operate as an industry connector for our clients, introducing
them to one another for mutual learning and to advance their
competency and success. Despite the strength in this area, we have
not captured our share of these markets and will therefore invest
efforts to do so. In parallel, we continue to test additional
industries for expansion such as the automotive and transportation
sectors.
Sopheon customers report the following value from digitalizing
their innovation processes with Accolade:
-- Increase Portfolio Value by 75-100%
-- Reduce Time to Market for new products by 15-30%
-- Increase Product/Initiative Success by up to 50%
-- Reduce Costs by 10-20%
Expansion from Product to Enterprise Innovation: We continue to
see the use of Accolade expand to support additional business needs
such as strategic transformation and business innovation
initiatives spanning supply chain; smart, connected product
innovation; and more. Our strengths were also recognized by Gartner
in their research reports on tools for innovation management(1) ,
product management and roadmapping(2) , software for strategy
execution management(3) and technologies supporting a digital twin
of the organization.(4)
We are in the midst of no ordinary business cycle, but rather
one that requires a fundamental transformation by businesses of all
sizes and across all industries to operate with more agility and
responsiveness. Organizations unable to master this transition will
disappear. The key driver of this disruption and resulting "digital
revolution" is the changing expectation of customers in the way
they choose, buy, obtain and use products. Product innovation is at
the heart of our customers' digital transformation and is, now more
than ever, critical for business survival. Executing on digital
transformation strategies and initiatives has become an imperative
for these organizations. This emerging market represents a
considerable addressable target market size as a subset of the
overall digital transformation market, which is estimated to exceed
$2 trillion by 2025.(5)
We see this as a unique opportunity for Sopheon to digitalize
corporate strategic initiatives, innovation investments and
portfolios in a single platform, creating a digital operating model
designed to help organizations meet the challenge of digital
disruption and enabling a CEO to achieve his or her strategic
direction with a velocity that cannot be accomplished without the
support of an enterprise innovation management platform.
Transformation to a SaaS Business
Transition the revenue model : The benefits of moving our
revenue model from perpetual License and Initial Maintenance (LIM)
to one emphasizing Annual Recurring Revenue (ARR) delivers higher
predictability and is driving our investment in our cloud business
strategy. This transformation affects every aspect of our company
and all cross-functional operations, and will allow Sopheon to
innovate more quickly, shorten the time to acquire new customers,
improve business predictability (through reducing license spikes
and troughs, guaranteeing recurring revenue and guaranteeing paid
support), further improve the scalability and performance of our
software, and reduce the cost of service delivery. In addition, we
will also better meet our customers' preference for greater
flexibility and alignment of their investment with consumption of
the software. We will continue the Cloud transition by further
executing on the programs introduced in 2020 - SaaS First selling
and Cloud Uplift for on-premises clients.
Introduce new cloud offerings for product-led growth : As we
continue to invest in new cloud-native SaaS capabilities, we will
take advantage of opportunities to promote and sell these new
capabilities as market consumable applications using a product-led
model that affords product trials, freemium usage and self-service
provisioning with no or low-cost implementation. This product-led
approach represents a new go-to-market channel and will create a
"flywheel" effect to accelerate the rate of new customer
acquisition, by providing a base of new customers into which our
direct sales teams can upsell larger enterprise SaaS deals. The
cloud applications will integrate seamlessly with our current
enterprise solution - and over time, we expect many existing
enterprise customers to migrate.
Non-Organic Growth
Partnerships: Sopheon develops and maintains three types of
partnerships:
-- Technology Partners provide enabling technologies and
integrations that broaden our solutions and reduce demands on our
internal R&D effort. Microsoft(R) continues to be our most
important technology partner and in 2020 Sopheon released a deep
integration between Accolade and Microsoft Teams to enable
customers to use the Teams platform for workstream collaboration on
product and enterprise innovation initiatives. This integration
extends user adoption to new individuals and workgroups across the
enterprise and was recognized by Gartner as a model for all cloud
software vendors in its 2020 report on effective remote
working.(6)
-- Reseller Partners allow Sopheon to sell and support Accolade
in regions that require specialized, local knowledge and expertise.
Our current reseller partners are Prodex Systems supporting
Australia and New Zealand, PCITC supporting China, and Roadmapping
Technology supporting certain sectors in the United Kingdom.
-- Consulting Partners provide specialist innovation management
expertise that support successful implementation of our Enterprise
Innovation Management solutions. We have worked with consulting
partners including Accenture, Deloitte, BCG, PWC, Atos, The Adept
Group, and Stage-Gate, Inc.
M&A: We are actively researching opportunities for M&A.
Our criteria are for businesses that could extend the capabilities
of our solutions as an alternative to internal R&D, expand our
footprint within existing customers, attract customers in new
verticals, or extend geographic reach by de-risking the pitfalls of
organic growth in new territories. Targets will ideally offer cloud
native technologies, contribute to ARR growth, fit into the
innovation / product management / strategy space we serve, and
offer end-user value and an online sales channel alongside our
enterprise solution salesforce.
(1) Gartner, Market Guide for Innovation Management Tools, 30
November 2020 (ID: G00729938)
(2) Gartner, Market Guide for Product Management and Roadmapping
Tools, 5 September 2020 (ID: G00727147)
(3) Gartner, Market Guide for Strategy Execution Management
Software, 25 November 2019 (ID: G00379060)
(4) Gartner, Market Guide for Technologies supporting a DTO, 18
December 2019 (ID: G00464474)
(5) Research and Markets, "Digital Transformation Market to
2025"
(6) Gartner, "To Enable Effective Remote Work, Build
Collaboration Features Natively Into your Software Products, 27
July 2020
Financial Review
As highlighted in the Chairman's Statement, sales bookings
increased while top line performance for 2020 was broadly flat at
$30.0m (2019: $30.3m) despite twin headwinds, being the incidence
of the coronavirus pandemic, and also the revenue impact of
migrating the business towards a SaaS model.
Trading Performance
Total license order volume (including SaaS deals) remained solid
at 43 (10 new) license transactions compared to 47 (18 new) the
year before; however, the make-up of those deals changed sharply -
22 were SaaS compared to 9 the year before; and 8 (6 new) were at
the $1m level or more compared to just 2 (1 new) the year before.
Major wins announced included Mondelez, LG, Orion Engineered
Carbons and DuPont. These metrics demonstrate both commercial
traction with enterprise class accounts, and SaaS traction across
the board.
The TCV of SaaS business almost tripled from $2.4m to $6.6m,
contributing strongly to ARR growth and underpinning the conversion
of the business to a recurring model. Overall revenue recognized
from recurring relationships - maintenance, hosting and SaaS - rose
to $17.3m from $15.5m in 2019, and ARR at the end of the year had
risen to $18.0m (2019: $15.9m). In tune with these trends,
perpetual license recognition was $3.0m compared to $5.8m the year
before. Consulting services revenue, which is recognized as it is
delivered, was $9.7m compared to $9.3m the year before.
Stepping back from the detailed movements by category, the TCV
of all contracts signed in 2020 rose by 25 percent to $21.2m.
SaaS and ARR
As noted above, we took two deliberate steps to accelerate SaaS
signings in 2020. For new customers,
we successfully transitioned the sales team to a "SaaS First"
approach where all new customers are encouraged to adopt the SaaS
model. For existing perpetual customers that do not host with
Sopheon, we have developed a "Cloud Lift" program to encourage them
to upgrade their perpetual license to a SaaS license, delivering
good ROI by taking on hosting and certain managed services. Four
perpetual customers took advantage of Cloud Lift during 2020. We
believe this program will gain market momentum due to a market-wide
trend to remove corporate IT infrastructure and shift this burden
to vendors.
As highlighted by the metrics above, the conversion of Sopheon's
revenue model to SaaS accelerated during 2020 alongside the overall
growth in bookings. ARR growth was held back by gross retention at
91.5 percent (2019: 94.2 percent). Although respectable by most
standards, it was lower than we are used to but unsurprising given
the challenging market conditions for some of our customers. We do
note however that two-thirds of the churn value happened in the
first half of the year, with a rebound to normal levels during the
second half. Our customer base reports they are generally
satisfied, with our net promoter ("NPS") surveys recording an
overall NPS score of 35 in 2020. Down on 2019's score of 40, a
score of 35 is still considered excellent for B2B enterprise
software. Our customers remain keen to take on new functionality,
with 94 percent of them on Accolade versions 12 or 13, the current
supported releases. Further underlining the strength of customer
relationships and the appeal of the software, we note that there
were 33 license orders from existing customers during the year.
Seasonality and Geography
The revenue calendarization pattern broadly held to experience
with the second half of the year accounting for 54 percent of
revenues (2019: 55 percent and 2018: 53 percent). As the business
migrates to a more recurring model, we expect this seasonality to
decline in importance; however, looking at sales bookings rather
than recognized revenues, the final quarter continues to dominate
with 44 percent of TCV signed (2019: 48 percent).
Though our core markets of the United States and Europe dominate
revenues, we continue to see traction in other locations with
signings in Korea, Canada, Australia, Japan and Turkey. Our
activities in the Pacific region continue to be managed through
partners while the broader Americas, Europe and Middle East markets
are addressed by our direct sales teams. Unlike 2019, which saw our
performance overweight in the United States compared to the past,
2020 was more balanced across the two main regions both in terms of
overall revenues and major deal signatures. Overall European
revenues including recurring revenues were 37 percent of the total
compared to 32 percent the year before.
Gross Margin
Gross margin was 69.8 percent, compared to 70.1 percent in 2019.
This remains well within the historical range. Gross margin is
calculated after deducting the cost of our consulting organization
- both payroll and subcontracted; costs and charges associated our
hosting activities, some license royalties due to OEM partners and
costs and credits relating to certain indirect taxes. As in
previous years, we maintained use of subcontractors last year
alongside some new hires, allowing for greater flexibility.
Pipeline
Revenue visibility for the year now stands at $24.5m compared to
$21.2m at this time a year ago. This is quite a step up, supported
by ARR growth already referenced. In addition, we have seen
interesting development in the sales pipeline. By the end of 2019,
it was over 50 percent higher year on year. By June 2020, it had
dipped a little, but we saw a rebound in the second half of the
year, and it ended 2020 up another 10 percent compared to the 2019
closing level. Within the pipeline, we continue to show rising
levels of SaaS opportunities and increasing numbers of larger
deals, all in line with the overall strategy.
Research and Development Expenditure
Overall expenditure in product development in 2020 increased
again by approximately $0.5m to $6.9m. These amounts can be
compared to the headline research and development reported in the
income statement showing an increase from $5.7m to $5.9m; the
differences are due to the effects of capitalization and
amortization of development costs.
This continued expansion of resources will permit Sopheon to
embark on the cloud application development strategy that Andy has
described in his report. We are maintaining investment in our core
enterprise Accolade solution, while also developing cloud-native
applications that will bring multiple benefits in the short and
medium term. Overall, the amount of 2020 research and development
expenditure that met the criteria of IAS38 for capitalization was
$3.7m (2019: $3.0m) offset by amortization charges of $2.7m (2019:
$2.3m). The higher capitalization rate reflects the greater
resources referred to above; the consequent impact on amortization
will come through over time as the products are released.
Capitalized costs in 2020 are largely attributable to the Group's
investment in the Accolade 13.1, 13.2 and 13.3 versions, and our
first cloud-native release. The Accolade 13.1 and 13.2 releases
were issued during 2020; the other two will be released in
2021.
Other Operating Costs
Payroll costs continue to represent over three quarters of our
cost base. Sopheon has a relatively mature and highly qualified
blend of staff, reflecting the professional and intellectual
demands of our chosen market. Our original 2020 plans had ambitious
hiring goals, but when the pandemic struck, we froze hiring for
several months. Nevertheless, we ended last year with 169 staff,
compared to 162 at the end of 2019, many of whom were hired late in
the year. Average headcount for the year was 164 (2019: 160).
Several recruits over the past year were senior. The higher overall
wage costs of $1.4m as reported in Note 7 of the financial
statements reflects these additional staff, the annual pay
adjustment, and the cost of our corporate bonus scheme, for which
all non-sales staff in the company are eligible. The bonus is
mainly linked to annual EBITDA goals, and is paid in the following
year. In parallel, subcontracting costs rose by approximately
$0.4m. Historically, we held back from offshoring technical roles
due to management and productivity concerns linked to our smaller
scale. This started to change in 2019, and we now have a team of
ten working in India through an outsourcing firm to support both
consulting and development efforts, more than double the year
before. We made significant savings with non-payroll costs which
were $1.1m lower thanks mainly to reduced travel costs.
Switching to a functional view, specific comments regarding
consulting operations and research and development costs are noted
above. Overall costs in the sales and marketing area increased by
approximately $0.3m. This mainly reflects increases in both product
marketing and marketing communications and commercial leadership,
offset by lower commission and incentive payments in the sales
area. Administration costs have fallen slightly by just over $0.1m
with higher staff costs in the IT area offset by lower overheads
and share option charges. This area includes all other overheads,
office costs, regulatory and compliance costs, and depreciation, as
well as the full impact of the notional charge for share option
grants, which is allocated entirely to this caption.
With regard to foreign exchange, the Group aims to incorporate a
natural hedge through broadly matching revenues and costs within
common currency entities, reducing the need for active currency
management. In addition, it is not the Group's policy to hedge
currency cash holdings, but we do look to keep cash balances in
local currency within an entity and to time currency purchases so
as to minimize impacts on the individual income statements.
Results and Corporate Tax
Adjusted EBITDA (Earnings before interest, tax, depreciation,
amortization and employee share-based payment charges) is a key
indicator of the underlying performance of our business, commonly
used in the technology sector. It is also a key metric for
management and the financial analyst community. This measure is
further defined and reconciled to profit before tax in Note 5. The
combined effect of the revenue and cost performance discussed above
has resulted in Sopheon's Adjusted EBITDA performance for 2020
moving to $5.9m, from $6.4m in 2019. Profit before tax reduced to
$1.7m (2019: $2.5m) with the larger movement due mainly to the
higher amortization associated with capitalized development
costs.
The tax charge of $0.2m (2019: $0.4m credit) reported in the
income statement comprises two main elements. Although Sopheon
benefits from accumulated tax losses in several jurisdictions
including at the US federal level, this is not universal, and
accordingly a current tax charges of approximately $0.1m each was
incurred in Germany and for state taxes in the US. In addition, a
$2.6m deferred tax asset is recognized at both 31 December 2019 and
2020, of a total potential asset of $11.1m (2019: $10.6m).
Altogether this leads to a profit after tax of $1.5m (2019:
$2.0m). This has also resulted in profit per ordinary share on a
fully diluted basis of 14 cents (2019: 19 cents).
Although the impact of COVID-19 on Sopheon has been limited
compared with many other organizations, we are closely monitoring
its effect on the business as the pandemic continues to affect the
global economy. This includes modelling the effects of various
revenue scenarios with associated cash flow forecasts for a period
in excess of 12 months. Assessment of the impact of COVID risks on
the Group going concern assumption are set forth in the Notes.
Dividend
The board is pleased to maintain Sopheon's dividend at 3.25
pence per share for the year ended 31 December 2020 (2019: 3.25p).
We believe this level balances the Group's tighter bottom line last
year, and the challenging global economic environment, with the
positive commercial traction, cash generation and balance sheet
strength that Sopheon nevertheless delivered. Subject to approval
by the company's shareholders at the annual general meeting
scheduled for 10 June 2021, the dividend will be paid on 9 July
2021 with a record date of 11 June 2021 and a corresponding
ex-dividend date of 10 June 2021.
Facilities and Assets
As noted last year, the board allowed the Group's revolving line
of credit facility with Silicon Valley Bank to lapse in February
2020, in view of substantial net cash balances on hand. As detailed
below cash levels rose further during 2020 in spite of the tough
environment. Our relationship with Silicon Valley Bank remains
strong with potential established for funding arrangements in
connection with M&A or other corporate activity.
Intangible assets stood at $7.9m (2019: $6.9m) at the end of the
year. This includes (i) $6.9m being the net book value of
capitalized research and development (2019: $5.9m) and (ii) an
additional $1.0m (2019: $1.0m) being goodwill arising on
acquisitions completed in previous years. As stated above in our
discussion of research and development costs, capitalization and
amortization have been broadly in balance for a number of years;
however, capitalization has accelerated, and amortization has yet
to catch up, as development resources have expanded over the last
couple of years. Our spend on tangible fixed assets was held to
$0.4m last year (2019: $0.3m) and this broadly equaled
depreciation, resulting in net book value staying flat at $0.5m at
the end of the year (2019: $0.5m).
As described in Note 1, the adoption of IFRS 16 in 2019 required
lessees to recognize a lease liability that reflects future lease
payments and a "right-of-use asset" in all lease contracts within
scope, with no distinction between financing and operating leases.
This has resulted in net book value of right-of-use assets of $1m
(2019: $1.6m) and corresponding lease liabilities of $1.1m (2019:
$1.6m) at 31 December 2020. Notional amortization and interest
charges in connection with the above recognized in the income
statement were approximately $0.7m (2019: $0.8m).
Consolidated net assets at the end of the year stood at $30.2m
(2019: $27.9m), an increase of $2.3m and including net current
assets of $18.7m (2019: $17.2m). Within the net current asset
position, net cash at 31 December 2020 amounted to $21.7m (2019:
$19.4m). Approximately $9.1m was held in US Dollars, $10.2m in
Euros and $2.4m in Sterling. The Group has no debt (excluding
notional debt from the adoption of IFRS 16).
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2020
2020 2019
$'000 $'000
Revenue 29,996 30,254
Cost of sales (9,057) (9,043)
------------------ -----------------
Gross profit 20,939 21,211
Sales and marketing expense (9,092) (8,806)
Research and development expense (5,894) (5,682)
Administrative expense (4,178) (4,305)
Operating profit 1,775 2,418
Finance income 25 166
Finance expense (93) (127)
------------------ -----------------
Profit before tax 1,707 2,457
Income tax expense (211) (409)
Profit for the year 1,496 2,048
================== =================
Earnings per share - basic 14.68c 20.16c
Earnings per share - diluted 14.06c 19.20c
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
2020 2019
$'000 $'000
Profit for the year 1,496 2,048
Other comprehensive income / (expense)
Exchange differences on translation of foreign
operations 693 (41)
---------------- ------------------
Total comprehensive income for the year 2,189 2,007
================ ==================
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2020
2020 2019
$'000 $'000
Assets
Non-current assets
Property, plant and equipment 528 510
Right-of-use assets 1,027 1,553
Intangible assets 7,863 6,874
Deferred tax asset 2,557 2,557
Other receivables 19 123
----------------- ----------------
11,994 11,617
----------------- ----------------
Current assets
Trade and other receivables 14,566 13,000
Cash and cash equivalents 21,718 19,433
----------------- ----------------
36,284 32,433
----------------- ----------------
Total assets 48,278 44,050
Liabilities
Current liabilities
Trade and other payables 5,077 4,238
Lease liabilities 515 643
Contract liabilities 11,985 10,337
17,577 15,218
----------------- ----------------
Non-current liabilities
Lease liabilities 546 936
Total liabilities 18,123 16,154
----------------- ----------------
Net assets 30,155 27,896
================= ================
Equity
Share capital 3,133 3,126
Capital reserves 9,398 8,942
Profit and loss account and translation
reserve 17,624 15,828
----------------- ----------------
Total equity 30,155 27,896
================= ================
CONSOLIDATED CONDENSED CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2020
2020 2019
$'000 $'000
Operating activities
Profit for the year 1,496 2,048
Adjustments for non-cash and financing items 4,087 3,985
Movements in working capital 991 1,021
Net cash from operating activities 6,574 7,054
Investing activities
Finance income 25 166
Purchases of property, plant and equipment (367) (345)
Development costs capitalized (3,658) (3,010)
Net cash used in investing activities (4,000) (3,189)
Financing activities
Issue of shares 52 105
Repayment of borrowings - (29)
Movement in lines of credit - (325)
Lease payments (664) (672)
Finance expense (93) (127)
Dividends paid (429) (430)
Net cash used in financing activities (1,134) (1,478)
Effect of foreign exchange rate changes 845 (40)
Net increase in cash and cash equivalents 2,285 2,347
================= ================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Share Capital Translation Retained
Capital Reserves Reserve Profits Total
$'000 $'000 $'000 $'000 $'000
At 1 January 2019 3,118 8,277 50 14,149 25,594
Total comprehensive
income - - (41) 2,048 2,007
income for the
year
Issue of shares 8 97 - - 105
Share-based payments - 568 - 52 620
Dividends paid - - - (430) (430)
At 1 January 2020 3,126 8,942 9 15,819 27,896
Total comprehensive
income - - 693 1,496 2,189
income for the
year
Issue of shares 7 45 - - 52
Share-based payments - 411 - 36 447
Dividends paid - - - (429) (429)
At 31 December
2020 3,133 9,398 702 16,922 30,155
============== ============== ============== ============== =============
NOTES
1. Basis of Preparation
The financial information set out in this document does not
constitute the Company's statutory accounts for the years ended 31
December 2019 or 2020. Statutory accounts for the years ended 31
December 2019 and 31 December 2020, which were approved by the
directors on 23 March 2021, have been reported on by the
Independent Auditors. The Independent Auditors' Reports on the
Annual Report and Financial Statements for each of 2019 and 2020
were unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006.
The Annual Repor (including the statutory financial statements)
for the year ended 31 December 2019 have been filed with the
Registrar of Companies. The Annual Report (including the statutory
financial statements for the year ended 31 December 2020 will be
delivered to the Registrar in due course, and are available from
the Company's registered office at Dorna House One, Guildford Road,
West End, Surrey GU24 9PW and are available today from the
Company's website at www.sopheon.com/financial-reports/.
The financial information set out in these results has been
prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations in conformity with the
requirements of the Companies Act 2006. The accounting policies
adopted in these results have been consistently applied to all the
years presented and are consistent with the policies used in the
preparation of the financial statements for the year ended 31
December 2019, except for those that relate to new standards and
interpretations effective for the first time for periods beginning
on (or after) 1 January 2020. There are deemed to be no new
standards, amendments and interpretations to existing standards,
which have been adopted by the Group that have had a material
impact on the financial statements.
Approximately two-thirds of the Group's revenue and operating
costs are denominated in US Dollars and accordingly the Group's
financial statements have been presented in US Dollars.
2. Going Concern
The consolidated financial statements have been prepared on a
going concern basis. The directors have at the time of approving
the financial statements, a reasonable expectation that the company
has adequate resources to continue in operational existence for the
foreseeable future. The COVID-19 pandemic has so far had limited
impact on our business and the board believes that the business is
able to navigate through the continued impact of the pandemic due
to the strength of its customer proposition and business
partnerships, statement of financial position and the net cash
position of the Group.
The current economic conditions continue to create uncertainty,
particularly over (a) the level of customer and potential customer
engagement; and (b) the level of new sales to new customers. The
pandemic has had a widespread impact economically, with potential
for causing delays in contract negotiations and/or cancelling of
anticipated sales and an uncertainty over cash collection from
certain customers. As a consequence, the Group has carried out
detailed forecast stress testing in order to consider how much
forecasts have to reduce by in order to cause cash constraints, and
also to consider the likelihood of this scenario occurring. This
assessment has also included the Group's actual cash holdings as of
the date of the approval of these financial statements and
financing alternatives available to the Group. Overall, these
cash-flow forecasts, which cover a period of at least 12 months
from the date of approval of the financial statements, foresee that
the Group will be able to operate within its existing facilities.
Nevertheless, there is a risk that
the Group will be impacted more than expected by reductions in
customer confidence. If sales and settlement of existing debts are
not in line with cash flow forecasts, the directors have the
ability to identify cost savings if necessary, to help mitigate the
impact on cash outflows.
Having assessed the principal risks and the other matters
discussed in connection with the going concern statement, the
directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. For these reasons, they continue to adopt the going concern
basis of accounting in preparing the financial information.
NOTES
3. Segmental Analysis
All of the Group's revenue in respect of the years ended 31
December 2020 and 2019 derived from the design, development and
marketing of software products with associated implementation and
consultancy services, as more particularly described in the
Chairman's statement. The business is seen as one cash generating
unit and operates as a single operating segment. For management
purposes, the Group is organized geographically across two
principal territories, North America and Europe. Information
relating to this geographical split is outlined below.
The information in the following table relates to external
revenues location of operations. Inter-segment revenues are priced
on an arm's length basis.
Year ended 31 December 2020 North
America Europe Total
$'000 $'000 $'000
Income Statement
External revenues - by location of operations 18,938 11,058
29,996
Operating profit before interest and tax 2,259 (484) 1,775
Profit before tax 2,238 (531) 1,707
Finance income 45 (20) 25
Finance expense (66) (27) (93)
Depreciation and amortization (3,306) (399) (3,705)
Adjusted EBITDA 5,933 (6) 5,927
-------
------- -------
Balance Sheet
Fixed asset additions 277 90 367
Capitalization of internally generated development costs 3,658 -
3,658
Total assets 29,408 18,870 48,278
Total liabilities (11,672) (6,451) (18,123)
-------
------- -------
Year ended 31 December 2019 North
America Europe Total
$'000 $'000 $'000
Income Statement
External revenues - by location of operations 20,690 9,564
30,254
Operating profit before interest and tax 3,887 (1,469) 2,418
Profit before tax 3,962 (1,505) 2,457
Finance income 166 - 166
Finance expense (91) (36) (127)
Depreciation and amortization (2,991) (413) (3,404)
Adjusted EBITDA 6,879 (437) 6,442
-------
------- -------
Balance Sheet
Fixed asset additions 243 102 345
Capitalization of internally generated development costs 3,010 -
3,010
Total assets 29,052 14,998 44,050
Total liabilities (11,123) (5,031) (16,154)
-------
------- -------
NOTES
3. Segmental Analysis (continued)
Revenues attributable to customers in North America in 2020
amounted to $18,332,000 (2019: $20,003,000). Revenue attributable
to customers in the rest of the world amounted to $11,664,000
(2019: $10,245,000) of which $9,500,000 (2019: $8,762,000) was
attributable to customers in Europe.
4. Revenue from contracts with customers
All of the Group's revenue in respect of the years ended 31
December 2020 and 2019 derived from continuing operations and from
the design, development and marketing of software products with
associated implementation and consultancy services. The following
table provides further disaggregation of revenue in accordance with
the IFRS 15 requirement to depict how the nature, amount, timing
and uncertainty of revenue and cash flows are affected by economic
factors.
2020 2019
$'000 $'000
Perpetual software licenses 3,021 5,401
Consulting and implementation services 9,680 9,355
Maintenance, software subscriptions & hosting 17,295
15,498
------- -------
29,996 30,254
------- -------
Perpetual licenses are recognized at a point in time. Consulting
and implementation services, and maintenance, subscription and
hosting services, are recognized over time.
5. Adjusted EBITDA
Adjusted EBITDA, which is a company specific measure, is defined
as earnings before interest, tax, depreciation, amortization and
employee share-based payment charges is an important measure, since
it is widely used by the investment community. It is calculated by
adding back net interest payable of $68,000 (2019: deducting net
interest receivable of $39,000) and adding back depreciation and
amortization charges amounting to $3,705,000 (2019: $3,404,000) and
employee share-based payment charges of $447,000 (2019: $620,000)
to the profit before tax of $1,707,000 (2019: $2,457,000).
6. Share-Based Payments
In accordance with IFRS 2 Share based Payments, an option
pricing model has been used to work out the fair value of share
options granted by the Group, with this being charged to the income
statement over the expected vesting period and leading to a charge
of $447,000 (2019: $620,000). Where an option vests in multiple
instalments, each instalment is treated as a separate grant with
its own vesting period. The entire expense is recognized within
administrative expenses.
NOTES
7. Income Tax
The current tax expense represents German corporation tax
payable by Sopheon GmbH and US state taxes payable by the Group's
US subsidiaries. US corporate Alternative Minimum Tax (AMT) was
repealed in respect of tax years beginning on or after 1 January
2018. AMT paid by the Group's US subsidiaries in respect of periods
prior to that date has been fully refunded.
At 31 December 2020, tax losses estimated at $54m (2019: $52m)
were available to carry forward by the Sopheon Group, arising from
historical losses incurred. These losses have given rise to a
deferred tax asset of $2.6m (2019: $2.6m) and a further potential
deferred tax asset of $8.5m (2019: $8.0m), based on the tax rates
currently applicable in the relevant tax jurisdictions. An
aggregate $8.8m (2019: $8.8m) of these losses are subject to
restriction under section 382 of the US Internal Revenue Code due
to historical changes of ownership.
8. Earnings per Share
The calculation of basic earnings per ordinary share is based on
a profit of $1,496,000 (2019: $2,048,000), and on 10,193,000 (2019:
10,156,000) ordinary shares, being the weighted average number of
ordinary shares in issue during the year. For the purpose of
calculating diluted earnings per ordinary share, adjustments are
made to the number of ordinary shares to reflect the impact of
employee share options to the extent that exercise prices are below
the average market price for Sopheon shares during the year. These
adjustments had the effect of increasing the number of ordinary
shares to 10,637,000 (2019: 10,667,000).
9. Intangible Assets
In accordance with IAS 38 Intangible Assets, certain development
expenditure must be capitalized and amortized based on detailed
technical criteria, rather than automatically charging such costs
in the income statement as they arise. This has led to the
capitalization of $3,658,000 (2019: $3,010,000), and amortization
of $2,669,000 (2019: $2,342,000) during the year.
10. Cautionary Statement
Sopheon has made forward-looking statements in this press
release, including statements about the market for and benefits of
its products and services; financial results; product development
plans; the potential benefits of business relationships with third
parties and business strategies. These statements about future
events are subject to risks and uncertainties that could cause
Sopheon's actual results to differ materially from those that might
be inferred from the forward-looking statements. Sopheon can make
no assurance that any forward-looking statements will prove
correct.
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END
FR FFFFIVAIVFIL
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