CIMdata PLM Industry Summary Online Archive

28 August 2008

Financial News

Sopheon Results For The 6 Months To 30 June 2008 Business Review And Outlook

Sopheon plc (“Sopheon”) announced its unaudited interim results for the six months ended 30 June 2008 (the "period") together with a business review and outlook.

HIGHLIGHTS:

•  Revenue: £4.3m (2007: £3.1m)

•  EBITDA: £0.5m (2007: £0.1m)

•  Profit after tax: £0.1m (2007: loss £0.1m)

•  We completed 24 license transactions including extension sales, delivering 40% revenue growth compared to the same period last year. EBITDA for the period rose to £0.5m, and the result after tax improved to a profit of £0.1m. Amortisation accounts for over £0.3m of the difference between EBITDA and profit after tax.

•  Revenue visibility now stands at £7.7m for full year 2008 performance compared to visibility of £5.1m for 2007 at this time last year. Sopheon’s total revenues for 2007 were £6.3m.

•  We signed our 150th licensee customer, reflecting business momentum that prompted AMR Research to recently conclude that Sopheon has the greatest traction among all best-of-breed product portfolio management solutions in the marketplace.

•  We introduced the most significant new release of Accolade in six years, offering functionality that positions the solution for the heavy manufacturing markets. The combination of Accolade and Vision Strategist is the first in the industry to integrate and automate strategic product planning and product development execution.

Sopheon’s Chairman, Barry Mence said: “We are pleased by our period-over-period financial performance. It is testimony to the appeal of our solutions and the strength of our strategic position. We believe it is also a sign that the market opportunity upon which we are focused is continuing to mature, and we are excited by the implications for our company and its shareholders.”

Chairman’s Statement (excerpts)

Trading Performance

Consolidated revenues for the period rose to £4.3m compared to £3.1m in the first half of 2007. This represents period-to-period revenue growth of 40%, reflecting 51% revenue growth in our US business, and 26% in our European business. The improvement was underpinned by a rise in the proportion of license revenues to 47% (2007: 36%). The overall revenue mix between license, maintenance and services was 47:27:26 compared to 36:29:35 for the same period last year. The Alignent business acquired in June 2007 accounted for £0.5m or a 12% share of total revenues recorded in the first half of 2008.

Sales performance included 17 new licensed customers and seven license extension orders from existing customers, in addition to a number of consultancy and services contracts. Renewals of license rental, maintenance and hosting contracts also held up well in the period, and at June 30 our annualised base of such recurring business has climbed to £3m from £2.6m coming into the year. This indicates strong underlying growth in our business, but as always we emphasise that individual sales cycle times and transaction values in our business do fluctuate, and this may continue to influence performance.

Gross profit, which is arrived at after charging direct costs such as payroll for client services staff, improved to £3.2m from £2.2m the year before, representing a rise in gross margin percentage to 75% from 72%. We expect the gross margin percentage to continue to fluctuate in a fairly narrow range from period to period, in line with variation in our revenue mix. Within the services business, margins may also be affected going forward by the involvement of partners. The effect will depend on whether an individual project is subcontracted by Sopheon or if the partner contracts directly with the customer. We are actively encouraging partner involvement – often through subcontracting as an initial phase – as part of our strategy to grow the awareness of, and increase the deployment capability for, our solutions.

Operating Costs And Results

As explained in more detail in our annual report for 2007, we increased staffing levels last year from 65 to 92 including 10 employees connected with the acquisition of Alignent in June 2007. We exercised a degree of caution in recruitment during the first half of 2008, and accordingly headcount levels were held to 96 through June this year. Nevertheless, the majority of our new staff joined after the first half of 2007 and this accentuates the apparent increase in such costs reported for the first half of 2008. Excluding £170,000 of amortisation of intangible assets acquired in the Alignent transaction, operational overheads have increased by £641,000 compared to the first half of 2007. Just under half of this increase is due to higher investment in sales and marketing, and a further third linked to higher R&D expenditures. The remaining increases in administrative expenditure are primarily connected to higher facility and depreciation costs, arising from both the higher headcount and the addition of the Alignent business.

The overall operating result for the business is a profit of £132,000, compared to a loss of £78,000 for the same period in 2007. After net finance costs, which include interest on debt taken on to finance the Alignent acquisition, the final profit reported for the period is £54,000 (2007: loss of £73,000). This result includes interest, depreciation and amortisation costs amounting to £480,000 compared to £155,000 for the same period last year. The majority of this increase is connected with the Alignent acquisition. The EBITDA result for the first half of 2008, which does not include these elements, was accordingly £533,000 (2007: £82,000).

Corporate And Balance Sheet

Net assets at the end of the period stood at £3.5m (2007: £3.6m) and include £3.7m (2007: £3.6m) of intangible assets. This includes £1.5m being the net book value of capitalised research and development (2007: £1m) and an additional £2.2m (2007: £2.5m) being the net book value of Alignent intangible assets and goodwill.

As part of the funding raised for the Alignent acquisition, Sopheon secured $3.5m of medium-term debt from BlueCrest Capital Finance LLC (“BlueCrest”). The debt is being repaid in 48 equal monthly installments, and is secured by a debenture and guarantee from Sopheon plc. BlueCrest also offered the enlarged group an additional $750,000 revolving credit facility secured on accounts receivable. At 30 June 2008, the balances outstanding on the medium-term debt and revolving credit facility were $2.8m and $750,000 respectively.

Gross cash resources at 30 June 2008 amounted to £2.1m (2007: £2.4m).

Market And Product

It is expected that the product portfolio management ("PPM") submarket in which Sopheon’s Accolade software system is classified will remain one of the fastest-growing segments of PLM.

Sopheon’s Accolade continues to lead the PPM market both in terms of functional richness and market penetration.

In March we launched Accolade Version 7.0, the most significant new release of our flagship software since it entered the market six years ago. A number of existing customers have now upgraded to the new offering and their reactions to its capabilities have been enthusiastic. Many of its principal features spring from the experience of working with customers such as General Motors and Electrolux. These enhancements position Accolade to move beyond the process manufacturing markets that we have targeted in the past and into the large aerospace, defense and automobile sectors. We have been pleased with the initial market response to our earlier announced integration of Accolade with Vision Strategist, the product that came to us through last year’s acquisition of Alignent Software. This is the first time in the history of PLM that automated support for strategic product planning and product development execution has been combined in a single solution.

Our product advances are being augmented by investments in a go-to-market strategy aimed at creating business opportunities in the automotive sector. This effort will be led by a recently hired business development professional who has extensive experience in automotive markets. His sales efforts will include both Vision Strategist and Accolade.

Sopheon entered 2008 with 135 licensee customers. In June, we achieved a growth milestone, announcing that we had signed the 150th licensee of our software products. Recently acquired accounts, representing both Accolade users and adopters of our Vision Strategist solution, include Bell Helicopter, Burger King, Novartis and the U.S. Army.

Outlook

The achievement of 40% period-to-period growth is satisfying, as is the fact that our EBITDA result has climbed to £0.5m and our bottom line is now in positive territory. Our balance sheet is in good shape and looking forward, the sales funnel remains robust. Since the end of the first half we have continued to add both new and extension sales, and this additional business has increased visibility for 2008 to £7.7m compared to £5.1m for 2007 a year ago. Sopheon’s total revenues for 2007 were £6.3m.

Sopheon’s strategic position continues to strengthen, with a customer base that now includes more than150 licensees the majority of which are global brands, and market recognition that is underpinned by growing analyst attention. We are now considered not just as a best-of-breed offering, but as the most mature. We believe it is critical that we capitalise on our leadership position and maintain the momentum of our first half performance. On this basis, we are now hiring selected additional staff.

We remain focused on improvement in profitability alongside building revenue and delivering strategic progress, and will continue this balanced approach as we plan for 2009. We look forward to a continued growth and achievement in 2008 and beyond.

Barry Mence

Chairman

28 August 2008

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