REG - Sopheon PLC - Interim Results
24/08/2023 07:00
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RNS Number : 2724K Sopheon PLC 24 August 2023
SOPHEON PLC
("Sopheon", the "Company" or the "Group")
INTERIM RESULTS FOR THE 6 MONTHS TO 30 JUNE 2023
Sopheon, the InnovationOps software company, announces its unaudited
half-yearly financial report for the six months ended 30 June 2023 ("H1" or
"the Period") together with a business review and outlook statement for the
second half of the year.
Highlights:
· Revenue was $17.0m compared to $15.7m in H1 2022, reflecting a
strong recurring revenue performance.
· Five new enterprise customers were signed in the period for our
flagship Accolade® software. Sales team activity also included orders for
Acclaim™ Projects and Acclaim Ideas, acquired with ROI Blueprints and
Solverboard respectively. Our online sales channel for Acclaim Ideas and
Acclaim Products, introduced in September 2022, has shown continued growth
with signup activity rising from a cold start to benchmark run rates. We will
continue to refine product and marketing methodologies to achieve conversion.
· SaaS ARR(1) of $15.2m at 30 June (H1 2022: $9.3m) representing
an impressive 63% year over year growth. All new customers signed in the
period were SaaS based.
· Total ARR including maintenance was $25.9m at 30 June (H1 2022:
$21.9m) representing 18% year-on-year growth. Gross ARR retention for the
Period was almost 99% (H1 2022: 98%).
· Full year 2023 revenue visibility(2) stands at $32.4m compared
to $34.1m at this time last year. Last year's comparative included over $4m
from a substantial perpetual license order from the US Navy, received in July
2022. The current sales pipeline for the balance of 2023 includes
opportunities for two significant perpetual extension orders from existing
military customers, as well as many SaaS opportunities from private sector
prospects and existing customers.
· Adjusted EBITDA(3) of $2.9m (H1 2022: $2.9m) reflects continued
investment in product and commercial initiatives as per operating plans. Net
cash at 30 June was $22.4m (H1 2022: $23.5m) and the Group remains debt free.
· In February 2023, Barney Kent, former Chief Operating Officer
of Ideagen plc was appointed to the board as a Non-Executive Director,
underlining the Company's commitment to continued board independence, organic
growth and M&A activities.
· Several product releases were made during the Period, with AI
capabilities now introduced to two of our offerings. As noted above, sales
were booked for Acclaim Projects and Acclaim Ideas alongside Accolade,
underpinning Sopheon's strategy to be the leading software vendor focused on
operationalizing the business of innovation, commonly referred to as
"InnovationOps."
· Post Period end, in July 2023, we acquired Prodex, Sopheon's
reseller for Australia, New Zealand and South-East Asia, for initial
consideration of $0.7m. Sopheon's third acquisition since 2021 brings us a
truly global footprint, with a strong platform to advance customer acquisition
and growth in the Asia Pacific region.
Sopheon's Executive Chairman, Andy Michuda said: "Sopheon continues to deliver
on its key growth and transformation objectives, demonstrated in particular by
significant and sustained increases in SaaS ARR, supported by continued high
retention performance. In parallel we have delivered substantial investment in
growth initiatives and M&A that expand our product offering, geographical
footprint and market opportunity, while maintaining cashflow discipline and
EBITDA performance. Our strong balance sheet continues to support our ability
to execute with confidence. We expect the impact of increased investments in
both marketing and product to contribute to a stronger sales pipeline in the
second half of the year and beyond, in support of our growth objectives."
For further information contact:
Andy Michuda, Executive Chairman Sopheon plc + 44 (0) 1276 919 560
Arif Karimjee, CFO
Carl Holmes / Abigail Kelly / George Dollemore (corporate finance) finnCap Ltd + 44 (0) 20 7220 0500
Sunila de Silva (ECM)
About Sopheon. Sopheon (LSE: SPE) empowers organizations to change the world
while achieving exceptional long-term revenue growth and profitability. By
operationalizing the entire innovation life cycle, Accolade® and Acclaim™
software and expertise enable innovation, product and project professionals to
accomplish the full range of InnovationOps tasks to drive innovation at scale.
Sopheon's industry leadership was highlighted in the comprehensive
MarketsandMarkets™ report on the Innovation Management market, in which
Sopheon was listed in the "Stars" category, the highest recognition. Sopheon's
solutions have been implemented by hundreds of blue-chip customers with over
137,000 users in 50 countries. Sopheon is listed on the AIM Market of the
London Stock Exchange. For more information, please visit www.sopheon.com
(http://www.sopheon.com)
(1) ARR is the annualized value of all recurring revenue at a point in time
reflecting pending renewals, contracted starts (including those conditional on
future acceptance decisions) but excludes confirmed future terminations.
( )
(2) Revenue visibility is defined in Note 5
( )
(3) Adjusted EBITDA is defined in Note 3
Sopheon(®), Accolade(®) and Acclaim™ are trademarks of Sopheon plc. All
other trademarks are the property of their respective owners.
The information communicated in this announcement contains inside information
for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014
as it forms part of United Kingdom domestic law by virtue of the European
Union (Withdrawal) Act 2018 (as amended) ("UK MAR").
CHAIRMAN'S STATEMENT
Trading Performance
Revenue in the first half of 2023 was $17.0m compared to $15.7m in the first
half of 2022. Recurring revenue has grown by 21%, offset by reductions in
perpetual and consulting business as shown in the table below, extracted from
Note 3 - reflecting strong delivery on our strategic objective of prioritizing
SaaS sales and associated ARR, underlining a rising quality of revenue in the
business.
Six months to 30 June 2023 2022
$'000 $'000
Perpetual licenses 368 529
Consulting and implementation services 3,625 4,403
SaaS, maintenance and hosting 13,017 10,746
17,010 15,678
Pure SaaS ARR, the strategic subsection, of ARR relating to SaaS and hosting
business, rose from $9.3m to $15.2m - an increase of 63%, underlining the
ongoing shift in our customer base and a clear step forward in delivering our
strategic ambitions. This achievement includes an estimated $0.5m ARR from
sales of Acclaim Projects and Acclaim Ideas. These sales were made by our
sales team using our broadened InnovationOps messaging, to both new and
existing Accolade customers. The rise in total recurring revenue is
reflected in ARR growing to $25.9m at 30 June 2023, from $21.9m a year ago, an
increase of 18%.
Retention levels remain very strong with our ARR gross retention rate at
almost 99% year to date, compared to 98% at this time last year. Customer
retention is supported by continued strong net promoter score (NPS) of 34 on a
12-month rolling basis, generally considered "great". During the six-month
period we also added five new customers for our flagship Accolade software
(2022: six). Though the number was lower, average deal size per initial
net-new sale was $0.8m, and almost double our long-term benchmark of
approximately $0.4m and the average deal size recorded for H1 2022. For the
third year running, all our new customers in H1 signed SaaS contracts,
underpinning our move to the recurring revenue model.
To date we have converted a total of 27 existing perpetual customers to the
SaaS model, typically alongside expansion orders for a greater user
population. Approximately half of our active customer base is now under a SaaS
contract; this also means that there are fewer perpetual extension orders
coming through and this is reflected in the H1 performance. However, as we saw
in the second half of 2022 with the very large order from the US Navy, we
continue to see a small number of significant perpetual license orders from
certain customers and markets. We expect this to continue to be a material,
while declining, feature of our business for a number of years, for example we
are currently in discussions regarding two material perpetual extension orders
from existing military customers, anticipated to close in the second half of
this year.
Consulting remains an important element of our revenue goals and we expect
this to be a permanent feature of our business, though again one that we
expect will decline over time as a percentage of total revenues. The reduction
in the first half of the year compared to H1 2022 was more than planned, but
amongst other factors reflects the continual improvement in the self-service
capabilities offered by our software products.
Margin, Operations and Results
Gross margin for the period held at 73% (H1 2022: 71%). Direct costs include
costs for license and support for certain OEM components of our solution,
costs of our hosting operations, and movements in indirect taxes; but the main
component is the cost of our delivery and support teams, and associated
subcontractors.
Employment costs have continued to rise in support of staff retention and
recruitment alongside the significant cost of living increases in all major
economies. We have continued to see staff turnover, though many positions have
been backfilled rapidly. Average headcount for the first half of the year was
174 (H1 2022: 171). In parallel, we have moderated subcontracting in product
development. Lower reported R&D costs also reflect a partial provision
booked in H1 2022 to write down cloud assets prior to them being superseded by
the acquisitions, as further described in Note 6. Underlying capitalization
and amortization remain broadly comparable. Sales and marketing costs have
increased by approximately $0.5m reflecting higher marketing investment as
well as travel costs returning as the pandemic effects have receded.
Unlike in the prior year, currency movements did not have a significant impact
on our USD reported revenue performance, however a stronger sterling during
the period meant that our substantial EUR cash balances held in Sopheon plc
did record an unrealized book loss of $0.2m, compared to a book profit of
$0.4m in H1 2022. This fed through into higher reported administration costs.
Financial income has started to respond to higher interest rates, showing
$0.2m income compared to a net cost last year.
Profit before tax reported for the half-year period was $0.2m (H1 2022: loss
of $0.8m). This result includes net interest, depreciation and amortization,
and share-based payment costs totaling $2.7m (H1 2022: $3.7m). The Adjusted
EBITDA result for the first half of 2023, which does not include these
elements, was broadly flat at $2.9m (H1 2022: $2.9m). Provision has been made
for approximately $0.5m in tax, primarily for German corporation tax where we
do not benefit from historic losses and USA state taxes driven by the impact
of new US tax legislation (H1 2022: $0.3m), giving a much-reduced final loss
after tax of $0.2m compared to a loss of $1.1m the year before.
Balance Sheet
Net assets at 30 June 2023 stood at $29.8m (30 June 2022: $29.3m / 31 December
2022: $29.6m), with cash at the end of the period standing at $22.4m (30 June
2022: $23.5m / 31 December 2022: $21.1m). The Group has no borrowings.
Intangible assets at 30 June 2023 stood at $13.2m (30 June 2022: $13.2m / 31
December 2022: $13.1m). The total includes (i) $9.3m being the net book
value of capitalized research and development (30 June 2022: $8.6m) and (ii)
$3.9m (30 June 2022: $4.6m) being the net book value of acquired intangible
assets and goodwill.
Post Balance Sheet Events
The acquisition of Prodex, completed in July 2023, was structured as transfer
of business and assets into a new company immediately acquired by Sopheon. The
consideration comprises AUD $1m of which two thirds is payable immediately in
cash, and the remainder over three years as contingent deferred consideration
tied to baseline performance metrics. Further information is included in Note
10. Sopheon's third acquisition since 2021 brings us a truly global
footprint, with a strong platform to advance customer acquisition and growth
in the Asia Pacific region.
Strategic Progress
Sopheon's differentiated family of software and services enables companies to
deploy InnovationOps across the organization, with a synchronized system to
deliver innovation at scale.
Globally, corporate innovation and new product development efforts are
characterized by organizational misalignment, disconnected efforts, poor
strategic execution and lack of governance - with most businesses stymied by
reliance on ad-hoc processes and tools. Innovation spend globally is estimated
at $2.4 trillion(4) yet, according to McKinsey, only 6% of CEO's are satisfied
with their innovation performance(5). Further, according to a 2023 study by
InnoLead(6), only 57% of companies report having a consistent, systematic
approach to innovation. To deal with these challenges, successful companies
operationalize their innovation processes, just as they have operationalized
many other areas, notably their software development environments through
DevOps - now a massive market in its own right.
Traditionally, the Sopheon flagship Accolade software product focused on
managing governance, portfolios and strategic execution, and has supported
large clients in several key verticals to bring order, visibility and
predictability to their innovation efforts. Over the past year and a half, we
have expanded our ability to support other verticals and medium sized
customers. We have added three new products under the Acclaim banner - two
through acquisition - to address customer needs for tools to address ideas and
discovery, projects and resources, and product management; alongside continued
new releases for Accolade, including two just in the first half of 2023.
Recent developments also include the introduction of AI capabilities for two
of the products. Each of our offerings - which can all be purchased
individually or in integration with the others - is focused on specific
innovation tasks that, when brought together with the people and processes
across the organization, make InnovationOps a reality.
In parallel with these product advancements, we have established an online
sales channel currently focused on Acclaim Ideas and Acclaim Products, to
complement and accelerate our traditional sales led model. This new channel
continues to show strong sign-up activity, rising from a cold start to
benchmark run rates as we refine our marketing and activation models, to
maximize both lead generation and end-user adoption. Revenue to date is not
yet material; our immediate focus is to build a self-sustaining channel that
reflects modern buying behaviors, and brings a new high velocity source of
lead generation and market presence, alongside future revenue potential.
Finally, we have also expanded distribution and growth potential through the
acquisition of a mature business in the Asia-Pacific region, arguably the
world's most dynamic - with software spending forecast by Forrester(7) to see
compound annual growth rate over 10% by 2027. M&A remains a key strategic
focus for the business and a route to increase the depth and breadth of our
product offering, to expand distribution and net new customer acquisition, or
increase ARR.
Outlook
Sopheon continues to deliver on its key growth and transformation objectives,
demonstrated in particular by significant and sustained increases in SaaS ARR,
supported by continued high retention performance. In parallel we have
delivered substantial investment in growth initiatives and M&A that expand
our product offering, geographical footprint and market opportunity, while
maintaining cashflow discipline and EBITDA performance. Our strong balance
sheet continues to support our ability to execute with confidence. We expect
the impact of increased investments in both marketing and product to
contribute to a stronger sales pipeline in the second half of the year and
beyond, in support of our growth objectives.
Andy Michuda 23 August 2023
Executive Chairman
( )
(4) Statista: Total global R&D spending 1996-2022, September 2022
(5)
McKinsey.com/capabilities/strategy-and-corporate-finance/how-we-help-clients/growth-and-innovation
(6) InnoLead: Building a productive innovation portfolio, August 2023
(7) Forrester: Asia Pacific Tech Market Forecast, June 2023
( )
(
)
( )
CONSOLIDATED INCOME STATEMENT FOR THE
SIX MONTHS ENDED 30 JUNE 2023 AND 30 JUNE 2022
30 June 30 June
2023 2022
$'000 $'000
Note (unaudited) (unaudited)
Revenue 17,010 15,678
3
Cost of sales (4,649) (4,571)
Gross profit 12,361 11,107
Sales and marketing expense (5,550) (5,082)
Research and development expense (3,695) (4,461)
Administrative expense (3,058) (2,307)
Operating Profit/(Loss) 58 (743)
Finance income (including negative interest income) 233 (13)
Finance expense (44) (35)
Profit/(Loss) for the period before tax 3 247 (791)
Income tax charge 7 (473) (259)
Loss for the period (226) (1,050)
Loss per share - basic in cents (2.13c) (9.94c)
4
Loss per share - fully diluted in cents (2.13c) (9.94c)
4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE
SIX MONTHS ENDED 30 JUNE 2023 AND 30 JUNE 2022
2023 2022
$'000 $'000
(unaudited) (unaudited)
Loss for the period (226) (1,050)
Amounts that may be recycled in future periods
Exchange differences on translation of foreign operations 484 (1,550)
Total comprehensive income/(loss) for the period 258 (2,600)
attributable to the owners
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2023, 31 DECEMBER 2022 AND 30 JUNE 2022
30 June 31 Dec 30 June
2023 2022 2022
$'000 $'000 $'000
Note (unaudited) (audited) (unaudited)
Assets
Non-current assets
Property, plant and equipment 542 584 617
Right-of-use assets 508 450 633
Intangible assets 13,231 13,073 13,178
6
Deferred tax asset 625 625 2,557
7
Other receivable 19 19 19
14,925 14,751 17,004
Current assets
Contract assets 4,276 4,085 512
Trade and other receivables 7,941 14,788 8,079
Cash and cash equivalents 22,436 21,121 23,517
34,653 39,994 32,108
Total assets 49,578 54,745 49,112
Liabilities
Current liabilities
Contract liabilities 14,264 16,501 13,348
Lease liabilities 236 271 270
Trade and other payables 4,528 7,606 5,854
Dividends payable 443 - -
8
19,471 24,378 19,472
Non-current liabilities
Lease liabilities 283 193 376
Other payables - 549 -
283 742 376
Total liabilities 19,754 25,120 19,848
Net assets 29,824 29,625 29,264
Issued capital and reserves
attributable to the owners of the parent
Share capital 3,253 3,248 3,247
Capital reserves 11,614 11,247 11,326
Translation reserve (1,110) (1,594) (1,582)
Retained earnings 16,067 16,724 16,273
Net assets 29,824 29,625 29,264
CONSOLIDATED CASH FLOW STATEMENT FOR THE
SIX MONTHS ENDED 30 JUNE 2023 AND 30 JUNE 2022
2023 2022
$'000 $'000
(unaudited) (unaudited)
Operating Activities
Loss for the period (226) (1,050)
Finance income (233) 13
Finance expense 44 35
Depreciation of property, plant and equipment 174 213
Depreciation of right-of-use assets 165 302
Amortization and impairment of intangible assets 2,207 2,636
Share based payment expense 303 479
Income tax charge 473 259
Operating cash flows before movement in working capital 2,907 2,887
Decrease in receivables 6,785 4,182
Decrease in payables (5,409) (1,504)
Cash generated from operations 4,283 5,565
Income taxes paid (394) (90)
Net cash from operating activities 3,889 5,475
Investing Activities
Finance income 233 (13)
Purchases of property, plant and equipment (119) (241)
Purchase of Sopheon shares for treasury - (68)
Sale of Sopheon shares held in treasury 58 -
Capitalization of development costs (2,914) (2,934)
Cash element of consideration for acquisition of businesses (205) (684)
Net cash used in investing activities (2,947) (3,940)
Financing Activities
Exercise of share options 23 244
Lease payments (181) (327)
Finance expense (31) (23)
Dividends - (408)
Net cash used in financing activities (189) (514)
Net increase in cash and cash equivalents 753 1,021
Cash and cash equivalents at the beginning of the period 21,121 24,193
Effect of foreign exchange rate changes 562 (1,697)
Cash and cash equivalents at the end of the period 22,436 23,517
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHS ENDED 30 JUNE 2023, 31 DECEMBER 2022 AND 30 JUNE 2022
Share Capital Translation Retained
Capital Reserves Reserve Earnings Total
$'000 $'000 $'000 $'000 $'000
Note
At 1 January 2022 (audited) 3,219 10,500 (32) 17,619 31,306
Loss for the period - - - (1,050) (1,050)
Other comprehensive income(1) - - (1,550) - (1,550)
Total comprehensive income - - (1,550) (1,050) (2,600)
Dividends payable 8 - - - (408) (408)
Issues of shares 28 527 - - 555
Shares purchased for treasury - (68) - - (68)
Share based payments - 479 - - 479
Exercise of share options - (112) - 112 -
At 30 June 2022 (unaudited) 3,247 11,326 (1,582) 16,273 29,264
Profit for the period - - - 173 173
Other comprehensive income(1) - - (12) - (12)
Total comprehensive income - - (12) 173 161
Issues of shares 1 4 - - 5
Shares purchased for treasury - (87) - - (87)
Share based payments - 282 - - 282
Exercise of share options - (278) - 278 -
At 31 December 2022 (audited) 3,248 11,247 (1,594) 16,724 29,625
Loss for the period - - - (226) (226)
Other comprehensive income(1) - - 484 - 484
Total comprehensive income - - 484 (226) 258
Dividends payable 8 - - - (443) (443)
Issues of shares 5 18 - - 23
Sale of treasury shares - 58 - - 58
Share based payments - 303 - - 303
Exercise of share options - (12) - 12 -
At 30 June 2023 (unaudited) 3,253 11,614 (1,110) 16,067 29,824
(1) Other comprehensive income is comprised solely of exchange differences arising on translation of foreign operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sopheon plc is a company domiciled in England. The interim financial
information of the Company for the six months ended 30 June 2023 comprise the
Company and its subsidiaries (together referred to as the "Group").
The Board of Directors approved this interim report on 23 August 2023.
2. PRINCIPAL ACCOUNTING POLICIES
Basis of preparation and accounting policies
These condensed consolidated financial statements have been prepared in
accordance with UK adopted international accounting standards in accordance
with the requirements of the Companies Act 2006. They do not include all
disclosures that would otherwise be required in a complete set of financial
statements and should be read in conjunction with the 31 December 2022 Annual
Report. The financial information for the half years ended 30 June 2023 and 30
June 2022 does not constitute statutory accounts within the meaning of Section
434 (3) of the Companies Act 2006 and both periods are unaudited.
The annual financial statements of Sopheon plc ('the Group') are prepared in
accordance with UK adopted international accounting standards in accordance
with the requirements of the Companies Act 2006. The statutory Annual Report
and Financial Statements for 2022 have been filed with the Registrar of
Companies. The Independent Auditors' Report on the Annual Report and Financial
Statements for the year ended 31 December 2022 was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a statement
under 498(2) - (3) of the Companies Act 2006.
The Group has applied the same accounting policies and methods of computation
in its interim consolidated financial statements as in its 31 December 2022
annual financial statements, except for those that relate to new standards and
interpretations effective for the first time for periods beginning on (or
after) 1 January 2023 and will be adopted in the 2023 financial statements.
There are deemed to be no new and amended standards and/or interpretations
that will apply for the first time in the next annual financial statements
that are expected to have a material impact on the Group.
Going Concern
The consolidated financial statements have been prepared on a going concern
basis. In reaching their assessment, the directors have considered a period
extending at least 12 months from the date of approval of this half-yearly
financial report. There remains significant geopolitical instability with
actions like the war in Ukraine have varied widespread economic impacts on a
number of key markets, with high levels of inflation, potential for causing
delays in contract negotiations and/or cancellation of anticipated sales, as
well as uncertainty over cash collection from certain customers. The Group
proved to be resilient in the face of such pressures; however, the directors
have continued to perform detailed forecast stress testing, assessing how much
forecasts would need to reduce by in order to cause cash constraints, and also
to consider the likelihood of this scenario occurring. The results of this
analysis continue to give the directors comfort that a scenario which would
cause such cash restrictions is remote, and therefore not a realistic outcome
to consider. This assessment has included the Group's actual cash holdings as
of the date of the approval of this report, and the financing alternatives
available. The Group's cashflows are projected to be at a sufficient level to
allow the Group to meet its obligations and liabilities as they fall due.
Thus, the directors of the Company continue to adopt the going concern basis
of accounting in preparing the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided
in the normal course of business, net of discounts and sales-related taxes.
Sales of perpetual software licenses are recognized once no significant
obligations remain owing to the customer in connection with such license
sale. Such significant obligations could include giving a customer a right
to return the software product without any preconditions, or if the Group is
unable to deliver a material element of the software product by the balance
sheet date. Revenues relating to software subscription, maintenance, and
hosting agreements are deferred creating a contract liability at the period
end, and recognized evenly over the term of the agreements, due to the
customer simultaneously receiving and consuming the benefits of the
contractual performance obligation over that term. Revenues from
implementation and consultancy services are recognized as the services are
performed, or in the case of fixed price or milestone-based projects, on a
percentage basis as the work is completed and any relevant milestones are met,
using latest estimates to determine the expected duration and cost of the
project. Based on stage of completion and billing arrangement, either a
contract asset or a contract liability is created at the period end. Where a
sales contract involves multiple service obligations, the allocation of the
transaction price is performed proportionally based on the standalone selling
price for each obligation. The way in which management assigns the selling
price to each separate performance obligation is based on the cost of
satisfying the performance obligation plus an appropriate margin based on
experience of standalone sales.
Deferred Tax
Deferred tax is recognized on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax assets are
recognized only to the extent that the level and timing of taxable profits can
be measured and it is probable that these will be available against which
deductible temporary differences can be utilized. Deferred tax is calculated
at tax rates that have been enacted or substantively enacted at the balance
sheet date, and that are expected to apply in the period when the liability is
settled or the asset realized. Deferred tax is charged or credited to profit
or loss, except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in equity.
Internally Generated Intangible Assets (Research and Development Expenditure)
Development expenditure on internally developed software products is
capitalized if it can be demonstrated that:
• it is technically feasible to develop the product;
• adequate resources are available to complete the development;
• there is an intention to complete and sell the product;
• the Group is able to sell the product;
• sales of the product will generate future economic benefits; and
• expenditure on the product can be measured reliably.
Development costs not satisfying the above criteria and expenditure on the
research phase of internal projects are recognized in the income statement as
incurred. Capitalization of a particular activity commences after proof of
concept, requirements and functional concept stages are complete. Capitalized
development costs are amortized over the period over which the Group expects
to benefit from selling the product developed. This has been estimated to be
four years from the date of code-finalization of the applicable software
release. The amortization expense in respect of internally generated
intangible assets is included in research and development costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. REVENUE, SEGMENTAL ANALYSIS AND EBITDA
All of the Group's revenues in respect of the six-month periods ended 30 June
2023 and 30 June 2022 derived from the design, development and marketing of
software products with associated implementation and consultancy services. The
following table disaggregates 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.
Six months to 30 June 2023 2022
$'000 $'000
Perpetual licenses 368 529
Consulting and implementation services 3,625 4,403
SaaS, maintenance and hosting 13,017 10,746
17,010 15,678
For management purposes, the Group is organized across two principal
geographic operating segments, as used in the Group's last annual financial
statements. The first segment is North America, and the second Europe.
Information relating to these two segments is given below.
Six months to 30 June 2023 N America Europe Total
$'000 $'000 $'000
External revenues 10,393 6,617 17,010
Profit before tax 244 3 247
Adjusted EBITDA 2,768 139 2,907
Total assets 25,214 24,364 49,578
Total liabilities 11,754 8,000 19,754
Six months to 30 June 2022 N America Europe Total
$'000 $'000 $'000
External revenues 10,333 5,345 15,678
Loss before tax (784) (7) (791)
Adjusted EBITDA 2,582 305 2,887
Total assets 25,932 23,180 49,112
Total liabilities 13,024 6,824 19,848
Adjusted EBITDA is arrived at after adding back net finance costs,
depreciation, amortization, impairment and share-based payment expense
amounting to $2,660,000 (2022: $3,678,000) to the loss before tax. Details of
these amounts are set out in the reconciliation of operating cash flows before
movement in working capital, in the consolidated cash flow statement. Adjusted
EBITDA 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.
All information provides analysis by location of operations Loss before tax
and EBITDA are stated after adjusting for an estimate for intra-group
charges.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS /(LOSS) PER SHARE
The calculation of basic earnings/(loss) per ordinary share is based on the
loss of $226,000 (2022: loss of $1,050,000) and on 10,632,802 ordinary
shares (2022: 10,564,081) being the weighted average number of ordinary shares
in issue during the period.
For the purpose of calculating the diluted earnings per ordinary share, any
options to subscribe for Sopheon shares at prices below the average share
price prevailing during the period are treated as exercised at the later of 1
January 2023 or the grant date. The treasury stock method is then used,
assuming that the proceeds from such exercise are reinvested in treasury
shares at the average market price prevailing during the period. The diluted
number of shares used at 30 June 2023 is 10,649,159 (2022: 10,682,876).
However, with respect to both periods to 30 June 2023 and 30 June 2022,
since this would have the effect of reducing the loss per ordinary share, it
is not dilutive and is therefore ignored.
5. REVENUE VISIBILITY
Revenue visibility at any point in time comprises revenue expected during the
current year 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 and license subscription
streams. The visibility calculation does not include revenues from new sales
opportunities expected to close later in the year.
6. INTANGIBLE ASSETS & GOODWILL
Certain development expenditure is required to be capitalized and amortized
based on detailed technical criteria (note 2) rather than automatically
charging such costs in the income statement as they arise. This has led to the
capitalization of $2,914,000 (2022: $2,934,000), and amortization of
$1,926,000 (2022: $1,541,000) during the period. In addition, an adjustment
has been made to the contingent deferred consideration arising from the
acquisition of Solverboard in 2022, reducing both goodwill and the deferred
consideration liability by $549,000. A 50% impairment provision was made in
the period to 30 June 2022 against the capitalized costs associated with the
cloud platform development, amounting to $814,000. Amortization of $281,000
(2022: $281,000) has also been charged in respect of technology and
intellectual property rights acquired pursuant to the acquisition of ROI
Blueprints LLC in 2021.
7. TAXATION
The tax charge reflects certain US state taxes and German corporate taxes.
Amendments to US Code Section 174 now require taxpayers to charge their
research expenditures and software development costs to a capital account.
Capitalized costs are required to be amortized over five years (15 years for
foreign costs) which is a key factor in the higher tax charge for the
period. At 30 June 2023, income tax losses estimated at $46m (2022: $51m)
were available to carry forward by the Group, arising from historic losses
incurred at the US federal level and also in the UK and the Netherlands. These
losses have given rise to a recognized deferred tax asset of $0.6m (2022:
$2.6m) and a further, but currently unrecognized, potential deferred tax asset
of $8.7m (2022: $8.8m), based on the tax rates currently applicable in the
relevant tax jurisdictions. An aggregate $8m (2022: $9m) of these tax losses
are subject to restriction under section 392 of the US Internal Revenue Code,
whereby the ability to utilize net operating losses arising prior to a change
of ownership is limited to a percentage of the entity value of the corporation
at the date of change of ownership. In addition to income taxes, the Group is
also subject to sales and value added tax in the various jurisdictions in
which it operates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. DIVIDEND
The Board proposed a final dividend in respect of the year ended 31 December
2022 of 3.25p per share (2022: 3.25p per share). This was approved by the
shareholders in the annual general meeting held on 8 June 2023, due to
shareholders on the register at the close of business on 9 June 2023 and paid
7 July 2023.
9. PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of
the financial year and could cause actual results to differ materially from
expected and historical results. The directors do not consider that these have
changed since the publication of the annual report for the year ended 31
December 2022, which contains a detailed explanation of the risks relevant to
the Group on page 25, and is available at www.sopheon.com
(http://www.sopheon.com) . Other risks and uncertainties of the Group are
disclosed in the Chairman's Statement and the notes to the interim financial
information included in this half-yearly financial report.
In addition, the Board have continued to monitor and mitigate the effects of
the War in Ukraine. In February 2022, Russia invaded Ukraine leading to a
strong sanction response by many jurisdictions around the world including by
the UK, USA and EU. Sopheon is committed to honoring the sanctions imposed on
Russia, named individuals, and business entities. In addition, Sopheon, like
many companies worldwide, has suspended all business activity with Russian
entities. Although Sopheon does not have any active customers in Ukraine or
Russia, prior to the invasion the Group was involved in a small number of
material sales opportunities within the territory, which were terminated. This
does not have any impact on the Group's ability to continue as a going
concern.
10. Post Balance Sheet Events
The acquisition of Prodex, completed in July 2023, was structured as transfer
of business and assets into a new company immediately acquired by Sopheon. The
consideration comprises AUD $1m of which two thirds is payable immediately in
cash, and the remainder over three years as contingent deferred consideration
tied to baseline performance metrics. An additional contingent earn-out of up
to a maximum of AUD $1.2m is also payable over the next three years, tied to
revenue and EBIT growth objectives. Up to 50% of the deferred and earn-out
consideration may be satisfied in Sopheon shares calculated at £5.63 per
share being the average closing price of the two weeks preceding the signature
of the agreement. The cash consideration component of the acquisition is being
funded out of existing and healthy cash resources. The share consideration
elements will be subject to orderly market provisions.
11. CAUTIONARY STATEMENT
This report contains certain forward-looking statements with respect to the
financial condition, results of operations and businesses of Sopheon plc.
These statements are made by the directors in good faith based on the
information available to them up to the time of their approval of this report.
However, such statements should be treated with caution as they involve risk
and uncertainty because they relate to events and depend upon circumstances
that will occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those expressed or
implied by these forward-looking statements. Nothing in this announcement
should be construed as a profit forecast.
INDEPENDENT REVIEW REPORT TO SOPHEON PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the London Stock Exchange AIM Rules for Companies.
We have been engaged by the Group to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the consolidated income statement, consolidated
statement of comprehensive income, consolidation statement of financial
position, consolidated cash flow statement, consolidated statement of changes
in equity and notes to the consolidated financial statements.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the London Stock Exchange AIM Rules for Companies which
require that the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the Group's annual accounts
having regard to the accounting standards applicable to such annual accounts.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
INDEPENDENT REVIEW REPORT TO SOPHEON PLC
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Group a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Group in meeting the requirements of the rules of the London Stock
Exchange AIM Rules for Companies for no other purpose. No person is entitled
to rely on this report unless such a person is a person entitled to rely upon
this report by virtue of and for the purpose of our terms of engagement or has
been expressly authorised to do so by our prior written consent. Save as
above, we do not accept responsibility for this report to any other person or
for any other purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
Gatwick, UK
23 August 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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