Kansas City-based healthcare application vendor Cerner is starting the year in higher spirits on the back of a solid finish to 2017. Its latest annual results reported that full-year 2017 revenues grew by a respectable 7% yoy to top $5 bn with final quarter bookings jumping by a heady 62% to bring the full year total up to an all-time high of c $5.5 bn (+16% yoy). Its adjusted operating margins, however, eased back slightly to 22.4% due to lower technology resale margins, revenue mix changes and increased non-cash expenses.

Cerner, which is currently tenth in TechMarketView’s UK healthcare software and IT services rankings (see here), also saw a significant recovery in the fortunes of its non-US businesses during the second half of last year. Revenues were up by 10% in Q4 to help push full year sales ahead by 3% yoy. It enters 2018 with both a healthy order book and a strengthening pipeline in its non-domestic geographies.

This improving position appears to be being echoed in the UK. Last week we reported that East Lancashire Hospitals NHS Trust (ELHT) had become the latest NHS trust to choose Cerner for its electronic patient record (EPR) system (see here). It looks to be gaining market share in England, where 22 NHS trusts already use its Millennium EPR system. This bodes well for the coming year.

A few weeks ago, I was talking to a young intern (would guess he was 18). We talked about social media. He didn’t use Facebook but did have over 600 friends on Instragram - which is not too bad news as Facebook own Instagram. But the intern was also a Snap user.

As you will have read on HotViews, Snap has had a really tough ride since its IPO. Every time it comes up with a new idea - Stories is one example - Facebook adds a similar feature. As Facebook has such an advanced ad mechanism, they got the ad dollars not Snap. Snap’s share price slumped.

But last night Snap announced results that exceeded expectations for the first time. Revenues up 72% yoy at $285.7m - although losses doubled to $350m. Users were up 18% at 187m. This was enough to send Snap’s shares up >25% in after-hours trading ending above its Feb 17 $17 IPO price.

I think the one ‘take-away’ I have from this is that social media users can be fickle - and that particularly applies to the young. Facebook (and its main brands Instagram and WhatsApp) may well be leaders today. But, last quarter, we saw the number of Facebook users falling in the US and time spent on the site reduce. It is not impossible to see those declines spread rapidly as the young find a newly fashionable way to communicate. Unlike other eco systems, it is quite easy to switch. Indeed you don’t even have to leave - you just stop posting. I’ve noticed that even my ‘old’ Facebook friends post less and less now. That could mean bad news ahead for Facebook.

AIM-listed cyber security company Falanx has come straight out of the blocks in 2018, winning new deals and extending an existing contract for its MidGARD managed security services.

After announcing a £250k, three year agreement with a UK health sector organisation in January, Falanx started February with another £700k contract, this one to deliver IT infrastructure monitoring and protection for an international law firm. Falanx also extended another client deal to add an extra £130k of revenue to an existing £250k contract.

That makes over £1m of new orders in the calendar year so far, a good return for MidGARD which provides many of the components we think UK organisations need to ensure ongoing protection against data breaches and regulatory scrutiny – ie network traffic monitoring; vulnerability and compliance analysis; threat intelligence; security assessments and reporting.

The race to long term success is a marathon, not a sprint, of course but the additional revenue should help the restructured Falanx overturn the operating loss of £1.2m posted in FY17, already shrunk from a £2.6m operating loss in FY16 and boosted by the acquisition of UK cyber security consultancy AuditSec Services in September last year.

I guess the one thing that any investor had concluded over the last few days was that the markets are volatile. After steep falls on Friday, Monday and on Tuesday morning, the US markets staged a recovery yesterday to end a couple of % points higher. That spread to other markets overnight and to the UK today.

The major point I made in my Monday post - Shares fall - was that if there was a general sell-off it would affect tech stocks as well. Conversely I couldn’t see any logic if tech stocks were singled out for extra harsh treatment.

That seems to be pretty much what happened. Indeed leading US tech stocks like Apple (up 4.2%) and Amazon (up 3.8%) lead the rebound yesterday.

Readers will know that I have been a director of the Allianz Technology Trust #ATT since Jan 2007.  During that 11 year period #ATT has outperformed every other such UK tech Investment Trust over whatever long, medium or short term timescale you could choose. Indeed I invested in #ATT in Jan 2007 since when my investment is up over 5x. Although #ATT does not ‘follow’ any index - it  makes its own decisions and sometimes those investments will be outside the tech indices eg Amazon and Tesla. But I thought you might be interested in the roller-coaster ride that #ATT has had in the last five days.

On Thursday, it had an inter-day high of 1216p but had slumped by 12% on Tuesday morning since when it has risen again by 10% (at 9.30am as I write). So #ATT is down just 3% from its pre crisis days.

Can I (and other investors) sleep easy in our beds again? Don’t think so!!!

UK ‘unicorn’ Civica appears to be gaining traction with its digital offerings, signing two noteworthy new deals in recent weeks. The Civica Digital division, which was launched last year to provide organisations with end-to-end digital solutions, has secured a new two-year partnership with South Gloucestershire Council and a two and a half year digital partnership with workplace experts Acas.

The deal with South Gloucestershire announced today – and valued at £1.8m according to the contract award notice - will see Civica Digital support the local authority with its digital agenda, initially building a digital customer platform to enable the council to provide a better user experience for residents, but also deliver future cost and efficiency savings. Once that platform is implemented, the plan is for Civica Digital to help the council explore how IoT technologies and predictive analytics can further improve future services and better manage resident demand.

Under the partnership with Acas announced last month, Civica Digital is supporting Acas’ digital strategy and more than 20 applications and services including case management system and the Acas website. The new managed services agreement brings together existing Civica Digital support deals under one umbrella and strengthens the relationship between the two organisations, putting Civica in a strong position to support Acas with further digital transformation.

Taken together, the contracts demonstrate good momentum at Civica Digital and support our view that the division is well-placed to secure further digital transformation projects making it a source of growth for Civica in 2018. PublicSectorViews subscribers can read more on the outlook for Civica and all the leading players in the UK public sector software and IT services market in our recently published report: UK Public Sector Supplier Prospects 2018.

If your organisation doesn’t yet subscribe to PublicSectorViews and you’d like details of our 2018 subscription packages please contact our Client Services team via info@techmarketview.com.

New Jersey-HQ’d offshore services supplier Cognizant came within the proverbial ‘gnat’s crotchet’ of achieving the top end of its 2017 revenue target, at $14.81b, 9.8% higher than the prior year. Previous ‘guidance’ aimed for revenues between $14.78-$14.84b, so this was indeed a ‘result’. Operating margins, at 16.8%, were 20bps down on 2016, the fourth successive year of operating margin decline.

Management is aiming for around 9% growth in 2018, which would see Cognizant breach the $16b revenue barrier, cementing its position as the second largest India-centric services firm after TCS.

I’ll be running the numbers for the Indian pure-plays as usual once all the quarterly results are in, and TechMarketView Foundation Service subscribers will be able to read the full screed in the next edition of OffshoreViews, out soon.

AIM-listed, VC firm Draper Esprit has invested in Kaptivo, a system that allows analogue whiteboard displays to behave as digital collaboration tools.

Kaptivo represents that the latest phase in what has been an interesting 14-year history for Light Blue Optics (LBO). The business was founded by Nic Lawrence (CEO) and Adrian Cable (CTO) in 2004 as a spin-out of Cambridge University. It started developing pocket-sized holographic laser projection technology that allowed video to be projected onto flat or curved surfaces. It was pitched at a wide range of industry sectors, such as restaurants (displaying menus on tables) and the automotive industry (heads-up displays).

It went on to raise c.£40m in funding (including funds from Draper Esprit) but the market failed to materialise, and it recorded multi-million-pound losses year after year. In 2011 it pivoted away from projector technology to concentrate on display software and then partnered with Promethean to embed its software in its interactive whiteboards. In 2015, Promethean acquired the IPR for LBO's interactive touch and pen technology, but LBO kept going.

LBO is now focused on Kaptivo. The technology is installed above standard dry-wipe whiteboards and transforms them into an online collaboration system that can stream information in real time. A much neater and more secure solution than everybody trying to take a photo of the whiteboard on their phone or writing 'DO NOT ERASE' across it. LBO is now partnering with HP, where Kaptivo has been rebranded HP Shareboard, and has announced a strategic partnership with Crestron.  

We can see clear opportunities for the technology across education and corporate environments, as a cost-effective alternative to full interactive displays. Draper Esprit, and other recent investors Benhamou Global Ventures and Generation Ventures, will be hoping that the early promise of LBO will finally be realised.

Having exited its less profitable domestic business outsourced customer management specialist Firstsource has been focusing efforts on improving profit margins.

Q3 revenues were up 1.6% on the previous quarter to INR 8,872m and up slightly (0.2%) on the same quarter last year. Profitability improved with EBITDA up on the previous quarter by 5.8% to INR 116m and up 8.4% year-on-year. Operating margins have improved now sitting at over 13% up from 12.1% a year ago.

Like most customer management businesses that have an FTE or per-seat commercial model at their heart, Firstsource is under increasing pressure on pricing as services become commoditised.  Improving margins show its strategy of exiting its domestic market, focusing more activity onshore and pursuing higher quality transformational deals is delivering.

Firstsource has continued on the path we outlined in Q2 (see Offshore BPO Firstsource focuses onshore.)  Big landmark deals with the likes of SKY have seen the UK market become significantly more important, now accounting for 45% of revenues for the quarter (Vs 37.6% in Q3 FY17). The business continues to focus on its onshore operations with 77.1% of revenue now accounted for onshore (Vs 71.5% in Q3 FY17).

Firstsource is also becoming increasingly reliant on a small number of key clients with 47.5% of revenue now concentrated in its top five clients (Vs 45.3% in Q3 FY 17). Indeed, Firstsource’s largest client now accounts for 29.2% of all revenues (Vs 23.5% Q3 FY 17).

Management also revealed that it is close to contracting two long term transformational deals in customer management and healthcare and expected “revenue and profit movement in Q4 on a YoY basis will be significantly positive”.

I’m clearly losing it as a tech analyst as today at a meeting I had to ask ‘What does OTT mean?’. A quick search of the HotViews archives shows that I have used OTT on a dozen or more occasions in the last ten years - but always to indicate something done or said outrageously over what needed to be. The only TechMarketView analyst to use the term to mean something different was TMV’s Angela Eager in an Aug 2012 post about Pilat Media.

Today OTT - Over the Top - Services mean media - usually video or audio - delivered direct to the user over the internet without the need for a cable or satellite subscription. The best examples are probably Netflix and Amazon Prime. But looks like the BBC’s iPlayer, ITV Player etc would all qualify too.

These services have been around for many years. Indeed I have written about them many times without using the term OTT.  But only now are they really disrupting the established players - like Sky. In our own house, we subscribe to Sky for Sky Sports. But now even that model is being disrupted by OTT where services like Now enable us to pay to watch a single match without an annual sub. There are indeed rumours that Amazon or Apple might well join the bidding for Premier Football to offer as an OTT service - denting Sky and BT’s position even more.

Given that most of the others in the meeting hadn’t heard the term OTT used in that way before, I guess I shouldn’t be TOO embarrassed. I will use it frequently from now on!

It’s too early for the GatedTalent curated executive databaseDillistone Group launched in October to be producing revenue but it is live and management says that as of December 2017 it had “become the most successful new product launch in our history” based on the volume of orders. Demand is still rising, with subscription levels more than doubling over the last two months and ahead of expectations. With a healthy GDPR compliance slant to it, its prospects in the run up to the May deadline have put management in confident mood.

Improved performance of the existing Dillistone Systems and Voyager Software product lines was also a positive development in H2, as disclosed in the latest trading update. With the improvement in operating performance both product divisions will deliver an operating profit for the full year with the view that at £200k, group level operating profit will be ahead of expectations. The Group ended the year with £1.4m in cash. The existing products are still delivering but the future is all about GatedTalent, which Dillistone describes as having the potential to transform the company. It appears to be off to a good start and the GDPR compliance aspect is valuable but FY18 will be the real test. 

We’ve previously highlighted the value of the cloud-based Central unified security management platform and Intercept X endpoint protection solution from UK security house Sophos alongside the breadth of its cloud hosted security platform (see Cyber Security Supplier Prospects 2018) and judging by its Q318 trading update they continue to serve the company well as revenue grew 23% to $166.4m with billings up 19% to $194.8m.

However, the share price fell in early trading because the rate of billings growth dropped QoQ. The nine month picture saw revenue grow 19% to $464.5m on billings that grew 21% to $536.3m and management remains confident it can meet full year guidance but the billings figure will be watched very closely. 

At the bottom line, the company reported an operating loss of $2.8m in the quarter ending December 31 2017 vs. a profit of $1.7m in Q317, while for the nine months the operating loss deepened to $26.6m vs. $22.9m in the year ago period. With the threat landscape forever expanding and changing the challenge for security providers is investing enough to counter emerging threats and that is an expensive business. However, investment is worth the impact on short term profitability and Sophos is continuing to invest and innovate as demonstrated by developments such as the latest release of Intercept X which incorporates neural network-based deep learning technology for the first time. 

There are very few Brazilian tech companies that make any impact outside its home country, but cybersecurity specialist Tempest Security Intelligence is one that breaks the mould.

Within a year of raising funding (see Brazilian Tempest flies higher with EMBRAER investment), the company has just acquired Sao Paulo-based cybersecurity systems integrator, EZ-Security. Terms were not disclosed, but the transaction sets Tempest as the largest independent cybersecurity company in Brazil, with revenues around R$100m/US$30m and nearly 300 employees.

I have followed the fortunes of Tempest since it set up its first UK outpost some years back. Around a year ago Tempest appointed ex-Detica sales exec Peter Johnson to lead its rapidly growing UK business (see Johnson storms in to lead Tempest UK).

Congratulations to Tempest founder and CEO, Cristiano Lincoln Mattos and his team.

Today's LGiU report on the State of Local Government Finance reveals some of the challenges facing local councils today. It follows last week's news that Northamptonshire County Council has frozen all expenditure, with the exception of safeguarding vulnerable people and statutory services.

The annual survey, which this year was completed by 132 council leaders and finance staff representing about a third (113) of English councils, reveals that confidence in the sustainability of local government finance remains very low. Nearly all respondents (95%) said their council plans to increase council tax this year (73% said they planned increases in excess of 2.5%).

There was a steep rise in the number of respondents stating that Children's Services was the greatest immediate pressure for councils (32% up from 7% last year). This is thought to be due to increasing demand on services and the £2bn adult social care funding announced in the Spring Budget 2017 reducing pressure elsewhere. However, adult social care remains that greatest pressure long term. The survey was conducted prior to the recently announced £150m additional adult social care funding, which was welcomed by the sector as helping to ease pressures in the short term. Housing and Homelessness also remains both a short and long term issue for many councils.

The need for councils to reduce costs through improved productivity and efficiency is clear. While it certainly doesn't represent a solution for all the problems in local government, further digital transformation will be required. As we discussed in Public Sector Market Trends & Forecasts, new funding for adult social care hasn't represented a bonanza for SITS suppliers, but there are opportunities in social housing. We are also seeing increasing interest in citizen self-serve and intelligent automation in the sector. 

It is amazing what turning a profit can do for your share price. Call me olde fashioned, but I really like profits - but not as much as I like cash!

Today Twitter reported its first ever quarterly profits. $91m in Q4 compared to losses of $167m in Q4 2016. Twitter has made cumulative losses of $2.6b in 12 years since its 2006 debut. At one stage Twitter shares were up nearly 30% but ended the day up just 12%.

This was despite flat user numbers at c330m per month and a miniscule 2% rise yoy in Q4 revenues to $732m. Revenues for 2017 as a whole actually reduced from $2.5b to $2.4b. So it really was ‘profits’ behind the share price hike.

You may remember that Twitter doubled its character limit from 140 to 280 recently. But, apparently, average length of Tweets are pretty much unaltered. Users like the brevity. Indeed my own Tweets are usually pretty brief but very, very occasionally I can now break the limit without ‘fear’. Looks like a decision that has paid off!

Atos has announced several management changes/promotions and we see that Ursula Morgenstern has become CEO of Germany. Current CEO, Winfried Holz, is set to retire in the Autumn.

Atos’ latest set of results (Q3) show the German business was the largest geographical business unit in Atos, accounting for 19% of Group revenue – i.e.  €560m, up 1.6%. Prior to that, H1 financials showed Germany slightly behind the US in size terms, at almost €1.1bn, but with a significant improvement to margins.

We very much doubt Ursula has been put into the role for a ‘quiet life’ given her credentials, so we’ll be watching closely to see the improvements she’s looking to bring.

Most recently, Ursula was Global Head of Business & Platform Solutions. Prior to that she headed up Global Consulting & Systems Integration (in addition to having Cloud & Enterprise Software responsibilities) - which at the time meant she was overseeing some 30,000 staff and c€3bn in revenue. And of course, where we really got to know Ursula was in her position as UK CEO of Atos, where she led the business to impressive growth – e.g. see Another stonking quarter for Atos UK.

Let’s not forget that Ursula was also Chair of the Technology Leadership Group at The Prince's Trust for 2½ years until she handed over to Kevin Walsh (Global Consulting Technology Leader & Partner at Deloitte) in October of last year.

We have the greatest respect for Ursula, and wish her all the very best in her new role.

European TMT M&A activity remained steady in January with only a small drop in the number and total value of deals, according to latest data from rom corporate finance firm Regent Partners. There were 15 deals valued at more than $100m including 4 in excess of $1b which contributed to an aggregate value of $27b in the month. Valuation multiples diverged with the aggregate Price/Sales ratio unchanged at 1.4x but buyers got better value – the Price/EBITDA ratio declined from 9.3x in December to 8.5x in January.

Like in December (see here), there was a paucity of significant transactions in the UK tech sector. But the year kicked off with a couple of note, being Japanese tech giant NEC’s acquisition of Northgate Public Services. Those with long memories will recall NPS was one of the spin-offs from Northgate Information Systems risen like a phoenix from the ashes of MDIS under the leadership of Chris Stone back in 1999. Stone left in 2011 and last year joined embattled NCC Group as exec. chairman (now non-exec).

There's another UK tech veteran also to leave our shores, with the announcement of the £52m acquisition of financial software firm Lombard Risk Management by Amsterdam-based Vermeg. Lombard floated on AIM in 1994 and had been losing money in recent times.

Subscribers to the TechMarketView Foundation Service can read our regular quarterly summaries of corporate activity in the UK software and IT services sector in IndustryViews Corporate Activity, or just search on ‘acquisition’ in the UKHotViews archive.

On 31^st Jan 17 I wrote Can Facebook be fixed or are its glory days over? As US Facebook users declined as did the amount of time the average user spent on the site. On 7^th Jan 17 I reported  - Snap Pops for a change! - how Snap was starting to come good with a 72% revenue increase. I also told the story of a young intern I had met who basically didn’t use Facebook anymore and preferred other social media platforms like Snap. Then, last night, I reported how Twitter had turned a profit and their shares soared.

There is also news that more and more searches are now undertaken ‘in App’ - in particular within Amazon. Same applies to users of WeChat in China. That is particularly troubling for Google as searches for products generate the most revenues for obvious reasons.

I am increasing convinced that the ‘Glory Days’ for both Facebook and Google may have passed. Social media users - particularly the young - are extremely fickle. Unlike changing your smartphone to a new platform, moving your social network is easy. Indeed you don’t even need to move - you just stop posting on one and move to another. The ‘other’ might be a mainstream network or something very esoteric.  

Of course, Facebook could just buy the new fashionable networks - as it did with Instagram and WhatsApp. I guess Google could do the same. But somehow I feel that it will be increasingly difficult - and expensive - to chase these fickle customers.

Third quarter data from DXC Technology tells what is now a fairly familiar story. Revenue at constant currency was down 5.9% over the equivalent period last year to $6.186bn - and down by 4.5% in teh year to date. Sequentially (i.e. versus Q2), revenue grew 0.8%. Adjusted EBIT margin came in at 15%, compared with 9.5% last year (on a pro forma basis – taking account of the merged CSC/HPE ES businesses).

Looking at the business segments, Global Business Services (GBS) saw revenue shrink 6.6% over last year (but up sequentially by 0.4%). Importantly, the margin improved by 470 basis points, reflecting work done to take out costs – such as removing management layers. The story is similar in Global Infrastructure Services (GIS), which declined 6.8% over last year but grew 0.7% sequentially. The margin improved 530 basis points due to both “cost actions” and process automation. What DXC terms "digital revenue" (which includes cloud, analytics and security, for example) is up 16% in the year to date (i.e. the nine months to the end of December 2017).

The other big chunk of business is the US Public Sector, which is set to become a new publicly quoted company that will be formed before the end of March.

There is no detail on the UK business and we will wait for the year as a whole to close before finalising our own data. However, we expect to see a similar pattern to the global level. A new CEO will shortly be taking hold of the UK reins when Nick Wilson shortly departs. The challenges to us are clear: ensuring delivery is second to none, restoring morale, and energising the workforce to help steer the company towards consistent growth. No mean feat!

Meanwhile, DXC’s target for revenue for the full year remains unchanged (at $24-$24.5bn), but the GAAP EPS target is being increased to $7.50 to-$8, to reflect “additional synergy realization” in the year.

A strong finish to the year glossed over an understated performance for cyber security specialist FireEye in FY17. The company posted its largest annual turnover to date (above guidance at US$751m), but the 5% yoy growth rate is also the lowest in its short history as a public company.

Gone are the days when FireEye was the talk of Wall Street almost doubling its revenue in FY13 then growing it 163% in FY14, momentum the company will probably never recapture.

FY17 billings indicate a slump in new orders, declining 6% to $768m and we think impacted by smaller deal sizes and shorter contracts. However the company did shrink its pre-tax net loss from US$488m in FY16 to US$299m in FY17, with net loss per share almost halving to US$1.71 in the same period, largely due to cuts in operating expenditure.

The Q417 numbers too hint at better days ahead, with revenue up 10% yoy to US$202m and a first ever non-GAAP profit per share of a penny, up from a loss of 3 cents per share in Q416. FireEye has always pursued a path that balances growth against profitability and previously outlined plans to be in the black by 2018, which by one small metric at least it can now claim to be.

We think the answer to FireEye’s current performance plateau lies with its competitors (Symantec, Sophos, Palo Alto Networks to name but a few), which over the past few years have perfected and launched rival subscription-based security services of their own. Where once FireEye was seen as innovative, it is now just one more cyber security player in the mix.

The Q4 performance shows FireEye can still be competitive, but the company will need to make the best of its channel relationships to find new markets and innovate further and faster to win new customers to keep moving forward.

Much as I had surmised last time (see Hexaware trades growth for margin), management at Mumbai-based mid-tier offshores services firm Hexaware switched tack and held the pedal to the metal in Q4 (to 31st Dec.), sacrificing margin in order to push the company over the $600m revenue line for the year ($608m actually). This represented 15.6% yoy growth, almost double the rate in 2016. Profits in earlier quarters outweighed the decline in Q4, lifting FY operating margins by 30bps to 15.0%.

It has to be said that Hexaware’s growth has outstripped all the Indian pure-plays – mid-tier and top tier – while maintaining profitability, so they must be doing something right!