Autonomy’s business is moving fast to the cloud. In Q1 ended 31 March, cloud revenue from its core IDOL product grew 17% (all organic) to $52.7m, now making cloud 24% of revenue vs. 21% in Q410 and 22% in FY10 (see here). Although specific numbers for new cloud signings weren’t provided, Autonomy says these are up with its ‘commit’ contracted revenue figure, which itself is up 15% at $390m.
CEO Dr Mike Lynch sees the transition to the cloud as “beneficial…in the longer term” to Autonomy’s business, since “customers choosing the cloud option include the longer term, contracted revenue streams which provide more predictable revenues and, ultimately, higher total revenues from each customer contract”. The good news is that Autonomy also doesn’t appear to be suffering the pain that many of its software rivals are feeling as they move to the cloud, since it sees cloud being only "slightly lower margin". So this outlook makes the prospects even more attractive.
All the headline numbers are heading in the right direction. Q1 revenues overall were up 13% to $220m (organic revenue growth from the core software business was 19%), and adjusted operating profits after research and development (R&D) costs were up 10% to $94m (margin of 43% vs. 44% in Q110). Repeat business now accounts for 54% of revenue, up from 51% in Q110, and it now has 27 seven figure deals, vs 19 last year. Of course there is also the small matter of $1.1b in cash sitting in the bank, which has yet to be given a new home.
Cloud actually isn’t the fastest growing part of the business. The smaller, yet increasingly important OEM offering - in which IDOL is embedded in third party OEM software – grew 28% to $37.2m (17% of revenue), with two big new deals in the quarter with Symantec and HP. We think there is some mileage here for Autonomy. It has over 50 OEM customers, but big names like SAP and Microsoft are missing, plus it can still go after a host of second and third tier players. Core product sales are still on the rise (up 17%) even though it says ‘this model is becoming less significant with the rise of cloud”. Services on the other hand, is on the decline (down 21% to $9m) as Autonomy moves to a “pure software” model, and increasingly expects its systems integrator partners to do the integration and professional services.
These are impressive results, and sent Autonomy’s shares up 7%. Even at this early stage in the year, Lynch reckons current market estimates will turn out to be conservative, so we can expect even faster growth through the year (analysts are currently expecting FY11 growth of 12% to $971m). This is all great news from the UK’s biggest software vendor.