A trading update from AIM-listed asset management portfolio analysis provider, StatPro, confirmed management’s half-time expectations (see StatPro's move to the cloud progressing well) that they would make the FY numbers.
Legacy on-premise StatPro Seven remains the backbone of the company’s business though no longer actively marketed, providing some 75% of total revenues (2011: £32M) and all the profit. But demand for StatPro’s new SaaS-based Revolution service is picking up well, with recurring revenue run-rate trebling yoy to £1.5m. Revolution was losing £1.2m of EBITDA at half-time.
There is no doubting that StatPro – like almost all software companies – needs to have a SaaS offering. Management is going for it ‘boots and all’, in effect sun-setting their core legacy product. The trauma to cash flow will be lower for StatPro than many others as they had eschewed the traditional ‘initial licence fee + annual support’ for the on premise product in favour of monthly billing anyway. Nonetheless, last November management called on the market for a £6m top-up (see StatPro supports cloud transition with £6m placing) to support the SaaS transition (they are now debt free, by the way).
What StatPro’s P&L will look like when they reach their SaaS Nirvana is as vexatious a question for them as it is for all treading the SaaS path. The profit track record of the ‘pure-plays’ like Salesforce.com is worrying (see Great Companies vs Great Stocks) and our ongoing research suggests that margin expectations for SaaS are highly speculative. Fortunately, StatPro has a solid profit generator in its legacy software that will hopefully pave the way to a profitable ‘brave new world’ – though whether as profitable as the old one is the question we think all software companies need to examine, as are we.