Aconex reports…

Australia-based construction collaboration Software-as-a-Service (SaaS) vendor Aconex has published its financial results for the year ending 30 June 2008. As with most annual reports and accounts, there is a lot of dry legal/accounting talk to wade through (thankfully, I am no accountant!), but for me the key points are:

• Aconex revenues and order book are both up significantly, approximately 70% and 50% respectively. While such growth is down on previous years’ triple-figure rates, these are still excellent figures, reflecting, I think, Aconex’s strategy of establishing small outposts in lots of new markets.
• As with last year (see Aconex results hit by legal row), a potential profit became a loss due to costs incurred in the legal dispute with Hawthorn Glen, which was settled out of court (post) during the year. However, the dispute appears to have cost twice what Aconex originally expected.
• Post year-end announcements in September (post) about $107.5m new funding for Aconex did not detail that the funding is in two tranches, some of the initial tranche going to reduce debt, the second focused on acquisitions approved by the investor.
• And Aconex founder Rob Phillpot has an interest in an office furniture business!

The bottom line

Aconex achieved a turnover of AU$41.6m (£17.7m at today’s exchange rate), up 70% from 2007’s (restated) AU$24.4m (£10.4) thanks to what Aconex again describes as “increased market penetration and investment in foreign markets” – the latter still funded by a combination of cash flow, a AU$12.5 (£5.3m) million debt facility and capital injections.

The consolidated group’s pre-tax loss (EBITDA) was AU$1.04m (£0.44m), down from a (restated) 2007 profit of AU$2.3m (£0.98m). Again, the report notes that the group’s figures have been hit by a legal dispute with a shareholder:

“The Hawthorn Glen dispute settlement costs and associated legal fees amounted to $3,357,175. Excluding these costs and insurance proceeds of $2,000,000, the consolidated EBITDA profit would have been $315,207.”

The Aconex order book at 30 June 2008 stood at AU$62m (£26.37m) – with approximately 85% to be billed over the next 3 years – up by almost 50% on the level reported last year. I think this partly reflects Aconex’s strategy of establishing satellite operations in lots of developing markets. The list of Aconex subsidiaries now has three additional companies, in Romania, Vietnam and the Philippines, making 21 in total, though the international financial crisis may make some of these overseas operations more risky (Aconex’s wrote off bad debts of $1.28m this year, compared to $200k last year). Sadly, compared to two years ago, there is precious little detail about the performance of different geographical Aconex segments.

Hawthorn Glen v Aconex

The Aconex report (Note 3) describes the dispute with Hawthorn Glen in much the same terms as last year, adding:

“The trial was held in October and November 2007. The matter was dismissed on 23 May 2008, prior to judgement, with no order as to costs. Aconex and Hawthorn Glen agreed to a full mutual release, where both parties ended up bearing approximately equal legal costs, after recovery of some costs through the company’s directors and officers insurance policy.”

Aconex had settlement costs of $1.5m and associated legal fees of $1,857,175 – a total twice what Aconex expected. Last year, having already spent some $280k in legal expenses (on top of $3.8m costs to terminate the Hawthorn Glen finance facility), it estimated the company’s costs for these proceedings would amount to approximately $1.65 million.

New funding

After the year-end, Aconex concluded a deal for new investment in the business from US-based  technology investor Francisco Partners (see Aconex gets private equity injection). Initial reports trumpeted a $107.5m injection, but the Aconex report makes it clear that this new equity is in two tranches: an initial $57.5m (£25m – up to $25m of which is to be used to complete a buy-back of existing shares, thus reducing debt), and an additional ‘acquisition tranche’ of up to $50m “to be drawn down to finance acquisitions approved by Francisco Partners that occur within 2 years of the subscription of the Initial Tranche”. Presumably the team that Aconex CEO Leigh Jasper said the company had put together to evaluate acquisition opportunities in the US and Europe includes people from Francisco Partners.

The investment is certainly substantial and Aconex got in just before the global credit crunch had a major impact on investor sentiment. (Incidentally, experienced SaaS watcher Jeff Kaplan has pointed out that investment in SaaS businesses has been affected by the economic meltdown.)

Rob’s furniture sideline!

Under related party disclosures, Aconex reports that ongoing taxation, share registry and statutory services worth $32,600 were received from accounting partnership Sinclair Wilson, the managing partner of whom was Bill Phillpot, the father of Aconex founder and director Rob Phillpot. Rob also part-owns a company, Melbourne Office Furniture, from which the group purchased some $12,500 worth of office furniture and equipment for its Melbourne office!

Update (3 December): I have been asked if the $107.5m injection might be lower, given the use of the words “up to” (underlined above). Those words are certainly used in the Aconex report, so I suppose this gives Aconex/Francisco Partners scope not to use the full $50m (£21.8m) acquisition tranche.