The recent boardroom bickering at Melbourne, Australia-based construction collaboration technology vendor Aconex prompted me to take a look at its recent financial performance, just in case there were financially-inspired reasons behind the apparent shareholder unrest. While the pre-credit crunch double-digit growth figures are no longer being achieved, it appears the international spread of Aconex’s operations is helping it weather localised difficulties in markets described as “challenging” or “tough”.
Modest growth and return to profitability
According to its latest annual report and accounts, compared to 2009 (post), in the year to 30 June 2010 the consolidated Aconex group generated operating revenue of Au$39.855m (approximately £25m at current exchange rates) up 2.2% from restated revenues of Au$38.977m in 2009. This is the second successive year that the figures have been restated – this time due to “a correction of prior period errors that … have caused a restatement of the deferred revenue, class A preference shares and net loss for the comparative period”.
The consolidated group made a profit (EBITDA) of Au$2.772m (or £1.75m), an improvement on the AU$2.356m (£1.5m) loss given in 2009.
The dramatic growth of Aconex’s early years has been impacted by the recent global financial downturn in some of Aconex’s key markets. This is clear from the graphic of Aconex’s order book (below), but the company is claiming something of a recovery over the past year. However, the numbers have been restated and are down on what was claimed for previous years (in 2009 Aconex said its order book was worth Au$49.3m, down from Au$62m in 2008).
Via a telephone conference call conducted at Aconex’s London office just before its 28 January EGM, I talked to Aconex CEO Leigh Jasper and CFO Matthew Walsh about the results and other recent developments.
According to Leigh, highlights in 2009-2010 included strong growth in Aconex’s home market of Australia and “the American business has been growing well”, but there were “challenging” Middle Eastern markets where the number of project starts was down on previous years. The signs of growth detected in the early summer of 2009 continued, but the high double-digit growth of earlier in the decade was over as a result of the difficult economic conditions in some of Aconex’s markets, where there were fewer projects being started. FY10 bookings were up on previous years, Leigh said, but the impact was yet to be seen on revenues but should start flow through in the current and subsequent financial years.
Regarding the restatement of figures, Matthew Walsh said the company needed to reconsider how it treated the equity injection by Francisco Partners (post). Revenue recognition was very conservative; the business was more focused on cash flow than on the P&L in the short term. Talking about investment in establishing the company’s US operation and in product development, Matthew was confident this would feed into growth in due course.
During 2009-2010 the business saw the benefits of earlier product development work, particularly in respect of its workflow module, its supplier documents and tendering modules. Since the year end, the new user interface had been welcomed by Aconex customers, and had contributed to an efficiency improvement in handling calls to Aconex’s support team, and the Document Control Essentials programme was also helping embed good industry practice among users (the first UK course will be in London in late March, I was told).
Regarding more recent performance, I was told the second quarter (October-December) of 2010 was “our best quarter since before the global downturn” in terms of bookings. Strong performances were recorded in Australia and the US, with Asia “close to its best”, but the Middle East remained a “weak spot” and Europe/Africa was also “a bit weak”. Regarding the latter, Aconex had signed deals in Italy, but the UK “was a bit tough for everybody” (2010 results for Aconex UK or Aconex Europe are not yet available) and Dubai was “very tough”, with fewer new projects starting. Aconex’s global spread, Leigh said, helped the business weather difficult conditions in one market by switching resources to other regions which were more buoyant. Staffing levels (c. 360 people) remained broadly in line with previous years’ figures, largely due to being able to relocate people, with a “handful of redundancies” in the Middle East as a result of switching people away from Dubai to Abu Dhabi.
A US IPO or an Australian IPO?
We also discussed whether a potential future initial public offering, IPO, might take place in the US or Australia. Leigh (right) admitted he was spending an increasing amount of time in the US, partly as a result of the business’s focus on growing its market in the Americas. While he didn’t see Aconex moving out of the Australian market (the majority of Aconex’s people are still based in Melbourne), he did say the US investment community had a better understanding of, and experience of, technology businesses, especially Software-as-a-Service companies, particularly in their informed view of SaaS deferred revenue models.
We talked about trends in markets, particularly in their use of the Aconex system to manage workflows (Australian project requests for information, RFIs, apparently get dealt with twice as fast as RFIs in the Middle East), and in the use of building information models (use of BIM via Aconex more than tripled in a year, and the size of the models has been increasing at 50% year on year). While BIM was often associated with big US projects, it was wrong to think the US was ahead; Leigh still felt the UK and Australian markets were significantly ahead of the US in terms of their adoption of collaboration platforms (this is likely to be a topic that I will return to in future posts).