Aconex reports flat revenues and a pre-tax loss for year to June 2011, but recent performance has been strong and longer-term prospects are promising.

The latest annual report and accounts from Melbourne, Australia-based Software-as-a-Service construction collaboration technology vendor Aconex show the business grew its revenues by 0.7% in the year to 30 June 2011, to Au$39.7m (c. £26.8m), while incurring a loss of Au$5.6m (c. £3.8m) compared to 2010’s $2.6m loss (post).*

This performance is similar to that of other SaaS vendors in this sector (eg: 4Projects – post; BIW – post; Unit4Collaboration – post), who in recent years have struggled to maintain previous turnover growth, and have seen profits hit due to the continued impacts of the global financial crisis. With clients cancelling or postponing construction projects, there are fewer schemes to support; and there is pressure on vendors to price their services competitively to get adopted on those customers’ schemes that do proceed.

Aconex has also had specific issues in certain regions, notably Libya – where the civil war prompted the company to shut down its operation with a resulting $0.9m write-off and $1.2m in order book cancellations. Overall:

“Bookings increased during the year despite being negatively affected by civil war in Libya and adverse economic conditions in Europe, North Africa and the Middle East. A small proportion of the increased deal flow was recognised into this year’s revenue but the vast majority will flow into future years’ revenue.”

[Update (15 February 2012) – Aconex’s workforce in the Gulf dropped from a peak of 130 to 80, but about 20 per cent of its global business is still generated by the Middle East. source]

Aconex’s wide spread of operations has certainly helped it withstand localised downturns. Elsewhere, Australia/New Zealand saw strong bookings growth (over 50%), as did Asia (up 60%) and the Americas (bookings up 95%).

At 30 June 2011, the Aconex order book stood at Au$57.1m, growing 22% from 2010 (Au$46.8m), with approximately 88% of this to be billed over the next three years.

The report also mentions Aconex’s new – and currently Australia-focused – tendering network business, BidContender (post), which it says is gaining “significant traction, with thousands of users now on the system,” though it is still far too early for this start-up to make an impact on the group’s overall performance.

Accounting policies impacting financial performance

In a teleconference on Monday, I spoke to COO Paul Perrett and CFO Matthew Walsh about the numbers. They started by stressing that the underlying operational performance was much stronger than indicated in the P&L due to, first, how the company accounts for the Francisco Partners equity injection (post), and, second, how revenues are treated.

The equity injection is treated as a liability, and its impact is seen through the inclusion of ‘compound financial instrument’ income and interest in the accounts.

Aconex regards its revenue recognition approach as even more conservative than other vendors. It used to include 65% of the value of new orders or bookings up-front, with the remainder flowing through as it was invoiced over the duration of a project. Today, only 25-30% of the value of a new order might be recognised up-front (though this might still seem to front-load the flow of revenues, Aconex – unlike rival vendors – does not charge separately for consultancy services, so project income flow will be similar to those of other vendors). However, the short-t0-medium term impact of this policy change has been to delay some revenues appearing in the P&L. Matthew said this conservative approach mirrors the revenue recognition policies adopted by other SaaS businesses (eg: Salesforce) with which Aconex compares itself in the US market [see 20 January comment from Frank Carron].

Growth markets

Looking at the regional performance, Paul highlighted Aconex’s domestic successes, particularly in the Australian mining market, some significant wins in mainland China and at Hong Kong airport, and the near doubling of revenues in the Americas, albeit “from a low base” [again, see 20 January comment from Frank Carron]. Europe remained “soft”, with continued economic uncertainty affecting customers project plans. Overall, he said the business was now growing again and was looking to recapture its past growth trajectory.

This growth was partly stimulated by Aconex’s investment in sales and marketing – I have written recently about its recruitment of US-based sales people and its reseller partner programme (post) – which resulted in higher-than-expected cash burn in late 2010 (Au$5.8m), though the cost base was reduced, with marketing expenditure one area hit, in the second half of the year (to Au$2.5m). However, Paul and Matthew stressed that since the year end, the business has been cash-generative (the report says the cash balance increased to Au$16.5m at 30 September 2011), with “business picking up quite substantially” and “December our strongest invoicing month ever” to offset earlier cash losses and make calendar year 2011 cash-neutral.

The company’s investment in sales and marketing in the Americas has been part of a strategic shift away from relying upon individual business development managers to grow regional adoption of the Aconex platform. “A more sustainable sales and marketing machine is being created,” Paul said. Recruiting high-calibre executives like [name removed at her request] and growing a strong partner network were seen as vital if Aconex was to have the desired impact in the US, and the approach would also help Aconex in other large target markets such as India and China.

New products

Aconex’s new BidContender business was now being used by around 70 contractors and a substantial proportion of their subcontractor base, Paul said, with around 15,000 active ANZ users of its tendering platform. It is a different proposition to Aconex’s core collaboration platform – having to be easier to use and low-cost – but the company had been encouraged by customer enthusiasm for BidContender. Paul said some free functionality was recently switched off, and some customers were quick to apply for the paid-for alternatives.

In terms of product development, Frank Carron said Aconex was seeing strong interest in using the platform to manage building information models, with around 70,000 BIMs on the Aconex platform and “people collaborating more on BIMs than on 2D”. Field management of data – eg: for defect or health and safety management – was another area where Aconex was investing in its product (its iPhone app was launched in May 2011).

Clarification

* Aconex’s 2010 results (post) reported a pre-tax profit of Au$2.8m but is now reported as a loss. I asked about the discrepancy, and CFO Matthew Walsh told me:

The directors’ report in 2011 just looked at the numbers slightly differently and excluded compound financial instrument income from the loss and this is the difference in your two figures.  You should use the summary in the 2011 directors’ report as it is felt this more appropriately represents the underlying performance.