Basware 2016 Results: Some Promising Signs – 2017 a Critical Year

Basware, probably the leading e-Invoicing firm in the world and one of the leaders in wider purchase to pay and other procurement software, announced their final quarter and full-year 2016 results last week. It was the first test for new CEO, Vesa Tykkyläinen, who took over from Esa Tihilä last September.

If you measure the results by the effect on the share price, then this was a “met expectations” announcement, with the share price hardly moving last week, although it did decline slightly ahead of the results. It is clear that the firm is in the midst of a huge transformation, from being a two-pronged business -  “traditional” on-premise software plus an eInvoicing services business – to a position as a modern cloud-based software and solutions provider.

So revenues have been flat for a while; organic net sales at constant currencies were down 3% for Q4 16 versus Q4 15, and up 0.3% for the whole of 2016. Assuming that includes the benefit of Verian, acquired in early 2016, that is disappointing. But more positively, the share of cloud revenue is growing strongly.  Tykkyläinen has made that metric THE key number, and cloud revenues are now 47% of total sales compared to 38.5% in Q4 2015.  During the next few months, cloud should overtake non-cloud, and cloud revenues were 25% higher in that last quarter compared to a year earlier.

Adjusted EBITDA was down, but that was affected by a EUR 5 million charge for the programme of lay-offs in recent months (the “productivity programme”), which has seen over 100 people leave the firm. That will save EUR 7 -8 million a year though, and will help the firm with the “sales per employee” metric, which has not compared well to many competitions.

Sales and marketing investment has also grown, much of it in additional staff, and there were more positive signs for the firm. There was a volume growth of 19% in business going through their network, which is a vital factor for future growth and profitability. Perhaps even more encouraging was the 27 “go live” clients for the Alusta software as a service platform in the fourth quarter, compared to 13 in the same period in 2015.

The financing services side of the business is gaining traction, with some pilot projects under way, but getting real uptake here seems to be a slower process than expected (something others like Tungsten have also found).

All in all, the market reaction was probably right. This is a transitional period, with the switch to “cloud” being a once-in-a-lifetime strategic driver that Basware must manage successfully if the firm is to survive and thrive. Combine that with a new CEO, and it is clear that 2017 is a critical year. As our colleagues have said before, Basware has some excellent products and technology across the procurement technology space – perhaps 2017 will be the year they “get their mojo back”, as Jason Busch put it here !

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