Shares in talent management and training software supplier NetDimensions (NETD:AIM) are tanking, down more than 28% to 42p, after putting out a warning on revenues thanks to contract roll-outs moving to the right. This is the unfortunate ugly side of bigger, more meaningful contracts, getting delayed.
'First-half sales were somewhat lower than expected with delays in deal roll-outs affecting revenue growth and this looks likely to continue into the second half of the year,' explains CEO Jay Shaw.
We commented in April about how the company was winning increasingly large and complex contract implementations among its niche high consequence industries customers – think airlines, healthcare firm, financial services companies among others (read more detail in Shares CFO interview from January here). This was driving contract values higher. The average first year contract value for new business jumped 98% in 2015 to $210,000.
But bigger more complex deals often means extended sign-off, longer implementations and more unpredictability in the revenue chain. Such is the blow being felt today by the company and its investors.
Fortunately, costs are being kept in check as the company rolls through this hiatus. Half-year EBITDA (earnings before interest, tax, depreciation and amortisation) losses have been cut from $1.8 million to $1 million.
Analysts remain relatively sanguine. We think that the delay reflects a large order - indeed the largest that NetDimensions ever inked - rather than being symptomatic of any general pause in buying,' reckons Panmure's George O'Connor.
Well worth noting is that, while the inevitable cuts are coming through to revenue forecasts (Panmure has top-sliced from $29.8 million to $26.8 million for 2016, Edison has knocked-off $1.2 million to $27 million), both houses reckon on a faster than expected profit return, at the EBITDA level. Edison now estimates breakeven this year, Panmure predicting a $0.2 million positive.
'NetDimensions' on-going focus on cost and business efficiency means that we increase our 2016 estimated adjusted EBITDA forecast and move from loss to profit,' says Panmure's O'Connor.