Sage shares down 12% as software revenue falls

Sage HQ in Newcastle

Shares of Newcastle-based cloud software giant Sage Group, the UK’s largest listed tech company, fell about 12% on Thursday after it issued a trading update for the nine months ended June 30, 2019.    

Sage said group “organic” total revenue increased 5.3% to £476 million in the third quarter and 5.9% to £1.417 billion in the first nine months of the year. 

However, Sage said its software and software related services (SSRS) revenue declined by 15.5% to £195 million for the first nine months of the year “reflecting the focus on driving high-quality subscription revenue …”

Sage has a stock market value of roughly £9 billion and employs about 13,000 people around the world.

Total recurring revenue increased 11.4% to £405 million in the third quarter and 10.6% to £1.183 billion for the first nine months of the year.

“This was underpinned by software subscription growth of 28.3% to £752m, reflecting the continued focus on attracting new customers and migrating existing customers to subscription and the cloud,” said Sage in its statement.

“The continuing strong recurring revenue growth in the first nine months of the year has, in part, been assisted by tailwinds from the weaker comparator in the prior year and particular strength in the UKI as new regulations on digital tax submissions attract new and existing customers to the latest version of software.

“Software and software related services (SSRS) revenue declined by 15.5% to £195m for the first nine months of the year, reflecting the focus on driving high-quality subscription revenue, as well as some underperformance in X3 licences and services.

“The combined decline in SSRS and processing revenue in the first nine months was 13.0% …”

Sage chief financial officer Jonathan Howell said: “We remain encouraged by the progress made in recurring revenue in the first nine months of FY19, reflecting Sage’s focus on high-quality subscription and recurring revenue as we continue the transition to becoming a great SaaS company.

“We expect full year FY19 recurring revenue growth to slightly exceed guidance of 8-9% and the combined decline in SSRS and processing revenue to be slightly greater than the decline seen in the first nine months of the year.

“We expect organic operating profit margin to be at the lower end of the guided range of 23-25%.” 

Sage also said it will take “a non-cash non-recurring charge in the region of £60m” relating to its previously announced news that it will move its flagship UK office from North Park near Gosforth a few miles east to Cobalt Business Park near Shiremoor.

“There will be a non-cash non-recurring charge in the region of £60m relating to the accelerated depreciation of the North Park building, with approximately 20% of this charge to be recognised in FY19 and the remainder in FY20,” said Sage.

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Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.