Thomsons Online Benefits - Strong Organic Revenue Growth Fuelled by Global SaaS Revenue
Operational highlights
Financial highlights
Michael Whitfield, Group Chief Executive Officer commented:
"2013 was a momentous year in the history of our business. It started with an exciting new investment from ABRY Partners, based in Boston. Our partnership with ABRY has enabled us to accelerate our mission to revolutionise the global employee benefits market.
"We are continuing to gain momentum from large global multinationals who want to use software instead of spreadsheets and local country solutions. We are accelerating this growth by opening a San Francisco office to increase sales and to support our clients and Partners.
"Users accessed Darwin™ 2.5 million times during 2013 to manage their employee benefits online, and we are leading the charge of the pioneers of the rapidly evolving global employee benefits software market.
"Over the past 12 months, Thomsons has focused its growth as a global Software-as-a-Service supplier, expanding internationally, and positioning us for continued long term success. We have identified extensive organic opportunities in our international markets, and we are confident that 2014 will deliver rapid growth through our three key channels to market of Global Enterprise, UK and Partners."
Strategic overview
Thomsons is a global Software-as-a-Service ("SaaS") supplier, expanding its geographic footprint across the globe, and rapidly increasing its roster of blue-chip clients.
During the year Thomsons won a contract with a major global software company for global implementation, taking our technology clients to 7 out of the 10 largest international technology companies. Thomsons now works with over 300 companies in 64 countries. We recently won our first contract through our collaboration with Benefitfocus.
The flexibility of our Darwin™ software allows it to administer and communicate employee benefits, no matter what a client's circumstances or location are. This flexibility drives organic growth, both in tough economic times when driving value and cost control are important, and during times of growth when employee engagement, recruitment and retention are critical. By providing an engaging user experience, similar to consumer software, and delivered via tablet and mobile devices, Darwin™ encourages employees to interact with and participate in the benefits programmes while reinforcing the power of the clients total reward offering.
Our Darwin™ software is deeply embedded in a client's HR operations, with most clients on five year contracts, translating into low churn and a strong recurring revenue stream. It is also, being a SaaS service, very scalable.
2013 was another excellent year for Thomsons, with revenue rising 12% to £36.7m (2012: £32.7m) and adjusted operating profit increasing by 11% to £8.3m (2012: £7.5m). Thomsons is strongly cash generative with high EBITDA margins. The quality of our revenue has improved with recurring revenue increasing by 37%.
We are focused on long-term recurring contracts that increase the number of employees using our Darwin™ platform. Thomsons has increased the number of user logins by 24% in the year to 2.5 million.
The investment from ABRY Partners enabled us to accelerate our mission to revolutionise the global employee benefits market. In particular we have expanded our global technology team to increase delivery of global functionality of Darwin™ in line with client needs and regulatory requirements. As a result Darwin™ saw numerous new releases including the launch of the new Reward Centre globally, the Spending Account Manager in Asia Pacific and the Auto-Enrolment solution in the UK.
In 2013 we opened the Thomsons Academy in Romania to further develop our employees and enable our Partners. 2014 will see further expansion of the Academy to accommodate the development needs of Thomsons own employees and Partners globally.
*Adjusted operating profit is stated before costs incurred on the purchase of the Group by The Benefit Express Holdings Limited originating from the ABRY transaction of £581,915 (2012: nil) and share based payment charge £99,841 (2012: £10,388).
Group revenue increased by 12% to £36.7m, reflecting strong organic growth. The Global Enterprise business grew by 28% and, having secured contract wins in 2013, the Group expects strong growth in 2014.
Thomsons continues to expand revenues with existing clients significantly by offering additional SaaS products and related services. Recurring revenue rose 37%, improving the quality of revenue, and resulting in a more predictable revenue stream for the Group.
Adjusted operating profit grew by 11% to £8.3m (2012: £7.5m), reflecting the key investments during the year including additional development resources for our technology team, scaling our delivery capability, and geographical expansion into the US with our new sales office in San Francisco.
Profit after tax grew by 15% to £7.7m (2012: £6.6m). The Group has benefited from the utilisation of tax losses created on the exercise of company share options, and the reduction of interest following the settlement of the loan notes during the year.
The Group has significantly increased its investment in Darwin™, taking our technology team from 86 at the start of 2013 to 150 in 2014. This is focused on the new Reward Centre, which enhances the user experience of the software, the Auto-Enrolment solution, (an additional module for the UK market driven by local legislation), and the Global Enterprise functionality such as Spending Account Manager. The Group continued to invest significantly in its infrastructure to enable it to scale up to match the planned growth.
The Group had an operating cash conversion rate of 105% and ended the year with a cash balance of £17.5m (2012: £11.6m).
The Group's balance sheet was strengthened during the year following the investment by ABRY, which has resulted in no external debt after the settlement of all outstanding loan notes.
The Global Enterprise market is poised for significant growth. As large multi-nationals continue to expand globally, they struggle with the complexity and challenges associated with administering and communicating employee benefits across multiple countries, with different legislative and cultural requirements.
With fierce competition for talent, and continued pressure on operating costs, there is a pressing need for businesses to use technology to simplify the administration of their benefits strategy, and to enable a user-friendly, tailored and consistent experience for employees, no matter where they are located.
In 2013 Thomsons expanded its sales presence for both direct and indirect sales channels. We opened an office in San Francisco to strengthen relationships with US global headquartered businesses, and increased our presence in EMEA and the Asia-Pacific region.
Over the last 15 years the UK market for employee benefits software has become mature, driven by the adoption of flexible benefit strategies, and legislative factors such as auto-enrolment and salary sacrifice. A secondary, and even tertiary market, is now fully developed as large UK employers seek to change their solution in order to deliver a leading edge benefits experience to their employees, using the latest digital technology.
Significant legislative change in the UK has resulted in Thomsons enjoying a better quality of revenue as it receives a higher level of contracted recurring revenue over a longer period. This gives the business greater visibility, longer term revenue and the predictability to continue building and scaling the business.
The rise of the SaaS HR software market has continued unabated, as more companies move away from on-premise solutions. 60% of organisations are forecast to change their HR or talent management system in the next 18 months. To capitalise on this, Thomsons has developed a number of key collaborations and Partner relationships in the SaaS Human Capital Market, ("HCM"), with leading suppliers already committed, such as SuccessFactors and Benefitfocus. Darwin™ has solved the complexities of global benefits administration and does what has previously been seen as difficult to do. It links aspects of the HCM market together, and sits as the central hub around which the HCM software, payroll software, service providers and employee benefits consultants all pivot. We see enormous potential to rapidly accelerate growth in our market share through referral, reseller and delivery Partners with complementary businesses.
Outlook
In 2014, Thomsons will maintain its strategic focus by increasing the technology investment in our Darwin™ platform, developing key strategic partnerships that accelerate the expansion of our client base, and by continuing to invest in people and processes as Thomsons grows internationally.
With Thomsons' established position as the world leader in employee benefits software, the Group is increasingly positive about continued growth. There are excellent opportunities to add new clients, and grow recurring revenues organically across all geographies. In addition Thomsons will continue to enhance relationships with existing clients by extending the number of products and territories that it operates for them. In 2014 Thomsons has signed some significant International and UK clients which will significantly add employees to our Darwin™ platform, further increasing our usage in the Asia-Pacific and South America regions.
Thomsons are confident that the order book will continue to grow strongly in 2014, with new UK and Global Enterprise clients adding significant numbers of new users to the platform. In addition the Group expects recurring SaaS revenue to grow rapidly as a result of continued client acquisition through the three key channels to market of Global Enterprise, UK and Partners.
Enquiries:
Thomsons Online Benefits +44(0)203-328-4000
Michael Whitfield Group Chief Executive Officer
Paul Smolinski, Chief Financial Officer
Instinctif Partners +44(0)207-457-2020
Adrian Duffield/ Kathy Gordon
