Diligent sees sales rising up to 19% in 2015, plans new product launch

Diligent Board Member Services [NZX: DIL], the governance software developer, expects sales growth of up to 19 percent in 2015 as it attracts customers to its BoardBooks service, and plans to launch a new product later this year. The shares rose to an 18-month high.

The company's revenue climbed 28 percent to US$83.1 million in calendar 2014, beating the guidance it gave in November of between US$82.5 million and US$83 million, it said in a statement. Diligent added 20,200 users last year, lifting its total to 92,781. Client subscriptions rose to more than3,000 from about 2,400 a year earlier. Customer retentions exceeded 95 percent, but were down from 97 percent a year earlier.

Sales are forecast to rise to between US$97 million and US$99 million in 2015, though further appreciation in the US dollar could crimp earnings, acting chief financial officer Alex Sanchez told analysts on a conference call. Diligent's earnings before interest, tax, depreciation and amortisation margin is expected to be between 24 percent and 26 percent, Sanchez said. That would be down from an Ebitda margin of 29.6 percent in 2014.

The shares rose as high as $6.40, the highest since July 2013, and were recently up 1 percent to $6.18. The stock is rated an average 'buy' based on five analyst recommendations compiled by Reuters.

Diligent announced plans to launch a new product - DiligentTeams - in the third quarter of this year. Chief executive Alex Sodi said the new product will let companies use the firm's workflow and security software to improve collaboration. It will be separate, but complementary, to the BoardBooks tool, he said.

As a result of the new product rollout, Diligent will increase spending on research and development, lifting staff numbers by about 30 percent. Costs relating to the new product will be capitalised. Sanchez said capital expenditure in 2015 will double to about US$14 million.

"The revenue forecast was a bit higher than what we picked it would be," said Blair Galpin, senior equity analyst at Forsyth Barr in Auckland. "Ebitda number are obviously impacted by the change in treatment around the capitalisation of costs, so that's one thing we'll need to get our head around - how much of that relates to the underlying change or is it primarily just a treatment."

DiligentTeams isn't expected to make a meaningful contribution to Diligent's earnings this year, and Galpin said it will probably be about 15 months before investors can gauge its success.

The firm continued to build up its cash holdings, with cash and equivalents of US$70.8 million as at Dec. 31, up from US$56.1 million a year earlier. The board didn't declare a dividend, and Sodi said the firm plans to invest in building the product and beefing up its global sales team.

Forsyth Barr's Galpin said it was normal for a US company to retain cash the way Diligent has, rather than return capital to shareholders, which is typical in New Zealand.

Executive director and vice chairman Greg Peterson told the briefing Diligent is pursuing what it sees as "compelling growth opportunities" to build long-term shareholder value, and is still evaluating potential acquisitions.

"Returning capital to shareholders at this time is a sub-optimal use of cash," Peterson said.

Diligent is still considering a dual-listing on the Nasdaq, Peterson said.

Net profit rose to US$8.59 million, or 7 US cents per share, in calendar 2014, from US$5.9 million, or 5 US cents, a year earlier, the New York-based, NZX-listed company said. Some US$3.7 million of costs weighed on the bottom line, reflecting the firm's investigation into a series of administrative errors that saw the overpayment of options to management and the incorrect recognition of revenue, prompting a restatement of the company's accounts. That was on top of US$7.8 million of costs incurred in the 2013 year, also relating to these issues.

(BusinessDesk)