Traditional Software Companies Transitioning to SaaS Final.1 · TRANSITIONING!A TRADITIONAL! SOFTWARE!COMPANY TO!ASAAS!MODEL! ABSTRACT! Awhite!paperfromOPEXEngine!on! key!financial!modelling!differences!

TRANSITIONING A

TRADITIONAL

SOFTWARE COMPANY

TO A SAAS MODEL

ABSTRACT A white paper from OPEXEngine on key financial modelling differences between traditional, perpetual license models and a SaaS business. Includes 5 year financial results from 3 different companies transitioning successfully to high value SaaS models. OPEXENGINE 2017 ALL RIGHTS RESERVED

2017 OPEXEngine. All Rights Reserved www.opexengine.com

Building the Financial Model For Traditional Software Companies

Transitioning to SaaS Most traditional software companies are moving to a Software-as-a-Service (SaaS) model because an increasing number of customers demand the benefits of software delivered via the Cloud. Equally as important, recurring revenues from subscriptions are more highly valued by investors than traditional, perpetual license revenues.

Further, Cloud technologies are advancing rapidly and can help traditional software companies stay competitive in terms of their product set and business model.

In this paper, we will look at how traditional software companies are transitioning to SaaS and what the implications are for their financial models. At the end of this paper, the financial results over five years for three representative companies can be found as examples of three different paths to SaaS. Defining SaaS: The broad outlines of the SaaS business model are generally well known – the cost of hosting software is carried by the vendor and the software is delivered to users as a service accessed via the cloud. SaaS is sold as a recurring subscription (rather than a perpetual license), typically based on either a monthly or annual fee structure.

The SaaS model encompasses both multi-tenant and single-tenant architectures. The preferred or “better” architecture depends on a company’s business goals and requirements. This paper does not analyze the technical merits of these different architectures. Software vendors need to review the cost/benefit and business implications of single-tenant vs. multi-tenant architectures for their existing applications and customer base.

Traditional software vendors with existing on-premises customers, often begin their transition to SaaS by migrating existing apps and customer implementations to the cloud, while evolving their application architectures over time – typically from single-tenant to multi-tenant.

Vendors selling commercial software applications with limited customization may move more quickly to a multi-tenant architecture. Conversely vendors selling more complex applications with large numbers of customers having already implemented significant


customization, may choose not to move (or to move more gradually) to a multi-tenant architecture.

3 Ways Traditional Software Vendors Transition to SaaS: We’ve seen traditional software companies transition to a SaaS business model along one of three different paths:

1. Complete Transition Successful example: Adobe

• Transition your existing products to multi-tenant, hosted subscription products. Transition all your customers, infrastructure, sales and marketing over to SaaS versions of your products.

• Stop selling perpetual license products versions software. • Actively transitioning maintenance customers over to SaaS subscription contracts.

2. Gradual Transition Successful example: QAD

• Introduce new SaaS applications and transition your customers over to the new applications.

• Continue sales of the perpetual license products when requested by customers, and manage maintenance revenues from previous products.

• Stop new development on older perpetual license products, invest in newer SaaS products and focus Sales and Marketing primarily on building SaaS recurring subscription revenues.

• New SaaS applications may be acquired externally and combined or sold alongside organically developed SaaS offerings.

3. Dual Strategy Successful example: Splunk

• Explicitly maintain and grow both existing perpetual software license products and SaaS products.

• Actively manage two different product R&D methodologies and organizations, two different selling and marketing structures.

Strategies 1 and 2 are similar. In both, companies plan to stop supporting the sale of perpetual software licenses;; however, the difference is in the rate at which the perpetual license maintenance revenues are replaced by subscription revenues, how gradually sales of perpetual license products are stopped, and how gradually the sales


and marketing organizations are dedicated to selling only subscription products. Some companies, like Adobe, announce to the market that they are moving entirely over to delivering software through the cloud and customers have no option other than to purchase a subscription. Other companies allow customers to choose between the two different types of product delivery over some period of time, and manage the sales organization to handle both types of sales. In both cases, companies often use highly profitable maintenance revenues to cover the unprofitable early stages of the transition to SaaS recurring revenues, especially as the hosting infrastructure and operation expertise are established, whether through third party hosting services or internally. In strategy 3, a company’s strategy is to maintain and support both a perpetual license and a SaaS set of products, with the added burden of managing two different ways of delivering product and selling to customers. Clearly the cost of maintaining and growing both a perpetual license and SaaS product structures can be high and must be offset by a strong market for both products and licensing models. P&L Implications of Transition Period Each of these strategies require financial teams to carefully model costs and expenses while making the necessary investments to build a valuable SaaS franchise.

Delivering software under a SaaS or cloud-based model requires accounting for expenses in advance of the associated revenues. The complete transition of all customers over to SaaS is easier for companies selling packaged software as compared to enterprise applications with complex integrations in the market. Companies transitioning all their customers at the same time will take a hit upfront to their Cost of Goods (COGs), and thus Gross Margin, as they move all customers over to a hosted version of their software, but the added expense of a hosting

Enterprise versus Packaged Software

Enterprise software is software designed to meet the needs of an enterprise or organization rather than the needs of an individual user. Enterprise software customers are typically larger organizations. Enterprise software usually can be customized, is more expensive and often requires integration with other systems. Vendors invest in expensive sales account reps, usually supported by technical pre-sales and business development reps (BDRs).

Packaged software is sold to individuals, small organizations or companies (SMB market). The price points are lower in the SMB market and the applications are less customizable than enterprise software. Vendors selling packaged software typically invest more R&D to build and continually enhance self-serve web applications and marketing, than Enterprise software vendors.


infrastructure can be balanced against scaling down maintenance delivery expense, also typically part of COGs. The change in recognized revenues from upfront sales to subscription sales (recognized ratably over the lifetime of a subscription) is also easier for companies selling packaged software, as compared to enterprise software companies selling large licenses with most of the revenues recognized upfront. Strategy 2 is typically followed by vendors selling enterprise software, and managing significant maintenance streams. Enterprise software typically requires longer sales cycles and involves more customer personnel in the process of transitioning systems to the cloud which adds delays to the process. Sales compensation structures paid against subscription revenue will also change dramatically for companies selling large enterprise contracts. P&L impact can be lessened by covering the SaaS infrastructure costs with ongoing maintenance streams. Companies following this strategy, however, need to ensure ongoing full investment in infrastructure and SaaS sales in order to not stall the transition.


Traditional Software versus SaaS – SaaS Companies Can Better Forecast Future Performance The following summarizes key differences between a perpetual license revenues model and a SaaS model with implications for financial modeling.

Perpetual License Model SaaS Model

Less visibility to the future More predictive, forward looking: finance teams should have 90-95% accuracy in the forecast within 30 days of period close.

Forecast owned by Sales;; sales-driven P&L

Forecast owned by Finance;; waterfall model-driven P&L

Fewer moving parts, fast moving levers: new products and end of quarter sales efforts can have significant impact on revenues

More moving parts to coordinate, slow building business: last minute sales efforts have little impact on subscription revenues

Value of customer relationship drops off after 1st sale;; less interaction with customers after first sale

Maintaining customer relationship is key: renewals and upselling an ongoing company activity

Customer chooses and pays for all IT to run the software – little impact on vendor’s Cost of Sales

Vendor runs and maintains all software and hardware to deliver SaaS offering – accounted for in Cost of Sales

Can reach profitability relatively quickly but hard to maintain double digit revenue growth at scale

Profitability takes longer to achieve and typically traded off for higher revenue growth, fast rates of customer acquisition and market share

Public markets value less highly at 1 - 2 X revenue

Public markets can value at 5 - 10 times revenue;; the average revenue multiple for public SaaS companies as of June 2017 was 6 times revenue.


Traditional software companies typically focus their financial reporting and business modeling on P&L financial metrics such as recognized revenues, operating expenses and profits. Recognized revenues and bookings are viewed as the key metrics to track current and future sales performance. This model usually has fewer moving parts and as a result, fewer key performance indicators (KPIs).

In the traditional software model, quarterly performance can be volatile, and the sales departments in these companies drive the P&L results. The sales organization usually owns the revenue forecast which is based on predicting the probability of closing new sales. The forecast accuracy is dependent on the quality of sales’ estimates of whether contracts will close in the period.

SaaS Model Driven by Non-GAAP Metrics A recurring revenue software business, by contrast, tracks important financial AND non-financial operating metrics. A valuable SaaS business is a high growth business that continually adds and keeps subscribers, a process which is not easily captured through traditional, point-in-time financial metrics. Numerous operational metrics better capture how customer acquisition and revenues are building.

SaaS management and board reporting typically cover more KPIs on recurring revenue growth, customer acquisition and retention, customer engagement with products, marketing funnels, and hosting performance (particularly in relation to committed Service Level Agreements or SLAs), as well as cash flows.

• Growth and velocity rates (i.e. how fast customers are being acquired and how fast revenues are accruing) become as important as actual numbers.

• SaaS revenues are slow in building, with cash outflow far outpacing cash inflow and revenue recognition in the early stages.

Key SaaS KPIs Key SaaS KPIs tracked by SaaS management teams and investors include the following:

• Annual Recurring Revenues (ARR) / Monthly Recurring Revenues (MRR) • ARR Growth Rate / MRR Growth Rate • Number of Subscribers / Subscription Growth Rate • Average Revenue per Subscriber (ARPU) • Customer Lifetime Value (CLV) • Customer Acquisition Cost (CAC) • Months to Recover CAC • Customer Retention Rate/Churn / Net Dollar Retention Rate/Churn • Gross Margin • Operating Income


• Cash from Operations

In addition, many companies track at a management level customer engagement and customer satisfaction levels, as a way of forecasting retention and upsell opportunity

A Financial Model that Investors Value: Rule of 40 There is much discussion in the SaaS investment community about the “Rule of 40,” which is an equation adding revenue growth to EBITDA margins targeting a sum of 40 or more. A SaaS company growing at 60% annual growth can have 20% negative margin, but a SaaS business growing at 30% annual revenue growth should have at least 10% EBITDA margin.

Public SaaS vendors that score higher than 40 average revenue multiples of 6.4 times TTM (through June 2017).

It is clear, though, that technology investors continue to value revenue growth MORE highly than operating income in the equation. Only seven of the 39 Cloud companies that have gone public since 2013 had positive EBITDA at the time of IPO. For comparison, 32 out of 53 companies that went public prior to 2013 had positive EBITDA.

Cloud Infrastructure to Support Growth Also Valued While companies need to demonstrate strong subscription revenue growth, sophisticated investors will also look at whether a company is preparing for sustained growth with a proven cloud infrastructure capable of supporting long-term customer expansion.

The market for third party cloud providers has matured enough that analysts generally feel these service providers are better able to provide the latest security and performance capabilities. SaaS companies can effectively leverage the ongoing investments made by service providers in cloud infrastructure and operations. This allows vendors to focus on their core applications and competitive advantages.

In recent research from the Harvard Business Review, analysts found that leveraging an external cloud service provider was more highly valued by investors than building and managing hosting environments internally.

“We found that partnering with an external cloud service provider to deliver SaaS (instead of building and managing the cloud infrastructure on your own) leads to a further 2.9% increase in stock price on the announcement day.” HBR Jan.12, 2017


Conclusions To succeed in a market dominated by “born-in-the-cloud” software companies, traditional vendors have to move beyond simply repositioning their old offerings as SaaS. They need to fully embrace SaaS as a business model to create new innovative products and outstanding services that delight customers on a sustainable basis.

The total focus of the business on delighting customers typically requires a complete transformation of company operations. Some companies choose to run their SaaS offerings as totally separate business units with their own product development, infrastructure, sales, services and customer success organizations as they gain experience with the SaaS business model.

Whichever strategy a company follows in transitioning to SaaS, the finance team needs to build financial models and systems incorporating the key issues outlined in this paper and keep learning from other successful companies.

Not all companies will succeed at transitioning quickly to a SaaS model. Those companies that do make a successful transition will generate loyal buyers, increased revenues and position themselves for continued profitable growth. Successful companies will build more valuable companies in the eyes of investors and customers, and will be better positioned to take advantage of new Cloud technologies which will surely continue to evolve.

About OPEXEngine Founded in 2016, OPEXEngine delivers financial and operating benchmarks for private and public software and SaaS companies through its leading benchmarking platform: BenchmarkEngine™.

Hundreds of companies subscribe to OPEXEngine’s benchmarking platform for budgeting, planning, and to provide context for investment decision-making. For more information, learn more by contacting OPEXEngine at [email protected]. OPEXEngine is based in the Boston area.


ADDENDUM: ADOBE, QAD and SPLUNK FINANCIAL RESULTS Example 1: Complete Transition ADOBE is a successful example of relatively quickly transitioning all customers over to a hosted subscription model. On April 23, 2012, Adobe Inc. launched a Software-as-a-Service (SaaS) subscription version of its key product line, Creative Suite, causing its net income to plummet by almost 35% percent the following year. By April 2016 Adobe’s stock price had nearly tripled from its value four years earlier. Example 2: Gradual Transition QAD is an example of the more gradual transition strategy. By Jan. 2017, QAD had reduced its perpetual license sales to 8% of total revenue and increased subscription revenues to almost 20%, but maintenance remains almost 50% of revenue. QAD’s subscription revenues have a 5 year CAGR of almost 40% and the company’s market cap to revenue multiple has increased more than 4 X in 5 years. QAD has managed to transition some customers from significant maintenance contracts of almost $500K/annually to subscription contracts of almost $1.5M/annually, showing the value of the SaaS business model over a traditional perpetual license – sell once, and charge 15-20% maintenance thereafter – model. Example 3: Dual Strategy SPLUNK has followed the third strategy of building a SaaS product business, but also maintaining a perpetual license “fall back” option for customers that prefer it. Running two business models in parallel can imply a duplication of resources and hinder SaaS revenue growth if not managed successfully. Splunk has balanced the cost with very high growth, averaging over 50% annual revenue growth over the past 5 years. Investors have rewarded the company with an average 14X market cap to revenues.

The following graphs show five-year financial results for the three companies.


FINANCIAL INSIGHTS REPORT. ADOBE SYSTEMS INC.

Source: OPEXEngine EdgarEngine™

Company ADOBE SYSTEMS INC

Reporting Period Full Year 2016

Full Year 2015

Full Year 2014

Full Year 2013

Full Year 2012

Five Year Average

($000s) VALUATION COMPARISONS Market Cap (diluted, priced as of the period end date) $50 293 739 $46 745 306 $37 464 806 $29 155 167 $17 399 174 $36 211 639 Revenue to Market Cap Multiple 8,59 9,75 9,03 7,19 3,95 7,70 Price to Earnings Ratio 42,44 73,15 136,44 97,90 20,60 74,11 Earnings Per Share (diluted) 2,35 1,26 0,54 0,58 1,68 1,28

REVENUE COMPARISONS Recognized Revenue $5 854 430 $4 795 511 $4 147 065 $4 055 240 $4 403 677 $4 651 185 Annual Revenue Growth 22,1% 15,6% 2,3% -7,9% 4,5% 7,3% 3 Year Revenue CAGR 13,0% 2,9% -0,6% 2,2% 14,3% 6,4% Short-Term Deferred Revenue (This Period) $1 945 619 $1 434 200 $1 097 923 $775 544 $561 463 $1 162 950 Deferred Revenue as a % of Recognized Revenue 33,2% 29,9% 26,5% 19,1% 12,7% 24,3%

COST AND EXPENSE COMPARISONS Cost of Goods and Services Sold as a % of Revenue 14,0% 15,5% 15,0% 14,5% 11,0% 14,0% S&M Expense as a % of Recognized Revenue 32,6% 35,1% 39,8% 40,0% 34,4% 36,4% G&A Expense as a % of Recognized Revenue 9,9% 11,1% 13,1% 12,8% 9,9% 11,4% SG&A Expense as a % of Recognized Revenue 42,5% 46,2% 52,9% 52,8% 44,3% 47,7% R&D Expense as a % of Recognized Revenue 16,7% 18,0% 20,4% 20,4% 16,9% 18,5% Total Operating Expense as % of Recognized Revenue * 60,5% 65,6% 75,0% 75,1% 62,2% 67,7%

EMPLOYEE PRODUCTIVITY COMPARISONS ** Total Headcount (Year End) 15 706 13 893 12 499 11 847 11 144 13 018 Total Revenue Per Employee $373 $345 $332 $342 $395 $357 Total Operating Expense per Employee $225 $227 $249 $257 $246 $241 EBITDA Per Employee $116 $89 $58 $63 $133 $92 Total Operating Profit per Employee $95 $65 $33 $36 $106 $67 ($000s)

PROFITABILITY ANALYSIS COMPARISONS Gross Margin 86,0% 84,5% 85,0% 85,5% 89,0% 86,0%


Company ADOBE SYSTEMS INC


Full Year 2015

Full Year 2014

Full Year 2013

Full Year 2012

Five Year Average

Total Operating Profit Margin 25,5% 18,8% 10,0% 10,4% 26,8% 18,3% Total Pre-Tax Margin 24,5% 18,2% 8,7% 8,8% 25,4% 17,1% Total Net Margin 20,0% 13,1% 6,5% 7,2% 18,9% 13,1% After Tax Return On Assets 9,2% 5,4% 2,5% 2,8% 8,3% 5,6%

CASH FLOW AND BALANCE SHEET COMPARISONS Cash as a % of Revenue 17,3% 18,3% 26,9% 20,6% 32,4% 23,1% Cash from Operations $2 199 728 $1 469 502 $1 287 482 $1 151 686 $1 499 580 $1 521 596 Cash Conversion Effectiveness - Operating Cash as a % of Revenue 37,6% 30,6% 31,0% 28,4% 34,1% 32,3% Annual Operating Cash Flow Growth 49,7% 14,1% 11,8% -23,2% -2,8% 9,9% Cash Ratio 1,7 1,8 1,5 2,1 2,8 2,0

* Operating Expenses: May include other items not included in SGA and R&D, such as restructuring, one-time expenses, etc.

** Headcount: Headcount data is as of the most recent full year, so Q1, Q2, and Q3 quarterly reports will reflect the headcount from the end of the previous year.

Data Source: EDGAR Online (www.edgar-online.com) make no claims concerning the validity of the information provided hereby and will not be held liable for any use of this information. The information provided herein may be displayed and printed for your internal business use only and may not be reproduced, retransmitted, distributed, disseminated, sold, published, broadcast or circulated to anyone without the express written consent of EDGAR Online and OPEXEngine, LLC.


FINANCIAL INSIGHTS REPORT. QAD INC.


Company QAD INC


Full Year 2016

Full Year 2015

Full Year 2014

Full Year 2013

Full Year 2012

Five Year Average

($000s) VALUATION COMPARISONS Market Cap (diluted, priced as of the period end date) $531 554 $350 981 $316 931 $283 320 $119 761 $113 364 $285 985 Revenue to Market Cap Multiple 1,91 1,26 1,07 1,06 0,47 0,46 1,04 Price to Earnings Ratio -34,40 37,78 23,02 43,31 17,15 10,18 16,17 Earnings Per Share (diluted) -0,84 0,49 0,84 0,42 0,81 1,27 0,50

REVENUE COMPARISONS Recognized Revenue $277 973 $277 852 $295 101 $266 311 $252 172 $247 258 $269 445 Annual Revenue Growth 0,0% -5,9% 10,8% 5,6% 2,0% 12,4% 4,2% 3 Year Revenue CAGR 1,4% 3,3% 6,1% 6,6% 5,4% -2,0% 3,5% Deferred Revenue as a % of Recognized Revenue 37,5% 35,2% 34,8% 39,1% 40,1% 38,0% 37,5%

COST AND EXPENSE COMPARISONS Cost of Goods and Services Sold as a % of Revenue 47,1% 45,6% 44,6% 43,9% 42,7% 42,6% 44,4% S&M Expense as a % of Recognized Revenue 24,2% 23,9% 23,6% 24,8% 24,7% 23,6% 24,1% G&A Expense as a % of Recognized Revenue 11,6% 11,8% 11,8% 12,0% 12,7% 12,1% 12,0% SG&A Expense as a % of Recognized Revenue 35,8% 35,7% 35,4% 36,8% 37,3% 35,7% 36,1% R&D Expense as a % of Recognized Revenue 15,7% 14,8% 14,3% 15,5% 15,2% 14,4% 15,0% Total Operating Expense as % of Recognized Revenue * 51,7% 50,8% 50,0% 52,5% 52,7% 50,2% 51,3%

EMPLOYEE PRODUCTIVITY COMPARISONS ** Total Headcount (Year End) 1 710 1 680 1 650 1 570 1 540 1 460 1 602 Total Revenue Per Employee $163 $165 $179 $170 $164 $169 $168 Total Operating Expense per Employee $84 $84 $89 $89 $86 $85 $86 EBITDA Per Employee $6 $9 $13 $10 $11 $15 $11 Total Operating Profit per Employee $2 $6 $10 $6 $8 $12 $7

PROFITABILITY ANALYSIS COMPARISONS Gross Margin 52,9% 54,5% 55,4% 56,1% 57,3% 57,4% 55,6% Total Operating Profit Margin 1,2% 3,7% 5,4% 3,5% 4,7% 7,2% 4,3% Total Pre-Tax Margin 1,4% 3,8% 5,3% 3,8% 4,1% 6,8% 4,2% Total Net Margin -5,6% 3,2% 4,4% 2,4% 2,6% 4,4% 1,9% After Tax Return On Assets -5,5% 3,1% 4,6% 2,7% 2,9% 4,9% 2,1%


Company QAD INC


Full Year 2016

Full Year 2015

Full Year 2014

Full Year 2013

Full Year 2012

Five Year Average

($000s)

CASH FLOW AND BALANCE SHEET COMPARISONS Cash as a % of Revenue 52,2% 49,6% 40,8% 28,5% 25,8% 31,1% 38,0% Cash from Operations $18 680 $24 057 $23 963 $24 140 $16 039 $21 448 $21 388 Cash Conversion Effectiveness - Operating Cash as a % of Revenue 6,7% 8,7% 8,1% 9,1% 6,4% 8,7% 7,9% Annual Operating Cash Flow Growth -22,4% 0,4% -0,7% 50,5% -25,2% -17,2% -2,4% Cash Ratio 1,0 1,0 0,8 0,5 0,5 0,6 0,7





FINANCIAL INSIGHTS REPORT. SPLUNK INC.


Company SPLUNK INC


Full Year 2016

Full Year 2015

Full Year 2014

Full Year 2013

Five Year Average

($000s) VALUATION COMPARISONS Market Cap (diluted, priced as of the period end date)

$7 748 033

$5 867 072

$6 186 379

$8 093 311

$2 644 908

$6 107 941

Revenue to Market Cap Multiple 8,16 8,78 13,72 26,74 13,29 14,14 Price to Earnings Ratio -21,83 -21,04 -28,54 -102,71 -71,65 -49,15 Earnings Per Share (diluted) -2,65 -2,20 -1,81 -0,75 -0,46 -1,57

REVENUE COMPARISONS Recognized Revenue $949 955 $668 435 $450 875 $302 623 $198 944 $514 166 Annual Revenue Growth 42,1% 48,3% 49,0% 52,1% 64,5% 51,2% 3 Year Revenue CAGR 46,4% 49,8% 55,0% 65,9% na 54,3% Short-Term Deferred Revenue (This Period) $478 707 $347 121 $249 883 $149 156 $79 568 $260 887 Deferred Revenue as a % of Recognized Revenue 50,4% 51,9% 55,4% 49,3% 40,0% 49,4%

COST AND EXPENSE COMPARISONS Cost of Goods and Services Sold $191 053 $114 122 $68 378 $35 825 $21 424 $86 160 Cost of Goods and Services Sold as a % of Revenue 20,1% 17,1% 15,2% 11,8% 10,8% 15,0% S&M Expense as a % of Recognized Revenue 68,8% 75,6% 76,4% 71,2% 62,9% 71,0% G&A Expense as a % of Recognized Revenue 16,1% 18,2% 22,9% 17,8% 16,4% 18,3% SG&A Expense as a % of Recognized Revenue 84,9% 93,8% 99,3% 89,0% 79,3% 89,2% R&D Expense as a % of Recognized Revenue 31,1% 32,2% 33,4% 25,1% 21,0% 28,6% Total Operating Expense as % of Recognized Revenue * 116,1% 126,0% 132,7% 114,0% 100,3% 117,8%

EMPLOYEE PRODUCTIVITY COMPARISONS ** Total Headcount (Year End) 2 700 2 100 1 400 1 000 736 1 587 Total Revenue Per Employee $352 $318 $322 $303 $270 $313 Total Operating Expense per Employee $408 $401 $427 $345 $271 $371 EBITDA Per Employee ($114) ($127) ($145) ($72) ($24) ($96) Total Operating Profit per Employee ($127) ($137) ($154) ($78) ($30) ($105)

PROFITABILITY ANALYSIS COMPARISONS


Company SPLUNK INC


Full Year 2016

Full Year 2015

Full Year 2014

Full Year 2013

Five Year Average

($000s) Gross Margin 79,9% 82,9% 84,8% 88,2% 89,2% 85,0% Total Operating Profit Margin -36,2% -43,1% -47,9% -25,9% -11,1% -32,8% Total Pre-Tax Margin -36,8% -42,9% -47,7% -26,1% -18,1% -34,3% Total Net Margin -37,4% -41,7% -48,2% -26,1% -18,4% -34,4% After Tax Return On Assets -20,7% -18,1% -17,4% -7,6% -9,4% -14,6%

CASH FLOW AND BALANCE SHEET COMPARISONS Cash as a % of Revenue 44,4% 63,5% 85,9% 296,6% 153,8% 128,8% Cash from Operations $201 834 $155 622 $103 980 $73 848 $46 648 $116 386 Cash Conversion Effectiveness - Operating Cash as a % of Revenue 21,2% 23,3% 23,1% 24,4% 23,4% 23,1% Annual Operating Cash Flow Growth 29,7% 49,7% 40,8% 58,3% 219,0% 79,5% Cash Ratio 1,6 2,0 2,5 4,3 2,6 2,6




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Traditional Software Companies Transitioning to SaaS Final.1 · TRANSITIONING!A TRADITIONAL! SOFTWARE!COMPANY TO!ASAAS!MODEL! ABSTRACT! Awhite!paperfromOPEXEngine!on! key!financial!modelling!differences!