ClickSoftware Technologies Ltd. (Nasdaq: CKSW), a provider of automated mobile workforce management and optimization solutions for the service industry, has had steady double-digit revenue growth and handsome net profits in the past few years. However, something changed in 2013: it published a revenue warning and swung to a loss, underwent upheaval in its executive, and its share price fell to a three-year low.
ClickSoftware has taken 2014 by storm. In January, it announced that revenue for the fourth quarter of 2013 would be higher than expected, and later provided higher than expected full-year guidance for 2014, which boosted the share price. If that were not enough, last week, it made the largest ever acquisition in its history.
In an interview with "Globes", ClickSoftware founder and CEO Dr. Moshe BenBassat explains the change in the company's revenue model, which caused last year's volatility, how the acquisition fits in with the company's strategy, and why COO Hannan Carmeli left the company two months after being appointed co-CEO.
"Most of our customers to date generated between $500,000 and $2 million revenue for us from software sales and upgrades. Before 2013, the big companies did not buy our cloud software solutions, through which we offer as Software as a Service (SaaS) on a use basis, even though it was part of our products offering," says BenBassat.
"Last year began slowly, but the momentum in the last quarter was amazing. We signed with 19 customers, including 10 in the cloud. Not only did more than half of the new customers choose the cloud service, but in an ordinary quarter, we would normally sign up 8-12 new customers."
This change, in which more customers switched to ClickSoftware's SaaS cloud offering, had an major effect on the company's revenue. Instead of a large one-time payment from the buyer of the software, the company has switched to receiving small, but steady, monthly payments over time, similar to a leasing contract.
As a consequence, ClickSoftware's revenue guidance in early 2013, which projected $120-125 million revenue (up to 25% growth over 2012), turned out to be overoptimistic, resulting in two revenue warnings later in the year.
"In early 2013, we didn’t know that the flow of customers to the cloud would increase at the expense of legacy systems. This took us by surprise. In addition, the nature of the deals, which were smaller, had an effect," says BenBassat explaining the gap between the guidance and actual results. "Altogether, we added 24 cloud customers during 2013, which was strong growth compared with the nine customers in 2012. This helps us create future revenue flow, while we continue sales to our traditional customers, which will also contribute to growth in 2014."
The increase in cloud customers during the fourth quarter boosted ClickSoftware's share price. "The capital market will not judge us on the basis of our revenue in dollars, but on the number of new customers," says BenBassat.
"Globes": Will the change in the revenue structure change the expenses structure?
BenBassat: "We're running all the cloud infrastructures on Amazon servers, on the basis of use. There is congruence between what we charge the customer and the amount we pay Amazon. This is a variable expense in line with variable income."
Although ClickSoftware's revenue did not increase in 2013, its expenses did, resulting in a GAAP-based net loss of $4.2 million. "In 2013, we established offices in Brazil and Russia. There is no revenue yet, but there will be an impact in the coming years. In Russia, we work with Moscow City Telephone Network (MGTS), the city's largest telephone company. In Brazil, we work with Oi Group, the country's largest infrastructure company, and with Nextel."
ClickSoftware had $58 million in cash at the beginning of 2014, and in mid-February, the company decided to use it. It announced an acquisition that demonstrates how it is pinning its hopes on the cloud as its future growth engine. ClickSoftware announced the acquisition of US company Xora Inc. for $15 million in cash.
Why did you decide to acquire this company?
"Xora is an important strategic addition, which will boost our repeat income from cloud services. The combination of ClickSoftware's services, which target the high end of the mid-sized enterprise market with Xora's ready for use customized solutions, which target the lower end of the small and mid-sized enterprise market, will achieve our goal of offering a complete portfolio of products that meet all business needs of companies of every size."
BenBassat adds that the acquisition "will greatly expand our distribution channels."
Complicating the decision-making process
In June 2013, ClickSoftware announced a change in its leadership, following more than 30 years in which BenBassat served as chairman and CEO. The company announced that president and COO Hannan Carmeli would begin serving as co-CEO alongside BenBassat. Their division of labor, according to the statement, would be, "Dr. BenBassat will focus … on product innovation and strategic marketing, while Mr. Carmeli will … manage all field operations."
Carmeli had worked with BenBassat for 17 years, since the days when the company was known as IET, and some investors understood his promotion as a smooth transition for passing the baton to him. But the tango as co-CEOs was very brief.
"Hannan and I worked for many years together, and we thought it would be possible to work as co-CEOs. After two months, we saw that this was a hindrance to decision-making at the company, and we decided that it was better for one man to make the decisions," explains BenBassat.
Carmeli, who realized that there no way to go higher in the company, decided to leave. Another change in ClickSoftware's leadership in the past year was the appointment of Israel Borovich, a controlling shareholder in Knafaim Holdings Ltd. (TASE: KNFM), as chairman, after serving as a director for many years.
ClickSoftware has been periodically mentioned as a candidate for acquisition by one of the world's large software companies.
If a buyer offers a good price for the company, would you advise the board of directors to sell it?
"There are settled rules for this matter. If an offer is made, the board of directors must respectfully consider it."
Have there been offers in recent years?
"I cannot comment on that. It's confidential. A party submitting an acquisition offer does so under a confidentiality agreement."
Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2014
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