Speaking in the AIM group’s half year report, chief executive Phil Reason added: “While our target markets are generally experiencing stability or growth, our focus is moving toward annually recurring revenue and higher margins, with less reliance on perpetual software license sales.”
High quality revenues
The focus paid off in the first half of the year to June 30 as well, with recurring revenues – which are good for future earnings visibility – now accounting for 63% (H1 2016: 58%) of the total revenue, which came in at £10.3mln (H1 2016: £9.1mln).
Given the “amount of operational change during the period”, top line growth of 13% isn’t to be sniffed at.
A rise in overheads, largely brought on by acquisitions made in 2016 and continued investment into its own technology, meant adjusted profit before tax slipped to £0.1mln (H1 2016: £1mln).
That should improve the second half though, with Instem expecting to realise around £0.75mln in cost savings alone.
In the longer run, the operational review carried out this year should allow the company to save the best part of £1.5mln a year.
After last year’s acquisitions, net cash stood as of 30 June stood at £1.2mln (H1 2016: £4.8mln).
Full year earnings to be in line with expectations
“The continued investment in our outsourced services team has increased our monthly revenue generation and the full benefit of the overhead reductions implemented at the end of the first half of the year will also be realised in the second half of 2017 and beyond,” Reason said.
“Consequently, we anticipate earnings for the full year to be in line with market expectations."
Underlying trading remains strong
As for what to expect in the coming months, Instem repeated its belief that underlying trading remains strong.
The AIM firm said its Regulatory Solutions Business is seeing increasing demand and continues to grow its market share thanks to the recently mandated Standard for the Exchange of Nonclinical Data (SEND).
SEND ensures that each company presents its data in a consistent format, which is what Instem helps them to do.
Elsewhere, it has seen a major expansion of a study management contract with the US government, while it has also received confirmation of a target safety assessment opportunity in its KnowledgeScan business.
Shares were down 5.3% to 160p in early deals on Tuesday.