Diligent expects 19% rise in sales

The company's shares closed down 17c at $5.95 last night. Photo / File

Diligent Board Member Services, the governance software developer, expects sales growth of up to 19 per cent in 2015 as it attracts customers to its BoardBooks service, and plans to launch a new product this year.

Revenue climbed 28 per cent to US$83.1 million ($110.39 million) in calendar 2014, beating the guidance it gave in November of between US$82.5 million and US$83 million, the company said.

Diligent added 20,200 users last year, lifting its total to 92,781. Client subscriptions rose to more than 3000 from about 2400 a year earlier.

Customer retentions exceeded 95 per cent, but were down from 97 per cent a year earlier.

Sales are forecast to rise to between US$97 million and US$99 million this year, though further appreciation in the US dollar could crimp earnings, said acting chief financial officer Alex Sanchez.

Diligent's earnings before interest, tax, depreciation and amortisation (ebitda) margin was expected to be between 24 per cent and 26 per cent, Sanchez said. That would be down from an ebitda margin of 29.6 per cent in 2014.

The company's shares closed down 17c at $5.95 last night.

Diligent announced plans to launch a new product - DiligentTeams - in the third quarter of this year. Chief executive Alex Sodi said the new product would let companies use the firm's workflow and security software to improve collaboration. It would 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 per cent. Costs relating to the new product will be capitalised. Sanchez said capital expenditure this year would 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.

"Ebitda numbers are obviously impacted by the change in treatment around the capitalisation of costs, so that's one thing we'll need to get our heads around -- how much of that relates to the underlying change or is it primarily just a treatment."

DiligentTeams is not expected to make a meaningful contribution to Diligent's earnings this year, and Galpin said it would probably be about 15 months before investors could gauge its success.

The firm continued to build up its cash holdings, with cash and equivalents of US$70.8 million at December 31, up from US$56.1 million a year earlier. The board did not declare a dividend, and Sodi said the firm planned 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 said Diligent was pursuing what it saw as "compelling growth opportunities" to build long-term shareholder value, and was still evaluating potential acquisitions.

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

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

Net profit rose to US$8.59 million in calendar 2014, from US$5.9 million a year earlier, the New York-based, NZX-listed company said.

About 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.