Public Software Company Financial Performance: By Product Category

This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here:

In the second quarter, median TTM revenue grew 20% or more in four of our SEG Software Index product categories (Figure 10). Vertically focused software providers led the pack, posting a median 24.2% TTM revenue growth rate. The category was led by Sapiens International (54.0%), PROS Holdings (36.1%), and EPIQ Systems (30.2%). Networking & Network Performance Management finished close behind, closing 2Q12 with a 22.9% TTM revenue growth rate. Companies benefitting from strong demand to optimize performance of cloud infrastructure and mobile networks include Allot Communications (37.5%), Aruba Networks (36.4%), and Keynote Systems (32.7%).

Healthcare providers (22.6%) continue to benefit from massive regulatory changes which attempt to deal with the skyrocketing costs of healthcare by incentivizing healthcare providers to adopt healthcare technology to streamline operations and improve care. The category was led by Greenway Medical Technologies (45.3%), MedAssets (39.5%), Merge Healthcare (39.1%), Accelrys (29.9%) and Simulations Plus (28.4%). The other hot product category with TTM revenue growth above 20% was Billing & Service Management (22.3%).

Five software product categories posted TTM revenue growth rates below 10%: Storage, Data Management & Integration (7.7%), Financial & Accounting (7.1%), Development Platforms (6.4%) and IT Conglomerates (5.3%).

As for the most profitable software product categories, companies in the IT Conglomerate and Vertical – Finance categories posted the highest median EBITDA margins in the second quarter, 36.9%. Among the most profitable of the industry’s behemoths were Oracle (43% EBITDA margin), Microsoft (42%) and SAP (37%). The Vertical – Finance category, consisting of software providers vertically focused on the finance industry, demonstrated strength from top to bottom, with four out of five generating EBITDA margins above 31%. This category was led by MSCI (45.3% EBITDA margins) and FX Alliance (38.3 EBITDA margins).

The Mobile solutions product category had the lowest median EBITDA margin in 2Q12, at 6.6%. Typical of any product category undergoing rapid market adoption and consolidation, EBITDA margins varied drastically from one mobile solutions provider to the next. Gree, an emerging provider of mobile social games, finished 2Q12 with an EBITDA margin of 53.0%. By contrast, Smith Micro, a legacy provider of phone tools to mobile OEMs and wireless carriers, finished 2Q12 with EBITDA margins of -74.4%.

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