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Sage turns in solid first half numbers with focus on AI, partnerships and scaling Intacct

Stuart Lauchlan Profile picture for user slauchlan May 17, 2024
Summary:
Sage CEO Steve Hare on the company's priorities for the second half of the year.

Sage CEO Steve Hare - at Sage Transform 2022
(Sage CEO Steve Hare at Sage Transform '22)

Sage took a dip on the stock market yesterday despite turning in strong first half numbers that saw Annual Recurring Revenue (ARR) up 11% year-on-year to £2.25 billion and underlying operating profit of £254 million, up, 18%.

For CEO Steve Hare, it’s a case of keep on keeping on: 

Our purpose is to knock down barriers so that everyone can thrive, starting with our customers…Our small business tracker analyses data from 130,000 SMBs, and it shows that despite the challenging macro environment, SMBs have remained resilient with rising revenues and profits as they entered 2024. But they continue to face barriers, including cash flow issues caused by late payments and weak productivity growth. Sage knocks down those barriers for SMBs…with our market insights showing that less than half of SMBs in Europe currently use accounting and payroll software, our opportunity for growth is significant, particularly given ambitious EU plans to support digitalization. 

Sage continues to invest in product, he said, with AI cited as a major technology driver:

We've invested in world-class Machine Learning infrastructure, and we're using it to rapidly develop and deploy models that are unique to each customer and trained on their individual data. These are driving more and more AI capabilities throughout our products, including in services such as accounts payable automation, outlier detection, and time management. And in April, early adopters went live with Sage Copilot, our digital productivity assistant, as we begin our UK rollout.

Using generative AI, Sage Copilot saves time, provides deeper insights, and supports decision-making. And it does all of this through an intuitive natural language interface. In short, acting like a trusted member of the finance team. With small businesses and accountants now providing us with valuable feedback, we will be deploying it globally over time across our entire customer base.

But Hare was pragmatic in his outlook for gen AI:

We think Sage Copilot is leading the way in the industry. I mean I would be sort of slightly cautious about what impact that will have on revenue in the short-term. But I think what it will do is, it will create a lot of momentum and both with new customers, but also with existing customers.

Intacct

Another strategic priority is continued scaling of Sage Intacct. Hare explained: 

We've invested in innovative features such as improved bank feeds and new dashboards. We've introduced deeper vertical capabilities to help manage operations, for example in non-profit and healthcare. And we've expanded Sage Intacct beyond the US, initially into other English-speaking markets, and more recently into Continental Europe. In France, where we launched last year, we're already building traction.

The partners I've met with are engaged and excited, and customer feedback is encouraging. Cultures Food, a catering company in Paris, told me that although they've only recently switched to Sage Intacct, it's already transforming their operations through real-time data and insights. And earlier this year, we also introduced the solution into Germany. So as a result of all of this, Sage Intacct grew ARR by about a quarter in the US, whilst outside the US, it grew by two-thirds to £40 million.

Partnerships are also a priority for Sage, he added:

We've deepened our collaboration with Amazon Web Services with a commitment to develop a domain specific large language model. This will serve as a foundation for SMBs to navigate accounting and compliance more easily, combining AWS's processing power with our market knowledge. We will also make Sage Earth, our easy to use carbon accounting solution, available in the AWS marketplace, enhancing distribution and reach.

And finally, rapid growth in our innovative partnership with Tide is enabling Sage to acquire more new customers earlier in their lifecycle. Now, our success depends on our ability to deliver for our stakeholders, starting with our customers. Sage helps SMBs succeed by delivering great technology with a human touch.

Hare concluded:

Our strategy, underpinned by innovation, is driving significant growth in all regions. We're leveraging our scale by rolling out global solutions across our markets.

We're building deeper vertical and broader functional capabilities brought together as suites in a simpler, more integrated proposition. And we're using our expertise and years of investment in AI to deliver a step change in the customer experience. Sage is differentiated by our leading technology, the breadth of our business, and our human touch.

We have deep local expertise across financials, payroll, and HR, serving a wide range of SMBs across diverse geographies. Our network, combined with Sage Copilot, enables customers to save time, and benefit from greater insights than ever before. And finally, as we grow the business in absolute terms, this creates the headroom both to increase investment and to expand margins, driving sustained efficient growth.

My take

The disappointing share price drop was unfortunate given the solid performance and the ongoing direction of travel clearly being upward. The firm’s forecast for the second half, which seems to be what spooked some investors, is commendably transparent and pragmatic given continued macro-economic uncertainties. As Hare noted: 

I think there are some just signs that CFOs maybe just taking slightly longer to make decisions…I think the products that we're introducing, the enhancements we're introducing to Sage Intacct, the advent of stronger gen AI functionality means that those medium-sized CFOs have a compelling business case more than ever to upgrade to the latest technology. It's just they're probably taking slightly longer to make the decision.

Onwards!

 

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