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SLI System reports net loss, as expansion costs rise faster than sales; shares drop

SLI Systems [NZX: SLI], the retail search engine software company with a $156 million market cap, turned to a loss of $2.3 million in the first-half, as a 12 percent gain in sales was offset by a 53 percent increase in operating costs. The company's shares fell 5.4 percent.

Total revenue and other income was $10.7 million for the six months ended Dec 31, the Christchurch-based company said in a statement. It did not provide any pro forma numbers but figures from its May prospectus show revenue in the six months ended Dec. 31, 2012, at $9.6 million. The company had a profit of $795,000 in the year earlier period, according to the prospectus figures.

Shares in SLI Systems dropped 15 cents to $2.65, making the stock the second-worst performer on the New Zealand stock exchange All Ordinaries Index today. The stock listed at $1.50 in May.

SLI Systems, which includes Warehouse Stationery and Qantas Airways as clients, listed year to raise capital as it sought to attract big international retailers as clients. It says its online shopping search engines boost sales, making it easier for customers to find goods and recommending alternatives.

"The strength of this benefit is illustrated in the strong growth we've seen in the number of search queries SLI services for our customers," chief executive Shaun Ryan said. "In the month of December 2013 we served in excess of a billion queries across our global customer base. That was 50 percent higher than the number of queries we served in December 2012."

Operating costs rose to $13.3 million from $8.7 million a year earlier. Employee costs rose 47 percent to $7.8 million as it hired 18 new full-time staff, growing its full-time employee numbers to 137. Its cash balance was $13.6 million.

Annualised recurring revenue, a favoured measure of sales for software-as-a-service firms, rose 26 percent to $21.6 million, with total customers at 445, slightly under its forecast, with a retention rate of 91 percent.

The company affirmed its forecast ARR of $25.9 million for the full year as given in its prospectus. It said it will continue to chase sales in Japan, and build on existing client bases in Brazil, New Zealand, Australia, UK and US.


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Comments and questions

Makes sense - they raised money in the IPO in order to grow faster, and that means more staff etc. a la Xero.

I dont think the high tech, venture/expansion world is that simple, Lance. At any point do you hold any company to account if they are posting huge losses? Or can everyone get a hall pass if they just say they are doing it to try to grow? You can't be that obtuse

I think this business is simple.

SLI's job is to maximise the NPV of the future cash flows to shareholders. By investing now they can return a lot more to shareholders in future years. Underinvest now and they will stay as a once little business, and risk someone else taking out the market. It may be a common theme in fast growing companies (SLI, Xero, Vend) but the numbers are pretty easy to work out. SLI should be able to tilt their growth curve higher with their investment, and we should be watching the revenue with interest.

Their market is very fragmented, and while SLI are growing more quickly than many competitors, I'd really like to see them start to take over a few, and build critical mass to compete with the very large companies who are dabbling in this space.