Last week, Salary.com reported Q3 2010 earnings. It was the 35th consecutive quarter of revenue growth. Overall, the results were acceptable, not great, but not horrible either. Advertising revenue declined, as expected, and subscription revenue was higher. They continue with 90% retention rates (when you look at revenue, they are signing larger customers so smaller ones are leaving are more than offset by the larger ones).
They had great news for sequential growth, in that the level of activity was picking up, and December was a great quarter for the company. Comp data remains soft, however software is very strong (they said on the call the were seeing 30% declines in the comp data, which they did not see last recession because they were so small and growing faster — a 33% decline means customers are only buying data every third year). They had 4 deals over $250k in the quarter, including one over $500k with Sallie Mae and a $350k win with a global gaming company.
The one big flag in the quarter was the loss of a large payroll client. This caused a large increase in receivables. Unfortunately they didn’t provide a lot of details as they were advised against it for legal reasons. I can only speculate, however the initial thought that comes to mind is they may try to reduce the Genesis purchase price or recover some cash from the sellers as the loss of this deal materially negatively changed the value of Genesis.
They provided guidance for Q4 revenue of $11-$12m, which seems quite wide and puts them in danger of ending the quarterly sequential revenue growth string of almost 9 years.
On the call, management stated, “People look to us as the best in the world on compensation. Deals start with compensation.” This is the thesis behind my owning the shares, it’s good to realize that management still believes that as well.
The good news is that software is still growing over 30%, retention is over 90% on revenue, and when the job market improves, SLRY should see a large portion of their business come back very strong. They don’t provide a revenue breakdown, but even a 30% growth rate on $5m in quarterly comp data revenue would be $1.5m per quarter in revenue, and with SLRY’s business model, most of that will flow to operating earnings.
Disclosure: Long SLRY.Please see full disclaimer.
Tags: Salary.com
