Jay Shaw of NetDimensions speaks to Stockopedia

On the line from Hong Kong, Jay Shaw sounds as upbeat as ever on the prospects for his company despite having spent the last two years negotiating economic conditions that have wreaked havoc in his market. For the chief executive of AIM listed HR software company NetDimensions (Holdings) Ltd (LON:NETD) , the recession has presented a few surprising opportunities to gain ground, including the chance to make its first acquisition in April this year of the software distribution business of its AIM listed reseller, Intellego Hldgs (LON:IHP) .

With revenues up 11% to US$3.38m in the first six months of the year and a traditionally stronger second half showing no signs of disappointing, Shaw is keen to expand further. With headcount growing from 50 to 75 during the first half, the company swung to a loss of US$0.26m from a profit in the same period last year of US$0.41m. Nevertheless, Shaw and his finance director Clarence Wu, are insistent that the company is well placed to make progress in a series of strategic regions.

For investors eyeing the wider sector, NetDimensions’ presence in the software segment of the AIM market means that its peers range from the likes of Lombard Risk Management (LON:LRM) , Brady (LON:BRY) and Bond International Software (LON:BDI) .

NetDimensions was set up in 1999 to sell its own performance, knowledge and learning management software to corporates. Its flagship product EKP, the Enterprise Knowledge Platform has just received a new makeover and a mobile version, mobile EKP, was launched in July. The company’s software and services help companies deliver and manage corporate training, career development, assessment and certification programs, and help clients around the world address growing regulatory compliance needs. Shares in the company began 2010 on a 12 month low of 14.5p and reached a high earlier in September of 25p before dropping back to 21p. Jay Shaw spoke to Stockopedia about the progress of NetDimensions over the course of the past two years and his plans to take the business forward.

Two years ago you predicted a couple of years of tough trading conditions for NetDimensions and that has proved to be the case. What is your overall sense of how the company has grown over that time and in particular the first six months of this year?

Well certainly 2008 was a rocky year for us. 2009, I felt like we were back on track and I’m quite happy about this year. In the first half of this year the sales revenue was up and we did our first acquisition. When we listed we said we would be interested in doing bolt-on on acquisitions of either of our resellers or companies that looked like our resellers in key markets. So we have identified the US, the UK, France, Germany, Brazil, China and Japan as key sales markets for us. Finally, we did our first acquisition in the UK of Intellego and so we feel quite happy about that. There is more to come and we’ll be announcing as soon as we have signed deals to announce but that is one big piece of the puzzle. It took us a year or two to find our feet and to figure out how to do the acquisition actually in a way that made sense for everyone but we feel pretty good about that now.

The economic turmoil hurt many of our competitors much more than it hurt us. Because we were always quite disciplined about managing costs and because we have had cash in the bank we’ve been in a position to close sales and look safe and comfortable to potential buyers during a period when some of our competitors didn’t look so good. So we’re not unhappy about the way things happened. Obviously everybody wants for better all the time but I think we’re in a pretty good position right now.

Over the last year or so you have moved to try and pivot the software as ‘mission critical’ for your customers. You have since released new versions and focused on sales and marketing, so where has that taken you?

Well you’ve hit the nail on the head; we’re still very much focused around the idea of using our software for compliance purposes. Now, if you look at all the research on technology purchasing, or the psychology of technology purchasing, companies buy software for one or more of four reasons and it doesn’t matter what the software is, these four reasons cover everything. Companies buy software either to cut costs, to increase productivity, to manage risk or to foster change and of those four we are good at two, which is cutting cost and managing risk and so ironically, in a period of economic turmoil, cutting cost and managing risk become, if anything, more important.

So the economic downturn has been a trigger for many buying decisions?

Yes, banks, insurance companies, brokerage houses; other financial companies do training of staff and independent agents because regulators require them to. The independent agents, the contractors, the full time employees have to be fit and proper, they have to be properly trained and properly managed and our platforms help companies do that.

It seems that your push on sales marketing has paid dividends, in Europe especially, during the first six months and you also mentioned a string of countries of interest. Are there particular regions where you are really looking to push the company out?

Well of those six countries, the top would be UK, US, China and Japan. So those would be the areas we care about moving in first, simply because the US is the biggest software market in the world, China’s the fastest growing, Japan is the second biggest and we have already made a move in the UK. So as much as we love France, Germany and Brazil, they would be the bottom of the list, important but not quite as crucial to move in quickly as the others.

In terms of further acquisitions I’m interested in how you see the market at the moment. Who would you count as your competitors and where have the others struggled?

There are hundreds of companies around the world that do HR software of one kind or another and it runs the whole gamut, from payroll to applicant tracking systems to what we do, learning management systems, there are a lot of direct and indirect competitors one way or another for what we do. But in terms of direct competitors there are a handful of companies that we consider Tier 1 and Tier 2 direct competitors and they would be companies such as, in the US, SABA (Nasdaq:SABA), SumTotal Systems, Plateau Systems, Learn.com, GeoLearning. SumTotal Systems just delisted from Nasdaq, they were bought out by private equity groups, SABA is still very much listed and moving forward, Learn.com was just bought by Taleo (Nasdaq:TLEO), at a good price I thought. Taleo got a 15% revenue bump immediately and has the opportunity to cross sell Learn.com’s client base with Taleo’s products and services, and Taleo’s client base with Learn.com’s products and services and also it puts Taleo one up on its immediate competitors. I understand why that price happened; it makes sense given the particular buyer and the seller.

Finally, looking forward to the rest of the year, what are your expectations for the business and your thoughts on the opportunities for the long term? Clearly the extra investment you’ve made is set to hit your profits but presumably you feel the company’s in a position of strength moving forward?

In terms of where we are, Clarence and I are pretty happy about current head count and that’s the bulk of our cost actually, so we’re not looking to add a whole bunch of more people immediately and it’s also the case that historically the second half of the year has more revenues and more profit than the first half for us, so we haven’t seen anything that would make us think otherwise this year.

Thank you for talking to Stockopedia.

Thank you so much.