Amber Road Network

Global Trade Management (GTM) provider, Amber Road recently filed to go public, adding to the list of enterprise SaaS providers going public while the going is good.

You may not recognize Amber Road, in part because for many years it went by the incredibly bland moniker of Management Dynamics.  The Amber Road name comes from an ancient trade route connecting the North Sea and Baltic to the Mediterranean. (I look that sh-t up so you will not have to.)

Amber Road, and other GTM providers, help importers and exporters navigate the complex world of cross-border trade which involves:

  • logistics of several modes
  • tariffs, trade agreements, restricted party lists, inspections, etc.
  • multiple currencies

GTM applications aim to make this complex, previously paper-based information available electronically and integrate the information with shipping data to improve the speed and efficiency of buying and selling across borders.  Think of GTM as a specialty area within the broader area of supply chain management.

The Amber Road prospectus makes the case that it has a unique combination of three tools that will drive the company’s success:

  • Extensive knowledge (through human expertise) of the import and export laws of 120+ countries.  I think Amber Road would say that the “instantiation” of this information is their “secret sauce”.  They proudly point to the 100 experts, who work exclusively for them, translating the world’s trade rules into English.
  • Integration into the messaging systems of the logistics providers involved in international trade–freight forwarders, carriers, etc.
  • An interface for corporate users to track the flow of their goods and manage by exception and integration to put this information in their ERP.

Key facts from the prospectus were as follows:

  • Top-line growth has been steady, but not mind-blowing as far as SaaS offerings go. Amber Road revenue has grown from $37.6 to $43.4 to $52.5 million over the last three years ended December.  (However, the prospectus tantalizingly points out that growth for the last quarter ended December 31, 2013 was 38%.  A harbinger of things to come? Or just a great quarter?)
  • Net income has been negative over the last 3 years:  $9, $7, and $19 million.  Adjusted EBITDA is positive and about $2 million over each of the last two years.
  • Professional services revenue is about 25% of total revenue, which is on the high side for typical SaaS companies that hope to scale quickly.
  • Amber Road has 463 customers, 172 enterprise and 271 mid-market (revenues of less than $1 billion.)  Typical contracts are about 4 years in term, paid annually up-front based on an assumed transaction volume.  Client retention on a revenue basis is 102% for each of the last three years.
  • Typical enterprise contracts were worth $265k annually, while mid-market deals averaged $25k.
  • Amber Road clients, are by their nature global, but only 11% of their clients are headquartered outside the US.

The secular trends in global trade are great.  Amber Road also recently made a small acquisition of a GTM specialist in China, which is now the world’s biggest trading partner. However, with the slightly lower growth than other enterprise SaaS plays, the heavy services component, along with the inherently limited mid and small market appeal, the valuation on this one may be slightly less eye-popping than the other similar IPOs of we have seen lately.  But who knows!

Amber Road’s largest pure play competitor that I am aware of is GT Nexus, which acquired TradeCard last year and is presumably busy digesting that company.  GT Nexus is expected to go public later this year.  GT Nexus appears to be a bit bigger than Amber Road and also seems a little more weighted to retailers/importers than Amber Road which is more focused on manufacturers.

The IPOs of both companies should hasten consolidation in the GTM space.  I own stock in Descartes (DSGX) which plays in the messaging portion of this market and hope that one of these guys will pick them up, or, at least that their valuations will lead to the yellow brick road!

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