Tempo's earnings, restructuring, and possible sale
This post was originally sent out as part of The Memo, our weekly newsletter with updates and commentary on the Icelandic startup and tech scene. You can sign up here.
As expected, Tempo continues its double-digit year-on-year sales growth this quarter. Announced by Finnur Oddsson, Nýherji CEO (Tempo parent company), at the company’s quarterly earnings call, Tempo had 40% revenue growth in Q2 2016, compared to Q2 2015. Based on back-of-the napkin calculations, this would mean that YTD revenues stand at around $6.4m, compared to last year’s $4.6m, and Q2 at $3.4m compared to $3m last year. That, however, wasn’t the most interesting news from that day.
Finnur told investors about an agreement that has been reached with AGC Partners LLC – a M&A consultant from Boston – about the possible sale of Tempo. Finnur stressed that no decision had been made whether to sell, and if, when. However, this obviously sends signs that Nýherji is interested in selling. The question remains who are more interested – Nýherji, to cash out on their goldmine, or Tempo to be spun out.
Tempo would likely be interested in being spun out to operate on its own. The difference in perspective and market is massive. Tempo has zero interest in the Icelandic market and is going through hypergrowth. Nýherji, at the same time, is an old Icelandic IT company focused on the local Icelandic market and hardly growing at all – numbers even suggest they might be in decline. After all, one of the company’s main business has been providing on-premise servers, which we all know, isn’t the most future proof business to be in.
Nýherji has already attempted, and bailed on, a sale of Tempo. They announced that sale a year ago, at the 2015 Q2 earnings call. The plan was to sell 25% of the company, but investors weren’t interested. Surely, it wasn’t lack of growth or opportunity, but probably terms from Nýherji – too high a price, too small a stake, or requirement of additional investment in Tempo, all possibly played a role.
One year later, I’d guess that the board would be open to a bigger sale. A majority is probably needed for investors to be interested, and I doubt the buyer will be Icelandic.
Also included in the earnings call, was a mention of a restructuring of the company,that included eight layoffs. At the same time the company is opening offices in Montreal and San Francisco. This shouldn’t come as a surprise to anyone – as Finnur all-but said they were planning this in the last earnings call. The question is, will they continue moving operations overseas? Companies that can afford moving need a really good reason to stay in Iceland – which often is just the sentamentalism of the founders.
It’s obvious that the Icelandic tech ecosystem benefits greatly from a company like Tempo operating heavily in Iceland. Let’s hope the financials also make sense.
