RUL's at an interesting juncture - as per the announcement of...

RUL's at an interesting juncture - as per the announcement of 11/10/17, they've moved from selling perpetual licences to a rental model. In time this creates a better revenue profile for the business as they'll be less reliant on large, one-off licence sales, but the short-term impact to revenue could be significant as previously large one-off software sales are amortised over a number of years in the rental model. RUL management has been pretty open about the impact this'll have on profitability in the near-term so i'd expect a significant fall in the software division's profitability in FY18. To illustrate, RUL earned $23.7m revenue in FY17 from mostly one-off/perpetual licence sales; if you assume that entire $23.7m software revenue was instead amortised over 4-year contracts, licence revenue would go to ~$6m (i.e. 23.7/4) which would wipe out the entire division's FY17 profit. That's a highly exaggerated and simplified example - i don't expect their licence sales to fall 75% because they'll still sell some perpetual licences (i.e. not all customers will move to the rental model) and they'll probably win new customers with the rental model, but i would expect a significant fall in licence sales all the same.

Given this significant change to the revenue model, i expect RUL will also have to significantly rejig its commission structure - it doesn't make sense for a software salesperson to get their full commission upfront if they sell a rental deal rather than upfront deal.

So as far as the software division goes, i'd expect FY18's results to look very different to past years in terms of both the revenue and expense profile.