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Steven Chen
Steven Chen
Articles (191)  | Author's Website |

Urbem’s 'Wonderful Business' Series: ATOSS Software

A German founder-led hidden gem in the attractive enterprise software industry

The enterprise software industry is filled with players combining both high returns and high growths consistently. These companies are known for their prevalent competitive strategy based on a high switching cost as well as highly-scalable, asset-light business models (e.g., Software-as-a-Service). More often than not, they make every attempt to take advantage of the ongoing global megatrend of digitalization. Some examples that we previously covered include Australia’s Technology One (ASX:TNE) and Denmark’s SimCorp (OCSE:SIM).

In this article, we turn our attention to Germany-based ATOSS Software (XTER:AOF), a hidden gem with a market cap of 600 million Euros that leads the workforce management software space. With over 30 years of experience, ATOSS claims to be the first mover in the niche, which covers the digital management of time and attendance, task, schedule and absence. According to Statista, this particular market is growing at 4% annually, and it is expected to expand, driven by the digitalization of the labor world, increasing complexity in regulation, scarcity of quality human capital and the globalization and decentralization of the corporate world. By comparison, ATOSS has managed to grow its top line at a much faster 14% yearly rate.

ATOSS Software was founded by Andreas Obereder, who is still the company’s CEO with a 50% equity stake. Nowadays the company is serving more than 8,000 customers in 42 countries worldwide. Nevertheless, ATOSS generates the majority of its sales from Germany and neighboring German-speaking countries. Other countries only represented roughly 2% of the revenue in fiscal 2019. In light of the geographic concentration, the business has yet to prove itself genuinely international.

At the same time, the geographic expansion appears to be a significant growth engine moving forward. The company employs a team of almost 150 consultants offering support in six different languages. Moreover, the management seems committed to research and development, as it has spent 15%-20% of sales annually in this regard in order for the products to stay tailored and cutting-edge, which we think quite crucial in today’s rapidly-evolving corporate environment. Lastly, cloud transformation can continue to enable high-margin growth at the company. The accelerating year-over-year growth rate in the cloud business is quite noticeable, rising from 19% in fiscal 2017 to 27% in 2018 and 42% in 2019.

Within the DACH region (i.e., Germany, Austria and Switzerland), ATOSS Software has already established a solid leading position as a full-range provider of solutions for healthcare, manufacturing, retail, services and many other clients of all sizes. In terms of the revenue model, ATOSS delivers nearly 80% of its sales from recurring activities such as license, subscription, consulting and maintenance. In our opinion, the business has a substantial moat through a high switching cost, a focus on local market and niche and a comprehensive spectrum of offerings. As a result, we are not surprised to see the outperforming return on assets at ATOSS vs. its major domestic and overseas peers, including Oracle (NYSE:ORCL), Workday (NASDAQ:WDAY) and SAP (XTER:SAP) (see below).

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We do not own any security mentioned in the article.

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About the author:

Steven Chen
Steven CHEN is a quality-focused investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected] or through LinkedIn.

Visit Steven Chen's Website


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