It has been a disappointing day of trade for the Citadel Group Ltd (ASX: CGL) share price.
At the time of writing the information management company's shares are down 22% to $6.70 following the release of its half year results.
What happened in the first half?
For the six months ended December 31, Citadel posted a 5.5% increase in revenue to $49.1 million and a 5.4% lift in net profit after tax from continuing operations to $5.1 million.
Whilst this growth was admittedly underwhelming, I was pleased to see the company's Software-as-a-Service (SaaS) revenue accelerate.
During the six months SaaS revenue grew 39.1% to $16.8 million. This segment now accounts for just over a third of total revenue.
Its growth was driven by a number of key customer wins including a 9-year contract with the Queensland Department of Transport and Main Roads, a 5-year contract with Queensland Health, and its first international client for the Citadel-IX product.
However, this growth was partially offset by the reduction in revenue from one-off projects in line with the transition of Citadel's sales focus towards scalable solutions that provide annuity revenue streams.
Net profit after tax grew a touch slower than revenue due to its ongoing R&D investment in new SaaS technology solutions and a growing proportion of recurring revenue that reduces upfront revenues but sees a higher total revenue generated over an extended period of time.
Looking ahead, management appears confident that its SaaS revenues will continue to grow strongly.
The company's CEO, Daniel Stanley, said: "We are confident of the outlook for the remainder of FY19 and beyond. In addition to our largest ever weighted pipeline that stands at $132 million, our SaaS recurring revenue model will allow us to grow and scale through shorter sales cycles, reduce client concentration and deliver larger numbers of new clients."
Should you buy the dip?
Whilst its overall growth was a touch disappointing, I believe it is important to note that the company is growing in all the right areas.
As a result of this, its strong long-term growth prospects, and today's sharp share price decline, I think it is well worth considering Citadel along with fellow SaaS providers Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO).
