Brazilian software giant Totvs reports negative results

The company struggles to move core business to the cloud as the recession continues to impact sales performance

Brazilian software giant Totvs has reported R$ 537.5 million ($167.5 million) in revenue, a 6.9 percent drop in relation to the same period last year and down 1.4 percent compared to the previous quarter.

Net income reached R$ 44.9 million ($13.9 million), down 43.1 percent compared to the results for the same quarter last year, but up 18.9 percent over the previous quarter.

Total net debt at the company reached R$33.4 million ($10.4 million) compared to R$ 34.6 million ($10.7 million) in positive cash flow a year ago. This reflects a R$473.6 million ($147.6 million) payment referring to a restructuring of the company's shareholding structure in retail enterprise software firm Bematech, which Totvs acquired last year.

Totvs has traditionally been a popular choice when it comes to ERP within the small and medium enterprise segment in Brazil. More recently, the firm has tried to aim for larger accounts, a space still very much dominated by German powerhouse SAP.

But the company has been focusing on the transition to a software-as-a-service model and also ramping up cloud adoption - the company has a partnership with Amazon Web Services to provide access to its systems in order to cater for cloud demand. It also has been working to get more customers to boost subscriptions of its SME products and the popularity of Fluig, its collaboration and productivity tool.

"[ Totvs founder] Laércio Cosentino rolled out the usual litany of excuses (including the Olympic Games), but I think the real problem is that he is chasing too many dreams. Indeed the acquisition of Bematech was a huge mistake in my honest opinion," said Anthony Miller, managing director at analyst firm TechMarketView.

" All these distractions ought to be good news for Sage which, unlike many markets in which it operates, is a minor player in Brazil. This should be a golden opportunity to snap up some share."

So far 2016 has been a tumultuous year for Totvs, both in financial terms - this has been the third negative quarter for the company - but also organizationally. The company had appointed Rodrigo Kede Lima, who joined from IBM to lead its expansion in international markets and gradually replace Cosentino, but the executive decided to step down only a few months later to re-join the Big Blue.

So far 2016 has been a tumultuous year for Totvs, both in financial terms - this has been the third negative quarter for the company - but also organizationally. The company had appointed Rodrigo Kede Lima, who joined from IBM to lead its expansion in international markets and gradually replace Totvs founder Laércio Cosentino, but the executive decided to step down only a few months later to re-join the Big Blue.

Meanwhile, SAP's Brazilian subsidiary has recently posted double digit revenue growth in the third quarter driven by a sales increase of cloud products.

Updated Nov 7, 2016 10: 32 EST to include analyst comments.

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