Deloitte’s 15th annual Technology Fast 50 list, released today, features a new entry in Calgary’s Solium Capital (TSX:SUM).
Solium, which has grown its revenue from just over $11-million in 2008 to $46-million in fiscal 2011 is tapping a lucrative market in sorting out the massive regulatory tangle that is stock-based compensation.
The company counts Transalta, Shaw Communications and Shell Canada among its clients and is now turning its focus to global opportunities.
Cantech Letter recently talked to Solium Capital CEO Mike Broadfoot about the company’s plans for the future.
Mike, can you tell us a bit about the origins of Solium Capital?
They say it started out as a sketch on a napkin in a diner, which is kind of ironic given that the idea was to take a paper-dependent process digital. We set out to build an innovative stock-plan administration experience for financial professionals, HR professionals, plan administrators and plan participants on a web-based, software-as-a-service (SaaS) model. We were founded in 1999 and went to market with the product we now call Solium Shareworks. Not long after, we gained the business of some great brands, such as TransAlta, our first customer, and later EnCana, Shaw Communications and Shell Canada. Solium showed classic entrepreneurial flexibility when we accepted partial payment in beer from one of our earliest customers, Big Rock Brewery.
You recently acquired a company called OptionEase. Why?
Along with the acquisition and successful integration of California-based CapMx earlier this year, the acquisition of OptionEase solidifies Solium’s leadership position in equity administration management for private-market and emerging public-market companies. We now serve more than 2,800 clients in total, with 1,000 of those companies coming from the private market.
What does the recent partnership with Barclays mean for Solium?
Our partnership with Barclays is one of our first big successes with the expansion of our operations into the UK. We will be providing a version of Shareworks, our industry-leading platform for stock plan administration, to Barclays Corporate and Employer Solutions (C&ES) on a white-label basis. Our technology will provide the foundation for Barclays’ equity management offerings, both in the UK and worldwide. This platform of services will be offered to Barlcays’ extensive network of clients as well as for use in administration of their own global equity and long term incentive plans. Historically, we believe that the UK and global marketplaces for stock-plan management has been underserviced and we see great growth and potential in this area.
Why have stock equity plans become so complicated?
That’s a vast question. In a nutshell, it’s a combination of increased regulation and globalization. For the past several years, equity plans have been highly regulated in the United States and other countries, and generally we’re seeing an increase in that regulation worldwide. For instance, the US Dodd-Frank Act is bringing in even more scrutiny on executive compensation, with a particular eye toward equity. That’s just in the U.S. All over the world, companies need to send their people abroad to capitalize on business opportunity. If you’re a company that offers equity compensation to your people—and you’re sending them to different jurisdictions for any length of time—you’re at risk. National, and even state, tax authorities are going after a slice of the income taxes on the equity compensation of business travelers within their borders. Companies can be at risk if they don’t withhold taxes appropriately in those jurisdictions. There is also zero standardization among countries as to what the taxable event is—grant, vest or exercise.
What are the dangers for CEOs if they do not address their equity plans correctly?
Whether you’re noncompliant at home or abroad, the company is likely to face financial penalties in one form or another. That can hurt, but often the negative press that’s associated with noncompliance by senior management can do even greater damage to a brand’s image. That’s difficult to measure, but can sometimes be reflected in share value.
What is the size of the market Solium is addressing?
Our market is global. We are well established in Canada and the United States, and we’ve had early success in the European market. We’re now poised to open operations in Australia. About 98% of companies use options, restricted stock or both as part of employee compensation, so the potential market worldwide is substantial.
How well capitalized are you? Will you have to do more financings in the future?
We are very well capitalized. As of Q2 2012, we had $16.2 million of cash on hand and a debt-to-equity ratio of 0.25. Our business also operates with a high degree of operating leverage—meaning we have relatively low variable costs associated with bringing on incremental revenue. This helps to provide us with strong free cash flow on an ongoing basis.
What does Solium hope to accomplish in the next twelve months?
We will continue to leverage our industry-leading Shareworks platform to add to our strong market position in Canada and the U.S. We have made significant investments in Shareworks over the last 18 months to achieve the first and only equity administration platform with end-to-end global capabilities on a single platform. We have also recently entered new markets in the UK and Australia, and we expect to begin realizing incremental revenue in Q4 2012 as new clients go live on the Shareworks platform. We will also continue to add and expand on product lines.