Software AG reports higher earnings for second quarter 2006 on further growth in licensing revenue
Darmstadt, Germany, 7/21/2006
- Total revenue rises by 10% to €121.0 million
- Licensing revenue rises by 29% to €41.3 million
- Operating income (EBIT) up by 12% to €29.7 million
- Net income up 21% to €19.4 million
- Continued strong growth in ETS, acceleration in the crossvision business line
Software AG (Frankfurt TecDAX: SOW) reported operating income (EBIT) of €29.7 million for the second quarter of 2006, an increase of 12% over the year-ago period. Total revenue for the second quarter rose by 10% to €121.0 million, driven largely by continued dynamic growth in licensing revenue, which increased by 29% to €41.3 million. Both the ETS and crossvision business lines recorded substantial increases in licensing revenue, with the crossvision line achieving a significant acceleration in the growth of licensing revenue as a result of successful new product launches. The operating margin (EBIT) for the quarter rose to 24.5% in comparison with 24.0% for the second quarter of 2005.
Higher licensing revenue continues to drive overall revenue growth
Total revenue for the second quarter was €121.0 million, up by 10% from the €110.5 million for the year-ago period. A further acceleration in the growth of licensing revenue was the principal factor driving overall revenue expansion. Licensing revenue for the ETS business line rose by 27% from the year-ago period to €30.5 million. For the crossvision line of business, licensing revenue from our own products increased by 63% to €10.1 million (65% on a constant currency basis). The rapid increase in licensing revenue for the crossvision line of business, both year-on-year and in comparison with the first quarter of 2006, (up 58% quarter on quarter), reflects the successful introduction of new crossvision products in 2006.
Maintenance revenues for the company as a whole were €46.6 million in the second quarter, up 3% from the year-ago period. Revenues from professional services were €32.7 million, little changed from the year-ago period with a 1% rise.
“The results of the second quarter are a further confirmation that we are achieving our strategic goal of positioning the company for sustained growth,” said CEO Karl-Heinz Streibich. “The striking increase in licensing revenue for our ETS line of business again demonstrates our leading position in the market for software to support business processes run on mainframe computers. Moreover, it is increasingly clear that the mainframe computer, with its evolving technology and performance capabilities, remains a critical tool for large businesses and government organizations, ensuring that the ETS business line continues to enjoy favorable prospects. Regarding crossvision, the acceleration in licensing revenues confirms the market’s acceptance of our new products and the growth potential of this business line.”
Operating margin increased for the second quarter
Operating income (EBIT) for the second quarter was €29.7 million, up 12% over the year-ago period and also up significantly from the €21.5 million recorded for the first quarter of 2006. As a result, the operating margin (EBIT as a percentage of revenue) was 24.5% in comparison with 24.0% for the year-ago period. The year-over-year improvement in the operating margin reflects higher revenue, a better product mix, continuous cost discipline and improved internal processes. This made it possible to expand the operating margin while continuing to invest in Research and Development and in sales and marketing.
Net income and earnings per share
Net income for the second quarter was €19.4 million, an increase of 21% over the year-ago period. Earnings per share were €0.69, up 17% from the €0.59 reported for the year-ago period. The number of weighted outstanding shares at the end of the second quarter was 28.1 million compared to 27.3 million a year ago.
A strong balance sheet
Shareholders’ equity at the close of the second quarter was €397.0 million, up 19% from the year-ago period but little changed in comparison with the €393.0 million at 31 December 2005. The equity to assets ratio at the end of the second quarter was 66% compared to 63% on 30 June, 2005. The strong balance sheet reflects the company’s disciplined financial management. The company believes that its strong balance sheet provides it with the resources to support its long-term product and technology strategy and with additional flexibility in the pursuit of targeted acquisitions.
First six months of 2006
Total revenue for the first six months ended 30 June 2006 was €234.8 million, an increase of 11%, (10% on a constant currency basis), from the €210.8 million for the first six months of 2005. Total licensing revenue for the first six months was €74.7 million, up 26% (25% on a constant currency basis) from the comparable year-ago period. Maintenance revenues were €94.1 million for the six months, up 6% (3% at constant currencies) year-on-year. Professional services revenues amounted to €64.9 million for the six months, up 5% from the first six months of 2005. EBIT for the first six months rose to €51.2 million, an increase of 15% from the year-ago period. Operating margin for the first six months was 21.8% in comparison with 21.1% for the year ago period. In the first six months of 2006 the company generated €23.2 million of free cash flow compared to €35.0 a year ago. This change is primarily due to higher tax payments resulting from the improved financial performance.
Outlook
The company confirms the main lines of its guidance for the year 2006. Accordingly, the company continues to anticipate total revenue growth of 10% (at constant currency rates). The company expects that this overall revenue growth will be driven primarily by enhanced licensing revenue, now projected to increase in a corridor of 22% to 25% for the year, markedly higher than the originally anticipated range of 18% to 20%. In addition, the company expects higher maintenance revenue (up 2% to 4%, previously anticipated to be stable). On the other hand the company projects the Professional Services business to grow in a corridor ranging from 5% to 8% for the year (12% to 15% previously). Total revenue for the crossvision Business Line is anticipated to show growth in a corridor of 20% to 25% for the year, while total revenue for the ETS line of business is projected to increase in a range from 6% to 8%. “The results for the second quarter and the first six months, particularly the strength of licensing revenue, confirm the success of our products in the market and the willingness of the customer base to invest in our technology with a view to enhancing their own business processes,” said Karl-Heinz Streibich. “On an EBIT level, Software AG raised its target to a 22% to 23% margin for 2006, and we are confident that we can reach this and our other full-year targets.”
Software AG, headquartered in Darmstadt, Germany, provides a full range of products and services to deliver a service-oriented architecture (SOA) IT infrastructure, based on over thirty-five years experience in high-performance databases, application development tools and integration technologies. Its technology offers process driven integration through legacy modernization and SOA based integration. Software AG helps its customers to achieve a competitive advantage through flexible and adaptive business processes based on fast and easy integration of existing IT assets. It supports the mission-critical systems of over 3,000 customers globally. Software AG is represented in around 70 countries with more than 2,700 employees. It is listed on the Frankfurt Stock Exchange (TecDAX, ISIN DE 0003304002 / SOW). In 2005 Software AG posted €438 million in total revenue.
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Contact: Software AG Paul Hughes Director Media Relations Uhlandstrasse 12 64297 Darmstadt Germany Tel: +49 6151 92-1787 Fax: +49 6151 92-1623 press@softwareag.com http://www.softwareag.com |
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