Software AG's Product and License revenue increase in second quarter
[Unless otherwise stated, all percentages are year-on-year, at constant currency and rounded.]
Software AG (Frankfurt TecDAX: SOW) today released its financial results (IFRS, preliminary) for the second quarter of 2018. A growing number of large global companies are leveraging Software AG’s leading technologies to digitalize key business processes. The company has reported a 17 percent increase in license and a 7 percent growth in product revenue in the second quarter. License revenue for the Digital Business Platform business improved by 11 percent and product revenue by 6 percent. Software AG’s new Cloud & IoT business maintained its momentum with 56 percent revenue growth. Propelled by high market demand for independent and open, cloud hosted platforms, software-as-a-service revenue jumped 103 percent. As a result, annual recurring revenue in the Cloud & IoT business doubled. This figure is a key measure of sustainable success in this segment. This development enables Software AG to raise revenue predictability. The Adabas & Natural (A&N) database business also continued the positive trajectory of the last four quarters. Thanks to above-average license growth of 38 percent, product revenue rose 7 percent. In addition to the increase in Group product revenue, Software AG also further increased its profitability. Operating earnings (EBITA, non-IFRS) went up to €61.5 million (2017: €61.3 million); the operating margin (EBITA, non-IFRS) rose to 29.9 percent (2017: 29.5 percent).
Karl-Heinz Streibich, Software AG’s CEO, commented, “Software AG is one of the leading companies in the digital platform economy. Thanks to the expansion of our strong partner ecosystem, we were able to assume a leading role in new IoT and cloud platforms. Our second-quarter 2018 results confirm this. And this is just the beginning of our further growth potential.” He continued, “Software AG was able to find a true IoT and cloud expert with my successor, Sanjay Brahmawar. I wish him a very successful future with Software AG.”
CFO Arnd Zinnhardt added, “All product segments posted growth in the second quarter with a dynamic trend in the Cloud & IoT business. As a result, we were able to expand our margin and lay the necessary foundation to further increase our enterprise value.”
Business Line Performance
In the second quarter, the Digital Business Platform (DBP) business line reported total revenue of €107.1 (2017: €104.4) million, representing 7 percent growth year-on-year at constant currency. This positive development was driven by robust growth of the DBP Cloud & IoT revenue, amounting to €5.3 million (2017: €3.5 million), which reflects 56 percent growth year-on-year at constant currency. Software-as-a-service revenue performed especially well with 103 percent growth in the second quarter. Annual recurring revenue in the Cloud & IoT segment doubled. This growth momentum also confirms the increasing demand among customers for cloud solutions in the IoT market. DBP license revenue excl. Cloud & IoT climbed 11 percent at constant currency to €35.7 million (2017: €33.4 million) in the second quarter. Maintenance revenue was €66.1 million (2017: €67.5 million), which reflects 3 percent growth over last year at constant currency. Accordingly, DBP product revenue totaled €101.8 million (2017: €100.9 million) in the second quarter of 2018. This is an increase of about 6 percent at constant currency.
The Adabas & Natural (A&N) business line followed suit in starting off 2018 on a strong note. License revenue went up 38 percent at constant currency to €17.6 million (2017: €13.2 million) in the second quarter. Maintenance revenue was €34.8 million (2017: €38.9 million). A&N product revenue grew 7 percent at constant currency to total €52.4 million (2017: €52.2 million). The overall positive performance underlines the stability of this segment and the high degree of loyalty of the A&N customer base. Furthermore, Software AG’s Adabas & Natural 2050+ program guarantees support and innovation for customers through the year 2050 and beyond. With this program, Software AG is protecting customers’ long-term investments and helping them modernize their IT landscapes.
Second-quarter revenue in the Consulting business line was €46.0 million (2017: €50.7 million).
Total Revenue and Earnings Performance
Despite currency translation effects totaling minus €9.5 million, Software AG reported €205.7 million (2017: €207.4 million) in total revenue in the period under review. This is a rise of 4 percent at constant currency. This growth is due primarily to the strong performance of Group license revenue, which increased 17 percent at constant currency to €53.5 million (2017: €47.3 million). Group maintenance revenue totaled €101.7 million (2017: €107.0 million) (1 percent growth at constant currency). Accordingly, Software AG’s total second quarter product revenue (licenses + maintenance) was €159.5 million (2017: €156.5 million), which reflects 7 percent growth at constant currency.
The company’s EBIT was €52.2 million (2017: €48.1 million) in the quarter under review. This reflects an EBIT margin of 25.4 percent (2017: 23.2 percent). At €61.5 million (2017: €61.3 million), operating EBITA (non-IFRS) also performed well in the quarter. Subsequently, the operating profit margin (non-IFRS) likewise increased to 29.9 percent (2017: 29.5 percent).
Software AG has confirmed its outlook from April 13, 2018 for fiscal 2018. Based on the business performance expectations of the next six months, Software AG’s Management Board continues to anticipate an operating profit margin (EBITA, non-IFRS) between 30.0 and 32.0 percent for the 2018 fiscal year. Digital Business Platform (DBP) excl. Cloud IoT revenue is expected to increase between 3 and 7 percent at constant currency. DBP Cloud IoT revenue is expected to increase between 100 and 135 percent. The revenue target for the Adabas & Natural database business line remains unchanged between -6 and -2 percent (at constant currency). The company assumes earnings per share (EPS, non-IFRS) will grow between 5 and 15 percent.
The table below shows the full forecast for the 2018 fiscal year:
About Software AG
Software AG (Frankfurt TecDAX: SOW) helps companies with their digital transformation. With Software AG’s Digital Business Platform, companies can better interact with their customers and bring them on new ‘digital’ journeys, promote unique value propositions, and create new business opportunities. In the Internet of Things (IoT) market, Software AG enables enterprises to integrate, connect and manage IoT components as well as analyze data and predict future events based on Artificial Intelligence (AI). The Digital Business Platform is built on decades of uncompromising software development, IT experience and technological leadership. Software AG has more than 4,500 employees, is active in 70 countries and had revenues of €879 million in 2017.
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