Software AG announces Q1 results with group revenue and profit in line with market expectations and raises 2019 outlook for Adabas & Natural business line
[Unless otherwise stated, all figures are IFRS-conform and rounded.]
Software AG (Frankfurt MDAX: SOW) today pre-announced its financial figures (IFRS, preliminary) for Q1 2019 per ad hoc release. In the first quarter since the announcement of the Helix transformation strategy, the business delivered strong Group-level performance, slightly ahead of expectations for Revenue and comfortably ahead of expectations for EBIT. Software AG’s revenue mix continues to reflect trends seen in Q4 2018, with a higher proportion of revenue than expected in the Adabas & Natural (A&N) segment. The Group’s Digital Business Platform (DBP, excluding Cloud & IoT) and Cloud & IoT segments performed less well than expected, as certain deals slipped beyond the end of the quarter and due to a reorganization of the salesforce in North America. The benefit of these actions is expected to show in the remainder of 2019 and beyond. During Q1, Adabas & Natural (A&N) outperformed market expectations, growing 22 percent to €54.7 million. DBP (excluding Cloud & IoT) delivered revenue of €90.5 million, while IoT and Cloud delivered revenue of €9.5 million. The outperformance of A&N has led the Group to modify its 2019 guidance for that segment, with the expectation that it will now deliver -3 to +3 percent revenue growth at constant currency (previously -5 to 0 percent).
"This quarter has been a significant one for Software AG. We announced our new Helix strategy, implemented key operational changes across our business and delivered strong results at a Group level top and bottom line. It is clear that our revenue mix, and particularly the performance in our digital business, is not yet where we want it to be. Therefore, we have implemented operational changes to set us up for long-term growth. The market appetite for our best-in-class products has not diminished. This reaffirms our belief that our Helix strategy is the right one, and we expect to see the benefit of the changes we’ve made to our go-to-market and execution capability start to come through during the remainder of the year," said Sanjay Brahmawar, CEO of Software AG.
"Software AG grew well at a Group level during Q1 and continues to generate strong profit while we invest in our business to deliver sustainable long-term growth. In addition, we are fully focused on delivering the Helix operational changes to prepare Software AG for its future, leveraging the underlying strength of our financial position," commented CFO Arnd Zinnhardt.
First Quarter 2019 Business Line Performance
Software AG’s Adabas & Natural (A&N) business had a better than expected start to the year, generating revenue of €54.7 million as a result of strong license development driven by a higher number of major deals. The continued strong performance in A&N demonstrates the logic of our “Adabas & Natural 2050+" innovation program, which ensures customers can protect their investments and continue benefiting from A&N in the digital age. A&N license sales grew by 98 percent compared to the prior year to a total of €17.8 million (Q1 2018: €9.0 million). A&N Maintenance reached €36.8 million in Q1 2019, up 3 percent year-on-year from €35.7 million in Q1 2018.
Following the announcement of Helix, our Digital Business Platform (DBP) excluding Cloud & IoT delivered a 1 percent year-on-year revenue growth to €90.5 million (Q1 2018: €89.4 million. License sales were down 7 percent. This performance was below the Company’s expectations; however, it was caused primarily by a major reorganization of the salesforce in North America.
Software AG's Cloud & IoT business showed 49 percent growth during Q1 2019, growing revenues to €9.5 million from €6.4 million in Q1 2018.
First Quarter 2019 Total Revenue and Earnings Performance
In the quarter under review, Software AG recorded total sales of €201.4 million (Q1 2018: €186.6 million). The Group's maintenance revenue reached €107.1 million (Q1 2018: €102.5 million), an increase of 5 percent. The Group's license revenue of €42.6 million (Q1 2018: €34.2 million) was well above the previous year's figure in the quarter under review. The Company's product sales (licenses + maintenance) totalled €154.5 million (Q1 2018: €140.4 million) in the first quarter.
The Company's earnings before interest and taxes EBIT amounted to €42.2 million (Q1 2018: €42.1 million) in the first quarter. The operating EBITA (non-IFRS) reached €51.6 million (Q1 2018: €51.2 million). The respective operating margin (EBITA, non-IFRS) of 25.6 percent (Q1 2018: 27.4 percent) continued to be on a very high level.
As of March 31, 2019 Software AG had 4,737 (2018: 4,610) employees worldwide (full-time equivalents). Of that total, 1,843 (2018: 1,938) worked in Consulting and Services, 1,339 (2018: 1,197) in Research and Development, 936 (2018: 868) in Sales and Marketing and 619 (2018: 607) in Administration.
As the business embarks on its long-term strategy to deliver sustainable growth, Software AG remains confident in its outlook for the year and in the Helix strategy. The Company confirms its confidence in its 2019 revenue outlook for Digital Business Platform (excluding Cloud & IoT), Cloud & IoT and operating margin (EBITA, non-IFRS), while it raises its 2019 guidance for Adabas & Natural, with the expectation that it will now deliver -3 to +3 percent revenue growth at constant currency (previously -5 to 0 percent).
The table below shows the full forecast for the 2019 fiscal year:
A conference call for financial analysts and media representatives will take place on Friday, April 12, 2019 at 9:00 a.m. CEST (8:00 a.m. BST). For dial-up information, visit the Company's website at www.SoftwareAG.com/investors.
Key Group Figures
About Software AG
Software AG offers Freedom as a Service. We reimagine integration, spark business transformation and enable fast innovation on the Internet of Things so you can pioneer differentiating business models. We give you the freedom to connect and integrate any technology—from app to edge. We help you free data from silos so it’s shareable, usable and powerful –enabling you to make the best decisions and unlock entirely new possibilities for growth. Software AG has more than 4,700 employees, is active in 70 countries and had revenues of € 866 million in 2018.
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