Software AG announces Q2 financial results with group revenue and profit in line with market expectations; reduces DBP guidance for 2019
[Unless otherwise stated, all figures are IFRS-conform and rounded.]
Software AG (Frankfurt MDAX: SOW) today pre-announced its financial figures (IFRS, preliminary) for Q2 2019 per ad hoc release. In the first full quarter since the announcement of the Helix transformation strategy, the business delivered strong Group-level performance, with overall revenue and profit in line with expectations for the second Quarter. The Group made strong progress in its strategic Helix pillars of Focus, Execution and Team during the period, allocating R&D resources to the areas of greatest opportunity, transitioning the business towards subscription sales, growing the Groups partner ecosystem and delivering strong new logo success. These activities led to strong growth in important strategic area of Cloud and IoT, up 144% at constant currency year-on-year, while the Group’s Adabas and Natural (A&N) segment continued its strong performance trend from Q1. Performance in the Digital Business Platform (DBP) excluding IoT was not as strong as expected as a result of the ongoing reorganization of the Group’s North American business which is taking longer than first thought to implement. This has impacted performance however positive steps taken during the first half to address historic underinvestment, resolve disruption to customer relationships, manage attrition and refocus our approach on long-term customer relationships are now taking hold. With IoT and A&N performing as expected, the slower than anticipated DBP progress in H1 has led the Group to revise its full year DBP guidance, with the expectation that it will now deliver year-on-year revenue growth of between -6% to 0% within DBP in FY 2019. All other guidance ranges remain unchanged.
"During the first half we have made clear progress with our Helix strategy, delivering Group revenue and profit in line with expectations against a transformation backdrop. We are advancing our key initiatives, bringing renewed focus to growth areas like IoT and Hybrid Integration and readying our business for subscription sales. While not all areas of our transformation are moving at the same pace, particularly in North America where we have seen continued impact to our DBP business, we have clear plans and accountability in place to address those challenges and regain momentum. The additions in Q2 of Microsoft, Adobe and T-Systems to our partner ecosystem and our success in adding over 60 net new logos to our customer base underpins my confidence that Helix is the right pathway for Software AG and that we have the right team to lead us along that path,” said Sanjay Brahmawar, CEO of Software AG.”
"Our overall performance in Q2 demonstrates that we are on the right track as planned in the beginning of the year. With our strong financial position we have exactly the right foundation on which to pursue our transition through Helix and deliver our mid-term strategy." commented CFO Arnd Zinnhardt.
Second Quarter 2019 Business Line Performance
In the second quarter of 2019 Software AG’s Adabas & Natural (A&N) business performed in line with raised expectations, generating revenue of €53 million. A&N product sales were up by 1%. A&N Maintenance reached €36.6 million in Q2 2019, up 5% year-on-year from €34.8 million in Q2 2018.
During the second quarter our Digital Business Platform (DBP) excluding Cloud & IoT experienced an overall revenue decline of 4% to €97.5 million (Q2 2018: €101.8 million).
Software AG's Cloud & IoT business showed 144% growth at constant currency during Q2 2019, growing revenues to €12.8 million from €5.3 million in Q2 2018.
Second Quarter 2019 Total Revenue and Earnings Performance
Software AG reported €210 million (2018: €205.7 million) in total revenue in the period under review. This is a rise of 2%. Group license revenue fell 6% to €50.2 million (2018: 53.5 million). Group maintenance revenue totalled €107.6 million (2018: €101.7 million) (6% growth). Accordingly, Software AG's total second quarter product revenue (licenses + maintenance) was €163.1 million (2018: €159.5 million), which reflects 2% growth.
The company's EBIT was €47.7 million (2018: €52.2 million) in the quarter under review. This reflects an EBIT margin of 22.7% (2018: 25.4%). At €56.1 million (2018: €61.5 million), operating EBITA (non-IFRS) also performed well in in line with expectations. Subsequently, the operating profit margin (non-IFRS) was 26.7% (2018: 29.9%).
First Half 2019 Business Line Performance
In the first half of 2019 Software AG’s Adabas & Natural (A&N) business performed in line with raised expectations, generating revenue of €107.7 million, an increase of 11%. A&N license sales were up by 28% compared to the prior year to a total of €34 million (1H 2018: €26.5 million). A&N Maintenance reached €73.4 million in 1H 2019, up 4% year-on-year from €70.5 million in 1H 2018.
The Digital Business Platform (DBP) excluding Cloud & IoT experienced an overall revenue decline of 4% to €187.9 million (1H 2018: €191.2 million). License sales were down 15% from €59.1 million to €50 million.
Software AG's Cloud & IoT business showed 92% growth during 1H 2019, growing revenues to €22.3 million from €11.6 million in 1H 2018.
First Half 2019 Total Revenue and Earnings Performance
Software AG reported €411.4 million (2018: €392.3 million) in total revenue in 1H 2019. This is a rise of 5%. Group license revenue grew 6% to €92.8 million (2018: 87.6 million). Group maintenance revenue totalled €214.7 million (2018: €204.2 million) (5% growth). Accordingly, Software AG's total 1H 2019 product revenue (licenses + maintenance) was €317.7 million (2018: €299.9 million), which reflects 6% growth at constant currency.
The company's EBIT was €89.9 million (2018: €94.3 million) in the half under review. This reflects an EBIT margin of 21.9% (2018: 24.0%). At €107.7 million (2018: €112.7 million), operating EBITA (non-IFRS) also performed as expected in the half. Subsequently, the operating profit margin (non-IFRS) was 26.2% (2018: 28.7%).
As of June 30, 2019 Software AG had 4740 (2018: 4655) employees worldwide (full-time equivalents). Of that total, 1828 (2018: 1910) worked in Professional Services.
While the Group’s transformation in North America is taking longer than first thought to implement, the positive steps taken during the first half are now taking hold, with IoT and A&N performing as expected, the slower than anticipated DBP progress in H1 has led the Group to revise its full year DBP guidance, with the expectation that it will now deliver year-on-year revenue growth of between -6% to 0% at constant currency. All other guidance ranges remain unchanged.
The table below shows the full forecast for the 2019 fiscal year:
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.
Learn more about Software AG and Freedom as a Service at www.softwareag.com.
Software AG | Uhlandstraße 12 | 64297 Darmstadt | Germany
Detailed press information about Software AG including a picture and multimedia database are available under: www.softwareag.com/press
Follow us on Twitter: Software AG Global