Software AG announces Q1 2020 financial results, delivering a solid performance against a globally uncertain backdrop
Continued Helix strategy momentum
Solid performance in the face of COVID-19
Total Revenue and EBITA (non IFRS) ahead of Analyst Consensus
Group Bookings growth +28% / Annual Recurring Revenue DBP +11%
[Unless otherwise stated, all figures are IFRS-conform, increases at constant currency and rounded.]
Software AG (Frankfurt MDAX: SOW) today announces financial figures (IFRS) for the first quarter 2020. The business delivered robust performance in the first quarter of its second transformation year, reporting strong bookings growth against a background of significant global challenge. Software AG’s IoT and A&N business performed well ahead of expectations, with competitive new business wins driving strong performance, while DBP (excl. Cloud & IoT) saw some deals slip from the first quarter into the second quarter. The Group also saw a strong development in subscription and SaaS-based bookings portion, which rose to 69 percent from 53 percent last year in its DBP (incl. Cloud & IoT) business. The Group has taken active steps to support its customers’ operations during the COVID-19 outbreak, particularly with respect to business continuity, remote monitoring and analytics, and supporting customers’ ability to get back to full pace in due course. Toward the end of the quarter Software AG did see a low single-digit percentage negative impact from Professional Services projects cancelled or postponed as a result of COVID-19. The Group expects to deliver a solid performance in the first half of 2020. However, with limited visibility into the second half of the year, the Group has revised its financial guidance for the two DBP revenue lines. The Group’s guidance for A&N and its non-IFRS EBITA margin remains unchanged..
"“During Q1, Software AG performed well as the momentum building in our Helix transformation showed through in our results. To-date, our business has proven resilient in the face of the Covid-19 pandemic. We have moved fast to support our people, listened carefully to our customers, and reacted quickly to meet their needs. Our mission critical products, limited exposure to the most affected industries, and the continued growth in Q1 of our recurring revenue stream, driven by our transformation, give us some resilience. This growth, enhanced by further competitive customer wins, has strengthened our robust financial position and our ability to manage through the period. It remains impossible to predict how long today’s macroeconomic uncertainty will last. However, IT demand will remain strong and we are well positioned to benefit when market conditions recover,” said Sanjay Brahmawar, CEO of Software AG.
First Quarter 2020 Business Line Performance
Adabas & Natural (A&N) achieved a better than expected start to the year, generating bookings growth of 47 percent and revenue growth of 5 percent to €57.5 million. License sales increased by 20 percent on the prior year to €21.5 million (Q1 2019: €17.8 million). A&N maintenance revenues reached €35.9 million, a decrease of 2 percent (Q1 2019: €36.8 million).
DBP including Cloud & IoT total revenue increased 3 percent generating €103.5 million (Q1 2019: €100 million), while 69 percent of all bookings were subscription or SaaS based, a strong sign in our shift to subscription.
Digital Business Platform (DBP) (excl. Cloud & IoT) saw, toward the end of the quarter, a number of deals slip into the second quarter. This led to bookings growth of 1 percent and an overall revenue decline of -3 percent to €88.1 million (Q1 2019: €90.5 million) during the quarter. License revenues showed a 13 percent decline to €18.6 million.
Cloud & IoT delivered significantly ahead of expectations with strong bookings growth of 65 percent and revenue growth of 60 percent. The division delivered revenues of €15.4 million (Q1 2019: €9.5 million). Maintenance revenue increased by 27 percent to €2.0 million (Q1 2019: €1.6 million) with SaaS sales increasing 41 percent to €6.9 million (Q1 2019: €4.9 million). License revenues grew 107 percent to €6.5 million (Q1 2019: €3.1 million).
First Quarter 2020 Total Revenue and Earnings Performance
Software AG reported €207.0 million (Q1 2019: €201.4 million) in total revenue for the quarter, a rise of 2 percent. Group license revenue increased 9 percent to €46.7 million (Q1 2019: €42.6 million). Group maintenance revenue was flat, totaling €107.3 million (Q1 2019: €107.1 million). Subsequently, Software AG's total Q1 product revenue (licenses + maintenance + SaaS) was €160.9 million (Q1 2019: €154.5 million), reflecting 4 percent growth.
As of March 31, 2020, Software AG had 5,005 (2019: 4,737) employees worldwide (full-time equivalents).
Following the onset of the COVID-19 pandemic, which started to impact the business toward the end of Q1, management has taken prudent steps to requalify the pipeline and stress test the business model. These actions underpin Software AG’s confidence in its ability to deliver a solid performance in the first half of the year.
However, the current macro-economic uncertainty reduces visibility in to the second half of the year. Whilst certain of our key geographic markets have begun to re-open or indicated timeframes for reopening, the predictability and timing of deal closures is more uncertain, notably for DBP and IoT, which have a greater reliance on new customer acquisition.
Consistent with this view, the Board is now expecting slower than anticipated growth for its two DBP revenue lines but maintains its outlook for the robust A&N business and for Non-IFRS EBITA operating margin. Over the medium-term, demand for digitization should intensify as a consequence of the likely lasting changes COVID-19’s onset has caused within businesses and their operating structures. Software AG therefore confirms its 2023 ambitions, most notably to reach €1B in revenue and expand operating margin to a 25-30% range.
The table below provides the full forecast for the 2020 fiscal year:
The Board is reviewing on a regular basis its view of the macro-economic environment and expected business performance and intends to provide a further update alongside Q2 results.
A conference call for financial analysts and media representatives will take place on Thursday, April 23, 2020 at 9:00 a.m. CET. For dial-up information, visit the Company's website at www.SoftwareAG.com/investors.
About Software AG
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.
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