Software AG provides third quarter update demonstrating strong bookings growth and continued transformation progress
[Unless otherwise stated, all figures are IFRS-conform, increases at constant currency and rounded.]
Darmstadt, Germany – Software AG (Frankfurt MDAX: SOW) today announces a preliminary view of its third quarter 2020 financial figures and updates on the recent malware attack on its systems. Therefore, results presented in this announcement represent a first consolidation based on the currently available data, with full results to follow in due course.
During the third quarter, Software AG continued to deliver in line with its transformation plan. The Group’s Digital Business (Digital Business Platform, DBP, incl. Cloud & IoT) performed well, with bookings growth anticipated between 14 and 17 percent. Demand for Software AG’s DBP Cloud & IoT business line accelerated, with bookings growth anticipated to have been between 57 and 64 percent. As expected, the Group’s Adabas & Natural (A&N) business line saw the impact of a large deal pulled forward into the second quarter, showing a decline of between 27 and 31 percent against a challenging comparative period. Reported revenue continued to reflect the successful shift to Software as a Service (SaaS) and subscription, where a greater proportion of revenue is recognized in future periods rather than up-front. Software AG also continues to balance investment in growth with prudent cost control, delivering third quarter non-IFRS EBITA of between €28.4 million and €31.9 million. While the malware attack on the Group’s systems which occurred on October 3, 2020 is now contained, the Group continues work to investigate the attack and provide support to any employees, customers or other stakeholders who may have been affected.
”The update we are providing today shows that we remain resilient and, despite the continuing COVID-19 pandemic, our transformation is gathering momentum and delivering the change we have been striving for. Our products are mission-critical to our customers, our go-to-market is sharper, our execution capability is strengthened, and we continue to win against the competition. In the last few weeks, we’ve also seen our cultural transformation come to the fore in how our team has responded to a malware attack. I’m proud of the way our people have pulled together to support each-other and continued working night-and-day to support our customers,” said Sanjay Brahmawar, CEO of Software AG.
“During third quarter we continued to invest in growth and saw another step-up in our planned shift to subscription. While this is now visible in the technical impact we anticipated on our reported revenue, bookings growth becomes the more meaningful measure of our progress. The excellent bookings growth we expect to have delivered in the third quarter is the clearest evidence yet that our customers are responding to our offerings and I am pleased that we’ve been able to start the fourth quarter with good momentum,” said Dr. Matthias Heiden, CFO of Software AG.
Third quarter 2020 financial performance
DBP (excl. Cloud & IoT) continued its recent growth, anticipated to have delivered bookings growth of between 3 and 5 percent. This represents the continuous shift to subscription which led to a greater technical impact on reported revenue than was present in the second quarter, with the total of between €90.0 million and €91.5 million (2019: €108.7 million) representing a stated decline of between 12 and 14 percent. DBP Cloud & IoT continued to accelerate during the quarter, anticipated to have delivered bookings growth of between 57 and 64 percent flowing through to revenue growth of between 36 percent and 48 percent or between €11.5 million and €12.5 million (2019: €8.6 million). In total, Digital Business is anticipated to have delivered very strong bookings growth of between 14 and 17 percent, with stated revenue between 8 to 10 percent lower year-on-year at between €101.5 million and €104.0 million (2019: €117.4 million), again reflecting the technical impact of the Group’s accelerating shift to subscription and SaaS. As expected, A&N is anticipated to have delivered bookings between 27 and 31 percent lower than the third quarter of 2019, with revenue of between €46 million and €47 million (2019: €62.0 million). The Company’s EBIT is expected in the range of between €20.4 million and €23.9 million in the third quarter, and operating EBITA (non-IFRS) is expected in the range of between €28.4 million and €31.9 million. As a result, the Group’s operating profit margin (non-IFRS) is anticipated to be between 16 and 17 percent.
The Group expects to be able to publish full third quarter 2020 financial results within a month of today’s preliminary publication.
Cyber Incident Update
Software AG continues to respond to the malware attack on its systems which began on October 3, 2020. While the attack itself is now contained, the Group continues to investigate and do everything possible to support those who may have been affected. Immediately on becoming aware of the attack, the Group acted quickly and decisively to protect its systems, people and customers, working with experts to conduct a best-practice response. As a result of the attack, some of the Group’s data has since been made public. Despite the severe disruption, none of the Group’s services to customers, including its cloud services, were interrupted, and the Group continued to conduct business in all material respects.
The preliminary figures provided today indicate that Software AG performed strongly in the third quarter and continues to demonstrate resilience in the face of the ongoing COVID-19 pandemic. The pandemic and its resultant economic effects do remain dynamic, and the Group is watching this closely across all of the geographies in which it operates. While the Group will gain further granularity on its performance as its internal systems become fully available, Software AG’s market positioning and increasing execution ability underpins its confidence in its ability to perform in-line with the stated full-year guidance ranges for 2020.
The stated guidance ranges for 2020 remain:
Over the medium-term, the Group continues to believe that market dynamics, including a broad trend towards digitization, remain in its favor and should intensify in the coming years. The Group therefore reconfirms its 2023 ambitions, including its ambition to reach 1 billion euro of revenue and expand operating margin to a 25 to 30 percent range.
A conference call for financial analysts and media representatives will take place on Wednesday, October 21, 2020 at 9:30 a.m. CEST (8:30 a.m. BST). Please pre-register to receive dial-in details at Software AG Q3 2020 Earnings Webcast.
Please visit our German Investor Relation Site for the German version.
About Software AG
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