DGAP-News: Software AG announces Q2 financial results with group revenue and profit in line with market expectations; reduces DBP guidance for 2019

PRESS RELEASE

Software AG announces Q2 financial results with group revenue and profit in line with market expectations; reduces DBP guidance for 2019

- Helix strategy implementation fully underway with changes taking hold and delivering strong progress, particularly in IoT

- First half Group Revenue at EUR411.4 million, up 5% year-on-year at constant currency; Total Product Revenue EUR317.7 million, up 6% from the prior year; and Total License Revenue of EUR92.8 million, up 6% year-on-year

- First half Group EBIT of EUR89.9 million, in line with consensus

- Second quarter Total product revenue at EUR163.1 million for the quarter, up by 2% year-on-year; operating EBITA non IFRS margin in line with consensus at 26.7%

- Second Quarter Group EBIT of EUR47.7 million, in line with consensus

- Adabas & Natural: Maintained performance in mid-range of the guidance of -3 to +3% revenue growth at constant currency

- Digital Business Platform (DBP) excluding Cloud & IoT: Growth impacted by North America reorganization, with overall revenue decline of -4% - action being taken to address execution issues

- Cloud & IoT performance: Growth of 144%; strong momentum, in line with ambitious targets for FY19

- Slow start in NAM leads Group to revise DBP guidance, now expecting revenue growth of -6% to 0%

[Unless otherwise stated, all figures are IFRS-conform and rounded.]

Darmstadt, Germany, July 18, 2019 - 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 EUR53 million. A&N product sales were up by 1%. A&N Maintenance reached EUR36.6 million in Q2 2019, up 5% year-on-year from EUR34.8 million in Q2 2018.

During the second quarter our Digital Business Platform (DBP) excluding Cloud & IoT experienced an overall revenue decline of 4% to EUR97.5 million (Q2 2018: EUR101.8 million).

Software AG's Cloud & IoT business showed 144% growth at constant currency during Q2 2019, growing revenues to EUR12.8 million from EUR5.3 million in Q2 2018.

Second Quarter 2019 Total Revenue and Earnings Performance

Software AG reported EUR210 million (2018: EUR205.7 million) in total revenue in the period under review. This is a rise of 2%. Group license revenue fell 6% to EUR50.2 million (2018: 53.5 million). Group maintenance revenue totalled EUR107.6 million (2018: EUR101.7 million) (6% growth). Accordingly, Software AG's total second quarter product revenue (licenses + maintenance) was EUR163.1 million (2018: EUR159.5 million), which reflects 2% growth.

The company's EBIT was EUR47.7 million (2018: EUR52.2 million) in the quarter under review. This reflects an EBIT margin of 22.7% (2018: 25.4%). At EUR56.1 million (2018: EUR61.5 million), operating EBITA (non-IFRS) also performed well in [in line with expectations] in the quarter]. 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 EUR107.7 million, an increase of 11%. A&N license sales were up by 28% compared to the prior year to a total of EUR34 million (1H 2018: EUR26.5 million). A&N Maintenance reached EUR73.4 million in 1H 2019, up 4% year-on-year from EUR70.5 million in 1H 2018.

The Digital Business Platform (DBP) excluding Cloud & IoT experienced an overall revenue decline of 4% to EUR187.9 million (1H 2018: EUR191.2 million). License sales were down 15% from EUR59.1 million to EUR50 million.

Software AG's Cloud & IoT business showed 92% growth during 1H 2019, growing revenues to EUR22.3 million from EUR11.6 million in 1H 2018.

First Half 2019 Total Revenue and Earnings Performance

Software AG reported EUR411.4 million (2018: EUR392.3 million) in total revenue in 1H 2019. This is a rise of 5%. Group license revenue grew 6% to EUR92.8 million (2018: 87.6 million). Group maintenance revenue totalled EUR214.7 million (2018: EUR204.2 million) (5% growth). Accordingly, Software AG's total 1H 2019 product revenue (licenses + maintenance) was EUR317.7 million (2018: EUR299.9 million), which reflects 6% growth at constant currency.

The company's EBIT was EUR89.9 million (2018: EUR94.3 million) in the half under review. This reflects an EBIT margin of 21.9% (2018: 24.0%). At EUR107.7 million (2018: EUR112.7 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%).

Employees

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.

2019 Outlook

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:

1 at constant currency
2 adjusted for non-operating factors (see non-IFRS earnings definition in the 2018 annual report on p. 48f)

Key Group Figures

¹ acc = at constant currency
² based on weighted average shares outstanding (basic) Q1 2019: 74.0 mn/Q1 2018: 74.0 mn

1 acc = at constant currency
² based on weighted average shares outstanding (basic) Q2 2019: 74.0 mn/Q2 2018: 74.0 mn

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