- Third quarter financial reporting confirms or exceeds preliminary results published October 21
- Digital Business growth sustained:
Overall digital business bookings plus 17 percent year-on-year; Cloud & IoT bookings growth accelerates to 73 percent year-on-year.
- Strong growth in recurring revenue:
Annual recurring revenue growth was 10 percent year-on-year and recurring revenue was more than 80 percent of product total – already approaching 2023 ambition (85 to 90 percent).
- Subscription shift continues at pace:
Subscription & Software-as-a-Service contracts were 78 percent of third quarter Digital Business bookings.
- Robust cost management despite transformation investment:
Third quarter non-IFRS EBITA margin was 18 percent. The non-IFRS EBITA margin over nine months was 19.2 percent.
- Continued transformation success drives 2020 guidance increases:
DBP (excl. Cloud & IoT) product bookings growth expected between 3 and 10 percent.
DBP Cloud & IoT product bookings growth expected between 30 to 50 percent.
Adabas & Natural product bookings expected between 5 and 15 percent.
The expected range for non-IFRS EBITA margin remains unchanged.
[Unless otherwise stated, all figures are IFRS-conform, increases at constant currency and rounded.]
Darmstadt, Germany – Software AG (Frankfurt MDAX: SOW) today announces its final financial results for the third quarter of 2020 and increases its guidance for the full year. These results confirm the view presented in its preliminary release of October 21, 2020, showing the Group delivered on its transformation for a third consecutive quarter. Software AG’s Digital Business (Digital Business Platform, DBP, incl. Cloud & IoT) continued its strong trend, with bookings growth of 17 percent at the upper end of the preliminary range indicated in October. Within that, the DBP Cloud & IoT business line continued to accelerate, showing bookings growth comfortable ahead of the predicted range at 73 percent. The Group’s Adabas & Natural (A&N) business line saw a bookings decline of 26 percent, also slightly ahead of the preliminary range. While the Group’s transformation forges ahead, its reported revenue continues to show the temporary impact of the rapid shift towards subscription and Software as a Service (SaaS). A prudent balance of cost and investment enabled the Group to deliver third-quarter non-IFRS EBITA of €33 million with a non-IFRS EBITA margin of 18 percent. With clearer visibility into its full year outturn, the Group updates its 2020 guidance with increases for the Digital and A&N business lines.
“The full set of third quarter numbers issued today provide greater clarity and context around our ongoing transformation. Our subscription shift continues, and our bookings growth demonstrates real impact in the market. The strong performance we’ve delivered across nine more months of transformation has also increased the confidence we have in our full year outlook, and we have adjusted our guidance accordingly. This performance would not have been possible without the continued resilience, dedication and support of our people, who continue to drive our business forward despite the challenges we – and many other businesses – have faced this year,” said Sanjay Brahmawar, CEO of Software AG.
“The full third quarter numbers we’ve announced today confirm we continue to show resilience, and drive growth at Software AG despite ongoing uncertainty in the external environment. The investments we’ve made in our newer cloud-based and subscription offerings are resonating in the market, and we are seeing now the strong transformation impact in the P&L. Our start to the fourth quarter has given us confidence we’ll see these trends continue, and we look forward to closing the year in line with the increased guidance ranges we’ve published today,” said Dr. Matthias Heiden, CFO of Software AG.
Third-Quarter and Nine-Month 2020 Business Line Performance
DBP (excl. Cloud & IoT) bookings growth was 2 percent, while revenue was €91.3 million (2019: €108.7 million) representing a stated decline of 12.5 percent reflecting the ongoing technical impact of the shift to subscription. Bookings growth in the nine-month period for DBP (excl. Cloud & IoT) was strong at 11 percent. DBP Cloud & IoT continued to accelerate during the quarter delivering bookings growth of 73.3 percent which flowed through to revenue growth of 40.0 percent to €11.9 million (2019: €8.6 million). Over the nine-month period, bookings growth in DBP Cloud & IoT was 58 percent. In combination, the Group’s total Digital Business sustained its return to growth delivering bookings growth of 16.7 percent, with revenue 8.7 percent lower year-on-year at €103.1 million (2019: €117.4 million). Bookings growth in the total Digital Business across the nine-months to September 30, 2020 was 23 percent. A&N delivered a bookings performance 26 percent lower than the third quarter of 2019, with revenue of €47.1 million (2019: €62.0 million) reflecting the pull-forward of a large deal from the third quarter into the second quarter of 2020. Over the nine-month period, A&N delivered strong bookings growth of 13 percent year-on-year.
Third-Quarter & Nine-Month 2020 Revenue and Earnings Performance
Software AG reported third quarter 2020 total bookings growth of 5 percent and group revenue of €185.4 million, slightly ahead of its preliminary range (2019: € 224.2 million) with product revenue (licenses + maintenance + SaaS) at €150.2 million (2019: €179.2 million). The Group’s total revenue for the nine-month period was 5 percent lower than the prior-year period, at €597 million. The Company’s EBIT in the third quarter 2020 was €24.9 million and operating EBITA (non-IFRS) was ahead of its preliminary range at €33.4 million. As a result, the Group’s operating profit margin (non-IFRS) stands at 18 percent. The Group’s operating profit margin for the nine-month period was 19.2 percent. Net income (non-IFRS) accrued to €18.7 million (2019: €51.0 million) or €0.25 per share (2019: €0.69) in the third quarter, while for the nine-month period net income (non-IFRS) was €74.8 million or €1.01 per share. The Group’s free cash flow also saw a technical impact from its transformation as cash from the increasing share of subscription and SaaS contracts is spread over the contract duration. As a result, the Group’s free cash flow in the third quarter of 2020 was €4.1 million (2019: €26.0 million), while its free cash flow over the nine-month period was €75.5 million (2019: €102.9 million).
Cyber Incident Update
Software AG has contained the malware attack on its systems which took place in October 2020. Customer services, including cloud services, remain unaffected and the Group’s internal systems are now back online and working as normal.
As of September 30, 2020, Software AG had 4,642 employees worldwide (full-time equivalents) (2019: 4,883). The 2020 figure excludes 438 FTE no longer with the business following the sale of the Group’s Professional Services unit in Spain.
Having confirmed its Q3 financial results, Software AG is now in a position to refine and update its guidance for the full year 2020. With strong transformation progress recorded across nine months and a solid start to the fourth quarter, the Group now has more visibility into its full year outturn. As a result, it now expects the following for 2020 as a whole:
- DBP (excl. Cloud & IoT) product bookings growth of between 3 and 10 percent.
- DBP Cloud & IoT product bookings growth of between 30 to 50 percent.·
- A&N product bookings of between 5 and 15 percent.
- Non-IFRS EBITA operating margin will continue to be in the range of between 20 and 22 percent
The guidance on A&N should be seen in the context of cyclicality and timing of A&N renewals by Software AG's customers. Therefore, the 2020 performance cannot automatically be extrapolated into 2021 as a run-rate. While the Group will provide its guidance for 2021 at the time of its fourth quarter and full year report on January 27, 2021, it today recommits to its mid-term ambition of reaching €1 billion of revenue by 2023.