Software AG: Software AG announces Q2 and H1 2020 financial results

Delivers strong second quarter and accelerated transformation progress

Darmstadt (pta005/22.07.2020/07:00 UTC+2) Software AG announces Q2 and H1 2020 financial results; delivers strong second quarter and accelerated transformation progress

- Q2 group bookings up 32 percent; stable group product revenue
- Demand generation for subscription & cloud drive digital business:
o Digital Business Platform (DBP, excl. Cloud & IoT) bookings up 31 percent year-on-year
o DBP Cloud & IoT bookings up 39 percent year-on-year
o DBP Annual Recurring Revenue up 14 percent to EUR 355 million
- Adabas & Natural Q2 bookings growth of 31 percent: pushed by early closing of deals from H2 pipeline
- Good Q2 cost balance achieves non-IFRS EBITA margin of 20.2 percent, ahead of consensus
- H1 group bookings up 30 percent with flat revenue in line with expectations
- 2020 outlook maintained: growing deal pipeline mitigates new risks from potential COVID-19 related slow-downs in H2

[Unless otherwise stated, all figures are IFRS-conform, increases at constant currency and rounded.]

Darmstadt, Germany, July 22, 2020 - Software AG (Frankfurt MDAX: SOW) today announces preliminary financial figures (IFRS) for the second quarter and first half of fiscal 2020. Despite COVID-19, Software AG delivered robust performance with growth in all its leading business indicators. The Group performed well across all geographies including North America, with all business lines demonstrating excellent sales execution. Transformation momentum is building, with product innovation, cultural evolution, and subscription progress driving the business towards sustainable, profitable growth. On a divisional basis, strong sales execution in the reported quarter saw Digital Business Platform (DBP, excl. Cloud & IoT) grow bookings 31 percent year-on-year, while DBP (Cloud & IoT) achieved bookings growth of 39 percent driven by strong cloud demand. Adabas & Natural (A&N) saw additional momentum from 2 large deals brought forward from H2 and resulting in quarterly bookings growth of 31 percent. As expected, stated product revenue showed slight declines reflecting the planned shift towards subscription and Software as a Service (SaaS), where a larger part of revenue is recurring and recognized over time rather than up front. This shift to subscription and SaaS contracts was accelerating in the quarter when their share of Software AG's bookings reached 88 percent in the digital segment (DBP incl. Cloud & IoT). A balance of prudent cost control and targeted investment in areas of organic growth enabled the Group to hold its operating profit (EBITA non-IFRS) at EUR 41.4 million, ahead of analyst consensus (EUR 39.8 million).

"During Q2 we delivered strong performance despite the challenges of COVID-19. Our core digital business is growing strongly, subscription sales are advancing, we have a solid pipeline, a robust platform and high-quality people who have delivered strongly this quarter. While we cannot predict the trajectory of COVID-19 over the coming months, I believe we are in a strong position to navigate the current uncertainty, and continue supporting our clients in their digital transformation journeys which have taken on new relevance in recent months," said Sanjay Brahmawar, CEO of Software AG.

"I am delighted to have joined Software AG at such an important moment in the company's development. Despite the macroeconomic downturn related to COVID-19, the team delivered strong Q2 performance with 32 percent bookings growth and stable product revenue. Given the environment, these figures are remarkably robust. Looking ahead, my goal is to ensure we stay resilient and focused in the pursuit of our bold ambitions for future growth. I look forward to the rest of the year and to building on the great work that has already been done by the team I am proud to join", said Dr. Matthias Heiden, CFO of Software AG.

Second quarter 2020 total revenue and earnings performance broadly in line with consensus

Software AG reported EUR 204.6 million (Q2 2019: EUR 210 million) in total revenue for the second quarter of 2020, 0.9 percent above the company compiled analyst consensus at EUR 202.8 million. The consensus is published on the Company's website. Software AG's total Q2 product revenue (licenses + maintenance + SaaS) was EUR 158.9 million (consensus: EUR 158.1 million; Q2 2019: EUR 163.1 million), reflecting foreign currency headwinds and a 1 percent decline in volume compared to Q2 2019.

The Company's EBIT of EUR 31.9 million (consensus EUR 31.0 million) was, as expected, below the previous year level, (Q2 2019: EUR 47.7 million) as planned investments build momentum behind the Helix business transformation. Operating EBITA (non-IFRS) was at EUR 41.4 million (consensus EUR 39.8 million; Q2 2019: EUR 56.1 million), showing an operating EBITA (non-IFRS) margin of 20.2 percent (Q2 2019: 26.7 percent).

Second quarter 2020 business line performance

DBP (excl. Cloud & IoT) showed significant momentum in the quarter with 31 percent growth in bookings while the share from subscription mounted to 82 percent. As expected, and in line with analyst consensus, this strong shift to subscription led to lower stated revenue in the quarter (EUR 96.3 million compared to EUR 97.5 million last year) and to higher future revenue indicated by 12 percent increase of Annual Recurring Revenue (ARR), to EUR 306.1 million.

DBP Cloud & IoT delivered strong bookings growth of 39 percent and reported revenues of EUR 10.4 million (Q2 2019: EUR 12.8 million). This is once again proof of the ongoing business transformation leading to accelerated future recurring revenue. The reported quarter showed SaaS revenue increasing 36 percent to EUR 7.3 million (Q2 2019: EUR 5.4 million) and maintenance revenue up by 10 percent to EUR 2.0 million (Q2 2019: EUR 1.8 million). Unlike the second quarter of 2019, there was no large up-front license revenue this quarter and license fell to EUR 1.1 million (Q2 2019: EUR 5.7 million).

A&N continued its recent trend of strong performance supported by the unexpected early closing of 2 large deals, generating bookings growth of 31 percent whereas revenue recognized in the quarter equaled previous year level with EUR 52.4 million (Q2 2019: EUR 53.0 million; consensus: EUR 48.0 million).

First half 2020 revenue and earnings performance

Software AG reported first half 2020 bookings growth of 30 percent and stable group revenue at EUR 411.7 million (H1 2019: EUR 411.4 million) and product revenue (licenses + maintenance + SaaS) at EUR 319.9 million (H1 2019: EUR 3 17.7 million).

A&N business line performed very strongly, with bookings growth of 39 percent and revenue growth of 3 percent to EUR 110 million. The two early deal closures led to more than half of A&N's expected sales for the year being delivered in H1, which is reflected in a smaller H2 pipeline.

The DBP (excluding Cloud & IoT) recorded bookings growth of 18 percent, and the expected slower revenue recognition amounting to product revenue of EUR 184.3 million (H1 2019: EUR 187.9 million). The contribution from subscription bookings rose to 70 percent in H1 2020 from 36 percent in H1 2019, reflecting strong progress towards the targeted growth of recurring revenue.

Software AG's DBP Cloud & IoT business showed bookings growth of 50 percent and 15 percent revenue growth during H1 2020, delivering EUR 25.8 million product revenue compared to EUR 22.3 million in H1 2019.

In total, the combined digital business (DBP, including Cloud & IoT) showed a record H1 in bookings EUR 139.7 million, up 27 percent from a year ago. The growing share of SaaS and subscription contracts translated into flat revenue of EUR 210.2 million (H1 2019: EUR 210.3 million) and increased the ARR by 14 percent to EUR 355.2 million (H1 2019: EUR 315.3 million).

The company's EBIT was EUR 60.7 million (H1 2019: EUR 89.9 million) in the half under review. At EUR 81.1 million (H1 2019: EUR 107.7 million), operating EBITA (non-IFRS) performed as expected in the half. Subsequently, the operating profit margin (non-IFRS) was 19.7 percent (H1 2019: 26.2 percent). Net income (non IFRS) accrued to EUR 56.1 million (H1 2019: EUR 75.6 million) or EUR 0.76 per share (H1 2019: EUR 1.02).

Balance sheet and cash flow show financial resilience

The balance sheet shows cash and cash equivalents EUR 507.9 million as of June 30, 2020 compared to EUR 513.6 million at the end of 2019. In the same period financial liabilities were reduced by EUR 73.6 million to EUR 223.0 million (December 31, 2019: EUR 296.6 million). Shareholders' equity increased to a share of 67.1 percent (December 31, 2019: 64.2 percent) of the balance sheet total which stands at EUR 2.1 billion.

Operating cash flow for the first half was at EUR 87.7 million, down 3 percent year-on-year. Free cash flow was at EUR 71.4 million, down 7 percent year-on-year, mainly due to one-time higher CapEx in Q1 2020. Cash flow per share amounted to EUR 0.96 (H1 2019: EUR 1.04), and the company paid a dividend of EUR 0.76 following its Annual Shareholders' Meeting on June 26, 2020.

Employees

As of June 30, 2020, Software AG had 4,642 (June 30, 2019: 4,740) employees worldwide (full-time equivalents). The decline was caused by the sale of the Spanish Professional Services unit which reduced the workforce by approx. 440 full-time equivalents (FTE). The like for like increase of staff year-on-year is 340 FTE.

2020 Outlook

Having delivered the anticipated solid performance in the first half of the financial year, Software AG today reconfirms its current 2020 guidance for the financial year as a whole.

The targeted guidance ranges are:

- DBP (excluding Cloud & IoT) product bookings growth of +0 to +10 per cent
- DBP Cloud & IoT product bookings growth of +20 to +40 percent
- A&N product bookings growth of -3 to +3 percent
- Non-IFRS EBITA operating margin of between 20 and 22 percent

This continued view of Software AG's 2020 outturn is supported by the underlying resilience of Software AG's business alongside its growing pipeline for potential new DBP deals and increased sales execution capabilities. At the same time, Software AG remains mindful of the uneven nature of the COVID-19 recovery across geographies and the difficulty that presents in accurate forecasting of deal closure timings. In addition, the pull-forward of two deals from H2 in to Q2 2020 will slow down bookings and revenue recognition for the A&N business line in the second half year.
Over the medium-term, the Management Board continues to believe that demand for digitization should intensify as a consequence of the increasing importance organizations are placing on their operating structures. Software AG therefore also reconfirms today its 2023 ambitions, most notably to reach EUR1 billion in revenue and expand operating margin to a 25 to 30 percent range.

Key Group Figures

[table]
Second Quarter / YTD 2020-Key Figures as of June 30, 2020########
in EUR millions (unless otherwise stated)#Q2 2020#Q2 2019# +/-%# +/-% acc^1#H1 2020#H1 2019# +/-%# +/-% acc^1
Group Bookings^2#109.8#83.6#+31#+32#200.0#153.9#+30#+30
DBP (incl. Cloud & IoT)#81.6#61.7#+32#+33#139.7#110.6#+26#+27
DBP (excl. Cloud & IoT#56.8#43.7#+30#+31#91.4#78.6#+16#+18
DBP (Cloud & IoT)#24.8#18.0#+38#+39#48.3#32.0#+51#+50
Adabas & Natural (A&N)#28.2#21.9#+29#+31#60.2#43.3#+39#+39
Group Revenue#204.6#210.0#-3#-2#411.7#411.4#0#0
DBP business line#106.7#110.3#-3#-3#210.2#210.3#0#0
DBP (excl. Cloud & IoT)#96.3#97.5#-1#-1#184.3#187.9#-2#-2
DBP (Cloud & IoT)#10.4#12.8#-19#-19#25.8#22.3 #+15#+15
A&N business line#52.4#53.0#-1#+1#110.0#107.7#+2#+3
Group Annual Recurring Revenue (ARR)^2#508.4#461.0#+10#+12#508.4#461.0#+10#+12
DBP business line#355.2#315.3#+13#+14#355.2#315.3#+13#+14
A&N business line#153.2#145.7#+5#+8#153.2#145.7#+5#+8
EBIT (IFRS)#31.9#47.7#-33#-#60.7#89.9#-33#-
EBITA (non-IFRS) (Operating Profit)#41.4#56.1#-26#-#81.1#107.7#-25#-
as % of revenue (Operating Margin)#20.2#26.7#-6.5pp#-#19.7#26.2#-6.5pp#-
Net income (non-IFRS)#28.2#39.3#-28#-#56.1#75.6#-26#-
Earnings per share (non-IFRS)^3#EUR 0.38#EUR 0.53#-28#-#EUR 0.76#EUR 1.02#-26#-
Free Cash Flow #19.4#22.4#-13#-#71.4#76.9#-7#-
Free Cash Flow per Share ^3#EUR 0.26#EUR 0.30#-13#-#EUR 0.96#EUR 1.04#-7#-
Employees (FTE) (in thousands)#4,642^4#4,740#-2#-####
Thereof Germany #1,271#1,248#2#-####
########
[/table]
1 acc = at constant currency
2 Definitions on page 50 of the English version Annual Report and page 51 of the German version Annual Report
3 Based on weighted average shares outstanding (basic): 74.0 million
4 Excl.438 FTE for Spanish Professional Services unit sold as of June 30, 2020

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 http://softwareag.com
Software AG | Uhlandstrasse 12 | 64297 Darmstadt | Germany

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Contact:[table]
Otmar F. Winzig #Bärbel Strothmann-Schmitt
Senior Vice President, Head of Investor Relations#Senior Manager, Corporate Communications
otmar.winzig@softwareag.com#Baerbel.Strothmannn-Schmitt@softwareag.com
Tel.: +49 6151 92 1669#Tel: +49-6151-92-1502
[/table]

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Emitter:	Software AG Uhlandstraße 12 64297 Darmstadt Germany
Contact Person:	Investor Relations
Phone:	+49 615192-1900
E-Mail:	Investor.Relations@softwareag.com
Website:	www.softwareag.com
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