Software AG (Frankfurt MDAX: SOW) today released its financial results (IFRS, preliminary) for the third quarter of 2018. A growing number of large corporations worldwide chose Software AG's leading technology to implement their digitalization strategies. Demand for the Germany based company’s solutions is especially high in the rapidly growing, global Internet of Things (IoT) market. The company’s new Cloud & IoT business continued its dynamic growth in the third quarter with €9.1 million in total revenue, an increase of 144 percent. Fueled by high demand for independent, open and cloud-based platforms, annual recurring revenue (ARR) in the Cloud & IoT business increased by 111 percent. Furthermore, license revenue from Software AG’s Digital Business Platform (excl. Cloud & IoT) rose by 15 percent to total €37.1 million. The Adabas & Natural (A&N) database business also continued on a positive course. Thanks to above-average license growth at 48 percent, total revenue in this business line rose 11 percent to €52.3 million (2017: 48.9 million) in the quarter under review. In addition to revenue growth in all product business lines, Software AG also increased its profitability. Earnings before interest and taxes (EBIT) improved to €54.5 million (2017: €50.4 million). Operating earnings (EBITA, non-IFRS) increased to €63.8 million (2017: €63.6 million). This resulted in an operating margin (EBITA, non-IFRS) of 30.5 percent (2017: 32.2 percent). At €38.1 million (2017: €33.8 million) income after taxes also increased by 13 percent year-on-year.
Sanjay Brahmawar, CEO of Software AG, commented, “I’m extremely proud of our team for delivering a solid Q3, with revenue growth in all product lines. Our customers tell me that our technology is integral and strategic to their business and these strong results demonstrate the continued trust they have in us. Combining innovative IoT solutions with a leading core integration platform gives us a unique position in the global software market; something on which we will continue to build.”
Software AG’s CFO Arnd Zinnhardt added, “The strong revenue performance in the Cloud & IoT business illustrates the dynamism of this rapidly growing market. Our acquisition of Built.io in the third quarter was a further step toward completing our cloud portfolio. ARR is the key indicator of successful development of our Cloud & IoT business alongside growing profitability.”
Business Line Performance
Up 144 percent year-on-year, DBP Cloud & IoT revenue demonstrated robust growth to total €9.1 million (2017: €3.7 million). ARR in the Cloud & IoT business grew more than 100 percent. The growth trend in the IoT business line was fueled by ever greater customer demand and strengthened by Software AG’s extensive partner network. The company recently expanded its IoT partnership with Dell. DBP (excl. Cloud & IoT) license revenue climbed 15 percent to €37.1 million (2017: €32.5 million) in the third quarter. Maintenance revenue was €67.7 million (2017: €64.9 million), which reflects 5 percent growth over the previous year. Accordingly, DBP product revenue totaled €104.7 million (2017: €97.5 million) in the third quarter of 2018, an increase of about 8 percent. The Digital Business Platform (DBP) business line including Cloud & IoT generated €113.8 million (2017: €101.2 million) in total revenue in the third quarter of 2018, reflecting 13 percent growth.
The Adabas & Natural (A&N) business line continued to perform extremely well. Of particular note was the 48 percent increase in license revenue totaling €16.1 million (2017: €11.3 million) in the third quarter. Maintenance revenue was €36.0 million (2017: €37.4 million). A&N product revenue grew 11 percent to total €52.1 million (2017: €48.7 million). This overall positive performance underlines the stability of this segment and the high degree of loyalty of the A&N customer base. Software AG’s Adabas & Natural 2050+ innovation program provides customers with long-term investment protection and plays a strategic role in modernizing their IT landscapes. Based on A&N’s highly stable pipeline and the associated predictability, the outlook for 2018 was confirmed.
Third-quarter revenue in the Consulting business line was €42.7 million (2017: €47.2 million).
Total Revenue and Earnings Performance
Despite negative currency translation effects totaling -€3.2million, Software AG booked €208.8 million (2017: €197.3 million) in total revenue in the period under review, a rise of 7 percent at constant currency. This growth is due primarily to the strong performance of Group license revenue, which increased 30 percent to €56.7 million (2017: €44.5 million). Group maintenance revenue totaled €104.7 million (2017: €103.0 million), that is 3 percent growth. Accordingly, Software AG’s total third-quarter product revenue (licenses + maintenance) rose 13 percent to €165.9 million (2017: €149.9 million).
The company’s third-quarter EBIT was €54.5 million (2017: €50.4 million). This reflects an EBIT margin of 26.1 percent (2017: 25.5 percent). At €63.8 million (2017: €63.6 million), operating earnings (EBITA, non-IFRS) also performed well in the quarter. Accordingly, the operating profit margin (non-IFRS) was 30.5 percent (2017: 32.2 percent).
2018 Outlook
Software AG has confirmed its April 13 outlook for fiscal 2018. Based on the expectations of business performance in the next three months, Software AG’s Management Board continues to anticipate an operating profit margin (EBITA, non-IFRS) between 30.0 and 32.0 percent for the 2018 fiscal year. Digital Business Platform revenue, excl. DBP Cloud & IoT, is expected to increase between 3 and 7 percent. DBP Cloud & IoT revenue is expected to increase between 100 and 135 percent. The revenue growth target for the Adabas & Natural database business line remains unchanged between -6 and -2 percent. Software AG assumes earnings per share (EPS, non-IFRS) will increase between 5 and 15 percent.
The table below shows the full forecast for the 2018 fiscal year:
