• Q2 group bookings up 32 percent; stable group product revenue
• Demand generation for subscription & cloud drive digital business:
  • Digital Business Platform (DBP, excl. Cloud & IoT) bookings up 31 percent year-on-year
  • DBP Cloud & IoT bookings up 39 percent year-on-year
  • DBP Annual Recurring Revenue up 14 percent to €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.]

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

The Company's EBIT of €31.9 million (consensus €31.0 million) was, as expected, below the previous year level, (Q2 2019: €47.7 million) as planned investments build momentum behind the Helix business transformation. Operating EBITA (non-IFRS) was at €41.4 million (consensus €39.8 million; Q2 2019: €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 (€96.3 million compared to €97.5 million last year) and to higher future revenue indicated by 12 percent increase of Annual Recurring Revenue (ARR), to €306.1 million.

DBP Cloud & IoT delivered strong bookings growth of 39 percent and reported revenues of €10.4 million (Q2 2019: €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 €7.3 million (Q2 2019: €5.4 million) and maintenance revenue up by 10 percent to €2.0 million (Q2 2019: €1.8 million). Unlike the second quarter of 2019, there was no large up-front license revenue this quarter and license fell to €1.1 million (Q2 2019: €5.7million).

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 €52.4 million (Q2 2019: €53.0 million; consensus: €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 €411.7 million (H1 2019: €411.4 million) and product revenue (licenses + maintenance + SaaS) at €319.9 million (H1 2019: €317.7million).

A&N business line performed very strongly, with bookings growth of 39 percent and revenue growth of 3 percent to €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 (excl. Cloud & IoT) recorded bookings growth of 18 percent, and the expected slower revenue recognition amounting to product revenue of €184.3 million (H1 2019: €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 €25.8 million product revenue compared to €22.3 million in H1 2019.

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

The company's EBIT was €60.7 million (H1 2019: €89.9 million) in the half under review. At €81.1 million (H1 2019: €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 €56.1 million (H1 2019: €75.6 million) or €0.76 per share (H1 2019: €1.02).

Balance sheet and cash flow show financial resilience
The balance sheet shows cash and cash equivalents €507.9 million as of June 30, 2020 compared to €513.6 million at the end of 2019. In the same period financial liabilities were reduced by €73.6 million to €223.0 million (December 31, 2019: €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 €2.1 billion.

Operating cash flow for the first half was at €87.7 million, down 3 percent year-on-year. Free cash flow was at €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 €0.96 (H1 2019: €1.04), and the company paid a dividend of €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 €1 billion in revenue and expand operating margin to a 25 to 30 percent range.