Software AG raises 2018 outlook for IoT & Cloud

  • IoT & Cloud revenue up 125 percent in Q1
  • IoT & Cloud: Acceleration of growth above expectations; Outlook increased from 70 to 100 percent growth to 100 to 135 percent
  • Recurring revenue portion of the total product revenue increased from 71 percent in Q1 2017 to 78 percent in Q1 2018
  • Adabas & Natural: Strong license development of stable product revenue; full year outlook confirmed
  • Digital Business Platform: 20 percent of expected total year revenue in Q1 generated and full year outlook confirmed
  • Group profitability remains at a high level; 2018 operating margin (non-IFRS) and EPS (non-IFRS) outlook confirmed

[All percentages are at constant currency and rounded unless otherwise indicated.]

Software AG (Frankfurt TecDAX: SOW) today pre-announced its financial figures (IFRS, preliminary) for the first quarter of 2018. Only one quarter after the Company’s official announcement to show its IoT & Cloud revenue separately, Software AG witnessed strong growth in this new business area. The IoT & Cloud business increased by 125 percent to €6.4 million in Q1. The cloud order entry improved even stronger with an increase of 195 percent, driven by high market demand and accelerating customer adoption of independent and open IoT & Cloud platforms. Increasingly, major global corporations are building their IoT & Cloud strategy on Software AG’s leading technology. Based on this positive market development, the Company is confident of seeing further acceleration in its IoT & Cloud business. Consequently, Software AG’s Management Board has decided to increase its 2018 outlook for the IoT & Cloud business from 70 to 100 percent growth (EUR 25-30 million) to 100 to 135 percent growth (EUR 30-35 million). Additionally, the Company confirmed its 2018 revenue outlook for its Digital Business Platform (excluding IoT & Cloud revenue) and Adabas & Natural. Also confirmed is the 2018 operating margin (non-IFRS) and EPS margin (non-IFRS) outlook.

“The outstanding success and accelerated market adoption of our IoT & Cloud business in Q1 validates our strategy. IoT & Cloud have become the success driver of all industries and, internationally, we are taking a pioneering role in building new IoT & Cloud platforms through strategic partnerships with world market leaders. Establishing powerful ecosystems will be the key for future success,” said Karl-Heinz Streibich, CEO of Software AG.

“In Q1, we managed to grow our IoT & Cloud business significantly while, at the same time, maintaining our operating profit margin at a very high level. The capability of growing revenue and profitability simultaneously gives us a uniquely strong market position, which we will continue for the rest of the year and beyond,” commented CFO Arnd Zinnhardt.

Business area development
Software AG’s IoT & Cloud business showed strong growth in Q1, reaching record revenues of €6.4 million (Q1 2017: €3.0 million) – a plus of 125 percent at constant currency compared to last year. Also, the cloud order entry significantly increased by 195 percent in Q1.

Following an all-time record in Q4 2017, the Digital Business Platform (DBP) generated some 20 percent of the forecasted full year revenue in Q1, this result represents this normal seasonal development. Maintenance revenue were at €66.0 million (Q1 2017: €66.5 million) in the same period, 7 percent higher at constant currency than in the previous year. License revenues reached €23.4 million (Q1 2017: €36.4 million). Accordingly, the DBP product revenue (licenses + maintenance) amounted to a total of €89.4 million (Q1 2017: €102.9 million) in Q1.

The Adabas & Natural (A&N) division had a strong start to the year. The positive development underscores the stability of the business and high level of loyalty of the A&N customer base. The Company’s “Adabas & Natural 2050+” innovation program provides support and digital innovations for customers beyond the year 2050. With this program, Software AG is contributing, in the long term, to protecting its customers' investments and actively modernizing their IT landscapes. A&N license sales rose by 23 percent at constant currency compared to the previous year to a total of €9.0 million (Q1 2017: €7.8 million). A&N maintenance reached €35.7 million (Q1 2017: €40.0 million). A&N business line sales were at €44.8 million (Q1 2017: €48.0 million).

Sales in the Consulting division recorded a revenue of €46.1 million (Q1 2017: €52.1 million).

Total revenue and earnings development
In the quarter under review, Software AG recorded total sales of €186.6 million (Q1 2017: €205.9 million) at constant currency. The Group's maintenance revenue reached €102.5 million (Q1 2017: €106.9 million), an increase of 4 percent at constant currency. As a result of the regular seasonal development in the DBP license business, the Group's license revenue of €34.2 million (Q1 2017: €44.9 million) was below the previous year's figure in the quarter under review. Accordingly, the Company's product sales (licenses + maintenance) totaled €140.4 million (Q1 2017: €153.7 million) in the first quarter. At the same time, the recurring revenue portion of the total product revenue increased from 71 percent in Q1 2017 to 78 percent in Q1 2018.

The Company's earnings before interest and taxes EBIT amounted to €42.1 million (Q1 2017: €41.5 million) in the first quarter. This corresponds to an EBIT margin of 22.5 percent (Q1 2017: 20.2 percent). The operating EBITA (non-IFRS) reached €51.2 million (Q1 2017: €56.7 million). The operating profit margin (non-IFRS) of 27.4 percent (Q1 2017: 27.3 percent) continued to be on a very high level.

Outlook for 2018
Software AG has raised its 2018 revenue growth outlook for IoT & Cloud from +70 to +100 percent to now +100 to +135 percent. Additionally the Company confirms its 2018 revenue outlook for Digital Business Platform and Adabas & Natural. Also confirmed is the 2018 operating margin (non-IFRS) and EPS (non-IFRS) outlook.

A conference call for financial analysts and media representatives will take place on Monday, April 16, 2018 at 10:00 am CEST (09:00 BST). For dial-up information, visit the Company's website at www.SoftwareAG.com/investors.

Key Figures

About Software AG
Software AG (Frankfurt TecDAX: SOW) helps companies with their digital transformation. With Software AG’s Digital Business Platform, companies can better interact with their customers and bring them on new ‘digital’ journeys, promote unique value propositions, and create new business opportunities. In the Internet of Things (IoT) market, Software AG enables enterprises to integrate, connect and manage IoT components as well as analyze data and predict future events based on Artificial Intelligence (AI). The Digital Business Platform is built on decades of uncompromising software development, IT experience and technological leadership. Software AG has more than 4,500 employees, is active in 70 countries and had revenues of €879 million in 2017.

Software AG | Uhlandstraße 12 | 64297 Darmstadt | Germany

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