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Software AG in Q3: Revenue Increased, Earnings Significantly Improved, FY 2015 Outlook Updated
Published Oct 25, 2015
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Software AG released its preliminary financial figures (IFRS) for the third quarter of 2015. In the period under review, the company’s total revenue increased by 5 percent. Maintenance revenue improved by 8 percent year-on-year. License sales rose by 7 percent. The growth was driven by both product business lines: Adabas & Natural increased by 9 percent while Digital Business Platform gained 7 percent. Earnings before interest and tax (EBIT) significantly jumped in the third quarter by 34 to 36 percent to €66 to €67 million. Software AG has successfully continued to considerably increase its operating earnings. Beside the operational earnings improvement, the company realized additional positive one-time effects in the net volume of around €7 million. This volume results both from a release of provisions for share-based compensation components (+€15.4 million) and from expenses for the future-oriented alignment of the company’s sales organization (-€8 million). Based on the business development of the first nine months and the project pipeline of the fourth quarter, Software AG updated its revenue forecast for fiscal 2015 and increased the expected operating profit margin.
Revenue development
The total revenue of Software AG in the reporting period achieved €215.9 million (2014: €205.6 million) and was 5 percent above previous year’s level. The company’s product revenue increased by 8 percent to €169.9 million (2014: €157.8 million). Maintenance revenue of the Group was at €101.0 million (2014: €93.6 million) which equals a plus of 8 percent confirming the strong maintenance performance already seen in previous periods. The company’s license revenue rose by 7 percent to €68.9 million (2014: €64.2 million).
Performance by Business Line
In the third quarter 2015, the database business line Adabas & Natural (A&N) achieved total revenue of €66.9 million (2014: €61.3 million) – this is an increase by 9 percent to previous year’s level. This positive development was mainly driven by an extraordinary high license growth of 25 percent to €27.5 million (2014: €21.9 million) also due to capacity extensions of the loyal A&N customer base. This customer loyalty was also reflected in the recurring maintenance development which reached previous year’s level with €39.2 million (2014: €39.3 million).
The business line Digital Business Platform (DBP) gained a 7-percent revenue increase to €103.2 million (2014: €96.6 million) in the third quarter 2015. By increasing 14 percent to €61.8 million (2014: €54.3 million), maintenance revenue achieved a new Q3 record in Software AG’s history. This strong maintenance growth also underlines the sustainable success of the company’s value-oriented strategy with focus on recurring profits and profitable growth. DBP license revenue decreased by 2 percent to €41.4 million (2014: €42.2 million). On the other hand, Software AG generated new cloud contracts in a total volume of €3.0 million (+255 percent year-on-year).
In the third quarter, the business line Consulting achieved €45.8 million (2014: €47.7 million).
Earnings Performance
Earnings before interest and tax (EBIT) went up reaching a level between €66 and €67 million (2014: €49.1 million). This increase includes a release of provisions for share-based compensation. The provisions were related to a 5-year-program initiated back in 2011. The program’s targets which included organic and acquisitive growth are likely to be missed due to the company’s value oriented strategy within the past 12 months and the conscious avoidance of acquisitions because of high price levels in the current M&A market environment. Accordingly, the release of provisions increased the EBIT by €15.4 million gross. In the quarter under review, Software AG has further successfully aligned its future-oriented sales organisation. In this context, the company booked charges in the volume of around €8 million for further sales optimizations. Accordingly, the net impact of these two one-time-effects leads to a positive impact on the quarterly earnings of approximately €7 million.
The operating earnings (EBITA, non-IFRS) increased by more than 11 percent year-on-year to approximately €70 million (2014: €62.8 million). This equals an operating margin of over 32 percent (2014: 30.5 percent).
2015 Outlook
Due to the business development of the first nine months and based on the projected pipeline of the fourth quarter, Software AG updated its forecast for fiscal 2015. The company now expects a revenue increase for the Digtial Business Platform between 0 and +3 percent (before: +6 to +12 percent) and a decrease for Adabas & Natural by only 4 to 6 percent (before: 8 to 14 percent) to previous year’s level at constant exchange rates. At the same time, Software AG raised the outlook for its operating profit margin (EBITA non-IFRS) by 50 basis points to between 28.0 and 29.0 percent (before: 27.5 to 28.5 percent).
Posted by
VMD - [Virtual Marketing Department]
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