April 16, 2018 / 10:09 AM / 2 years ago

Software AG confident of sales prospects after first-quarter slippage on licenses

FRANKFURT (Reuters) - Germany’s Software AG (SOWGn.DE) said on Monday it was more confident on sales prospects for its core database business over the next six months after some slippage on closing deals in the first quarter triggered a sell-off in its shares.

Darmstadt-based Software AG, Germany’s second-largest business software firm, published preliminary results ahead of schedule late on Friday that showed a 2 percent decline in revenues after adjustment for currency fluctuations.

Its Digital Business Platform (DBP) suffered a 5 percent decline in the quarter, with license revenues falling 29 percent, overshadowing an increase in guidance for its newly created Internet of Things and Cloud business line.

“We had a few slippages, clearly, in Q1,” Chief Customer Officer Eric Duffaut told analysts on a call, answering a question on the DBP division’s performance. “But we have very good visibility on our pipeline for the next two quarters.”

Shares in Software AG traded down nearly 4 percent on Monday to 41.05 euros, making them the weakest performer in the Stoxx Europe 600 Technology Index .SX8P.

Analysts at Baader Helvea said in a note that Software AG’s shares could fall towards their historic average of around 13 times earnings - or around 38 euros - on the results although they saw this as a buying opportunity.

More broadly, analysts expressed concern that a shift towards subscription-based cloud services risked coming at the expense of the fee-driven license business that has long been the company’s mainstay.

Executives, speaking on a conference call with analysts, stressed the scalable nature of Software AG’s IoT business that powers a series of industrial platforms, and highlighted a new metric - annual recurring revenues - that they said would help guide expectations.

Annual recurring revenues in the Digital Business Platform and IoT/Cloud operations, taken together, rose by 14 percent in the first quarter to 276.5 million euros ($342 million) adjusted for currencies.

At the top line, without currency adjustments, Software AG’s overall revenues shrank by 10 percent in the first quarter. CFO Arnd Zinnhardt said he expected a similar headwind, of about 7 percent, in the second quarter.

Software AG raised the 2018 outlook for growth in its new IoT/Cloud business line to 100-135 percent from 70-100 percent, following sales of 14.9 million euros in 2017.

It reiterated its forecast for growth of between 3 and 7 percent in its Digital Business Platform, which achieved sales of 441.5 million euros last year, and for operating margins of 30-32 percent.

Reporting by Douglas Busvine; Editing by Adrian Croft

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