EQS-News: SUSE S.A.: SUSE Delivers Solid Revenue Growth And Strong Margins In Q1
SUSE continued to deliver solid revenue growth and high profitability in Q1, underpinned by its resilient business model.
EQS-News: SUSE S.A. / Key word(s): Quarter Results SUSE S.A.: SUSE Delivers Solid Revenue Growth And Strong Margins In Q1 16.03.2023 / 07:30 CET/CEST The issuer is solely responsible for the content of this announcement. SUSE Delivers Solid Revenue Growth And Strong Margins In Q1
“We’ve made a strong start to FY23,” said Melissa Di Donato, CEO of SUSE. “With the changes we made to our sales force early in the quarter now behind us, we are fully focused on building on this performance through the rest of the year. Our markets continue to expand, driven by global megatrends, and with our new go-to-market approach, differentiated products and relentless innovation, we are well placed to capitalize on this growth.” “Our resilient subscription business continues to deliver solid revenue growth and high cash conversion, enabling us to reiterate our full-year guidance,” said Andy Myers, CFO of SUSE. “We are on track to deliver margin expansion in FY23 even as we continue to make disciplined investments to support our growth.” Notes This document contains Alternative Performance Measures as defined in Appendix 4. Operating expenses exclude non-recurring items, as shown in the IFRS operating loss to Adjusted EBITDA reconciliation in Appendix 2. Constant Currency movements (CCY) have been provided for ACV, Adjusted Revenue and Adjusted EBITDA. The definition of constant currency is included within Appendix 4. Statutory data for the financial period is reported in Appendix 1. Reconciliations to IFRS measures are shown in Appendix 2.
Summary IFRS Income Statement, KPIs and Adjusted Profit and Loss for Q1 FY23 and Q1 FY22 Summary IFRS Income Statement
Items reported separately due to their significance and non-operating nature are $3.7 million for the quarter ended January 31, 2023 (quarter ended 31 January 2022: nil). Further details are set out in Appendix 1. KPIs and Adjusted Profit and Loss
Notes: Basic Adjusted Earnings Per Share is calculated on the basis of the weighted average number of ordinary shares in issue during the period. The number of ordinary shares in issue as at January 31, 2023, was 169.4 million. The weighted average number of ordinary shares in issue during the period, fully diluted, was 173.0 million. Financial and Business Review The information in this section is based on the presentation of Alternative Performance Measures as defined in Appendix 4 and has not been audited. A reconciliation to the IFRS financials is included in Appendix 2. Results are shown using actual exchange rates. Business and Markets Update SUSE continued to deliver solid revenue growth and high profitability in Q1, underpinned by its resilient business model. While the macro environment remains challenging, SUSE’s markets continue to expand driven by global megatrends. Its competitive position and disciplined approach to investments ensure it is well placed to capture this growth. Q1 Adjusted Revenue was $169 million, up 9%, with Core Revenue up 6% and Emerging Revenue up 27%. SUSE’s Adjusted EBITDA margin increased to 40% in Q1 despite a continued increase in R&D spending, which was more than offset by higher revenue, efficiency gains in its sales force, foreign exchange rate movements and realized foreign exchange gains. In the quarter, SUSE signed important deals with new and existing customers. These included a large SLES for SAP renewal at a globally renowned agriculture and construction machinery manufacturer, highlighting SUSE’s continued strength in the SAP market, and a new Rancher Prime deal with a worldwide telco leader. SUSE continues to drive innovation and in February launched its Adaptive Telco Infrastructure Platform (ATIP), a telco-optimized edge computing platform that enables telecom companies to accelerate and future-proof modernization of their networks. ATIP is built for the telco edge from the ground up, enabling faster rollouts with a highly scalable and programmable management solution for telco-grade infrastructure. The platform was developed in close collaboration with leading European telco operators such as Deutsche Telekom, Orange, Telecom Italia, Telefonica and others. On March 1, Rancher Government Solutions (RGS) launched Rancher Government Carbide. Carbide simplifies Kubernetes security management by providing a better, more standardized way for users to verify and validate that their software is safe and secure. As announced with its Q4 results, early in Q1 SUSE simplified and re-focused its sales organization. The new structure will underpin growth in the quarters and years ahead and has enabled efficiency gains across the company. As a result, SUSE’s headcount declined by 92 people in Q1, driven by a modest reduction in sales, partly offset by continued expansion of R&D functions. The total number of shares issued at end Q1 was 169.4 million, flat versus end Q4. At March 16 this had increased to 169.9 million shares resulting from Restricted Stock Units vesting earlier in March. SUSE continues to evaluate M&A opportunities in high-growth adjacent markets. ACV and Revenues Q1 ACV was $147.0 million, up 2%, comprising Core ACV of $118.5 million, down 1% and up 1% at constant currency, and Emerging ACV of $28.5 million, up 19% and up 21% at constant currency. Core ACV performance was driven by the available renewal pool, the impact of the suspension of sales to Russian customers, and challenging market conditions in Greater China, offset by higher ACV through the Cloud Service Provider (CSP) route-to-market. Growth through CSPs is, however, lower than in prior quarters, reflecting the wider slowdown in cloud growth. Emerging ACV growth was supported by higher renewals as the customer base continues to expand. Q1 Adjusted Revenue was $169.0 million, up 9%, comprising Core Revenue of $137.5 million, up 6% and up 6% at constant currency, and Emerging Revenue of $31.5 million, up 27% and up 28% at constant currency. Core and Emerging ACV and revenues were negatively impacted by foreign exchange rate movements. The average contract duration on a last-12-months basis remains strong at 20 months, flat versus the prior quarter. ACV – By Route-to-Market
Independent Hardware Vendors (IHV) and Embedded ACV declined 2% in Q1, driven by hardware shortages and a shift to selling through other routes, primarily through CSPs.
Q1 ACV in Europe, Middle East and Africa was flat versus the prior year, with higher sales through CSPs offsetting a negative impact from foreign exchange movements and lower renewals. North America declined 1%, as growth from new customers was more than offset by lower renewals. Rest of world was up 18%, driven by strong growth in Latin America, supported by higher renewals across both Core and Emerging solutions. Sales in Greater China remain challenging due to local market conditions, with customers prioritizing local service providers.
Annual Recurring Revenue and Net Retention Rate Total Annual Recurring Revenue (ARR) as at October 31, 2022, of $654.6 million, up 11%, was supported by growth in both Core and Emerging ARR. Growth was driven by higher ARR from existing customers, reflecting a Net Retention Ratio (NRR) of 105%, and by ARR from new customers. SUSE’s NRR as at October 31, 2022, of 105% demonstrates growth from our existing customer base in a challenging macro environment. NRR was down 6 ppt on the prior year, as the run-off of SUSE legacy business and the suspension of sales to Russian customers impacted NRR by c.2 ppt, and foreign exchange headwinds by a further c.2 ppt. The wider macroeconomic environment, including the slowdown in cloud growth, is also impacting NRR. ARR and NRR are reported three months in arrears as a significant portion of the revenues are invoiced retrospectively.
Costs SUSE’s Q1 Adjusted Cost of Sales grew broadly in line with Adjusted Revenue versus the prior year, resulting in a consistently high Adjusted Gross Profit margin of 92%. Total Operating Expenses decreased by 3% in Q1 as disciplined investments in people across Research and Development (R&D) and General and Administrative (G&A) functions were more than offset by efficiency gains enabled by our sales force re-organization, foreign exchange movements and realized foreign exchange gains. At constant currency, costs increased by 2%. Sales, Marketing and Operations costs declined by 2%, and increased by 2% at constant currency, as a return to more normal levels of business travel was more than offset by lower headcount and foreign exchange rate movements. R&D costs increased by 4%, and by 9% at constant currency, as SUSE continued to expand its R&D headcount focused on product innovation and technical support, partly offset by foreign exchange rate movements. G&A costs decreased by 11% and by 7% at constant currency, with continued investment in G&A functions more than offset by a realized foreign exchange gain and foreign exchange rate movements.
Profitability
Adjusted EBITDA grew 28% in Q1 to $67.1 million, resulting from solid revenue growth and lower operating costs. SUSE’s Adjusted EBITDA Margin was 40%, up 6 ppt on the prior year, particularly supported by a realized foreign exchange gain in the quarter. Change in Deferred Revenue was $2.5 million, down 94%, driven by a lower gross increase in Deferred Revenue (total contract value) and higher Adjusted Revenue recognition in Q1 versus the prior year. The increase in Adjusted EBITDA was more than offset by the lower change in Deferred Revenue leading to Adjusted Cash EBITDA of $69.6 million, down 25%. In addition to Deferred Revenue, SUSE’s Remaining Performance Obligation (RPO) reflects commitments to customers which are not yet invoiced. RPO increased by 49% versus the prior year to $125.1 million, representing a strong increase in contracts signed but not paid up-front, which will drive future increases in Deferred Revenue and support future cash flows.
Q1 Adjusted Unlevered Free Cash Flow was $73.5 million, up 65%, primarily reflecting a working capital inflow related to the timing of customer collections from contracts signed late in Q4 and paid in Q1. Capex, commissions paid (net of amortization) and leases paid were broadly in line with the prior year. Cash taxes were down 46% related to the timing of tax payments.
Leverage
Net Debt at the end of the first quarter was $534.9 million, a reduction of $154.2 million versus the prior year, driven by SUSE’s strong cash flow. As a result, SUSE’s Leverage, calculated as the Net Debt divided by the last-12-months Adjusted Cash EBITDA, was 2.0x, significantly lower than the prior year at 2.6x and well within SUSE’s commitment to keep Leverage below 3.5x. Versus the prior quarter Leverage of 1.9x, Leverage increased by 0.1x, as the decrease in Net Debt was more than offset by lower last-12-months Adjusted Cash EBITDA.
Outlook SUSE reiterates its guidance for FY23 and the medium-term. For FY23, given the growth outlook in SUSE’s markets, its competitive position and disciplined approach to investments, SUSE expects to deliver Adjusted Revenue growth of 11-13% at constant currency, with reported growth around 2 ppt lower based on end Q4 exchange rates. This comprises Core Revenue growth of around 10% and Emerging Revenue growth of around 25%, both at constant currency. Core and Emerging reported growth rates are expected to be around 2 ppt and 1 ppt lower, respectively, based on end Q4 exchange rates. SUSE also expects Adjusted EBITDA margin expansion from FY22 as it balances increasing investments in growth opportunities with strong cost control. At end Q4 rates, margins will be supported by exchange rate movements since FY22. Adjusted Unlevered Free Cash Conversion is expected to be in excess of 80% in FY23, reflecting the continued demand for long-term contracts with up-front payment. SUSE will maintain its disciplined approach to investment to balance growth and profitability beyond FY23, and in the medium-term expects Adjusted Revenue growth of mid-to-high teens percent p.a., and an Adjusted EBITDA margin in excess of 40%. Revenue growth comprises Core Revenue growth in excess of 10% p.a., and Emerging Revenue growth in excess of 30% p.a., reflecting our latest medium-term view of market growth rates and SUSE’s ability to gain share in its markets. SUSE expects to build steadily toward these performance levels over the coming years, subject to market and macroeconomic developments. SUSE also expects Adjusted Unlevered Free Cash Conversion to continue to be in excess of 80% in the medium-term.
Additional Information
About SUSE SUSE is a global leader in innovative, reliable and secure enterprise-grade open source solutions, relied upon by more than 60% of the Fortune 500 to power their mission-critical workloads. We specialize in Business-critical Linux, Enterprise Container Management and Edge solutions, and collaborate with partners and communities to empower our customers to innovate everywhere – from the data center, to the cloud, to the edge and beyond. SUSE puts the “open” back in open source, giving customers the agility to tackle innovation challenges today and the freedom to evolve their strategy and solutions tomorrow. The company is headquartered in Luxembourg and employs more than 2,000 people globally. SUSE is listed in the regulated market (Prime Standard) of the Frankfurt Stock Exchange. For more information, visit www.suse.com.
Contacts Investors: Jonathan Atack Investor Relations, SUSE Phone: +44 7741 136 019 Email: [email protected]
Investor Relations, SUSE Phone: +44 7809 690 336 Email: [email protected] Monique Perks Kekst CNC Phone: +44 758 1033 557 Email: [email protected]
Webcast Details Melissa Di Donato (CEO) and Andy Myers (CFO) will host an analyst and investor conference call at 2:00 PM CET / 1:00 PM GMT on March 16, 2023, to discuss the results. If you would like to dial in and ask questions during the conference and have not pre-registered, please call +49 162 2059754 or email [email protected] for dial-in details. The audio webcast can be followed in listen-only mode using this link: https://www.webcast-eqs.com/suse-2023-q1/no-audio A replay will be available on the Investor Relations website. The accompanying presentation also can be downloaded from the Investor Relations website.
Important Notice Certain statements in this communication may constitute forward-looking statements. These statements are based on assumptions that are believed to be reasonable at the time they are made, and are subject to significant risks and uncertainties, including, but not limited to, those risks and uncertainties described in SUSE's disclosures. You should not rely on these forward-looking statements as predictions of future events, and we undertake no obligation to update or revise these statements. Our actual results may differ materially and adversely from any forward-looking statements discussed in these statements due to several factors, including without limitation, risks from macroeconomic developments, external fraud, lack of innovation capabilities, inadequate data security and changes in competition levels. The Company undertakes no obligation, and does not expect to publicly update, or publicly revise, any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to it or to persons acting on its behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this communication.
Financial Calendar
APPENDIX 1 IFRS Figures SUSE S.A. and its subsidiaries (“the SUSE Group”) Interim Condensed Consolidated Statement of Comprehensive Income (unaudited) For the three months ended 31 January 2023
(1)For the three months ended 31 January 2022, potential ordinary shares are anti-dilutive, as their inclusion in the diluted loss per share calculation would reduce the loss per share, and hence have been excluded.
Interim Condensed Consolidated Statement of Comprehensive Income (unaudited) For the three months ended 31 January 2023
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Financial Position (unaudited) As at 31 January 2023
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Changes in Equity (unaudited) For the three months ended 31 January 2023
Interim Condensed Consolidated Statement of Changes in Equity (unaudited) For the three months ended 31 January 2022
Interim Condensed Consolidated Statement of Cash Flows (unaudited) For the three months ended 31 January 2023
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Cash Flows (unaudited) For the three months ended 31 January 2023
APPENDIX 2 Reconciliation from IFRS to Adjusted Pro Forma Figures IFRS Revenue to Adjusted Revenue
IFRS Operating Profit/(Loss) to Adjusted EBITDA
Adjusted Deferred Revenue to IFRS Deferred Revenue
IFRS Net Cash Inflow from Operating Activities to Adjusted uFCF
APPENDIX 3 Comparable Data for Prior Periods
APPENDIX 4 Alternative Performance Measures (APMs) This document contains certain alternative performance measures (collectively, “APMs”) as defined below that are not required by, or presented in accordance with, IFRS, Luxembourg GAAP or any other generally accepted accounting principles. Certain of these measures are derived from the IFRS accounts of the Company and others are derived from management reporting or the accounting or controlling systems of the Group. SUSE presents APMs because they are used by management in monitoring, evaluating and managing its business, and management believes these measures provide an enhanced understanding of SUSE’s underlying results and related trends. The definitions of the APMs may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should, therefore, not be considered in isolation or as a substitute for analysis of SUSE’s operating results as reported under IFRS or Luxembourg GAAP. SUSE has defined each of its APMs as follows:
16.03.2023 CET/CEST Dissemination of a Corporate News, transmitted by EQS News - a service of EQS Group AG. |
Language: | English |
Company: | SUSE S.A. |
11-13 Boulevard de la Foire | |
1528 Luxembourg | |
Luxemburg | |
ISIN: | LU2333210958 |
WKN: | SUSE5A |
Indices: | SDAX, TecDAX |
Listed: | Regulated Market in Frankfurt (Prime Standard); Luxembourg Stock Exchange |
EQS News ID: | 1583683 |
End of News | EQS News Service |
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1583683 16.03.2023 CET/CEST