EQS-News: SUSE S.A.: SUSE Delivers Solid Revenue Growth And Strong Margins In Q1
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
Q1 IFRS Revenue of $168 million was up 10%, and IFRS Operating Profit Before D&A was $71 million, up 101% IFRS Net Cash Inflow From Operating Activities was $58 million, up 123% ARR (as at October 31, 2022) of $655 million, up 11%, demonstrates the continued strength of SUSE’s subscription business Adjusted Revenue of $169 million was up 9%, up 10% at constant currency Adjusted EBITDA Margin of 40% was up 6 ppt, while continuing to make disciplined investments across the business, including an increase in R&D spending focusing on product innovation and technical support Adjusted Unlevered Free Cash Flow of $74 million was up 65% with conversion of 110%, supported by a working capital inflow from customer contracts signed late in Q4 and paid in Q1 In February, SUSE launched its Adaptive Telco Infrastructure Platform (ATIP), a telco-optimized edge computing platform developed in close collaboration with leading European telco operators The launch of Rancher Prime underpinned higher Emerging sales in Q1, along with enhanced technical support for Rancher Prime customers; Rancher adoption continues to increase SUSE’s simplified and re-focused sales structure, implemented early in Q1, supported growth and has enabled efficiency gains across the company SUSE reiterates its guidance for FY23 and the medium-term All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual YoY
CCY Non-IFRS measures ACV 147.0 143.8 2% 5% ARR (as at October 31) 654.6 590.5 11% Adjusted Revenue 169.0 155.0 9% 10% Adjusted EBITDA 67.1 52.3 28% 20% Adjusted EBITDA Margin 40% 34% Adjusted uFCF 73.5 44.6 65% IFRS measures Revenue 168.4 153.5 10% Gross Profit 154.8 141.7 9% Operating Profit Before D&A 71.0 35.4 101% Net Cash Inflow From Operating Activities 58.2 26.1 123%
Luxembourg – March 16, 2023 – SUSE S.A. (the “Company” or “SUSE”), an independent leader in open source software specializing in Enterprise Linux operating systems, Enterprise Container Management and Edge software solutions, today announced its results for the first quarter of financial year 2023, which ended January 31, 2023.
“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
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual Revenue 168.4 153.5 10% Cost of sales (13.6) (11.8) 15% Gross profit 154.8 141.7 9% Operating expenses (83.8) (106.3) (21)% Amortization of intangible assets (34.1) (36.3) (6)% Depreciation - PPE (1.0) (0.9) 11% Depreciation - Right of Use Assets (1.4) (1.6) (13)% Operating profit/(loss) 34.5 (3.4) n.m. Net finance costs (14.7) (11.6) 27% Share of losses on associate (0.9) (0.9) 0% Profit/(loss) before tax 18.9 (15.9) n.m. Taxation (12.7) 3.1 n.m. Profit/(loss) for the period 6.2 (12.8) n.m.
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
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual YoY
CCY ACV by Solution Core 118.5 119.9 (1)% 1% Emerging 28.5 23.9 19% 21% Total ACV 147.0 143.8 2% 5% ARR (as at October 31) 654.6 590.5 11% NRR (as at October 31) 105.1% 110.9% (5)% Adjusted Revenue by Solution Core 137.5 130.2 6% 6% Emerging 31.5 24.8 27% 28% Total Adjusted Revenue 169.0 155.0 9% 10% Adjusted Cost of Sales 13.4 11.8 14% 19% Adjusted Gross Profit 155.6 143.2 9% 9% Adjusted Gross Profit Margin 92% 92% Sales, Marketing & Operations 42.0 43.0 (2)% 2% Research & Development 28.0 27.0 4% 9% General & Administrative 18.5 20.9 (11)% (7)% Total Operating Expenses 88.5 90.9 (3)% 2% Adjusted EBITDA 67.1 52.3 28% 20% Adjusted EBITDA Margin 40% 34% Depreciation & Amortization 4.8 5.0 (4)% Adjusted EBIT 62.3 47.3 32% Net Finance Costs 14.7 11.6 27% Adjusted Profit before Tax 47.6 35.7 33% Notional Tax 15.9 10.1 57% Adjusted Profit after Tax 31.7 25.6 24% Basic number of Shares 169 169 0% Basic Adjusted Earnings Per Share 0.19 0.15 27% Diluted Adjusted Earnings Per Share 0.18 0.15 20%
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
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual End User & Cloud 126.2 122.5 3% IHV & Embedded 20.8 21.3 (2)% Total ACV 147.0 143.8 2%
End User and Cloud ACV grew 3% in Q1, driven by continued growth in sales through CSPs, partly offset by lower renewals, the impact of the suspension of sales to Russian customers, and challenging market conditions in Greater China.
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.
ACV – By Region
Q1 FY22
Q1 YoY Actual Europe, Middle East and Africa 67.7 67.7 0% North America 55.4 55.8 (1)% Asia Pacific and Japan 9.5 9.5 0% Greater China 6.3 6.6 (5)% Latin America 8.1 4.2 93% Total ACV 147.0 143.8 2%
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
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual Adjusted EBITDA 67.1 52.3 28% Adjusted EBITDA Margin 40% 34% Change in Deferred Revenue 2.5 40.8 (94)% Adjusted Cash EBITDA 69.6 93.1 (25)% Adjusted Cash EBITDA Margin 41% 60%
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.
Cash Flow
Q1 FY22
Q1 YoY Actual Adjusted Cash EBITDA 69.6 93.1 (25)% Gross tangible capital expenditure (2.4) (2.0) 20% Change in core working capital 16.1 (34.5) n.m. Commissions paid (net of amortization) (5.1) (5.1) 0% Leases paid (2.0) (1.9) 5% Cash taxes (2.7) (5.0) (46)% Adjusted uFCF 73.5 44.6 65% Adj uFCF Converson from Adj EBITDA 110% 85%
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
All USD $m unless otherwise stated FY23End Q1 FY22
End Q1 YoY Actual Net Debt 534.9 689.1 (22)% Adjusted Cash EBITDA (LTM) 271.7 264.2 3% Leverage 2.0 2.6 (25)%
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: ir@suse.com
Matt Jones
Investor Relations, SUSE
Phone: +44 7809 690 336
Email: ir@suse.com
Media:
Monique Perks
Kekst CNC
Phone: +44 758 1033 557
Email: monique.perks@kekstcnc.com
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 suse@kekstcnc.com 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
Date Event March 23, 2023 Annual General Meeting July 6, 2023 Release of Q2 FY23 results September 21, 2023 Release of Q3 FY23 results
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
Three months ended 31 January 2023 Three months ended 31 January 2022 Income statement:Headline Separately reported items
Total
Headline Separately reported items
Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue 168,383 - 168,383 153,549 - 153,549 Cost of sales (13,600) - (13,600) (11,771) - (11,771) Gross profit 154,783 - 154,783 141,778 - 141,778 Selling and distribution costs (42,103) (4,912) (47,015) (43,577) - (43,577) Research and development costs (28,815) - (28,815) (28,102) - (28,102) Administrative expenses (7,911) - (7,911) (34,825) (25) (34,850) Reversal of impairment loss on trade receivables (27) - (27) 183 - 183 Operating profit/(loss) before depreciation/impairment and amortization 75,927 (4,912) 71,015 35,457 (25) 35,432 Amortization of intangible assets (34,108) - (34,108) (36,260) - (36,260) Depreciation – Property, plant and equipment (1,030) - (1,030) (912) - (912) Depreciation/impairment – Right of use assets (1,353) - (1,353) (1,639) - (1,639) Operating profit/(loss) 39,436 (4,912) 34,524 (3,354) (25) (3,379) Finance costs (15,381) - (15,381) (11,635) - (11,635) Finance income 614 - 614 12 - 12 Net finance costs (14,767) - (14,767) (11,623) - (11,623) Share of losses of associate (908) - (908) (880) - (880) Profit/(loss) before tax 23,761 (4,912) 18,849 (15,857) (25) (15,882) Taxation (13,878) 1,218 (12,660) 3,055 - 3,055 Profit/(loss) for the period 9,883 (3,694) 6,189 (12,802) (25) (12,827) Attributable to: Equity shareholders of the parent 9,883 (3,694) 6,189 (12,802) (25) (12,827) Non-controlling interests - - - - - - Profit/(loss) for the period 9,883 (3,694) 6,189 (12,802) (25) (12,827) Basic earnings/(loss) per share (USD/share) 0.04 (0.1) Diluted earnings per share (USD/share) 0.04 n/a (1)
(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.
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
Three months ended 31 January 2023 Three months ended 31 January 2022Headline Separately reported items
Total
Headline Separately reported items
Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Profit/(loss) for the period 9,883 (3,694) 6,189 (12,802) (25) (12,827) Other comprehensive income: Items not to be reclassified to income statement: Remeasurement of defined benefit pension schemes - - - - - - Related tax impact - - - - - - Items that may be reclassified to income statement: Currency translation differences (48,990) - (48,990) 13,593 - 13,593 Cash flow hedge – changes in fair value (3,392) - (3,392) (53) - (53) Cash flow hedge – reclassified to income statement 1,778 - 1,778 2,294 - 2,294 Related tax impact 352 - 352 (522) - (522) Other comprehensive loss for the period (50,252) - (50,252) (15,312) - (15,312) Total comprehensive income/(loss) for the period (40,369) (3,694) (44,063) 2,510 (25) 2,485 Attributable to: Equity shareholders of the parent (40,369) (3,694) (44,063) 2,510 (25) 2,485 Non-controlling interests - - - - - - Total comprehensive income/(loss) for the period (40,369) (3,694) (44,063) 2,510 (25) 2,485
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Financial Position (unaudited)
As at 31 January 2023
As at31 January 2023 As at
31 October 2022 US$’000 US$’000 Non-current assets Goodwill 2,686,320 2,686,320 Intangible assets 361,690 393,427 Property, plant and equipment 16,712 13,914 Right of use assets 17,266 18,089 Investment in associate 11,368 12,276 Derivative asset 2,555 4,051 Long-term pension assets 547 484 Other receivables 9,035 8,697 Deferred tax assets 176,759 178,680 Contract related assets 90,624 78,183 3,372,876 3,394,121 Current assets Trade and other receivables 113,733 158,044 Current tax receivables 3,597 3,597 Cash and cash equivalents 228,842 177,544 Contract related assets 30,460 37,796 376,632 376,981 Total assets 3,749,508 3,771,102 Current liabilities Trade and other payables 80,055 110,490 Borrowings 3,600 3,600 Lease liabilities 6,617 6,249 Provisions 1,638 337 Current tax liabilities 16,283 10,113 Deferred income – contract liabilities 371,899 351,197 480,092 481,986 Non-current liabilities Borrowings 725,321 695,989 Lease liabilities 13,696 14,431 Provisions 1,099 1,033 Non-current tax liabilities 8,083 8,083 Deferred tax liabilities 99,833 98,831 Retirement benefit obligations 2,210 2,142 Deferred income – contract liabilities 197,492 215,034 Other payables 4,287 3,861 1,052,021 1,039,404 Total liabilities 1,532,113 1,521,390 Equity Share capital 16,943 16,936 Share premium 2,522,971 2,522,978 Retained losses (393,721) (400,262) Other reserves 84,228 72,482 Cash flow hedging reserve 2,437 4,051 Foreign currency translation reserve (15,463) 33,527 Total equity 2,217,395 2,249,712 Total liabilities and equity 3,749,508 3,771,102
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Changes in Equity (unaudited)
For the three months ended 31 January 2023
Share
capital
Share premium
Retained losses
Other reserve
Cash flow
hedging reserve Foreign currency translation reserve
Total
equity US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 As at 1 November 2022 16,936 2,522,978 (400,262) 72,482 4,051 33,527 2,249,712 Profit for the period - - 6,189 - - - 6,189 Other comprehensive income for the period - - 352 - (1,614) (48,990) (50,252) Total comprehensive income/(expense) for the period - - 6,541 - (1,614) (48,990) (44,063) Transactions recorded in equity: Issue of share capital 7 (7) - - - - - Equity settled share-based payments - - - 11,746 - - 11,746 Total transactions with owners 7 (7) - 11,746 - - 11,746 As at 31 January 2023 16,943 2,522,971 (393,721) 84,228 2,437 (15,463) 2,217,395
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 2022
Share
capital
Share premium
Retained losses
Other
reserve
Cash flow
hedging reserve Foreign currency translation reserve
Total
equity US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 As at 1 November 2021 16,903 2,523,011 (355,870) 21,169 (4,337) (14,866) 2,186,010 Loss for the period - - (12,827) - - - (12,827) Other comprehensive (expense)/income for the period - - (522) - 2,241 13,593 15,312 Total comprehensive (expense)/income for the period - - (13,349) - 2,241 13,593 2,485 Transactions recorded in equity: Equity settled share-based payments - - - 9,879 - - 9,879 Total transactions with owners - - - 9,879 - - 9,879 As at 31 January 2022 16,903 2,523,011 (369,219) 31,048 (2,096) (1,273) 2,198,374
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Cash Flows (unaudited)
For the three months ended 31 January 2023
Three months ended31 January 2023 Three months ended
31 January 2022 US$’000 US$’000 Profit/(loss) for the period 6,189 (12,827) Net finance costs 14,767 11,623 Taxation 12,660 (3,055) Share of losses of associate 908 880 Operating profit/(loss) for the period 34,524 (3,379) Addback: Depreciation – Property, plant and equipment 1,030 912 Depreciation/impairment – Right of use assets 1,353 1,639 Amortization of intangible assets 34,108 36,260 Amortization of contract related assets 4,826 3,038 Share based payments expense 11,931 9,916 Restructuring charges 4,912 - Foreign exchange movements (26,904) 3,209 Impairment credit on trade receivables 27 (183) Movements: Movements in trade receivables 51,672 (1,716) Movements in other receivables (7,725) (2,471) Movements in trade payables (6,634) (1,499) Movements in other payables (23,375) (39,134) Movement in other pensions (201) (299) Movements in provisions (3,545) (1,157) Movements in contract related assets (9,882) (8,267) Contract assets - fair value haircut (49) (129) Movements in contract liabilities 2,512 40,832 Contract liabilities - fair value haircut 648 1,626 Cash generated from operations 69,228 39,198 Interest paid (9,008) (8,118) Interest received 614 2 Tax paid (2,653) (5,019) Net cash inflow from operating activities 58,181 26,063 Cash flow used from investing activities Purchase of property, plant and equipment (2,407) (2,046) Purchase and development of intangible assets (2,207) (103) Acquisition of a business, net of cash - (2,545) Net cash outflow from investing activities (4,614) (4,694) Net cash inflow before financing activities 53,567 21,369
SUSE S.A. and its subsidiaries (“the SUSE Group”)
Interim Condensed Consolidated Statement of Cash Flows (unaudited)
For the three months ended 31 January 2023
Three months ended31 January 2023 Three months ended
31 January 2022 US$’000 US$’000 Cash flows used in financing activities Repayment of bank borrowings (900) (900) Payment of interest rate swap premia (1,636) (2,331) Lease payments (1,997) (1,731) Net cash outflow from financing activities (4,533) (4,961) Net increase in cash and cash equivalents 49,034 16,408 Foreign exchange movements 2,264 (226) Cash and cash equivalents at beginning of period 177,544 61,061 Cash and cash equivalents at end of period 228,842 77,243
APPENDIX 2 Reconciliation from IFRS to Adjusted Pro Forma Figures
IFRS Revenue to Adjusted Revenue
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual Revenue - IFRS 168.4 153.5 10% Adjustments Deferred revenue haircut amortized 0.6 1.6 (63)% Contract asset haircut amortized 0.0 (0.1) (100)% Adjusted Revenue 169.0 155.0 9%
IFRS Operating Profit/(Loss) to Adjusted EBITDA
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual Operating profit/(loss) - IFRS 34.5 (3.4) n.m. Adjustments Depreciation and Amortization 36.5 38.8 (6)% Separately reported items 4.9 0.0 n.m. Deferred revenue haircut amortized 0.6 1.6 (63)% Contract asset haircut amortized 0.0 (0.1) (100)% Non-recurring items 1.3 2.8 (54)% Share-based payments - charge 11.9 9.9 20% Share-based payments - ER taxes 0.6 0.4 50% Foreign exchange - unrealized (23.2) 2.3 n.m. Adjusted EBITDA 67.1 52.3 28%
Adjusted Deferred Revenue to IFRS Deferred Revenue
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual Change in Deferred Revenue (2.5) (40.8) (94)% Adjustments Deferred revenue haircut amortized (0.6) (1.6) (63)% Contract asset haircut amortized 0.0 0.1 (100)% Change in deferred revenue - IFRS (3.1) (42.3) (93)%
IFRS Net Cash Inflow from Operating Activities to Adjusted uFCF
All USD $m unless otherwise stated FY23Q1 FY22
Q1 YoY Actual Net cash inflow from operating activities 58.2 26.1 123% Interest paid 8.4 8.1 4% Tax paid 2.7 5.0 (46)% Cash generated from operations 69.3 39.2 77% Addbacks - non cash items (31.9) (56.4) (43)% Movements - other working capital (14.0) 44.8 n.m. Movement in other pensions 0.2 0.3 (33)% Movements in provisions 3.5 1.2 192% Movements in contract related assets 9.9 8.3 19% Movements in deferred revenue (2.5) (40.8) (94)% Settlement of share-based payments 0.0 0.0 0% Operating profit/(loss) per IFRS 34.5 (3.4) n.m. Depreciation and Amortization 36.5 38.8 (6)% EBITDA per IFRS Statements 71.0 35.4 101% Separately reported items 4.9 0.0 n.m. Non-recurring items 1.3 2.8 (54)% Share-based payments - charge 11.9 9.9 20% Share-based payments - ER taxes 0.6 0.4 50% Contract liability haircut amoritized 0.6 1.6 (63)% Contract asset haircut amortized 0.0 (0.1) (100)% Foreign exchange - Unrealized (23.2) 2.3 n.m. Adjusted EBITDA 67.1 52.3 28% Change in Deferred Revenue 2.5 40.8 (94)% Adjusted Cash EBITDA 69.6 93.1 (25)% Gross tangible capital expenditure (2.4) (2.0) 20% Change in core working capital 16.1 (34.5) n.m. Commissions paid (net of amortization) (5.1) (5.1) 0% Leases paid (2.0) (1.9) 5% Cash taxes (2.7) (5.0) (46)% Adjusted Unlevered Free Cash Flow 73.5 44.6 65%
IFRS Working Capital Movements to Change in Core Working Capital
Q1 FY22
Q1 YoY Actual Working Capital Movements - IFRS Movements in trade receivables 51.7 (1.7) n.m. Movements in other receivables (7.7) (2.5) 208% Movements in trade payables (6.6) (1.5) 340% Movements in other payables (23.4) (39.1) (40)% Total Working Capital Movements - IFRS 14.0 (44.8) n.m. Remove non-recurring items: Third party consulting fees 0.5 (0.1) n.m. Transaction costs 1.2 10.4 (88)% Integration costs 0.4 0.0 n.m. Total Working Capital Adjustments 2.1 10.3 (80)% Change in core working capital (within uFCF) 16.1 (34.5) n.m.
APPENDIX 3 Comparable Data for Prior Periods
All USD $m unless otherwise stated FY21 FY22 FY23 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 ACV by Solution Core 94.6 101.5 98.7 119.9 113.6 93.2 102.4 118.5 Emerging 14.4 17.5 26.3 23.9 25.8 21.2 35.9 28.5 Total ACV 109.0 119.0 125.0 143.8 139.4 114.4 138.3 147.0 Adjusted Revenue by Solution Core 121.4 133.2 133.4 130.2 133.9 142.9 139.8 137.5 Emerging 15.4 17.8 20.6 24.8 27.4 28.3 30.5 31.5 Total Adjusted Revenue 136.8 151.0 154.0 155.0 161.3 171.2 170.3 169.0 Adjusted Cost of Sales 10.5 11.6 10.8 11.8 13.1 13.3 12.7 13.4 Adjusted Gross Profit 126.3 139.4 143.2 143.2 148.2 157.9 157.6 155.6 Adjusted Gross Profit Margin 92% 92% 93% 92% 92% 92% 93% 92% Sales, Marketing & Operations 35.9 39.0 45.7 43.0 46.3 45.0 45.1 42.0 Research & Development 22.4 25.4 24.8 27.0 27.1 27.1 26.0 28.0 General & Administrative 19.8 19.8 24.7 20.9 16.2 20.7 20.6 18.5 Total Operating Expenses 78.1 84.2 95.2 90.9 89.6 92.8 91.7 88.5 Adjusted EBITDA 48.2 55.2 48.0 52.3 58.6 65.1 65.9 67.1 Adjusted EBITDA Margin 35% 37% 31% 34% 36% 38% 39% 40% Change in deferred revenue 6.2 9.8 3.7 40.8 17.3 (18.9) 14.1 2.5 Adjusted Cash EBITDA 54.4 65.0 51.7 93.1 75.9 46.2 80.0 69.6 Adjusted Cash EBITDA Margin 40% 43% 34% 60% 47% 27% 47% 41%
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:
Annual Contract Value or ACV represents the first 12 months value of a contract. If total contract duration is less than 12 months, 100% of invoicing is included in ACV. Annual Recurring Revenue or ARR represents the sum of the monthly contractual value for subscriptions and recurring elements of contracts in a given one month period, multiplied by 12. ARR is calculated three months in arrears, given backdated royalties relating to IHV and Cloud Service Providers, and hence reflects the customer base as of three months prior. Adjusted Cash EBITDA represents Adjusted EBITDA plus changes in contract liabilities (also referred to as deferred revenue) in the related period and excludes the impact of contract liabilities haircut (also referred to as deferred revenue haircut). Adjusted Cash EBITDA Margin expressed as a percentage, this APM represents Adjusted Cash EBITDA divided by Adjusted Revenue. Adjusted Gross Profit represents Adjusted Revenue less cost of sales adjusted for non-recurring items. Adjusted Gross Profit Margin expressed as a percentage, this APM represents Adjusted Gross Profit divided by Adjusted Revenue. Adjusted Earnings per share represents Adjusted Profit after Tax divided by the weighted average number of ordinary shares in issue during the period. Adjusted EBITDA represents earnings before net finance costs, share of loss on associate and tax, adjusted for depreciation and amortization of intangible assets, share–based payments, contract liabilities haircut, separately reported items, specific non-recurring items and net unrealized foreign exchange (gains)/losses. Adjusted EBITDA Margin expressed as a percentage, this APM represents Adjusted EBITDA divided by Adjusted Revenue. Adjusted Effective Tax Rate represents the IFRS effective tax rate adjusted for the tax effect of adjusting items (those items adjusted for to arrive at Adjusted Profit before Tax). Adjusted Profit Before Tax represents Adjusted EBITDA, less depreciation and amortization (excluding intangible amortization for customer relationships, intellectual property and non-compete agreements) less net finance costs. Adjusted Profit After Tax represents Adjusted Profit Before Tax less notional tax. Adjusted Revenue represents Revenue as reported in the statutory accounts of the Group, adjusted for contract liability fair value adjustment (also referred to as deferred revenue haircut). Adjusted unlevered Free Cash Flow or Adjusted uFCF represents Adjusted Cash EBITDA less tangible capital expenditure related cash outflow, working capital movements (including commissions paid net of amortization of contract-related assets and excluding non-recurring items), cash taxes paid and leases paid. Cash Conversion expressed as a percentage, this APM represents Adjusted uFCF divided by Adjusted EBITDA. Contractual Liabilities and Remaining Performance Obligations or “RPO” a Contract Liability is an entity’s obligation to transfer goods or services to a customer and is recognized in the Statement of Financial Position, when a payment from a customer is invoiced, before a related performance obligation is satisfied. A remaining performance obligation is a promise to transfer goods or services to a customer (with a contract agreed), at a point in the future, but is yet to be invoiced or recognized in the Statement of Financial Position. Leverage expressed as a multiple, Leverage is Net Debt divided by Adjusted Cash EBITDA. Net Debt represents the sum of current and non-current interest bearing borrowings (excluding un-amortized capitalized arrangement fees, gains or losses on loan modifications), current and non-current lease liabilities, less cash and cash equivalents. Net Retention Rate or NRR expressed as a percentage, NRR indicates the proportion of ARR that has been retained over the prior 12-month period, which is inclusive of up-sell, cross-sell, down-sell, churn and pricing. It excludes ARR from net new logo End user customers. The NRR is calculated three months in arrears, aligned to the calculation of ARR. Notional Tax represents total income tax charge/credit for the year less the taxation charge/credit associated with adjusting items (those items adjusted for to arrive at Adjusted Profit before Tax).
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