USU announces figures for Q2 and H1 2023

• Sales growth of 2.8% in Q2 2023 despite shift from one-time licenses to SaaS business
• Declining license revenue affects earnings performance
• Sales up 7.6% in first six months
• Half-year earnings less influenced by decreasing licenses thanks to significant SaaS expansion
• High orders on hand safeguard growth
• Management Board confirms forecast

USU Software AG and its subsidiaries (hereinafter also referred to as the “USU Group” or “USU”) generated further growth in the second quarter of 2023 despite the strategic shift from one-time license business to software-as-a-service (SaaS) business. USU increased its consolidated sales by 2.8% year-on-year to EUR 31.6 million (Q2 2022: EUR 30.7 million) in the second quarter of 2023. However, earnings declined temporarily due to the higher share of new customers attributable to SaaS and a perceptible reluctance to invest on the part of potential customers on account of the economic situation.

Positive factors included record orders on hand and, in turn, higher SaaS revenue. This climbed by 25.1% year on year to EUR 4.2 million (Q2 2022: EUR 3.4 million). At the same time, however, the USU Group’s license business declined by about three quarters in the reporting quarter to EUR 0.8 million after enjoying significant growth in the previous year (Q2 2022: EUR 3.2 million). Thanks to licenses agreed in previous quarters, maintenance sales in the second quarter of 2023 increased by 6.6% to EUR 6.6 million (Q2 2022: EUR 6.2 million), meaning that total recurring revenue (maintenance sales including SaaS revenue) rose by 13.1% to EUR 10.8 million (Q2 2022: EUR 9.6 million). USU also expanded its consulting sales by 13.8% year to a total of EUR 19.7 million (Q2 2022: EUR 17.3 million) thanks to high orders on hand and several follow-up orders.

The decline in high-margin license revenue and a simultaneous rise in costs in connection with investment projects related to artificial intelligence, the cloud management market and the new central product platform caused EBITDA to fall by 43.7% in the reporting quarter to EUR 2.1 million (Q2 2022: EUR 3.8 million), with EBIT also decreasing by about two thirds to EUR 0.9 million (Q2 2022: EUR 2.6 million). USU’s consolidated earnings totaled EUR 0.7 million in the second quarter of 2023 (Q2 2022: EUR 1.9 million), down 62.1% on the previous year. With an average of 10,523,770 (Q2 2022: 10,523,770) shares outstanding, this corresponds to diluted earnings per share of EUR 0.07 (Q1 2022: EUR 0.18), while basic earnings per share also came to EUR 0.07 (Q1 2022: EUR 0.18) with an average of 10,000,000 (Q2 2022: 10,523,770) shares outstanding.

Postponed orders also had an impact on business performance in the first six months of the year, although USU generated sales growth of 7.6% to EUR 64.9 million (H1 2022: EUR 60.3 million) thanks to existing orders on hand and the strong first quarter of 2023. The USU Group increased its sales in Germany by a substantial 10.1% to EUR 51.6 million (H1 2022: EUR 46.9 million). International business remained 1.1% lower than the same figure for the previous year in the first half of the year at EUR 13.3 million (H1 2022: EUR 13.4 million). After foreign business performed well in previous quarters, markets outside Germany in particular saw a longer sales cycle with potential customers in the second quarter and so international business went from accounting for 22.2% of USU’s consolidated sales in the first half of 2022 to 20.4% in H1 2023.

Broken down by sales type, USU recorded a particularly high year-on-year increase in SaaS sales of 23.3% to EUR 8.2 million in the first half of 2023 thanks to existing SaaS agreements from previous years and several new orders (H1 2022: EUR 6.7 million). USU built up high recurring SaaS orders on hand in past years as a result of the shift from one-time license business to SaaS business and these will continue to grow significantly in the future as SaaS makes up an increasing share of new business. At the same time, USU benefited from license business in previous quarters and related maintenance business. In turn, maintenance sales rose by 6.3% year-on-year to EUR 13.0 million (H1 2022: EUR 12.2 million). USU thus increased its recurring revenue by 12.3% year-on-year to EUR 21.2 million in the first six months of the year (H1 2022: EUR 18.9 million), meaning that the share of total sales attributable to recurring revenue rose to 32.7% (H1 2022: 31.3%). At the same time, however, license revenue was down 63.5% on the previous year at EUR 2.1 million (H1 2022: EUR 5.8 million) as a result of the move to SaaS and order postponements by potential new customers in the reporting quarter. USU’s consulting sales also increased by 18.3% year-on-year to EUR 41.2 million in the first half of 2023 thanks to the sustained digitization trend (H1 2022: EUR 34.8 million).

Broken down by segment, the Product Business segment contributed sales of EUR 44.0 million in the first six months of 2022 (H1 2022: EUR 42.8 million), up 2.9% on the previous year. In the same period, USU increased its consulting sales in the Service Business segment by 19.5% year-on-year to EUR 20.9 million (H1 2022: EUR 17.4 million).

The operating cost base of the USU Group increased by 11.2% year-on-year in the first half of 2023 to EUR 61.9 million (H1 2022: EUR 55.6 million), primarily reflecting higher R&D investment in artificial intelligence, for cloud management in the new central product platform, as well as the increased use of employed consultants, freelancers and partners in connection with the business growth and the higher costs this entails. Wage and salary increases for staff on account of inflation and USU’s increased return to trade fairs and conferences after the pandemic also had an impact.

Regardless of the above-average rise in SaaS sales, operating profitability declined as several potential customers postponed investments in the first half of 2023. USU’s EBITDA was down 18.0% year-on-year at EUR 6.0 million in the first half of 2023 (H1 2022: EUR 7.3 million). The EBITDA margin decline d accordingly from 12.0% in the previous year to 9.2%. USU generated EBIT of EUR 3.6 million in the H1 2023 reporting period (H1 2022: EUR 4.9 million). This corresponds to a year-on-year decline in EBIT of 27.3%. USU’s consolidated earnings decreased by 30.8% year-on-year to EUR 2.4 million in the first half of 2023 (H1 2022: EUR 3.5 million). With an average of 10,523,770 (H1 2022: 10,523,770) shares outstanding, this corresponds to diluted earnings per share of EUR 0.23 in the first six months of the year (H1 2022: EUR 0.34), while basic earnings per share came to EUR 0.24 (H1 2022: EUR 0.34) with an average of 10,000,000 (H1 2022: 10,523,770) shares outstanding.

With an equity ratio of 47.5% (December 31, 2022: 50.4%), Group liquidity of EUR 8.0 million (December 31, 2022: EUR 15.5 million) and no liabilities to banks, the USU Group’s financial situation is still extremely sound and secure.

On a positive note, demand for USU products and solutions remains high and only longer sales cycles in license business are reflected in the USU Group’s earnings. Although it is not yet possible to accurately predict the timing of investment decisions by potential new customers and the related decision to choose a one-time license or an SaaS project, based on the current forecast and high orders on hand of EUR 89.1 million (June 30, 2022: EUR 78.3 million) the Management Board expects positive business performance in the second half of 2023 and so is confirming the new forecast for 2023 as a whole, which expects sales growth to EUR 132 – 139 million with targeted further significant growth in SaaS business and EBITDA of EUR 13 – 15 million.

The Management Board is also reiterating the current medium-term planning, which includes average organic sales growth of 10% in the next few years and, in view of the continued growth in SaaS business, an increase in the EBITDA margin to between 17% and 19% by 2026.