Software AG

Otmar Winzig - Investor Relations Sanjay Brahmawar - Chairman and Chief Executive Officer Arnd Zinnhardt - Chief Financial Officer Eric Duffaut - Chief Customer Officer

Michael Briest - UBS Stacy Pollard - JP Morgan Knut Woller - Baader Bank Charles Brennan - Credit Suisse Martin Jungfleisch - Kepler Cheuvreux Alastair Nolan - Morgan Stanley

Thank you, Stuart. Good morning, ladies and gentlemen.

Welcome to Software AG's telephone conference and webcast on preliminary third quarter the first nine months results 2018. This morning, we have published the full set of numbers as well as the presentations used, slides used in this call on our website.

Today's call will start with CEO, Sanjay Brahmawar; followed by CFO, Arnd Zinnhardt; and Chief Customer Officer, Eric Duffaut. Presentations will be followed by a Q&A session, and we'll keep the call in the regular 1-hour time frame.

Before we start, there are some housekeeping remarks. This telephone conference will also be broadcast via web.

Access to the webcast is via our Investor Relations website. The webcast will display the presentation charts related to this call and the same charts are on our website for download.

After the presentations, you may ask questions. Please use only the dial-in phone number for posing questions.

The dial-in numbers are also published on our website. For technical reasons, we cannot take any questions via e-mail during the conference call.

The call and the webcast will be recorded and available for replay later today. With respect to capital market regulations, I have to make the following safe harbor statement.

This presentation contains forward-looking statements based on beliefs of Software AG management. Such statements reflect current views of Software AG with respect to future events and results and are subject to risks and uncertainties.

Actual results may vary materially from those projected here due to factors, including changes in general, economic and business conditions, changes in currency exchange, the introduction of competing products, lack of market acceptance of new products, services or technologies and changes in business strategy. Software AG does not intend to assume any obligation to update these forward-looking statements.

Thank you for your patience. And now let us start and I hand over to Sanjay Brahmawar, the CEO of Software AG.

Sanjay?

Thank you very much, Otmar. And hello everyone and welcome to Software AG's Q3 2018 financial results.

I would also like to thank you for taking the time to participate today. For those of you who don't recognize my voice, I am Sanjay Brahmawar, the new CEO of Software AG.

We don't know each other yet, but I am excited to start this journey together and look forward to getting to know you all and building a trustful relationship. Before we get to the financial figures, let me say that it is an honor and a privilege to serve as the new CEO of Software AG.

Software AG will be 50 years old next year. Before I started, I met our founder Dr.

Schnell, who is 80 years old and in good health. And he and I thought hard but could not think of any other software company that started in 1969 and still exist today.

We are where we are because of our ability to reinvent ourselves. The immense passion of our people and the sustained support of our founder Dr.

Schnell's foundation. We have 50 years of heritage and expertise that we can build on.

As you have probably read, I'm humming from IBM, having worked for 16 years in many roles. My last role was serving as General Manager for Watson IoT global revenue.

I was managing a broad range of software application, middleware, platform and AI capabilities to bring IoT solutions to our customers. So, why am I here and why am I so excited about Software AG?

First, we are in the market of digital transformation that is growing. Every company that needs to capitalize on the power of data needs to digitalize and drive in sights out of data.

This requires the digital platform and core integration across applications, cloud and IoT devices. Software AG has exactly those capabilities.

Second, almost all our products are ranked leaders by Gartner and Forrester. We are application and cloud neutral, so offer total flexibility and no lock in to our clients.

Third, we have more than 50% of the Fortune 500 customers as our clients and these are long lasting relationships that we can further build on. Fourth, we have a very robust financial position with strong cash flow that gives us the muscle power to take both steps if and when we want to.

Finally, we have great talent. I have been very impressed with the quality of talent that we have.

So I am here because I believe there is tremendous potential for further success. Let me say a few words about my first 60 days.

I decided the fastest way to learn about Software AG was to get out and go and meet as many clients and colleagues as possible. I spend one day in Darmstadt and then travel twice around the world to meet with 2,500 colleagues and 40 clients and partners.

I learned from our clients that we are integral to their operation, our technology is reliable and works at scale and our innovation is helping them modernize and embark on digital transformation. I also looked that they want to see us improve our visibility.

They want more access to our technical talent and they want to co-innovate more with us on core integration and IoT. All this input from employees, clients and partners on the basis of the strategies refreshed project we have kicked up.

We call this project Helix as a symbol of our strength. Our DNA on which we will build growing towards our future success.

We will be ready with the results of this tragedy early next year and I look forward to sharing more with you in February. Okay, let's get the part you are most interested in, how did the quarter go.

Let me just state, when I started, I shared the following three priorities for the first six months with my entire team. Number one, listen and learn.

Number two, deliver on Q3 and Q4. And number three, define the go forward strategy together with my team.

So in spite of a CEO change, we've had a sharp focus on execution in Q3. I am pleased to inform you that the team is done an exceptional job to push hard and deliver a strong Q3.

First, we knew that we had a slow start to our DBP license business in the half of the year. So we put a sharp focus here to step up our performance on a core revenue engine.

DBP license for Q3 has grown 15% year-on-year, while DBP total product revenue for Q3 is up 8% year-on-year. Most importantly, we have caught up on the GAAP in the first half and are now on track to deliver our full year commitment of 3% to 7% growth, thanks to a great push and excellent job by our team.

Second, we wanted to accelerate our IoT and cloud business. IoT and cloud revenue grew by 144% year-on-year.

The team pushed hard to boost the Q3 IoT license revenue and importantly our ARR has grown by 111$ year-on-year. Third, once again, our team has delivered an amazing results on Adabas & Natural.

A&N Q3 license revenue grew by 48%, while A&N product revenue was up by 11%. So year-to-date, we are still ahead of last year's revenue and feel very confident of achieving the upper end of our full year commitment.

Finally, we continue to demonstrate our ability for strong fiscal management. Q3 EBIT is 54, a growth of 8% year-on-year.

So in summary, we are confident of delivering our full year 2018 commitment. Apart from the major customer successes we have seen in Q3, there are few other points around our progress that I would like to share with you.

First, we are serious about becoming leaders in the high growth iPaaS market. Hence we recently acquired Built.io, a San Francisco based iPaaS company that extends our webMethods integration portfolio.

We will leverage Built.io's use of modern Node.js technologies to open up new markets and develop our communities to Software AG. We are strengthening our partner ecosystem with a deeper relationship with AWS.

Last month, I met with Andy Jassy, CEO of AWS and we agreed to deploy a full selection of our products on the AWS marketplace. This makes it super simple for AWS customers to launch and deploy our products.

Number three, we have just signed a unique partnership with Dell Technologies to develop and launch a joint plug and play IoT solution that makes IoT simpler for our customers. They can connect, power up and start their IoT project immediately, thanks to Cumulocity IoT, Edge and Dell.

We will share joint customer success in the future calls. Fourth, our R&D team did an amazing job in packing our latest product release with the wealth of innovations.

Release this week, it includes widespread Kubernetes support, self-service analytics for real-time and time series data, webMethods cloud deployment and B2B integration in the cloud. Our API management platform is rapidly becoming a recognized leader in the market.

Watch some more new on that in the coming weeks. And we received great feedback from clients and partners on this innovation.

Finally, in line with our and with Software AG's foundations commitment to give back to society, we have recently piloted a new program in India to encourage young women who have taken a break in their career to reenter the workforce. The program is called SoftwareAGain, and aims to create an attractive environment for mothers to reengage in technology in a way that fits the new family situation.

In if its iteration, we are refreshing the skills of 13 young professionals to training and coaching and the second wave is already oversubscribed. This exceeded our expectations and is a wonderful success in a firstly competitive labor market.

So we have a solid foundation on which to build and project Helix will define how we do that in coming months. I'm convinced that we will together be able to drive a positive transition for Software AG as we enter the year our 50th anniversary.

Meanwhile, I'm proud at the great progress and focus that team has shown in delivering a strong Q. We will continue that relentless focus to stay on track in Q4 and deliver our full year commitments.

I look forward to your questions as well having the opportunity to meet our shareholders over the coming days and months to share more of my vision for the company. I will now hand over to our CFO, Arnd Zinnhardt.

Thank you very much.

Thank you, Sanjay. Good morning, ladies and gentleman.

Warm welcome to our conference call from my side. As Sanjay has put it, Q3 was a good quarter in which we grew all relevant KPIs.

Total product revenue was up 13%, license revenue showed a dynamic growth of 30%. This positive momentum is also true for the individual business lines with a revenue growth in all segments, Adabas & Natural plus 11%, Digital plus 8% and IoT Cloud plus 144%, whereas Digital including Cloud and IoT is plus 13%.

A dynamic performance regarding our usage base revenue as well as ARR growth in IoT cloud that once again more than doubled compared to last year. The bottom line developed nicely as well.

IFRS EBIT, non-IFRS EBIT net income and EPS all do show growth. After the opening remark, I would like to start discussing the numbers with the FX analysis.

As expected, the strong FX impact did not continue as the euro weakened against the U.S. dollar.

As a consequence, we even had a little light tailwind out of the euro the U.S. dollar exchange rate.

On the other hand, currencies from emerging markets such as Brazilian real and South African rand weakened significantly and made the total currency impact still negative. Looking into Q4, we expect a similar impact like we observed in Q3.

The digital business developed nicely and showed a growing momentum compared to Q1 and Q2 even every single revenue line. Let me start analyzing our digital performance excluding IoT and cloud.

The product revenue increased in Q3 by 8% compared to previous year. This was driven by a 15% increase on the license side, maintenance grew by 5%.

Main contributors to the license growth for APJ, U.K. and Nordics, in all those geos, we enjoyed dynamic license growth.

Eric will go into more details by talking about the regional split and some customer wins in detail. All operating costs are well under control and developed as expected.

The increase in cost of sales is related to our success in the cloud SaaS business, which grew by 9% in the last 12 months. In line with revenue growth, we continue to invest into sales and marketing.

Compared to 12 months ago, we increased our total sales and marketing organization by 67 FTEs or 8% respectively. Like in sales, we also invested into R&D.

Our total R&D head count is up by 90 FTEs or compared by 8%, 12 months ago. Although the facts lead to a business result showing a growth of 18%, the margin expanded to 33.6%, a further expansion of 100 basis points.

Let me continue with our cloud IoT. Liking to want to get to the numbers this close on this chart out there off of total digital business line.

In the last three months, the high interest of customers and prospects in our IoT and cloud offering continued. All revenue lines underpinned this dynamic performance.

License plus more than 400%, maintenance plus more than 50%, and SaaS used base increased by 90%. This development should please all of those, those of you who still look at revenue rather than to ARR.

In recent quarters, I was very much pushing your attention towards ARR. Therefore and even though we have stunning results on the revenue development, I would like to continue with this approach to stay consistent and predictable with my communication and to draw your attention to the KPI that really matters.

ARR, the forward looking KPI disclosing the future next 12 months development continues to more than double compare to the number of one year ago. All KPIs clearly underpinned our market success.

It also demonstrates that this business has become and to continues to be more and more relevant sector for our entire business model and thus important to the valuation of our company. Regarding Adabas & Natural, we continued a strong performance of the last six quarters and recorded a dynamic digital double-digit license and product growth.

This growth was mainly generated by a number of sizable deals in the U.K., Germany and APJ. Eric again will provide you with more details.

Q3 contributed to the positive trend we saw in first nine months of the year, resulting in a year-to-date product revenue growth of 6%. However, I would like to repeat what I said at the beginning of the year.

Seasonality in 2018 will be normal. Consequently, we expect some 35% to 40% of annual license revenue in Q4.

2017 was different. 2017 was very much back end loaded with 53% of the annual Adabas & Natural license revenue generated in Q4.

Please do consider this in your projection for Q4. Cost of sales decreased as well as we realize additional efficiency in our Adabas & Natural support organization.

The segment result margin is strong again and close to 70%. I believe these numbers speak for themselves.

The consulting business showed the same pattern as absorbed throughout the year. The revenue reduction is due to the effect already described in our Q2 release.

So namely focus on strategic consulting project in Spain and a single project in the U.K. As a consequence, margin was a bit below last year but remained on a high double-digits level.

At discussed on the last slides, our business performed nicely with continuous strong Adabas & Natural and Digital revenues and dynamic growth of IoT cloud, SaaS and usage space revenue as well as ARR. This positively influences our gross margin that increased to 78%, so plus 270 basis points in Q3.

The performance is quite impressive as we achieve those growth, despite this increase in hosting costs due to the strong performance of our SaaS business. Consequently our EBIT exceeds prior year's level with a margin even up at 60 basis points for the quarter and 180 basis points year-to-date.

The comments to operating margin can be short and crisp, based on the underlying set of numbers we observed a quote unquote normal development. Year-to-date margin is close to last year's bench mark.

Therefore, I feel more than confident that we will end up in the guided corridor. Ladies and gentlemen, let me just make one statement regarding our cash flow.

Strong performance like you're used to and on prior year's level. And the same is true of our balance sheet, therefore also here just few remarks.

Despite the acquisition of Built.io, the net prepared position amounts to EUR73 billion. Receivables are on prior year's level, despite the 30% increase of license closed in this quarter.

Deferred income is at almost EUR168 million or EUR30 million higher than a year ago, a nice development indeed. Let's now come to the outlook.

Dear colleagues, we confirm our outlook for the year. Adabas & Natural started with three strong quarter into the year.

Although we are very pleased so far with this performance, this performance was somewhat expected. Let me refer to the comment I made by analyzing the Adabas & Natural numbers.

We confirmed our statement made three months ago and expect Adabas & Natural closing the year at the upper end of the guidance. Digital X-IoT cloud demonstrated a strong Q3 performance.

Year-to-date, we have touched up with and have reached our guided corridor. Regarding IoT cloud, we see ourselves in a good position to grow the business dynamically between 100% and 135%.

The year-to-date performance shows a growth rate above 100% and thus in the corridor. Let me again highlight our annual ARR development which is above 100% mark as well.

As I mentioned earlier, I feel very comfortable to meet operating income guidance. This view is supported by our nine month achievements.

On this positive note, let me hand over to Eric. Eric, up to you.

Thank you very much, Arnd. And ladies and gentlemen, I would also like to welcome you to today's call and thank you for your ongoing interest in Software AG's business development.

I would also like to apologies for my weak voice, I've got a bad cold but I hope that you can hear me loud and clear. Sanjay and Arnd have giving you the full financial figures and I trust you appreciate what they mean in terms of customers' trust and confidence in the innovative capabilities of our portfolio as well as in terms of Software AG's potential.

Off to Q1. I told you to not worry.

That this was just the quarter following a super strong Q4. The best Q4 ever in fact.

I said that the fundamentals were right. After strong Q2, I told you that we were catching up that we had a good start to Q3 and that we should have a strong quarter.

And now, here we are. We delivered strongly on all business lines.

Also the first nine months that is year-to-date, A&N license revenue is up 38%, and our Digital portfolio license revenue which includes IoT is up 6%, and we keep improving our sales efficiency enhance profitability. This accelerating profitable growth is based on multiple converging and supporting initiatives that the company has launched in the recent years, including an effective value base customer engagement model, supporting an industry focus go-to-market approach with dynamic partner ecosystem, the hugely successful entry into the IoT markets and many program targeting technology excellence that further strengthens our portfolio relevance to a wider markets.

And finally, Adabas & Natural 2050+, an industry leading commitment to customers. All these initiatives, all these investments are paying off.

These have been game changing, transformational years and as you can see, transformational not just in terms of the game we are playing but also in the way we play, that is one this initiatives represent. But back to Q3.

Ladies and gentlemen, let me give you more insight into what is driving this truly excellent results. Starting with our Digital business, we continue to enable industry leaders on the digital journeys with our ever evolving and leading portfolio.

Yes, Sanjay mention it. Integration is fundamental to the digital transformation, on-premise hybrid in the cloud and on the edge.

As our CTO, Wolfram Jost said, cloud integration is at the heart of the digital transformation with 80% of the work in IoT project are related to integration. There is no digital enterprise that is not connected enterprise and Software AG is the industry leader in connectivity in integration.

You heard it, the acquisition of Built.io in Q3 should be seen in this context and we are certainly the largest integration install base saw the significant opportunity to cross sell. Built.io also gives us the opportunity to embed iPaaS in cloud ISV solution enabling cloud-to-cloud and cloud-to-on-premise integration and we certainly plan to leverage this capability in the coming years.

We have considerable successes in Q3 with our best-in-class integration portfolio. Let me give you a few examples.

The Abu Dhabi City Municipality a long time customer launched the pilot phase of over five years Smart City an artificial intelligence project Software AG. Called Zayed Smart City, the project is designed to digitally transform the environmental social and financial aspect of human life improving the lives or Abu Dhabi citizen and visitors.

The Abu Dhabi City Municipality chose Cumulocity IoT for the city-wide digital sensors but also ready to integrate multiply legacy ERP system and have the capability not just to produce but to take action based on the real time events. In order words key cost dynamic processes and that means what methods.

This is end-to-end digital transformation ladies and gentleman. For process optimization, webMethods integration for neural connectivity, webMethods BPMS for dynamic process execution and finally, Cumulocity IoT for digital sensor connectivity and real time data analytics.

One of the largest fashion retailers in North America, Michael Kors Holdings is transforming now its business on Software AG's digital business platform, optimizing the customer experience and leading the luxury digital experience. Yes, you heard it first, the luxury digital markets.

After beating all our main competitors on-premise and in the clouds, the methods is now to be the company's global standard for enterprise integration. Just to highlight two key examples of the type of key transformation we enable.

In many of these deals, we did beat MuleSoft in the process. Well in fact not only we beat MuleSoft but sometime we even replace them.

Regarding our geographic performance, well as you can imagine, 15% license revenue growth at constant currency means that most regions, most countries deliver good digital business platform license revenue. I would like to mention our top competitors or contributors with very high double-digit growth.

The entire region of Asia Pacific and Japan, the U.K., Germany, Nordics, Austria, Iberia, The Netherland, Brazil, it is happening all around the world. On the Internet of Things side, we closed 19 new deals in Q3, thereof 16 net new customers and partners.

Well, as we close 19 new deals in IoT, but we have done ladies and gentlemen is open 19 new revenue streams. Let me mention a few to highlight the transformational relevance of our partnerships.

I will start with telcos. I have mentioned several times, our deep penetration of this markets, Telefonica in Spain, Deutsche Telekom in Germany, Telstra in Australia, Ooredoo in Qatar, KPN in The Netherland, A1 in Austria, and Swisscom to only mention some.

In Q3, we added a major telco in Canada, we added Slovak Telekom and T-Mobile in Czech Republic and we further strengthen our partnership with a major telco in Japan. Ladies and gentlemen, an increasing proportion of global telco IoT services will soon run on Software AG Cumulocity IoT technology.

In manufacturing, we closed an exciting deal with huge positive implications for the planets which is Nordics. The German wind turbine manufacturer, Nordic will use Cumulocity IoT to autonomously manage clean energy wind farms based on sensor data.

We will collect about 5,000 existing Nordic's wind turbines in 2018, equaling an energy reproduction of almost 15 nuclear power plants or more than 30 coal fire plants. We are hugely proud to play a role in the reduction of Co2 emissions globally.

Motor manufacturer Shinano Kenshi will use Cumulocity IoT to offer a new product giving real time insight into [indiscernible] IoT. Other hardware vendor, Shinano was looking for trusted IoT software advisor and chose us even after previously investing in another IoT platform.

Let me quote Marcel Azary, the Senior VP at Shinano Kenshi. When it came to pulling the trigger on Shinano's IoT strategy, we based our decision on partnership, product and people.

With Software AG, we were entering into a true global partnership with a product that works well and with experts we trust. Finally, Siemens as again underscore their commitment to the Cumulocity platform by confirming Cumulocity IoT as a central element for the next three years.

And it doesn't stop there, major partnerships were announced last quarter and soon ready to hit the ground. With Dell, they are growing our IoT software and analytics on the edge as you already know.

And with Eurotech, the integration of Eurotech's everywhere software framework and Cumulocity IoT is today available in all multi-service industrial IoT gateways and high performance edge devices offered by Eurotech. As I said, 19 year long term revenue streams that will grow as a number of end users customers, devises and IoT services multiply.

And we thought that was natural, we once again deliver the fantastic growth quarter, not only in terms of revenue, the greater part of license revenue in Q3 was driven by new modernization projects. This is extremely gratifying and significant as it demonstrates that increasingly our customers are choosing to build their future on their every stage of business critical application built on our technology over the case.

We simply offer customers the safe, secure and modern pass the future. And they know this, Software AG's total customer commitment to the A&N 2050 program as release an advantage of new development and modernization.

Every customer know that their new A&N investments will continue to pay off for the caves to come and we do know this is and will continue to be a fully revenue generator for us. I saw it in action, in South Africa this month at our customers' outbound, the mutual insurance company, as part of their vision to positively impact society outbound with modern architecture but one based on their 30 years of heritage.

They engage with us to modernize the A&N and applications landscape and have confirmed that A&N 2050 was extremely important to their own A&N commitments. The best picture I can give you is offered a A&N developer with over 30 years' experience standing beside the latest teenager A&N developer, well maybe he was 21, but that keeps younger than his colleague for sure.

This is our way to bridge the past and the future. We are reporting to you on the quality basis, but our A&N customer commitment is clearly crossed generational.

So all-in-all, a remarkable quarter in all dimensions. I'll always finish with looking forward, so let's go on to the fourth quarter.

We enter Q4 with momentum. Our sales model is highly profitable.

The market adoption of our technology expending and accelerating. Our market penetration is deepening.

And our IoT partner ecosystem is starting to scale. Yes, I do know, we are entering a quarter that will be compared to Q4 2017, our best DBP quarter ever and a quarter with major wins globally.

Ladies and gentlemen, we are ready for that challenge. Yeah both Sanjay and Arnd confirming our full-year guidance for all business lines and when I look at the depth and breadth of our transformation in our pipeline, I am confident, we have what it takes to deliver.

We stick with our commitments, Software AG will continue to transform faster than the market transforms and we will stay ahead of the game. Thank you very much for your attention.

I look forward to your questions.

Thank you members of the board. Now ladies and gentleman, you may ask questions.

Stuart please repeat the procedures.

Thank you. Good morning.

Welcome Sanjay. One for you and then someone else from the team.

You talked a little bit about the new strategy update coming next year, there was an interview with you in the CIO magazine where you talked about the strong cash generation and the potential for acquisitions for iPaaS. I wonder how you - you should have think about M&A.

And also as an industry trend, we're obviously moving to the cloud, one of your neighbors saw a significant shift in their results yesterday. Can you talk about how you see the business developing over the next few years as it transitions more to the cloud, is that something you want to push aggressively on?

And then one probably for Arnd. Just on the IoT side, what proportion of the revenues there are coming really from Cumulocity rather than the other parts of the portfolio, it feels that Cumulocity gets most of the name checks around IoT?

Thanks.

Okay. Michael, thank you very much for the question.

So look your question around M&A and yes, we have a very strong financial position, I think I've mentioned that and good strong cash flow. And that allows us to have the ability when if needed, we can take actions.

And of course, I look at it as three options really, there the option to build, the option to acquire and the option to partner. And my team and I are going to be looking at all three options.

And of course we want to look at where are areas where we may want to spend in further. Now if we look at our portfolio, you can already see that we are very strong in integration of applications.

They are very strong in integration of devices. And we're looking at data integration and how that could be more relevant for us you know.

And you can see that we acquired TrendMiner recently which is a visualization tool. So data storage acquisition those of areas we may be looking further.

But these are things that we will really consider as part of helix as our strategy. And I look forward to talking to you more about that in February.

Your second question around cloud. Well look cloud we've been on full steam in cloud and we want to accelerate of course.

But we are very cognizant of our customers and their journey and our customers have a hybrid journey and we want to make sure that we start from the first point which is - what is that are customers need. So I want to make sure that we start from that point and we're able to support our customers in their journey.

Now, we obviously have a cloud stack that is based in standard technology Kubernetes and Docker and we can sit on any cloud infrastructure. We don't need big technology to jump from one cloud to another.

So I think we're in good position there and now with Built.io iPaaS acquisition that will only accelerate our movement in the cloud. But back to the point, we're going to work with a customers in their hybrid journey.

Arnd?

Thank you.

Well on the Cumulocity side, well, yes certainly IoT and then Cumulocity is an important point and we disclose that also in previous quarters when we talked about Cumulocity. But we need to understand the Cumulocity is just one component of our IoT's tech.

And typically IoT is not sold in isolation, yeah. So if you look to the big OEM partnership sector Eric has talked about it's very often a combination if you just talk about the technology side of integration server, so webMethods and Cumulocity is that have a resonates to what Sanjay has said was integration of application and devices.

So therefore that is what we see from the customer side that they do not only want to connect devices, but then of course also aligned that data that they get from the physical devices to data that they have in their data centers and make the analysis on top of that. So therefore, yes we talk about Cumulocity, but if you drill into the details, it's a combination out of products.

All right. Thanks so much.

Next question please.

Hi, thanks. Just a couple of - can you talk a little bit more and I know you have already talked about the pipeline maybe for DBP, but can you give us any extra color around geography of demand or perhaps in certain industries, if you're seeing any differential there?

And then secondly, just a logistics question perhaps for Arnd or Eric, what kind of revenues and profits should we be adding to our model for Built.io? Yeah.

Okay. Good morning, Stacy and thanks for the question.

On the pipeline, I assume your question is rather looking forward and backward right. So I mentioned that we feel confident and you heard of course that the consumer guidance that means that we are ready for the challenge in Q4 to have comparisons but the pipeline is there.

And then we have right now, the pipeline that shows almost a 10% increase compared to previous year, 9% to be very precise and this is spread well across all the geos right. I think that one thing that we can say is we are seeing certainly growth engine in some emerging markets, you heard it when I was talking about the regional performance in Q3.

Asia Pacific and Japan is clearly on fire as we see more and more adoption of integration technology to mention again the core of our business. The same applies in some countries in Latin America and also in Western Europe.

All the rest of the geos, I would say growing nicely of course with the performance that we had. But clearly the pipeline that we have should enable us to do again what we have promised to do in Q4 and it is well spread across all the geos.

In terms of industry, and in manufacturing and in telcos, you heard it for the IoT side, we remained very strong in public sector, very strong in the financial markets which I believe our key markets of adoption of digital transformation as well, so that should help us in the future, Stacy.

So Stacy, then I take the other one, which was around a Built.io and I would like to give two angles of answers. So the first one is cloud and the next one is the Flow one, so in order to cover and your entire question.

So first of all, Built.io was a technology acquisition. And so therefore from a revenue perspective on an annual basis less than 1 million in turnovers, so nothing that hits the P&L include three in only very, very limited for Q4.

From profitability perspective as you can imagine, technology tuck-in with basically no revenue, it is loss making. So therefore also no positive contribution in Q3 or in Q4, so that is how we are today.

On the other side, Built.io, it is a strategic component. Michael was talking about Cumulocity on the I0T side, Built.io is evenly relevant with respect to the integration side.

Sanjay was talking about different ways how customers look to integration, so on-premise, cloud and hybrid, Built.io will be the relevant part for the integration in the cloud. So therefore moving forward and as we believe that is the way how you should help your customers to integrate the data and implications Built.io will be a central component of that product offering.

So moving forward, Built.io will be one element of driving revenue growth on the integration side.

That's useful. Thank you.

Yeah. Thank you.

A couple of questions. Firstly on the Dell partnership, can you give us some more color on this partnership here?

It's there or has there been any upfront payment or is it rather a SaaS model where you will recognize all the revenues similar to other partnerships you signed in the past over the years? And then also I'm looking at it from a strategic perspective, I think the first wave of IoT you've been quite successful in selling it to more the machinery sector now we see Dell.

So how could we think about the interest in cross selling your offering now into new verticals, how is momentum picking up here? And then lastly on IoT and clouds, do you feel fine with the expectation that we should end up this year with an ARR well a north of 30 million in terms of the IoT cloud offerings that right way to look at things looking at the momentum in the quarters in 2018?

Thank you.

Okay. Good morning, Knut.

This is Eric and I start by taking your first question related to the Dell partnership. Upfront payments are not, the answer is clearly no.

We are in a classical consumption model here. We are building an appliance, an edge appliance for the cloud together with Dell.

And we are of course aiming to hit the ground as I said toward the end of this year or likely more beginning of 2019, where we expect the entire channels of Dell to push this box to market. And this is exciting because, as you know Dell is a volume hardware let's say driver and engine.

So this is typically the Intel Inside example, Knut, write them in. I don't know which laptop you use, but we are now Intel Inside or we are Cumulocity IoT inside the Dell machine and of course, our revenue stream will depend on the success of the market adoption of this machine.

But this is an exciting partnership, we certainly - and the strategic one for us, we certainly expect an impact in 2019. I will say likely in the mid-single-digit million euros as we look at it right now, but we are very exciting also by the opportunity of scaling this partnership globally.

The second question, you have still around the IoT and then we lead on Arnd to of course conclude on the ARR, is related to the industry, yeah and the way that we see traction Well look machinery manufacturing, telcos are clearly today the drivers, but the great news is that in our pipeline, we start to see many other industries such as healthcare for instance, looking at IoT as a way of bringing let's say health monitoring to hospital in much more economic and efficient way. I think that IoT is a generic topic across industries.

We have also banks thinking about IoT and how they can monitor your know their loan and track things in the large sense. So I think we're going to see a wave of adoption well beyond the first of course early adopters that you have mentioned such as manufacturing and machinery.

Yeah, good morning, Knut and I'm going to take note of the third question regarding ARR, IoT and cloud. So first of all, and basically it's a two sides of one coin, I do not want to enter an additional dimension to our guidance, so that the first one.

On the other side, I very much like that you are catching up on the ARR and asking for a forward-looking statement on that given the fact that that is such a relevant KPI. Now around 30 million would require a sequential quarter-on-quarter growth which is double-digit, something that we have to be delivered throughout the year.

So therefore - let me put it that way, it's not unrealistic that we see the 30 at the end of this year.

Excellent. Thank you very much.

Thank you very much. Just a couple questions for me.

Firstly just a number clarification. You gave us the financials around Built.io, but I didn't hear any comments from TrendMiner, what was the contribution there in the quarter?

And then secondly, if I look at your ARR and IoT and I think about your full-year revenue guidance to hit the middle of the range seems to imply you need licenses in IoT of somewhere in the new order of 5 million. I'm just wondering what sort of visibility you have to that number, does that still rely on speculative deal signings between now and the end of the year or is that already banked on known deal wins?

Good morning, Charles. I take the first one and then we discussed, who will take the second one.

So on TrendMiner, also technology tuck-in and Sanjay explained why we acquired that and what is the beauty of that acquisition, revenue-wise less than a million, so it's also tiny because it's the technology acquisition, EBIT-wise negative impact on the quarter. IoT license for Q4, you calculated that correctly and let me just explain to the other in that core how I also calculated that and I'm pretty sure Charles, you did exactly the same calculation.

So we have 21 million year-to-date signed revenue. We've got SaaS and maintenance revenue which is accumulated at 6 million.

So if you end that up, you end up with 26 million, 27 million that is already in our order books and consequently we need a magnitude of more or less 5 million in order to come up with to the mid-range of our guidance. Now looking to Q3, you see what we're able to generate, you also know based on experience and following our story which is bit since a couple of years that Q4 is always the strongest quarter.

So therefore we are pretty sure that we will end up in the guided range as we increase the guidance at the end of the first quarter.

Good. And can you just say something about licenses in general in IoT?

This business is obviously on ramp phase, so it's relatively easy to be delivering growth in the early phases. But in some of your other business lines like A&N, we see significant quarterly volatility, should we be expecting that's an IoT going forward as well?

Well it's a question of - so first of all, we are - it's a low base, you are right. However, delivering triple-digit growth is certainly something that we all can be proud of, yeah.

And if you look also into the peer group delivering more than 100% growth is not a normal subject. So therefore we've performed very nicely in the quarter.

If you look to the ARR and therefore, I'm putting focus on ARR, this is something which has very, very limited volatility. And ARR and I'll put it again is the question and addressing the question what kind of cash flows do we generate in the next 12 months.

So exactly what you do, when you do a calculation in order to compile, what is a fair share price, also you do a DCF calculation, so it's pretty close to what you also do. So therefore looking to ARR, I do not expect a high volatility and disclosing the numbers now for the third time in a row, you see what I'm talking about.

If you look to single transactions, yes of course, there is some kind of volatility, but please again Charles, look to ARR to make a judgment on the performance of IoT and Cloud.

Great. Thank you.

Yes. Hello, good morning.

Thanks for taking my two questions. And the first one is on the digital business platform and on the competitive environment, how has your competitive environment changed recently also when you consider the acquisition of MuleSoft by sales force recently?

And second question is on IoT. Growth was mainly driven by licenses in the third quarter.

How do you see subscriptions and usage base revenues developing from here and how much influence do you have an increasing these types of revenues at your customers? And also has revenue from Siemens for instance started already and how is your pipeline for further Siemens like deals looking?

Thank you very much.

So, let me - it's Sanjay. Let me just comment on the acquisition of our competitor MuleSoft by sales force.

So look, I think more and more we engage with our customers and clients the more they understand that they are going to have multi-cloud landscapes. And that it going to lead to the necessity of integration across these landscape.

And so more and more customers are very keen to ensure that they have got certain amount of neutrality across the application and the tools that they used. And so in some way, this puts up into a very good position because we are the leading provider with the neutral very neutral kind of solutions.

So I don't see that as a major risk for us, I see that of course the challenge because with sales force acquisition comes the power of sales force and you get the marketing power, you get of course the client base. However, on the other hand, we have a unique differentiator here in terms of our neutrality and our strength of our product for the MuleSoft.

And I think you will see that more and more if you see the comparisons on functionality and capabilities between our KPI management et cetera and MuleSoft. So that's my comment on that but I'll hand over to Eric.

I agree, I think as Sanjay said. And by the way Martin some of the success stories I wanted to mention are also in this field.

I mean I think this acquisition of MuleSoft by sales force should be seen also as the novelty in Software AG as Sanjay mention. And I think that the recent wins that we had, plus of course us strengthening our solution with Built.io and other things that you will see soon is here to comfort our position of leadership in this area.

The second point was around IoT. When you say that we expect license, what about Siemens, do we have other Siemens in the pipeline.

Well there is only one Siemens, so but I think I know where you are going. I mean clearly, we do have other opportunities in our pipeline such as Siemens.

We believe that we have one key go-to-markets that we are playing super well right now with the Cumulocity IoT solution which is the embedded model or the OEM model. The telcos by the way are nothing else and done as well.

Of course Siemens is different. They have their own IoT platform and we are playing a key game or key part of it.

There are more in the pipe. I cannot mention them of course right now as you can imagine, but we have some and it is clear that's the tries that we have made, the successes we had and the press coverage that we had around those wins is driving others to consider Software AG as a key player in this field.

Regarding the - I think you had a question also regarding the license and the influence we have on helping our customers to expand. Well, I mean honestly, we do know that's the key element for us we mention it is in this consumption business model is to drive more and more devices to be connected, more and more use cases and this will be what will drive our revenue and exponential growth going forward.

Of course we can influence and of course we are influencing by supporting our customers to identify the use cases, by helping us with our global customer services, consulting services to develop those IoT services and applications that will certainly drive increase of devices going forward. But of course we also dependences on the success or the success story of our key partners.

I mean we talk about Dell, we spoke about Siemens and many others like the telcos. So this is a combination of the scalability of model were vibrant ecosystem of partner.

Well of course it's not only in our hands but at the end of the day, this is the impact of scale. And the second element which is in our hands here is to help customers, we need to drive let's say used case deployment enhance devices connected.

Martin, as I'm the one how has longest serving in the company, let me - let allow me to make a remark regarding the history. And I think your observation and your question regarding OEM partnerships is spot on.

We are as of today for the first time in the position to put our product into an OEM partnership. So moving forward, you will see basically two go-to-market now, the direct one and the partner one including OEM partnerships which will be relevant moving forward.

And you can imagine about the effects on scaling up our activities by using OEM partners. So therefore, we are talking about individual partnership agreements, OEM agreement that we have signed, which has no impact for the quarter, but are extremely relevant for the future and for the future growth of the company.

Thanks a lot.

Okay. In respect of time, we take one more question so they can provide with the 30 minutes Q&A.

Good morning, guys. Just a quick question for me around the 2018 guidance.

So it looks as though you're now in line on nearly outlook of DBP, IoT and A&N. A&N in particular looks quite a bit ahead at the moment and I guess if you are sticking to the minus 2, minus 6 guidance, it suggests a pretty much slowdown in Q4, which I know traditionally is the one of the strongest quarters.

You maybe just explain the rationale by keeping the guidance range as it is and if we should imply a pretty sharp slowdown or how we should think about that?

Yeah. I'm going to take that.

Good morning. So first of all, let me again confirm that we believe we'll end up at the upper end of the guidance, so that's the first very important remark.

Secondly, I was talking in my speech about the seasonality. 2018 from a seasonality perspective, it's very similar to 2016 and 2015.

2017 on the other side, so the benchmark was abnormal. The normal development on Adabas & Natural is that we generate between 35% and 40% of the annual revenue in the last three months of the quarter.

So if you make the calculation you know what kind of number we are shooting at. In very much contrast to this normal development, last year's Q4 was 53% of the annual license revenue.

So more than half of the revenue was done between Christmas and New Year Eve. And I'm very happy that I do not happen to experience exactly the same stress between Christmas and New Year Eve again.

So therefore yes, Q4 from Adabas & Natural side will be lower, license-wise than last year, but Adabas & Natural as a business line develops very, very nicely has shouldered by far more positive development than anybody has had experience and expected that. And not just talking about Q4, Alastair, we are pretty confident that also in 2019 and 2020, we will enjoy the Adabas & Natural performance.

Thank you, Arnd. Thank you, Sanjay.

And thank you Eric. Now I am afraid I have to close this call now for other assignments.

Thank you for participation and interest in Software AG. Any further questions will be answered by the IR team.

The Christmas is ahead of us, only nine weeks. I'll remind all the families for this.

And we will be back with Q4 numbers on January 30, and certainly some more on project Helix, I'll try to refresh. Thank you.

And if there more questions, please call the IR team. Good bye for now.