Lectra : Management discussion and analysis of financial conditions and results of operations for the second quarter and first half 2021

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE SECOND QUARTER AND FIRST HALF 2021

Dear Shareholders,

We report below on Lectra Group's business activity and consolidated financial statements for the second quarter and first half of 2021, ending June 30, 2021, which take into account the acquisition of the company Gerber Technology, which has been consolidated since June 1, 2021. Financial statements for the first half have been subject to a limited review by the Statutory Auditors; statements relating solely to the second quarter have not been reviewed.

To facilitate analysis of the Group's second quarter and first half financial statements, the impact of Gerber Technology (the "Gerber scope") on the income statement is analyzed separately from the results of Lectra excluding the acquisition (the "Lectra 2020 scope"). For the Lectra 2020 scope, detailed comparisons between 2021 and 2020 are based on 2020 exchange rates unless otherwise stated ("like-for-like").

Orders for new systems are reported using two indicators: on the one hand, the value of software sold separately under perpetual software licenses, equipment and accompanying software (also sold in the form of perpetual licenses) and non-recurring services; and on the other hand, the annual value of new subscriptions for software sold in Software-as-a-Service (SaaS) mode. The analysis of orders is limited to the Lectra 2020 scope.

Revenue corresponding to orders for perpetual software licenses is reported under "Perpetual software licenses;" revenue corresponding to embedded software is reported, as previously, under "Equipment and accompanying software." Revenue from software sold on a subscription basis is reported under "Software subscriptions."

The results for the Gerber scope relate to the month of June 2021 (the first month of consolidation). The proforma results relate to the first six months of the fiscal year. They are not compared to the results for the same periods of 2020.

The detailed tables and like-for-like changes in orders for new systems, in revenues, and in the income statements for the second quarter and first half of 2021 are provided in the additional information of this report, starting on page 8. These tables allow identification of the impact of Gerber Technology on the revenues and income from operations for the second quarter and for the first half of 2021.

1. SUMMARY FOR Q2 2021

Q2 2021 revenues amounted to 80 million euros, up 58% at actual exchange rates.

EBITDA before non-recurring items totaled 11.9 million euros (multiplied by 2.4 at actual exchange rates) and the EBITDA margin before non-recurring items was 14.8%. For its first month of consolidation, Gerber Technology contributed 13.5 million euros to revenues and 1.2 million to EBITDA before non-recurring items.

Income from operations before non-recurring items amounted to 7.7 million euros. This included a 0.8-million-euro charge for amortization of intangible assets arising from the acquisition of Gerber Technology (see chapter 2.3). After a non-recurring charge of 3.8 million euros recognized in Q2 2021 for fees and other costs relating to the acquisition of Gerber Technology, income from operations amounted to 4 million euros.

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First Half 2021 Financial Report

Net income totaled 2.9 million euros (+175% at actual exchange rates).

Free cash flow before non-recurring items came to 4.5 million euros. After disbursement of 2.5 million euros in Q2 in respect of fees and other related expenses in connection with the acquisition of Gerber Technology, free cash-flow came to 2 million euros.

1.1 Lectra 2020 scope

With an average exchange rate of $1.21/€1 in Q2, the US dollar was down 9% compared to Q2 2020, while the yuan held steady against the euro. Currency changes mechanically decreased revenues by 2.3 million euros (-3%) and income from operations before non-recurring items by 1.4 million euros (-16%) at actual exchange rates, compared to like-for-like figures.

Very strong rebound in orders and revenues, income from operations before non-recurring items multiplied by 4.5

Business activity and results in Q2 2020 had been severely affected by the COVID-19 crisis, due to the initial lockdown measures implemented by many countries and the significant reduction in activity by Lectra's customers.

Despite the persistent consequences of the health crisis, particularly in Europe, Q2 2021 confirmed the improvement observed at the end of 2020 and then in Q1 2021.

Orders for perpetual software licenses, equipment and accompanying software, and non-recurring services (30.6 million euros) more than doubled (+112%) compared to Q2 2020.

The annual value of new software subscription orders amounted to 2 million euros, multiplied by close to 6.

Revenues (66.5 million euros) increased by 36% compared to Q2 2020 (+32% at actual exchange rates).

Income from operations before non-recurring items totaled 7.7 million euros; multiplied by 4.5 like-for-like and by 3.8 at actual exchange rates.

The operating margin before non-recurring items was 11.6%, up 9.3 percentage points like-for-like and 7.6 percentage points at actual exchange rates.

1.2 Acquisition of the company Neteven

On June 24, 2021, the Company announced the signature of an agreement to acquire the entire capital and voting rights of the French company Neteven. This acquisition is in line with Lectra's strategy of expanding its presence in the fashion market by covering an additional part of the customer value chain.

Founded in 2005, Neteven has developed a particularly innovative offer, based on a SaaS platform and associated services, which enables brands to simplify and effectively monitor the distribution of their products on the world's largest online marketplaces. Neteven is the perfect complement to the latest solutions acquired by Lectra, Kubix Link (product lifecycle management and product information management - PLM, PIM) and Retviews (competitive intelligence and trend analysis). The combination of these three offers will enable Lectra to provide an even more comprehensive response to its fashion customers' needs.

The transaction concerns the acquisition of 80% of Neteven in July 2021 for 12.6 million euros. The acquisition of the remainder of capital and voting rights will take place in June 2025, for an amount between 0.6 to 0.9 times 2024 recurring revenues.

2. CONSOLIDATED FINANCIAL STATEMENTS FOR FIRST HALF 2021

H1 2021 revenues were 146.7 million euros, up 29% at actual exchange rates. EBITDA before non-recurring items totaled 23.2 million euros (+80% at actual exchange rates) and the EBITDA margin before non-recurring items was 15.8%.

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Consolidated income from operations before non-recurring items amounted to 16.2 million euros. After a non-recurring charge of 4.8 million euros, recognized in H1 2021 for fees and other costs relating to the acquisition of Gerber Technology, income from operations amounted to 11.4 million euros.

Financial income and expenses represented a net charge of 0.3 million euros. After net foreign exchange gains of 0.2 million euros and an income tax expense of 2.3 million euros, net income totaled 8.9 million euros, up 101% at actual exchange rates.

Net earnings per share were €0.26 on basic capital and on diluted capital (€0.14 in H1 2020).

Free cash flow before non-recurring items came to 14.3 million euros (1.5 million euros in H1 2020). This sharp rise is attributable mainly to the improvement in income from operations. After disbursement of 2.8 million euros in H1, in respect of fees and other related expenses in connection with the acquisition of Gerber Technology, free cash-flow amounted to 11.5 million euros.

2.1 Lectra 2020 scope

Negative impact of currency changes

With an average exchange rate of $1.21/€1 in H1, the US dollar was down 9% compared to H1 2020 and the yuan declined by 1% against the euro. Currency changes mechanically decreased revenues by 5.1 million euros (-4%) and income from operations before non-recurring items by 3.1 million euros (-16%) at actual exchange rates, compared to like-for-like figures.

Strong growth in revenues, income from operations before non-recurring items multiplied by 2.7

H1 2021 revenues (133.2 million euros) increased by 21% (+17% at actual exchange rates) compared to H1 2020, which had suffered the effects of the health crisis.

Orders

Orders for perpetual software licenses, equipment and accompanying software, and non-recurring services (56.6 million euros) increased by 71%.

Orders for perpetual software licenses (3.7 million euros), equipment and accompanying software (45.9 million euros), and training and consulting (6 million euros) increased by 3%, 87% and 46%, respectively.

Geographically, orders for perpetual software licenses, equipment and accompanying software, and non-recurring services increased by 109% in Asia-Pacific, by 44% in Europe and by 100% in the Americas. They were down 30% in the rest of the world (including Northern Africa, South Africa, Turkey, and the Middle East). They were multiplied by close to 3 in the furniture market, by 2.3 in the automotive market and increased by 29% in the fashion market and by 22% in the other industries.

As for the annual value of new software subscription orders, it amounted to 2.7 million euros, nearly a threefold increase compared to H1 2020. The improvement was seen in all geographical areas and was attributable primarily to the fashion market.

Revenues from software licenses, equipment and accompanying software, and non-recurring services

Revenues from perpetual software licenses, equipment and accompanying software, and non-recurring services (49.2 million euros) increased by 35% (+30% at actual exchange rates). They include mainly:

• perpetual software licenses (3.6 million euros), which decreased by 12% and accounted for 3% of total revenues (4% in 2020);
• equipment and accompanying software (39.4 million euros), which increased by 48% and accounted for 30% of total revenues (24% in 2020);
• training and consulting (5.3 million euros), which increased by 7% and accounted for 4% of total revenues (4% in 2020).

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The amount reported for orders for perpetual software licenses, equipment and accompanying software, and non-recurring services in H1 (56.6 million euros) was 7.4 million euros higher than the corresponding revenues figure (49.2 million euros). This difference is primarily due to the strong growth in orders at the end of the second quarter, which had not yet been delivered and invoiced on June 30.

Accordingly, at June 30, 2021, the order backlog for perpetual software licenses, equipment and accompanying software, and training and consulting stood at the particularly high level of 31.7 million euros. It increased by 7.2 million euros compared to December 31, 2020 (+7.8 million euros at actual exchange rates), and by 16.1 million euros compared to June 30, 2020 (+15.7 million euros at actual exchange rates).

Revenues from recurring contracts, and consumables and parts

Revenues from recurring contracts-which represented 37% of total revenues-amounted to 50 million euros, a 3% increase.

This revenue component is a key pillar of the Group's business model and constitutes a protective factor that has mitigated the impact of the COVID-19 crisis on revenues and results. The breakdown is as follows:

• software subscriptions were 3.1 million euros, a twofold increase, and represented 2% of revenues;
• software maintenance contracts came to 17.8 million euros, down 5%, and represented 13% of revenues;
• equipment and accompanying software maintenance contracts were 29.1 million euros, up 3%, and represented 22% of revenues.

In parallel, revenues from consumables and parts (34 million euros) increased by 35% compared to H1 2020, which were affected by the acute reduction in business activity of the Group's customers due to the health crisis. They represented 26% of revenues (23% in 2020).

Overall, recurring revenues (84 million euros) increased by 14%.

Gross profit

Gross profit amounted to 97.4 million euros, up 18% compared to 2020.

The overall gross profit margin was 73.1%, down 1.8 percentage points relative to H1 2020. This decrease stems mainly from the evolution of the product mix, and specifically the very strong growth in equipment and accompanying software revenues.

Personnel expenses and other operating expenses incurred in the execution of service contracts or in training and consulting are not included in the cost of goods sold but are accounted for in overhead costs.

Overhead costs

Total overhead costs were 81.2 million euros, up 5% compared to 2020. The breakdown is as follows:

• 70.8 million euros in fixed overhead costs (-3%);
• 10.4 million euros in variable costs (+130%).

At actual exchange rates, overhead costs increased by 3%.

While fixed costs continued to benefit from the cost-containment measures implemented in the first half of 2020, the sharp rise in variable costs, attributable mainly to the variable portion of compensation, profit sharing and the incentive plan, is explained by the very strong growth in orders for new systems, in revenues, and in earnings.

Research and development costs (17.1 million euros), which are fully expensed in the period and included in fixed overhead costs, represented 12.8% of revenues (16.4 million euros and 14.4% of revenues in H1 2020). After deducting the research tax credit applicable in France and grants received, net research and development costs totaled 12.6 million euros (12 million euros in 2020).

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Income from operations before non-recurring items

Income from operations before non-recurring items amounted to 16.2 million euros and was multiplied by 2.7 compared to H1 2020 (multiplied by 2.3 at actual exchange rates).

The operating margin before non-recurring items was 12.1%, up 7.8 percentage points like-for-like, and 5.9 percentage points at actual exchange rates.

2.2 Gerber scope

From June 1 (acquisition date) to June 30, 2021, Gerber Technology reported 16.3 million US dollars (13.5 million euros) in revenues and 1.5 million US dollars (1.2 million euros) in EBITDA before non-recurring items.

If Lectra had completed the acquisition on January 1, 2021, and taken into account the effects of the purchase accounting as of that date, then Gerber Technology would have reported pro forma revenues for the first six months of 2021 of 109.1 million US dollars (approximately 90.5 million euros) and pro forma EBITDA before non-recurring items of 11.7 million US dollars (approximately 9.7 million euros).

2.3 Balance sheet at June 30, 2021

The balance sheet at June 30, 2021 includes the effects of the acquisition of Gerber Technology, which are set out below.

At June 30, 2021, consolidated shareholders' equity amounted to 370 million euros (192.2 million euros at December 31, 2020). This increase is explained mainly by the capital increase carried out for the purpose of the acquisition of Gerber Technology in the total amount of 165.3 million euros (see chapter 3).

The Company also paid a dividend of 7.8 million euros in respect of FY 2020 on May 7, 2021.

The Group took out a 140-million-euro loan to finance the cash portion of the acquisition price of Gerber Technology in the amount of 175 million euros. At June 30, 2021, the Group's net financial debt stood at 21.9 million euros, consisting in financial debt of 139.3 million euros and available cash of 117.4 million euros.

The acquisition price of Gerber Technology was primarily allocated to amortizable intangible assets in the provisional amount of 123.8 million euros and to goodwill in the provisional amount of 199.9 million euros.

The working capital requirement at June 30, 2021 was a negative 30.8 million euros.

3. SHARE CAPITAL - OWNERSHIP - SHARE PRICE PERFORMANCE

Change in share capital

At June 30, 2021, the share capital totaled €37,646,645, divided into 37,646,645 shares with a par value of €1.00.

This includes the increase in the share capital by the nominal amount of €5,000,000 through the issue on June 1, 2021, of 5,000,000 new ordinary shares allotted to AIPCF VI LG Funding LP for the acquisition of Gerber Technology, pursuant to a resolution by the Shareholders' Meeting held the same date. This capital increase was accompanied by a share issue premium in the amount of €117,500,000 and an amount of €42,750,000 directly recognized in the reserves.

The share capital has also increased since January 1, 2021, by the nominal amount of €134,994 (associated with a share issue premium of €1,467,948) due to the issue of 134,994 new shares resulting from the exercise of stock options.

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First Half 2021 Financial Report