SUSE 1.20 in Q2 2021. Annual Recurring Revenue & Net Retention Rate
USD USD millions At April 30
2021 2020 Change %
ARR - SUSE (as of period end Jan '21) 468.6 420.3 11%
ARR - Rancher (as of period end Jan '21) 50.7 26.5 91%
ARR - Total 519.3 446.8 16%
Net Retention Rate - SUSE (as %) 108.6% 110.4% -2% pts
Net Retention Rate - Rancher (as %) 124.6% 102.4% 22% pts Note: ARR and NRR are reported one quarter in arrears in USD millions at actual FX rates. These metrics are reported for each business separately, not pro forma. Annual recurring revenue (ARR) shows steady progress across both the original SUSE business and the newly acquired Rancher business. At the end of Q2, ARR stood at USD468.6 million for SUSE, an increase of 11% over the prior year figure of USD420.3 million. Rancher nearly doubled its ARR from USD26.5 million to USD50.7 million. The net retention rate (NRR) of the SUSE business was relatively flat year on year at 108.6%, while the Rancher business increased its NRR by 22 percentage points, from 102.4% to 124.6%, demonstrating the increasing ACV upsell achievement. Costs
USD USD millions Q2 Q2 Growth H1 H1 Growth
2021 2020 % 2021 2020 %
Adj Revenue 136.8 125.5 9% 270.9 240.4 13%
Cost of Sales 10.5 7.5 40% 18.6 14.6 27%
Gross Profit 126.3 118.0 7% 252.3 225.8 12%
% Margin 92% 94% 93% 94%
Sales, Marketing & Operations 35.9 34.1 5% 67.4 69.5 -3%
Research & Development 22.4 20.1 11% 44.4 40.4 10%
General & Administrative 19.8 14.0 41% 31.6 28.5 11%
Total Operating Expenses 78.1 68.2 15% 143.4 138.4 4% Note: Operating expenses in this table excludes depreciation and amortization as well as certain other items included in the IFRS accounts, as set out in Appendix 1. All costs are pro forma, including Rancher from November 1 in all periods. Gross profit margin was slightly down at 92%, compared to 94% for the prior year, which resulted from the growth of the U.S. Federal business (Rancher Government Services, or RGS) which has incurred relatively higher third-party costs to deliver on its consulting obligations to Federal customers. Total operating expenses in the quarter were USD78.1 million, an increase of 15% over the prior year. The increase is primarily driven by headcount, resulting from the separation of SUSE from Micro Focus and the ongoing investment in new sales staff to drive growth opportunities. Sales, Marketing and Operations costs grew by USD1.8 million. This included the impact of IFRS 15 on commissions of -USD3 million. The underlying cost increase was USD5 million. This was primarily due to a headcount increase of 61 and an increase in marketing spend to drive demand generation. Research and Development saw a net cost increase of USD2.3 million, or 11%. This was primarily driven by new staff, which was partly offset by certain reductions of staff in product areas that showed overlap after the Rancher acquisition. General and Administrative costs, as anticipated, increased by 41%. This reflected the impact of the carve out from Micro Focus and the consequential additional resources across all areas of G&A as we moved from a Transitional Service Agreement into the operation of our independent systems and processes. It also includes our investment for growth and preparation for becoming a listed company, with headcount increasing year on year by 40 together with increased recruitment and training costs. Further significant growth in headcount is planned for the remainder of the fiscal year as SUSE continues to invest in growing the business, particularly in the sales and engineering functions. The tables presented in this statement exclude a number of significant items which are included in the IFRS accounts for the period. These are summarized in Appendix 1, which provides a reconciliation to the IFRS accounts. Profitability
USD USD millions Q2 Q2 Growth H1 H1 Growth
2021 2020 % 2021 2020 %
Adjusted EBITDA 48.2 49.8 -3% 108.9 87.4 25%
% Adj EBITDA Margin 35% 40% 40% 36%
Change in Deferred revenue 6.2 9.4 -34% 52.6 27.7 90%
Adjusted Cash EBITDA 54.4 59.2 -8% 161.5 115.1 40%
% Margin 40% 47% 60% 48% The Adjusted EBITDA for Q2 was USD48.2 million, down 3% from the prior year as a result of continued investment across the business to drive growth. Consequently, the Adjusted EBITDA margin decreased by 5 percentage points. The change in deferred revenue was USD6.2 million, USD3.2 million less than the prior year due to impact of the large, multi-year contract in Q2 2020. As a result, the Adjusted Cash EBITDA in Q2 was USD54.4 million, 8% below the prior year. For the first half year, Adjusted Cash EBITDA was USD161.5 million, representing a 40% increase on the comparative period in the last fiscal year. Cashflow
USD USD millions Q2 Q2 Change H1 H1 Change
2021 2020 % 2021 2020 %
Adjusted Cash EBITDA 54.4 59.2 -8% 161.5 115.1 40%
Gross Capital Expenditure -0.4 -0.3 33% -0.8 -1.0 -20%
Change in core working capital 24.1 19.3 25% -27.6 4.7 nm
IFRS 15 -7.3 -4.3 70% -17.3 -9.3 86%
IFRS 16 -1.6 -3.0 -47% -3.6 -6.3 -43%
Cash Taxes -1.6 -1.9 -16% -4.0 -3.4 18%
Rancher Pro Forma uFCF 0 -2.3 nm -1.8 -4.2 -57%
Adjusted uFCF 67.6 66.7 1% 106.4 95.6 11%
Adj uFCF Conv from Adj EBITDA 140% 134% 98% 109% Cashflow conversion in the quarter was 140%, given Adjusted Unlevered Cashflow of USD67.6 million. Capex was in line with run rate at USD0.4 million, continuing to reflect the low capital intensity of SUSE's business model. Cash taxes were USD1.6 million as the company continues to utilize its accumulated tax assets. Working capital had a positive impact of USD24.1 million compared to a negative impact in the first quarter of USD(51.7) million. The negative impact in the first quarter was due to a significant increase in trade receivables toward the end of that quarter. The subsequent collection of these receivables resulted in the positive working capital movement in the second quarter. Leverage
USD USD millions At April 30
2021 2020 Change %
Net Debt 1,204.8 896.9 34% At April 30, 2021, the group had Net Debt of USD1,204.8 million and the leverage ratio, calculated as the Net Debt divided by the Last Twelve Months Adjusted Cash EBITDA, was 5.3x. The debt increased from the prior-year figure of USD896.9 million, primarily due to additional financing of USD300 million raised in 2020 as part of the funding for the acquisition of Rancher. Following the initial public offering (IPO) of SUSE in May, which occurred after the period end, approximately USD502 million of the proceeds were applied to reducing the indebtedness of the company. The Second Lien Term Loan of USD270 million was fully repaid and the balance of USD232 million was applied to the reduction of the Term Loan B. As a result, the equivalent leverage ratio, based on the last 12 months Adjusted Cash EBITDA up to April 30, 2021, was 3.1x. This is within the target leverage range specified at the time of the IPO of 3.0x to 3.5x. IPO Update - Post Q2 Event Following the end of the second quarter, SUSE was listed on the Frankfurt Stock Exchange through an initial public offering of shares. The prospectus relating to the IPO was published on May 5, 2021, and the listing took effect on May 19, 2021. There are now 168.3 million shares in issue, of which 76.8% are held by funds advised by EQT AB Group and the remaining 23.2% constitute the free float. As a result of grants already made, there are an additional 1.9 million shares which may be issued under various share option and staff incentive schemes. ESG Environmental, Social and Governance (ESG) concerns continue to lie at the core of SUSE's open and innovative business model, spanning from how we conduct business to our people and the impact we have on society. The ESG function is established under the direct authority of the CEO. In Q2, SUSE set about re-aligning corporate governance to our new status as a public company. We reviewed our leadership team and supervisory board and overhauled internal policies management. We also remained committed to our people, ensuring employees thrive in an inclusive and engaging work culture. A new reporting process is being set up and enhanced public disclosure will be made from early 2022, based on the Global Reporting Initiative (GRI) Sustainability and CDP standards. SUSE set an ambitious goal to have 30% women in leadership by 2026, benchmarked against our historical composition. Our impact on society continued unabated as we launched our SUSE-Udacity cloud-native foundation course which is providing critical digital skills to over 15,000 learners. At least 300 of these scholarships prioritize underrepresented groups in technology, and recipients will receive scholarships to undertake a full nanodegree curriculum later in FY21. Finally, as a green company rooted in good practice, SUSE completed our Green House Gas emissions measurement from when we became independent in 2019. We aspire to set and track an ambitious climate impact target in line with best practice. Outlook Trading in the second quarter has been in line with expectations, and SUSE's outlook and guidance for the current year and medium term, as set out in the IPO prospectus dated May 5, 2021, remains unchanged. Guidance for 2021 ACV is for growth in mid-to-high teens percentage in Core, weighted towards H2, and for at least USD75 million in Emerging. Adjusted (MORE TO FOLLOW) Dow Jones Newswires
July 15, 2021 01:30 ET (05:30 GMT)
