U.S. markets close in 2 hours 23 minutes
  • S&P 500

    3,337.65
    -13.95 (-0.42%)
     
  • Dow 30

    27,447.38
    -136.68 (-0.50%)
     
  • Nasdaq

    11,101.32
    -16.21 (-0.15%)
     
  • Russell 2000

    1,498.92
    -11.42 (-0.76%)
     
  • Crude Oil

    38.85
    -1.75 (-4.31%)
     
  • Gold

    1,903.90
    +21.60 (+1.15%)
     
  • Silver

    24.48
    +0.87 (+3.69%)
     
  • EUR/USD

    1.1740
    +0.0071 (+0.61%)
     
  • 10-Yr Bond

    0.6450
    -0.0180 (-2.71%)
     
  • GBP/USD

    1.2850
    +0.0008 (+0.06%)
     
  • USD/JPY

    105.6400
    +0.1210 (+0.11%)
     
  • BTC-USD

    10,674.83
    -27.67 (-0.26%)
     
  • CMC Crypto 200

    219.52
    -10.16 (-4.42%)
     
  • FTSE 100

    5,897.50
    -30.43 (-0.51%)
     
  • Nikkei 225

    23,539.10
    +27.48 (+0.12%)
     

Edited Transcript of SOWGn.DE earnings conference call or presentation 22-Jul-20 7:30am GMT

Q2 2020 Software AG Earnings Call

Darmstadt Aug 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Software AG earnings conference call or presentation Wednesday, July 22, 2020 at 7:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* John Schweitzer

Software Aktiengesellschaft - Chief Revenue Officer & Member of the Management Board

* Matthias Heiden

Software Aktiengesellschaft - CFO & Member of Executive Board

* Otmar F. Winzig

Software Aktiengesellschaft - Senior VP & Head of IR

* Sanjay Brahmawar

Software Aktiengesellschaft - Chairman of the Management Board & CEO

================================================================================

Conference Call Participants

================================================================================

* Alastair P. Nolan

Morgan Stanley, Research Division - Research Associate

* Charles Brennan

Crédit Suisse AG, Research Division - Research Analyst

* Gautam Pillai

Goldman Sachs Group, Inc., Research Division - Equity Analyst

* Knut Woller

Baader-Helvea Equity Research - Analyst

* Martin Jungfleisch

Kepler Cheuvreux, Research Division - Junior Equity Research Analyst

* Michael Briest

UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research

* Stacy Elizabeth Pollard

JPMorgan Chase & Co, Research Division - Head of Software and IT Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. I'm Stuart, your chorus call operator. Welcome, and thank you for joining the Software AG Financial Results Q2 2020 Conference Call.

(Operator Instructions)

I would now like to turn the conference over to Otmar Winzig, Head of Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Otmar F. Winzig, Software Aktiengesellschaft - Senior VP & Head of IR [2]

--------------------------------------------------------------------------------

Thank you, Stuart. Good morning, ladies and gentlemen. Welcome to Software AG's telephone conference call and webcast on preliminary second quarter and half year results. This morning, we have published a full set of numbers as well as the presentation slides used in this call on our website.

Today's agenda will start with CEO, Sanjay Brahmawar, giving you update on the strategy Helix progress and our key financials; followed by our new CFO, Dr. Matthias Heiden with financial details on our second quarter and first 6 months to 2020. Last but not least, our Chief Revenue Officer, John Schweitzer, will share his perspective on the markets, especially in North America. The CEO will close this presentation with the outlook 2020 and midterm. The presentations will be followed by a Q&A session with the Board members. We will try to keep this call in the regular 1 hour time frame and cover as many of your questions as possible.

Before we start, there are some housekeeping remarks. This telephone conference is broadcast via web, access to the webcast is via our Investor Relations website. The webcast will display the PowerPoint presentation related to this call and the same slides are on our website for download. After the presentations, you may ask questions. Please use only the dial-in phone number for posing questions. You need to register on our website before you can dial in. For technical reasons, we cannot take any questions via e-mail during the conference call. The call and webcast will be recorded and available for replay later today.

With respect to capital market regulations, I would like to make the following safe harbor statement. Statements and presentations made in the course of this conference call and webcast include forward-looking statements based on the 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 product, services or technology and changes in business strategy. Software AG does not intend or assume any obligation to update these forward-looking statements.

Statements and presentations of this call and webcast constitute neither an offer nor a recommendation to subscribe or buy, in any other way, securities of Software AG or any of the companies that are members of the group at present or in future, nor does it form part of such an offer and it should not be understood as such. Statements and presentations of this webcast do not constitute an offer of sale of securities in the United States of America. Securities may not be offered or sold in the United States of America without registration or exemption from registration in accordance with the U.S. Securities Act of 1933 and currently valid for. Thank you for your patience.

Now let us start. I hand over to Sanjay Brahmawar, the CEO of Software AG. Sanjay?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [3]

--------------------------------------------------------------------------------

Thank you, Otmar, and good morning, everyone. Welcome to our second quarter and first half 2020 earnings call. First, I hope each of you is well. While the COVID-19 crisis is far from over and many parts of the world continue to face serious challenges, some of you, like me, will once again be joining this call from the office. A semblance of normality is returning for some of us. This normality is not universal. Certain parts of the world, including India, the U.S. and Latin America continue to face serious COVID challenges. There is no doubt that the second quarter took place in unprecedented conditions. Against this backdrop, we have proven resilient, adaptable and capable of driving forward our strategy for sustainable, profitable growth. I am extremely proud of our people and the results we are reporting today.

In terms of COVID-19, during Q2, we continue to act decisively to protect our people, serve our customers and transform our business. I've been inspired by the resilience, passion and drive of our team. At the outset of the pandemic, I had a number of conversations with leaders in the industry in which we shared similar concerns about our people's well-being through the crisis, and their ability to remain productive, engaged and collaborative. I can now say with confidence that those concerns have not materialized. If anything, our people have upped their game. Their desire to support each other, support our business and support customers through a period of unique challenge has been impressive. I'd like to thank them for that today.

Their efforts are underpinned by the resilience of our business model. Our technology is mission-critical for our customers. Our recurring revenue stream is expanding, and we have strong liquidity position with EUR 508 million of cash reserves and about EUR 190 million available in our credit facility, should we require it. We've also conducted a deep review of our cost base and we have phased planned investments into the areas of greatest impact. This is enabling us to manage the near-term need for prudence without compromising on our ambition for growth. Our strategy aligns us behind market trends, which we believe will provide a tailwind to our growth going forward.

We have doubled down on the IoT and analytics and integration markets. And within them, we are focused on the connected customer experience, hybrid and multi-cloud and driving operational excellence. These areas were already important to our customers. But digital transformation has taken on an increased relevance in the context of COVID-19. Gartner now tells us that our integration and API markets will be USD 10.7 billion in 2023, growing at a 7% CAGR between now and then. The IoT platform market will grow to USD 7.6 billion in 2024 at a 31% CAGR.

My conversations with customers and CEOs confirms our positioning is right. The leaders of global businesses I've spoken to all agree that the pressure to transform is increasing. They see digitalization as the best way to strengthen their businesses while reducing the total cost of technology ownership at the same time. The feedback I'm increasingly receiving from customers is that our software is mission-critical to their operations. It's a must-have rather than a nice-to-have for successful businesses like these.

Our Q2 results prove that our plan is working. We promised a strong Q2 and a first half performance. And despite the COVID-19 situation, that's exactly what we have delivered. As a reminder, our reported revenue numbers now reflect the transition we are making to a more subscription and SaaS-based model. The best marker of our progress is, therefore, not revenue but bookings growth, which is now our key indicator for sales success and future revenue.

For the quarter, in Adabas & Natural, we delivered bookings growth of 31% and revenue growth of 1%, both ahead of our expectations. This result was partly driven by the pull forward of 2 large deals from our second half pipeline. The benefit this provides to our first half Adabas & Natural result will, therefore, be counterbalanced by the absence of these deals in the second.

In our DBP business, excluding Cloud & IoT, we delivered year-on-year bookings growth ahead of expectations at 31%, shifting this key part of our business to growth. Revenue for DBP, excluding Cloud & IoT, was in line with consensus at minus 1%.

In Cloud & IoT, we delivered strong year-on-year bookings growth of 39%, ahead of consensus. We also saw a better mix in Q2, owing to a strong dynamic in the cloud business. Reported revenue, reflecting both the planned change in our sales model and a more pronounced, more positive impact from subscription and SaaS than in Q1 was down 19%. Total group product bookings for the quarter were up 32% year-on-year, and total revenue for the quarter was in line with consensus, showing a 2% year-on-year decline.

We also worked hard to manage cost while targeting investment at the highest priority areas only. This allowed us to hold our operating margin at 20.2%, in line with the market consensus. Importantly, our efforts around subscription are also making an impact with our customers. The response to our offering, combined with a new incentive structure for our people around subscription sales, has driven the SaaS and subscription proportion of our bookings in DBP, including Cloud & IoT, to 88%. That's up from 69% in Q1 and a meaningful increase on the 53% we reported in Q2 last year. ARR or annual recurring revenue in our DBP business, including Cloud & IoT, was EUR 355 million, reflecting year-on-year growth of 14%. That's an accelerating trend from 9% growth this time last year and 11% growth at Q1. Total ARR was EUR 508 million, which represents 12% growth year-on-year.

For the first half, all of this gives us a solid overall picture. Group product bookings growth was 30% with stable total revenue. Adabas & Natural bookings grew by 39% and business line revenue by 3%. DBP, excluding Cloud & IoT bookings growth was 18%, with reported revenue declining 2%, reflecting our planned subscription shift. Cloud & IoT bookings growth was 50% with revenue growth of 15%, and our operating margin, reflecting our strong control of cost, was 19.7%, in line with expectations. I'm proud of these financial achievements delivered by the team. Our transformation is gaining momentum. Our market positioning is sound and despite the ongoing challenges of our current environment, our customers are responding.

Now turning to the transformation highlights behind the numbers. I'm pleased to report our team continues to deliver on its commitments. When we spoke at Q1, we said we'd continue to drive our Helix plan forward despite the challenges in the macro-environment. We're doing just that. With 87% of our 2020 Helix milestones delivered to plan, the changes we're making on our 3 transformation pillars, focus, execution and team keep, driving our business forward. In focus, we said we'd support our customers through their COVID-related challenges and innovate in our product to ensure we keep leading in our priority areas. We have delivered on both fronts during Q2. In relation to COVID, the uptake and feedback on our business as unusual offerings with ARIS A4, Cumulocity and remote monitoring, all available for free, has been excellent. I'm proud of the speed with which we adapted to help our customers and the response we've had for our efforts.

On product innovation, we have also made excellent progress in our cloud strategy, delivering a new cloud-native SaaS-based process mining tool for ARIS, and further preparing the ground for partner success by launching both webMethods and Cumulocity on Microsoft Azure. The early feedback on our webMethods App Mesh launch from May has also been very strong. And Software AG came also #1 for the fourth consecutive year in the MachNation IoT Device Management platform scorecard. In Adabas & Natural, our 2050+ program continues to drive all-time highs in net promoter score, or NPS, which reached plus 70 at the end of the quarter. Our overall NPS at the end of June was also extremely strong at plus 52 against our 2020 ambition of plus 40. In execution, we said our sales go-to-market transformation would help us build momentum behind our plan. We're seeing real evidence of that now, particularly in North America, which is now stable and growing successfully once again.

John will expand on sales and go-to-market success shortly, but I'd like to highlight the fact that during the quarter, we continue to beat the competition. To highlight a great example, our largest IoT deal from the quarter was a new 7-figure agreement with Hill-Rom, a major U.S. medical equipment company. Here, we defeated competition from all our IoT leader peers and delivered this new logo over just a 3-month sales cycle, the entirety of which was conducted virtually. It's great to see our digital sales engine driving us forward, irrespective of the barriers placed in their way by COVID. This joint project with Microsoft is also a great early example of the potential in that partnership, which I believe has an extremely bright future.

Our partner ecosystem continues to expand. John will touch on this, too. But given it's been announced recently, I'd like to also mention our unique IoT and edge partnership with the ifm group, the leading industrial automation provider that develops produces and sells sensors, controllers and systems for industrial automation worldwide. This partnership bolsters our strength in the industrial IoT space and will see us jointly focused on cloud-based sensor data visualization and analysis for industrial systems and machinery. It's all part of the growing trend towards driving operational excellence through automation and IoT, a key opportunity for us to help realize our customers' digitization plans faster and better than ever before.

Lastly, in team, we said we'd continue to strengthen and pursue the cultural evolution driving our external success. In terms of strengthening our workforce, despite COVID-19, we continue to hire new faces right across our organization, welcoming 200 colleagues as planned to Software AG between the end of March and the end of May. 100% of these new joiners were hired via e-recruiting. All of them, including our new CFO, Matthias Heiden, have been on-boarded virtually. We've had great feedback from that process, and we are delighted to have them with us here at Software AG.

We also bolstered our executive leadership team and attracted new talent during the quarter with a new CIO, a new SVP of Corporate Communications and a new SVP in charge of our Alliances and Channel. We also launched a new learning and development program to set our workforce up for the new normal with COVID-world. We know we need to keep driving hard here, and our prudent approach to focused investment is allowing us to do that.

On culture, I've said before that without the cultural transformation, we won't achieve a business transformation. That's why we've stepped up our efforts on talent management, and doubled down on our diversity and inclusion efforts, a key factor in fostering innovation. We also continue to seek ways of empowering our people by simplifying processes and removing red tape. Actions in this area over the last year have led to internal deal approval processes speeding up by 25%. This reflects an increasingly agile organization capable of seizing opportunities quickly.

Before moving on to Matthias, I'd also just like to note that the transaction for our Professional Services business in Spain signed on 30th June has now closed as per our plan. As you know, our goal is to focus Professional Services on the support of our product users and partners. Matthias will explain on some of the detail here, but I want to thank our Spanish colleagues for their commitment and service to Software AG and wish them all well for the future. The new home is with our new partner, Babel, and its digital transformation competence center.

So with that, I'd like to hand over to Matthias to introduce himself and cover the financials in more detail. Matthias, over to you.

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [4]

--------------------------------------------------------------------------------

Thank you, Sanjay, and good morning, ladies and gentlemen. It's great to be with you and to have finally joined the Software AG team. I've been here behind the scenes since January and having watched with utmost interest, I'm now ready for action. The task of navigating a company and building financial resilience through a crisis appeals to my finance DNA, but Software AG is not in crisis mode. On the contrary, we are in growth mode. We are more than a year into a bold transformation, which I look forward to supporting. While helping to navigate the company through these uncertain times, I shall give special attention to our company's most important twin needs: prudent investment behind our transformation and diligent cost management to keep the focus on our midterm margin target.

My CV shows 12 years with SAP during which time, I had the pleasure of meeting some of you. I've also experienced working to transform companies via the cloud to grow. That is my story. But this company is about far more than just me. After just a few weeks in my post, I am amazed at what Software AG has to offer. It has a strong product portfolio, outstanding people and a truly committed Executive Board driving its transformation. Of course, these are challenging times for all of us. But for me, the start of my time here has infused the uncertainty with excitement. So while I didn't get to feel the buzz of the quarter end in June, I'm grateful to have the opportunity to share our results with you today. And if you will allow me, what a great quarter to be able to present with our transformation to subscription and SaaS making its biggest impact so far. I'm excited to join at this important moment in the transformation process. With real momentum building, we're ready to take it to the next stage.

Our second quarter of 2020 can be summarized as follows: our field organization delivered strong business results with 32% bookings growth and stable product revenue overall. Given the economic environment, these figures are remarkably robust and prove that our products meet our customers' demands. Importantly, our revenue development now shows the full impact of our transformation to subscription and SaaS where a larger share of our deal volume generally turns into deferred revenue to be recognized in future quarters. I do acknowledge it can be difficult to model quarterly results based on bookings guidance, while we remain in the early phase of our transformation. But over time, more data points will make it easier to equate market success with bookings growth and bookings growth with future revenue.

Please do take annual recurring revenue as an additional indicator to reconcile strong bookings growth with slower growth on stated revenue.

This KPI is showing the progress of growing recurring revenue based on growing bookings.

Now let's take a closer look at some of the most significant financials. First, in our DBP business, excluding Cloud & IoT, we delivered 31% growth in bookings. This led to a flat revenue development year-on-year. The variance between bookings and revenue is explained by the increasing share of subscription deals we saw during the quarter. 82.2% of the bookings are subscription versus 36.9% in Q2 of 2019. This greater contribution from subscription is in line with our overall plan. More subscription provides a higher share of future revenue, which explains why we can show a 12% increase for ARR year-on-year for this business line.

Moving now to our DBP Cloud & IoT business line, we saw even stronger growth in bookings than we saw in our DBP integration core, up 39% year-on-year in Q2. From a revenue recognition point of view, it's worth noting that the mix between SaaS and subscription is decisive in this business line. To clarify, the SaaS sale shows through in bookings, but at most contributes a fraction of the deal's scheduled future revenue within the quarter in which it was struck. On the other hand, the subscription deal allows us to recognize at least 1 year, but sometimes all the license revenue in the quarter the deal is closed. It simply depends on the cancelation rights held by each customer. Therefore, if the driver for bookings growth in a given quarter is subscription, then you see a relatively higher stated revenue like in Q1 with Schindler. If the main component in bookings is soft, like in Q2 this year, you see the opposite effect. That is the main reason, both for the stated year-on-year revenue decline of 19% for Cloud & IoT in Q2 and the sequential quarterly revenue dynamic.

The effects I have just described is exacerbated by the currently small base in this business line, which means we're still subject to volatility from single large deals like Schindler in Q1. We do not yet have the constant volume of smaller deals to offset such an impact. However, our mix is improving. In fact, the new cloud offering Sanjay mentioned are helping us gain real traction in the market, and our solutions for business continuity during COVID-19 have raised interest in sales here as well. The best place to look for proof in this area is in the business line ARR number. ARR for Cloud & IoT increased by 26% year-on-year.

Looking now at our core integration business and our Cloud & IoT areas combined, you can see the SaaS impact on our P&L once again, particularly in our cost of sales line. Here, you can see an increase of 28%, which relates to external hosting costs and efforts for our cloud operations team. Also of note is our R&D spend level, which reflects our targeted approach to investments in areas of opportunity. Our spend shows a little difference from Q1 but is supporting a larger workforce executing on our ambitious product strategy.

In sales and marketing, you can see the impact of COVID-19, almost flat in Q2 year-on-year, whereas in Q1, we showed a year-on-year increase of 10%. Q2 cost down EUR 6.3 million versus plan, of which EUR 4.5 million in marketing and EUR 1.8 million in sales. Ultimately, as you know, these investments in our people, innovation and go-to-market are a vital part of our transformation. And while they temporarily restrict our margin, they do support our future growth. On a 6-month basis, the impact is 790 basis points, a bit less than originally planned due to the corona impact.

Lastly, for our business lines, let's move on to Adabas & Natural. Once again, this product line delivered an extraordinary quarter, resulting in a 31% bookings growth despite tough comps from the prior year period. Some of you may be surprised that A&M showed a pattern similar to DBP, strong growth in bookings and flattish revenue. However, it should not be forgotten that A&M is also making progress on its journey to subscription. Again, evidence for the success of this transition is visible in ARR, which shows a year-on-year growth rate of 8%. In terms of profit, during the quarter, good cost control with lower OpEx than Q1 enabled us to keep our segment margin in the mid-60s. And just before we move on, I'd like to take a moment to reiterate Sanjay's earlier comment on the elements of our H1 results driven by deals pulled forward from our H2 pipeline. Our customers were eager to accelerate their plans to build their own business resilience in the face of the pandemic, meaning we have now covered approximately 60% of our full year 2020 plan in the first 6 months.

Moving on to our Professional Services. Here, we manage the COVID-19 environment successfully as remote services became the new normal. This proved a positive dynamic for ongoing projects but that benefit is offset by lower new projects and first implementations. Nevertheless, our profit margin versus Q1 is back in our target corridor of 10% to 15%. As Sanjay mentioned, the sale of the Spanish service business to Babel was closed-end of June and will show its financial impact as of next quarter. More specifically on this future impact, we let go of about EUR 35 million to EUR 40 million of service revenue annualized, a headcount reduction by around 440 FTE and the reduction of the Professional Services segment result by about 5% to 10%. The new revenue mix will have a small positive impact on our group margin as well. The impact on the reported quarter of Q2 is a one-off burden in the range of EUR 2 million for transactional fees and losses from disposal of assets.

Turning to profitability. I am pleased with the development of our operating expense base. In Q1, we saw a higher level than the year before due to headcount increases as well as higher go-to-market and R&D spending, but we have since been able to bring costs in line with our current requirements. We have limited spending on lower priority projects and targeted investment in new, largely virtual marketing and market positioning to support deal pipeline and partner development. This shows through in the consolidated Q2 figures for the group. R&D was up year-on-year while sales and marketing and admin costs were flat. Our higher cost of sales line reflects our growing cloud business and some extra costs relating to external specialists to support large IoT deals. All of this led us to deliver an EBIT result of EUR 31.9 million during the quarter.

Just turning quickly to our non-IFRS earnings. The biggest change year-on-year is our reduced amortization level resulting from some write-offs from former acquisitions ended in 2019. Our prudent approach to cost control enabled us to hold EBITDA at our first quarter level. And as a reminder, our margin now close to 7 percentage points down from last year is in line with our expectations and the full year guidance.

On the cash flow side, we saw a repeated strong quarter relative to earnings and hence, a satisfactory first half with operating cash flow down only by 3% from H1 2019. Due to higher than normal CapEx in Q1, the free cash flow for the first half amounted to EUR 71.4 million of free cash flow, 7% below H1 2019. Taking the Helix-related investments into consideration, I view this free cash flow performance as a particularly strong achievement. I should also mention that during the quarter, we did see a limited number of customer requests for extended payment terms. We have found suitable solutions that meet our needs as well as those of our customers. Nevertheless, we continue to closely monitor payment terms in new contracts and proper cash collection.

In Q2, we derisked the balance sheet further, reducing debt by some EUR 20 million -- EUR 21 million and increasing net cash by EUR 19 million to EUR 285 million in the second quarter. COVID-19 made us postpone our AGM and as a consequence, the dividend payout of EUR 56.2 million happened later than normal in the first days of July, and would bring net cash to the level we had a year ago.

In summary, at the end of H1 2020, Software AG is well positioned to deal with the current economic situation and to further invest in our transformation for growth. Thank you very much. I'm looking forward to your questions. But now, John, over to you in California.

--------------------------------------------------------------------------------

John Schweitzer, Software Aktiengesellschaft - Chief Revenue Officer & Member of the Management Board [5]

--------------------------------------------------------------------------------

Thank you, Matthias, and hello, everyone. Q2, by all measures, was a very strong quarter. I'm really pleased to see the results pull through, and I'm immensely proud of our team. During the quarter, each of our regions contributed to the strong performance. DACH in APJ delivered strong double-digit growth. Our EMEA performance was solid, too, despite the COVID impact to customer decision-making. But clearly, the star of the quarter was North America where growth was well into the triple digits. Our growth in North America was particularly pleasing, given the scale of our transformation there. We saw balanced performance across all businesses, and the land and expand strategy is gaining traction with 1/3 of our wins coming from new customers. This success validates our competitive strength in growth markets like iPaaS and IoT. These results lead me to expect continued growth and success in the region.

Customer stories make our solutions come to life. You heard about some great new customer wins from Sanjay. And while we delivered 54 new customers during the quarter, we also had great success in our customer base, and I'm grateful for the trust and confidence they place in us. Please allow me just to share a few examples. First, Univar Solutions, a global chemical and ingredients distributor chose our digital API platform.

Last year, we welcomed them as a new customer. And now we are ripping and replacing MuleSoft, full stop. Brightstar, a global distributor for mobile phones and devices chose our iPaaS solution, including API management and B2B to migrate all of their on-premise configurations. We beat MuleSoft here too as well as Apogee. Further, Stanley Black & Decker renewed and expanded their commitment to Cumulocity to build custom smart product experiences for their customers, a great use case that will continue to help them grow top line revenue. And finally, another key win for us was Alicorp, a manufacturer and distributor of consumer goods in Latin America. Our integration solution allow them to connect seamlessly with their ERP solutions. Interestingly, this opportunity was sourced and led by a partner in Chile, [Symbius].

Overall, partners are a growing contributor to our business. In fact, during the quarter, bookings with partners grew 23% year-on-year, representing an overall incremental mix of 12% in the quarter.

That said, I have a couple of exciting new partners to announce right here today. First, Software AG and Jabil have signed an OEM agreement to enable their customers to better manage and monitor their cutting-edge devices. Jabil is a global electronics manufacturing solutions provider, delivering solutions to over 350 of their large OEM customers. And second, I'm very pleased to announce that Coupa, the leading provider of business spend management software, has partnered with Software AG to bring webMethods.io to Coupa customers. This cloud-native hybrid integration solution enables Coupa customers to quickly connect their existing systems, such as leading ERPs and IT management applications, to the Coupa platform. Coupa will resell packaged integrations built on webMethods.io to accelerate and simplify implementations for their customers. Look, I'm obviously proud of the team's execution in Q2, but I'm also confident we'll deliver a robust Q3 in second half. Why?

Well, our solutions are even more relevant now. Our customers trust us to deliver. Our pipeline coverage is solid. And our sales execution is now more consistent than ever. In fact, the rolling 4-quarter pipeline has improved in the last 90 days in DBP and IoT with the pipeline coverage plan -- pipeline coverage to plan, growing from 2.8x and 4.5x to 3x or 3x and 5.6x, respectively. I'd also like to point out again, we're not significantly exposed to industries most impacted by COVID-19, like travel, transportation and oil and gas, nor do we rely heavily on mid-market companies whose businesses are feeling the impact the most. And speaking of pipeline, I should mention the work we've been doing to enhance digital marketing in light of COVID-19.

We hosted our first ever Virtual International User Group conference for customers, partners and developers and saw a 217% increase in attendance compared to last year. We also announced our new Software AG website in Q2, in partnership with Adobe. The feedback is strong. We are now able to take more targeted and analytical approach and meet our prospects and customers where they are, including on mobile. However, despite improved sales execution and increasing demand for our products, the fact is COVID-19 is still a factor. To convert our pipeline consistently and predictably, we need to see businesses reopen and shelter-in-place scenarios continue to ease. Having said that, I do believe the internal work we've done positions us to manage the range of potential risks and opportunities that may emerge. And with that, I'd like to hand it back to Sanjay.

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [6]

--------------------------------------------------------------------------------

Thank you, John, and let me just say a few words on our outlook for the second half. Today, we are reconfirming our 2020 guidance. As a reminder of the ranges we are targeting, you'll see them here on this slide. A number of factors give us the measured confidence to maintain our outlook at this time. One is the underlying resilience of our business, which has seen us perform strongly through a challenging business environment. Another is the improved execution capability, John and I have referred to during today's call. Given the COVID-19 situation, we continue to watch the external factors very closely. We have made meaningful progress in the first half towards our full year guidance ranges, but it remains road to travel. The market is fundamentally favorable to our offering, but the pace and shape of the COVID-19 recovery is not uniform across all geographies. As John mentioned, deal timing is difficult to forecast with total precision. And so with measured confidence, we stay close to our customers and partners, speaking daily and in step with their needs. As we do so, the 2023 medium-term ambitions that drive our energies remain unchanged. We are squarely focused on reaching EUR 1 billion in revenue and expanding our operating margin to a 25% to 30% range over that time frame.

So as we close first half and move on to second half, let me reiterate a few key points. We promised a robust second quarter and first half, and that's what we've delivered. Our overall bookings growth is strong at 32%, with strong contributions from cloud and our core digital business, driving meaningful growth in the quarter. Alongside our strong bookings performance, ARR is now at EUR 355 million in our DBP, including Cloud & IoT business, growth of 14% year-on-year. Our North American sales performance has further improved and has stabilized the business, delivering customer success and strong bookings growth in Q2 and form a robust foundation for the future. The digital transformation trend to which we are aligned is accelerating. And overall, our transformation remains on track. So with that, I'll hand it back to Otmar. Thank you.

--------------------------------------------------------------------------------

Otmar F. Winzig, Software Aktiengesellschaft - Senior VP & Head of IR [7]

--------------------------------------------------------------------------------

Thank you, Sanjay, and thank you, Matthias and John. So ladies and gentlemen, you now may ask questions. Stuart, would you be so kind to repeat the process how to dial in.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

First question is coming from the line of Gautam Pillai from Goldman Sachs.

--------------------------------------------------------------------------------

Gautam Pillai, Goldman Sachs Group, Inc., Research Division - Equity Analyst [2]

--------------------------------------------------------------------------------

Congratulations on a very good set of results. My first question is on the forward guidance for the year. Despite the strong bookings growth in the first half, you have not changed guidance, and it now implies a slowdown in bookings growth in DBP and IoT, even at the top end of the range, which doesn't sync well with John's pipeline comments. Is there an element of conservatism taken here? Is it realistic to think that you can perhaps deliver the pre-COVID guidance you set initially for the year? What are the moving parts to consider?

Secondly, on the pipeline comments, can you give some color on how much of the pipe is skewed to large deals? And also whether any large deals in DBP in Q2? And on the financials, finally, can you please give the mix of 1 year and multiyear subscriptions? You called out strong growth in SaaS, which explains why the booking strength was not reflected in P&L revenue metrics. Are customers gravitating towards subscriptions with 1-year cancellations currently?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [3]

--------------------------------------------------------------------------------

Gautam, it's Sanjay. Thank you very much for your questions. I'll take the first 1 around the guidance, and then I'll pass it on to John, who will talk about pipeline and then Matthias can close it up with the financials, particularly on the 1-year and the multiyear contract. So listen, Gautam, we've given you all the information related to how the demand is panning out, strong first half definitely gives us the assurance in terms of our products being mission-critical and the customers really pushing forward now with the digital transformation agenda. So that is all positive including the pipeline build with the digital marketing and the efforts on that are also in the right direction. So we are growing our pipeline build. Now that's the positive side. On the other side, we did see some -- in our EMEA region, in particular, we did see some delays from customers on decision-making. And hence, our concern is as the COVID-19 situation develops, and we do have these hotspots, which I mentioned, they are North America, India, Latin America, et cetera. And so how does that impact our customers' decision-making process. And hence, that is what leads us to evaluate our pipeline very much in detail, looking at deals where we might have some risk. And hence, our confirmation of our current guidance. So with that, let me pass to John to talk about the pipeline.

--------------------------------------------------------------------------------

John Schweitzer, Software Aktiengesellschaft - Chief Revenue Officer & Member of the Management Board [4]

--------------------------------------------------------------------------------

Sure. Gautam, yes, so I think the biggest indicator, the KPI here for me is conversion rate. DBP combined, as you might recall, we looked for about a 3 to 3.5 conversion -- I'm sorry, coverage rate on the plan. During Q2, we saw pressure on our conversion rates, particularly in EMEA, where we saw significant delays in customer decision-making, causing deals to push out to the second half of the year and some of which even further. The good news is the team, because of the strong pipeline, were able to pull some things forward and deliver a solid quarter. So conversion rate really for me is because of the variability there is driving my sort of balanced but, I think, pragmatic thinking around forward guidance and bookings through the second half.

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [5]

--------------------------------------------------------------------------------

And I'll take the third question. Gautam, thanks for that one. Here, I can reiterate what we communicated during the Capital Markets Day in London. We still expect for 2020 that roughly 50% of our DBP subscription volume comes with a 1-year revenue recognition. That is still the case. It does vary a little bit from quarter-to-quarter. But overall, this guidance for the full year still stands and holds true.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Next question is from the line of Michael Briest from UBS.

--------------------------------------------------------------------------------

Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [7]

--------------------------------------------------------------------------------

Just a follow-up on the subscription question there for Matthias. I think the guidance initially on the 3-year view -- don't have the numbers in front of me, but it was roughly that 2/3 of orders would come through as subscription and 1/3 as licenses. Clearly, you're tracking at a much higher rate today. How does that impact the P&L? Because you're obviously still talking of EUR 1 billion of sales, but will there be a sort of steeper decline and then recovery as you move more quickly to subscription? And then just a sort of follow-up, I guess, for John or Sanjay, I mean IBM a couple of nights ago, were talking about the U.S. perhaps slowing a bit exiting June as the COVID rate sort of accelerated. Can you talk a little bit about what you're seeing day-to-day and maybe the linearity in the quarter? Because I recall there were some slip deals from Q1 that presumably closed early. But was it sort of as expected all the way through? Or did it come through in the flurry of deals at the end of the quarter, which got you to these impressive results?

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [8]

--------------------------------------------------------------------------------

So Michael, thanks for the first question, which I will take, which is a tricky one. And as much as this is obviously evolving as we move through the transformation. It is true that we see a relatively lower portion of perpetual business in favor of the higher portion of subscription and SaaS, which fosters our move to subscription. I mean, overall, in the categories, in the product line categories, it's a little difficult to forecast at this point. But probably the assumptions would change a little bit in as much as the subscription portion is a little higher. So just to give you 1 example on DBP, excluding cloud, we had a range at the Capital Markets Day of 50% to 60% coming from subscription that is right now more in the range of 60% to 70%, and we would expect it to close at the upper end. So in terms of the P&L, allow me to leave it at -- that the modeling that we do internally plays out in such a way that we have confirmed the guidance the way we did. And I would want to leave it at that today and refer to my comment earlier on the data points that we still also need on the inside of the company.

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [9]

--------------------------------------------------------------------------------

Great. Michael, it's Sanjay. I'll just make a comment on the U.S., and maybe John can add another comment. Well, look, I mean, we've seen and we've observed in Q2 that the U.S. companies and U.S. customers really see the need to move fast and be able to deal with the current situation, but also prepare themselves as the rebound is happening. So we see that. We see that in the urgency in decision-making, and it was pretty clear, the example I gave you of Hill-Rom, 3 months to do from a start contact to the all over virtually over Teams and Zoom. So that's that. I mean, however, of course, going forward, we still see the challenge around COVID and things developing. And the first wave plus potential second wave. So therefore, the caution is there in terms of how that impacts customers and decision-making. But in the second quarter, we've seen very rapid decision-making from the customers. John, do you want to add anything to that?

--------------------------------------------------------------------------------

John Schweitzer, Software Aktiengesellschaft - Chief Revenue Officer & Member of the Management Board [10]

--------------------------------------------------------------------------------

Yes. Maybe I'll just make a comment across a couple of points here. First, on subscription, I would just say I'm really pleasantly surprised with the acceleration but just note that most of this pull-through or acceleration is due to customer demand. I think our pricing and packaging and our incentive compensation plan are both driving the outcomes that we expected but just at a faster clip, which is really great to see. On the U.S. business, the conversion rate in the U.S. met my expectations. The linearity across the quarter was good. The business control was good. The sales execution was very solid. 1/3 of the transactions came through net new customers on a transaction basis, of course. And the team is really showing up. I'm proud of what we've accomplished as a team over the last year. I expect more like I said in my comments.

You had 1 final question, Michael, around linearity. It's true. In Q2, we got off to a fast start because of some pushes in -- from Q1. So the shape of the quarter is actually quite good and balanced and improved from previous quarters. In other words, we didn't really wait till the last minute for all of it. Q3 is actually shaping up the same. We have nearly 15% already in the door. The team just continues to execute. We're really driving a monthly closed process now as we shift to subscription and SaaS. This is more common approach across, let's say, cloud-native companies, and we're going to drive the same here. And that's my expectation going forward.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Next question comes from the line of Stacy Pollard from JPMorgan.

--------------------------------------------------------------------------------

Stacy Elizabeth Pollard, JPMorgan Chase & Co, Research Division - Head of Software and IT Equity Research [12]

--------------------------------------------------------------------------------

Just a big picture question on your progress in IoT. Is this moving as you had expected? And as the industrial Internet of Things gains momentum, are you seeing any changes in the competitive environment or new competitors? And then second question, can you comment on your expectations for operating margin progression for H2 this year and also over the next few years since you reiterated your guidance or ambition for that 25% to 30% margins by 2023?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [13]

--------------------------------------------------------------------------------

Stacy, it's Sanjay. I'll take the first one and then I'll ask Matthias to address your operating margin point. So look, in terms of IoT, what we are seeing is actually companies that consider this as very strategic making decisions. I think in Q1, I had mentioned the example of Schindler, where this is totally strategic for the company in terms of their remote connectivity, remote services, their maintenance services. And so they are definitely making the decisions to be able to allow them to do that and support their businesses.

In terms of the competitive landscape, well, I think the competitive landscape has not changed that much. What we do find is a lot more collaboration. And for example, we are collaborating very effectively with our partner, Microsoft. Hill-Rom was a great example. Schindler was also a great example. Both of them -- we have collaborated with Microsoft. And as a result, both companies team up together to be able to deliver great value and solutions to our customers. These are complementary in terms of us bringing our IoT capabilities, but leveraging Azure for Power BI or Azure Data Lake and those kind of capabilities. So what we see is a lot of tying up to be able to support the customers and help them also manage multiple cloud environments where necessary. With that, let me pass it to Matthias?

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [14]

--------------------------------------------------------------------------------

Yes. Thank you, Sanjay, and thank you Stacy for the question. I believe when we look at non-IFRS EBITDA, if we take the status of where we stand today, year-to-date with the 19.7%, I think it's fair to say that we are clearly approaching the guidance corridor of '20 to '22. Given the seasonality of the business, you know this probably even better than I do by following the company so closely, but in Q3, that's always a difficult transition quarter towards year-end, but we're confident to land somewhere around the middle of the guided corridor there. When it comes to future margin developments to '23, I take your question asking when we will see a pickup in the margin towards that goal that we have guided. Allow me to say it's too early for me to comment on that at this point, not that I would want to refrain from the answer necessarily, but we're in the middle of discussing that on the inside of the company and the budget process for '21 is just ahead of us. And after that, we will come back and also include you earlier next year when we guide for the next year. So give us a little bit of time, be patient. But of course, we will come back and let you know at which point the needle moves up again.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Next question is from the line of Knut Woller from Baader Bank.

--------------------------------------------------------------------------------

Knut Woller, Baader-Helvea Equity Research - Analyst [16]

--------------------------------------------------------------------------------

Just 2 quick ones. The first one on Cloud & IoT. Can you give us here some color on the percentage of large deals you see in the pipeline, I think, from a qualitative perspective, Sanjay, you already indicated that more and more companies are seeing that as strategic to make their own decisions? So can you give us an insight how the share of large deals shifted here compared to last year and how you expect that to be going forward?

And then secondly, Matthias, you gave us some, I think, also qualitative comments on the spend of your extraordinary invest in 2020. Can you just provide us some more hardcoded numbers here? What percentage of the extraordinary invest was spent already in H1? And where do you think that these investments will end up? Will it be at the lower end or the higher end of the guided range?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [17]

--------------------------------------------------------------------------------

Knut, thank you very much for the question. Listen, in terms of Cloud & IoT, it's -- as I said earlier, we are going to have a mix of large deals, bigger deals, but also our cloud and our SaaS business growing. What you see now in Q2 is that we've had a lot more movement into the cloud -- into the SaaS business also. Having said that, we are seeing a very healthy pipeline of larger deals. I mean in Q1, we had Schindler, which was a massive deal. Here in Q2, again, we've seen 7-figure and 6-figure deals. And as we look down the second half pipeline, it is made up of several 7-figure and 6-figure deals. And so we see organizations now ready to commit because the business cases around predictive maintenance, the business cases of having a connected customer experience. These use cases are now definitely a lot more mature. And also not only maturity, but actually, they become very essential for these companies to be able to offer those services to the customers and also try to shift away from products to go to more services and a recurring economy kind of -- or business, a recurring model kind of business. So therefore, the pipeline is definitely very strong with larger size deals. Matthias?

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [18]

--------------------------------------------------------------------------------

Yes. Knut, I'll try to take a stab at the investment spending behavior. Planned net invest for 2020 was around EUR 65 million for the whole year. We are forecasting to spend EUR 50 million of that compared to plan due to COVID-19 measures. In the first half of the year, we spent around EUR 25 million of that. Hopefully, that is a helpful data point for you.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Next question is from the line of Charles Brennan from Crédit Suisse.

--------------------------------------------------------------------------------

Charles Brennan, Crédit Suisse AG, Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

Great. I've got 2 questions, if I can. The first for John, you gave us some helpful statistics on the pipeline cover for the second half of the year. But can you just tell us what you actually achieved in H1? Does 3x make you incrementally more comfortable versus the H1 performance? And then just as a second question, can I just ask about the contracting structure, in particular, the volume of deals that have 1-year cancellations? I missed the statistic for Q2, but I think it was just 10% of contracts in Q1. It sounds like it's a much higher proportion in Q2. It obviously drives a big difference in our modeling and the flow of bookings into revenue. I guess my question is who determines the contract structure? And is there anything you can tell us about what we should expect for Q3 and Q4 to help pass modeling bookings to revenue?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [21]

--------------------------------------------------------------------------------

Great. John, you take the first one and then Matthias?

--------------------------------------------------------------------------------

John Schweitzer, Software Aktiengesellschaft - Chief Revenue Officer & Member of the Management Board [22]

--------------------------------------------------------------------------------

Charles, thanks for the question. Yes, just to reconfirm the numbers from my statement. So I believe I mentioned in Q1, 2.8x for DBP and 4.5x for IoT. We've seen that trend up a little bit. But it's also virtually flattish, I guess, for DBP, now at 3x versus 2.8x and then 5.6x versus 4.5x. What that implies really is that our conversion rate is less than 30%. It's -- in Q2, the variability was challenging to assess and predict. I'd like to see post-COVID that come back into more normal ranges. But the fact is we are building some pipeline, so that's good. Most of the pipeline build right now is happening for the first half '21. So I would just note that we've got a keen eye on the first half already. Keeping in mind that our sales cycles are 6 to 9 months long historically. Maybe I'll stop there. Sanjay, you want to comment on what I would call duration?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [23]

--------------------------------------------------------------------------------

Yes. Thank you. Here, Matthias will take that one.

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [24]

--------------------------------------------------------------------------------

Yes, happy to. First of all, Charles, thanks for the question on duration. I hope I do not become overly repetitive in trying to tackle this. Let me try again, I certainly follow and understand, in fact, I said, I acknowledge the difficulty to model this. It is true that during the first half, we had a percentage of year -- of deals with 1-year duration that was slightly below 50. In fact, it was a little bit above the 40%. But I said earlier that for the full year, we should still think of this coming in at 50%. Given that it has varied between the quarters in the first half, I would want to shy away if you allow me to -- from giving concrete guidance for Q3 and Q4, but simply say, from the above 40%, we will move to 50% for the full year. You also asked a second -- or you had a second element in your question, which was around who decides this. Well, ultimately, it's the customer who decides this on how he wants this to be structured. Whether he won an annual cancellation right, so the one after the first year, or he commits upfront to a 1-year subscription with an automatic renewal, it's the customer. And this, in turn, depends on his requirements, on his approval processes and so on. So that is how it works in reality.

--------------------------------------------------------------------------------

Otmar F. Winzig, Software Aktiengesellschaft - Senior VP & Head of IR [25]

--------------------------------------------------------------------------------

Stuart, we have time for 2 more questions, and then we have to close the list.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

The next question is from the line of Alastair Nolan from Morgan Stanley.

--------------------------------------------------------------------------------

Alastair P. Nolan, Morgan Stanley, Research Division - Research Associate [27]

--------------------------------------------------------------------------------

I think a lot of them have probably been addressed at this point. But maybe you could -- we could talk a little bit about the length of the sales cycle. Sanjay, you commented on Hill-Rom being a very quick deal to close. But if we take, for example, a lot of the DBP deals closed in 2Q, on average, were they deals that were -- the sales process was initiated last year. Maybe give us a little bit of color there, particularly as the pipelines, as John mentioned, have continued to grow into the second quarter? And then, Matthias, you mentioned the potential for some more data points to help reconcile the bookings versus revenues as we move forward. Without preempting that, is there anything you could kind of add or kind of give us a little bit more flavor for as well there because that, I think, would be really helpful?

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [28]

--------------------------------------------------------------------------------

Alastair, it's Sanjay. Listen, I think around the sales cycle, the 1 thing I'd say is, John mentioned the duration between 6 and 9 months normal sales cycle, right? But what we're observing now during COVID-19 is 2 things. One, even the customers have realized on their end that they can actually move through their processes much faster if they want to. However, the customers definitely are being very ruthless about decision-making and they are separating their decisions, particularly around software into 2 buckets: mission-critical, nice to have. If it isn't mission-critical, then you find that the customers' decision-making and their engagement is quite rapid and quite agile. And we -- this is -- Hill-Rom is a great example of that coming to bear. And I see more of that will happen as long as it's mission-critical, and it is something that they need to just drive through their revenue and their prospects. On the other hand, of course, you have the situation where sometimes the projects or the opportunities are really in very early-stage discussions. And I think some of those, we will see getting postponed or moved out into the first half of 2021. Yes. So Matthias?

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [29]

--------------------------------------------------------------------------------

Yes. I'm taking the stab at the additional data point there. Here, I will try to not repeat what I said earlier but rather allow me to offer 2 data points. I think if we summarize this, we still stand by what we said that the product revenue development for the full year will be flattish. And then maybe 1 additional data point if you do find that helpful, and that is the share of -- to give you an insight into how the subscription bookings are currently distributed across the portfolio. The share related to renewal is roughly 10%, while it is 60% for contract migrations and 30% for new contracts. Just to give you some further insight into the mechanics of this transformation and how we come to bookings numbers. Maybe that is also helpful. But rest assured, as we move along, as we learn, we try to be as transparent with you as we can and share as many data points to help all of us model this transformation.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

The last question is from the line of Martin Jungfleisch from Kepler Cheuvreux.

--------------------------------------------------------------------------------

Martin Jungfleisch, Kepler Cheuvreux, Research Division - Junior Equity Research Analyst [31]

--------------------------------------------------------------------------------

Congrats on the great set of numbers. I have 3 questions, please. The first one is on your North America performance. You mentioned that bookings have increased by a triple-digit percentage figure in North America in Q2. Can you tell if your absolute bookings figure in North America in Q2 is above the level seen in the second quarter of, let's say, 2017 or 2018? Also, do you think that you are regaining market share in that region?

The second question is on your public sector business. I think recently, a number of countries have outlined economic stimulus packages with a focus on digitalization of the public sector. So I'm wondering if you have seen an increased demand from that side over the last month or expect that sector to become more important to you in the future. And the last question is just in if you could provide a general update on your M&A strategy, if you're looking for some targets and what could be of interest for you. That's it.

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [32]

--------------------------------------------------------------------------------

Martin, it's Sanjay. Listen, let me make comments on your question #2 and question #3, and then I'll ask John to comment on question #1 around North America, particularly around the triple-digit bookings and how does that compare to, I guess, maybe 2017 or 2018. So look, public sector, absolutely. I mean the European Package was approved. We see a lot of activity in the government. If you remember the quarter 1, we had given you a bit of an insight into which industries are really where we are heavily involved. So government is one. Banking, financial services, another one. Retail, supply chain, logistics, and of course, manufacturing automotive. So those are the sectors that we are heavily into. Now if you think about public sector, just here in Germany itself, if you think about our relationship with ITZBund, and that was a significant deal in Q2 for us. So we do see a lot of traction and engagement with government to be able to help the government respond in an agile way and provide this ability to integrate and give access to data or also to be able to offer engagement with the private sector. So absolutely, we see the demand increasing, and we will see more of that in the second half and into the first half of 2021 on the public sector.

On M&A, look, we said always very clearly that for us, we have a clear plan on organic growth. And as you can see now, we are really driving that and delivering on that organic growth commitment that we made to you. However, we also said that as we start laying the foundation, we will start the hunt to see what are the opportunities to accelerate. And indeed, that's exactly what we have done now. We've started that process, and we've been scanning the market and trying to identify our opportunities very clearly. One thing we are very focused about is that we know the target areas. We know that we are focused on integration API management, IoT, self-service analytics. These are the areas that we are very focused on, and hence, our searches in those areas. And whatever we consider will be something that needs to be quite synergistic with our existing go-to-market and our partnerships and ecosystem that we are building. So the answer to that question really is we're looking. And as we find something, or an opportunity that would help us accelerate, but be synergistic to what we are driving as organic growth, then we will consider that.

--------------------------------------------------------------------------------

John Schweitzer, Software Aktiengesellschaft - Chief Revenue Officer & Member of the Management Board [33]

--------------------------------------------------------------------------------

Yes. Maybe I'll just pick up, add some more color. Yes. Thanks, Sanjay. Martin, thanks for the question. So on -- just some more color on the public sector, I would say we also see more demand outside of Germany and across the globe as well as governments look to go paperless and engage their citizens in different ways. I've got several use cases, in fact, where the teams are engaged with, I guess, some of the world's largest governments. So let's see, but really interesting perhaps silver lining there over time.

On North America, we haven't -- I don't have backwards comparables to '17 on bookings because we really charted bookings this year. We have some compares to last year, for sure, as you know, and those are triple-digit. But I would suspect, yes, there's growth, and we can get back to you on the specifics. But overall, our conversion rates and our win rates, I would say, in North America have improved, leading to what I think is better competitiveness and market share gain, to your point. So, like I said, in my comment, I'm expecting more of the same from North America. And that means taking share from our competitors as well.

--------------------------------------------------------------------------------

Otmar F. Winzig, Software Aktiengesellschaft - Senior VP & Head of IR [34]

--------------------------------------------------------------------------------

Ladies and gentlemen, I'm afraid we have to close this call now due to other assignment. Thank you for your participation and interest in Software AG. Any further questions will be handled by the IR team as we are a bit stretched these days. I suggest you throw me an e-mail and I call you back. Thank you very much for now, and talk to you soon.

--------------------------------------------------------------------------------

Sanjay Brahmawar, Software Aktiengesellschaft - Chairman of the Management Board & CEO [35]

--------------------------------------------------------------------------------

Thank you very much.

--------------------------------------------------------------------------------

Matthias Heiden, Software Aktiengesellschaft - CFO & Member of Executive Board [36]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.