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Tuesday 19 May 2020

Micro Focus maintains bottom line against top line decline

Micro Focus logoTimely action to manage discretionary and variable costs indicates that although Micro Focus expects revenue to fall 11% (constant currency) yoy to $1.45bn in H1 due to the COVID-19 situation, Adjusted EDITBA looks set to hold up. Adjusted EBITDA margin of approximately 38% will be towards the upper end of expectations and consistent with guidance given when preliminary results were released in February. However, given economic uncertainty, Micro Focus has, like many of its peers, withdrawn guidance for the financial year. 

The situation reflects business slowdown in April, when projects were deferred, impacting new licence and services revenue, and delays to some maintenance renewals. The identifiable impact on revenue is estimated to be at least 2% during H1. With an operating cash balance of $0.63bn, net debt of $4.31bn and $175m drawn down from a $500m revolving credit facility, alongside the scale of the business (including 40,000 customers), products that on the whole are embedded within customers’ operations and generate a significant degree of recurring revenue, the company has a high level of resiliency. 

Like so many tech companies, Micro Focus is balancing risk mitigation against forward planning. Although it has taken action to manage costs and could take further steps if necessary, it is reassuring to hear that it is continuing with the investments determined as a result of its Strategic and Operational Review: evolving the operating model to improve product positioning and visibility; accelerating the transition to SaaS or subscription revenue; restructuring the go to market function; and completing the delivery of a single set of business application systems to integrate operations.  

Posted by: Angela Eager

Tags: software   tradingupdate  

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