Enterprise software company Micro Focus expects an 11 per cent drop in revenue for the first half of the year, following disruption to new sales activity.
Micro Focus expects to report revenue of approximately $1.45bn for the first half of the year, an 11 per cent fall from the same period last year.
The adjusted Ebitda margin of approximately 38 per cent in this period was towards the upper end of Micro Focus’ expectations. The impact of the revenue reduction had been largely mitigated “due to the close management of variable and discretionary costs”.
Why it’s interesting
Micro Focus had anticipated a slowdown in sales at the beginning of the coronavirus crisis. The company said it had “identified a slowdown in customer buying behaviour in April 2020 leading to the deferral of some projects involving new licence and services revenues as well as delays to some maintenance renewals.”
The group said the impact is estimated to be at least two per cent on revenues in the period.
Despite this, the software company said the recurring nature of its business model means the company can generate cash and manage costs to partly mitigate the weakness in revenue.
A hiring freeze and reductions in all discretionary spending are now in place in a bid to conserve cash. In a statement, Micro Focus said the group would be “prepared to implement further actions in reducing costs, in the event the pandemic has a prolonged impact on trading performance.”
Shares are up 10.2 per cent.
What Micro Focus said
“Despite this resilience, the ultimate impact on the global economy remains unknown, as does the timing and extent to which that impact flows through into customer spending plans on enterprise software.
As a result and similar to many other listed companies, it is not possible to provide reliable forward guidance in the current environment and we are withdrawing formal revenue guidance for the current financial year. As a minimum, we continue to believe it appropriate to be prepared for a level of disruption to our new sales activity and timing pressure on renewals.
As a consequence, we are currently evaluating the potential impact on the carrying value of the Group’s intangible assets and goodwill at this point in time.