SoftwareOne Holding's Q3 Update

Shares of SoftwareOne Holding Ltd. (SIX:SWON) surged on Wednesday after the release of its third-quarter update, which matched earlier projections.

At 6:21 am (11:21 GMT), SoftwareOne Holding's stock was up by 6.6%, trading at CHF 704.

The quarterly update indicated that SoftwareOne’s revenue for Q3 increased by 3.1% year-over-year, on a constant currency basis, while adjusted EBITDA margins dropped to 16.6%, down 4 percentage points from the previous year.

The margin decline was attributed to challenges in the software marketplace sector, especially in North America, where sales execution faced hurdles, and in the UK and France, where client spending was cautious.

Moreover, revenue from its primary vendor partner, Microsoft (NASDAQ:MSFT), encountered difficulties due to changing incentive structures, though overall gross billing with Microsoft still grew by 7%.

Looking ahead, SoftwareOne reaffirmed its 2024 revenue growth forecast of 2-5% and an adjusted EBITDA margin target of 21-23%. This suggests a slight revenue decline year-over-year for Q4 and predicts a 7-point decrease in quarterly EBITDA margin, projected to land between 24.5-25%.

In a bid to enhance profitability, SoftwareOne introduced a new restructuring plan aimed at reducing costs by CHF 50 million by mid-2025. This plan focuses on cutting corporate overhead and streamlining management layers, which are viewed as overly “top-heavy,” with particular reductions expected at the executive board level.

Looking further ahead, SoftwareOne has ambitious goals for 2026, targeting double-digit revenue growth and an EBITDA margin close to 27%.

However, analysts from Citi have raised concerns about the market's skepticism regarding these objectives, given SoftwareOne's erratic performance in recent quarters. A significant element of these strategic initiatives is the company's ongoing negotiations with potential private equity buyers.

SoftwareOne anticipates either presenting an offer to shareholders or wrapping up its going-private discussions by February 2025, coinciding with its full-year results. According to Citi Research, investors might receive this timeline positively, despite lingering uncertainties about SoftwareOne’s financial outlook for 2025 and beyond.

Although sentiment surrounding the stock is currently low, the combination of clarified expectations for 2025 and the imminent decision on going private could serve as positive catalysts, as noted by Citi analysts.