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Oh SUSE Q2. Oh SUSE Q2. Pay IPO shares bread, it leaves you in the red, SUSE Q2

Linux wrangler's post-$500m Rancher acquisition numbers otherwise 'in line with expectations'

Veteran Linux wrangler SUSE has swung into the red largely due to shares-based payments related to its lacklustre IPO in May.

The business, sold by Micro Focus to private equity house EQT for $2.5bn in 2018, reported revenue of $133.2m for its Q2 ended 30 April [PDF], up a decent 17 per cent year-on-year.

The double-digit rise, with trading "in line with expectations," stands in contrast to SUSE's flotation, which was set at €30 per share and struggled to make much ground during its first day of trading several months back.

After an initial climb to the heady heights of over €35, the stock stood around the €33-€34 mark until the publication of these results, dropping - at the time of writing - to $31, with investors seemingly unimpressed.

For Q2 2021, SUSE recorded total annual recurring revenue (ARR) of $468.6m, up 11 per cent on the previous year, while ARR for newly acquired Rancher was $50.7m, up an impressive 91 per cent. The group's total ARR jumped 16 per cent to $519.3m.

SUSE gave itself a pat on the back for the integration of Rancher, which it said "contributed to significant growth through cross-sells while executing cost-saving targets."

The Rancher Group deal, which completed last year, cost SUSE just over half a billion in cash and shares.

SUSE CEO Melissa Di Donato said she was delighted with the recent IPO, which she said "catapulted us onto the world stage as Europe's largest software IPO of 2021, to date."

The listing on the Frankfurt Stock Exchange via an IPO included an issue of 168.3 million shares, of which 76.8 per cent are held by funds advised by EQT and the remainder constituted a free float.

While SUSE's gross profit rose to $126.3m from $118m for same period in 2020, its margin dropped slightly, from 94 per cent to 92 per cent. It did, however, drop an extra $2.3m into R&D, increasing its spend by 11 per cent to $22.4m from $20.1m. The drop in gross margin was attributed to the growth of the company's US federal business and relatively higher third-party costs.

The Micro Focus hangover also contributed to a jump in 15 per cent in operating expenses, primarily driven by an increase in headcount following the SUSE separation from its former parent.

Operating losses for Q2 came in at $130m versus an operating profit of $8m a year ago. This was related mostly, the company said, to share based payments and amortisation and depreciation.

SUSE also reported a slight drop in earning before interest, tax, depreciation and amortisation (EBITDA) and the Rancher acquisition contributed (at least in part) to its debts increasing from $896.9m at 30 April 2020 to $1.204bn for the same time this year.

As for the muted reaction from the markets, a number of factors are at play. While other tech companies have made hay, SUSE's results are not overly thrilling. SaaS giants Salesforce and Workday both found 20 per cent topline growth wasn't good enough for the market in February, and even a doubling of revenue wasn't enough for Snowflake investors in March.

Going forward, SUSE reckoned growth would continue with adjusted revenue for 2021 in the range of $550m-$570m. ®

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