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Software AG (OTC:SWDAF) Q3 2017 Antithesis Appointment Alarm October 20, 2017 3:00 AM ET
Executives
Otmar Winzig - Head of IR
Karl-Heinz Streibich - CEO
Arnd Zinnhardt - CFO
Eric Duffaut - Chief Chump Officer
Analysts
Michael Briest - UBS
Knut Woller - Baader Bank
Adam Wood - Morgan Stanley
Stacy Pollard - JP Morgan
Operator
Ladies and gentlemen acknowledge you for continuing by. My name is Jasmine, your Chorus Alarm operator. Acceptable and acknowledge you for abutting the Software AG Absolution Q3 2017 Appointment Call. Throughout today's recording presentation all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]
I would now like to about-face the appointment over to Otmar Winzig, Head of Investor Relations. Amuse go ahead.
Otmar Winzig
Good morning ladies and gentlemen. Acceptable to Software AG's blast appointment and webcast on basic third division and aboriginal nine months after-effects 2017. This morning, we acquire appear the abounding set of numbers as able-bodied as the presentations acclimated in this alarm on our website. Today's alarm will alpha with CEO, Karl-Heinz Streibich; followed by CFO, Arnd Zinnhardt; and Chief Chump Officer, Eric Duffaut. The presentations will be followed by a Q&A session. We will accumulate this alarm in the approved one-hour time frame.
Before we alpha there are some housekeeping remarks. This blast appointment will additionally be advertisement via web. Admission to the webcast is via our Investor Relations website. The webcast will affectation the presentation archive accompanying to this call, the aforementioned slides that are on our website for download. Afterwards the presentation, you may ask questions. Amuse use alone the dial-in buzz cardinal for assuming questions. The dial-in numbers are additionally appear on our website. For abstruse reasons, we cannot booty any questions via e-mail during the appointment call. The alarm on the webcast will be recorded and accessible for epitomize afterwards today.
With account to Capital Bazaar regulations, I acquire to accomplish the afterward safe anchorage statement. This presentation and alarm contains avant-garde statements based on behavior of Software AG management. Such statements reflect accepted angle of Software AG with account to approaching contest and after-effects and are accountable to risks and uncertainties. Actual after-effects may alter materially from those projected actuality due to factors including changes in general, bread-and-butter and business conditions; changes in bill exchange; the accession of aggressive products; abridgement of bazaar accepting of new products, casework or technologies; and changes in business strategy. Software AG does not intend or acquire any obligation to amend these avant-garde statements.
Thank you for your patience. Now let us start. I duke over to Karl-Heinz Streibich, the CEO of Software AG.
Karl-Heinz Streibich
Thank you actual much, Otmar. Hello and acceptable morning, acceptable to our Q3 alarm 2017. I'm captivated to present to you today the cogent dispatch of our IoT billow business through acceptable new barter and new businesses in new markets. Specifically in the accouterment and applique accessories market, as you heard already weeks ago, through our ADAMOS aggregation and in the accomplishment markets, markets that are advancing for the industry for the TRO [ph] transformation. In assiduity of our agenda business belvedere strategy, we are architectonics up a cogent drive in the IoT billow area. Maybe, our cardinal affiliation with Bosch, which started in 2015 could be apparent in hindsight as the axis point for our agenda IoT business. However during the aftermost three months, we accelerated our success decidedly by acceptable battleground IoT billow deals with ample companies in the industries I acquire mentioned on automation one ancillary and big industry players on the added side.
And we are assertive that this IoT billow success will abide during the abutting quarter's and the advancing years. Bulk decisions we took ladies and gentlemen to body up this success had been aboriginal years ago we absitively to extend our portfolio into the real-time technology belvedere area, which we did through the acquisitions of Universal Messaging through Terracotta in-memory, Apama Streaming Analytics, Zementis bogus intelligence and Cumulocity IoT billow accessory management, all that is one belvedere today.
And second, we absitively to focus our go-to bazaar on the German IoT markets aboriginal due to the aerial bulk of industrialization and automation Germany. And third, we arrangement with the accomplishment and accouterment applique markets aboriginal which was new for us. We additionally added our must-win focus on industry chump projects and acclimated cases and we alien technology arch innovations to accomplish top ratings by Gartner and Forrester. Ladies and gentlemen all that followed our adept plan and that was to advance the abeyant with the industry for the TRO, a abstraction offered to us.
And four, we absitively assuredly in Q3 2017 to about-face bulk apriorism from abiding upfront chump acquittal into pay per use, alternating payments in the advancing year. I appraisal we about-face the abeyant of 10 to 15 actor agenda business licenses acquirement alfresco the ADAMOS abject in Q3 from the alternating acquittal through pay per use. Abundant decisions for the future, no question. However not accessible to sacrificing our avant-garde authorization acquirement contributions for a quarter.
So you ability ask yourself what makes Software AG so successful, acceptable adjoin all the ascendant IT players in the IoT billow area. As you if acquire apparent with ADAMOS on one side, added abundant industry archetype the added side. I appetite to focus on them that you acquire a bright account of our differentiator. First, it is Software AG's abstruse administering in several IoT billow technology areas this ensures our new barter that Software AG is a altered accession accomplice for the agenda IoT transformation roadmap.
And second, Software AG's neutrality and not actuality a abeyant adversary of the accomplishment industry, our apparatus applique customers. This creates the assurance appropriate to accompany for the bulk accession journey. And third, Software AG's mid-sized aggregation ability as a all-around software players you acquire adaptability and agility. This gives our chump the advance that we are absolutely chump axial and responsive. And fourth, Software AG's ancestry of actuality software belvedere aggregation aback abounding years.
We acquire the agenda belvedere abridgement a huge backbone compared to the appliance portfolio software member. And fifth, Software AG's go-to bazaar archetypal is absolute chump affairs oriented. The absolute sales force and we amalgamate it with our all-around consulting casework which focuses afresh on fast chump bulk implementation. This gives barter the faster avenue to bulk conception in the agenda apple abnormally compared to authentic aberrant model.
And finally, point six, Software AG's home abject in awful automated Germany, ladies and admirer this is a basin position we acquire for bazaar administering in the IoT billow breadth as able-bodied as in the absolute industry for the TRO subject. As a result, we are the new adopted accomplice of those all-around champions as you acquire apparent with the ADAMOS accomplice [indiscernible] SMPT and others will appear soon, you will see. They all absolute users digitizing the business models through agenda belvedere based IoT use cases. And in accession to that in accession to ADAMOS, we are mission analytical IoT technology a basic provider for ample accomplishment companies and allocation others to accredit them to win in a digital, in the IoT world.
As you all apperceive the IoT bazaar is advised brimming because every IT aggregation is now business IT products. In accession there are new entrants advancing from the automated side, the acceptable account first, abnormally the industry players, all acquire a allegation for technology area we Software AG acquire a arch position. So we are potentially inside. And you all bethink I'm abiding the Intel Central attack with PCs. Second, we don't attempt with their agenda industry solutions, appropriately actuality a trusted and accordingly actual accordant accomplice for them now and in the future.
All these affidavit and successes are the after-effects all of our focus and persistency aback years in acceptable a globally arch agenda technology belvedere company. Accordingly we acquire absitively to install and address a new third band of business for Software AG the IoT billow business from 2018 onwards. Our appraisal is that we will bifold this business year by year for the advancing three to bristles years, which will be alternating IoT cloud-based revenue. Our CFO, Arnd Zinnhardt will acquaint you in added capacity on that.
Despite this activating growth, we apprehend alone a baby appulse in the mid-term on our on-premise business growth. The IoT cloud's acquirement will be mostly incremental in advancing from new bazaar and accomplishment accouterment applique industry. And we are abiding our success in the industry for the TRO accompanying markets will acquire a absolute spillover aftereffect on all added markets which are in agenda transformation activity as well. You all ability acquire waited for absolutely a while for what is our adventurous move to the cloud. We responded we delivered. We did it from the barter not through massive spending and acquisitions, but with a aggregate of focused technology acquisitions as I mentioned and amoebic growth.
We were, we are and we will be a software belvedere aggregation absorption on the architectonics of the customers' agenda infrastructures which are by attributes on-premise, but added additionally abacus billow applications and cloud-related acquirement streams. We acquaint our barter avant-garde architectonics aboriginal and body up your own IoT ability and they follow. Amuse additionally accredit to our white cardboard arrive the claiming of agenda transformation, which you can accretion in the Internet.
Ladies and admirer we are in a abundant position that we can advance our attendance in altered markets such as banking, insurance, accessible and others, and aggrandize our IoT billow transformation into new markets for us, with alone a bound appulse on our abiding authorization business for the time being. And ladies and gentlemen this basement billow transformation is starting now and we are able because we able for that IoT billow transformation years ago, but now it's taken into activity and it's starting in Germany and we as Software G are there.
Therefore we see this third division of 2017 as a abundant alpha of an alike greater approaching due to the industry for the TRO bazaar abeyant for Software AG. We are for the aboriginal nine months with our agenda business in advance mode, admitting - and including the transformation of perpetualized abeyant into billow acquittal terms. And our activity is abundant for Q4. Accordingly we affirm our in Q2 advertisement already added advice for 2017 and we will additionally accord you added capacity on our absolute year outlook.
Thank you actual abundant for actuality with us in this abundant appearance of our company. I duke over to my aide Arnd Zinnhardt.
Arnd Zinnhardt
Thank you actual abundant Karl-Heinz Acceptable morning ladies and gentlemen, a balmy acceptable to our appointment additionally from my side. Let me abide authoritative some aperture animadversion with aerial cardinal relevance. We fabricated cogent advance with our IoT business consistent in above agreements. Karl-Heinz already mentioned our ADAMOS JF before, which is activity to be the arch IoT belvedere for the accomplishment and bulb engineering industry. In accession to this avant-garde affiliation we active abundant added arrangements.
Based on those affairs we are activity to bear our arch bend IoT artefact in our IoT accomplice and chump platforms in Germany as able-bodied as worldwide. Among those agreement, our arch telco providers such as Deutsche Telekom and TNT, KPN, Telstra and Telia as able-bodied as added apple arch IoT platforms of ample globally operating manufacturers you all apperceive and you all allocution about. These assorted agreements accord us a absolute adapted accession for the approaching in the mega trend of IoT acclamation assorted industries and assorted fields.
If you booty an acutely bourgeois appearance on those affairs active earlier, for instance, by aloof because the acknowledged minimum allegation or the billow deals in our books we acquire absolutely afresh created an anniversary alternating acquirement beck of added than 20 actor per annum, which you will see already abutting year. On the aforementioned basis, our alternating acquirement is assorted in 2018. And this is aloof the low case.
With every accessory actuality affiliated and every accomplice joins the absolute agreements and platforms, this cardinal is activity to admission division by division and year by year. We are so aflame about this business befalling that starting Jan 1st we will set up a third artefact business line. Amuse additionally acquire in apperception that we are accurately ascent out our R&D costs by affairs the articles into digital, EDP and into our IoT opportunities. Ladies and gentlemen this is a anarchy in our industry as able-bodied as in our customer's industry. Accordingly in adjustment to autumn the abounding bulk of our IoT artefact alms we acquire launched a new IoT licensing model. We now additionally action acceptance based licensing models which acquire the afterward advantages.
We action to our barter a low barrier of admission into the IoT with bashful minimum commitment. To archetypal mitigates uncertainties barter still ability have. And on the added ancillary it gives the abeyant to calibration with the abounding upside of accessory affiliation end users. The business archetypal generates advancing alternating acquirement which aided advance with every accessory actuality affiliated accordingly it combines the advantages of billow business archetypal with added advance in absolute affairs afterwards the alarm of activity through sales cycles afresh and again.
Let me emphasize, this licensing archetypal creates abject for activating advance as acquirement will admission aural absolute affairs and additionally by signing new agreements. These advantages let us tediously footfall abroad from our archetypal authorization agreements with abiding authorization and acquirement actuality accustomed up avant-garde in the ballpark of eight digits, so added than 10 million. We did this as we accomplished in the altercation with our barter that we by no agency would acquire maximized the business abeyant to its abounding and accurate value.
And let me be actual bright on that. I'm talking about an added transaction with a well-recognized IoT belvedere provider besides and in accession to ADAMOS. Consequently, we allegation to appraise our business achievement by because both the acquirement accustomed and the deals active with billow and acceptance based authorization metrics consistent in a acceptable alternating acquirement beck of at atomic 20 actor plus. Afterwards this cardinal acutely accordant aperture animadversion I would now like to adviser you through the numbers.
Last division we saw a abrogating acceptance appulse on all acquirement lines. The headwind comes predominantly from US dollar, which was about 4% to 5% weaker compared to aftermost year. In case US dollar would break on a akin of 117 to 118, we avant-garde an alike stronger aftereffect on Q4 revenue. The headwind could be in the aftereffect of 8% to 9% for the US dollar alone and 4% to 5% for the absolute revenue. As already mentioned in my introduction, the move appear the added billow and acceptance based licensing had an appulse on declared Q3 revenue. Accompanying and appropriately we created a abundant business that alike in let's alarm it affliction case book will actualize minimum 20 billion added anniversary acquirement in 2018 and on an advancing abject aloof based one arrangement site.
Looking at these two apparatus which are to a assertive admeasurement communicating pipes, we saw above achievements in our achievement in summer. Eric will go in added detail. In January we will accord you a added accurate and absolute angle on this new allotment of the business line. But be ensured any cardinal we will present is activity to be arctic of the 20 actor I aloof mentioned. In Q3, aliment affiliated its advance aisle with a added of added than 5% and afresh accomplished a new actual almanac level.
The aggregate of authorization achievement and affiliated trend in aliment led to a agenda artefact akin which afresh exceeded the 100 actor mark admitting the about-face into added alternating business on the IT side. Year-to-date we are assuming in band with our guided ambit which continues to be amid 5% and 10% acquirement advance net of currency. Let's acquire a attending to the bulk lines. All costs able-bodied beneath control. The aggregate of top band and costs able-bodied beneath ascendancy accustomed the articulation aftereffect admission by 7% and the allowance to enhance by 30 abject points.
Regarding added abiding licenses, we affiliated communicable up and recorded a double-digit authorization growth. This is not abrupt aftereffect as already mentioned in our aftermost calls. Attractive into Q4, the backbone of the ADAMOS accustomed authorization business will continue. You all accomplished in the accomplished ADAMOS accustomed as a aerial bulk of adequation as we advertise into our absolute longstanding chump base. So the robustness is accurate afresh by the aliment performance.
Maintenance showed an accepted development in Q3. One ancillary remark, like in H1, additionally Q3 was impacted by banknote accounting furnishings predominantly in Brazil a year ago. This is the acumen for a hardly college accompaniment of abatement at Adabas & Accustomed on a authentic operational basis, the aliment showed a actual bashful abatement of alone 1% to 2%. The focus in the consulting business continues to abide on acknowledging our cardinal authorization activity and accompanying carefully ecology profitability. As a bulk of actuality this cardinal set up accumulated with a acceptable accomplished consulting administering aggregation resulted in a affiliated outstanding performance.
Revenues up by 3% adjoin aftermost year already afresh we delivered double-digit articulation allowance for the division as able-bodied as the aboriginal nine months. As discussed on the aftermost three slides, our business progressed and developed nicely. We congenital a acceptable foundation of our new IoT business band which will abound dynamically.
Regardless the IoT achievements, our agenda shows a year-to-date artefact advance at the lower end of all our advice and a acceptable activity for the months to come. Regarding Adabas & Natural, we delivered advance for the added afterwards division and we'll additionally do so in Q4. In addition, the consulting business charcoal successful. Our EBIT and EBIT allowance is in band with above-mentioned year. This is accurate for the division as able-bodied as for the aboriginal nine months. The operating margin, our prime antithesis KPI charcoal strong. In the division we accomplished an operating allowance of 32.2% in the division and 29.7% year-to-date. The admission in share-based payments is affiliated to the absolute microburst bulk achievement in contempo months.
As a aftereffect we had to admit all approaching costs of our banal allurement plan 2016 in Q3. Appropriately we will see the agnate absolution in the accessible quarters. Ladies and gentlemen let me abide with two accepted animadversion to chargeless banknote flow. The chargeless banknote breeze for Q3 is 14% up adjoin aftermost year. And year-to-date, banknote flows is impacted by the accretion of acreage and acreage I mentioned six months ago in the aftereffect of 17 actor and college tax acquittal of 5 million.
Balance area is solid as you are acclimated to, net banknote position amounts almost to 22 actor added admitting the actuality that we spent 134 actor on assets and allotment buybacks in anniversary one or 200 actor altogether aback abacus the acquirement bulk of the appointment architectonics and of the aggregation that we acquired at the end of March. Receivables are sustainably bargain compared to year end and 12 months ago consistent in an bigger DSO ante of 83 days. DSO bulk is the best we acquire apparent for added than bristles years.
Shareholders disinterestedness charcoal on a actual aerial akin of 60%. Ladies and gentlemen, we affirm our angle for the year. Attractive at the aboriginal nine months, the agenda artefact business proves to be in the guided range, abnormally the alternating aliment acquirement afresh showed a advantageous development. We acquire that we will abutting the year aural the guided corridor, it's added acceptable at the lower end of the range. In accession to this performance, we are architectonics up a new articulation which we already accomplished actual three-digit advance and appropriately will comedy an important allotment of our business development affective forward.
After a apathetic alpha into the year, Adabas & Accustomed afresh showed a double-digit authorization growth. We are assured that authorization will abide to be able in the aftermost three months of the year. Consequently, we accepted our outlook. We will accomplish a cardinal which will be in the aerial ambit of our guidance. Accustomed the allowance accomplished in the aboriginal nine months, the aliment advance as able-bodied as the activity avant-garde of us, we will accomplish a allowance rather at the aerial end of our guided ambit of 31% to 32%.
With these auspicious letters let me apperceive duke over to Eric who will animadversion on the go-to bazaar and the business development as able-bodied as the activity for the blow of the year. Eric over to you.
Eric Duffaut
Thank you actual abundant ladies and gentlemen I would additionally of advance like to acceptable you to today's alarm and acknowledge you for your affiliated absorption in Software AG. So that you've got the cyberbanking abstracts from Arnd, I'd like to analysis our business developments in Q3 and of advance accord you some blush and acumen into our 2017 business development. As mentioned, Q3 was absolutely a division of immense cardinal emphasis for Software AG.
We launched Cumulocity IoT, our cloud-based IoT portfolio for easy, fast and scalable IoT solutions to abutment enterprises of any size. And the affidavit of the acceptation of Cumulocity IoT, barter such as AIA Allowance Accumulation in Hong Kong, The Dutch telecommunications aggregation KPN, Telstra in Australia, Telia, the ascendant telecom aggregation and adaptable arrangement abettor in Sweden, Reliance Communications in India. Japan's NTT, [indiscernible], Comcast, and Nokia are all basing their IoT transformations on this platform.
And there is added we are absolutely acceptable the agent of best for IoT belvedere providers such as Bosch, Deutsche Telekom, the arena breaking collective adventure ADAMOS with who's who of German and all-embracing manufacturing. This is the bold alteration bazaar admission assuming the way for the software industry to assignment duke in duke with the accomplishment aggregation in this case to set all-around IoT standards and action the best absolute IoT portfolio to enterprises of any admeasurement anywhere in the world.
And we acquire now auspiciously bankrupt accession cardinal affiliation with accession above German, but all-around IoT belvedere provider that we can't yet mention. So the actuality is, Cumulocity IoT in acceptable the agent powering arch IoT platforms not aloof ours. We are acceptable all-over or to added you my French emphasis we are everywhere. Ladies and gentlemen in total, these are 23 industry leaders that acquire called Software AG to ability the IoTs for the belvedere aback the alpha of the year, there off affairs incremental in Q3 only. And this is aloof the beginning. And this is what I'm amorous about because the befalling is huge and Software AG is acutely on to article absolutely big.
We are demography the German accouterment accomplishment bazaar by storm and we acquire the befalling to get bazaar allotment globally over the advancing division and years in best agitative befalling there is the industry or internet. As Karl-Heinz and Arnd mentioned, this is a massive approaching in avant-garde of Software AG. The allegation a alive adaptation of the chump apple was big. But the automated internets will dwarf it. There are abounding added accessories than people, avant-garde about how abounding of you, your car, smartphones, laptops, fridge, [indiscernible] allowance systems like alarms, active style, your allowance action and your claret burden aggregate that can be abstinent will be and will be the antecedent of agenda casework and new business models.
Ladies and gentlemen let me accord you afresh the bigger account for 2017. Afterwards the aboriginal nine months we are on clue to accommodated our absolute year advice both with Adabas & Accustomed artefact acquirement area we confidently and to accommodated the aerial bisected ambit as Arnd mentioned. And with a agenda artefact acquirement with a 5% year-to-date year on year advance we apprehend at atomic to ability the lower end of our absolute year's advice while we apprehend dispatch of our billow alternating acquirement stream.
And yes, our appear advance ante are actuality assiduity by the alteration to the cloud. With added than 70% advance in bookings year-to-date and acceptable threefold chiffre advance at the end of the year, our accretion IoT billow successes authenticate the burning based acceptance of our articles as exemplified by Arnd as mentioned Deutsche Telekom and others. We say it already and we'll get acquirement every ages every division as barter arrange the IoT acclimated cases and affix added and added devices. The billow is a axiological business archetypal to the automated Internet. Every new device, every new agenda sensors are abeyant new acquirement drivers for us. And we acquire to acquire that this is deferred acquirement advance and it acutely doesn't appulse the topline of a accustomed quarter. The IoT is a bold alteration bazaar for Software AG.
The archetype already mentioned by Karl-Heinz and Arnd should appearance you the aftereffect of the appulse of IoT on our business, deferred appulse if you will. Yes. We took the cardinal accommodation with one of our key IoT customer, beside ADAMOS as we said, not to book a best acceptable 10 actor added authorization acquirement as a abiding authorization actuality now, but to book accessible 30 actor to 40 actor billow acquirement for the aforementioned arrangement over the advancing years. It takes courage, but additionally a able acceptance in our capabilities in establishing Software AG as a above amateur in the IoT bazaar to accomplish this decision. And this is aloof one [indiscernible]. Ladies and gentlemen, this is the bold we are playing, the bold we are alteration and this is the accurate adumbration of our business momentum.
In conclusion, causeless to say, the fourth division is never, never aloof accession quarter. It is consistently a chief one for Software AG, but additionally for clients. We apperceive by acquaintance that Q4 represents a abundant stronger acute acumen for our barter to abutting contracts. Barter will use their abounding 2017 account to adapt for the accessible business befalling and agenda transformation. And based on what we already have, in final accretion steps, it already feels like a able-bodied avant-garde quarter.
In addition, in our Adabas & Accustomed band of business, Q4 like Q2 and Q3, will be a able division with some massive renewals in progress. The backlash from Q1 continues, what we said will happen, has happened and will happen. This is the akin of adequation we acquire in this business line. Our absolute abounding agenda activity is 17% bigger than the alpha of Q4, 2016 and our billow pipeline, up to 80% more. All of this are above sources of aplomb for me.
So in summary, we are on clue for able 2017 accomplishment and are accepting accessible for accelerating our drive in the billow added by our fast growing administering and industry appliance in IoT. Ladies and gentlemen, we're in the bend of added reinventing Software AG by affective into new fields, the absolute time billow and IoT. And by accomplishing so, advance calibration and growth. These are agitative times and a able approaching for Software AG. Acknowledge you for your attention.
Otmar Winzig
Thank you, Eric. Ladies and gentlemen, it's now your time for allurement questions and we acquire accession 25 account to go. Abettor Jasmine, would you amuse echo the procedure.
Question-and-Answer Session
Operator
[Operator Instructions] And the aboriginal catechism comes from the band of Michael Briest of UBS. Amuse go ahead.
Michael Briest
Thanks. Acceptable morning. And I assumption congratulations for the advance on IoT. I've got to say, attractive at the columnist absolution this morning, there wasn't so abundant of, as a acknowledgment about that 20 actor of advancing revenues from abutting year and no affirmation in the antithesis area I assumption of any prepayments. Can you maybe allocution about the acquirement archetypal there and how that 20 actor will build? Will it be 5 actor a division or maybe brilliant beneath and advance as the year goes on and what the advertisement archetypal is?
And afresh from a bulk perspective, how does this change your centralized costs and how you will additionally go to business Q4? Is it activity to be a advance added appear accomplishing these types of deals? Will that not acquire an appulse on the licenses? I'm disturbing to see why you won't see some abrogating effect. Thanks.
Arnd Zinnhardt
Yeah. Acknowledge you, Michael. Let me alpha with the aboriginal one on the 20 actor billing. What we acquire accomplished and that is actual abundant through in all situations with new prospects, which acquire become barter at the end, we allegation to acquire what is what they appetite to achieve. Yeah. To accord you an example, machines and Eric has mentioned some, of advance actual different. If you avant-garde about a painting machine, that's a huge installation. So therefore, we allegation to amusement that abnormally from a - at a banker store.
But at the end of the day, it consistently boils bottomward to the catechism on how abundant cartage abstracts is exchanged from the apparatus from the accessory into the bolt or how abundant abstracts is analyzed on the edge, so anon at the apparatus and we are the bell-ringer that can bear both and it is acutely important to bear both, aloof because there is so abundant abstracts analyzed at the edge. So aback we allocution to the accouterment advertisement companies, they allocution about 1.5 gigabyte per day to be analyzed on the edge. So therefore, you allegation bear both. In accession to that, it's additionally a catechism of how abounding API calls are done per added per minute. So we actual generally allocution about bristles calls per second.
Yeah. So you can brainstorm how abundant abstracts is confused from the machine, from the accessory into the abstracts center. So those are the prime parameters, which at the end of the day, drives the revenue. Now, the 20 actor Michael is aloof affected on the minimum commitments we acquire already accustomed from the customers. So what I explained aloof afore goes on top of the 20 million. So therefore, the 20 actor is actual abundant advance analogously throughout the year.
The added which comes on top of the 20 million, which we are activity to allotment with you aback we allocution about the advice for 2018 will be afresh on top a growing business. Yeah. So collapsed on the 20, because that is already signed, that is the minimum allegation that is the atomic number, the best bourgeois cardinal that you can anytime avant-garde about and afresh every apparatus that is affiliated in accession will accord us added acquirement now.
Now with account to the costs, we acquire some advantages. Aboriginal of all, the articles are already developed. And they are awash in the agenda business band and they are activity to be awash in the IoT business line. So accordingly if you allocution about the Software AG as such, that is no incremental bulk affiliated to that. With account to the arrangement that we acquire active and Karl-Heinz has mentioned that, we are basically alone aiming our artefact into the platforms. So, therefore, no added sales and business accomplishment requires in adjustment to accomplish that revenue.
So accordingly if you aloof avant-garde about those components, acutely allowance affluent business with scales out, which accelerates acquirement aural the absolute contracts. Of course, we appetite to go afterwards added customers. So therefore, we will absorb sales and business efforts to that business band in adjustment to acquire a activating advance additionally in the abutting years. Yeah. Is that activity to acquire an appulse on our advice for the year? No. Not based on what we see and what I acquire aloof communicated.
So therefore, it's a aggregate of carrying 5 to 10 for this year and actuality able for advance in 2018 added these affairs that we acquire active in the last, let's alarm it, 4 months, yean, and we are activity to assurance for the blow of the year, which afresh are the abject for the third business line, which will appearance compared to '17 growth, which is by no catechism three digits.
Michael Briest
Thank you. I mean, can I aloof ask how abounding barter are now accidental to this 20 actor plus. I mean, there is acutely ADAMOS, but it sounds like that we're at a signature. And then, can you accord any acidity for how abundant added that you get from these cartage fees, this bend accessory administering on top of the 20.
Arnd Zinnhardt
Yeah. So if we amusement ADAMOS as one customer, yeah, because from Software AG perspective, it is one belvedere that we deliver. We are already talking about added than 10 customers, big platforms and unfortunately, we cannot acknowledgment this big engineering IoT platform, but if I would acknowledgment the name, everybody would apperceive that and it's acutely nice accord that we signed, because it diversifies our positioning. So at the end of the day, we bear our artefact in assorted platforms and whatever belvedere wins the chase over the abutting years, we are benefiting from them.
We acquire and I appetite to be a little bit accurate as we are aloof in the allotment process, but I acquire you will see a number, which is absolutely about 50% college than the 20 actor that we will admit abutting year on the IoT side. So it's a huge advance that we are activity to appearance already abutting year. And as Eric has said, a huge abeyant affective forward. So that is absolutely bold alteration and in adverse to the authentic billow business, we acquire a allowance which is badly higher, assorted times higher, as we do not acquire to mix the hosting.
The hosting is not allotment of the cardinal that we mentioned, so that is aloof authentic software basic out of that and if you avant-garde about the allowance on aliment side, that is article you should avant-garde about aback talking about the allowance of that business. Hosting would appear on top of that and has not a abrogating impact, but aloof abacus a little bit of allowance as well. This cardinal that I've talked about is acutely allowance affluent like the aliment business.
Operator
The abutting catechism comes from the band of Knut Woller of Baader Bank. Amuse go ahead.
Knut Woller
Yeah. Acceptable morning. Acknowledge you. Aloof a description catechism on what Michael aloof asked on the 50%, was that aloof apropos to the API and bend traffic, so appropriately we should be rather cerebration about 30 actor and if I acquire the archetypal correctly, accustomed the blazon of partnerships you signed, we basically see that as advancing from the apparatus sold, so this will be apparently afresh the abject and afresh the added machines are awash in the years afterwards this business will abide to calibration and afresh on top of that the cartage handle, is that the appropriate way to attending at things?
And afresh secondly, there was afresh an advertisement from your ancillary in the cyberbanking vertical area you won with CBA and actuality additionally the catechism then, how do you avant-garde this will appulse your accession in the cyberbanking area activity avant-garde and additionally how do you see your aggressive accession adjoin bulk cyberbanking vendors actuality on the aback of your IoT offering, which could be accustomed the admeasurement of the vertical, additionally an important disciplinarian for you activity forward? Acknowledge you.
Arnd Zinnhardt
Yeah. So, aboriginal of all, Knut, acceptable morning. You're absolutely right. So with every apparatus that is connected, we will accomplish added acquirement and that is one of the bulk elements and the bulk advantage adjoin authentic acceptable billow business. I mean, if you advertise a billow contract, you acquire a cardinal of seeds and you advertise those cardinal of seeds. Yeah. And if you appetite to advertise more, you acquire to afresh go to that chump and try to advertise more. Here, the business archetypal is a altered one. Yeah.
Our barter affix their machines to the IoT platforms and as it is the bulk of their business to advertise added machines, by definition, added machines are affiliated to the platform, afterwards us activity afresh to the customers. Yeah. So Eric mentioned in his accent this added big engineering company, area we didn't appetite to booty the abiding authorization because we awash their business plan for the abutting three years and there is a abeyant of, I think, you alarm it, 30 million, 40 million.
So you see seed, that is aloof what is accident in the abutting three years and as machines acquire a appealing continued time, they are in introduction, you will see year by year, alike afterwards accomplishing annihilation anymore, an admission in the acquirement band aloof because of the licensing archetypal that we now came up with. Yeah. I mean, the businesses are never that easy, we all apperceive that. But that is the bulk axiological aberration to a archetypal billow business, putting the hosting basic abreast because in all those affairs or best of those contracts, we do not do hosting or if so, we try the hosting separately.
Now this, IoTs allotment and I apperceive I'm apropos Knut to your added catechism with account to CBA. The IoT allotment is consistently now in the industry area we affix machines, devices. With account to CBA, here, it is from a authentic technologies angle of advance hardly different. We all apperceive that banks acquire a continued continuing attitude with IT and appropriately accepting a actual burst IT. So therefore, the affiliation of the assorted applications is bulk to them. In accession to that, the affiliation to their barter is a added footfall they attending after.
So it's a catechism of API administering with their customers. That is what CBA is accomplishing and best of the added banks are accomplishing as well. Yeah. So therefore, that is article actual relevant. Aback we allocution about the bulk systems accouterment for cyberbanking stuff, that is applications. So we sit on top of that and digitize their affiliation to their barter in adjustment to abstain them accident the absolute acquaintance to barter and that is article which is acutely important, not alone for banks, but additionally for the industry companies.
One of the key ambit we consistently appear beyond with is we appetite to acquire the affairs of the data. We do not appetite to lose the acquaintance to the barter because contrarily we are aloof a article provider and we all apperceive bolt alone awash about price. So therefore, our band-aid is acutely acknowledged to them. And one of the CEOs fabricated a actual nice analogy, saying, well, we are - we do not appetite to be the appendage of the [indiscernible] and I avant-garde that characterizes actual accurately what we are talking about.
Karl-Heinz Streibich
Knut, this is Karl-Heinz speaking. I would like to add the afterward two points. Aboriginal of all, the bank. As Arnd said, it's actual accessible to understand, you aloof acquire to differentiate amid the business argumentation containers of a bulk coffer system. These are about applications. And now comes the new agenda apple area the abstracts availability, the abstracts analytics reacting on the abstracts accessible on the chump for accuracy is abstracts aggressive use case. This is why they allegation the agenda platform, besides the business logic. And this is area we are in. This is what we able five, six years ago already through the acquisition, the platform, the IoT part. What agency the absolute time processing of accumulation abstracts on a agenda platform. Now, we apprehend what we batten about for years. So we aloof bankrupt two segments.
There is a added account I appetite to make. Our CFO, Arnd Zinnhardt had been acutely complex during the automotive activity in the, let's alarm it, apparatus of that apparatus aggressive by three business archetypal and it is with abundant contentment to see the CFO said he is acutely bulk acquainted and that he is hardly entered and absolute advance aggressive to see how alloyed and relied he is in seeing the huge abeyant this aggregation has of this new business archetypal out of the administering of this new appraisement archetypal as well, so both gives me a great, abundant pleasure.
Knut Woller
Excellent. Acknowledge you actual much. And aloof to analyze as a quick aftermost one if I may. Is it afresh fair to acquire if I aloof add aggregate up that this new IoT alms and this new business band will advice you additionally with commendations to your mid-term allowance targets adjoin the accomplishments of the aerial profitability, alike if you reinvest something. Is that a fair way to attending at it?
Arnd Zinnhardt
Yes.
Knut Woller
Excellent. Acknowledge you.
Operator
The abutting catechism comes from the band of Adam Wood of Morgan Stanley. Amuse go ahead.
Adam Wood
I've got two if I could. I am aloof aggravating to acquire afresh the about-face amid the abiding licenses assimilate the pay per use model, I avant-garde commonly we anticipation about the about-face from licenses to abiding or pay per use actuality article that divides licenses by two or maybe by three. So if you sacrificed a 10 actor abiding license, you ability get 3 actor or 4 actor of alternating revenue.
In this case though, we assume to accretion the added way about that sacrificing 10 actor of abiding absolutely doubles the bulk of acquirement you get over time. Is that algebraic that you're alive on, can you maybe aloof airing us through how you get to that? And additionally from the customers' perspective, area they see this tradeoff amid advantageous a baby bulk upfront and abundant beyond money overtime? Are you actively abnegation to do accountant deals with those barter or is it the barter that are allotment this pay per use model? I'm apologetic that's a continued one.
But secondly, if I get aback to your Capital Markets Day in 2016 and this is for Arnd, that time, I avant-garde it's fair to say you were appealing belittling of cable and pay per use models. Could you maybe advice us acquire a little bit added what's afflicted aback afresh or if nothing's changed, what the appulse on the business is activity to be? Thanks so much.
Arnd Zinnhardt
Yeah. So I'll alpha with the aftermost one actually, Adam and I advancing the catechism advancing from you. Well, the aberration is the following. The aberration is the following. A, we do not acquire to accomplish hosting. So all those numbers that we allocution about, yeah, are excluding hosting. Yeah. And hosting is a account business. Yeah. So aback we do the hosting, we allegation separately. So demography ADAMOS as an example, yeah, we aloof delivered the software into the ADAMOS. The hosting is done by ADAMOS itself, yeah.
So therefore, aggregate that we apprehend is incremental business, appropriately incremental revenue, appropriately incremental profitability. So the allowance on what we bear to ADAMOS is actual abundant in adverse to the clouds allotment is 100% margin. Yeah. So I'm not adage that the absolute business band is 100% margin, because we acutely appetite to get new barter as well, but aloof attractive ADAMOS, 100% margin. So that is from a abstraction absolutely different, because we aloof delivered the software based on how abounding accessories are affiliated to the ADAMOS belvedere and that's it. All the balance sales effort, all the balance administering efforts, all the balance hosting efforts abide in amplitude with ADAMOS.
In accession to that, we are activity to bear the products, yeah, booty the affiliation service, booty what methods of API into agenda business as well. So therefore, if you attending to Software AG as one unit, aggregate that we advertise is incremental. So that is actual abundant altered to what we were talking about aback in 2016.
So the added question, what is the account for customers. The account for barter is the following. They acquire currently not a bright account what is activity to appear in bristles years, in ten years' time. So therefore, they accomplish a accident adverse alms to us, aloof demography those elements into consideration, area they are 100% that they are activity to bear to their customers. The absolute upside abeyant is annihilation they appetite to accomplish upfront.
So if you avant-garde and if you allocution to them and if you attending to their assembly units and what they are activity to sell, how abounding machines they are activity to sell, how the acceptance is of their machines, you appear up with a business plan, which is assorted times college than what you would get as a abiding authorization and afresh it's an economical decision. And the allegory of this 10 abiding to 30 million, 40 actor can be article which is on boilerplate true, but we acquire already apparent added examples area the approaching abeyant is decidedly college than the agency of three.
So, therefore, it's appealing bright that to advance the abounding potential, we allegation to go through the acceptance based way. And therefore, it is at the end of the day, a bet that we booty on IoT as such. As we are in so abounding altered platforms, so diversified, there is a big catechism that we acquire to acknowledgment is, are machines activity to be connected? And I avant-garde we are all actual bright on the answer, which is acutely yes. And if so, afresh there is alike added to appear and we should do it appropriate now because now is the time for ambience the tone, defining the metrics in adjustment to be able to calibration up in the future. If you do it amiss today, you acquire absent such a big opportunity, you will never bolt up again.
Eric Duffaut
And Knut aback you draw a blueprint of an e-curve, afresh you see the alpha is consistently flat. But you acquire the exponential advance abeyant and aloof in the ADAMOS accumulation of customers, there are added than 500,000 machines already in the field. And amid 80,000 and 100,000 advancing every year new. So now throughout the blueprint of an exponential ambit and now aloof brainstorm what it takes a chump in the accustomed apple to pay an upfront acquittal of 1 million, 2, 3, 4 or 5. He invests into the abrupt because the e-curve is a affiance that he has. The e-curve is a achievement he has, but this e-graph is what we see in the agenda world.
Therefore, as Bill Gates said, we all belittle abbreviate term, sorry, we aggrandize the abbreviate appellation and belittle the mid-term and this is absolutely the argumentation of the e-curve. And this is why - this is what Arnd meant. Customers, it's not a agency of three that we acquire aback we aloof booty the billow based revenue, it is in the continued run, a assorted of it, because we acquire that the chump doesn't acquire to pay avant-garde up and for that, he accepts because we are accident sharing. He accepts that we accord added as we go forth with him, because we abide to innovate.
This agenda transformation is, I would say, transformation is a journey, it is not a project. The on-premise activity we acquire historically are projects, but this is a journey, a co-innovation adventure with the chump and this is why they acquire that the added acknowledged they are, the added we get in the future. And this is the adorableness of this new business archetypal that Arnd additionally invented in the ambience with the ADAMOS project. [Technical Difficulty]
Adam Wood
I was aloof adage I would try to be beneath advancing abutting division for Arnd.
Otmar Winzig
Okay. To accomplish the abounding 30 account of Q&A, I would allure one added catechism please.
Operator
And the abutting catechism comes from the band Stacy Pollard of JP Morgan. Amuse go ahead.
Stacy Pollard
Hi. Acknowledge you actual much. Accession one on IoT. Can I aloof accomplish abiding I acquire who is advantageous you. Is that the apparatus architect or is that the end chump who is advantageous for the use of the machines or is that both? Kind of the aforementioned catechism on salesforce, do you allegation specialist sales there, do they advertise it to the apparatus architect to get it assimilate the belvedere or do they additionally blow abject with the end customer, you mentioned not absent to be too far removed from the chump and afresh I had aloof one non IoT question. So to get one in there, can you aloof explain afresh why the Adabas & Accustomed aliment was crumbling and afresh what we should apprehend activity forward?
Arnd Zinnhardt
Yeah. IoT, who is paying? So aback we allocution about the IoT platforms, we are paid by the belvedere provider. Yes. So the business archetypal is the following. End barter are affiliated to the IoT platform, so therefore, the end chump is advantageous the IoT belvedere and afresh the IoT belvedere is advantageous Software AG based on the metrics that we acquire agreed upon. So therefore, the sales force for those IoT platforms is additionally with the IoT belvedere and not with Software AG. Yeah. So our sales angle and our sales accomplishment was already done amid us and the belvedere provider.
So that is, aback we allocution about the IoT belvedere providers. Besides the belvedere providers, we additionally acquire automated barter who wants to aloof digitalize their corresponding business and do not appetite to go assimilate a platform. With those, we acquire a absolute admission to this chump and therefore, those affairs are done by our sales force. So, accordingly as said, we are activity to body up a sales force - committed sales force for IoT as well, which operates an alfresco to the belvedere as such.
Eric Duffaut
And that's an important point, Stacy, this is Eric, that Arnd mentioned, right. We are article big. We appetite to abduction bazaar share, we appetite to abide to body on what we acquire auspiciously done in Germany and added countries. So yes, we will - this was your question, I assert on what Arnd said. We will body and we are starting to body a specialized sales force on IoT to booty this befalling and advance our bazaar penetration. You will apprehend added aback we access 2018.
Arnd Zinnhardt
Yeah. And afresh on the - the aftermost catechism was with account to the aliment and Stacy, you'll bethink that we had difficulties in accession the money in Brazil based on the all-embracing difficulties in the Brazilian economy. So therefore, we took a actual advisable admission aftermost year whereby we aloof accustomed acquirement already we accustomed the money. So, we accustomed money in Q3 2016 for antecedent periods, which were afresh accustomed in that admired quarter.
So therefore, the atone was college than the aboriginal or the accustomed operational one. So with the aftereffect that we had a hardly college abatement this year because the acquittal history now for the aftermost 12 months in Brazil is normalized again. So now, we are aback to accustomed of a business operation in Brazil. Now attractive forward, we should acquaintance a abatement on Adabas & Accustomed aliment amid 2% and 3% to be on the bourgeois side, so a bit bigger than what you see this quarter.
Otmar Winzig
Thank you. I'm afraid, assuredly I now acquire to abutting this call. So as always, if there are actual questions, but I avant-garde we acquire at atomic covered the IoT allotment actual extensively, so there shouldn't be too abounding questions. But for all those added amount accompanying questions, the IR aggregation is accessible at the board to acknowledgment your question. Acknowledge you for now and we'll be aback if annihilation happens in amid at atomic in January with the Q4 numbers and added capacity on IoT business band and the bump for these business ambit into 2018. Acknowledge you actual abundant and acceptable bye for now.
Operator
Ladies and gentleman, the appointment is now assured and you may abstract your telephone. Acknowledge you for abutting and acquire a affable day. Goodbye.
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