SUSE’s revenue grows 9% amid strong demand for container tools

Nov 14, 2023

UPDATED 16:40 EDT / MARCH 16 2023

by Maria Deutscher

Enterprise software maker SUSE SA today reported that its adjusted revenue grew 9% year-over-year, to $169 million, in its first fiscal quarter.

Germany-based SUSE counts more than 60% of the companies on the Fortune 500 list as customers. It sells several popular distributions of Linux that organizations use to run SAP SE applications, as well as other workloads. SUSE's second main source of revenue is providing tools for managing software container environments.

The company's Core Revenue segment, which mainly covers revenue from its Linux distributions, grew 6% year-over-year during the first quarter. That translated to sales of $137.5 million. According to SUSE, one contributor to its Linux business’ momentum was the renewal of a large contract with a customer in the equipment manufacturing segment.

The customer in question purchased SLES for SAP, a Linux distribution that SUSE designed to run SAP's popular business management applications. It includes features that make it easier to install the German software maker's applications. Additionally, the operating system can detect certain types of configuration issues in SAP workloads and recommend fixes.

Alongside SLES for SAP, SUSE sells several other versions of Linux. One version is designed to power connected devices such as industrial robots. Another operating system, SLE Micro, includes an immutability feature that makes it impossible for hackers to delete or modify key software components.

SUSE's second major revenue source is its portfolio of container management tools. The portfolio is partly based on technology from Rancher Labs, a startup SUSE bought in 2020. The company acquired another container tooling startup called NeuVector the following year.

The Rancher Labs deal bought SUSE a platform for automating the management of Kubernetes environments. NeuVector, in turn, developed a tool for detecting vulnerable containers. It has extended the startups’ technology since the acquisitions closed by adding several new capabilities.

In the first quarter, the company introduced a software suite called ATIP that is geared toward carriers. The suite combines its Rancher platform for managing Kubernetes clusters with the SLE Micro Linux distribution. According to SUSE, carriers can use the software to power edge computing systems deployed in their networks.

During the quarter, the company also introduced a second new offering called Rancher Government Carbide. It's a security tool for public sector customers. The tool can verify that key software components in a container environment were downloaded from a reliable source.

On a year-over-year basis, SUSE increased its research and development spending by 4% in the first quarter to support its product roadmap. But the company's overall operating expenses declined by 2% thanks to a reduction in sales and marketing costs.

SUSE's efforts to increase operational efficiency positively impacted its bottom line. The company posted adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, of $67.1 million in the first quarter. That represents a 28% increase from the same time a year earlier.

"We’ve made a strong start to FY23," said Chief Executive Officer Melissa Di Donato. "With the changes we made to our sales force early in the quarter now behind us, we are fully focused on building on this performance through the rest of the year. Our markets continue to expand, driven by global megatrends, and with our new go-to-market approach, differentiated products and relentless innovation, we are well placed to capitalize on this growth."

In its current fiscal year, SUSE expects to increase its adjusted revenue by 11% to 13% on a constant currency basis. The company is projecting 10% growth in its core revenue segment, while the emerging revenue segment is expected to gain 25%. It's also planning to improve its adjusted EBITDA margin.

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