Drilling deeper, new license revenues came in at 57.8m euros, which constituted a 56% jump, while maintenance revenue jumped modestly to 57.7m euros, a 20% increase. As for services, they jumped 50% to 42.3m euros. Overall, Software AG’s net income came in at 19.2m euros, or 0.67 euros per share, representing a 10% increase over a year earlier.

On the upside, the figures vindicate Software AG’s decision to buy webMethods, as it re-energized webMethods sales, produced some modest sales and marketing cost efficiencies, and helped gloss over or offset flagging revenues from the company’s ETA legacy business.

For instance, while webMethods product revenues roughly tripled to 49.3m euros compared to a year ago, ETS, which is Software AG’s legacy business, grew barely 2% to 70.4m euros.

Admittedly, the shift of Software AG’s SOA assets, such as CentraSite SOA registry and repository and its Crossvision Service Orchestrator ESB may have skewed the numbers by making growth in the webMethods side of the business look more dramatic.

Nonetheless, the results pinpointed quite clearly where the growth in the business is, and given the flatness of the legacy business, why Software AG was incented to make the acquisition. And the company pointed to at least one deal, where the acquisition helped pull a wavering webMethods prospect into the fold, and a pipeline of at least 10 additional joint webMethods-Software AG customers, as evidence that the deal is making the webMethods line more saleable.

Software AG claims that integration of webMethods product and technology is going according to plan. During Q3, sales and professional services for EMEA and APAC were merged, while consolidation of the R&D organization has begun. And it trotted out figures showing that cost of sales have declined 38% compared to Q3 a year ago.

As to current and forward projections, the company claimed that it has not yet seen any evidence of the squeeze in credit adversely affecting existing sales, or anything that’s in the pipeline.

The company projects that it will finish out FY 2007 with currency-adjusted operating revenue increasing between 30% to 35%, while new license sales are expected to jump 45% to 50%. Earnings per share are expected to finish out the year between 3.10 – 3.25 euros.

CEO Karl-Heinz Streibich also affirmed that Software AG would continue its acquisition strategy. The software business is concentrating like hell. Being in the acquisition game is an absolute imperative for software vendors, he said.

But Streibich admitted that Software AG acquisition targets in the future are not likely to be such game-changers on the scale of webMethods. The webMethods acquisition was outstanding, from the size and potential…I cannot say we will never make a similar acquisition, but this was an absolute exception.

Of course, making acquisitions might boost revenues, but of course, it tends to dent cash reserves. However, while Software AG paid over $500m for webMethods, its cash balance has only declined roughly 95 million wuros since a year ago.

Our View

Clearly the Q3 results have vindicated Software AG’s decision to buy webMethods. It revealed that webMethods had desirable technology, but needed stronger corporate heft to convince prospects that the company would remain viable. The deal was also vindicated in a negative light: that Software AG’s legacy business is continuing to weaken, making the sale all that much more vital to the company’s continued growth.

Consequently, while Streibich boasted that the webMethods acquisition has proceeded according to plan, the company needs to devote renewed attention to revitalizing its legacy business. It’s like a tango, where you have to occasional redirect, he said, predicting that the legacy business should start seeing improvement in Q1 as the company develops more attractive maintenance pricing strategies.