USU Software : 3-Month Financial Report 2024

3-Month Financial

- Report/Report on the First Quarter of 2024

USU Software AG

USU AT A GLANCE

3-Month Report 2024	2023	2023
in EUR thousand, except earnings per share and
Jan. 1-Mar. 31, 2023	Jan. 1-Mar. 31, 2023
number of employees
SALES	35,420	33,307
Adjusted EBITDA	4,607	3,820
EBITDA	4,607	3,820
EBIT	3,429	2,658
CONSOLIDATED NET PROFIT	2,458	1,732
EARNINGS PER SHARE (EUR)	0.24	0.17
CASH FLOW FROM OPERATING
ACTIVITIES	11,635	3,925
NUMBER OF EMPLOYEES AS AT MAR. 31	806	797
	Mar. 31, 2024	Dec. 31, 2023
CASH AND CASH EQUIVALENTS	23,962	13,494
SHAREHOLDERS EQUITY	59,581	57,215
TOTAL ASSETS	123,306	108,063
EQUITY RATIO	48.3%	53.0%

USU Software AG
Spitalhof	Investor Relations
D-71696 Möglingen	Falk Sorge & Dr. Thomas Gerick
Phone [phone]	Phone [phone]/440
Fax [phone]	Fax [phone]
www.usu.com	[e-mail]

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LETTER TO SHAREHOLDERS

Dear Shareholders and Readers,

Thanks to several major orders and a new record order backlog of almost EUR 97 million, USU was once again able to report a positive 1st quarter of 2024. This welcome business development was driven in particular by the license business, which increased significantly from EUR 1.3 million to EUR 4.5 million compared to the same period of the previous year. At the same time, we were also able to increase SaaS sales, i.e. business with rental software, to EUR 4.4 million. Accordingly, USU increased its adjusted EBITDA from EUR 3.8 million to EUR 4.6 million. The balance sheet ratios also remain solid. USU has extensive liquidity of almost EUR 24 million with no bank liabilities and a high equity ratio at the same time.

The company continues to benefit from the trend towards digitalization and the ongoing strong demand for solutions that automate IT and service management processes and thus increase quality and productivity - especially in the public sector. On the customer side, the use of AI is also being evaluated in specific use cases. With our knowledge management solutions, we also believe we are very well positioned in this exciting future-oriented field. Despite the challenging overall economic and political environment, we are therefore optimistic that we will achieve our growth targets for the current fiscal year.

As announced in the ad hoc announcement of 12 March 2024, USU Software AG plans to delist its shares. To this end, the company has entered into an agreement with AUSUM GmbH and its subsidiary NUNUS GmbH under which NUNUS GmbH will submit a public delisting takeover offer to USU shareholders, which was made on 16 May 2024. Accordingly, the offer price set by NUNUS GmbH amounts to EUR 18.50 per share in USU and corresponds to a premium of EUR 1.74 or 10.4% on the minimum price to be paid in accordance with the statutory provisions. The acceptance period ends on 13 June 2024 at 24:00 (CEST), subject to the additional acceptance period. At the same time, the company is looking for a strategic partner for the product business. This supports USU's strategy of significantly expanding its product business and financing it through strategic partnerships.

The management board and supervisory board consider delisting to be advantageous, as the costs of being listed on the stock exchange are no longer justified due to increasing regulation. The revocation of the listing is still being decided by the Frankfurt Stock Exchange. Following approval, USU will no longer be traded on regulated or comparable markets.

Yours,

Bernhard Oberschmidt,

CEO of USU Software AG

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INTERIM GROUP MANAGEMENT REPORT FOR

THE FIRST QUARTER OF 2023 (UNAUDITED)

Basic information on USU Software AG and the Group

As the parent company of the Group, USU Software AG, Möglingen, Germany, has direct or indirect holdings in the following operational companies: USU GmbH, Möglingen, Germany; USU Software s.r.o., Brno, Czech Republic; USU Austria GmbH, Vienna, Austria; Omega Software GmbH, Obersulm, Germany; USU Solutions Inc., Boston, USA; USU SAS, Paris, France and USU GK, Tokyo, Japan. In addition, USU Software AG has a shareholding in Openshop Internet Software GmbH, Möglingen, Germany, which is no longer operational.

Business model, objectives, strategies and controlling system

As a leading provider of software and service solutions for IT and customer service management, USU Software AG and its subsidiaries (hereinafter also referred to as the "USU Group" or "USU") set standards for better service quality. USU enables companies to respond to changed customer and employee needs in a digital world. Well-known companies use USU solutions to create transparency, become more agile, cut costs, and reduce their risk - by means of smarter services, simpler workflows, and better collaboration.

In addition to software asset management, IT service management, and IT service monitoring, the USU solution portfolio also covers the areas of knowledge management, self-service management, digital service solutions, and AI services.

More than 1,200 USU customers from all sectors of the global economy benefit from USU solutions. They include Allianz, Atruvia, Bechtle, BITBW, BMW, Deutsche Bahn, Deutsche Telekom, Swiss Post, Jungheinrich, LinkedIn, Novartis, Otto, VW, and W&W.

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USU Software AG has made it its goal to achieve growth in consolidated sales above the average level for the IT market as a whole in the years ahead while also further increasing its profitability. It will focus on organic growth through innovation and by expanding the Group's international market presence, though growth through acquisitions and equity investments is also a part of the corporate strategy.

The key performance indicators for USU Software AG and the Group are sales and Adjusted EBITDA. Due to the higher share of extraordinary one-time special items, USU has reported "adjusted EBITDA" since 2023. This figure is adjusted for extraordinary effects arising from share-based compensation, restructuring, or acquisitions.

The guidance for 2024 and the medium-term planning are thus based on adjusted EBITDA. Accordingly, adjusted consolidated EBITDA serves as a key planning and control parameter for USU Software AG and the Group alongside consolidated sales. According to the current guidance, the Management Board expects sales growth to between EUR 143 million and EUR 146 million and adjusted EBITDA of between EUR 14 million and EUR 16 million in fiscal 2024 thanks to the targeted further expansion of SaaS business.

Thanks to the success of the SaaS transformation, the associated high level of orders on hand and the consistently strong consulting business, the Management Board is confirming the current medium-term planning, which includes average organic sales growth of 10% in the next few years and, in view of the continued growth in SaaS business, an increase in the adjusted EBITDA margin to between 17% and 19% by 2026.

Research and development

USU attaches great importance to innovation and investment in research & development (R&D) in order to maintain its position in a rapidly changing market. Through regular updates and new software products, the company responds to customer needs, increases satisfaction and opens up new markets. USU is making above-average investments in cloud and AI technologies in particular in order to expand its portfolio and develop attractive solutions.

In the 1st quarter of 2023, USU invested a total of EUR 5,372 thousand (Q1 2023: EUR 5,175

thousand) and 15.2% (Q1 2023: 15.5%) of consolidated sales in research & development (R&D). The total number of employees in this area as at March 31, 2024 was 275 (March 31, 2023: 266). The USU Group's R&D expenses do not typically meet the criteria for recognition and hence are not capitalized.

The USU-wide R&D strategy focuses on gradually building a comprehensive SaaS-based platform that will integrate the entire portfolio for IT asset management, service management and IT operations management over the next few years. The first solutions will be available as modular apps by the end of 2024. At the same time, the existing portfolio of the individual divisions is being continuously developed and supplemented with innovations.

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The R&D team of the USU Service Management business division completed a new version in the 1st quarter. In addition to the new user interface and dashboards for the Technology Business Management (TBM) service model, AI support has also been further expanded through integration with change management.

A new release was also published in the IT Monitoring business division during the reporting period. In addition to performance benefits, the most notable enhancements are in the area of "Smart Baselining", an AI-supported dynamic calculation of threshold values, as well as improvements to the Service Level Monitoring module.

The current R&D activities in the area of USU Software Asset Management (SAM) focus primarily on the integration of the SaaS management solution into the new USU platform. The system was integrated into the platform's new user management, for example, and tests were carried out for harmonized user interface. In addition to functional additions to the other SAM solutions, these were also prepared for integration.

The focus of development for USU Knowledge Management in the first few months of 2024 was on the integration of GenAI components. To this end, several proof of concepts were carried out to gain practical experience with the technology. The aim is to fully implement these GenAI functions in the new version by October 2024. In the self-service area (chatbot and HelpCenter), the focus was on increasingly better integration into customer portals.

The R&D team of the USU AI Services develops new AI-based technology modules for the existing USU portfolio. For service management, the new Incident Summary module has been released, which summarizes the current status of an incident with the help of language models such as ChatGPT. Furthermore, a prototype was created for the area of software asset management, which summarizes and compares various EULAs (End User License Agreements). Differences and similarities between the documents are analyzed.

Two research projects are currently active: AutoQML and KISS. The AutoQML project is working on the development of Automated Machine Learning and the USU AI Wizard, a tool for the automated creation of data-driven services. Practical tests for AI applications in transportation and logistics are to be carried out at project partner KEB in the coming months. In the KISS research project, work is continuing on chatbot solutions to make critical infrastructures more resilient in crisis situations, with a focus on generative AI in the area of self-service.

Economic report

Overall economic development

According to an initial flash report from the German Federal Statistical Office

("Destatis")1 dated April 30, 2024, gross domestic product (GDP) in the 1st quarter of 2024

1 Cf. Destatis press release dated April 30, 2024, published at https://www.destatis.de6

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compared to the 4th quarter of 2023 - adjusted for price, seasonal and calendar effects - increased by 0.2% after falling at the end of the year 2023 (revised -0.5% in the 4th quarter of 2023 compared to the previous quarter; previously: -0.3%). According to Destatis, the slight growth was driven by increases in construction investment and exports. Private consumer spending, on the other hand, declined. Compared to the previous year, GDP in the 1st quarter of 2024 price-adjusted was 0.9% lower than in the 1st quarter of 2023. Adjusted for price and calendar effects, the decline was lower at -0.2%, as there were 1.6 fewer working days available than in the same period of the previous year.

According to a preliminary flash estimate by the statistical office of the European Union (Eurostat) 2, GDP in the Eurozone grew by 0.3% in the 1st quarter of 2024 compared to the previous quarter, after it fell in the 4th quarter of 2022 by 0.1% compared to the previous quarter. Compared to the same quarter of the previous year, seasonally adjusted GDP in the Eurozone rose by 0.4% in the 1st quarter of 2024.

Sector development

According to studies by the digital industry association Bitkom, the digital sector3 was in good shape at the end of the 1st quarter of 2024 again. At 15.5 points, the figure for the assessment of the current business situation of IT and telecommunications companies was 1.2 points above the February figure. This is the first month-on-month increase since July 2023. Business expectations for the rest of the year have improved even more significantly compared to February, from -10.2 to -2.2 points. This is shown by the current Bitkom-ifo digital index. The index reflects the current business situation and business expectations for the next three months and uses this to calculate the business climate. Compared to February, this improved by 1.6 points to 6.4 points (February 2024: 4.8 points).

"Despite the ongoing tense global situation and the overall economic slowdown, the Bitkom sector is developing steady. Companies in the digital sector are holding their own in a challenging environment and are proving to be a pillar of the German economy," says Bitkom President Dr Ralf Wintergerst.

Development of sales and costs

Consolidated sales

USU Software AG, together with its subsidiaries (hereinafter also referred to as the "USU Group" or "USU"), continued its positive growth trend in the 1st quarter of 2024 and increased consolidated sales by 6.3% year-on-year to EUR 35,420 thousand (Q1 2023: EUR 33,307

1. Cf. Eurostat press release dated April 30, 2024, published athttp://ec.europa.eu/eurostat
2. Cf. Bitkom press release dated April 5, 2023, published atwww.bitkom.org

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thousand). This increase in turnover is mainly the result of major domestic orders from the public sector and several small to medium-sized orders from the private sector, which also led to a new record order backlog. As USU primarily obtained orders from the German domestic market, domestic business in the reporting quarter increased by 9.6% to EUR 28,746 thousand (Q1 2023: EUR 26,234 thousand), while international sales outside Germany fell by 5.6% to EUR 6,674 thousand (Q1 2023: EUR 7,073 thousand) compared with the same quarter of the previous year which was relatively strong. Accordingly, at 18.8% (Q1 2023: 21.1%), the share of international business in USU's consolidated sales in the 1st quarter of 2024 fell short of the previous year's figure.

Broken down by types of sales, USU increased year-on-year license sales in particular, more than tripling them in the 1st quarter of 2024 to EUR 4,494 thousand (Q1 2023: EUR 1,298 thousand) thanks to several on-premise orders compared with the same quarter of the previous year which was weaker. Thanks to new SaaS agreements and the existing SaaS order backlog, USU also increased SaaS revenues year-on-year by an above-average amount of 10.4% to EUR 4,420 thousand (Q1 2023: EUR 4,003 thousand). As a result of the positive license agreements, the USU Group's maintenance income also increased in the reporting quarter by 2.8% to EUR 6,525 thousand compared to the previous year (Q1/2023: EUR 6,345 thousand). Accordingly, USU increased recurring revenue (recurring sales revenue = maintenance revenue plus SaaS revenue) in the Q1 2024 reporting quarter by 5.8% to EUR 10,945 thousand (Q1 2023: EUR 10,348 thousand) compared to the previous year. Following record sales in the consulting business in the previous quarters, consulting sales in the reporting quarter were 7.4% lower than in the same quarter of the previous year at EUR 19,895 thousand (Q1 2023: EUR 21,485 thousand), partly due to the fewer working days available compared to the previous year. Other income, which mainly comprises merchandise sales with hardware and software purchased from third parties, amounted to a total of EUR 86 thousand (Q1 2023: EUR 176 thousand).

Sales by segment

The product range of the Product Business segment includes all activities relating to USU's product portfolio in the market for IT management solutions, the knowledge management market and USU AI Services, the division for big data analytics that emerged from the research department. The Service Business segment comprises consulting services for IT projects, individual application development and digital strategy consulting, service and UX design and web portals, apps and intranets.

The Product Business segment increased in the 1st quarter of 2024 in particular, thanks to higher license and SaaS revenues of segment sales by 8.5% year-on-year to EUR 24,598 thousand (Q1 2023: EUR 22,662 thousand), while USU increased consulting-related sales in the Service Business segment by 1.7% year-on-year to EUR 10,822 thousand (Q1 2023: EUR

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INTERIM GROUP MANAGEMENT REPORT FOR

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10,645 thousand), despite the fewer working days available compared with the previous year. The USU service segment continued to benefit from the demand trend for digitalization solutions.

Operating costs

The USU Group's operating expense base increased year-on-year in the 1st quarter of the current fiscal year 2024 by 3.3% to EUR 32,072 thousand (Q1 2023: EUR 31,056 thousand). This increase mainly reflects the expansion of the personnel and the associated cost increases as well as the inflation-related increase in staff salaries.

The increase in the cost of sales by 8.4% to EUR 18,635 thousand (Q1 2023: EUR 17,194 thousand) is in particular, due to higher personnel expenses as a result of the expansion of the team of salaried consultants from 321 employees in the previous year to 326 employees and the inflation-related increase in salaries for the team of consultants. The cost of sales ratio in relation to Group sales rose slightly from 51.6% in the same quarter of the previous year to 52.6%. At the same time, gross profit increased from EUR 16,113 thousand in the 1st quarter of 2023 to EUR 16,785 thousand in the 1st quarter of 2024, which corresponds to an increase of 4.2%. Accordingly, the gross margin in the Q1 2024 reporting quarter amounted to 47.4% (Q1 2023: 48.4%).

Marketing and sales expenses fell in the reporting period by 8.8% to EUR 5,291 thousand (Q1 2023: EUR 5,803 thousand) compared to the previous year. This decline mainly reflects reduced non-staff operating costs as a result of the cost-cutting measures introduced. As USU increased sales at the same time, the sales-related cost ratio for marketing and sales at 17.4% fell to 14.9% in the 1st quarter of 2023.

As a result of reduced non-staff operating costs, general administrativeexpenses also fell by 3.8% year-on-year from EUR 2,884 thousand in the 1st quarter of 2023 to EUR 2,775 thousand in the Q1 2024 reporting quarter. In relation to Group sales, the administrative cost ratio fell to 7.8% (Q1 2023: 8.7%) as a result of the increase in sales recorded at the same time.

The research and development expenses rose by a total of 3.8% year-on-year to EUR 5,372 thousand (Q1 2023: EUR 5,175 thousand) in the reporting quarter due to inflation-related salary increases and the expansion of the development team to 275 (Q1 2023: 266) employees to drive forward the development of a central Group product platform and the associated increase in personnel costs. However, the ratio of research and development expenses to consolidated sales fell from 15.5% in the same quarter of the previous year to 15.2% in the 1st quarter of 2024 as a result of the disproportionately high increase in sales. USU is constantly investing in new products and further developed products of its product portfolio and always working on innovative, market-driven software solutions. In the medium term, USU plans to increase R&D expenses in absolute terms, but to reduce the expense ratio in relative terms as a result of the disproportionate increase in revenue.

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INTERIM GROUP MANAGEMENT REPORT FOR

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Net other operating income and expenses totaled EUR 81 thousand in the 1st quarter of 2024 (Q1 2023: EUR 407 thousand).

Results of operations

Thanks to the significant expansion of high-margin license and SaaSrevenues, the USU Group increased its adjusted EBITDA by 20.6% year-on-year to EUR 4,607 thousand in the reporting quarter (Q1 2023: EUR 3,820 thousand). As USU increased adjusted EBITDA disproportionately compared to sales in the 1st quarter of 2024 the adjusted EBITDA margin rose accordingly to 13.0% (Q1 2023: 11.5%) in the reporting period. As there were no extraordinary effects or adjustments in the 1st quarter of 2024, EBITDA in the 1st quarter of 2024 corresponded to adjusted EBITDA and therefore amounted to EUR 4,607 thousand (Q1 2023: EUR 3,820 thousand). Including write-offs totaling EUR 1,178 thousand (Q1 2023: EUR 1,162 thousand), in the 1st quarter of 2024 USU reached EBIT of EUR 3,429 thousand (Q1 2023: EUR 2,658 thousand). This corresponds to a year-on-year increase in EBIT by 29.0%. Due to the return to a positive interest rate environment, USU generated positive interest income in the reporting quarter, while at the same time exchange rate-related expenses from currency differences on financial instruments were eliminated. Accordingly, the financial result in the 1st quarter of 2024 amounted to EUR 77 thousand (Q1 2023: EUR -277 thousand). Taxes on income and profit increased from EUR 649 thousand in the 1st quarter of 2023 to EUR 1,048 thousand in the Q1 2024 reporting quarter as a result of the increase in profits. In total, USU's consolidated profit or loss increased by 41.9% year-on-year to EUR 2,458 thousand in the 1st quarter of 2024 (Q1 2023: EUR 1,732 thousand). With an average number of 10,523,770 shares in circulation (Q1 2023: 10,523,770), this corresponds to diluted earnings per share of EUR 0.23 (Q1 2023: EUR 0.17), while basic earnings per share amounted to EUR

0.24 (Q1 2022: EUR 0.17) with an average number of 10,036,484 shares in circulation (Q1 2023: 10,000,000).

Net assets and financial position

On the assets side of statement of financial position, the USU Group's non-current assets at EUR 61,627 thousand as of March 31, 2024 were slightly below the level as of the balance sheet date of December 31, 2023 (December 31, 2023: EUR 62,796 thousand), while the current assets increased significantly in the same period from EUR 45,267 thousand as of December 31, 2023 to EUR 61,679 thousand. This increase is primarily the result of higher contract assets, which increased due as of the reporting date to EUR 7,447 thousand as at the end of the 1st quarter of 2024 (December 31, 2023: EUR 3,208 thousand), the increase in trade receivables from EUR 24,379 thousand as at December 31, 2023 to EUR 25,452 thousand and the simultaneous significant increase in Group liquidity, which amounted to EUR 23,962 thousand as at March 31, 2024 (December 31, 2023: EUR 13,494 thousand).

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