Software AG (XTER:SOW, Financial) (Germany), a software and services technology company, was a top detractor to the Fund for both the quarter and one-year period. The company’s second-quarter results indicated that bookings for the company’s growth business, Digital Business Platform, grew more slowly than had been anticipated as enterprise software decision timelines elongated. As a result, management downgraded bookings growth in this segment from 15%-25% to 12%-18%. We spoke with CFO Matthias Heiden after the release and while market factors moved against them, he also made it clear that sales execution could have been better. A number of internal changes, including the creation of a COO role as well as hiring a new chief revenue officer, Joshua Husk, should help to improve here. Encouragingly, management does not see any signs of slippage in the renewal pipeline nor the increase in gross churn. Despite the bookings guidance reduction, revenue and margin guidance for 2022 was maintained and the company also reiterated its 2023 medium-term guidance. We think that Software AG continues to possess strong products that it should be able to increasingly monetize in the coming years. Given this, along with a very appealing valuation, we believe Software AG remains an attractive investment. We added to our position during the quarter.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund third-quarter 2022 commentary.
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