Q1 recap/Q2 preview: What we’ll be looking for
As we prepare ourselves for the onslaught of Q2 earnings reports, it’s helpful to look back at Q1 to see patterns that (perhaps) foreshadow future results and identify areas that were causes for concern last quarter.
To help with this analysis, we’ve created a composite view of the results of ANSYS, Autodesk, Cimatron, Dassault Systèmes (DS), ESI Group, Nemetschek and PTC to act as a proxy for engineering software companies as a whole. Why these 7? They report results every quarter, so are better barometers than companies that report every half year, like AVEVA and Delcam. They are software companies, unlike 3D Systems, Hexagon and Trimble, whose results may be affected by their hardware and hardware-related services businesses or MuM and CENIT who resell other’s products in addition to selling their own. Too, they focus on the needs of the engineering/design/analysis community — unlike SAP, for example — so their results represent that market well without having to subtract out a lot of extraneous business lines. Finally, they report using generally the same definitions for software, maintenance and services — very important if we want to draw conclusions from our comparisons.
How did this composite group do in the first quarter of 2012? So glad you asked:
- The group had total revenue of over $1.7 billion in Q1, up nearly 13% over last year’s March quarter. Q1 2012 followed the typical seasonal pattern, with a sequential decline from a big December quarter, when many customers renew maintenance and flush their budgets and vendors run special promotions.
- Some of the growth in Q1 was driven by acquisitions but that was a relatively small amount when considering aggregate revenue. The impact on individual companies is another story, however.
- License revenue was up almost 13% to $740 million while maintenance revenue was $865 million, up 11%. (The remaining $145 million is services, custom software development and “Other” as defined by each company.) Maintenance typically grows more slowly than new license revenue since many of these vendors still sell a significant amount of up-front/paid-up licenses at higher dollar amounts that maintenance, but we’ll need to keep an eye on the relative growth of the two categories.
- By geo, Europe remains the most significant market for these companies, with revenue of $675 million, up 7%. Asia, however, grew most rapidly, up 18%, to $465 million. The Americas performed better than most expected, with revenue of over $550 million, up 16% over the first calendar quarter of 2011. [Yes, each company defines its geos slightly differently; this is simply taking each company's as reported, without trying to correct for where the Middle East or Australia might fit in.]
That does this mean for the individual companies in the sample?
- ESI was the overall growth standout, with revenue up 22% as reported, and up 17% excluding acquisitions. Revenue from the Americas lagged a bit, with the company saying that it saw some contracts postponed but “keeps confidence in our development in Americas.” We’ll be looking for continuing momentum and performance in the Americas in Q2.
- ANSYS was right behind, with GAAP revenue up 17%. Excluding Apache, however, total revenue was up 9% — generally very respectable, but showing a slowdown in the “core ANSYS” brands of ANSYS, Fluent and Ansoft. The rest of the company’s organic picture also shows slowing momentum, as total organic revenue software revenue was up just 4%, while paid-up license revenue was essentially flat with last year. A bright spot, however, was organic maintenance revenue, which was up 14%. In Q2’s results, then, we’ll be looking for organic growth metrics across products and geographies.
- PTC and Dassault Systemes each grew revenue around 12% to 12.5%, although PTC had help from its MKS and 4CS acquisitions. On an organic basis, PTC’s revenue was up just 3%, as the company lost out on one major European deal and a number of smaller deals in Europe and the Americas. For PTC, the second calendar quarter was all about execution, scrubbing the sales forecasts and working on closing deals. DS had a far better FQ1, with its only weak spot being sales in Europe, so from DS we’ll want to hear about that — and about its plans for SolidWorks, too.
- Autodesk’s first quarter was truly mixed: On the plus side, total revenue was up 11%, revenue from Asia hit a record, and revenue from the the Americas was up 15%. But that is balanced by only 4% growth from EMEA and poor performance by the Media and Entertainment division and in a few countries. From Autodesk, we’ll be looking for information on its geos and especially the emerging economies.
- Nemetschek saw revenue up a healthy 8% while Cimatron reported 11% growth. Both are very much niche players, serving AEC and CAM, respectively, and could be early warning indicators of movement among the larger players.
Look for updates as we roll into earnings season. The calendar so far has a few companies reporting next week, then a deluge the week of July 23, with PTC and DS reporting on July 25 and 26.
Is this useful? What other macro metrics would you be interested in seeing? Email or leave a comment below!