This earnings season has been incredibly busy and I have fallen far, far behind in summarizing the highlights. To try to catch up a bit, I’ll be grouping these companies by general product category for you, since that’s so much more useful than chronologically by reporting date.
The PLMish vendors that supply customers in the Architecture, Engineering and Construction world tend to be affected by the economy and government policies in a confusing welter. Housing starts stall when consumers aren’t confident but then, governments build roads and other infrastructure to boost the economy and keep goods and people moving. Up and down at the same time. The four companies below showcase how industry, geographic and government exposure can affect revenue.
AspenTech Returns to Real Growth
Total revenue for the March quarter (the company’s fiscal third) was $79 million, up 29% year/year (y/y) and nicely ahead of guidance of $71 million to $74 million because of better than expected services revenue and advantageous timing for collecting customer payments. Subscription and software revenue was $61 million, up 44% y/y and services and other revenue was $19 million, down 2%. Recall that AspenTech is in the process of transitioning its customers from a traditional up-front license/maintenance payment mode to a subscription model. Given that, in FQ3, perpetual license revenue was only $225,000, that transition may be nearing an end.
To to help gauge progress in this transition, the company came up with what it calls “Term Contract Value” (or TCV), the renewal value of its multi-year subscription contracts. You can compare it to the value of an initial license plus some number of years of maintenance; basically, the total amount a customer will pay over several years, turned into today’s dollars. On that basis, AspenTech says that the license portion of TCV was $1.58 billion at the end of the quarter, up 13% y/y. Since maintenance is generally bundled into the transaction, it can be included in TCV; on that basis, total TCV was $1.83 billion at the end of the third quarter, up 15% y/y.
It’s hard to tell how good that 15% growth is, since the quarter’s new sales were added in even as this quarter’s recognized revenue was removed. I’m looking more at the recognized, GAAP-basis revenue growth of 29%. Presumably, once the vast majority of customers are on the subscription scheme, AspenTech will turn investors’ focus to the GAAP data, since it’s actually really good.
AspenTech reports not seeing any real change in customer buying patterns on a global basis. Energy, chemicals and engineering and construction represented over 90% of revenue. The company doesn’t give much color about its geographies, but CEO Mark Fusco did say that he has not seen problems in Europe which has “had a pretty good year so far. Given their pipeline for the fourth quarter, they’ll finish strongly. Overall, we really haven’t seen a degrading of demand or degrading of the pipeline.”
The company said that events in Venezuela delayed large renewals with 2 government-owned oil and chemical customers. Apparently, the customers owed money on previous contracts, which meant that new renewals couldn’t happen — but these are long-term AspenTech customers, they paid up after the quarter ended and everyone expects the renewal to happen soon. We’ve heard a lot about Brazil; this was the first mention I noticed of Venezuela.
Given how well the first three quarters have gone AspenTech raised its fiscal 2013 revenue guidance to $305 million to $308 million, above prior guidance of $295 million to $302 million.
Finally, AspenTech announced that CEO Mark Fusco would be retiring later this year, turning over the reins to Antonio Pietri, former Executive Vice President of Worldwide Field Operations at AspenTech.
Hexagon’s Profit Up Sharply, Revenue Not So Much
Hexagon is a more complex company that AspenTech and is affected by a broader set of end-industry issues. March quarter (its Q1) revenue was €586 million, up 4% y/y. The main headline for Hexagon was that its profitability improved, as net profit rose 17% y/y to €90 million.
The company, which markets a diverse offering including Leica Geosystems scanners and software, and Intergraph’s plant design software and GIS solutions, said that the majority of growth in Q1 came from emerging markets and that markets outside Western Europe and NAFTA now account for more than 40% of sales.
By geography, customer interest in the engineering solutions improved in Europe in Q1 and a large order in Africa lifted the region to 5% growth y/y to €250 million. A recovery in the US construction sector plus strong demand in South America boosted demand in the Americas, but the sequestration and general uncertainty slowed sales to the US defense market, netting out to no growth for the quarter with revenue of €184 million. China continues to fuel growth in Asia, reporting double digit organic growth in the quarter. On the minus side, weak demand from Australia’s mining sector led to total revenue of €153.2 million and 6% growth overall in Asia.
To help investors visualize all of this, Hexagon used this graphic to explain why each region’s revenue grew (or not):
This is a walk down or waterfall chart that’s typically used to show how revenue is affected by things like actual sales, acquisitions and currency changes. This detail is a great idea, and really helps drive home the diverse factors that affect Hexagon. (Click on the image for a larger view. Source.)
The technology business, which includes Intergraph, reported revenue of €198 million for Q1, up 3% as reported and up 4% in constant currencies.
Hexagon doesn’t release specific data by brand, but did say that Intergraph PP&M saw “record quarterly sales and profitability” and that Integraph SG&I continues to struggle, as profit improved in Q1 2013 but “sales contracted due to the diminishing US defense business”.
Hexagon doesn’t offer guidance, but analysts expect revenue of €640 million for Q2 and €2.572 billion for the year.
Nemetschek Sees 2013 as “Quite Positive”
“Indicators for 2013 are in line with expectations, which are quite positive.” – Nemetschek CEO Tanja Tamara Dreilich
Nemetschek reported “a solid start to the new year” as revenues was up 5% to €44 million on good growth driver in its core markets in Europe and in the US. Growth in maintenance revenue led the way, up 9% to €21 million; license revenue was €21 million, up 2%. More impressive to investors was the tight cost control, which led to increased earnings before interest, taxes, depreciation and amortization (EBITDA) — up 15% to €11 million.
By division, Design reported moderate growth in Q1, with revenue up 3% to €35 million. Build, much smaller at €4 million, was up 14%; Manage was up 1% to €1 million. Multimedia was up 15% to €7 million, in part due to a new agreement signed with Adobe.
Based on the expectation that construction in Germany is expected to be up about 2%; in the US, up about 8% and China, up 7%, Nemetschek now see revenue up 6% to 9% in 2013 to about €190 million.
Trimble’s Q1 Short of Expectations
Trimble’s news for Q1 was definitely mixed: revenue of $556 million was up 11% y/y but fell far short of expectations, as the US sequestration budget cuts, harsh weather in Europe and North America that delayed both the agricultural and construction seasons, and worsening economic conditions in Australia dragged down growth.
As consumers and taxpayers, we may that all this sequestration stuff is just political talk. Trimble tried to figure out its actual impact, and thinks that sales to the government (usually $50 million/year) plus the direct and indirect funding for its customers who provide goods and services to all levels of government led to a significant stall in its progress. As just one example, revenue from the Field Solutions business was up 30% year/year outside North America, but declined in North America. (And that’s taking into account the slow start to the construction and planting period in Europe.)
Taking a broader view, revenue from the Engineering & Construction business was $267 million, down 1% sequentially but up 7% y/y. Strong sales of building and construction products globally, and heavy, highway products in US were offset by softer sales in Europe and Australia. The survey instruments business was negatively affected by the weather and economic concerns in Europe, political issues in China and a mining recession in Australia, and by sequestration in the US.
The Field Solutions business reported revenue of $148 million, up 36% sequentially but flat y/y as moderate growth in agricultural products sales was offset by a decline in the sale of GIS products. Mobile Solutions revenue was $110 million, up 41% y/y due to organic growth and acquisitions. Advanced Devices revenue was $32 million, up 15% y/y.
By region, revenue from North America (the company’s largest region) was up 15%; up 2% in Asia; up 10% in Europe and up 3% the rest of the world.
While CEO Steven Berglund doesn’t think that market fundamentals have changed, he did show short-term caution, saying that “the uncertainties we encountered in the first quarter have led us to a conservative perspective.” The company now expects revenue between $570 million and $580 million for Q2.
Mr. Berglund believes that sequestration will not go away any time soon. As a result, “GIS will struggle throughout the entire year” while “survey may have some recovery in international markets”. On the plus side, he sees a strong comeback in the agriculture- and construction-related parts of the business as the weather improves and as momentum continues to build in building construction. “We think that in the back half, we can compensate for any lingering sequester effects.”
In a post-earnings release note, Google last month released SketchUp 2013, the first update of since it acquired SketchUp from Google a year ago. Trimble bills SketchUp 2013 as “the antidote to complicated, expensive CAD software”. Check out the update here. http://www.sketchup.com/
Trimble is both alphabetically last and emblematic of what AEC companies, in general, are reporting now: the construction market is improving on a region-by-region basis and other businesses areas are seeing and dealing with their own challenges. Government-related parts of the business are struggling in the US but may be doing well elsewhere. Some industries are booming (like oil and gas) while others … not so much.
Tomorrow we’ll dive into more detail on AVEVA, which is very focused on the process, plant and marine worlds.