Exa’s Q1 shows some customers, at least, favoring cloud
Earnings keep coming and the news is increasingly positive — in our PLMish world, at least, customers are buying and using technology to continue to innovate. One recent announcement comes from Exa, the CFD maker. Exa reported that first quarter fiscal 2017, which ended April 30, 2016, revenue was $16.8 million, up 14% as reported and up 13% in constant currencies (cc) — at the high end of the company’s range for the quarter.
CEO Steve Remondi says that Exa’s growth in Q1 was largely due to the strength of the Asian and North American passenger car markets, and to a stabilizing of passenger car market in Europe. It’s interesting that we haven’t heard similar sentiment from other PLMish companies; perhaps their more diverse customer base hides such details, or perhaps we can use Exa as a predictor for future performance — after all, digital wind tunnel studies may be performed before the heavier CAD and PLM usage come into play in a car program.
- License revenue was $14.1 million, up 15% (up 14% cc)
- Project revenue was $2.7 million, up 8% (up 6% cc)
- During the earnings call, Mr. Remondi said that 42% of Q1 revenue was from Europe, with 25% from the Americas and 33% from Asia, which is up from 28% a year ago. Looking at the 10-Q filing with the SEC, revenue from the US was $4.3 million, up 12%; revenue from Japan was $3.4 million, up 46% and revenue from Germany was $2.5 million, up 16%. Other countries reported spottier results but are smaller components of the overall picture
- Exa continues to report bottom-line losses, with a non-GAAP net loss for the first quarter of $0.6 million, compared to a loss of $1.4 million in the same period a year ago. Exa does continue to build its balance sheet, reporting $39.2 million in cash and cash equivalents, an increase of $11.5 million from $27.6 million at the end of the fourth quarter of FY ’16.
The big topic in the earnings release and on the conference call was THE CLOUD. Exa has traditionally used project work to introduce clients to Exa’s products and capabilities, with the goal of turning projects into license sales. This time, Mr. Remondi said that that many customers are converting from projects to ExaCLOUD licenses. ExaCLOUD is Exa’s on-demand cloud offering, giving customers access to Exa apps via IBM’s HPC capabilities. Mr. Remondi said that all project activity today uses ExaCLOUD, and that this leads customers to opt for the cloud, rather than desktop HPC, when they become self-sufficient with the apps. And, says Mr. Remondi, ” Once you are on cloud, you stay on cloud.”
That’s an interesting approach — it lets customers get comfortable with the concept of cloud while building their expertise in Exa’s solutions. It also mitigates one barrier to adoption in CFD: the expensive compute capability often needed to run complex simulations in a reasonable timeframe.
One proof point: Why were sales in Japan so strong? Mr. Remondi said that the March fiscal year-end there led to a budget flush (but that happens every year, so isn’t really an indicator yer/year growth). He said that Japanese customers are particularly embracing the cloud offerings; this helps Exa more rapidly penetrate he heavy vehicle and off highway markets in Japan.
A reasonable question, then, is whether cloud sales will cannibalize desktop sales and if that could cause revenue to decline. Mr. Remondi said, “Absolutely not because both are priced the same way, both are structured the same way, both are consumption-based models. Customers have no excess capacity that could expire, so there’s no shelf ware. So even if customers convert it’s on a one-to-one basis … As a matter of fact, customers can be constrained by their existing hardware infrastructure, and it takes some of them longer to make the decision to buy more capacity. And on the cloud, there is no decision, you just use more capacity. So that helps them to move a bit quicker.” Mr. Remondi did say that there’s a slightly higher revenue contribution for cloud usage, since the buyer pays a bit extra for “hardware, storage, access, [and a] security layer” but that Exa tries to pass that on to the customer at a near-cost basis.
One important point: not all customers want to or are able to use the cloud, whether Exa’s or another. Many have significant investments in on-premise computing hardware and will continue to use that until it is fully depreciated and/or incapable of meeting the internal needs of the user community. Many of Exa’s customers are the biggest of the big auto OEMs; their on-premise licenses and usage will continue to skew Exa’s revenue to on-premise rather than cloud. New customers, new users within existing customers — those are the best candidates for cloud apps.
Exa issued guidance for Q2 and the rest of fiscal 2017: for the quarter ending in August, Exa said it expects revenue of $17 million to $17.6 million and for the full year, revenue in the range of $73.4 million to $75.8 million.