10 things: PLMish earnings show confidence and growth
- PLMish: Dassault Systèmes, MuM for the VAR perspective, PTC, SAP, Siemens
- AECish: Aspen Tech, Autodesk, AVEVA, Hexagon, Nemetschek, RIB, Schneider Electric’s software business and Trimble, and
- CAEish: Altair, ANSYS and ESI with commentary about the others where it relates to CAE.
This isn’t perfect as each of these companies wants to grow into adjacent areas but it’s a decent split for now. Please let me know in the comments or send an email via the contact form and let me know what you think of this format.
- In all, 2017 was a good year in the PLMish world. We might remember it as one of financial upheaval and technical reinvention as CAD models become important again in an IoT context — but buyers, in general, seemed unfazed. They, after all, have a job to do today.
- Dassault Systèmes (DS) reported that FY 2017 revenue was up 7% in constant currencies and up 6% as reported to €3,228 million. Excluding revenue from CST (acquired October 1, 2016) and Exa (November 17, 2017), organic total revenue was up about 5%. Software revenue was €2,869 million, up 6% as reported, while new license revenue was up 9% as reported to €856 million. Where did this growth come from? DS said that 7 of its 12 industry groups “reported double-digit new licenses revenue growth in 2017” when looked at from a non-IFRS, constant currency basis. SOLIDWORKS reported the strongest growth as revenue of €696 million was up 11%; CATIA remains the single largest brand, with total revenue of €1005 million, up 4%. A bit disappointing was ENOVIA, which reported revenue of €322 million, flat year/year for 2017 and down 2% Something to watch in 2018.
- For me, the main news from the DS release was SOLIDWORKS. And after attending an very enthusiastic SOLIDWORKS World a few weeks ago, I have to ask: when is it going to hit $1 billion? At today’s exchange rate, revenue in 2017 was over $850 million. Add 11% again, and we’re at $950 million. This means that one company will control two billion-dollar CAD brands. An impressive feat and one that might finally put to rest all of the agida over the DS-ing of the SolidWorks brand; intentionally destabilizing with a billion dollar brand makes little sense.
- For Mensch und Maschine (MuM), the news isn’t so much about them as it is about Autodesk and the effect its shift to subscriptions is having on the reseller channel. MuM has been working hard to grow its proprietary, independent software business and reports that this now makes up one-third of revenue but 50% of gross margin, showing that a clear push to be more in control of its own destiny is paying off. For 2017, total revenue was €161 million. That’s down 9% to €110 million in the VAR segment and up 9% to €50 million in its proprietary software lines. For 2018, MuM sees its Autodesk-related business returning to growth — good for both Autodesk and MuM. My key takeaway: it’s risky to put too much of your business into the hands of another. If you’re VAR (in any industry), figure out a line of business you alone control.
- PTC reported results for its fiscal Q1, ended December 31 2017, that exceeded many expectations. Recall that PTC is also in the midst of a transition to subscriptions, albeit at a gentler pace than Autodesk used. Even so, total revenue was $307 million, up 7%, led by a doubling of subscription revenue to $100 million balanced by the planned decline in maintenance revenue (down 13%) to $131 million and a flatish perpetual revenue of $34 million. Solution software, which includes CAD and PLM, revenue was up 9% in FQ1 to $239 million while IoT revenue was $26 million, up 23% on a tough comparable from a year ago. Interestingly, PTC said that Solutions sales were driven by its global channel. In addition, Solutions recurring revenue grew for the fourth consecutive quarter.
- What’s interesting in PTC’s results is the comparison to DS: PTC didn’t quantify but said that it saw “strong” PLM bookings in Q4 as well as “strong” revenue growth in PLM in Q4. Match that against DS’ reported decline in ENOVIA revenue, and we have something worth watching as the year unfolds. Of course, we don’t have similar metrics from Siemens PLM, so can’t tell if PTC is taking share, finding new customers or seeing significant adoption from its IoT/PLM crossover, ThingWorx Navigate — or all of these, or something else. Let’s watch this as 2018 develops.
- SAP continues to push its cloud and Leonardo IoT platform but doesn’t often discuss its PLMish products. But that doesn’t really matter: SAP is so embedded into its clients’ operations that its push into cloud and IoT resonates at the highest levels in customer companies and is worth watching more closely than ever. For 2017, SAP saw cloud revenue rise 28% in constant currencies to €3,770 million — that number alone is bigger than DS and maybe Siemens PLM and SAP’s total revenue was a mind-boggling €23.5 billion in 2017. Leonardo isn’t yet making it onto the income statement, too small and new, but it does make it onto the earnings call. CEO Bill McDermott told investors that “SAP Leonardo is leading the invention of ‘business next’ practices … It will not be a single technology that changes how businesses run. AI, machine learning, Internet of Things, Blockchain, all of these technologies will work together as businesses go digital, and only SAP offers this holistic approach from design thinking to industry domain expertise all in a global footprint”. He gave the San Francisco 49ers (a US football team) as a lighthouse use case: they’ll use Leonardo and analytics to “improve the fan experience”. SAP’s muscle and market presence can quickly move the needle on IoT and analytics — and examples that immediately catch the imagination (what will be new at the next sporting event I go to? more stats and data? trends? data on a particular player’s performance? hmmm) will engage even non-techie types in technology. Keep an eye on them this year.
- Siemens still declines to break out the Siemens PLM revenue or give performance specifics, which makes its claim of being one of the world’s top 10 software companies hard to quantify. In a letter to investors, Siemens management said that “revenue from digital technologies rose to €5.2 billion – of which €4 billion was attributable to software and €1.2 billion to digital services. This corresponds to a 20% increase year-over-year. To further accelerate the innovation process, Siemens will again increase its research and development (R&D) expenditures in fiscal 2018 and invest an additional sum of around €450 million. As a result, R&D spending will increase from about €5.2 billion in fiscal 2017 to over €5.6 billion in fiscal 2018.” That’s a lot of R&D spend! During the earnings call, management said that accounting practices around the Mentor acquisition masks real growth but that “we had a very, very successful start with Mentor Graphics. It has been substantially contributing to the margin development in [Siemens PLM] and we are very happy with the progress being made there.” CFO Ralf Thomas went on to say, “I assume this is also at least in part due to the fact that the team in PL now after a series of acquisitions knows exactly which strings to pull at which point in time. So we are very confident. And I think before we talk about a new normal or a new steady state, you should give us one or two more quarters before we can finally conclude from that what we see for the way forward.” So. We don’t really know from this what to make of Siemens PLM’s progress — but Siemens management is clearly happy with its investments and acquisitions and plans to continue to invest in MindSphere, the IoT platform and app store. Perhaps as MidSphere becomes more relevant as a source of revenue, this reporting will change.
- Not one of the reporting companies was cautious about 2018. DS says it’s going to be hit by currency fluctuation and expects revenue to be up 8%-9% in constant currencies, with new license revenue up 8%-10%. MuM is looking for a return to growth in its Autodesk business. PTC sees total revenue up 6% to 7% for the year ending 30 September, even as it discontinued perpetual license sales for many products as of January 1, 2018. Can’t really average this, but mid-to-high single digits seems to be an average growth rate for 2018.
- What does it all mean? When we look across the vendor space, a couple of things become visible:
- PTC was right: the IoT is where it’s at. Autodesk was right, too: 3D printing is where it’s at. Needing accurate CAD data for both of these initiatives is driving a resurgence in interest in CAD models that are accurate and up-to-date, and can talk to other (modern) IT-based systems. Other users want the specific 3D print-enabling model checking or lattice design features in the latest releases. In both cases, old versions of CAD products may not be sufficient, causing some to re-up their maintenance as subscriptions.
- Cloud is real and growing in importance at the enterprise level and it’s unrealistic to think that an enterprise that puts its HR and accounting into an SAP cloud will resist for much longer putting its engineering and design into the cloud. Engineering and design in the cloud and only in the cloud? Maybe not. But some of it? Sure.
- Acquisitions didn’t factor into many of the investor calls. As master investor and acquirer Warren Buffet wrote this week in his shareholder letter, “In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price. That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.” In our much smaller world, there are fewer companies to consider, but price expectations are high, too. We’ve already seen a number of deals this year, but they were small deals that didn’t immediately move any needles.
- The channel is back! PTC reported happy channel news, MuM would seem to indicate a return to positive news for Autodesk’s partners, SAP and Siemens are both working with IoT partners large and small … Today’s channel partners are very different from those in the 1990s –more services, no box pushing, cash-conserving, new sales tactics– but it’s great to finally get to what might be a year of resurgence.
What did you think of the earnings reports? Any surprises? The big keep getting bigger — but as their size increases, it’s really really hard to report mega-growth. Slow-ish but steady, that’s us.
Oh dear. We’ve just hit one of the downsides of this format: a “punishingly long” piece, as an editor once said about something else I’d written. If you made it this far, thank you — and please leave a comment to let me know if this worked for you. AECish and CAE recaps coming soon.