The technology used to conceive, design and fabricate the objects around us is complicated. It may be difficult to understand if you're not a practitioner, yet businesses routinely entrust their most important processes to these tools. Our Hot Topics blog tries to clear up some of the confusion.
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Altair Engineering just announced that it is acquiring EM Software & Systems (EMSS), developer of the FEKO electromagnetic simulation suite. EMSS has actually been around since the 1990s but, as a South African company, has struggled to be known on an international stage. EMSS started as a consultancy and discovered through those client engagements that there was a need to simulate antennas; that led to a cooperation with the University of Stuttgart and that, in turn, led to the commercialization of FEKO.
Altair CEO Jim Scapa said that this acquisition “reflects Altair’s resolve to continue to bring world-class technology to our customers, and demonstrates our long-term objective of organic growth, with strategic partnerships and acquisitions where it makes sense. We are very pleased to integrate EMSS into the Altair family given its cutting-edge technology and knowledge of the electromagnetic (EM) domain.”
EMSS currently employs about 100 worldwide. Altair’s CTO Dr. Uwe Schramm, says that “EMSS employees will join existing Altair technology development and local support organizations. Their expertise will help Altair to become a force in electromagnetic simulation. Integration of the FEKO suite of electromagnetic solutions with Altair HyperWorks will give our customers access to additional smart multiphysics and design optimization capabilities, for instance addressing coupled electromagnetic-thermal or electromagnetic-mechanical problems.”
The original author of FEKO and current Director and FEKO Product Manager, EMSS, Dr. Ulrich Jakobus said in the press release that he “look[s] forward to broadening our electromagnetic portfolio and serving our customers even better with enhanced technical solutions and services, while retaining our world-class technical support. Existing and future FEKO customers will benefit from the sharing of computer-aided engineering and high-performance computing knowledge between our teams and Altair.”
Details of the acquisition weren’t announced but this is an agreement in principle, with the acquisition itself expected to close in early 2014.
My take? EMSS has been an Altair Hyperworks partner for years –I think it may even have been one of the first third party applications on the platform in 2008– so the companies know one another (and their respective technologies) well. Altair’s current mission is to grow its multiphysics capabilities; the proliferation of electronics and electromechanical devices makes it crucial to simulate as much as possible how communications technologies, chips, printed circuit boards interact with the devices they power. This is an important step for Altair and will bring FEKO and the other EMSS products to a wider audience.
Of course, the cynic in me can’t help but note that ANSYS also announced an acquisition just last week. Good CAE companies and technologies are being snapped up by the bigger players to build out solver sets and to expand into new customers (or new divisions within existing customers). As far as I know, only MSC hasn’t acquired anything in 2013, preferring to save its resources for a revamp of its own lineup and the release of the Predator product in 2014 — but ANSYS, DS/SIMULIA and now Altair have been picking cool technologies left and right. It’s an exciting time.
Early this morning, Dassault Systèmes announced that it has acquired an 84% controlling interest in Realtime Technology AG (RTT), a provider of what are called “marketing automation” technologies that enable its customers to create what it calls “emotive digital experiences” as they develop and bring products to market. You may not know of RTT’s DeltaGen, PictureBook, POS Configurator but you’ve probably heard of Bunkspeed, which RTT acquired at the end of October. RTT is publicly traded in Germany; DS has/is in the process of acquiring for cash 84% of the outstanding shares and, according to the acquisition announcement, DS will launch an offer to acquire the remaining 16% of shares “in the coming days”. RTT reported revenue of €74 million in 2012, so this will hardly move the DS revenue needle. DS is holding a conference call about the acquisition in a couple of hours. I’ll update after the call, if there’s anything new to add.
Yesterday, amid a blizzard of announcements from the EuroMold 2013 conference, 3D Systems announced that it has acquired Figulo, a 2-year old company that applies 3D printing to ceramics. The company plans to integrate Figulo’s ceramics technology into the Cubify platform and will, longer-term, use Figulo’s ceramics expertise to bring out 3D printers that can make ceramics for commercial and hobbyist applications. Just a few years ago, 3D printing created brittle wax-like plastic parts; today, we can make paper, metal, durable plastic and, now, ceramic parts. How cool is that?!
Hexagon continues to consolidate its reseller channel, acquiring PIXIS Consultoria, Soluciones de Ingeniera y Servicios, its exclusive distributor of Intergraph solutions in Chile and Peru. Hexagon says that “the addition of Pixis will not only directly benefit the Intergraph PP&M business but also accelerate implementation of Intergraph SG&I’s offerings across the entire region”.
Hexagon also announced a bit of a reorg, with the formation of a new Hexagon Solutions group that will focus on the Smart Solutions portfolio of cross-business (ie Intergraph + Leica, etc.) offerings under the leadership of Claudio Simão. Steven Cost, Intergraph CFO, will succeed John Graham as President of Intergraph SG&I, even as Hexagon Geospatial is split out of SG&I under the (continuing) leadership of Mladen Stojic. Mattias Stenberg, who had been VP of Strategy and Communications for Hexagon, moves up to Chief Strategy Officer. FYI, Gerhard Sallinger remains President of Intergraph PP&M.
I already told you about ANSYS‘ intention to merge with Reaction Design. Investors don’t seem to get the significance, sending the share up only 0.5% on a day when the NASDAQ overall was essentially flat. Yes, it’s unlikely that Reaction Design will add any significant revenue in the short-term, but it will expand ANSYS’ reach into its automotive customers and offer strategically important solutions to optimize engine performance to those key accounts.
Finally, Exa Corp. announced results for its fiscal Q3 that showed that some of the opportunity the company sees may be materializing. Total revenue was up 12% as reported and up 15% in constant currencies. License revenue was up 8% to $11 million while project revenue was up 30% to $3 million (remember that Exa typically engages with customers on a specific project before license sales take place). CEO Steve Remondi told investors that demand for Exa’s CFD solutions continues to gain momentum among passenger car OEMs and suppliers, even as the truck and off-highway segments of the ground transportation market are “challenged”. Mr. Remondi also said that early renewals (ahead of the historically strong Q4 renewal period) and “a number” customers topping up their tokens in mid-year led to the strong Q3 results.
One more day at AU, then home. Looking forward to both of those …
A very quick update to share some news I think is really exciting: ANSYS is merging with Reaction Design, maker of solutions for modeling and simulating certain types of chemical reactions. CHEMKIN, Reaction Design’s flagship products, is used by designers in auto, aero, materials and other verticals for the conceptual development of combustion systems — think engines, fuel efficiency and emissions, and you’ll start to see why this is a big deal. This stuff is far outside my area of expertise, but I have been told several times that CHEMKIN is arguably the best product for automotive combustion simulation.
Reaction Design also has a CFD solution, FORTÉ, but I can see ANSYS looking to combine CHEMKIN with Fluent to really goose the combination to the next level.
I had been hoping that the big CAE vendors would get further into chemical modeling because it’s an exciting area that is today where CFD was perhaps 10 years ago, able to grow rapidly because of better mathematical models; more available, cheaper compute resources; and better user experience design. If an Altair, ANSYS, MSC or SIMULIA promotes it, it’ll grow that much faster.
The press release has a few more details, but nothing about price, or why it’s a merger and not an outright acquisition. We’ll learn more officially after the transaction closes in January 2014, but I’ll update if I can find out anything else before then.
Reaction Design has been around for 15 years and has been a strategic partner of ANSYS’ since 2009 when Reaction Design delivered a version of CHEMKIN that was optimized for Fluent. Reaction Design says it today has “more than 400 customers in the commercial and government markets around the world, including many Fortune 1000 companies”. It’s likely that these are already ANSYS customers, so this merger is purely about the technology and the brains behind it. Assuming everyone joins ANSYS, Reaction Design will bring chemists with experience in molecular modeling — and who knows where that might go?
Autodesk University is awash in superlatives: biggest, loudest, most diverse … And it really is. Nearly 10,000 people here in Las Vegas and another 20,000 or 30,000 tuning in online. Manufacturing, construction, architecture, movie-making, robots, drawings, oh my. The keynote session included footage from the movie Gravity, the unveiling of a sexy new car, the joy of making stuff and a dancing robot. With a mirror ball. You can catch a short video glimpse by clicking on the image:
The entire keynote session will eventually be posted at http://au.autodesk.com and it’s worth watching if you can. CTO Jeff Kowalski talked about looking outside your normal way of thinking and doing to find new approaches and CEO Carl Bass gave a lot of examples of customers doing very cool things with Autodesk’s solutions. But there were lots of other sessions, too, some of which are webcast. I attended the AEC Innovation Forum and, if it’s anything to go by, the rest will be awesome.
I’ll write in more detail after the event, but the big takeaway so far is cloud cloud cloud — but not for the sake of a shiny, new thing but rather as the enabler of technologies that weren’t possible or accessible before. Take CAM. Autodesk today announced CAM 360, which hits Beta in a few weeks. Eventually it’ll be free for 2 1/2 axis, $75/month/user for 3 axis and $150 for a version of 5-axis machining. That’s less than $1,000/user/year. CAM 360 includes CAM-specific CAD capabilities via Autodesk’s Fusion 360 product and is aimed squarely at the mid-market. Why cloud? For access to the compute power to calculate and simulate complex paths, the ability to collaborate (since design and manufacturing aren’t often co-located) and access to data from anywhere at any time. Autodesk’s aggressive pricing clearly will play into adoption, too. If you’re interested, give the Beta a whirl; sign up at cam.autodesk.com. [Fusion 360 also includes styling; that's not likely to make it into the CAM product.]
As you know, I have a complex relationship with Las Vegas. Hate the smoke and get uncomfortable around the gamblers, especially when I’m jonesing for coffee at 4AM local time. AU is in the Venetian this year, the hotel with the giant indoor canal. That canal has proven to be a marvelous exit route for me, since I can get out of the hotel without having to go through the smoky casino. Yes, I have to dodge lots (and lots) of shoppers, but I can very quickly get to this:
right outside the hotel. Lovely. Makes me like Vegas just a little bit more…
You really should tune into the live or rebroadcast AU sessions –even if only for a short while– to get a sense of the energy of the event. It’s not so much Autodesk selling (although there is some of that) as it is people doing cool stuff. You might just run across something that’s completely different from your daily job, but which challenges your typical way of thinking. That can only be good.
Note: Autodesk graciously covered some of the expenses associated with my participation at the event but did not in any way influence the content of this post. The image and video of the robot above are from an Autodesk Instagram account; the bottom image is mine.
Do you know what Dassault Systèmes means when it refers to its solutions as “experiences”? No? Well, DS is trying hard to explain its vision and clear up confusion around the difference between V6, the experiences and the brands (CATIA, DELMIA, ENOVIA, SolidWorks and so on). Last month DS held the North American edition of its 3DEXPERIENCE Customer FORUM in Las Vegas, with around 1,000 customers, partners and industry insiders gathered to learn more about DS’s vision for the future.
CEO Bernard Charlès reiterated the company’s commitment to the North American market and said that DS wants to “be a local company with global reach” in each of its regions — an interesting comment and one with serious implications for services delivery in an increasingly digital “it-doesn’t matter-where-we-are” world. He didn’t elaborate, but other DS executives told me about expanding and building out regional centers of excellence to provide support as appropriate much as SIMULIA is doing around the FE-DESIGN acquisition.
During his keynote, M. Charlès began the serious messaging of the event: the difference between platforms, solutions and experiences. 3DExperience is the platform that powers apps; V6 is an architecture while the industry-specific experiences are cherry-picked pieces of the DS portfolio, with additional content as required, to streamline specific work processes. Cars are different from airplanes are different from power plants, and the solutions used to design and engineer each must, therefore, also be different. The message is getting clearer and more practical and, if the presentations at the 3DEXPERIENCE are anything to go by, more DS customers seem to be getting it.
Monica Menghini, EVP for Industry, Marketing and Corporate Communications (in the image above), kept the theme going and focused on how DS’ 10 brands tie into one platform to support 12 industries. (Yes, that’s a lot to work your brain around.) Ms. Menghini gave a number of examples of how DS’ many brands come together to affect how its customers can enable their clients have a better experience — whether in a nuclear power plant, a bank or with a mobile device. The idea is to connect people, data and organizations in a context that lets everyone communicate consistently to make informed decisions. Connecting without acting isn’t accomplishing anything.
I had a chance to speak with Ms. Menghini about her efforts to move DS forward from being a company that’s largely unknown, though its brands are world-famous, and into a world where DS seeks to compete with platform companies and not app vendors.
Ms. Menghini told me that this whole new vision grew because forward-looking customers have reached out to DS to see how DS can help them better connect users, systems and platforms to solve business problems far bigger than “my engineering is too slow” or “our teams need to better communicate”. As a result, DS wants to simplify IT architectures and create business value rather than technology cost centers — it’s a compelling argument that goes far higher within its customer companies than the engineering department.
Ms. Menghini says it’s DS’ job to create solutions that serve three goals: create visible business value, delight users and simplify the process of creating digital data (designs, business plans or whatever in the 12 industries). She sees the industry focus as critical in meeting these goals, because only when DS understands the issues in each specific industry can they create the appropriate components on top of its robust platform.
January 2014 is going to be a big one for DS. That’s when V6-based apps, currently in Beta, will launch. They’ll be cloud-based and targeted at today’s users: people who expect small, light-weight apps. Rarely does one person do the same type of thing all day long; knowledge workers hunt for information, do something with it that leads to the next search for information, which then requires another action, and so on. The one problem: the industry experiences launching in January aren’t the complete portfolio, but are the first releases with many components, but not necessarily all, in place. Ms. Menghini says that DS is executing on a very aggressive roadmap to completely reengineer its core products into apps (such as ENOVIA for brand management, compliance, etc.) with many more to come. The 2014X release is the first of a series that will continue to fill out the Experience portfolio.
I also asked Ms. Menghini about the advertising campaign that places ads in airports and business magazines to promote the DS brands. She says it’s working, and that the communications strategy has boosted awareness of the DS brand (as separate from CATIA, etc.) from 0% a couple of years ago to 29% of LinkedIn users who now know the DS name. That’s great progress — though there’s clearly still a lot of room to grow. Ms. Menghini had a great analogy: “If you constantly fly around me, but one time call yourself CATIA and another time call yourself SIMULIA and never call yourself Dassault Systèmes, it’s no wonder I don’t know you as Dassault Systèmes.” And being known as Dassault Systèmes is hugely important when you’re no longer trying to sell CATIA as a standalone solution, but as part of a larger experience with other products.
I also spoke with the leaders of a couple of the industry verticals and will write about that soon. There’s some terrific stuff coming in the AEC and Energy, Process and Utilities lines, especially around construction. As a quick reminder, DS’ strategy in these verticals isn’t to replace the CAD product in place but to surround it with other components to address construction, safety, operations or other specific aspects.
A couple of last thoughts. The cloud is everywhere, PLM wasn’t really mentioned and the brands didn’t come up often, though there was a terrific presentation by SIMULIA on the use of its products in the energy vertical. More on that soon. DS is doing a good job tactically of creating solutions (aka experiences) that span a typical business process in its end-markets. The problem has been communicating this to the outside world, and it finally seems to be gaining traction. Not yet a critical mass, but definitely building.
Note: DS graciously covered some of the expenses associated with my participation at the event but did not in any way influence the content of this post. The image above is from the DS media pack.
Have you felt things slowing down this week? Yes, there’s news being made and lots we probably should be doing, but the email stream is slowing and the phone is ringing a bit less. The US celebrates Thanksgiving on the fourth Thursday of November; the midweek holiday often means a long weekend, with Wednesday thrown in as a travel day. That makes Tuesday a hectic day of shopping and packing which makes Monday … My point? Thanksgiving Thursday lets us slow down. It’s all about food, family, friends and being grateful for the bounty in our lives. What you give thanks for is completely up to you; my list is long. And it includes you — thank you for reading, for interacting and for questioning.
If you’re celebrating Thanksgiving, make it a happy one. Even if you’re not, know you’re appreciated. Maybe have a slice of pie in solidarity?
See you on Monday!
So much going on! Today is the 50th anniversary of the assassination of US President John F. Kennedy, the internet is abuzz with a very polite puppy and our PLMish world is cranking through the news cycles. It’s raining and cold here in Boston, so a good time to share some headlines. More later on Autodesk’s earnings release last night.
Trimble announced that it has acquired CSC, a Tekla partner for the design and analysis of steel and concrete structures. Financial terms were not disclosed but CSC becomes part of Trimble Buildings’ Structures Division in the Engineering and Construction segment.
Graphisoft announced that it’s forming a strategic partnership with architectural design firm Nikken Sekkei to establish a BIM Competence & Research Center for promoting BIM in Japan and South-East Asia. I usually hear of BIM in North America and Europe or about projects carried out in other parts of the world by global A&E firms; greater adoption in Asia is the next logical step.
I’ll be at Autodesk University the first week in December, and so will thousands of my closest friends. If you can’t make it, Autodesk is live-streaming many sessions, including the keynotes and forums. Autodesk says “No need to register and it’s free.” If you decide to give it a try, let me know how what you think — I attended a virtual event a few years ago where the technology was overwhelmed by the number of people who tuned in and I felt disconnected from the content (though not the people complaining about the tech). I’m sure Autodesk has a better handle on how many people will attend and scaled the tech, but still let me know how it goes.
Time to catch up! Nearly 15 companies reported September quarter earnings while I was away, so to get a the general sense of what they’re reporting I’m going to be summarizing them all over the next few weeks. Today, we’re looking at AEC, the world of Architecture, Engineering and Construction.
In general, the news was good but not stellar. Mid- to high-single digit revenue growth over the third quarter of 2012 but sequential flatness or slight declines for a typically weak quarter. Each company said that their end-verticals were looking more positive and that 2014 should see even further improvement.
We covered Hexagon‘s Q3 a couple of weeks ago. The big AEC-related headline for Hexagon‘s third quarter was that construction is up in many parts of the world, leading to increasing demand for its surveying, laser scanning and other sensing solutions — and, of course, interest in Intergraph PP&M’s solutions never really waned. But by far the most conversation was around Shell’s plan to shake up the world of oil & gas projects by creating a central data store for its assets and to require EPCs to use Intergraph’s SmartPlant Cloud as the delivery vehicle. Back to Q3, 2013, though, for AEC-related results: Geosystems revenue was up nearly 10% as reported and Intergraph PP&M revenue was up 7% year/year (y/y).
Nemetschek‘s holding company management keeps changing, but that doesn’t seem to be slowing down the brand teams that are developing and selling its AEC brands, including Allplan, Graphisoft ArchiCAD, VectorWorks, and the new bim+ platform. Interim CEO Dr. Tobias Wagner, member of the Executive Board and head of the Allplan business, announced Q3 results that show Nemetschek’s total revenue was up 5% y/y to €46 million, led by growth in maintenance revenue of 9%. The vast majority of Nemetschek’s revenue comes from Europe (40% from Germany alone), but the company sees strong potential for expansion, acquiring a Graphisoft distributor to form a Mexican subsidiary that will focus on the Central and Latin American markets. The Design segment is by far its largest, reporting revenue of €107 million for the first 9 months of the year, up 4% y/y. Dr. Wagner told investors that he sees robust growth in construction that should boost Nemetschek to total revenue growth of about 6% y/y in 2013, with the potential to return to the higher levels of growth seen in prior years.
Last week, Nemetschek acquired the Norwegian firm Data Design System (DDD), to extend its offerings into MEP (mechanical, electrical, plumbing), heating, ventilation, air conditioning and photovoltaic engineering. In 2012 DDS had sales of about €8.7 million; Nemetschek said that the purchase price was “in the low two-digit million euro range”. Finally, Viktor Varkonyi, the CEO of Graphisoft and Sean Flaherty CEO of Vectorworks were named to the Nemetschek Executive Board but will continue in their divisional responsibilities as well. The company continues its search for a new Financial and Operational Executive Manager.
Trimble is rapidly turning itself from a GPS/hardware shop to a full-fledged provider of everything needed to design and build infrastructure assets. The company recently announced that Q3 revenue was up 10% y/y to $557 million as strengthening construction markets in the US and elsewhere outweighed concerns about US government spending. Trimble’s largest business, Engineering & Construction, reported a y/y revenue increase of 8% to $311 million due to acquisitions, and higher sales of survey and heavy civil building construction products. On Tuesday, Trimble added yet another offering to its menu: Building Information Modeling consulting services for MEP contractors, helping them with 3D modeling, laser scanning and creating 3D models from point cloud.
On Thursday we find out how the big daddy of AEC did in the most recent period, when Autodesk reports its results for the October quarter. As a quick reminder, its AEC business did really well in FQ2, when revenue rose 9% y/y to $177 million. Autodesk has been on a buying binge lately, snapping up Delcam and VSR — maybe there’ll be something AEC-related to be thankful for?
AVEVA yesterday announced results for the six months ended September 30 that were both in keeping with the upbeat tone of the interim statement released at the end of the June quarter and the more cautious economic sentiments we’ve heard elsewhere, especially among vendors of enterprise apps. Unfortunately, investors only heard the latter and sent AVEVA’s share price down 8% on the London Stock Exchange.
Total revenue in H1 2014 was up 11% to £109 million, led by a 12% increase in revenue from the Engineering and Design Systems group. Revenue from the Enterprise Solutions group was up 5% –decent, but not stellar– and there lies the problem. AVEVA had said in July that Enterprise Solutions saw “good growth” during the June quarter, signing its first AVEVA NET deal in India with a major power sector owner/operator. Say that even once and investors start thinking it’s a regular occurrence, when these deals take a very long time to materialize. In the bigger picture view, the enterprise business makes up about 12% of total revenue. 12% of revenue growing at 5% plus 88% growing at 12% is … growth a lot of investors would consider great.
When you look at the big picture, AVEVA’s first half of 2014 was actually very good. The main points:
- Total revenue for the six months ended September 30 was £109 million, up 11% from a year ago.
- Revenue from the design tools business (aka Engineering and Design) was up 12% to £96 million, slightly ahead of just about everyone’s predictions. AVEVA reports signing a number of significant deals in oil & gas, especially offshore, during the period.
- Revenue from the Enterprise Solutions business was up 5% in the first half, to £13 million. This was weaker than expected as two deals fell through. One customer declared bankruptcy and another pulled back from a plan to roll-out AVEVA Net enterprise-wide and is now considering implementation on a project-by-project basis.
- Sales of AVEVA Marine to shipbuilders for conventional projects were flat during the first half as that market remained “depressed”.
- By geo, revenue from Asia Pacific was £42 million, up 22%, largely due to sales to South Korean shipyards that are expanding into offshore oil and gas.
- Revenue from EMEA was up 4% to £48 million, with growth in Central Europe and the UK dampened by “tougher market conditions” in the Middle East and Russia.
- The Americas, specifically North America, has historically been difficult for AVEVA to crack. It’s Intergraph’s home territory and hasn’t typically been a major oil and gas actor except on the Gulf coast and in Alaska. That’s all changing, and AVEVA announced aggressive targets for its US operations at a recent investor event. Americas H1 revenue was up 9% to £18 million, even as Latin America was flat year/year.
- AVEVA also gave its take on the recent hoopla about rentals, subscriptions and perpetual license models, reporting that customers increasingly prefer the flexibility of rentals. H1 rental revenue was up 14% to £47 million, while initial license fees were up 11% to £22 million.
AVEVA reports that it now has more than 30 customers using AVEVA E3D and that, though it’s small, the revenue contribution is “building in line with expectations”. The company says that a major EPC has already decided to use E3D for new projects beginning in Q4 2014 (learn more here, in my write-up of the AVEVA World Summit). That’s big, since E3D is not part of the maintenance upgrade stream and is slightly more expensive than PDMS. There’s a revenue upside here that is hard to quantify or attach to a timeline, but is very real.
CEO Richard Longdon said that AVEVA’s growth is due, in general, to ever more demand for offshore oil and gas; a focus on safety that means more stringent designs and operating simulations; increasing project complexity; US investment in plant and refinery upgrades; the replacement of aging power plants in Europe and the US, and the continuing build-out of the energy grid in China and India.
AVEVA doesn’t give revenue guidance, but London City analysts have tweaked their models to take into account the better than expected performance on the design side and the missed deals (and therefore flat year/year revenue for the Enterprise business) and now see revenue of around £240 million for fiscal 2014.
Sometimes you can hear glee over the phone wire, can’t you? At roughly the same time that Dassault Systèmes announced that it missed its September quarter objectives, PTC’s CEO Jim Heppelmann was telling Wall Street that total revenue for the quarter was up 6% to $345 million, handily beating analyst consensus, and that the CAD business was up for the first time since early 2012, with CAD license revenue growth of 13% year/year (y/y).
Acquisitions helped boost total revenue, as Servigistics, Enigma and NetIDEAS contributed $27 million on a non-GAAP basis to the quarter. For fiscal 2014, PTC reported record annual revenue of $1.29 billion (but, unfortunately, no CAD increase; see below).
Mr. Heppelmann told investors that the fiscal fourth quarter started with a strong sales pipeline but also with concerns that customers were turning cautious and slowing their purchasing decisions. To the contrary, PTC saw modest improvement as the quarter progressed, and “ended strong. We were able to surpass the high end of our revenue guidance on license and total revenue … that extra revenue allowed us to deliver substantially more earnings than our guidance had suggested. So with those strong fourth quarter results, the FY ’13 year ended well, particularly when measured in terms of earnings performance.”
The details for FQ4:
- License revenue was $105 million, up 5% y/y and up a staggering amount from the roughly $80 million reported in FQ3 and FQ2. Acquisitions contributed $8 million. Overall, license activity was “strong in Europe, the Pacific Rim, and Japan” but “soft” in the US. License sales in Japan were up 27% y/y, slower than in FQ3 because of a large deal recorded in FQ3; sales in the Pacific Rim reversed the Q3 y/y decline of 30%, and were up 31%, while Europe reversed the FQ3 decline of 31% to be up 37% in FQ4. Excluding acquisitions, license revenue was down 3% y/y.
- Support (aka maintenance) revenue was $167 million, up 8% y/y. Unlike the other revenue categories, organic revenue was up 2% y/y. Acquisitions contributed $9.2 million.
- PTC reports having 246k CAD seats, 1,592K Windchill seats and 94K SLM seats under maintenance at the end of FQ4. That’s up a whopping 13% y/y — the expanded focus on global support is clearly having the intended effect of getting people onto maintenance and engaging with the company.
- Service revenue was up 5% to $72 million, including $10 million from acquisitions. On an organic basis, services revenue was down 10%. Some of this decline is planned, as PTC shifts services work to partners, but the smaller deal sizes over the last year mean smaller Windchill implementations and less services work.
- Speaking of partners, PTC reports “considerable success with our partner ecosystem, which had 71% year-over-year bookings growth for FY’13″.
- By solution type, CAD revenue was up 2% y/y in FQ4 to $149 million. License revenue was $48 million (up 13%), support revenue was $96 million (down 1% y/y). License revenue growth in Europe, Japan, and the Pacific Rim were partly offset by lower license revenue in the Americas. Channel revenue (40% of the CAD total) was up 2% y/y.
- Mr. Heppelmann said that roughly 40% of the CAD base is now on Creo 2.0, and that over 60% of customers who migrated from Wildfire to Creo added capability; most often: direct modeling.
- Extended PLM (=PLM + SCM + ALM) revenue was $150 million, down 8% y/y. PTC doesn’t break the category down any further but said that “ongoing macroeconomic challenges led to year over year revenue declines in PLM, ALM, and SCM” — so I’m inferring that revenue was down across all three lines. The company said it saw a double-digit y/y decline in the Americas, cc growth in Japan, Europe and the Pacific Rim. Extended PLM license revenue was $44 million, down 20% y/y, while support revenue was $56 million, up 6%. Services revenue was down 10% to $50 million.
- SLM revenue was $47 million, up 161% y/y including $8 million of license revenue from acquisitions. On an organic basis, license revenue was up 49%. SLM total license revenue was $13 million; services, $17 million and support, $16 million.
- By region, revenue from the Americas was $143 million, up 2% as reported but down 13% when excluding acquisitions. Organic license revenue was down 33%, support was up 4% but services was down 10%. A very mixed bag, but PTC sees signs of an economic recovery beginning in the region in 2014.
- Revenue from Europe was $126 million, up 13% as reported (up 8% in cc) with organic revenue up 10%. License revenue was up 37% y/y while organic license revenue was up 28%. PTC reports that a recovery “may be underway in Europe” and expects performance to improve in FY14.
- Revenue from the Pacific Rim was $47 million, up 14% as reported (up 11% in cc) with organic revenue up 10%. License revenue was up 31% y/y while organic license revenue was up 31%.
- Finally, revenue from Japan was $29 million, down 7% as reported but up 15% in cc. Organic revenue was up 17% as reported. License revenue was up 27% as reported and up 58% in cc; on an organic basis, license revenue was up 17% as reported.
- PTC no longer breaks out direct and indirect revenue, but Mr. Heppelmann said during the earnings call that indirect revenue remains at around 25% of total, but that this could change as SLM is sold mostly via direct — so, as SLM grows, the proportions could change. Mr. Heppelmann did mention the recent addition to PTC of Kerry Grimes (most recently with Siemens PLM) but gave no targets for the indirect channel.
- The company reports signing no mega (>$5 million) but 45 large deals (>$1 million recognized in the quarter) totaling $83 million in revenue. For the first time in a while, the mix skewed towards software, contributing $47 million in license revenue. While the number of deals in FQ4 was 50% higher than in FQ3 (45 vs 32), the average deal size was $1.8 million, the lowest level in a couple of years.
For the year, total revenue was $1,293,541, up 3% even as license revenue declined 1% to $344.2 million. Support revenue was the only gainer, up 7% to $655 million. By product line, CAD revenue was $553 million, down 4% as license revenue dropped 5% to $150 million and services declined 21% (likely planned, offloaded to partners) to $24 million. Most worrisome is the decline in CAD maintenance revenue, down 2% to $378 million.
For fiscal 2013, extended PLM revenue was $572 million, down 6% with licenses taking the hardest hit: down 12% to $250 million. SLM saved the year, with revenue of $172 million up 121% over fiscal 2012.
We also learned that PTC paid less than $10 million for Enigma, which had “mid-single digit millions” in annual revenue and 50 employees, and “less than $20 million” for NetIDEAS, which also had “mid-single digit millions” in annual revenue and 20 employees in the US. It seems that NetIDEAS had around 80 customers, including “big ones like the US Navy”.
Mr. Heppelmann used a question about NetIDEAS to discuss PTC’s potential cloud offering. He said, ”Nobody today is kicking down our doors and saying ‘I need a product that’s fundamentally different than what you’re trying to sell me’. We’re trying to stay ahead of our customers, and are driving initiatives to think about how to bring some of this technology first, into a managed service environment with NetIDEAS; second, maybe into a peer cloud SaaS environment over time. That integration and enterprise fabric story, some amount of it will be done on premise, and then over time, the cloud SaaS model gives us a slightly different approach to sort of finish that project”. The differentiator to competitors is clear: we’re thinking about it, but no one is really asking for it yet.
Finally, and I don’t know why this took so long, PTC will change its NASDAQ ticker symbol to “PTC” at the start of trading on December 3.
Looking ahead, Mr. Heppelmann and CFO Jeff Glidden urged caution, as the macroeconomy is anything but clear. For FQ1 of 2014, the company expects non-GAAP revenue between $310 million and $320 million, below the analysts consensus of $325 million, with license revenue of $70 million to $80 million. For fiscal 2014, company guided to a non-GAAP revenue range of $1.325 billion to $1.340 billion, a bit higher than the analyst consensus of $1.29 billion. For the year (which will have Servigistics as “organic”), NetIDEAS and Enigma will contribute around $6 million to $9 million.
PTC’s fiscal 2013 results are such a mixed bag of economic ups and downs, currencies, channels and big-but-not-mega deal factoids that it’s hard to draw a single big-picture conclusion. What is clear is that PTC’s product and vertical diversification strategy is a good thing, since it paves the way to new customers and to those who may not be buying PTC’s CAD products but might be good candidates for its PLM and SLM offerings. Those, in turn, open the door for other products. I have to say, though, that it’s nice to see life in the CAD business; let’s hope it continues.