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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Hot Topics

Nemetschek’s Q2 up 34%, boosted by Bluebeam

Earnings season continues to roll, with many IT and industrial companies reporting this week. So far, foreign exchange seems the dominant factor for many: fluctuations can cause companies to miss their targets purely because of the math and it can make goods and services too expensive to buy in some regions.

Today’s report, from Nemetschek, shows that companies operating internationally have complicated currency effects –VectorWorks, Bluebeam and other brands are in the US, Nemetschek is in Germany– but that the BIMification of the AEC industry continues to roll ahead.

The details:

  • Q2 revenue was €69 million, up 34% as reported and up 28% in constant currency (cc). Bluebeam Software, acquired in October of 2014, contributed €11 million, so Nemetschek organic growth was 12% (9% cc)
  • For the first half of the fiscal year, revenue rose 32% to €135 million (26% cc). Bluebeam contributed €21 million in H1, so Nemetschek’s organic growth was 12%, ahead of the company’s target of 6% to 9%
  • By revenue category, Q2 software license revenue was up 50% to €36 million while revenue from software service contracts (aka maintenance) rose 20% to €30 million
  • By business, revenue from the Design segment was up 12% €48 million
  • The Build segment benefitted greatly from the Bluebeam acquisition, which drove revenue up nearly 5x to €15 million. For H1, organic Build segment revenue was up 6% to €7.6 million. This segment’s growth rate appears to be accelerating — Nemetschek’s material said that organic revenue was up 14% in Q2
  • Revenue from the Manage segment was up 11% in Q2 but is still tiny at €1 million
  • Finally, the Media & Entertainment segment returned to growth after six months in the doldrums,with revenue up 14% to €5 million in Q2
  • One reason for the success in Q2 is the focus on growing revenue outside Europe, more specifically, Germany. In H1, Nemetschek grew revenue outside Germany by 47% to €90.0 million while revenue in Germany was up 10%. Bluebeam is mainly selling in the US at this point; the addition of the brand enabled Nemetschek to triple revenue in the US. Nemetschek said on its earnings call that Bluebeam gets only 6% of revenue from Europe today, so there is significant room to grow.

You may recall that Nemetschek Group is, in essence, a holding company, with the various brands operating under the supervision of a managing board. Patrik Heider, Spokesman for the board and CFOO of the Nemetschek Group said in prepared remarks that “the growth drivers [in Q2] were our existing brands as well as the Bluebeam brand acquired last year, whose development we are very satisfied with.”

Mr. Heider reiterated the company’s guidance for 2015: revenue is still expected to be in the target range of €262 million to €269 million, which is an increase of around 22%. Of that, the company expects organic growth to be 6% to 9%. This is a bit lower than might be expected, given H1, but the company want to be conservative with respect to currency — Mr. Heider expects to see revenue for the year near the top end of guidance but hesitates to raise it at this point.

Even with this upbeat report, investors sent the stock down 6% by 8AM ET. As far as I can tell, investors are unhappy with the bottom line where net income remained at €7 million despite the double-digit revenue growth. Mr. Heider said that the company continues to invest in internationalization and in increased sales and marketing (including rebranding all of the brands as “A Nemetschek Company”), and in its BIM and 5D offerings to enable the company to grow in the future.

PTC’s FQ3 a story of big deal misses and IoT growth

EarningsAs PTC announced a few weeks ago, fiscal third quarter (FQ3) revenue was $304 million, below the company forecast of $306 million to $311 million. What happened in the quarter to cause revenue to be below expectations? It comes down to two things: PTC’s reliance on large deals and a focus on new business areas, possibly at the expense of its core PLM and CAD businesses. As a reminder, PTC got 80% of its revenue in FQ3 from its CAD and PLM+ALM (rebadged as ePLM) businesses and only 7% from the newest, shiniest opportunity: IoT. Yes, IoT is exciting and has huge potential but there are plenty of CAD and PLM customers to serve right now.

Big deals are hard to close; that’s a given, regardless of the economic climate. Yet PTC annually relies on over a hundred large deals (defined as bringing over $1 million to a quarter) for around 22% of total revenue. That’s more than 2 of these deals per week. The average dollar value of these deals is relatively constant at $2 million to $2.5 million. Think about how long it takes your company to get a buy of this size approved: how many people need to sign off? How many committees need to review every word of the justification and contract? Big deals are, in some ways, easier to go after than smaller ones: fewer accounts to call on, fewer people to take to lunch, fewer benchmarks. But if one or two big deals fail to close, Sales misses its target for the quarter and management is in the position of having to explain it to Wall Street.

CEO Jim Heppelmann said that this quarter’s miss was due to challenging macroeconomic conditions in the Americas and in China that made it hard to close large deals in the core CAD and PLM business. CFO Andrew Miller added that deal sizes “compressed”, which could mean that buyers bought less than expected or that they negotiated prices downwards. Mr. Miller and Mr. Heppelmann said that the situation hasn’t improved and have reduced PTC’s targets for FQ4 and fiscal 2015.

Of course, the move to more repeatable and less lumpy revenue does continue, even if slower than PTC and Wall Street would like. In FQ3, subscriptions made up 16% of license and subscription solutions bookings — less than expected because several IoT buyers opted for perpetual and several large subscription deals across the business slipped out of the quarter. As a reminder, subscription bookings were 21% of license and subscription solutions bookings a year ago, when two big deals influenced the balance.

If there was one overwhelming positive in FQ3, it was this: Mr. Miller said that roughly 60% of FQ3 revenue came from recurring business, up from 53% a year ago. That’s good, and shows growth in subscriptions, cloud services, and ratable support revenues.

Mr. Miller says that company is working on a revamp of its subscriptions, trying to figure out by market segment and customer type how the offering should be structured.  So far, no surprise: it seems that buyers like subscriptions because of the ability to ramp up or down, and pay over time out of the operating budget. PTC wants to roll out new offerings later this year.

The FQ3 details:

  • Total revenue for FQ3 was $303 million, down 10% as reported and down 1% in constant currencies (cc)
  • Total software revenue was $250 million, down 7% as reported yet up 2% in cc. On an organic basis, excluding Axeda and Atego, software revenue was down “low single digits” cc. Within the software total,
  • License and subscription (L&SS) revenue was $84 million, down 14% as reported and down 7% in cc
  • Support revenue (aka maintenance) was $166 million, down 4% as reported but up 6% in cc
  • Professional Services revenue continued its planned decline, down 20% as reported (down 10% in cc) to $54 million
  • By line of business, CAD and extended PLM (PLM + ALM, aka ePLM) declined y/y as large deals slipped out of the quarter. CAD revenue was $120 million, down 20% as reported (down 10% in cc), while ePLM revenue was $123 million, down 16% (down 6% in cc)
  • CAD software revenue was $115 million, down 20% while CAD L&SS revenue declined 42% on a decline in Creo modules, upgrades and legacy CAD products. Apparently, new Creo seat sales declined but more modestly. Fewer large deals and a weaker than expected macroeconomic environment affected spending among discrete manufacturing customers
  • ePLM software revenue was $88 million, down 11% (down 2% cc) as ePLM L&SS revenue declined 29%. Double-digit growth in ALM and in cloud services could not offset the decline in PLM license revenue. Fewer large deals, economic conditions and a strong quarter a year ago were cited for the decline
  • SLM total revenue was $39 million, down 5% as reported and up 2% in cc. SLM software revenue was $26 million, down 3% (up 3% cc). SLM L&SS revenue was down 10% due to a higher mix of subscription solutions bookings in the quarter
  • PTC highlighted the IoT segment, which it says performed well ahead of expectations. IoT software revenue was $21 million, up an insane percentage that’s not worth noting. ThingWorx added 78 new IoT customers in FQ3, for a total of 182 for the year so far, making it likely that PTC will exceed its target of 200 for the year
  • By geo, revenue from the Americas was $134 million, up 3% as reported and up 4% in cc. Mr. Heppelmann said PTC struggled to close large CAD and PLM deals in this region, but saw strong sales of IoT and SLM, leading to double-digit software revenue growth in the region
  • Revenue from Europe was $110 million, down 16% as reported but up 2% in cc. In constant currency, that meant modest software revenue growth due to sales of PLM/ALM, IoT, and SLM but a decline in CAD
  • Revenue from the Pacific Rim was $33 million, down 10% as reported and down 8% in cc. The company says it saw a modest constant currency decline in software revenue again due to weak results in CAD, extended PLM, and SLM, primarily due to the overall slowdown in China. Revenue from Japan was $26 million, down 33% (down 21% in cc) year/year due to a very strong quarter a year ago
  • PTC reported 8 large deals (>$1 million of license and subscription solutions bookings) in FQ3, down from 21 a year ago — when there was also one mega deal (>$5 million).  Three of the 8 large deals the company closed in FQ3 were IoT deals, which is worrisome: extending the practice of hunting big deals into the new IoT business expands big deal risk into a new domain.

The influence of the large deals on these results can’t be denied — and it also makes it hard to see where things are working (or not) in the sub-categories. There was a decline in Creo modules, upgrades and legacy CAD products, while new Creo seat sales declined more modestly. Is this because big deal buyers are going for modules and upgrades, and fewer of these materialized in FQ3?

Mr. Heppelmann was asked on the earnings call if the deal slippage and overall down results in CAD and ePLM were due to competitive pressure, specifically from Dassault Systèmes. Mr. Heppelmann, not surprising, was a bit touchy in his reply:

“I don’t think there’s any competitive dimension here. I think that we are in a series of businesses and Dassault is a series of businesses. Our CAD and PLM businesses most directly correlate to Dassault’s CATIA and ENOVIA businesses. And I think over the last three years, the growth rates of those have been remarkably similar. Now, Dassault is in some higher-growth businesses like SolidWorks, and we are in some higher growth businesses like IoT. But I think you can’t really compare — Dassault is structured differently than we are, and I think that that has helped them in this quarter because the SolidWorks business performed well and so did our IoT business.”

At a total revenue perspective, of course, he’s right. DS is trying hard not to be seen as a CAD company, selling its Experiences as overall solutions to business problems. But the Experiences are composed of CAD, PLM and other components. So we do have a basis for comparison: CATIA revenue was up 4% cc and SolidWorks was up 11% cc while PTC’s overall CAD revenue was down 10% cc, admittedly over a very good quarter a year ago. How much of this difference is due to the pressure PTC’s customers feel from their business climates? Are they holding back purchases more than DS’s? Hard to tell. I think what Mr. Heppelmann was trying to say is that they haven’t lost any CAD or PLM deals to DS and that the companies are increasingly calling on different customers — or different people within their traditional accounts.

What’s ahead? PTC once again cited the IoT business as the momentum driver for FQ4 but sees a “challenging” manufacturing economy holding back broader growth, especially in the Americas and China. On the plus side: number of the large deals that didn’t make it into FQ3 have already closed. The question, of course, is whether deals meant for Q4 will slide into Q1 … The company sees total revenue between $304 million on $319 million for FQ4, which means total revenue for the fiscal year of $1,250 million to  $1,265 million, flat or down 1% in cc.

Quickie: DS blows by Q2 forecast

EarningsDassault Systèmes reported today that Q2 revenue was €716 million, up 29% as reported (and up 16% in constant currency) year/year. The company had forecast non-IFRS total revenue of around €675 million and just reported non-IFRS Q2 revenue of €723 million. Some of this is clearly exchange-rate related, but a lot is actual growth. We’ll learn a lot more after the conference call (and after I listen to the more detailed company briefing held in Europe earlier), but here are the details so far:

  • Q2 total revenue was €716 million, up 29% as reported on an IFRS basis and up 16% in constant currencies (cc), year/year (y/y)
  • Total software revenue was €628 million, up 27% as reported and up 14% in cc
  • On an IFRS basis, new licenses revenue was €177 million, up 27% as reported. DS says on an organic, non-IFRS basis, cc new license growth was 11%
  • IFRS periodic licenses, maintenance and other software-related
    revenue was €450.4, up 27%; non-IFRS cc growth was 11%
  • Service and other revenue in Q2 was €88 million, up 44% as reported and up 30% in cc
  • By geo, revenue from the Americas was €220.0, up 40% as reported and up 15%  in cc
  • Revenue from Europe was €305 million, up 18% as reported and up 13% in cc
  • Finally, revenue from Asia was €190 million, up 35% as reported and up 22% in cc
  • By product category, CATIA reported software revenue of €244 million, up 13% as reported and up 4% in non-IFRS cc
  • Revenue from ENOVIA software was €73 million, up 12% as reported and up 1% in non-IFRS cc, “reflecting the transition underway with good 3DEXPERIENCE platform prospects” according to DS
  • “Other software” continues to be the bucket with the best performance, with software revenue of €170 million, up 61% as reported and up 35% in non-IFRS cc due to the addition of Quintiq and Accelrys in 2014. DS does cite “improvement across brands, including DELMIA, GEOVIA and EXALEAD” but doesn’t offer more detail.
  • SOLIDWORKS software was €140 million, up 30% as reported and up 11% in non-IFRS cc.

So, what happened to get to this result? Per the press release, the new direct sales model, economic improvement across Asia, increased revenue from large customers, new business activity across its established and new industries — we’ll hope to learn more from the conference calls.

The company also raising guidance for the full year: Q3 non-IFRS revenue of €660 million to €670 million, or IFRS growth of about 7% to 9% in cc. For the year, the company now sees  non-IFRS revenue growth of about 12% in cc to €2.80 billion to €2.82 billion.

These are really good results, yet the share price is up less than 1% on the news (at 8AM ET). Clearly, there’s a lot more to learn. Check back later for an update.

MuM reports H1 up 15%, VAR up 10% or so ex-fx

EarningsGerman reseller and software developer Mensch und Maschine (MuM) releases its earnings shortly before other PLM companies and often signals whether the market is doing well — if the company’s Q2 report is anything to go by, it should be a decent earnings season.

MuM said that sales for the first half of 2015 are up 15% as reported to €81.4 million, with it software business reporting H1 revenue of  €20.6 million, up 9%. But the standout was its VAR business, with revenue of  €60.8 million jumping 18% year/year (y/y). The company said that currency effects, specifically strengthening of the Swiss Franc versus the Euro, caused roughly half of the growth of the VAR business for the year to date — but that still means 10% or so organic growth as reported.

What can we learn about Q2?

  • Q2 revenue was €38.6 million, up 17% y/y but down sequentially by €4 million or so. For comparison, Q1 revenue was up 14% y/y
  • In Q2, MuM Software revenue was €10.3 million, up 12% y/y and flat sequentially. As a reminder, MuM makes solutions such as the Open Mind CAM suite and GaLa gardening and landscaping software
  • Revenue from the VAR business was €28.3 million, up 19% but down €4 million from Q1. MuM resells Autodesk software so often reports lumpy revenue because of the timing of promotions, suites releases and other specific offerings timed to suit Autodesk’s timetable, which has quarters closing one month after MuM. On a constant currency basis, MuM would appear to have had growth in the VAR business of around 10%
  • Given what MuM said in its prepared remarks, it would appear that the sequential declines are due to currency effects –MuM doesn’t give total revenue or category information on a constant currency basis for the quarter.

In all, the strong H1 and Q2 led MuM CEO Adi Drotleff to reiterate the company’s targets for 2015 of total revenue over €150 million (that would be growth of at least 7%). In the company presentation to investors, Mr. Drotleff said that he sees mid-term growth of 10% on an organic basis, so my interpretation is that he sees things slowing in the second half of 2015 due to a combination of currency and market effects, but picking up in 2016 — after all, the company still thinks it will revenue of €200 million by 2018.

The rest of the PLMish universe starts reporting tomorrow, when Dassault Systèmes releases results. PTC has already warned that it’s going to report revenue of approximately $303 million, down 10% y/y on lighter than expected license and subscriptions solutions revenue. We’ve got MuM reporting up, PTC reporting down … currency is clearly involved in these reports, but so is a bit of buyer uncertainty given all of the ways one can now buy and use software. Let’s see what DS has to say.

DEAL! AVEVA+Schneider, sorta

EarningsWhile you and I were at the beach or in the mountains, the lads and lasses at AVEVA have been busily negotiating a merger with Schneider Electric, one of the suitors that kept cropping up over the last couple of years. It’s a very complicated deal –and it make sense on many levels– so let’s see if we can break it down:

  • AVEVA will acquire Schneider Software in such a way that Schneider Electric winds up owning the majority of the shares of AVEVA.
  • Schneider Software was created when Schneider acquired Invensys in 2013. If you follow the space, you’re probably most familiar with the Invensys SimSci brand, which competes in may ways with Aspen Tech (another oft-rumored suitor for AVEVA. You can stop asking about that one now). SimSci’s process simulation, optimization and training solutions are a perfect match or AVEVA’s design solutions, and SimSci’s process control software can take it into interesting new directions, to rival what Siemens has in it PLM business. Invesys also brought with it Avantis’ enterprise asset management solutions; Eurotherm, process control tracking and recording; IMServ,which makes energy and carbon management solutions; Skelta’s business process management and workflow solutions; Triconex’ emergency and safety applications; and Wonderware, which makes industrial software including Human Machine Interface (HMI), SCADA, MES, real-time Operations Management and Production Information Management software. You may also know another Schneider Software brand: Foxboro, which provides process automation, control systems and instrumentation.
  • That sounds big, you say. How can AVEVA afford this?
  • This is where it gets complicated. The deal has AVEVA buying Schneider Software on a “debt-free cash-free basis” for £1.3 billion. The only way to do this is to issue 74 million new shares, which it will sell to Schneider Electric. This deal will give Schneider 53.5% of the shares of what’s being called the “enlarged AVEVA Group”.
  • At the deal’s closing, Schneider will give AVEVA £550 million that will be distributed to AVEVA’s shareholders (not including Schneider Electric). This is the part of the deal I don’t understand — seems to make it unnecessarily complicated. But AVEVA has been such a takeover candidate, with lots of private equity firms owning reasonably large stakes, that it might be the only way this deal could succeed.
  • The press materials announcing the deal say that this “enlarged AVEVA” will have combined revenues of £534 million and an adjusted earnings before interest, tax, depreciation and amortization of £130m. That means Schneider Software had revenue of $524 million (roughly£325 million) for the year ended 31 March 2015, more that AVEVA had in the same period.
  • This deal is being called a reverse merger and isn’t an outright takeover. Schneider Electric has agreed to not increase its stake in AVEVA for 2 years, and to not increase its stake above 75% for a further 18 months without seeking AVEVA’s approval and jumping through some other hoops.
  • AVEVA CEO Richard Longdon and the AVEVA board will remain in place (with the addition of two Schneider members when the deal closes), and the company will continue to be listed on the London Stock Exchange.

Richard Longdon, AVEVA CEO said in the announcement that, “The transaction will be transformational to AVEVA, creating a global leader in industrial software, which will be able to better compete on a global scale. Through the acquisition of Schneider Software, AVEVA will significantly expand its scale and product portfolio, diversify its end user markets and increase its geographic exposure to the US market, in line with our strategic goals.”

Schneider Electric CEO Jean-Pascal Tricoire said that that “combination of AVEVA and selected Schneider Electric industrial software assets … will create a global leader in industrial software, with a unique portfolio of asset management solutions from design & build to operations and will address customers’ requirements along the full asset life cycle in key industrial and infrastructure markets. It will also create the right environment for the software teams to develop aggressively their business, while benefiting from the multiple commercial access of Schneider around the world.”

The deal still needs regulatory and shareholder approvals.

I like this deal. I like that AVEVA stays independent, but with bigger everything. Schneider Electric styles itself as “the global specialist in energy management and automation”, both of which are critical for AVEVA’s base, regardless of end-industry. Schneider Electric reported revenues of €24.9 billion in 2014, with operations in 100 countries; its geo and vertical footprints are huge and much more diverse than AVEVA’s, which should help AVEVA boost its business in North America and enter new verticals. Add to this a product portfolio that spans process simulation with SimSci, detailed design via AVEVA’s PDMS and E3D and project/process/data management using AVEVA NET then asset data management with Avantis, and so on bringing the potential for a comprehensive and integrated offering that spans the 50-odd year life of an industrial plant. I’m sure there are also new technologies in R&D at both Schneider Software and AVEVA that are will extend the value of engineering and operational data beyond traditional boundaries; the ability to do this “in one house” should speed these developments and make them more useful early on.

AVEVA’s shareholders also like this deal (and who wouldn’t, given the cash payout that’s coming?), sending the share price up 28% at 1PM London time, as I write this.

I’ve asked the company for a timeline and additional info; will update if I learn more.

Aconex snaps up Worksite to boost construction efficiency

EarningsI don’t write about the smaller companies in our PLMish universe often enough — yet they create valuable solutions that are used successfully and profitably by customers around the world. One reason they fascinate me: they compete against suppliers who use fear, uncertainty and doubt (aka FUD) and claim bigness as a key reason to buy from them, and not from the smaller supplier. Bigger does not necessarily mean better or more stable but it’s a question they have to address in nearly every sales situation. It also leads many smaller suppliers to grow by acquisition where they can. To grow sales channels or capacity or to take them into adjacent areas, where they can leverage existing reach.

Aconex, an Australian company that makes cloud collaboration solutions for the construction industry, just announced such a deal. They’re acquiring Worksite, which makes a Software-as-a-Service project cost control solution that’s often called ARES, after the selling company, ARES Project Management LLC. Aconex is paying roughly AUS$6.5 million (US$4.8 million) for Worksite in a deal that should close by the end of July 2015.

This is a smart timing. AEC companies are moving away from Excel-based processes because they’re hard to control across projects and too specific to the people maintaining even company standard workbooks. Worksite’s cost control solutions enable visibility across projects, so that companies can find and promote best practices and start to look for efficiencies that are buried inside people’s Excel files. Aconex plans to take this further, and will integrate Worksite with its project collaboration platform; customers will be able to forecast, budget, and manage earned value billing and cost performance.

One criticism I’ve heard about Worksite is that hasn’t been evolving quickly enough to keep up with modern technologies, like mobile devices and web interface design. Aconex plans to increase its R&D expenditures to “build-out [Worksite’s] integrated cost management solution” and integrate it with existing offerings. As a result, Aconex says, the acquisition is expected to be moderately dilutive to earnings and net profit for the next 24 months — but the company, of course, does expect the acquisition to become accretive after that.

Aconex CEO Leigh Jasper said in prepared remarks that “connecting cost management to the Aconex platform will bridge internal cost systems and external collaboration, providing a single source of truth for better financial visibility and control. Participants project-wide will be able to track budgets, contracts, claims and payments, and cost and schedule changes — both actual and potential. All of this information will be connected to collaborative processes managed on Aconex, offering new insights into the current and forecasted status of the project. Project cost information can now flow seamlessly from the collaboration platform into internal enterprise resource planning (ERP) systems. The acquisition of Worksite will further increase the value that we deliver to our customers, broadening the Aconex product portfolio and accelerating the growth of our global user network.”

There are many data points* on inefficiencies in the construction industry. Sometimes projects stall or become less profitable because of design changes, but even fully specified projects suffer because of complex supply chains that make planning and execution so difficult. Tying planning, cost and other project data together provides visibility and accountability. Project teams can start to quantify the consequences in time or cost of a design change, of delayed delivery of a piece of steel or a labor issue, work on earned value payment schemes and start to trim litigation expenses. Over time, AEC companies on a learning path to will discover and address the root causes of the industry’s nagging inefficiencies. Will the problems magically disappear? Probably not, but moving the needle even a little will will save billions.

  • Just a few, in case you’re interested:
  • A 2007 presentation showing how inefficiency is calculated into project budgets. It’s a case of addressing the symptom and not the disease — but makes perfect sense given that the industry has always had this problem.
  • An industry review that showcases “25 to 50 percent waste in coordinating labor and in managing, moving, and installing materials … [and] transactional costs of $4 billion to $12 billion per year to resolve disputes and claims associated with construction projects”, along other data supporting the benefits of modular construction.
  • An awesome presentation by Barry LePatner on the causes of inefficiencies in the US construction industry that “cost taxpayers, corporations and developers over $120 billion a year”. Ouch.

AVEVA’s trading update: all going as planned

EarningsAVEVA issued another one of its periodic trading updates last week: In a very brief statement, AVEVA said that it hasn’t seen any change in the business climate since its May report and that the continued strengthening of the British pound continues to drag down revenue and profit.

Just about the only real piece of news is that AVEVA’s cash position at the end of June was £119 million, up from £104 million at the end of March 2015. We can’t infer much from this, other than collections seem to be going to plan, too, given that some cash was spent on the FabTrol acquisition in June.

Speaking of … Acquisition integration is going well, according to the statement. 8over8 (contractual risk management software, acquired in January for £27 million) takes the company in a new direction, adding business process management to the company’s longtime engineering focus. Many of the EPCs I’ve been speaking with are implementing commercial software to systematize processes that had been ad hoc across divisions and projects; 8over8’s ProCon fits nicely into that trend. 8over8 is tiny and is unlikely to move AVEVA’s needle all that much right now, but AVEVA’s global reach and support network are likely to jumpstart the business in geos previously out of 8over8’s reach.

The addition of FabTrol (steel fabrication management software, acquired a few weeks ago for Canadian $6.5 million) enables AVEVA to provide solutions for each stage of the steel fabrication chain, from steel design to detailing and fabrication. It, too, will benefit from AVEVA’s reach to take it beyond North America where, I am told, it is the market leader. AVEVA acquired Bocad in 2012; its steel detailing solution already has an interface to FabTrol. Cross-selling the two products presents a good opportunity to try to displace incumbent Tekla or Bentley ProSteel in North America with Bocad (weak in North America) and in-house solutions with FabTrol in the rest of the world, where FabTrol is largely unknown.

London City analysts have a consensus forecast for fiscal 2016 revenue of £217 million, which would be an increase of 4% or so. AVEVA next releases financial info in November.

PTC starts earnings with a warning, deals slipping

EarningsPTC last week said that its fiscal third quarter (ended June 30) would be a bit light, as it expects to report GAAP revenue of $303 million, short of its own forecasts and analysts consensus of $310 million and down about 10% from a year ago. Not surprising, then, that the share price fell 3% after the announcement. Seems harsh: the company says it’s actually more profitable than expected, with non-GAAP earnings per share above earlier guidance. It’s likely that PTC’s cost-cutting measures, announced last year, are taking effect ahead of schedule.

The real issue in FQ2 seems to be that deal timing and composition are getting harder to predict. CEO Jim Heppelmann said in the press release that PTC “saw a number of large deals in [the] core business push out at the end of the quarter”. Since PTC relies on big deals, signing 13 in the March-ending quarter, that’s a problem. We don’t know where in the “core business” the problem occurred; it’ll be interesting to see what PTC and DS say about PLM vs CAD vs other parts of their businesses.

Too, the transition to subscriptions continues to be tough to predict. Software revenue will be around $250 million in FQ3 with $84 million from license and subscription solutions, slightly below earlier guidance of $85 million to $90 million in subscriptions as part of total software revenue of $253 million to $258 million.

PTC said that subscription bookings, as a proportion of total software bookings was 16%, rather than the expected 18% for FQ3, as some large IoT buyers opted for perpetual licenses. Professional services revenue came in as expected, at $54 million.

Buyers can choose what mechanism works best for them, so it’s not unusual to have a perpetual deal flip to subscriptions — or, as PTC found, the other way. It’ll be interesting to learn on July 29 whether the deal slippage is tied to indecision on perpetual versus subscriptions; are buyers confused? Do they need help sorting out their options? That’s a PTC problem, and very fixable. If deals are slowing for other reasons, that may be macro-economic, and out of PTC’s control. Often, if it’s a minor slip, companies are quick to add something like “and those deals have already closed.” PTC didn’t do that, but we don’t yet know why.

Stay tuned — much more coming in July 29.

Bentley Systems files preliminary paperwork for an IPO

EarningsNot to be all-Bentley-all-the-time, but … this is big news.

This morning Bentley Systems announced that it’s filed preliminary documents with the US Securities and Exchange Commission (SEC) for an initial public offering (IPO) of its class B shares. This is a confidential filing, so we don’t know exactly what’s on offer, why it’s happening or have access to the usual financial disclosures — Bentley says the IPO will begin as soon as the SEC has finished its review but gives no indication of when that might occur.

You might recall that Bentley last tried this in 2002, filing a registration document but then withdrawing it later that year when it appeared that the market’s downward trend wouldn’t give the kind of valuation the company’s owners wanted. [At least, that’s how I remember it; if you think it was something else, comment away!]

Why do companies sell shares to the public? To raise money, to make it possible to reward employees with stock and options, to have bigger visibility in a world where public companies talk to investors several times a year and private companies don’t have that forum, to enable current shareholders to sell in a way that creates liquidity but preserves the majority of the remaining shareholders (that depends on who is selling what shares, and the rights associated with those shares). But there are downsides, too: investors expect quarterly progress in all sorts of metrics that often conflict with longer-term goals, so decision-making becomes skewed to a short term, 3-month at a time, focus. Too, being a public company is expensive; it’s a cost that comes straight off the top, money not spent on R&D or sales.

We’ll find out a lot more about all of this when we can see the S-1 for this year’s IPO. It’s going to be an interesting summer!

Bentley Systems at 30 — no slowing down

Who are these handsome young men and women? None other than the founders and first employees of Bentley Systems, the AECO company, taken in 1986 in front of what must have been a very sweet ride:

Bentley Systems turned 30 last year, a milestone celebrated in the company’s new 2014 Annual Report. You probably know the company most for its flagship MicroStation CAD product, but so much has happened in, on top of and around MicroStation in the years since Keith Bentley and Barry Bentley started the company that it’s worth taking a trip down memory lane.

Did you know, for example, that Bentley first introduced subscriptions in 1991? The company bundled maintenance and support into a subscription that included access to the code developers (unheard of even back then). Over the years, subs have grown to represent nearly 80% of total revenue, creating a great cushion of recurring revenue and a predictable growth path. Today’s subscriptions (aka Passports in Bentley-speak) come in flavors that provide access to everything in Bentley’s software portfolio or to role-specific subsets, that may include training, or not — and that can be shared between a company’s country or regional offices. Bentley is a software company, but some of its most interesting innovations have been in business models.

ProjectWise, Bentley’s collaboration solution, was introduced in 1998 –roughly the same time PLM really started to hit it big in manufacturing– to help clients manage the first wave of project offshoring in the infrastructure world. Today, ProjectWise is a key component of nearly every Passport the company sells; CEO Greg Bentley calls it “the workhorse for work sharing” in the AEC domain.

In 2001, the company started an acquisition scheme that doesn’t seem to have slowed since. InRoads, GEOPAK, AutoPlant and PlantWise, AXSYS, RAM and STAAD, ProSteel, ConstructSim, eB, SACS and MOSES, Ivara and Amulet — the company has been snapping up both industry standards and new technologies. Mr. Bentley says that the company has invested over $1 billion in acquisitions and internal R&D since 2008.

Two of these acquisitions, Pointools in 2011 and Acute3D earlier this year, give it the tools to create and edit 3D models from laser scanned point clouds and photographs, setting the stage for what Bentley calls Reality Modeling. Mr. Bentley says that point clouds and photographic “reality meshes” can be directly referenced from within Bentley applications, giving real-world context for design, engineering, construction, and operations. His example: using a drone to do continuous (well, daily) surveillance of a construction site, to monitor and report on progress. No more arguments over whether a foundation was poured — it either was or it wasn’t. Image as proof.

To me, Bentley’s most important technological path has been into operations: the acquisition of Exor and Enterprise Informatics (eB) in 2010, Ivara (now AssetWise APM) in 2012 and C3Global’s Amulet earlier this year connects Bentley into the 30, 40 or 50 year life of an asset –perhaps at the beginning, via design, but also at any point during that long life. Asset management and performance modeling require tying together maintenance histories, immediate sensor data and predictive analytics to keep complex manufacturing processes safe and profitable. That’s big, and only going to get bigger as more manufacturers try to capture this data flow and turn it into something actionable. It’s exciting to see the MicroStation company move so far outside its former realm.

OK. Enough history. You can check out the timeline yourself, here.

Bentley’s annual report and corporate update conference call gave a few bits of information on what happened in 2014 and let us read a little bit between the lines, as well:

  • Revenue for 2014 was $625 million, up 7% in constant currency and on an organic basis; total revenue was up 5% as reported. Given Mr. Bentley’s earlier organic growth forecast of 6% for 2014, the company did better than expected
  • The proportion of revenue from subscriptions continues to grow, and hit 76% of total revenue in 2014 (2013: 74%; 2012: 74%; 2011: 72%). Subscription revenue in $ terms is growing slightly faster than total revenue (8% vs. 5%), which could be due to Bentley’s evolving definition of subscriptions that now include services such as training — but it is also likely that more companies opt for subscriptions in an uncertain AEC climate. EPCs have told me that they like to mix perpetual licenses with subscriptions to maximize flexibility.
  • Renewal rates were again over 97% in 2014
  • Bentley invested over $150 million in R&D in 2014, around 25% of revenue
  • By geography, revenue from the Americas was $275 million, up 3% as reported. From EMEA, revenue was $231 million, up 8% and from Asia, $119 million, up 5%. Mr. Bentley said that growth leaders in 2014 were the Middle East and Africa, Southeast Asia, Greater China, and India, but didn’t give details.
  • One can surmise that some of the regional results are due to infrastructure build-out in Asia and the Middle East, which are balanced against turmoil in Russia/Ukraine and in Brazil. But those are guesses.
  • As a privately-held company, Bentley doesn’t give profitability data. Mr. Bentley did say that operating cash flow “continues to exceed $100 million annually”

What’s ahead? The CONNECT edition, Mr. Bentley says, is the natural evolution of everything in the 30 year timeline so far. The goal is to go beyond design, to trade-off evaluation, analytical modeling, construction modeling and asset performance. The CONNECT Edition uses Microsoft’s Azure cloud to support a hybrid environment of on-premise servers, desktop applications, and mobile apps to create a common environment for AEC: design anywhere, on any platform in a single file format and UI. That’s tough technologically but also from the user’s perspective: AEC tasks require a great deal of control to get from inception to delivery to ensure meeting all of the relevant project standards. Bentley says the CONNECT Edition makes this possible, letting workers do their jobs where it makes the most sense that day, always accessing the latest, most correct information about the project. CONNECT Edition versions of MicroStation and Navigator are available now; more of ProjectWise, AssetWise, Open Plant et al. will roll out through 2015 and 2016.

Mr. Bentley didn’t give a forecast for 2015, but there’s no reason to expect constant currency revenue growth under last year’s 7%; we should also see a bump from acquisitions. What acquisitions? Look for more technology tuck-ins plus more tools to keep tabs on asset performance, what Mr. Bentley considers “the final frontier” to adding value for asset owners. It’s no secret: if owners are happy, everyone in the AEC food chain — designers, architects, EPCs, construction planners and suppliers– is happy. Contractors want to add value and remain relevant to their owner clients after the keys to the asset are handed over; many of Bentley’s recent developments in operations hit exactly that target.

Image courtesy of Bentley Systems 2014 Annual Report.