Earnings

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.