ESI Group reported today that fiscal Q1 2014/5 revenue was down 7% to €20.1 million, in part because of the company’s intention focus on high value services engagements that are likely to lead to future license sales. Had services revenue held constant with last year, total revenue would still have been down year/year — but only by 1% or so.
This move to a different consulting mode seems to be happening across CAE, and marks a definite shift from how most of these companies got started: as consultants who did work for clients using their own, proprietary software. Clients then wanted to use the software themselves, and vendors had a nice business teaching clients and selling software. Today, clients often ask vendors to carry out proof-of-concept or validation studies; routine but not necessarily lucrative. ESI now wants to help customers change their product development strategies to include more virtual prototyping, which demands expertise in business processes, simulation, design and manufacturing — far more valuable to both ESI and clients than earlier models. But shifts like this take time and so ESI stalled a bit in Q1.
The earnings details:
- Total revenue for FQ1 was €20.1 million, down 7% year/year as reported and down 3% in constant currencies (cc)
- License revenue was up 2% in cc but down 3% as reported to €14.2 million
- Service revenue was down 16% as reported and down 13% in cc to €5.9 million. CEO Alain de Rouvray says this is part of a planned shift that started last year, a “strategic refocusing to exclude low-value-added standard studies”.
- In cc, Europe accounted for 44% of total revenue in Q1F15 (as compared to 41% a year ago); the Americas were 17% of total revenue versus 20% last year and Asia was consistent, at 39% in both periods. ESI didn’t comment on the shift from the Americas to Europe.
ESI doesn’t offer guidance as such, but M. de Rouvray did say that he expects business to pick up in the second half of the year: “The multi-year and multi-sector strategic agreements signed at the end of 2013 [and] our recent acquisitions are expected to bear fruit in the second half of 2014.”