Q&A: AVEVA AVEVA AVEVA, revenue recognition and more

Once again, we’re opening the Google and answering questions that led searchers to the Schnitger Corp. website. It’s not clear that there’s a theme or even a pattern, but it’s certainly an interesting mix of business- and product-related questions.

You continue to be fascinated by AVEVA, whether it’s acquired, who might be involved and the timing of any possible deal.

AVEVA acquired? AVEVA + AspenTech?

Nope. Not as of noon ET on 18 May, 2015.There was again an article published in the UK that hinted at a possible acquisition of AVEVA. This one said that the company had hired an investment bank to help evaluate potential international suitors and mentioned AspenTech as one possibility.

I know no more than you do so can’t say if the report is true or not. Hiring a banker makes sense even if nothing is imminent, simply to protect the interests of current shareholders. If you own a house and many of  your neighbors are selling, you might want to investigate real estate agents to help you in a possible transaction. Does hiring help mean a sale is imminent? Not necessarily.

ANSYS revenue recognition

Not sure what the question is here, but US software companies typically follow FASB rules for revenue recognition. FASB is the Financial Accounting Standards Board, a private sector group that establishes accounting standards for companies filing with the Securities and Exchange Commission. Similar groups in other parts of the world have their own rules, but I think they’re similar.

A software vendor typically has 4 sources of revenue:

• perpetual licenses and maintenance, where each amount is recognized in the period in which it is paid. So if you spend $1,000 on a license and pay the first year’s maintenance of $250 in June 2015, the full $1,250 is recognized in June. Next year, $250 will be recognized when you pay it
• software leases or rentals are periodic subscriptions that may be prepaid but only applied (recognized) as the term progresses. Think magazines; if you buy a 3 year subscription with a single check, the revenue for the current issue is recognized by the publisher now, and the rest is put into deferred revenue, to be drawn down over time. Why would a buyer prepay? Because of the sweet deal you might get for giving the publisher your money upfront — in essence, you’re making a loan that puts real cash into the company’s bank accounts
• services or consulting revenue is recognized as project milestones are met. When the report is delivered, some number of users are live or some other goal is satisfied, that portion of the revenue for the project is recognized. Again, it may be billed in the period or, like subscriptions, be taken out of pre-paid sums in deferred revenue
• training revenue is typically billed, paid and recognized as it happens.

Why does this matter? Because getting the cash isn’t the same as recognizing the revenue and that can be confusing since most of us live is a cash accounting world. Public companies are struggling to come up with ways to show that lower recognized revenue (from a time-based subscription instead of a bigger perpetual payment) isn’t a bad thing –and may actually be a good thing– as their revenue models change.

PDMS vs AutoCAD

It’s hard to know where to begin with this one. PDMS comes from AVEVA and is typically (though not exclusively) used for plant/ship design on large and mega projects. It’s got modules and role-based user interfaces for piping, electrical, drafting and other disciplines and is not, generally, considered inexpensive. AutoCAD, however, comes from Autodesk. The vanilla version is used to model everything from piping to buildings to desk chairs. The plant-specific AutoCAD Plant 3D lets piping designers create 3D models and some of the tricky 2D drawing deliverables that are unique to this world. Presuming that the “vs” in the question means, “which is better?”, that’s completely dependent upon the use case. For large projects, with distributed teams and complex workflows, PDMS with the AVEVA Global and AVEVA Net underpinnings may be more appropriate; for smaller projects, with simpler collaboration and control needs, AutoCAD Plant may be more suitable. A lot of teams use both on a project: PDMS for the project overall, AutoCAD (Plant 3D or vanilla) for locally generated content, equipment and/or detailed drawing generation.

MSC and Elliott & “letter”

In 2009, MSC Software was a public company. One of the shareholders was Elliott Associates, an activist company that wanted MSC to sell itself, to buy something or do anything else it could think of to increase shareholder value and told MSC this in a letter that was later published in formal filings with the SEC. I wrote a lot about it at the time, for example, here. All of the agida created by that letter eventually led to MSC’s sale to Symphony Technology Group,  which still owns MSC today.

Shareholder activism is really important — remember that while Elliott Associates, Warren Buffet or Carl Icahn may own (some, part, all) of a company, they don’t actually run it. In the case of MSC, Elliott wanted to sell the company to a larger entity because they felt it was too small to go it alone. More recently, Exa was told it needed sell itself to a bigger player or do something to create interest in the share to boost its price. These activists are in it for the money: they see a company they think is undervalued and want to force changes that will increase the value of their investment. But that’s not always the case: activists helped end Apartheid in South Africa by forcing changes to how companies did business in Africa; others focus on environmental, labor rights or other societal issues.