ESI Q2 revenue up 8% on strong license growth in installed base

Sep 17, 2015 | Hot Topics

ESI Group just reported results for the second quarter of its fiscal year — and it was an overall mixed bag, with some pockets of solid growth.

  • Revenue for the quarter was €24.3 million, up 8% as reported and up 2% in constant currency and using a similar group structure — in other words, on a constant currency, organic basis (cco).
  • License revenue was €17.6 million, up 14% as reported and up 7% cco, while services revenue was €6.7 million, down 5% as reported and down 9% cco.

In this report, the company gave most of its color for first half results, which were total revenue of €48.4 million, up 14% as reported and up 6% cco. ESI says that recent acquisitions were largely technology tuck-ins which require further development before commercial viability; total acquired revenue was  €0.1 million in H1. Total H1 license revenue was €34.7 million, up 17% and up 9% cco. The company says this is due to the “remarkable 26.9% increase in repeat business in the installed base. New business fell back by -8.1% … hampered by cyclical effects, including the still difficult environment in Russia.”

The report singles out the IC.IDO acquisition, as its adoption spreads beyond its traditional ground transportation and aerospace to heavy industry –Kubota’s loaders are mentioned. Recall that ESI acquired IC.IDO in 2011 for its immersive experience, including real-time physics simulations, that enables users to assess the behavior of virtual objects and collaboration around their design. It’s time that CAE moves out of the analyst’s desktop and into the corporation — IC.IDO’s traction is part of that wave. Services revenue in H1 was €13.7 million, up 6% as reported but down 1% cco. The good news: ESI says its engineering studies business was actually up 20%, indicating that companies still rely on vendors to offer expertise and manpower on critical projects. In H1, by geo, revenue from Asia was €20 million, up 16%; from the Americas, €10 million, up 36%; and from Europe, €19 million, up 2% (all rounded, as reported). ESI says that performance in Russia continues to be poor, and that license sales in the US were up 24% and in China, up 26%. The contribution from the BRIC countries fell to 12% of total revenue as growth in China and India was offset by slow sales in Russia. [Note: An earlier version had incorrect geo growth rates. Don’t know what I was thinking … My father would have said I wasn’t. Apologies.]

CEO Alain de Rouvray said in prepared remarks that he sees leading industrial firms moving towards a digital factory (not to be confused with products of the same name) where virtual prototyping becomes the norm: “This structural trend drives strong growth of licenses, particularly in the installed base, and is indicative of the strength of ESI’s industry standard solutions and the Group’s robust business model … ESI Group continues to differentiate itself clearly from its competition by technological innovation and adoption of disruptive technologies, including those represented in recently acquired activities.” ESI doesn’t give outlook as such, but did say that its strategy of spreading simulation and simulation results from design and engineering to regulatory and other processes positions it well: “Medium term, these growth areas should sustain the commercial momentum the Group has been seeing for several quarters.”