Exa’s Q4 beats, highlights cloud success

Mar 11, 2016 | Hot Topics

Exa Corp. last night announced results that definitely bucked the trend — recall that ANSYS and DS both reported simulation results that were good but not expectation-beating. Exa’s Q4 revenue was $18.3 million, up 8% year/year as reported and up 13% in constant currencies (cc). That’s at the top end of the company’s own guidance and well above Wall Street’s expectation of around $17.5.

The details, for Q4 ended January 31 2016:

  • License revenue was $14 million, up 11% as reported and up 16% cc
  • Project revenue was $4 million, essentially flat as reported and up 4% cc. The company still relies to a great extent on starting customer engagements with projects, but is working to shift to a more repeatable license-based business
  • The company gives limited geo data during its earnings call: 41% of Q4 revenue was from Europe; 30% from the Americas and 29% from Asia. This mix seems to continue a trend that shows stronger growth in Asia — but we’ll know more when Exa makes its formal filings

For the year, total revenue was $65 million, up 7% as reported and up 15% cc. The company reported a net loss for the quarter and the year, of $1.3 million in Q4 and $4.8 million for the year — both significantly smaller losses than a year earlier.The company continues to build its deferred revenue; this stood at $37 million at the end of Q4, up 39% year over year.

CEO Steve Remondi told investors that the license revenue growth for the year was the direct result of investments made over the last several years in both R&D and sales, to grow the deal pipeline. He pointed out that Exa reported consistent 16% cc license revenue growth in each quarter of fiscal 2016.

He also said that the Exa cloud offering continues to attract more and more clients, as it is “highly valued by customers [who want to] scale their simulation capabilities without major upfront investments. This enables our project-based customers to more quickly migrate to license-based engagements with Exa.” He added that the cloud opens up significant potential with “new customers, new engagement models, supply chain — suppliers in the auto space are picking up the cloud to enable collaboration with all of the different engineering centers globally — they are really leveraging the cloud strategically to connect all of those different groups.”

You keep asking me about this: yes, security concerns remain but more and more enterprises, even the biggest of the big that are Exa customers, need periodic added capacity or to quickly ramp up on projects. More and more of that is happening in the cloud. It’s a slow but gradual and (in my view) inexorable shift.

Mr. Remondi was asked about the Siemens/CD-adapco acquisition. He pointed out that CD-adapco and Exa, while both CFD makers, typically operate in different parts of their clients’ engineering departments so he doesn’t see much change in customer relationships. He is, however happy about the price: “We were pleased to see the 5X multiple paid on trailing 12-month revenues for a business — simulation company that’s heavily concentrated in the ground transportation market like ourselves. So, that was very positive.” For those who keep track, Exa is currently trading at 2.5x revenue.

Finally, Mr. Remondi talked about China, which has been a slowing market for many engineering software companies. He said that China is still a strong and growing market for Exa: “I think it’s the fastest rate probably of any country … [Chinese passenger car markers] are moving toward local engineering, and customization for the local market. We’re seeing customers grow significant license business and license increase is still coming from that market.”

For Q1, the company expects total revenue of $16.5 million to $17 million and, for the full fiscal 2017, the company expects total revenue of $72.5 million to $75 million. Mr. Remondi believes Exa can deliver cc license revenue growth of 15% to 20%, so a bit more aggressive growth than in fiscal 2016.