Schnitger Corporation

MuM had “best Q1 in company’s history”

MuM had “best Q1 in company’s history”

Apr 25, 2016 | Hot Topics

Now, that’s a headline. We’re all worrying about how the switch to subscriptions across the software universe affects the software creators and their reseller partners, and how many will be unable to manage the cash flow implications of the change — and here’s one that seems to be doing just fine. But the devil is in the details…

Mensch und Maschine Software (MuM) announced today that it “started 2016 with the best Q1 ever in the 32-year history of the company”. Q1 revenue was up 18% to €50.4 million and profitability metrics earnings before interest, taxes, depreciation and amortization (EBITDA) was up 37%, while net profit after minority shares was up 78%. [Why am I telling you about profit when I do’t usually do that? Read on.]

You may remember that MuM resells Autodesk products and also has its own software brands. Nope, this growth wasn’t due solely to its proprietary brands: M+M Software revenue was €11.5 million, up 11%, while the VAR Business contributed €38.9 million, up 20% from a year ago.

MuM said that the drivers behind the Q1 performance were its CAM brand, OPEN MIND, and “the Autodesk software license business where there were pull effects in advance of the transition to a rental model.” So the question we have to ask is, is this a bubble like those caused by Autodesk or other vendor promotions that change customers’ normal buying patterns? Or has this been baked into a plan for the year, which will see buyers will no longer able to buy perpetual licenses for most Autodesk products after July?

Last month, during the Q4 2015 earnings release, Mr. Drotleff said that he expects 2016 sales to exceed €170 million; nothing released today changes that forecast. If anything, Mr. Drotleff is more “comfortable” in the profitability forecasts given the Q1 results. Autodesk has made no secret that it’s shifting to subscriptions and has worked with its VARs from the beginning to define how this would happen — MuM planned its campaigns and knew what to expect. There was undoubtedly some of the same unanticipated last-minute switching between licensing options that PTC saw, but on balance, the quarter seems to have played out as MuM expected.

Why focus on MuM’s profitability? Because subscriptions add cash to a business’ bank balances but can’t be recognized on an income statement until the period when they’re used. Income statements are all about recognized revenue, with perpetual payments adding nice, fat totals to the revenue line from which expenses are subtracted down to the bottom, net income, line. Revenue went up 18% while net income was up 78% — that’s only possible it the costs in the middle are lower.

What can we learn from this earnings release? That the first half of the year could be awesome for the Autodesk universe, as customers who want perpetual rush to buy before that option goes away. (Remember: as long as you keep paying maintenance, your perpetual license will work. You just won’t be able to buy new perpetual licenses for most Suites after July 2016.) MuM’s Q1 also shows that resellers who have the cost/revenue balance figured out should be OK, even if they don’t have their own product line to buffer the effects of the perpetual to subs sales transition.

Autodesk is due to report results in the middle of May.

PTC surprised by subs, DS continues to roll PTC's Q2 revenue misses but positions for the future
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