ESI’s 2015 put the “tech bricks” in place for the future

ESI Group recently reported results for Q4 and the year ended 31 January 2016. I had the chance to speak with Dr. Vincent Chaillou, COO for Edition Operations, about the year and the results. There are always opportunities for improvement but, said Dr. Chaillou ESI performed well in 2015/2016, laying the foundation for growth across prodocut lines, industry verticals and geographies. ESI is taking the long view, acquiring technologies and building its own to create a platform for design evaluation that it believes to be revolutionary. The recent ITI 0D/1D and Mineset big data analytics acquisitions are key to that strategy.

The details fro the quarter and year ended January 31, 2016

• Revenue in Q4 was €54.9 million, up 12% as reported and up 7% in constant currencies (cc).That brings the year’s revenue to €124.7 million, up 12% as reported and up 7% cc
• For the quarter, license revenue was €47.4 million, up 15% (up 10% cc), driven once again by strong performance in Asia. Recurring revenue was up 22% cc and 16% as reported, while new license revenue was up 10% as reported on strength in the Americas. For the year, license revenue was €97 million, up 15% (up 9% cc)
• Services revenue was down 2% as reported (down 6% in cc) to €7.5 million in Q4 — but that’s a bit misleading. ESI says that revenue from engineering studies was up 19% but doesn’t offset the decline in non-recurring Other revenue such as hardware sales. I asked for clarification on the hardware comment: these sales are usually pass-throughs for virtual reality caves that customers sometimes want ESI to buy, configure and install — this isn’t really a business ESI wants to be in, according to Dr. Chaillou, but is sometimes required given the complexity of the interfaces often seen in VR. For the year, Services revenue was €27.7 million, up 5% as reported and flat cc
• ESI reports rough percentages for its geo breakdown. For the year, revenue from Asia was roughly €45 million, up 15% as reported. From the Americas, €24 million, up 25%; and from Europe, €57 million, up 8%. The reported growth in the US was boosted by foreign exchange, but there was also good cc license growth. ESI has placed two executive VPs in the US, highlighting the importance of the region to the company overall.

On an organic basis, ESI reports that new business was down a little bit for the year, though Dr Chaillou says it was up 9% in Q4 as part of the upward trend seen in the second half of the year. Recall that in first half of the year, several large customers changed the timing on deals, in effect changing the calendar on when renewals would take place.

Two hot regions remain China and Russia, though for different reasons. The business climate in Russia is “really bad” according to Dr. Chaillou, which makes any sales closed there a pleasant surprise. Flip that around in China, where ESI signed a joint venture with AVIC two years ago; results in 2014/2015 were “average” but the JV really took hold in 2015/2016, to the extent that aerospace sales in China are starting to shift ESI’s vertical sales away from the historic concentration on ground transportation. The company’s “four pillars” remain automotive, aerospace, heavy industry and energy; Dr. Chaillou says that all performed well in 2015/2016 with energy up over 60%, aero up 36%, heavy up 20% and auto up 11%.

Dr. Chaillou told me that ESI is buying and creating “technological building blocks” that support this industry vertical expansion, as well as creating new offerings for existing markets. He says that modern manufacturing, alternative forms of energy and other drivers coincide nicely with the growth in ESI’s technology offerings, creating new customer pull for many of the company’s products. Recent acquisitions that address big data, machine learning and the Internet of Things will, over time, be integrated with ESI’s traditional PAM-STAMP, PAM-CRASH, etc. and with ESI’s virtual immersive environment. The end result? A decision-making platform that leverages simulations and industrial data, in a VR setting that makes the virtual world feel real.

ESI doesn’t offer guidance, but the Financial Times shows analyst consensus of revenue of €143 million for 2106/2017, up 14% or so.