MuM says it can manage the dip caused by Autodesk subs transition

Oct 24, 2016 | Hot Topics

Germany’s Mensch und Maschine today announced results for the third quarter and first 9 months of 2016 — its results are usually a good preview of what we can expect from other PLMish companies and from Autodesk, since MuM is one of its largest resellers.

For the first 9 months of 2016, revenue was up 7% to €128 million, led by 12% revenue growth from its proprietary software brands. The VAR business (remember, stressed by the conversion to subscriptions for its Autodesk offerings), reported revenue up 5%. Revenue MuM Software was €34 million while the VAR segment reported total revenue of €94 million.

I don’t typically report profitability metrics but it’s important to monitor the health of Autodesk VARs like MuM to give some sense of what Autodesk’s other, non-public VARS are also going through given the change from perpetual/maintenance to subscriptions. MuM reports that gross margins in total climbed to a new record of €68 million, up 10%, led by its proprietary software but with the VAR business also contributing 6% growth — so a bit ahead of revenue growth. That total, however, hides the details: The gross margin from the VAR business was up 6% to €35 million but includes €19 million in services revenue (up 22%). Looking just at Autodesk software, MuM says that gross margins fell 7% to €16 million due to the transition from license sales to a subscriptions. The lesson: diversification is crucial. More than one revenue stream, more control over your own destiny.

For Q3, revenue was €39.8 million, up 5%. MuM Software revenue was €10.5 million, up 11%; revenue from the VAR business was €36.7 million, essentially flat with respect to last year.

It’s quite telling that MuM CEO Adi Drotleff phrases his prepared remarks this way: [We are] ‘not only optimistic for M+M’s proprietary business, but also like the mid-term perspective of the Autodesk transition: As the annual rental charges at 30-40% of list prices are significantly higher than the approximately 15% maintenance fees after license sales, we principally appreciate the transition to a rental model, in accordance with the financial market, and expect the Autodesk business to be back to a significant growth contribution by Q4/2017. This means that our mid-term annual growth targets … are well underlined.’

“We appreciate the transition to a rental model” and “expect the Autodesk business to be back to a significant growth contribution by Q4/2017” says it all: there will definitely be a dip but the math says it will reverse by late next year — the key is making it across that dip to the upswing. MuM appears to be managing it well. It exited the pure distribution business a couple of years ago and is focusing heavily on its own software (growing fast but still only 26% of total revenue this year) and high-value services offerings around Open Mind as well as Autodesk products.

Notice that MuM isn’t making an unqualified endorsement of the switch to subs but rather saying that it’s survivable. Other Autodesk VARs, who didn’t exit lower-value businesses and who don’t have a decent, high-margin additional revenue stream, might be far more stressed.

Mr. Drotleff still expects to see total revenue of about €170 million in 2016.