ESI’s Q3 shows continued momentum

Dec 5, 2016 | Hot Topics

It looks like things may finally be coming together for ESI. Q3 results, released a few weeks ago, show that the company is reaching new customers, deepening relationships with longtime customers — and partnering with a leading research institute to commercialize new technology.

The earnings details:

  • Total revenue for Q3 was €26.9 million, up 26% as reported, up 21%in constant currencies (cc)
  • Acquisitions, mainly ITI,  contributed €2 million, meaning that organic growth was 16% or so
  • License revenue was €19.5 million, up 30% as reported (up 25% cc) and up 15% on an organic and cc basis
  • Services revenue was €7.4 million, up 15% as reported, up 11% cc. CEO Alain de Rouvray said that ESI’s services teams support the “challenging methodological transformation towards ‘Industry 4.0’”and that “this growth reflects the transition towards the ‘smart factory’ that will enable industrials to meet head-on the current economic challenges linked to the imperative to innovate while facing increasing international competition.”
  • ESI reported that one large deal, for €1.4 million renewal plus new software, shifted from Q4 into Q3 — unusual when a lot of tech companies cite deal slippage into future periods
  • I was surprised by the size of this renewal deal and asked COO Vincent Chaillou about it. He told me that ESI’s typical deal is much smaller — but that deals span a very broad spectrum. ESI doesn’t disclose this data, but it appears that there were perhaps 20 deals as large as this (or larger) in the first 9 months of the year
  • Also for the year to date, ESI reports that its has seen an “18% growth in the Engineering Studies which are ESI’s core business and a 36% growth of co-creation and methodological transformational projects, over the period and at current rates.” Dr. Chaillou says that these engagements are crucial — they foreshadow future adoption of ESI tools (and, therefore, license sales). “It shows that customers believe in our vision and will invest to help us bring it to market”
  • By geo, for the year to date, Asia represented €37.8 million, up 31%, bolstered by that deal that moved from Q4 into Q3
  • Revenue from the Americas region was essentially flat, at €13.2 million, drawn down by touch economic conditions in Brazil and a tough comparable to 2015. Dr. Chaillou isn’t worried; he sees the US as bringing significant opportunity, especially in auto, aero and industrial equipment.
  • Finally, revenue from Europe was €31.7 million, up 18% (all growth rates, as reported.)

Alain de Rouvray, ESI CEO, said in prepared remarks that these results reflect the “enthusiastic take-up of our ‘Immersive Virtual Prototyping’ solutions. The increase in Licenses revenues has been especially marked in Asia, a region at the cutting-edge of innovation where ESI is standing out strongly versus the standard PLM offering … ESI’s PPL (Product Performance Lifecycle) solutions [go] way beyond the traditional PLM focus of … providing an information backbone for the product development phase. ESI’s PPL solutions address the complete lifecycle of an industrial product by including the modeling variations of its prospective operational life, from launch and commissioning up to final withdrawal from service, while accounting for faults, wear out and maintenance steps, and including assisted piloting options.”

ESI also continues to grow its partner network, adding Xerox’s Palo Alto Research Center (PARC) to the roster. The company says it will work with PARC to expand and commercialize PARC’s Fault Augmented Model Extension methodology, developed with the US Defense Advanced Research Projects Agency, better known as DARPA. The goal is to examine a products complete lifecycle, with a view towards predictive and condition- based maintenance. Dr. Chaillou explains that ESI and PARC will bring together 0D/1D and 3D modeling, to tie together the system model and 3D virtual prototype, with ESI’s machine learning technology to commercialize a product targeted at the growing market for predictive maintenance solutions. He said that ESI isn’t engaged in fundamental research and that DARPA and PARC don’t bring products to market — all of these participants benefit from the relationship. The agreement says that ESI will exclusivity market the joint solution,  which already has customer engagement.

ESI never gives forward-looking guidance but, if the company follows its usual Q4-heavy pattern, it should handily reach the broker consensus of €141 million for the year.