ESI’s Q3 disappoints, but Q4 should be OK

ESI reported third quarter results last week that were, at best, so-so, as revenue declined 7% as reported (2% in constant currency, cc) to €25 million. ESI management says Q3 results “[do] not realistically reflect the considerable transformative added value being built with our strategic partners and global industry leaders. So, we reiterate our strong confidence in ESI’s ability to recover its growth momentum in 2018. This view is reinforced by the enthusiasm already shown by our partners and early adopters worldwide.”

The details:

• License revenue was €18 million, down 9% as reported (down 4% cc)
• Services revenue was €7 million, down 3% as reported but up 1% in cc

A couple of things to note: Q3 2016 was quite strong, when cc and organic revenue was up 12% creating a tough comparable for Q3 2017 under just about any circumstances. Then, too, per ESI, part of the decline in license revenue in Q3 2017 was due to a large contract slipping in to Q4. On the plus side: revenue from Engineering Studies (not broken out in this news release) was up 5% cc in Q3, on strong performances in Europe and growth in revenue from Special Projects, ESI’s category for projects that are carried out with customers and technology partners.

Speaking of … I was fortunate enough to attend ESI’s North American user conference last month but haven’t had the opportunity to write about it yet. I will, soon I hope, but in the meantime: Many of ESI’s customers rely on ESI’s point solutions for casting, composites, NVH and so on — but, increasingly, ESI’s forays into augmented reality (from the IC.IDO acquisition), CFD (OpenFOAM), 1D-2D-3D simulation integration (ITI) and the Virtual Performance Solution (the follow-on from PAM-Crash) are causing long-time customers look to ESI for more thought leadership. It’s not surprising that the Special Projects revenue grew ahead of other categories: customers and partners want to work with ESI on next-generation solutions for complex multi-physics and multi-system simulations. More to come.