ESI’s Q4 returns to license growth

Mar 16, 2018 | Hot Topics

You have spoken: you’re not fans of long blog posts that summarize a clump of earnings all at once, nor do you want to wait until the last of a bunch of companies publishes results to read the post. So we’re back to the old scheme, one company at a time. I’ll work to get us all caught up. Thanks to all who gave their opinions.

Yesterday ESI announced results for its fiscal fourth quarter and the year ended 31 January. The press release was all about momentum — the costs of building it, and the results of a slow build. Specifically,

  • Q4 total revenue was €57 million, down 2% as reported but up 1% in constant currencies (cc).
  • License revenue was €49 million, up 1% (up 3%)
  • Services revenue was down 16% (13%) to €8 million, on a tough comparable a year ago
  • This means that, for the year, total revenue was €135 million, down 4% (down 2%), with license revenue of €106 million, down 2% (flat) and services revenue fo €30 million, down 8% (down 7%).

Why? As I saw at ESI’s user group meeting last fall, customers rely on ESI solutions to solve gnarly problems in manufacturing, safety, design –and, increasingly use its virtual reality solutions to better communicate around these issues– so why aren’t sales better?

It comes down to execution, a problem acknowledged by CEO Alain de Rouvray. M. de Rouvray said in the earnings press release that “the reported rebound in Licenses bodes well for better sales momentum in 2018, supported by the benefits of the strategic investments and management reorganizations made over the last two years.” This includes new leadership for global go-to-market and a focus on selling more products into existing accounts. Too, ESI has begun to feel the impact of subscriptions, depressing current revenue but leading to more reliable and repeatable revenue in the future.

On a geo basis, business continues to be tough in the US, which accounted for only 16% of total revenue for the fiscal year — comparable to last year. Contribution from other regions also remained stable, as Asia Pacific was 38% of total revenue (versus 39% a year ago, both in cc), and Europe represented 46% of sales (in cc).

ESI spent much of 2017 reorganizing its operations, at a cost of €7.0 million to €8.0 million — including R&D investments, the acquisition of Scilab and upgrading field offices, training and realigning teams. It opened a new office in Silicon Valley, for example, to attract developers in “Machine Learning, Artificial Intelligence, Internet of Things (IOT) and the Cloud, together with a marketing, sales and support team to foster West Coast customers”. As part of better trying to explain its offerings, the company defines itself as having 3 main business areas: “Engineering (design and development of industrial products), Manufacturing (fabrication of products) and In-Service (usage, piloting and maintenance of products from launch to repair and ultimate withdrawal)”. ESI said that these changes, which “impacted our short-term sales performance, aims to bring the sales force in line with the operational support requirements of industrial clients via a regional local coordination structure based around customer Account Managers focused on value selling, and Technical sales Engineers to foster accelerated technical and methodological change.”

This is all good news for users (and investors). ESI has some terrific capabilities in fabrication that often get lost in the IoT-focused, PLMish marketing around the bigger portfolio. With a part of the business so specifically focused on this, perhaps ESI will be better able to reach new customers. Too, ESI products are so niche-y within its customers, that the new sales approach should lead to a bigger footprint within existing clients — but, of course, it all comes down to execution. We’ll see how 2018 develops.