Might AEC lead the way for manufacturing in subs and cloud?

May 1, 2018 | Hot Topics

We’re deep into earnings season and, so far, results have been positive: buyers are wrapping their heads around subscriptions in our broader PLMish universe and markets, vertical and geographic and by channel, seem to be doing well. A couple of AEC earnings results in the last several days bear out the trend we’ve seen from DS, PTC and MuM but may also hint at greater interest in subs, with buyer pull rather than vendor push, in IoT and in the cloud. Read on:

AspenTech, which makes chemical process design and optimization tools, among other things, reports that modest improvement in oil and gas as well as growing interest in its operations solutions led fiscal Q3 revenue to grow 6% to $126 million. Subscription and software revenue was $118 million, up 6% while services and other revenue was $8 million, essentially flat. You may recall that AspenTech is mostly subscription at this point; it transitioned from perpetual several years ago — it’s survived the trough and growth is now real, new sales.The company reports that it signed two significant six-figure deals for its new-ish APM (Asset Performance Management) solutions. AspenTech has said that their go-to-market plan for APM was via pilots, as is typical for IoT projects — do a proof of concept, demonstrate value via improved uptime and/or lower maintenance costs, then work towards a broader roll-out of the technology across first one production plant, then more. As we’ve seen with PTC and ThingWorx, this process builds a pipeline that can be nurtured to closure. AspenTech’s early APM successes have grown that share of the overall pipeline from 22% in FQ2 to 32% in FQ3. That’s impressive, although it may indicate that the health of the pipeline for AspenTech’s traditional offerings isn’t as robust.

As far as more color on the business: Bright spots include Europe and Asia, where AspenTech is starting to see a pickup in demand. North America, not so much, as engineering customers still see lower business activity by their owner clients. But the end of the downturn may be in sight: AspenTech believes that oil and gas CapEx budget will grown around 5% to 7% in 2018; how much of this ripples into projects where AspenTech is relevant (rather than shale which is essentially a mining operation) remains to be seen.

Investors often ask me about AspenTech’s new partnership with Emerson, to implement AspenTech’s process simulation, operator training, and  manufacturing and supply chain software, including APM. The companies signed the agreement in February 2018, so it’s early days, but AspenTech CEO Antonio Pietri said that he is “seeing solid early traction with Emerson as its global sales channel identifies opportunities involving AspenTech solutions”. He declined to offer specifics on the expected impact of the agreement but said that he is seeing “a very fast activation of their sales channel vis ­à­ vis our solutions. How much will this amount to in the future? Time will tell.”

The company slightly raised its FY18 targets, with revenue now expected to be between $496 million and $499 million. So close — you just know the sales team that pushes that over $500 million might just get an extra bonus.

Nemetschek, the parent company of Allplan, Graphisoft, Bluebeam, Vectorworks and other brands, said that revenue in Q1 was €102 million, up 6% as reported and up 13% in constant currencies. License revenue was €47 million, down 3% from an unusually strong Q1 a year ago; maintenance revenue of €51 million was up 15% and services revenue was €4 million, up 10%. Keeping with the general Q1 theme of subscriptions, Nemetschek reported that subs revenue was up 47% cc (though to still a small proportion of total revenue at €4 million); management said that it, too, is working on a “strategic change of the business model, [with a] smooth transition towards subscriptions while respecting the customer wishes”. That’s important: Brands offer subs and perpetuals; the customer chooses, which means that Nemetschek isn’t wholly in control of its model shift. The company reports that it is seeing subs demand pick up in the US and the UK.

By segment, revenue from the Design brands was up 8% cc to €63 million. Design was, for years, Nemetschek’s main offering and still is the single largest line of business — but it’s shrinking as the other parts pick up, and Design now represents 62% of total revenue. The Build brands were the fastest growing, with broader global adoption of Bluebeam helping to drive revenue up 27% cc. The Manage segment, still a tiny part of the overall business, reported that revenue was up 12% cc. Media revenue was up 5% cc but flat as reported. By geo, Nemetschek’s focus on the Americas continues to pay off, as revenue there was up 10% as reported and 26% cc. Revenue from Asia was up 11% cc, and from Europe, up 9% cc.

Management reiterated its forecast for 2018, with revenue of around €450 million, up 13% to 15% and said that it was (of course) continuing to pursue acquisitions, especially in the Manage and Build segments.

The last company to write about today, RIB Software, is one you may not be aware of. RIB is considered a BIM company by many, though it really isn’t in the traditional sense. RIB focuses on the construction part of AEC, bringing BIM data from Autodesk, Bentley, Nemetshek et al to the workface. RIB’s iTWO platform brings BIM model data, virtually, into construction planning and execution. RIB is working to leverage this core technology via partnerships and joint ventures: with Flex, it wants to turn iTWO (rebadged as YTWO) into a procurement powerhouse and, with Microsoft, it wants to bring MTWO (iTWO plus MSFT, get it?) to many more users on Azure. Both of those partnerships are in their early stages and didn’t contribute meaningfully to Q1 revenue, which was €32 million, up 20%. RIB segments its revenue into on-prem licenses, which saw revenue of €9 million, up 35% year/year and SaaS+maintenance recurring revenue of €14 million, up 14%. E-commerce was a tiny €2 million, up 38%, and consulting revenue was €6 million, up 12%.

What does all that mean? AEC is typically conservative in its technology patterns, especially when it comes to the cloud and to using technology at the construction workface. But that’s changing, as project-based workflows and geographically dispersed team members make subscriptions and cloud technology really, really attractive — as is the ability to affect project profitability in new ways, whether via IoT, more simulation or digitalizing and automating workflows like procurement. AEC adopters of these technologies are just skipping over many of the implementation battles the manufacturing world went through. They often don’t have the legacy hardware, licenses, training, workflows and other sunk costs that are so confounding to manufacturing users who want to adopt new technologies but simply can’t. AEC may be going from tech laggard to tech leader.

The two big siblings in AEC, Autodesk and Bentley, make public statements about their recent results. Yes, Bentley will hold a corporate update call next week. I bet it’ll be good news since the tagline on their press releases now reads “more than $700 million in annual revenues” — a big jump from the “more than $600 million” it said just last month. That’s next Wednesday, May 9. Autodesk has its quarterly call on May 24.