ESI’s FQ1 hints at upward momentum for H2

ESI reported results back at the end of May –travel and US holidays sometimes get in the way of timely blogging– and they were, at best, mediocre as reported. Currency movements, customers opting for subscriptions and not perpetual licenses, and changes in how key customers renew contracts all contributed to a lackluster fiscal first quarter — but it ESI believes that momentum is about to swing to growth in the second half of this fiscal year.

The details:

• Total revenue in FQ1 was €26.3 million, down 4% as reported but up 1% in constant currencies (cc)
• License revenue was €19 million, down 5% as reported (but flat cc)
• Services revenue was €7.2 million, down 1% (up 3% cc)

ESI says that business in FQ1 centered on its Engineering and Manufacturing offerings — not surprising, since that is its historic strength. During 2018, ESI is rolling out a new organizational structure and go-to-market that also includes an In-Service component, focusing on product use “from launch to repair and ultimate withdrawal”. We’ll be watching to see how that part of the business ramps up.

Of particular note in FQ1 is a large deal (unspecified size) signed with a top-tier automotive manufacturer for augmented reality. When I was at ESI’s user conference last year, ESI’s AR user group meeting was jammed with major industrial companies sharing how they use the IC.IDO AR portfolio, how to build an internal service business around AR and find new use cases and user types within their organizations. It’s not surprising, therefore, that AR is becoming more important from a customer relationship and revenue perspective.

On a geo basis, ESI says that EMEA saw “double-digit growth” while  growth in China was “robust”.

ESI doesn’t give formal guidance, but CEO Alain de Rouvray said in prepared remarks that the FQ1, while slow, also had “many encouraging factors such … new contracts in the automotive and aerospace industries, focusing on manufacturers’ ‘Digital Transformation’ and ‘Smart Factory’. [These] support our confidence of an expected upturn in growth in 2018 … Beyond the continuous success of our historic offering of Virtual Prototyping for pre-certification of brand new and ‘ready-to-sell’ products, our offer now addresses ‘in-life’ assisted or autonomous performance, e.g. of used or repaired products in-Service, and of fabrication and assembly lines in factory operation. Importantly, our management reorganization around three business pillars is poised to better address our customers’ business structure. Coupled with an in-depth reshaping of our sales and marketing organization and strategy, these major adaptive initiatives are expected to foster a renewed business momentum for this and the following years.”