AVEVA says H1 went well

Oct 25, 2018 | Hot Topics

Oh so many earnings this week! So far, the news has been mostly positive as customers are buying to plan. PTC continues its march to subscriptions (and caused endless kerfuffles on the earnings call because it’s adopting a new accounting standard). Dassault Systèmes’ Q3 results were as forecast due to Exa’s contribution; there is a slight slowdown in organic license revenue. Aspen Tech saw a return to revenue growth from engineering, procurement and construction customers, as the pall cast by low oil prices seems to have lifted — or oil producers are coming to grips with their new normal. More on all of these as I can get to them. This morning I need to quickly post about Schneider Electric (SE) and AVEVA.

Since the acquisition, SE comments on AVEVA revenue in its quarterly earnings statements. That forces AVEVA, on a half-year reporting schedule to issue a statement, too.

SE didn’t say much: “AVEVA delivered double-digit organic growth in Q3 on its Industrial Software portfolio. AVEVA benefitted from sales in conjunction with Schneider Electric’s automation offers through a coordinated go-to-market approach. This good performance highlights the good traction for its end-to-end digital solution from design and build to operation and maintenance for operators in hybrid and process end-markets.”

For its part, AVEVA said, “AVEVA continued to perform well during the first half of its financial year. The Group delivered low double digit revenue growth on a constant currency basis. This growth included the impact of good sales execution, with a number of contracts being brought forward into the first half and some benefit of upfront revenue recognition on multiyear rental contracts. The integration of the heritage AVEVA and Schneider Electric industrial software business is on track, with progress made in putting cost savings initiatives in place, with the financial benefits of this expected to start showing in the second half.”

What does it mean? The comments on execution probably mean that the integration of the sales teams from Schneider Electric Industrial Software and AVEVA is going better than expected, maybe more smoothly and with fewer distractions. That second bit, about upfront revenue recognition, could be purely an accounting thing –it’s math– or it could mean that customers are changing how they buy. We’ll just have to wait for the half-year report on November 20 to find out.

That cost synergies comment. at the end of AVEVA’s statement, is what investors want to hear and what many customers dread. Yes, it likely refers to the savings created when the cost of doing business as two companies converge into one, with one accounting department, one HR and so on. But it can also mean closing office locations, moving long-time contacts to new rolls … It’s destabilizing. We’ll see what effect that has though I should say that I’ve only heard one comment about it so far.

Finally, consider the tightrope that AVEVA is walking here. On the one hand, it needs to show growth in a very competitive market. It makes prospects nervous when a vendor isn’t growing. On the other, AVEVA can’t grow too much because that bumps up the share price and makes it tough for SE to exercise its right to buy up the shares it doesn’t own, once the lockout expires. Getting this just right is going to be tough.

But that’s in the future. For now, things seem to be on track or slightly ahead. We’ll know more on November 20.