ESI’s Q3 license revenue up 16% on a large early renewal

Nov 27, 2018 | Hot Topics

ESI Group just reported results for its fiscal third quarter that could signal a return to growth after a lackluster first six months of the year.

The details:

  • Total revenue was €28 million, up 12% as reported and up 12% in constant currencies (cc)
  • License revenue was €21 million, up 16% as reported and up 15% cc due, in part, to the early renewal of a €1.7 million contract — but even without that, license revenue would have been up 7%, which isn’t bad either
  • Services revenue was €7 million, up 3% as reported and up 2% cc
  • To give a bit of color for the above, total revenue was up 3% for the year to date, led by licenses, which are up 6%. Q3 is either an anomaly, an unusually strong quarter in a historically weak period, or it could be the start of a serious uptick — ESI clearly believes it’s the latter
  • The one troubling sign: for the first 9 months, “New Business fell by 2.8% at constant rates.” New license revenue is lumpy, granted.  The average ESI customer has bought from the company for many, many years and I believe ESI lumps new licenses sold to long-time customers as “repeat” business. Add that all together, and ESI makes it hard to report “new business” — perhaps that’s something the new CFO and CEO will change
  • By geo, license revenue from Europe was up 7% cc for the year to date on the strength of the company’s strategic partnerships. License revenue from Asia was up 3% cc.
  • Another sign of a possible recovery: growth in the Americas, where ESI has struggled, especially in the US. ESI says that license revenue was up 22% cc, including that big deal that renewed early
  • ESI occasionally gives data by vertical, but not in this report, other than to say “the automotive industry is driving the growth … Business was also brisk in the energy and defense sectors.”

CEO Alain de Rouvray said, “The good sales performance delivered in Q3 2018 reflects the expected reversal of the trend [seen so far this year, due to] increased deployment of our virtual prototyping solutions for achieving the ‘zero real test’ and ‘zero real prototype’ objectives of our customers, especially in the automotive sector where our Hybrid Twin solution offers major productivity levers. In this context, the continued investment of our historic customers in our disruptive solutions is a concrete vindication of our transformation plan.” [I’ve paraphrased a bit; see the original here.]

Interestingly, nothing was said in the earnings release of the business pillars into which the company reorganized itself earlier in the year, cost controls put in place at about the same time or, really, the Hybrid Twin. Remember that ESI roars into Q4 every year, with that quarter alone accounting for nearly half of annual revenue. We’ll know how it turned out in March 2019. (remember that this is that last year that will have a fiscal year-end of January 31 — next “year” will be 11 months, from 1 February 2019 to 31 December 2019.)