You might remember that ESI has a new CEO, Cristel de Rouvray. Since February, Ms. de Rouvray and CFO Olfa Zorgati have been on a listening tour, talking to investors, customers and employees to learn what they think will help drive ESI to new levels of revenue, profitability, innovation and customer engagement. I’ve spoken with them several times over the last few months and most recently, spoke to Ms. Zorgati and her team about ESI’s performance for the year ended 31 January 2019, and about the plans for the remainder of the year.
Before we get to the highlights of our conversation, a recap of the results:
- Total revenue for the fiscal year was €139 million, up 3% as reported and up 4% at constant currencies (cc)
- License revenue was €110 million, up 4% (up 5% cc). Rentals and maintenance made up 85% of the total; the rest is from perpetuals
- Services revenue (really consulting in ESI’s case) was €30 million, flat as reported and up 1% cc
- By geo, revenue from EMEA was €69 million, up 8%, led by license revenue of €50 million, up 9%. Revenue from Asia was €50 million, essentially flat, and from the Americas, €21 million, down 3%
- ESI doesn’t give revenue by industry, but focuses on bookings. In the fiscal year just ended, automotive and transportation was up 2% and remains the largest vertical, 57% of bookings. The fastest-growing was energy (up 11%) to 7% of total bookings
- Finally, ESI’s 20 largest customers account for 45% of revenue — and are growing their spend with ESI by 12% to 16%, far ahead of the 3% average. ESI believes these customers lead the rest, embracing a fully digital validation strategy. ESI’s challenge is to amp up its efforts to convince other customers that this is the best approach.
Ms. Zorgati told me that ESI is starting to see the results of initiatives that have already been implemented. A focus on key accounts, started last year, contributed to the continued success in large accounts. Strategic initiatives in light weighting and immersive AR technologies lead to tighter relationships with top customers and create new opportunities in the broader set of 2000 customers.
Finally, ESI has embarked on an ambitious plan to clarify its offering and organization, increase efficiency, and better integrate and market/sell the company’s diverse solution set. People within the organization are being reorganized and connected to improve how they work and collaborate on products, which should improve the overall efficiency of the R&D team. It’s all part of an overall strategy to find what works, replicate that across ESI and then amplify the overall effort.
We also discussed the importance of services to ESI’s success. Services are expensive –smart people, commanding high salaries, who cannot be 100% charged out to clients– and, yet, critical to client engagement. New companies often seek out ESI’s expertise and then transition into software customers; repeat customers rely on ESI to help with strategic implementation strategies. Yes, services can be seen as an overhead, but in ESI’s case (and in CAE, in general), they’re often very strategic investments in the future.
Another outcome of the listening tour? You can tune in to a webcast where Ms. de Rouvray and Ms. Zorgati discuss the year’s results, here. One tidbit from the webcast: Ms. de Rouvray says that ESI regularly receives merger/acquisition offers. She believes that ESI has had a hand in creating a market for virtual prototyping and plans to participate in its success — I interpret that to mean that ESI’s board will (of course) entertain offers but that it is not planning to go cheaply, if at all.
ESI has, for a long time, been a company with solid technology but shaky execution. That’s led to patchy revenue performance, with some up years/regions/industries overshadowed by down periods. Continuing to work with top customers while engaging more with the rest of the 2000 –and reaching new customers with better sales execution– will, we all hope, lead to better performance in 2019 and beyond.