AVEVA’s firing on all cylinders in H1, poised for $1B revenue in F2020

Nov 18, 2019 | Hot Topics

Schneider Electric reported results a couple of weeks ago that caused AVEVA (partly owned by SE) to say that everything was going to plan — optimistic but basically content-free. Last week, AVEVA remedied that by offering a flood of detail about its first half of fiscal 2020. First, those details, then some comments:

  • Total revenue was £392 million, up 17% as reported. On an organic, constant currency basis, revenue was up 12%. AVEVA said growth was driven by strong sales execution, cross-selling of the combined product portfolio to an enlarged customer base and a number of large multi-year contracts, including one for which the revenue was partly recognized upfront
  • Revenue from rentals and subscriptions was £141 million, up 84% as reported (up 77% in constant currencies, cc), while revenue from initial fees and perpetuals was £85 million, down 12% (down 13% cc) as AVEVA continues to shift its customers to repeatable forms of revenue. Without that large contract mentioned above, subs would have been up 60%
  • Software support and maintenance revenue was £102 million, up 8% (flat cc)
  • Services revenue was £64 million, down 7% (down 10% cc) as AVEVA shifts focus to focused on higher margin projects and works to create more standard, repeatable solutions, which require less configuration and customization
  • Channel sales represented about 1/3 of total, performing “well,” with “double digit growth across all regions” due, in part, to moving more products through the (legacy SE) Monitoring & Control partners, and to launching the AVEVA Partner Network, which will be able to sell the entire AVEVA portfolio. That’s a big deal because one of the limiters the old AVEVA faced was numbers — getting enough feet on the street to sell and support its products on a global scale
  • Direct revenue was, therefore, 2/3 of total, characterized as “strong, benefiting from investment and revised sales incentives”
  • By business unit, Engineering (the design and simulation products) reported revenue of around£165 million, up 20% cc, led by strong growth in Plant and Marine design tools even as customers move to rentals and subscriptions and away from perpetual license deals. Engineering represented 42% of total revenue, compared to 43% in the last half of fiscal 2019. Don’t read too much into that slight dip — AVEVA has just started reporting this split, there’s a shift in perpetuals vs subs that throws everything off, and the year is typically not evenly weighted– this category is hugely important to AVEVA and that is unlikely to change
  • Monitoring & Control reported revenue of about £125million, up in the “low single digit” cc, with solid growth in HMI SCADA partly offset by lower sales in pipeline Monitoring & Control. Why? Because AVEVA is being  “more selective bidding for contracts.” Monitoring & Control represented 32% of total revenue, flat with earlier this year
  • Asset Performance Management represented 14% of the Group’s total revenue, or approximately £55 million, up “double digits” cc, with “particularly strong growth from AVEVA Predictive Analytics, which achieved a large order win in North America.”
  • Planning and Operations was about 12% of the business (up from 11% earlier this year) or £47 million, reporting “mid-teens” growth
  • By geo, revenue from EMEA was up 4% to £135 million, led by 14.% growth in recurring revenue growth
  • The Americas also saw the effects of AVEVA’s ”planned reduction in Initial & Perpetual Licenses and Training & Services revenue” but, even so, total revenue was up 7% to £133 million
  • Finally, revenue from Asia Pacific was up 49% to £124 million on “strong growth” in Korea, China and Australia and particular strength in Engineering and Planning & Operations. Regional growth further benefited from a large multi-year contract with a key global account customer in Australia, likely Worley (but don’t tell anyone, it’s a secret)

By end-market, the oil  & gas sector still dominates AVEVA’s business, accounting for about 40% of revenue. Because of the addition of the SE brands, AVEVA now addresses a much larger range of customers, from design and construction during the capital phase of an asset to operational phases across upstream, midstream and downstream. AVEVA reports that overall market conditions were “stable, with steady capital and operating expenditure across all segments”. 

Marine, chemicals/petrochemicals, and packaged goods (in which AVEVA includes food & beverage and pharma), power and metals & mining each represent 5% to 10% of revenue. AVEVA says marine did well due to “product cycle upgrades and a large multi-year rental contract win with a shipbuilder in Asia”. AVEVA said its other end markets are “largely non-cyclical and are primarily driven by structural growth as industries make increasing use of technology to drive efficiency” and that those drivers are “strong.”

AVEVA said that as part of its rationalization of its sales capacity, it had sold off a wholly owned distributor in Italy and intends to sell other distributors in Germany and Scandinavia.

Well. A lot to parse. My main takeaways: Legacy AVEVA needed more resources to expand and sell a solid offering; legacy SE needed to invest more in its software assets than a hardware company seemed willing to do. Together, they seem more than able to weather the combined effects of go-to-market changes, the move from perpetual to subs and rationalizing products/offices/teams. Of course, there’s a lot to be said for being in the right place at the right time and, as CEO Craig Hayman told investors,

“In the past year, the number of companies with a formalized near-term digital strategy has doubled, and productivity improvement is a major driver. [As one example,] Suncor Energy is Canada’s largest integrated energy company, and they are on a journey to put data to work and put it in the hands of their employees. They are the first integrated energy company to leverage the cross-portfolio combination of AVEVA’s PRiSM predictive asset analytics, together with real-time performance management and optimization capabilities of ROMeo, across their enterprise.”

And I think those are the key: Cross-portfolio. First customer of its type. Digital strategy. Across enterprise. This stuff isn’t easy, but it is becoming more of an imperative –I’m sure Suncor’s competitors, if they weren’t thinking along these lines, they are now– and AVEVA stands to benefit.

AVEVA doesn’t do outlook, but investment analysts in London do. AVEVA said this: “Demand for AVEVA’s products is strong, driven by the ongoing digitalisation … and stable conditions in key end markets. AVEVA’s combined product offering is seeing growing industry recognition. Against this backdrop, the benefits of integration and measures taken to drive growth, improve revenue mix and increase margin are having a positive impact. The Group’s order pipeline is solid and the outlook remains positive.” Investors took that in and came up with a revenue consensus of £834m million, up 8%, for fiscal 2020. That’s $1,100 million at today’s exchange rate — MAKING AVEVA A BILLION DOLLAR COMPANY BY REVENUE. [That deserves shouting!]