Q1 2020 earnings are done –phew– what did we learn?
Well, that’s a wrap. All PLMish companies have announced earnings, and it’s time to look back, summarize and look ahead. Writers call that a through-line, finding the theme that unifies a narrative. And, for once, we have quite a few of through-lines in our PLMish world. Here, a few:
- PLM is global and touches pretty much all industries. This means that every vendor felt the ripple effect of Covid-19 moving through the geo regions, from China to more of Asia, to Europe, to North America and then Latin America
- PLMish companies are also, not surprisingly, mostly selling to manufacturers. What did we need during lockdown? Computers, networks, and other products to make it possible to work and learn at home; makers of those devices continued to buy. The ones whose manufacturing plants were shut down? Not so much.
- The rush to subscriptions –and the lower initial investment a customer makes in order to use the tools– helped smooth the revenue picture in Q1 as companies recognized revenue from prior period sales. Software licenses with large upfront payments were tough to sell in Q1, and larger deals were harder to close for a couple of likely reasons that I’ll get into below. Services? Mixed. On-premise services were, naturally, canceled as those offices closed. Online services? Some success there, but a lot of vendors took the high road and supported customers by charging less.
- That said, every CEO on every call talked about how they were managing costs. Reducing where they can, by eliminating travel and other discretionary spending and taking advantage of savings related to lower sales volumes (fewer commission payments, for example). Not one PLMish CEO said they were furloughing or laying people off.
- Finally, as we would hope, PLMish companies and employees adapted well to the whole work-from-home thing. That said, I do believe CEOs made it sound easier than it was/is; some of you have emailed to say that it took a while to get the details ironed out to provide access to data or processes that lived behind your company firewalls and to source appropriate hardware for many tasks normally done on powerful office workstations. Nonetheless, it seems to be going OK now.
Looking ahead, the near-term won’t be pretty. Just about everyone is writing off Q2 and looking to the second half of the year for whatever recovery there will be:
- Even Autodesk, the last to report and therefore the most recent datapoint said that the current quarter will be tough. North America and Europe spent much of the quarter at home, trying to figure out what was next. How bad Q2 really is, is hard to say — software sales, even in a subscription world, are back-end loaded. That means that sales aren’t 1/3, 1/3, 1/3 in a typical quarter but perhaps 1/4, 1/4, 1/2 through the 3 months. Most companies said that the lack of demand they saw in April and May hasn’t yet materialized as sales in late May, and June is just starting.
- Are we looking at a V-shaped recovery, fast down/fast up, or some other shape for the recovery? It’s looking less like a traditional V — maybe more like a \-tilde? This,\ ~, with a decline then a wiggle at the bottom before turning up again? Honestly, I don’t think anyone knows. But those companies giving guidance all signaled to a lousy Q2, a better Q3, and an even better Q4.
- How are the vendors responding to customers in cash crunches? With some sympathy but not a lot of discounts. Yet. Only PTC voiced what I think everyone’s policy is: “Customer, you signed contract. Honor it.” I do have a lot of examples where a vendor made available licenses to use at home while office-based licenses were idle; no money changed hands but it was unquestionably the right thing todo. Many investors are worried that vendors will extend credit or cut prices to close new deals; we’ll see if that happens. [PLM users: if you can’t pay your bill, check the fine print. You may be able to skip a payment or two but WITH A CATCH-UP PENALTY added to what you owe, to be paid later. Ask your lawyer and accountant.]
- We’ve all found the bald spots, where our current processes weren’t good enough to deal with everyone working from home. No one wanted this pandemic, but it couldn’t drive home more clearly the need to get serious about digitalization. I heard from a number of IT types that, once they get/got everyone working, as securely and efficiently as possible, the attention would shift to being better prepared for the next crisis, whether a Fall Covid wave or something else. Automation, connection, data governance, more agile design, manufacturing, and supply chains …. all PLMish sweet spots.
- But cash-constrained buyers will place more scrutiny on every purchase, even those that can make a clear contribution to this sort of agility.
What have we learned? What’s the big, #1 through-line? That, right now, riffing may be the best we can hope for. Try to chart a course and steer to it, but expect to be challenged and to adjust. Just as one crisis calms, another springs up. That taking everything virtual might not be the best way to conduct business but it’s good enough for right now. And, ultimately, that there is a reason for optimism: the world needs electronics and cars. Bread flour (in short supply) is milled by machines, bagged by other machines, and transported by trucks. That PLM designed, made, and supports.
Not related to earnings, but impossible to be silent about: The last few months have been hard, painful, uncertain. The last week, horrible. I am learning all I can (started here) about how to support people of color who have been marginalized by our society and am ashamed at how little I know of their experience. But I’m becoming aware, and that is a start. As former President Barack Obama wrote in a very eloquent essay yesterday,
The point of protest is to raise public awareness, to put a spotlight on injustice, and to make the powers that be uncomfortable; in fact, throughout American history, it’s often only been in response to protests and civil disobedience that the political system has even paid attention to marginalized communities. But eventually, aspirations have to be translated into specific laws and institutional practices — and in a democracy, that only happens when we elect government officials who are responsive to our demands.
We may, individually, be tiny. But add us together, and hear us as we vote.