ESI Q2 revenue slowed, company sets up for growth

Sep 11, 2020 | Hot Topics

ESI Group reported Q2 results yesterday, to round out our PLMish earnings for the quarter ended June 30, 2020. First the details, then some comments:

  • Total revenue in Q2 was €26 million, down 13% as reported and down 14% in constant currencies (cc)
  • License revenue was €20 million, down 9% (down 10% cc)
  • Services revenue was where much of the year/year decline took place, reported as €5.5 million, down 25% (down 25% cc). Like everyone else, ESI saw companies temporarily shut offices and postpone some services engagements. CFO Olfa Zorgati said that all aspects of services were affected –engineering studies, field services, etc.
  • There were some bright spots, however: “repeat business … was particularly strong among the group’s key customers. The Top 20 customers booking increased by 3.9% and represented 56% of total bookings”
  • Revenue by geo stuck to the typical pattern for the first six months of 2020, with revenue from EMEA around 52% of total revenue; Asia, 34%; and the Americas held constant at 14%.
  • The end-industry mix actually tilted towards automotive just a bit, even given the difficult macro-economic context with ESI saying it “remained relatively stable despite a difficult sector context. The other priority industries suffered more from the current crisis, with a significant slowdown in orders in the Aerospace industry”.

CEO Cristel de Rouvray started the earnings call by saying that Q2 was the toughest she had seen — and to point out that, amid huge drops in vehicle sales and declines in air traffic, ESI revenue was only down 9% from 2019. She sees this as a temporary pause in sales but not in discussions and engagements with customers. The problem, of course, is that “we can only go as fast as the customers”. She added, “As we continue to manage this global pandemic, we are balancing two business imperatives: proactive cost management to optimize near-term financial health, and [the] continuation of our transformation plan. The latter gains momentum, reflected in a growing number of customer engagements … and mounting interest in ESI’s offer …”

ESI doesn’t offer guidance, but Ms. de Rouvray said that the company is accelerating its move to a more industry-focused product set and a key-account sales process. Ms. Zorgati believes that the first half of 2020 was the toughest in terms of COVID-19’s revenue impact, with perpetual licenses especially hard-hit (and mainly in China) and that ESI is well-positioned to support customers as activity picks up,

Cutting cost to keep pace with lower revenue, while not jeopardizing the ability to meet demand, once it returns, is a tough balancing act. ESI is thinking long-term and waiting for that uptick. In the meantime, ESI is still out there pitching, closing government-let research contracts, working in consortia and revamping its products. We’ll tune in in late October, when it reports on Q3 results.