AEC shows resilience & growth — recap of Autodesk, AVEVA, Bentley & Nemetschek’s earnings
Autodesk, AVEVA, Bentley, and Nemetschek reported results for their most recent financial quarter over the last few weeks and it’s time to catch up. First, a quick recap of the individual results, then what investment analysts call a read-across — what it means in a bigger-picture world.
AEC, historically Architecture, Engineering, and Construction, used to refer to the design and engineering tools used to specify buildings, roads, bridges, power plants, oil rigs, chemical and pharmaceutical plants … all of the built assets we see around us. Today, the definition has generally expanded to include construction, commissioning, handover, and, in the case of Bentley and AVEVA, operations. And that expansion makes sense: for too long, the data created during design and engineering was siloed into those disciplines. Today, most people in the AEC industries recognize the value of that data, and of keeping it updated as a project moves through the phases of its lifecycle. That also extends the importance of the software that creates, manages, and uses that data. And, as you’ll see, all of the AEC software vendors benefit from that broader definition.
First, the highlights of each company’s most recent quarter:
Autodesk reported total revenue of $952 million; up 13%. Of that. AEC revenue was $419 million, up 17%. But it’s likely that a significant portion of Autodesk’s AutoCAD and AutoCAD LT revenue, reported separately, is used in AEC contexts; the AutoCAD/LT bucket totaled $279 million in the quarter, up 14%. For the fiscal fourth quarter (ending January 31, 2021), Autodesk expects total revenue to be between $999 million and $1,014 million, which brings the fiscal year to $3,750 million to $3,765 million, up 15%. And, on a very cool note: The company reports signing a nine-figure, three-year renewal deal in the quarter. It’s not material to revenue for right now — but 9 figures is $xxx,xxx,xxx so it will be very material over time. We don’t know if it was in AEC but it certainly speaks to how much Autodesk has changed over the years. It’s no longer pushing single-user products like Revit but platforms of AEC offerings. CEO Andrew Anagnost explained the customer’s thought process this way: “A customer might see themselves expanding into industrialized construction, applying both Inventor and Revit more broadly in their process, and they want to make sure they plan for that — or they are going to expand Construction Cloud deeper into their processes. So they are saying, well, I am using this much Construction Cloud this year. I am going to use this much next year, the year after that, the year after that. That is what is driving these deals — it’s not just usage across users, it’s usage across the breadth of our portfolio.” Many, many more details here, including Autodesk’s fiscal 2022 outlook.
AVEVA reported more detailed results than hinted at in its preview, which I covered here. To recap, total revenue (for the half-year, since that’s how AVEVA reports) was £333 million, down 15% (down 12% in constant currencies, cc) due to the timing of deals last year, its continuing transition to subscriptions, currency changes, and, of course, a pandemic that slowed down some customers’ decision making processes and pushed deals into the current quarter. CEO Craig Hayman told investors that “AVEVA experienced tough market conditions across all its geographical reporting segments and Business Units during the first half as disruption from the pandemic caused customer caution and led to delays in some forecast sales.” It’s a consistent story across the business units: Engineering (36% of revenue, so about £120 million) was down 26% cc in the half-year, because of that tough comparable a year ago, some delays in contract signings and the impacts of cuts in capital spending in oil, gas and other verticals rippling through supply chains. Monitoring & Control (35% of revenue, or about £117 million) was down 5% cc but up on an organic basis, due to a reduction in license revenue and the disposal of distribution businesses last year. Asset Performance Management (15% of revenue, so £50 million) was down 7% cc and Planning & Operations (14% of revenue, or £47 million) was down 2% cc, both because of lost sales and the move to subs. AVEVA doesn’t do forecasts, but says that its order pipeline for the remainder of the financial year (ending in March 2021) is “strong, underpinned by a higher volume of contract renewals, including major Global Account contracts” and that it “expects to see solid revenue growth in the second half”. And, though its acquisition of OSIsoft is not yet complete, AVEVA said that OSIsoft “continued its strong performance with billings increasing 12% in the 9 months to September” (note that AVEVA was reporting form March-September, so a different and shorter period). Much more here.
Bentley held its first earnings call, issued another IPO to raise more cash for its employees (not named Bentley), and, in general, had a crazybusy quarter. You can read all about it on Bentley’s investor relations website, here. But to continue the focus on earnings, for the quarter ending September 30, 2020, Bentley reported total revenue of $203 million, up 9%. Subscription revenue was up 12% to $173 million, while perpetual license revenue was $13 million, down 7%. CEO Greg Bentley told investors that the company is investing in digital go-to-market efforts to help it reach smaller and medium-sized prospects that its mostly direct sales mechanisms haven’t been able to reach. Moving down the AEC food chain is smart — these businesses have historically used CAD but not the more advanced tools Bentley now offers. It’s an interesting and very modern approach — building an indirect channel is hard, with many established resellers looking to get out of the business. Skipping that step and going directly to digital onboarding and training will help Bentley reach prospects it historically hasn’t, as well as making it easy to expand in existing accounts. For the year, Bentley expects total revenue in the range of $790 million to $800 million, which would be growth of 7% to 9%;
Nemetschek also reported solid results for its fiscal Q3, with total revenue up 8% (up 10%€ cc, and up 5% on an organic basis) to €149 million. Nemetschek is a holding company that segments its brands into four buckets and reports performance for each: Design revenue was €80 million, up 2% as reported (up 4% cc); Build revenue was €47 million, up 6% as reported (up 11% cc); Manage revenue was €10 million, basically flat with respect to Q3 a year ago and its Media & Entertainment business reported revenue of €14 million, up 67% (up 72% cc, up 17% organic). Interesting to note: because the brands are (almost all) acquired, each is strongest in a specific geo, and that affects each bucket’s results. Design includes the (mostly European) Nemetschek and Graphisoft brands, and so is most affected by economies in Europe, many of which opened and closed during the quarter. Build is especially strong in the US because of the Bluebeam brand — Nemetschek says it had the “largest contribution to revenue and margin increase” in Q3, perhaps because the US did not shut down quite so consistently. All in all, it leads the company to a tiny bit of optimism: Nemetschek believed in March that the company would do well to keep revenue stable in 2020; it now sees growth in the mid-single digits for the year. Much more here.
A lot of factoids. Now let’s look across.
The first question I’ve been getting for months is this: A pandemic that’s putting pressure on just about every nation’s economy, a new US administration — what impact could stimulus infrastructure spending have on these technology suppliers? Given that we don’t know what will come from the US (or any other) government. The last time there was a large infrastructure bill in the US, in 2008, it mostly affected what are known as “shovel-ready” projects, those that are already designed and just need authorization to start. These are usually road and bridge repair, road widening, and similar projects, with the objective of putting as many people to work, as quickly as possible. That’s typically not a big win for software vendors, since there’s not a lot of design and engineering to be done — but as they’ve expanded into construction management, there is potential upside that wasn’t there in 2008/2009. The bigger impact may be less obvious: optimism in the industry as customers start to see healthier project pipelines and general economic improvement, which makes them more ready to invest in technology on a broader level.
All of these vendors reported one consistent effect of the pandemic: record usage of their cloud offerings. Autodesk said that “BIM 360 set records for both worldwide average users and projects”, and AVEVA and Bentley talked about moving record numbers of customers and projects to their cloud products. This is unlikely to reverse once workplaces open again since the point of cloud products is that you can use them wherever you are, even in the office. It’s not clear yet if this is expanded usage –new users, say in a field office– but it’s a trend to watch. And you know that these suppliers are all working on tools to specifically draw in these new user types.
Of course, one thing this pandemic isn’t, is evenly distributed. And that means business isn’t either. Autodesk said that parts of the world have begun to rebound, while others seem to be stabilizing. “China, Japan, and Korea saw usage levels back above pre-COVID levels which is a positive sign for post-pandemic demand. The U.S. in particular just seemed to have stalled. It’s ramped up a little bit but it’s not seeing a surge.” AVEVA, with different market exposure than Autodesk, says that Korea and China were relatively weaker this period, with Korea especially so because of its exposure to marine. Mr. Hayman said that “China was actually okay even though [2019 was very strong.]. When you look at the full year for China, we’re still expecting year-on-year growth and they’re certainly back to some level of normality compared to other country, offices are working on a restricted basis, and the market does seem to be better than it was.”
Digitalization continues to be a focus. Whether we’re looking at digital twins, at using tablets rather than paper drawings on a job site, the world of AEC is going to get more digital. AEC projects typically have a capital phase (CAPEX, where the main spend is to get the thing built) and an operating phase (OPEX), where the point is to operate it as efficiently as possible, so spend is centered on maintenance and incremental improvement. Digitalization helps design and build more cost-effectively but has historically stopped at asset handover, where only the most relevant data was hand-keyed into maintenance management systems, for example. That’s not good enough today when competitive pressures mean plants and other asset types need to increase efficiency, output, and flexibility and improve overall sustainability.
So what does this all mean? There’s a lot of hope for 2021. Autodesk’s Mr. Anagnost told investors that Autodesk believes Q4 will show “a modestly improving economic environment” that should keep getting better as the year goes on: “I’m not sure it’s going to be a straight line improvement, especially given the current [Covid-19] wave, but we will continue to see improvement and I expect by the second half of the year that we will see some pretty good recovery and economic activity”. The other CEOs said similar things, but with varying degrees of caution.
Digitalization, cloud, more flexible licensing and usage, expanding to new users, and investments in new infrastructure (or repair of existing) will all contribute to growth — the question is when and how much.