ESI reported results today — results that mostly confirm a strong start to the three-year plan the company laid out at its investor event earlier this month:

  1. Focus on its existing customers, bringing them new products and expanding installations — check for Q3 — which should lead to
  2. Revenue growth in the high single digits — better than check — and
  3. Improved and more consistent profitability — not really a focus of what you see on this blog, but very important to investors. ESI aims, in the long run, to deliver adjusted earnings before interest and taxes (EBIT) that’s greater than 20% of revenue. Some of this will be a reduction in costs, including a 5% headcount reduction by December 2022, but the company intends to couple cost savings with revenue growth to reach this 20% EBIT target. ESI didn’t give EBIT data today, so we don’t know if they get a check mark for this goal in Q3 — see below.

How does ESI plan to achieve these goals? First, by expanding its core offering, then by growing into adjacent industry solutions, and, finally, by targeting virtual certification in auto, aero, and other industries. A lot of this technology, but expect other changes as well, such as packaging into industry solutions and a clearer and more transparent pricing policy.

In the immediate, CEO Cristel de Rouvray announced that ESI was redeploying 20% of its software development team to work on the code base, building a standard set of platform technologies, and creating a more consistent and modern user interface.

Q3 results largely serve as a solid start to these ambitions. The details:

  • Q3 revenue was €24 million, up 11% as reported, up 10% in constant currencies (cc)
  • License revenue was up 6% (up 5% cc) to €18 million. ESI says that repeat business (renewals and expansions in existing accounts) was up 17% (up 15% cc). New business (new products to existing customers plus sales to new customers) was up 5% to €8 million
  • Services revenue was up 29% to €6.3 million, “driven by core service activities with strategic customers post COVID”. CFO Olfa Zorgeti said that this year/year growth isn’t typical, and is due to the lack of seervices revenue a year ago (COVID)

Because ESI is in the midst of this business transformation (and because its quarters are quite lumpy) it helps to look at year-to-date comparisons. For the first nine months of 2021, total revenue was up 3% (up 6% cc) to €106 million. This, to me, shows acceleration as the year progressed.

ESI says that its growth during these first nine months was driven by its largest vertical, automotive (up 4%), and by growth in EMEA and the Americas. The Americas have been challenging for ESI, but 2021 so far shows that this may be turning this around; ESI says the Americas “recorded a double-digit growth at constant rates” for the year to date. In general, ESI’s geos remain relatively constant, with EMEA representing 49% of revenue, Asia, 36%, and the Americas, 15%.

Even with the solid Q3, ESI didn’t adjust its targets for 2021, expecting total revenue of 134 million to 137 million, which would be total revenue growth of 1% to 3% (4% to 6% cc). Ms. de Rouvray said that ESI prefers a cautious approach and is conscious of the amount of reinvention still going on; for now, they’ve left prior targets as they were.

For FY 22, Ms. de Rouvray said revenue would be up 4% to 6%, up 6% to 8% in FY 23, and up 7% to 9% in FY 24. (She showed EBIT targets which imply that the company didn’t meet the 20% target in Q3. But, early days.)

Please join me on November 4, when Ms. de Rouvray and I talk about ESI’s market-facing ambitions and learn from SEAT, Volvo Truck, Stellantis, and more about how they use ESI’s technologies. After our panel, you can join one of three industry tracks (auto, aero, and heavy machinery) for deeper dives. It’s going to be a terrific event! You do have to register for ESI Live, so go here: