Q3 2024 earnings are finally done – what have we learned?

Yay! The PLMish earnings season finally ended last week. Rather than recap each individual set of results, I thought I’d take a bigger-picture look: What have we learned over the last six weeks of earnings releases? 

Q3 earnings releases are usually unexciting since the quarter covers the vacation months of July, August, and September and doesn’t have the year-end promotions and budget flush of Q4 or the new year enthusiasm of Q1. This one was different. Elections, natural disasters, human-made wars, and saber-rattling all fed into each earnings announcement in one way or another. And of course, each company has its own spin on performance, end-industries, products, and go-to-market strategy and so on—see their investor relations websites for details— but in general:

1. Uncertainty rules. All sorts of big-picture issues entirely outside the control of any PLMish company continue to lead to cautious outlooks. I’ve often written that some companies routinely under-promise so that they can win accolades for delivering above those promises (cough*Ansys*cough), but this feels different. Yes, auto, aero, and other industries have to deliver vehicles, but customer demand is unclear, and politically-motivated supply chain issues could wreak havoc — all leading to difficult-to-predict sales cycles. PMI, the WHAT?, as of 4 December showed that US demand is stable; China’s PMI sequentially improved; the UK PMI continues to decline while the rest of Europe was down after a bit of a recent improvement. The best interpretation I’ve read is that we’ll see “tepid” 1%ish growth in capital expenditures in 2025, with pockets of higher and lower growth. Even so, one factoid is unchanged: PLMish technologies are critical to companies’ competitive positioning; demand for these tools will continue. The question is, how robust is that demand at any point in time? 
2. Unsurprisingly, this uncertainty leads many technology buyers to prioritize spending on technologies that create cost savings and can provide a quick return on investment. More CAE to reduce physical tests and the burdens of over-design? Collaboration tools to improve communication and cut down on rework? Methodologies like MBSE ensure that the design is right the first time? Those will keep rolling. New ERP transformations? Perhaps not as much.
3. Cloud architectures and software subscriptions are good choices when buyers want to hold on to cash in the near term, but may not be right for those who have cash now, but it may not be in six months. Some buyers prefer perpetual licenses, even if vendors’ revenue recognition policies prefer subscriptions. The vendors who continue to offer choice will see lumpier revenue in uncertain times but may engender more loyalty. Ultimately, PLMish buying decisions come down to order book visibility and the optimism or pessimism that creates. Remember that even in economic downturns, most PLM segments continue to grow, at least a little.
4. Across industries, brain drain is real. Experienced workers are retiring, and not enough new hires are replacing them early enough for any actual human-to-human knowledge transfer. We’re seeing more demand for technologies that act as guardrails, to keep less experienced workers from making costly mistakes and to help get them up to speed as quickly as possible. Immersive training and other new ways of presenting information continue to see interest, and many technology vendors are looking at AI to create technologies to help with the lack of skilled end-users. That leads to,
5. AI — OMG, AI. It was everywhere. Artificial intelligence holds so much promise, much of it theoretical and overblown at this point. Does it hold the potential to change how we all work? Absolutely. Will that happen soon? Probably not. Will it change how technology is bought and implemented? Not yet, but start thinking about it. We all have so much work to do on data architectures, IT infrastructure,  who and how has access to which data for what reason, and so on. The good news is we’re starting to see first forays into real, usable AI-enabled PLMish tools like drawing creation, idea generation, and chatbot-like assistance that answer questions about the PLMish tools and their application. It’s not yet leading to much (if any) revenue for PLMish vendors. Still, the potential to reimagine workflows is exciting.
6. Another aspect of AI is how many startups are taking new computer-science-y looks at old-school engineering problems and workflows. In some cases, these are technologies looking for a problem to solve, but others combine deep domain knowledge with AI skills to develop specialized AI-based solutions. One reason? AI building blocks are often open source, meaning the barriers to getting started are relatively low. Will they all succeed? No. But will they force a faster pace of innovation? Absolutely. 
7. That brings up the question of consolidation. Big vendors will continue to acquire smaller ones. Why? To keep their offerings fresh, to bring new products to their long-time customers, to sell their products to new industries or geographies, to buy an asset a competitor might also want … That’s not going to stop. On every call I attended, the company was asked to comment on its future acquisition strategy. They all said the same thing: if our customers ask us for it, we’ll buy what we don’t want or can’t make—a no-brainer answer. And most have plenty of cash on hand or can easily borrow to make a deal happen.
8. And we can’t talk about consolidation without talking about VARs. I’ve been following the VAR economy for a long time and it’s never been more stressful to be a VAR. On the one hand, we have e-stores, where customers serve themselves, and vendors expect VARs to fix whatever problems that DIY creates. On the other, VARs are expected to really bring the Value these days, but in engagements that (I am told) are smaller than they used to be. Smaller, in the VAR world, typically means less profitable. That’s leading to more consolidation as niche VARs band together to offer more services than each can alone, and as they look for financial stability.  
9. There’s been a shift in company leadership across the greater PLMish landscape. The C-suite has been stable for years, with one or two changes a year (if that); I think we’re up to 8 already this year in the companies I follow. Some of that is a natural aging-out as pioneers in this industry decide to do something else. We’re also seeing, I think, a desire to shake things up. Many boards of directors seem to feel they cannot wait for longer-term plans to come to fruition; they demand action NOW and think a new CEO can make that happen. In some cases, they can. But thoughtful new CEOs typically start listening to customers, partners, employees, and other stakeholders before taking decisive action — which takes time. It will be interesting to see how this all shakes out in the next year or so: can these new CEOs make the changes the boards want? Quickly enough? And do they yield the hoped-for results?
10. CQ4 is anyone’s guess. Autodesk is making so many changes that an apples-to-apples comparison is tough, but they told investors that they expect FQ4 revenue to be up 9% as reported (so up less than that if we subtract out the agency model change). PTC expects FQ1 revenue to be between $540 million and $570 million, which is flatish compared to last year’s $550 million. Dassault Systèmes gave a huge range when it gave guidance in late October, with revenue expected to be up 3% to 8% as reported to €1,696 million to €1,816 million. So: flattish to 5% to 12%. [Many other companies could be on this list; they fit somewhere between these extremes, and Ansys and Altair no longer give guidance because of their pending acquisitions.]

TL;DR? (Too long; didn’t read?, for those  not up on the lingo) The PLMish universe serves a huge and diverse set of industries. When the broader economy stalls, that impact is felt unevenly across auto, aero, AEC, marine, defense, electronics, infrastructure, and other segments. As always, the vendors that diversify into many verticals will do better than those specializing in only one vertical. But it’s also true that these markets are driven by innovation — bringing new products to market, making existing ones better/safer/more environmentally sound — and PLM technologies are key to making that happen. We’ll be OK.