Enterprise Software Market Reported Strong Growth in Q2 2018

Summary

The worldwide enterprise software market continued to grow in the second quarter of 2018.  This market expanded on the back of relentless innovation and available capital.  Once again, exchange rates played a role, with the strengthening of the euro relative to the US dollar.  This 8.5 percent exchange rate fluctuation provided a healthy lift to revenues reported in euros that ARC subsequently translated to US dollars for this report.

Suppliers included in this report recorded combined quarterly revenue of nearly $23 billion, representing 6.4 percent year-over-year (YoY) growth.

Supplier Revenues

This ARC Advisory Group report discusses the most recent quarterly revenue results of the major publicly traded enterprise software companies.  We translated financial results reported in foreign currencies to US dollars using an average exchange rate for the given reporting period.  The suppliers’ reporting period for this analysis was the quarter ending in June 2018, unless stated otherwise.

While this report focuses on the enterprise software portion for the respective companies mentioned, the R&D expenses shown are a factor of total company revenues.

American Software (Logility) reported total revenue of $27.4 million for the quarter ended July 2018.  This represents an increase of 1.9 percent from the same period last year.  License revenues declined by 57.6 percent to $1.7 million.  Services and other revenues increased by 6.4 percent to $11.5 million and maintenance revenues increased by 5.6 percent to $11 million.  Cloud services annual contract value (ACV) increased approximately 77 percent to $13.2 million for the quarter compared with $7.7 million in the same quarter of the previous year.  

Autodesk reported total revenue of $611.7 million for the quarter ended July 2018.  This represents an increase of 21.9 percent from the same period the previous year.  Revenue from the architecture, engineering, and construction (AEC) segment increased by 28 percent to $243 million.  Revenue from the AutoCAD product family and AutoCAD LT was $177 million, an increase of 30 percent compared with the second quarter last year.  Revenue from the manufacturing product family was $146 million, an increase of 10 percent compared with the same quarter last year.  Finally, the revenue from media and entertainment (M&E) product family was $42 million, an increase of 10 percent compared with the second quarter last year.  EMEA revenue was $248 million, Americas $248 million, and APAC $116 million.  Subscription plan annualized recurring revenue (ARR) was $1.7 billion, an increase of 115 percent compared with the same period last year.  Total ARR was $2.34 billion, an increase of 28 percent compared with the second quarter last year as reported on a constant currency basis.

Dassault Systèmes achieved total revenue of $1,002.5 million for the quarter, representing a 12.5 percent YoY growth rate.  Software-related revenue (new and recurring licenses and maintenance) increased by 13 percent to $897.8 million.  Services revenues increased by 8.3 percent to $104.6 million.  By product line in euros, CATIA revenues increased by 2.1 percent, ENOVIA increased by 4.1 percent, and SOLIDWORKS increased by 5.9 percent.  Geographically, revenues from the Americas decreased by 2.2 percent, whereas Europe increased by 4.8 percent and Asia by 9 percent in reporting currency.  The company’s strong revenue results were due to industry diversification and positive contributions by all product lines.  

Descartes reported revenues of $67.1 million for the quarter ending in July 2018.  This represents 17.1 percent growth over the same period in the prior year.  Services revenues of $65.8 million represented a 19.4 percent YoY increase.  Quarterly revenues from the US increased from $31.5 million to $40.2 million, EMEA increased from $18.9 million to $19.9 million, and Canada decreased from $4.1 to $3.8 million.  APAC increased from $2.8 million to $3.2 million.

Hexagon’s Industrial Enterprise Solutions (IES) division consists of the manufacturing- and engineering-focused businesses: Hexagon Metrology and Intergraph PP&M.  The division focuses on engineering software for creating and leveraging information critical for planning, constructing, and operating plants and process facilities, as well as for computer-aided design (CAD) and computer-aided manufacturing (CAM) software and metrology systems.  The division reported $575.1 million in revenue for the quarter.  This represents an increase of 17.9 percent year over year.  In reporting currency (euro), the company increased its revenues by 8.6 percent.  Geographically, 33 percent of revenues came from the Americas, 37 percent from EMEA, and 30 percent from Asia.  

IBM’s software segment reported revenue of $4.58 billion in external sales for the quarter.  This represents a slight increase of 0.5 percent over the same period last year.  Under the company’s new segment reporting structure, total software no longer exists as a segment.  Instead, the company’s software revenue is included within the technology services & cloud platforms, cognitive solutions, and systems segments.  Revenues from the solutions software (part of cognitive solutions) was flat year to year, whereas operating systems software (part of systems segments) and integration software (part of technology services & cloud platforms) increased by 25 percent, and 2 percent, respectively. 

IFS reported $134.8 million in revenue for the quarter, which represents an increase of 29.8 percent year over year.  License revenue increased by 54.3 percent, maintenance by 35.1 percent, and consulting revenue by 14.7 percent.  IFS, the global enterprise applications company, acquired WorkWave LLC (“WorkWave”).  The addition of WorkWave means that IFS now offers the most complete, connected service management solutions for all sizes of service-centric businesses.  IFS has made several acquisitions in the service market this year, which are helping accelerate the company’s growth. 

Infor reported revenue of $782.7 million for the quarter ending July 2018.  This represents 3 percent growth from the prior year. Revenues from license fees increased by 10.6 percent, product update and support declined slightly by 0.1 percent, and consulting services and other fees increased by 1 percent.  From a regional perspective, revenues from the Americas contributed 63 percent, EMEA 31 percent, and Asia Pacific 6 percent to Infor’s revenues.

Manhattan Associates’ revenues decreased by 8 percent year over year to $141.9 million.  Revenues from the Americas declined by 8.7 percent, EMEA by 3.1 percent, and APAC by 10.5 percent.  Digital commerce and technology modernization programs continue to drive significant long-term growth opportunities for the company.  Management stated that the demand for omni-channel, store, and distribution management solutions continued to increase.  Global license revenues declined by 18.2 percent to $18.4 million.  Services revenues increased by 2.1 percent to $119.3 million.  Hardware & other revenues decreased by 71.3 percent to $4.3 million.  

Oracle’s software segment recorded $7.47 billion in revenues for the quarter ending August 2018.  This represents 2.4 percent increase over the same period the previous year.  Cloud services and license support increased by 3 percent, whereas cloud license and on-premise license declined by 3 percent. Applications revenues increased by 6 percent to $2.7 billion, and platform and infrastructure revenues increased by 1 percent to $4.7 billion.  From a regional perspective, total software revenues increased by 1.6 percent in the Americas, by 2.9 percent in EMEA, and by 4.6 percent in Asia Pacific.

PTC reported revenues of $315 million for the quarter ending in June 2018.  This represents a nominal increase of 8.2 percent year over year.  Subscription & license revenue increased by 42.7 percent to $152.7 million.  Support revenue declined by 13.7 percent.  Professional services declined by 5.5 percent.  ARR was $509 million, an increase of $207 million or 69 percent from the same period last year.

QAD reported total revenue of $84.6 million for the quarter ending in July 2018.  This represents an overall increase of 11.4 percent from the same period the previous year.  QAD’s license revenues decreased by 17 percent, and subscription revenues grew by 28.6 percent.  Revenues from professional services were $26 million vs. $19.8 million last year, an increase of 31.2 percent. Maintenance and other revenues declined by 4.3 percent.  By geography, North America represented 46 percent, EMEA 30 percent, Asia Pacific 17 percent, and Latin America 7 percent of total revenues.

SAP’s quarterly revenue increased by 12.6 percent to $7.15 billion.  Software support revenues increased by 8.5 percent to $3 billion, whereas software licenses revenue decreased slightly by 0.8 percent to $1.18 billion.  Meanwhile, cloud subscriptions and support revenues increased from $1.02 billion to $1.44 billion.  From a regional perspective, revenues increased by 7 percent in the Americas, 10.4 percent in the Asia Pacific Japan region, and 18.9 percent in EMEA.  The fourth generation of enterprise applications has taken another major step forward with C/4HANA.  Together with S/4HANA, SAP customers can focus their entire business on delivering a personalized experience to their customers.

Conclusion

Most enterprise software suppliers included in this report experienced year-over-year growth during the second quarter of 2018.  The effects of currency translation between the euro and US dollar increased significantly in recent quarters.  These currency fluctuations distort growth rates and diminish insights into the long-term growth trends of the market.  Some of the industry trends affecting revenues include a widespread transition from perpetual licensing to subscriptions, industry consolidation through mergers and acquisitions, and corporate technology investment cycles.  With increasing global competition and rising awareness of enterprise software, the enterprise software market is expected to grow in the future quarters.  Introduction of new software services, cloud technologies, artificial intelligence, augmented reality, virtual reality, technology innovation and advancement, increasing number of enterprises, and entry of new startups are all set to further lift the overall enterprise software market growth.

ARC will continue to monitor these trends and associated supplier performance in the coming quarters.

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Keywords: Enterprise Software, Quarterly Supplier Revenues, Asia Pacific, Europe, Middle East & Africa, Latin America, North America, ARC Advisory Group.