PAS Musings

Imitation is Flattery

PAS has a long history of firsts:

>> 1st No-Step-Test Multivariable Control (STAR, 1988, via Dot Products)

>> 1st Open Equation Optimizer (NOVA, 1990, via Dot Products)

>> 1st Alarm Management Software (AMO, 1996)

>> 1st Control System Management Software (DOC3000, 1996)

>> 1st First-Principles Non-Linear APC (Polymers NLC, 1998)

>> 1st Multi-System Automation Asset Management Software (Integrity, 2001)

>> 1st Unified Linear/NonLinear Control & Optimization (Galaxy, 2005)

And most recently, this blog is a first.

Imitation is the highest form of flattery and at PAS we welcome that.  Imitation of our software innovations keeps us focused on raising the bar and bringing ever more value to customers. 

And now it seems that at least one of our competitors thinks our blog to be a good idea and has started their own.  This also raises the bar and keeps the pressure on for me to keep on blogging, and blogging, and blogging… – and hopefully adding value as well. 

Over the months, this blog has built up to cover a number of topics – about the company, our products, our strategies and about our industry and my own life as well.  The blog has grown into quite a varied collection of stories and insights and is hopefully proving to be of interest to most of you. 

I’d love to hear from any of you by the way – you can comment directly on any blog or email me your feedback, comments or ideas for topics to discuss.  Any sort of feedback or ideas are helpful – and I promise to keep it anonymous if that’s what you want.

Matrikon's Challenge

Here’s an interesting question: 

>> What happens when a CEO, COO, CFO and VP of sales all quit? 

This is surely a question that Matrikon investors and employees must be asking….

Four officers of the company all gone within 4 months.  Ouch!

Here’s the script:

>> First, the CEO leaves in December – read more

>> Then, in January the Executive VP of Operations leaves – read more

>> And then, in February, the CFO announces his departure – read more

>> And last month, the leading VP of Sales resigns – read more

I don’t think we’ve ever seen such an exodus from the top at any publicly-traded vendor in our industry.

A first test of whether lead balloons can actually float took place yesterday when Matrikon announced their quarterly earnings. 

And even though the stock dropped by 15-20% around the recent earnings and strategy telecon, it looks like common perceptions about flotation may be suspended for a time…

Hard to tell what’s next though through the mixed signals… quarterly revenue growth is down to single digits, even though quarterly gross margin is claimed to have reached a new high. 

With the company-provided forecast at double-digit revenue growth and extreme profit growth ( a rather wide range of 34-62% was provided in the recent news release ), it would seem that the new CEO has his hands full.

Only time will tell what’s next.

Stay tuned, I guess.

Industry Scorecards

Some time, I ago, I compared the valuations of public companies in our industry to a couple of key software and internet companies.  Click here to read that blog.

That analysis compared valuations – expressed as a multiplier of annual revenue – and showed that the internet companies (Google, Yahoo) had about 2-3x the valuation of software companies (Microsoft, SAP) and about 5-10x the valuation of software/service companies serving the process industries (Intergraph, AspenTech, Matrikon).

Updating the valuation analysis some 6 months later shows little change – the internet boys still rule, and at about the same ratios.

So I cut the data a bit differently to see what I might learn.

Here is a chart showing revenues per employee vs. company valuations (revenue multiple basis).  Clearly, the market rewards those who can do more with less.

In our little group of companies, Google rules the roost with an incredible $1,080,000 of annual revenue per employee.  This works out to a company valuation of almost $18million per employee, dwarfing all others.

So what do we make of all this? 

The market rewards those who do more with less. 

For PAS this means we will continue our drive to increase our revenues per employee – by providing higher value services and software to our customers.  This supports our ongoing quest for increased innovation, supported by our continued higher-than-peer-group investment rate.

As a private company, there is no readily-apparent valuation, so we will continue to monitor our software investment and revenue/employee metrics for our software/service businesses. 

Based on the indicators below we are leading our peer group in investment rate accompanied by a strong per-employee revenue rate, which should only get stronger over time:

                             Investment Rate      Revenue per Employee

PAS                       26%                     $156k

AspenTech              17%                      $180k

Intergraph              10%                      $156k

Matrikon                 17%                      $115k

Scorecards like these are interesting – they are both interesting spectator sport and they also provide management with valuable indicators needed to validate and/or refine their business strategies.

Let’s come back and revisit these from time to time…