Autodesk Resellers Avatech, Mensch und Maschine Report Growth

The rate of positive improvement reported by Avatech Solutions and Mensch und Maschine Software, two leading resellers, offers a bit of positive news for Autodesk, which reports second-quarter results August 12.

Two of Autodesk’s largest reseller have recently reported financial results that suggest Autodesk might have a good quarter to report later this week. Good, but not great. Indications from both firms suggest that IT spending in manufacturing is up but construction remains weak, especially in North America.

Avatech Solutions (OTCBB: AVSO) and Mensch und Maschine Software (ETR: MUM) are two of the largest resellers that are both traded publicly and specialize in Autodesk products and services. Thus their ups and downs reflect to a large extent both the markets they serve—a mix of construction and smaller manufacturing firms—but also the company whose products they resell.

The large and diversified IT reseller TechData (NASDAQ: TECD) is a third public company whose results are important in understanding Autodesk’s fortunes, but it will not be reporting quarterly results until after Autodesk.

Both Avatech and MuM also develop software and provide integration and support services for clients. Avatech is based in the US, and derives most of its revenue in North America. MuM is based in Germany and has branch offices throughout Western Europe and the Pacific Rim.

Avatech Specifics

Total revenue for Avatech’s most recently reported quarter, its third fiscal quarter of 2010 which ended March 31, 2010, was $8.4 million, up 5% from a year earlier. This was the first year-over-year increase in total revenue for Avatech s ince June 2008. By category:

Product Sales: $3,710,000 in  3Q10; $3,355,000 in 3Q09, up 10.5%

Service Revenue: $2,031,000 in 3Q10; $2,508,000 in 3Q09, down 19%

Commission Revenue: $2,611,000 in 3Q10;  $2,090,000 in 3Q09, up 24.9%

Product Sales and Commission Revenue benefited from special promotions from Autodesk to its resellers. Avatech blames lower service revenue on “lingering effects of national recession.” Avatech service revenues are heavily weighted toward construction, suggesting that construction remains an unhealthy sector.

Avatech has worked hard in recent years to have its three business segments in rough parity as a percentage of revenue.

Net income was $592,000, up from a net loss of $146,000 a year earlier. This is Avatech’s third consecutive quarter of profitability.

Cash per share on March 31, 2010 was $0.20, up a penny from last quarter. Avatech has the lowest cash per share figure of any company we track.

Mensch und Maschine Software Specifics

Total second quarter 2010 revenue for MuM (for the period ending June 30, 2010) was €45.6 million ($60.6 million), up 23% from 2Q09. The majority of this income comes from non-German speaking markets. Distribution revenue was €25.8 million ($34.3 million), up 5% from a year earlier. If German-speaking markets were excluded, the gain would have been 10% from a year earlier. MuM says the UK, France, Italy, and Poland were their best markets during the first half of 2010. A year ago MuM’s Distribution revenues were down 30% in Euros and 25% in local currencies.

In recent quarters MuM has been buying resellers throughout Europe. Their VAR revenue in the quarter was €13.7 million ($18.2 million), up 88% from a year earlier when its ownership stake in resellers was much lower.

What It All Means for Autodesk
In good economic times, Europe is Autodesk’s largest revenue region. MuM typically accounts for about 25% of Autodesk’s European business, and roughly 10% of Autodesk’s total business. If the results of these two firms offered a 100% correlation to Autodesk’s results, we would expect total revenue to rise about 7% from a year earlier, with most of the growth coming from Manufacturing and the Media & Entertainment divisions, and Europe contributing more growth by a percentage of revenue than North America. But Autodesk is larger and more dynamic than any one VAR, region or market segment, which makes it such an interesting company to cover from the standpoint of business dynamics.