2010 was a big year for Dassault Systèmes as it tightened control on its distribution network by buying IBM PLM, closing the biggest acquisition in DS’ history. Did this distract management? Lead to complications in merging sales teams and assigning territories and product lines? Cause customer confusion about whom to call? Seems not.
Gradual improvement during the year
Let’s do a quick recap. A year ago, DS reported a 6% year-over-year revenue decline as revenue from sales of new licenses fell at at double-digit rates. DS was making inroads into new industries such as apparel and consumer goods, but its concentration in the traditional PLM markets of automotive, industrial equipment, and aerospace were seen as major factors in slowing growth. One investment analyst went so far as to predict that the only growth DS would see during 2010 would be the revenue contribution from the IBM PLM division. Since then, however, the good news started to roll: Q1 revenue was up almost 1% year/year on an 18% increase in new license revenue (but poor license sales in 2009 led to weak maintenance and services revenue). Q2 saw first full quarter of contribution from the former IBM PLM, which made comparisons difficult — but renewal rates were back to pre-recession levels and customers made “catch-up” payments renew their maintenance plans. Q3 saw strong organic growth (ie. excluding IBM PLM) and a high volume of average sized transactions rather than a few huge deals.
The upward momentum continued in Q4 2010. Total revenue was €463 million (up 36% in constant currencies or 29% as reported) with total software revenue of €418 million (up 39%). Within software, PLM brands revenue was €335 million, an increase of 34% in constant currencies (CATIA, up 43%; ENOVIA up 32%, rest up 21% in constant currencies), while Mainstream 3D (SolidWorks, 3Dvia) revenue was €83 million, up 22% in constant currencies. Slicing it another way, the company reported that new license revenue was up 33% in constant currencies while recurring revenue grew 31%, due to both general economic improvement and better license sales early in the year. About €11 million in the quarter came from maintenance “catch-up” payments. Services and other revenue in Q4 2010 was €45 million, up 11% in constant currencies.
In 4Q10, Asia was the strongest performer, with revenue was €115 million, up 36% in constant currencies. Revenue from Europe was €215 million, up 33% in constant currencies while revenue from the Americas was €132 million, up 18% in constant currencies.
For the full year, DS reported revenue of €1.564 billion, up 20% in constant currencies and up 25% as reported. Software revenue was €1.411 billion, up 23% in constant currencies and up 28% as reported; services and other revenue was €152 million, up 3% in constant currencies. To give a sense of scale, €1.56 billion is just over $2 billion — so DS is almost twice as big as PTC, may be bigger than Autodesk (which will report its year-end on February 24), and is likely bigger than the Siemens PLM division.
Within software, the PLM brands’ revenue was €1411 million, an increase of 23% in constant currencies (CATIA, up 31%; ENOVIA up 29%, rest up 16% in constant currencies), while Mainstream 3D revenue was €312 million, up 15% in constant currencies. SolidWorks unit sales grew 18% from 2009 to over 42,000 and the ASP rose 8%. DS said that end-user spend on ENOVIA solutions was $318 million, a total that includes reseller markup — ENOVIA revenue was €202 million, or on the order of $250 million. Across all products, new license revenue was up 30% in constant currencies as recurring revenue grew 21%.
For the full fiscal year, Asia was again the strongest performer, with revenue was €404 million, up 27% in constant currencies. Revenue from Europe was €703 million, up 21% in constant currencies while revenue from the Americas was €456 million, up 12% in constant currencies.
But what does it all mean?
The real question here is how much of this growth was generated by DS’ penetration into new markets and the spending recovery among its existing clients and how much is due to the IBM PLM acquisition. The acquisition closed in April; DS has said that IBM PLM’s share of DS’ software revenue was about €150 million from April through December 2009. If one presumes that this would have grown at perhaps 10% due to the economic recovery in 2010, then IBM PLM could have contributed €165 million from April through December 2010 — leading to a guess at DS’ organic revenue of about €1.4 billion in 2010, up about 12% from the €1.25 million in total revenue reported for 2009. In other words, IBM accounted for about half of the year’s growth.
The next big question: Where is DS’ organic growth is coming from? DS says it is seeing good growth in the automotive, industrial equipment and high tech verticals and that new industries accounted for 23% of end-user revenue (up from 20% of revenue in 2009). The company cites Exalead’s financial services customers, life sciences, alternative energy sources and other new areas. But DS’ traditional automotive base still accounts for 30% of end-user spend, and PLM’s “holy trinity” of auto, aero and industrial equipment still accounts for about 2/3 of total 2010 end-user spend.
By brand, the biggest growth came from CATIA, up 34% as reported to €654 million, and ENOVIA, up 34% to €202 million. Since these are the brands IBM PLM typically sold, we can take the liberty of subtracting IBM PLM’s contribution from this total — so in 2010, these two brands had a combined “organic” revenue of somewhere around $700 million, an increase of about 10%. This helps explain DS’ modest revenue growth guidance for 2011 (see below).
The biggest “organic” growth likely came from “Other PLM”, which grew 22% to €243 million in revenue in 2010. This is largely DS’ SIMULIA brand, which has always been sold though its own salesforce. SolidWorks was never sold by IBM PLM, so its 19% revenue growth (to €311 million) is completely its own.
By geo, DS characterized Europe as “dynamic”, and emphasized that growth was spread across the continent — and not just Germany, DS’ biggest market in that region. In Asia, China was singled out as a future market with Japan recovering nicely in 2010. India was also mentioned, with demand coming from engineering services companies, automotive and industrial equipment customers.
There’s been a lot of chat about DS’ comments that it had gained 16,000 new customers (companies, not users) in 2010. DS acquired Exalead for search-based applications (and an installed base that included a number of very well-established travel sites as well as 150 financial institution) and Geensoft for embedded systems management. Add to these the number of people who likely downloaded 3DVIA Mobile on their iPhones and 3DVIA Mobile HD for iPad and 16,000 is not at all hard to imagine.
In addition to detail about 2010, DS gave its first guidance for 2011. It anticipates first quarter 2011 total revenue of €390 million to €400 million (up about 25% over a Q1 2009 that did not include IBM PLM) and full-year revenue of about €1.68 billion to €1.71 billion — or growth of about 7% for the year. As always, DS left open the possibility of more acquisitions in 2011, but didn’t give any real information.
This 2011 forecast seems rather cautious to me: DS sees 15% growth in new licenses in 2011, so there is new business out there. Revenue from new sectors was up nearly 50% (including acquisitions), and each of the brands grew at or better than this 7% forecast for the year. But DS sees potential economic and currency volatility and has therefore started with this forecast. We’ll just have to wait and see how the year progresses.
[Note: DS uses IFRS and non-IFRS (like US companies use GAAP and non-GAAP) as well as reported and constant currency growth rates. It can be confusing; I’ve endeavored to use IFRS and as-reported as often as possible. — Ed.]