DS’ Q2 ahead on some metrics, not on others

EarningsDassault Systèmes’ earnings announcements keep getting more complex, mixing lots of different revenue metrics, acquisitions, currency and abstruse international accounting. FQ2 2013 was no exception. Let’s see what we can figure out.

The most obvious point from the earnings release is that overall growth is slowing. The company reported year/year increases in total revenue of 15% in Q3 2012, 10% in Q4 2012, 6% in Q1 and, now, 4% in Q2 2013. Q4 is usually an outlier for PLM companies but even so … DS CFO Thibault de Tersant, told investors that he expected to see a return to new license revenue growth in the second quarter “and we did. We anticipate acceleration in new licenses revenue growth in the second half … [Including Apriso,] We are upgrading our non-IFRS total revenue growth objective of 7% to 8% in constant currencies for 2013.” That turns into €2.125 billion for the year and around €520 million for Q3.

[For those of you who wonder how currency effects fit into the pattern, DS said that organic growth for each period was 8%, 7%, 6%, 6% from Q3 2012 to Q2 2013. Not as extreme, but still declining.]

The other main lesson from the DS earnings call is how different its strategy is from PTC’s (the only other PLM company to report so far). PTC is all about innovation, the product’s lifecycle and information flow from concept to after-sale support. DS is taking a completely different direction, as CEO Bernard Charlès told investors in Europe:

“the 18 last months is a new horizon, new technology, new type of user experience and user interface, moving from on premise to on premise and cloud. It’s being applied to all brands, every single application including SolidWorks. It can be used to create dashboards, which are also available from iPad or whatever mobility device.”

M. Charlès told investors that “the application runs, of course, on the PC or the workstation, but you have a seamless navigation on the cloud resources as needed … the solutions which are known by our customers, installed [on a PC] can work the same way being run on the cloud.” He later said that customers are “really astonished with how much they can do that was not possible before. It’s not a new operating system. It’s a new way to work. It’s a new way to communicate.”

An investor asked about pricing apps on the cloud; M. Charlès said that “someone using the software will pay the same price, whether it’s on premise or on cloud. It applies also to Solidworks, which means that if a Solidworks user wants to communicate and exchange with another SolidWorks user, they just do — maybe on an iPhone.”

Have you seen DS apps in a cloud context? What did you think? Performance as good as M. Charlès cites would mean that users literally can work anywhere there’s a decent Internet connection.

Back to Q2. The details:

  • IFRS total revenue was up 4% year/year (y/y) as reported to €522 million (up 6% in constant currencies or cc).
  • Software revenue was also up 4% y/y as reported and up 6% in cc to €475 million. On an organic basis, software revenue was up 5% in cc (so probably up around 3% as reported). Acquired revenue in Q2 is Gemcom minus Transcat.
  • New license revenue was €129 million, just about flat y/y as reported but up 4% in cc, led by “notable performances” in China and Japan.
  • Recurring (term or rental) software and maintenance revenue was €344 million, up 5% y/y and up 6% in cc. CFO Thibault de Tersant said that “approximately 3 points of the recurring software growth in the 2012 second quarter relative to slippage of renewals from the 2012 first quarter — so recurring software revenue increased about 8% to 9% in constant currency, normalizing for this timing shift last year.”
  • Services revenue up 5% y/y to €48 million.
  • By business line, PLM software revenue was €370 million, up 4% as reported and up 6% in cc. CATIA revenue was flat y/y at €208 million, ENOVIA revenue was down 2% to €65 million and “Other PLM” (GEOVIA, SIMULIA, DELMIA et al) was €105 million, up 18% as reported. DS pointed out that the slow Q2 for CATIA was partly due to the very strong quarter a year ago.
  • It may be time to start breaking out that “Other PLM” category. While SIMULIA remains the biggest part of “Other”, M. de Tersant said that new licenses revenue in Q2 was up 69% for DELMIA, and expects DELMIA’s performance to continue to strengthen with the addition of Apriso. Apriso had revenue of around $50 million in 2012, with a compound annual growth rate of “above 15%” from 2008 to 2012. The acquisition closed on July 1, and DS expects to add about €20 million to revenue and have a positive impact on net income.
  • The rollout of V6 continues and represented about ~21% of new licenses in Q2. Several analysts on the earnings calls tried to get DS to comment on how many customers are on V6, or when they believe most will be on V6 — but DS refused to comment. M. Charlès would only say that it’s early yet, and that “we are getting great success with the deployment of the entire V6 product portfolio”.
  • SolidWorks revenue was €105 million, just about flat with the March quarter but up 3% as reported and up 6% in cc. In Q1, the number of new license sold was up 1% y/y; in Q2, it was down 3% y/y to 13,403. DS appeared to acknowledge that the confusion about what the new version of Solidworks would (and wouldn’t) be has caused sales to slow. M. de Tersant told one investor that Solidworks will only start benefitting from the V6 migration next year, so “I don’t think we need to count on much new license growth for SolidWorks in the second half.”
  • By region, revenue from the Americas was €145 million, up 4% as reported and in up 6% cc. DS says the Americas recorded software growth of 8%, a slowing from the “double-digit software revenue growth” cited in Q1. The company said that it continues to see signs of recovery in the Americas.
  • Revenue from Europe was €231 million, up 1% as reported and up 2% in cc, reflecting both a “softer” economy and a tough comparable last year, when revenue was up 19% in Europe.
  • Finally, revenue from Asia was €146 million, up 7% as reported and up 13% in cc. DS highlighted strong growth in China and Korea, reversing a trend that had shown “softness” in China during Q1.

DS announced an acquisition, too: SFE GmbH, a leader in body conceptual engineering and performance evaluation and optimization. SFE’s CONCEPT and AKUSMOD will be added to the 3DEXPERIENCEs for the transportation industry. SFE has been a V5 CAA since 2012 and, SFE says, the “positive response from our customers, and the spirit of partnership which we experienced with Dassault Systèmes, naturally lead us to intensify our talks”, leading to the acquisition. SFE is tiny, with software revenue of about €2 million; fInancial details were not disclosed.

DS isn’t done acquiring yet. M. de Tersant also said that the company closed on a €350 million credit facility during the quarter, clearly gearing up for more acquisitions since it has plenty of other cash from operations. M. Charlès told investors that “the world is changing to an experience economy. That’s what Dassault Systèmes is going to do for the next 10 years, so we’re going to use out cash to make sure we put all those pieces together. We are going to make it happen, collecting everything that needs to be collected and integrating everything that they need to be collected to become this 3DEXPERIENCE company.”

To give you a reprieve from the financial stuff, here’s something very neat: Earlier this year, DS worked with a Parisian dance group to merge the worlds of art and 3D technology. Called “Mr et Mme Rêve” (“Mr. and Mrs. Dream” ), two dancers interact with a virtual world created using DS technology. The video is totally SFW (safe for work): http://www.youtube.com/watch?v=5NZ3ItqfYtE. Come back when you’re done.

Cool, huh? I gave you the YouTube break because it embodies both what’s good and worrisome about DS right now. The company is clearly pushing its boundaries (cloud, dance, user interface, big data, 3DExperiences) to target new customers and broaden its relationship with current users. That’s great, but some people are happy with the status quo — it gets the job done, they’re comfortable with it, and it’s paid for. By moving so far and in so many directions, DS risks losing some users who don’t want (or can’t) move along with it. Let’s hope DS creates a bridge between the reality of today and its vision for the future so that everyone can come along.

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