DS’ great Q2 – a step closer to €2 billion

Dassault Systèmes yesterday reported on its second quarter results and raised its guidance for the full year to €2 billion — quite a milestone. But much of the content of the presentation and conference calls wasn’t about last quarter, but about how DS plans to move forward to new markets. DS is (like the other traditional CAD companies) trying to reinventing itself as something much bigger and broader. During its investor day last month, the company explained that it wants its 3DEXPERIENCE platform to “transform the way companies are engineering, creating, and managing innovation on production systems” in a vast array of verticals and geographies. If it does it right, DS believes it can double its addressable market to $32 billion, layering a $9 billion market in social and collaborative apps and a $2 billion market for information intelligence on top of $6 billion in content and simulation and $15 billion in 3D modeling apps. [Where they got these numbers, I don’t know. –Ed.] CEO Bernard Charlès and his team are trying hard to articulate this vision, though, as M. Charlès said yesterday, “many users still don’t know our products and don’t necessarily know that Dassault Systèmes is the company behind those products. We still have a long way to go but I think we are making progress.” On that note, CFO Thibault de Tersant last month pointed out that DS has been doing very nicely in its traditional markets, with CATIA revenue growing an average of 10% per year; ENOVIA by 25%; and SolidWorks by 18% (in US Dollars, from 1999 to 2011). Yes, those totals include some fairly substantial acquisitions but still: If DS can keep its traditional markets ticking over, they make a great launch platform for its new strategy. That’s a big “IF”, so before we get to the details, a quick reminder of what we were looking for in DS’ Q2: comments on the selling environment in Europe, more on its plans for SolidWorks, and added commentary on the Gemcom acquisition, which closed a few weeks ago. The Q2 2012 details:

• Total revenue in Q2 was €503 million, up 17% as reported and  up 10% in constant currencies (cc).
• M. de Tersant said that “new business came from a number of industries including aerospace, energy, high tech, industrial equipment, life sciences and transportation and mobility.”
• Software revenue of €458 million was up 18% as reported and up 11% in cc. New license revenue was €128 million, up 16% as reported and up 9% in cc.
• Recurring revenue, which DS defines as periodic licenses and maintenance revenue, was up 19% as reported to €330 million.
• Catch-up, one-time fees charged to bring customers current on their maintenance program, payments added about 3% (about € 2 million) to the growth in recurring revenue.
• Services and other revenue increased 6% in cc, to €45 million.

• By product category, PLM software revenue was €356 million, up 16% as reported and up 9% in cc.
• By brand, SIMULIA was characterized as “outstanding”, helping to lift the company’s “Other PLM” category to software revenue growth of 21% as reported and 13% in cc, to €82 million.
• CATIA software revenue was €209 million, up 14% (up 8% in cc) with double-digit new licenses revenue growth.
• ENOVIA software revenue grew 18% (9%) to €66 million.
• Solidworks revenue was €102 million, up 25% as reported and up 15% in cc. DS didn’t say much about Solidworks other than to point to “double-digit growth in both new licenses revenue and recurring software revenue”. New commercial seats licensed in the quarter increased 16% to 13,844 even as the price per seat dropped a bit €5,542 – but this may be due to currency effect and not anything sinister.
• V6 accounted for about 19% of all PLM new licenses revenue, up from 15% in Q1.

• By geography, revenue from the Americas was €139 million, up 12% as reported but flat in cc. DS reports seeing lengthening sales cycles, leading to lower than expected new license sales and “a few” postponed deals.
• Revenue from Europe was €228 million, up 21% as reported and up 19% in cc. M. de Tersant said growth in Europe was due to “broad-based strength across brands and different regional markets within Europe including our largest, Germany, well supported by Nordics and France.” DS clearly isn’t seeing a slowdown in Europe.
• Revenue from Asia was €136 million, up 17% as reported and up 8% in cc on “good growth in Korea and improvement in Japan”. In an interesting comment, M. de Tersant said that growth in China slowed somewhat, due to “seasonal” factors. I am not sure what that meant, and have asked for clarification.

DS also announced that it is spinning off Transcat PLM GmbH, the VAR and Catia development partner serving serving customers in Germany and Slovakia, in management buyout. Etienne Droit, former CATIA CEO, will become Managing Director of Transcat. Philippe Laufer, current head of CATIA R&D, takes over as CEO of CATIA. Gemcom and the movement of DS into completely new set of verticals hasn’t really received much attention, either from DS or from the financial analysts that cover the company — probably because its initial revenue contribution isn’t all that huge. DS said yesterday that Gemcom had a “very good” first half and DS expects it to contribute about €35 million to revenue for the year, and to be accretive to earnings by about 6 cents. [DS uses purchase accounting, which means it adds the acquired revenue only as of the date of closing — Gemcom likely will have total revenue closer to €70 million for all of 2012.] There was a wee bit of unintended, I think, humor during the presentation to analysts in Europe. M. Charlès typically starts off with an overview of the quarter, highlighting strategic wins and taking shots at competitors. M. de Tersant usually takes over after a few minutes to give the financial summary. Yesterday, M. Charlès got a bit carried away and started into the financial presentation, catching himself on one of the hairier “walk” slides. He asked M. de Tersant if this was his portion, “Yes.” M. Charlès: “I apologize. I was so excited. When I saw the cash situation, I said, this cannot be my topic. So you can rewind the tape if you want and do whatever you want to do. I’m sorry.” M. de Tersant: “So I like the chart and don’t have a problem starting with this one.” Maybe you had to be there; these calls get long and it becomes hard to maintain focus. For many companies, earnings calls seem to be something to endure and get through with minimal pain — it’s nice to see some genuine enthusiasm. DS has a lot to be enthusiastic about. Adding in Gemcom and the €8 million “overperformance” in Q2, taking out €10 million for Transcat and adjusting for currency, DS now see the full year revenue of €1.99 billion to €2.01 billion, or growth of 8% to 9% in constant currencies. For Q3, DS guided to total revenue of €480 million to €490 million.