DS reports that the March quarter was pretty good, with IFRS revenue up 5% year/year as reported to €485 million (up 6% in constant currencies). Software revenue was up 6%year/year (y/y) as reported and up 8% constant currencies (cc) to €446 million. On an organic basis, software revenue was up 6% in cc (so probably up around 4% as reported).
- Software revenue was up 6% y/y as reported to €446 million. Unlike PTC, DS cited strong rental activity as a factor in Q1.
- New license revenue was down 5% y/y, to €114 million — but DS was quick to point out that Q1 2012 was unusually strong, so this isn’t too significant. Comparison to Q4 is also not too useful, since there’s usually a huge drop after the Q4 promotions.
- Periodic (term or rental) license and maintenance revenue was €332 million, up 11% y/y. Within this, rentals were up 16% in Q1 and now represent 22% of recurring revenue, on par with 2012.
- Services revenue was down 8% y/y to €39 million, on what the company says were fewer new projects and lower license revenue, especially in ENOVIA.
- By business line, PLM software revenue was €344 million, up 7% as reported and up 8% in cc.
- Within the PLM category, revenue from CATIA was up 4%, ENOVIA was down 3% overall but reported a 26% increase y/y in software rental revenue, and Other PLM was up 22% because of revenue from the recent GEOVIA acquisition, “sharply higher” revenue from DELMIA as companies want to automate their production processes and “continued strength” in SIMULIA. CEO Bernard Charlès spoke about the emergence os SLM (which in DS-ese stands for “Scientific Lifecycle Management”), telling financial analysts that SIMULIA is the infrastructure for simulation (as is PLM for lifecycle management of the product information).
- The rollout of V6 continues and again represents about 15% of total revenue.
- SolidWorks revenue was €103 million, up 4% as reported and up 7% in cc. Interestingly, DS says that the number of new commercial seats only increased 1% in Q1; M. de Tersant said that SolidWorks is a good barometer for the general economic indicators. M. Charlès said that customers have started expecting and waiting for discounts at the end of each quarter; DS decided to stop this practice because it erodes the value of the product.
- By region, revenue from the Americas was €133 million, up 6% as reported and in cc. DS says the Americas recorded double-digit software revenue growth. CFO Thibault de Tersant said the trend in Latin America is positive, with “some improvement” in North America. M. Charlès mentioned that DS is reworking its Americas organization, but gave no details.
- Revenue from Europe was €215 million, up 6% as reported and in cc on growth in all regions, especially the UK.
- Finally, revenue from Asia was €137 million, up 3% as reported and up 6% in cc. DS highlighted “outstanding” growth in India amid mixed results across the region. India, Korea and Japan are, said M. de Tersant “going in the right direction”. He indicated that there is some softness in China, but that the opportunities for DS are “significant”.
- DS doesn’t offer updates on large deals, but M. de Tersant said that the pipeline was good, a bit weaker at the lower/SolidWorks end. The company also doesn’t really talk about channel performance but M. Charlès talked about the three channels (professional, value and direct); he sees value as growing the most rapidly over the next five years.
CEO Bernard Charlès highlighted DS’ presence in the energy markets, saying that customer spend on its solutions was up 13% in cc in 2011 and another 18% in cc in 2012. He told investors about DS’ potential alternative and sustainable energy sources, distribution networks like smart grids, nuclear power (safety, asset lifecycle, operations) especially in markets such as India, China and Russia. He said that DS has a unique solution for managing contract-based delivery and program management –I need to research this– in the Optimized Plant Construction solution that was announced last year. Netvibes plays a big part in all of this, enabling DS to dashboard data from many different sources, so that casual and expert users can interact for a better project outcome.
M. Charles also spoke of needing to work with large systems integrators like Tata on energy implementations, to enable DS to scale its various lines of business more rapidly than it could on its own. (Hmm. Remember IBM PLM?)
DS is more bullish about 2013 than is PTC, believing that license revenue will pick up starting in Q2. For Q2, DS sees total non-IFRS revenue of about €515 million, up 7% in cc; for the year, the company sees total revenue of between €2.07 billion and €2.10 billion, and increase of 6% to 7% — including €4 million from the acquisitions announced today.
DS announced two acquisitions today, too. FE-Design Group, makers of TOSCA for non-parametric structural and fluid design optimization. The transaction closed on April 23 and financial terms were not disclosed. Archividéo, which creates and manages large 3D urban environments and landscapes, extends DS concept of 3D to urban planning and landscape modeling technology. Archividéo will be added to the GEOVIA business; the amount of this transaction was not also disclosed. Neither company is large enough to really affect DS’ revenue or earnings in any meaningful way.
FE-Design and TOSCA have been around for a long time, and add some great optimization technology to the SIMULIA toolkit. In the funniest moment of the earnings call, M. Charles said this acquisition was “very techy”, and turned the floor over to M. de Tersant to explain it. M. de Tersant, an award-winning finance guy, recovered quickly and told investors that he believes TOSCA to be the best non-parametric optimization technology on the market.
I have a call with the SIMULIA team tomorrow; I’ll post an update if warranted.
Right. Again, a lot of numbers and factoids. What does it all mean? DS seems to weather manufacturing industry uncertainty better than its peers, probably because it has diversified (even if only to a limited extent so far) into fashion and retail, energy, core informatics and other areas. A more diverse base can help when there are pockets of weakness and strength, as we seem to have right now. But even DS isn’t too excited about the rest of 2013, using cautionary language in its forecasts and projections.
What surprised me most about today’s news is how few customers are on the V6 platform (DS said 15% of revenue; I’m extrapolating to customers). It’s not new by any means, so why aren’t there more? For one, CAD and related solutions are incredibly sticky — it takes a lot to get people to move off a tool that works for them. Even if it’s not perfect, they know where its flaw are and can work around them. But even if one wanted to buy CATIA V6, I’m not sure that it’s easy to do. V6 is a platform, much more than a simple swap of one tool for another. By making everything V6 a 3D Experience, I wonder if DS hasn’t over-complicated things and made it too hard to understand the benefits of smaller parts of the whole. Are we approaching an “all or nothing” impasse?
In all, organic growth of 4%-6% isn’t huge, it isn’t awful — it’s OK. And if the company manages to turn a profit on OK revenue growth, that’s actually good. And if the company has a plan to grow revenue more, that’s even better. DS has a plan; let’s see what happens.