Encouraging new license sales lead DS to “decent” Q1 2014

Dassault Systèmes reported Q1 results that were decidedly mixed. Total revenue was up but that growth was largely due to acquisitions — and, even then, most of the increase was in services, thanks to the RTT acquisition. Unusual for a traditional software company, but perhaps not for the company DS wants to become. It seems almost as though DS’ customers are taking a pause, trying to digest all that the company is doing with, cloud, Experiences and so on — keeping their V4 and V5 deployments going and trying V6 in limited engagements, but only dipping their toes in all that today’s DS has to offer. Some of that came through in the earnings release materials. The Q1 details:

• Total revenue was up 4% year/year (y/y) as reported to €502 million (up 9% in constant currencies or cc).
• Software revenue was up 1% y/y as reported and up 7% in cc to €450 million. Excluding the Apriso and RTT acquisitions and the divestiture of Inceptra, software revenue was up 4% in cc.
• New license revenue was €118 million, up 3% as reported and up 8% in cc. Organic cc growth was 6%. DS saw double-digit new license revenue growth in Asia and Europe.
• Recurring (term or rental) software and maintenance revenue was €330 million, down 1% as reported and up 5% in cc. CFO Thibault de Tersant said that the company saw a few delays in customers renewals at end of Q1, totaling €7.5 million of which €6.5 million were already booked at the time of the earnings call. M. de Tersant didn’t seem to see anything atypical in this, citing last year’s Q1 slip of €6 million. In an interesting note, M. de Tersant said the DS does more rental business in Europe, North America and Japan than in high growth countries like India, China, Latin America. “Those markets are truly primary license”, he said –I would have thought the opposite– “but we will see a strong attraction towards the cloud in some of these countries.”
• Services revenue was up 35% y/y to €53 million, due to the inclusion of RTT in the Q1 results. Without RTT, services revenue continued its planned decline, perhaps 10% y/y, as DS seeks to move this work to integration partners.
• By product line, CATIA revenue was €188 million, down 5% as reported but up 1% in cc. M. de Tersant told investors that CATIA performed especially well in Asia; the other regions were weaker and “not yet satisfactory”. However, he added, he believes DS can restore CATIA to growth with new V6 deployments. Current go-lives are weighted towards ENOVIA but “then applications are installed and put in production. This will have a very positive impact on the CATIA [revenue] line”.
• Once again, the “Other software” category was the growth standout, with total revenue of €99 million, up 10% as reported and up 16% in cc on an IFRS basis. We don’t have many details, other than that this growth “reflect[s] the addition of Apriso and RTT, and double-digit growth for SIMULIA” per the press release. Stripping out Apriso, cc growth was around 8%. Since RTT is largely a services business, it appears that SIMULIA grew in double digits, DELMIA likely in the single digits.
• ENOVIA revenue was €60 million, up 6% as reported and up 12% in cc. DS chose to highlight this in its press release and prepared remarks, since it showcases “a very significant increase in large deployment and a number of Version 6 Go-lives”. This helped drive new license revenue up 55% in cc, with close to 70% of new licenses coming from V6 deployments.
• SolidWorks revenue was €104 million, up 1% as reported and up 5% in cc. The number of units declined 4% from a year ago, to 12,959 even as the average selling price (ASP) went up 4% to € 5,849. DS says the increase in ASP “reflect[s] continuous enrichment of seats sold with new products”. “Solid renewal rates” and “multiproduct sales” drove overall revenue growth in SolidWorks and lead M. de Tersant to say that prospects are “decent” for the rest of the year.
• V6, the company said, represented 24% of license bought in Q1. Given that V6 is now 5 to 6 years old, this is a pretty slow ramp-up.
• By region, revenue from the Americas was €138 million, up 4% as reported and in up 8% cc, led by services growth. Excluding acquisitions, performance was “poorer” that in Asia, though large accounts in North America are “starting to see a positive impact”.
• Revenue from Europe was €232 million, up 8% as reported and up 8% in cc, with the UK and Sweden cited as strong performers. Again, excluding acquisitions, performance would have been “poorer”, but there was a “much better new license revenue in Europe”.
• Finally, revenue from Asia was €132 million, down 3% as reported but up 13% in cc. DS highlighted strong new business activity in Japan, and growth in China and South Korea. Recent acquisitions have little traction here, so this growth is mostly organic.
• Emerging markets are still relatively minor for DS, accounting for 13% of total revenue in Q1, roughly on par with earlier quarters.

DS sees all the hype around Internet of Things-y things, and jumped onto the bandwagon on this investor call. CEO Bernard Charlès told listeners that DS’ solutions for high tech, which now represent 10% of DS’ total business, will “enable the creation of a new class of Smart Connected Objects”. He used the example of PARKEON, a DS client that manages parking machines, to show how DS’ offerings knit together connectivity, big data and search: “It’s basically machine to machine. They use an application based on EXALEAD, a search-based application, to do the surveillance of an entire range of parking management. This is about big data, this is about analytics and this is about how they manage it. They were able to do that very quickly with simplified applications.” [I love my job. Start on a routine PLMish earnings call and learn about parking meters. Never boring. — Ed.] M. Charlès also outlined his plans for growing DS’ three distinct sales channels. In the direct channel, the focus is on large installations, doing more and more consistent large deployments. For the the value channel the goal is to ramp up capacity to reach new markets. The industry solutions are key here, as they give partners a “cookie cutter” approach to unfamiliar parts of target companies. M. Charlès see the value channel is the “fastest growing channel from the revenue standpoint in the next 5 to 10 years”. Finally, M. Charlès said that he wants to generate more volume through the professional channel, adding applications and brands to add more to the offering but in a measured way, as is now the case with plastic injection molding, for example. The company got a lot of questions on its outlook for the rest of 2014. CFO de Tersant expects Accelrys to contribute about €85 million revenue for the remainder of the year, which some analysts pointed out was quite low for 8 months, given that Accelrys reported $197 million in revenue last year and forecasted $200 million to $211 million for 2014 before the acquisition. Figuring in 8 months and the €/$ exchange rate, shouldn’t that be closer to €100 million? No, says M. de Tersant: “First of all, when I did my computation, I arrived at €95m for the eight months. And so I adjusted by €10m because if you look at the portfolio Accelrys has, it’s a diverse one. And so I think we will have to do the work on where to put the emphasis in order to prepare a better road for future years, you know.” At any rate, DS has set the range for Q2 revenue at about €555 million to €565 million, and 2014 to growth of 14% to 15% in constant currencies, or a revenue range of €2,280 million to €2,300 million. So are customers taking a breather? I think so. CATIA is still by far DS’ largest brand, but its revenue seems flatish, as overall growth comes from SIMULIA, ENOVIA and acquisitions. SolidWorks seems to be growing, though slowly. As the V6 go-lives progress from ENOVIA outwards to CATIA and other apps, the pace will pick back up. The only question is: when?