DS’s Q4 results show that diversification works — no surprise!

Dassault Systèmes recently announced results for its fourth quarter and full-year 2014 (summarized here) that show how well the company’s diversification strategy is working. Start with a growing cushion of repeatable revenue from core products and industries, add acquisitions that branch out into a dozen verticals and as many geos — only a truly global crisis can stop this juggernaut.This slide, from the investor presentation for Q4 2014, highlights how DS has changed:Many still think of DS as the automotive/aerospace supplier it was ten years ago. Those industries now make up less than half of total end-user spend*, and new industries are assuming a growing importance. That’s visible in the revenue pie, above, but also in the decision-making that drives acquisition and go-to-market strategies: if one industry team needs to fill a hole, how would that acquisition help in other markets?Of course, we can’t deny the importance of the auto and aero customers — a large, installed base that includes some of the most demanding companies in the PLM world. The fact that DS was able to grow revenue in those accounts by something approaching 20% is also impressive. In a perfect world, DS would map products and industries –or somehow communicate what, exactly, created that “close to 20% growth”– but we can only surmise that some of the newer brands are contributing to growth in the traditional verticals.For 2015, CFO Thibault de Tersant forecasts total revenue growth of 11% to 12% in cc, led by double-digit (cc) organic new license revenue growth. That nets out to total revenue of right around €2.7 billion. Why so optimistic? Q4 was good, with strong sales of SolidWorks, and what the company terms “accelerating” new license sales in general. For Q1, DS sees revenue of €610 million to €620 million.But that’s the future. To recap the highlights of the Q4 and 2014 earnings release (more detail in DS’ materials):

• Total revenue in Q4 was €673 million, up 19% year/year (y/y) as reported and up 16% in constant currency (cc). On an organic cc, non-IFRS basis, revenue was up 5%. (That’s got so many qualifiers, I’m not sure what to compare it to. But it is certainly more in line with what PTC reported, absent the whole changing-to-subscriptions thing.)
• Software revenue was €592 million, up 16% y/y as reported and up 13% in cc. On an organic, cc, non-IFRS basis, software revenue was up 7%
• DS seems to think V6 is going great guns, but the data they’ve released makes it look a bit stalled. A year ago, DS said that V6 transactions represented 27% of PLM new license revenue for the year; in Q4, it was 25%. These could be apples-and-oranges comparisons, of course, since the company also said that V6 2014 new license revenue was up 30% in 2014 …
• New license revenue was €199 million, up 27% as reported and up 12% on an organic, cc basis. That’s probably roughly a 15% organic growth rate as reported.
• Maintenance and other recurring revenue was €389 million, up 11%
• By product, CATIA software revenue was €230 million, up 7%; ENOVIA revenue was €78 million, up 7%; SolidWorks software revenue was €126 million, up 21%, and Other software revenue was €158 million, up 33% (all growth rates as reported). I truly wish DS would split Other into its constituent parts –at least the big ones; it’s silly to have an “Other” that’s bigger than 2 of the 3 other categories
• DS did say that it saw double-digit software revenue growth for SIMULIA, but that this was offset in part by softer results in mining and manufacturing.
• Within Other software, of course, are the Accelrys and Quintiq acquisitions. DS says Accelrys, rebadged and combined with other DS assets into the BIOVIA brand, saw 2014 revenue up about 5% cc, with new license revenue up more than 20% cc. Accelrys reported $169 million in total revenue for 2013 so we could guess at total BIOVIA revenue of $150 million, but it’s just a guess. Quintiq had revenue of €70 million, but was acquired in Q3 2014 so had far less impact on the overall results.
• SolidWorks sold 15,312 seats, up 6% y/y, which doesn’t completely jibe with the revenue being up 21%. DS said there were several facets to SW’s growth: unit sales, multi-product sales, maintenance revenue. But I think it’s this last one: the mix shifted, leading to the average selling price increasing during the year.
• By region, revenue from the Americas was €198 million, up 33% as reported and up 24% in cc due to acquisitions and the fact that DS is fiddling with its direct sales channel. Revenue from Europe was €318 million, up 17% and up 15% in cc, with Germany and Southern Europe singled out as strong performers. Finally, revenue from Asia was €157 million, up 9% and up 10% in cc. M. de Tersant said that Asia’s results were led by China, Japan and Korea.

For 2014, total revenue was €2294 million, up 11% as reported and up 14% in cc. Excluding acquisitions and divestitures, total revenue was up 5% on a non-IFRS, cc basis. Software revenue was €2035 million, up 8% as reported and up 11% in cc and up 6% on an organic non-IFRS cc basis. New license revenue was €579 million, up 16%. CATIA revenue was €839 million, up 2%; ENOVIA revenue was €263 million, up 5%; SolidWorks revenue was €448 million, up 9%; Other software revenue was up software revenue was up 29% as reported to €529 million.You’re tearing your hair out. Currency, IFRS, non-IFRS, brands, products, geos. What does it all mean, I can hear you shouting at your computer? The core brand, the thing the “CATIA company” no longer wants to put front and center, grew at 2%. ENOVIA, the backbone of V6, was up just 5%. Is CAD dead? Is the PLMish world ending? Is this a bad thing, a good thing? It’s a good thing, and here’s why: CAD isn’t just CAD any more. To meet today’s workplace reality, whatever we’re calling it has got to include collaboration, quick and easy Google-like searches, simulation, sketching, rendering and a whole host of other ancillary applications. We need the tools to design and create, quickly, manufacturably, and with the customer’s needs in mind. Do mechanical engineers need to do mining? No, but mining engineers might want to tweak a supplier’s design to make it suitable for their environment. We can’t work in isolated silos any longer, and the tools we use need to make those transitions as seamless as possible.Is 2% growth good? No, it alone won’t make investors happy. But 2% on top of a steady base of recurring revenue means there are new people out there, buying CAD (and high-end CAD, at that). Add in growth in SolidWorks, and we’ve got quite a few people buying CAD. Now take the CAD models created by these users and push them outwards to new uses, or let them take input from new sources, and we’ve got some serious innovation potential.As I wrote last year, it’s sometimes difficult to see the logic behind DS’s acquisitions. And DS does a lot of them, for a lot of money. But sometimes a deal is struck to buy a whole company to get a specific employee, a particular patent or technology, or, perhaps, a fully-fledged product. It’s hard to know from the outside. For now, at least, the acquisitions are bringing DS the growth it needs, with access to new types of customers, new markets, and new technologies.Images courtesy of DS, from the 14Q4 Earnings Presentation.—*End-user spend is what customers spend on technology, not the revenue seen by the developer. It’s the vendor’s revenue plus any reseller or agent markup.