Dassault Systèmes’ V6 finally gaining traction, 36% of NL* in Q2

Aug 5, 2016 | Hot Topics

By now, you’re likely aware that Dassault Systèmes reported a Q2 that matched expectations, with good growth from the ENOVIA and SOLIDWORKS brands offsetting weaker performance from CATIA. DS left its guidance for the rest of 2016 unchanged, on the expectation that new license revenue will grow in the double digits during the second half of 2016. But the main highlight, to me, seems to have escaped much notice: the growth trajectory for V6 is now a noticeable 36% of new license revenue* and may be signaling that V6 is finally, finally, going to become as meaningful to DS’ revenue as it is to DS’ marketing.

First, the details for Q2 2016 (using as-reported IFRS data unless otherwise specified):

  • Total revenue was €754 million, up 5% as reported and up 7% in constant currencies (cc)
  • Total software revenue was €669 million, up 7% as reported (up 9% cc)
  • Within that total, new license revenue was €192 million, up 8%, led by large accounts and (presumably) direct sales. DS says that 3DEXPERIENCE platform and industry solution sales were up sharply as were sales in what it calls Diversification Industries — in other words, not auto and not aero and not industrial equipment
  • Maintenance and other periodic revenue (aka subscriptions) was €478 million, up 6%, on what DS characterizes as strong growth in maintenance subscription revenue worldwide and growth in rental subscriptions
  • Total service and other revenue was €85 million, down 4% as reported (down 2% cc)
  • By product line, ENOVIA revenue was up 12% (up 13% cc) to €82 million on what the company says was growth in all geos. New licenses revenue was  up 34% cc in Q2 and up 32% cc in H1, which DS says was the 4th consecutive quarter of double-digit license revenue growth — likely due in large part to the V6 uptake (see below)
  • SOLIDWORKS revenue was €152 million, up 9% (up 13% cc) and
  • Other Software was up 12% (up 14% cc) to €192 million.
  • CATIA software revenue was €244 million, flat as reported (up 1% cc), which DS characterizes as “in line with Company plans”. DS says that CATIA had a weak quarter in Asia
  • By geo, revenue from the Americas was €233 million, up 6% as reported (up 11% in cc) on growth across North and Latin America, including double-digit new license revenue growth.
  • Revenue from Europe was €320 million up 5% as reported (up 10% cc), also reporting double-digit growth in new license revenue
  • Revenue from Asia was €201 million, up 6% as reported on what DS says was “weak performance in Korea, India and AP South” 

Yup that’s all good/bad/fine — but what most investors care about is the uptake of the V6 platform. DS completely, utterly and totally buried that lead in this earnings release. One tiny little slide out of 43 in the investor deck for Q2 says that V6 and 3DEXPERIENCE license revenue as a percentage of total new license (non-IFRS) revenue for the first half of 2016 was up 13 percentage points over a year ago (excluding SOLIDWORKS and acquisitions). My italics.

A dive into the earnings archives shows that we’ve got a longer pattern here for V6 as a proportion of new license revenue:

Screen Shot 2016-08-06 at 7.13.51 AM

Sources, all from DS: The earnings presentations for 2015 Q4, 2016 Q1 and 2016 Q2. We don’t have comparable info for Q3 and Q4 of 2015, hence the blank. For Q3, CFO Thibault de Tersant told investors that V6 grew to 16% of total revenue. Total revenue includes new and maintenance revenue, so we can’t use that factoid here because all else refers to new license revenue (excluding Solidworks, yada yada). But DS did say that V6 represented 36% of total new license revenue (as qualified) in H2 2015, and 29% for 2015 as a whole. Not enough data to infer Q3 and Q4 2015.

I tried to estimate the Euro impact of this growth (and an earlier version of this post included those estimates) but ran into difficulty trying to track the SOLIDWORKS and other exclusions from reported new license revenue — so let’s stick to the stated percentages. Take a look at YTD 2015 and YTD 2014 (in green). H1 of 2016 versus H1 2015 (in purple). Next, look at the little blue columns: each quarter shows growth over the year earlier (where we have data). This is a clear acceleration on a year/year basis. Yes, growth is uneven — likely driven by DS’ mega customers who move large numbers of licenses at once and by the incentives at year-end. And, yes, total new license revenue fluctuates, so this percentage view isn’t as good as real numbers. Even so, this may not be perfect progress, but it’s solid and measurable growth, hitting 33% of (qualified) new license revenue in H1 2016.

But, you say: V6 was introduced in 2008 — shouldn’t it be a bigger contributor to revenue? Perhaps, but V6 is really a 3DEXPERIENCE sale, with ENOVIA as the backbone. ENOVIA is big PLM, which means that it ties into many business and enterprise systems. And many of those ties are sticky, difficult to update or replace.

On to other topics. This earnings call was the first PLMish call to mentioned Brexit (Britain’s vote to exit the European Union): DS says it seeing a few small projects put on hold but doesn’t expect that to have any meaningful impact on 2016 results.

DS also gave much more information about its acquisition of CST. CST, you’ll recall, make electromagnetic simulation software that DS wants to add to the 3DEXPERIENCE platform to boost its position in hot new markets like autonomous cars, smartphones, smart homes and wearable electronics. CST had revenue of about €47 million in 2015 (no word on trailing 12 month or year-to-date but with a 10% or so compound annual growth rate from 2012 to 2015). Revenue is split roughly 35% new license/65% recurring. DS says the deal will close once regulatory approvals have been received in Germany and Austria, with a target of September 2016.

DS sees Q3 non-IFRS total revenue of €715 million to €725 million and reconfirmed its 2016 non-IFRS revenue growth objective of 6% to 7% cc, getting to a total of revenue of €2.990 to €3.015 billion.

The * refers to all of the qualifiers (“V6 and 3DEXPERIENCE license revenue as a percentage of total non-IFRS new license revenue, excluding SOLIDWORKS and acquisitions”). NL means New License.