DS rocked Q2 but isn’t building a supersonic car. Bummer.

I am still plowing through Dassault Systèmes’ materials about its second quarter, so may write an update later but here are first impressions:

• Q2 was good, really good, with non-IFRS revenue of €965 million, up 16% as reported, up 13% in constant currencies (cc) and up 10% on an organic cc basis
• Software revenue was up 12% cc (and up 9% cc organically) to €851 million. Within that, license revenue was up 12% to €249 million, and up 9% on an organic basis. Recurring software revenue was up 9% cc to €604 million and now represents 71% of software revenue
• Services revenue, which CEO Bernard Charlès said is an important indicator of future business, was €114 million, up 27% cc (up 15% organically) driven by 3DExperience and 3DEXCITE implementations
• 3DExperience software revenue now represents 31% of software revs (up from 23% a year ago), up 52%
• By product, CATIA software revenue was €280 million, up 12% cc. That’s a significant jump from Q1, when it was up 6%. Mr. Charlès explained that it’s because customers are now seeing value in the 3DX version of CATIA, which “does so much more than the V5 version”
• ENOVIA revenue was €97 million up 9% cc
• Other Software reported revenue of €271 million, up 20% ccon strong demand for DELMIA, SIMULIA, GEOVIA and 3DEXCITE
• SOLIDWORKS was the main area of concern, with revenue growth of 4% to €203 million marking a deceleration from Q1. M. Charlès explained that this was not due to competitive losses or other market dynamics, but more a retooling of the sales channel to enable it to sell the broader 3DX offering, including DELMIA Live. He believes that customers remain excited about SOLIDWORKS, cloud and the ability to use DS’ Power’By to connect SOLIDWORKS to the 3DX platform. CFO Pascal Dalosz added that he saw no real change in the number of units sold in Q2 compared to 2018, but said that 2018 was ‘exceptional”
• By geo, revenue from the Americas was €252 million, up 20% as reported and up 14% cc. Large deals in North America and an improvement in Latin America led to the growth
• Revenue from Europe was €348 million, up 13%
• Revenue from Asia was €251 million, up 11% as reported and up 9% cc. DS saw growth led by China and India, so clearly no problems in China, as was reported by Hexagon.

DS basically confirmed its outlook for 2019, making slight tweaks to account for currency fluctuations. The company expects revenue of €890 to €905 million for Q3, and of €3.88 to €3.91 billion for 2019.

There was a tiny update on the Medidata acquisition: it is gaining regulatory approvals, Medidata shareholders are scheduled to vote on the merger on August 16, and the deal is expected to close in Q3 or Q4. The guidance update did not include any contribution from Medidata.

Bottom line: The 3DExperience platform continues to attract a lot of interest, and DS may be at the tipping point where more customers want that than its more traditional, standalone offerings. The SOLIDWORKS slowdown is worrisome, and we’ll have to see how that reverses once the channel has changed as M. Charlès hopes it will.

Supersonic? Yup. DS’ earnings calls are typically so scripted, sticking tightly to specific talking points, that today’s was actually far more interesting than usual. In listing all of the Q2 wins, M. Charlès misspoke for just a second, saying that someone was working on a supersonic car. He recovered well but we could hear his team giggling behind him. It made what’s usually rather dull, a lot more human. I do hope DS (or a client) is working on a supersonic car — we in Boston (as an analyst in New York) could benefit!

(I’m using non-IFRS totals because almost all of DS’ commentary is non-IFRS, and for Q2 it doesn’t make too much of a difference: IFRS total revenue was €961 million as compared fo non-IFRS revenue of €965 million.)

The title image is of a Fiat, clearly not supersonic but absolutely gorgeous. This was one of the results when I Googled “supersonic automobile”. Just goes to show: don’t rely on search engines for anything approaching the truth. The “supersonic Fiat” is here.