DS’s Q1 beat expectations on mainstream strength

Dassault Systèmes reported results for its fiscal first quarter today. There’s a lot to unpack, so let’s get to the details:

• Total revenue of €1173 million was up 3% as reported and up 9% in constant currencies (cc), meeting expectations. In general, DS said strong Q1 performance was driven by Mainstream Innovation (up 20%) and large deal activity, in particular in Transportation & Mobility (overall, up 14%)
• Software revenue was €1,068m, up 5% (up 11% cc), slightly ahead of expectations. In addition to the success in general in Mainstream Innovation and those large deals, DS cited demand in simulation and data analytics. On an organic basis, but non-IFRS (the only way DS gave this figure), software revenue was up 10% cc. Recurring software revenue was up 7% with subscription revenue up in the “double-digits”, driven by Medidata.
• Within the software total, license revenue was €204 million, up 18% (up 25% cc). Subscription and support revenue was €864 million, up 3%
• By product bucket, software revenue from Industrial Innovation was €609 million, up 1%, on “strong momentum for NETVIBES, SIMULIA, ENOVIA, DELMIA”. CATIA was down 1% as reported even as 3DEXPERIENCE revenue was up 12%
• On the topic of 3DEXPERIENCE DS says that 27% of software revenue was related to 3DEXPERIENCE in 2020 and that it is well on the path of 2/3 of revenue by 2025. In Q1 2020 (a year ago), 22% of software revenue was 2DX-related; in Q1 2021, it was 25% — hence the 18% cc growth. Clearly, not all software revenue will be 3DX-related, even in 2025
• In the Mainstream Innovation bucket, which includes SOLIDWORKS and Centric PLM, software revenue was €249 million, up 12% overall. SOLIDWORKS revenue was up 18% cc to an unspecified total, with unit sales up 22% (also not elaborated upon). DS said Centric PLM saw “significant growth” but did not quantify.
• The last product bucket, Life Sciences, reported software revenue of €209 million, up 12%. DS said that Medidatarevenue was up 20% cc
• By geo, revenue from the Americas was €463 million, up 4% on strong performance in Life Sciences and Transportation & Mobility
• Revenue from Europe was €436 million, up 3% on “double-digit growth in Northern and Southern Europe
• Revenue from Asia was €275 million, up 2% on “Excellent performance in China, a recovery in Korea, but a continuing difficult environment in India.” In fact, DS reported that its largest licenses deals in Q1 were “more heavily weighted towards Asia and China

DS called out the proportion of revenue from each of its new product buckets: In Q1 2021, Mainstream Innovation was 23% of software revenue, Life Sciences was 20%, and Industrial Innovation, 57%. That’s consistent with the patterns for 2020 in total, but it’ll be interesting to see how this works going forward. Given the attention paid to the Life Sciences business, it’s a bit startling to see it’s only 20% of the total — a bit like other vendors, focusing on a tiny part of current revenue as their engines for growth. Of course, DS said Medidata’s clinical trials software was used in nearly two-thirds of COVID 19 trials, so there are grounds for its optimism.

DS tweaked its guidance for the rest of 2021, leaving revenue as it was (up 9% to 10% but raised earnings per share objectives. Basically, said the CFO, the strong performance in Q1 “derisked” the guidance for the year.

So, what does it all mean? That even in a pandemic, a juggernaut keeps going. DS reported a good Q1, left the rest of the year alone (but clearly signaled that its guidance is likely to be conservative).