Earnings recaps: Cadence & Dassault Systèmes report solid results and talk acquisitions
Cadence reported results last night and offered more insight into its entry into the life sciences market. First, the results: Q2 revenue was $858 million, up 18%. By end segment: Digital IC revenue grew 14%; Functional Verification grew 13%; IP revenue grew 30%; and System Analysis –which includes the CAE offering– was up 29%.
CEO Anirudh Devgan expanded on the rationale for the OpenEye acquisition, telling investors that OpenEye is a logical step in the company’s strategy to move outward from chip-level to system-level simulation: “The acquisition will allow us to leverage our solver and AI/ML leadership, along with large data management infrastructure, to significantly enhance the speed and accuracy of biosimulation. This will drive disruptive innovation in the life science market through increasing the efficiency and success rate of the traditionally long and complex drug discovery process.”
He also spoke about Future Facilities, the much smaller acquisition made earlier this month: “Future Facilities … expands our CFD portfolio and extends it to datacenters. In addition to electronics cooling analysis, Future Facilities’ innovative solutions enable customers to optimize thermal and power efficiencies in the datacenter using physics-based 3D digital twins, helping reduce their carbon footprint.”
In response to an investor question, Mr. Devgan compared the two acquisitions, saying that both take Cadence into new verticals that will only become “more digitized over the next ten years. I can’t think of a better emerging area than molecular simulation. And Future Facilities. If you think about it, it’s CFD, which is system simulation, but in a data center vertical, which is a huge thing for sustainability and power consumption. Both of these acquisitions have inherent strength, which ties to our software expertise, but [are in] important growing verticals, where these companies have strong positions.”
Of course, no CEO ever gives away anything about future acquisitions. Still, Mr. Devgan did say this: “as we expand into the system space, like we did with finite element and then CFD, I also think that it’s very important to not just disrupt existing areas of simulation, but also get into new areas, emerging areas of simulation like we announced today with the molecular simulation. And that naturally adds to our customer base and expanding opportunities.” What might be next?
Including these acquisitions, Cadence expects Q3 revenue of $860 million to $880 million and, for the year, revenue growth of around 17%, to between $3.470 billion and $3.510 billion.
Dassault Systèmes reported strong Q2 results this morning, with non-IFRS Q2 revenue of €1,384 million (up 11% in constant currencies, cc). Software revenue was also up 11% cc, with solid demand reported across product lines, geographies, and end markets. 3DEXPERIENCE software revenue growth accelerated to 30% and represented 33% of non-IFRS software revenue. Cloud software revenue was up 23% and now represents 22% of non-IFRSsoftware revenue. Together, these newer offerings account for more than half of total software revenue.
By reporting line, revenue from the Industrial Innovation portfolio was up 11% cc with “double-digit” growth in CATIA, ENOVIA, and DELMIA. Revenue from Mainstream Innovation was up 8% cc — within that. SOLIDWORKS grew in the “mid-single digits” because of a tough comparable a year ago and China’s Covid-19-related shutdowns — the company says this is transitory and expects SOLIDWORKS to return to its traditional growth rates in Q3. Centric PLM saw “continued momentum.” Life Sciences saw revenue up 13% cc with MEDIDATA up 15% cc.
By geo, revenue from the Americas grew 8% cc; from Europe, up 13% cc; and Asia, up 13% cc. In the Americas, Life Sciences and Industrial Equipment were singled out. In Europe, Transportation & Mobility and Aerospace were the standouts. DS mentioned that revenue was up in Asia even with lockdowns in China, with Japan and India up double digits in Q2.
Russia didn’t really come up, though COO Pascal Daloz did say that DS’ Q2 “demonstrated once again the resilience of our strategy against a challenging macroeconomic and geopolitical backdrop, with an impact from Russia and China.”
The company also reaffirmed its outlook for the rest of 2022: non-IFRS revenue of €5,485 million to €5,535 million for fiscal 2022, up 9% to 10% cc. For Q3, DS forecasts non-IFRS revenue of €1,295 million to €1,320 million, up 8% to 10% cc. These forecasts balance the positive momentum created by the Q2 over-performance and a slippery macroeconomic environment, where many things could go wrong but might or might not affect DS. M. Daloz said that DS’s pipeline is just as mature (predictable) as it was a year ago, and DS isn’t seeing any large deals slip into the future.
Buried in the earnings release was an acquisition: DIOTA, which the company says “extends DELMIA to quality control and verification, leveraging real-time data and virtual twin experiences through augmented reality.” The deal is set to close before the end of July; no financial details were released, but we do know DIOTA has 46 employees and generated revenue of €2 million in 2021. Again, companies don’t like talking about future acquisition plans, but M. Daloz said DS must be deliberate before considering another big move. He sees opportunities for expansion in the process industries, health care, infrastructure and cities –all areas where DS has a minimal presence today.
This was the first DS earnings call that I can remember without CEO Bernard Charlès–nothing to see here; he will be back for future calls. M. Daloz and CFO Reuven Bergmann ably covered the material, answered questions, and were, perhaps, a bit more open than is typical on these calls.