Dassault Systèmes wobbles on license, otherwise good Q1
Dassault Systèmes reported Q1 results this morning — they were decent but some investors were unhappy about the (tiny in € terms) miss in the (tiny) license revenue category. The details:
- Total revenue increased 8% as reported (7% in constant currencies, cc) to €1,434 million, right in the middle of earlier guidance
- Software revenue was up 7% (up 6% cc) to €1,288 million
- Within the software total, license and other revenue were €211 million, down 10%. That’s well below the forecast decline of 2% to 7% and is due to continuing challenges in China. Investors focused on this decline and ignored much of the other positive news. But let’s be honest: this is a delta of something like €10 million — so not at all significant in the bigger picture. DS believes these deals will eventually reappear; some are already in the pipeline for later in the year. See below for DS’ comments on China
- Subscription and support revenue was €1077 million, up 11%
- Recurring revenue was 84% of total software revenue, driven by strong subscription growth of 14%
- Services revenue was €146 million, up 21%, as DS concluded engagements in Life Sciences that had completion payments — in other words, this is lumpy; don’t expect it to happen every quarter
- By product line, Industrial Innovation software (CATIA, ENOVIA, SIMULIA, DELMIA, GEOVIA, NETVIBES, 3DEXCITE) revenue rose 4% to €685 million, “thanks to double-digit growth in subscription revenue, driven by strong momentum in CATIA and ENOVIA” even as companies increasingly opt for subscriptions. This is a slowdown from Q4 growth of 11% and something to keep an eye on as we get further into 2023
- Mainstream Innovation software (CENTRIC PLM, 3DVIA brands, and the “3DEXPERIENCE WORKS family, which includes the SOLIDWORKS brand” — why DS buries a billion dollar brand is still confusing to me) revenue was up 4% to €310 million. “SOLIDWORKS reported low single-digit growth,” reflecting a tough comparison to Q1 a year ago and challenges in China. “CENTRIC PLM performed well, benefiting from its leading market position and successful diversification strategy” — DS Deputy CEO and COO Pascal Daloz said that he believes CENTRIC could ultimately also be a $1 billion brand. In total, Mainstream is doing a tad better than expected, with revenue growth of 4% in Q1, just a bit higher than the 3% reported in Q4. DS isn’t specific enough here — we don’t know if SOLIDWORKS’ “low-single-digit” growth in Q1 is higher or lower than in Q4
- During the Q&A with US investors, M. Daloz said that 3DEXPERIENCE WORKS has had slow uptake among the SOLIDWORKS base, perhaps only 3% so far — but noted that this was to be expected since this offering was launched to attract new logos. He hopes to exit 2023 with a 7% penetration rate in the base plus a lot of new customers. This was the first time I had heard this quantified; I hope DS keeps offering this metric
- Life Sciences software (MEDIDATA and BIOVIA) was up 11% to €293 million. “MEDIDATA continued to experience strong momentum, growing 13%”. This is a slight deceleration, as Life Sciences’ total revenue was up 12% cc in Q4; MEDIDATA seems to be more or less stable at that 13% cc
- By geo, software revenue in the Americas was €535 million, up 6% (down from 13% cc in Q4). “The region benefited from strong performance in Life Sciences and High-Tech, and good results in Mainstream Innovation.” Expect acceleration in the Americas as the year goes on
- Revenue from Europe was up 12% to €470 million, “incredible momentum” “thanks to strong results in western and southern Europe, and Transportation & Mobility.” Europe seems to have accelerated from Q4 growth of 6% cc, so was a bright spot for Q1
- Revenue from Asia declined 3% to €284 million, “impacted by China, [which was] down 8%, during the quarter [this had been “low to mid-single digits” in Q4].” The slowdown in China was partially offset by “robust, double-digit growth in India”. In its presentation to investors, DS said that the environment in China was more challenging than expected, but that saw Chinese customers “start their investment cycles in March, supporting pipeline generation” and recovery for the rest of the year
- 3DEXPERIENCE software revenue increased 10% (slower than the 22% growth reported in Q4)
- Cloud software revenue grew 17% and represented 24% of software revenue. This is a deceleration, which DS explained by saying that there is seasonality in cloud adoption, especially for large clients that opt for private cloud installations. DS doesn’t see any softening of demand for cloud solutions.
DS reaffirmed its guidance of overall revenue growth of 8% to 9% cc for 2023, based on a recovery of business in China. That means 2023 revenue in the range of €5,940 million to €5,990 million. For Q2, the company gave revenue guidance of €1,440 million to €1,463 million, with license revenue growth of 0% to 5% cc.
That’s a lot to take in. What does it all mean? Move along; nothing to see here. Things going as planned. Yes, the license growth wasn’t as expected in Q1 but will be made up in Q2 and beyond — and it’s actually such a tiny number that it’s not even a rounding error in a €1.5 billion quarter.
One last thing: People always ask me about succession plans — who will be the next CEO of company X? Today, during a Bloomberg interview, DS CEO Bernard Charlès said that Deputy CEO Daloz will soon tell him that he is ready to take over as CEO — it’s apparently up to M. Daloz. No date, nothing definite, but “soon”. Interesting. See the interview here.
Burying a multi billion dollar brand is maybe simply driven by the intention to lower the attention to traditional brands like SOLIDWORKS and CATIA and leverage the „new“ 3DEXPERIENCE. In my eyes this is weird, others pay many, many dollars to build attractive brands and DS is shy to use a market leading brand name SolidWorks in full breadth, also visible in renaming popular SolidWorks World.
I totally agree, Zsolt — many companies are desperate to build the brand equity that DS pretends no longer matters. It must be possible to attract new users and retain the (huge) legacy base — but PTC, at least, seems to believe those users are ripe for stealing away.
Very well written by someone who is clearly level headed. Thank you for being a voice of reason.
That’s very kind – thank you!