Dassault Systemes (DASTY -0.31%) produced a decent set of second-quarter earnings and kept its full-year guidance intact, but question marks will inevitably remain on its prospects for the fourth quarter. Earlier in the year, management predicted that 2016 would see revenue and new licenses revenue growth shift to the back half of the year, and now that the company is past its second quarter, it's time to deliver. Let's take a closer look at the results and guidance to see exactly what's going on.

Dassault Systemes is a world leader in 3D engineering and design software. Image source: Getty Images.

Dassault Systemes second-quarter results: The key numbers

As usual with France-based companies, note that Dassault reports in euros and uses International Financial Reporting Standards (IFRS). You can think of non-IFRS in the same way that U.S. companies use non-GAAP numbers to better report underlying conditions.

Details aside, here are the key figures:

  • Second-quarter non-IFRS revenue of 754 million euros came in ahead of guidance of 735 million to 745 million euros.
  • Second-quarter non-IFRS EPS of 0.57 euros compared to guidance of 0.53 to 0.55 euros.

While revenue and earnings beat expectations, currency movements affect Dassault's results a lot; to put the numbers into context management even referred to the results as "at the high-end of guidance."

Turning to the all-important guidance:

  • Third-quarter non-IFRS revenue guidance of 715 million to 725 million euros, and EPS of 0.54 to 0.57 euros.
  • Full-year non-IFRS constant currency revenue growth of 6% to 7%, representing revenue of 2990 million to 3015 million euros
  • Full-year non-IFRS EPS of 2.40 euros.

On a headline level, the full-year guidance maintains prior expectations -- that's the good news -- but the company's underlying sales trends deserve closer inspection.

New licenses growth

One key metric to follow with Dassault Systemes is new licenses sales growth.

 As you can see below, new license revenue growth tends to lead other software revenue growth, an observation that explains why some investors would have been concerned by the 3% decline in new licenses in the first quarter.

Data source: Dassault Systemes presentations.

CFO Thibault de Versant directly addressed the issue of new license sales on the conference call:

... [T]he key take-away for software is the return to new licenses revenue growth which increased 6% in the second quarter. While this was in line with our plans, I believe we can do much better, and this is our plan for the second half of the year with very good growth of new licenses revenue.

The reason why Dassault is expecting stronger growth in the second half of the year? 

Essentially, management believes it's partly down to the increasing importance (in terms of revenue) of its 3DEXPERIENCE platform.The 3DEXPERIENCE solution is a platform which enables corporations to navigate and access Dassault's design software as part of a collaborative interactive environment. As such, it requires a longer adoption process; companies need to get used to how to best implement the solution -- resulting in revenue delays. 

Guidance nuance

In the earnings presentation management forecasted "double-digit new licenses growth ex FX in H2," which de Tersant described as being "in line with our expectations and confirming what we have said since the start of the year."

However, readers should note that in the fourth-quarter 2015 results presentation, delivered in February, de Tersant had predicted "our financial objectives for 2016, with double-digits organic new licenses revenue growth for a third year in a row."

Note that management is now referencing "double-digit" growth in the second half, not just for the full-year. Clearly, new license sales growth looks set to improve in the second half, but it's possible that the full-year figure will fall behind the expectations originally set at the start of the year.

Looking ahead

In a nutshell, Dassault's earnings were pretty much in line with management's expectations, and the company looks set for a stronger second half. However, investors need to keep an eye on new license revenue growth, particularly in the all-important fourth quarter.

In short, the second quarter was a decent one, but it's fair to say pressure is building on the company to deliver.