France-based engineering design company Dassault Systemes (NASDAQOTH:DASTY) delivered a good set of second-quarter earnings and upgraded full-year guidance. The company is seeing increased adoption of its 3DExperience platform, which allows users of Dassault's software to collaborate with other company functions as they create and develop products and solutions. And that increased adoption is, in turn, driving growth in new license sales for its engineering design software. Let's look at the earnings report:

An engineer working on a 3D design

Image source: Getty Images.

Dassault Systems second-quarter earnings: The raw numbers

The company reports in euros, and this year switched to International Financial Reporting Standards (IFRS) under International Accounting Standards (IAS) 18.

For the sake of clarity, I'm using the non-IFRS, IAS 18 numbers throughout because this is what management is currently giving guidance to. (You can think of the non-IFRS numbers in the same way that U.S. companies report non-GAAP earnings.) Also, note that Dassault generated around 57% of its revenue outside Europe in 2017, so currency movements can bounce its earnings around a lot.

Starting with the headline numbers from the quarter:

  • Revenue of 840.3 million euros ($982.5 million), representing reported growth of 4%, with 8% growth in constant currency -- a figure at the low end of guidance for 8% to 10% growth in constant currency.
  • EPS of 0.69 euros, representing reported growth of 16%, and 22% in constant currency -- a figure at the high end of guidance for 16% to 22% growth in constant currency.

The headline numbers were within guidance ranges, and management was moved to raise full-year guidance. The increase is down to stronger growth, favorable exchange-rate movements, and the acquisitions of Centric Software (product life-cycle management software for the fashion industry)  and No Magic (model-based system engineering).

Turning to the specific full-year headline guidance numbers:

  • Revenue is expected to be in the range of 3.41 billion to 3.44 billion euros representing growth of 9% to 10% at constant currency, compared to a previous estimate of 8% to 9% growth in constant currency. 
  • EPS is now expected to be in the range of 2.95 euros to 3 euros representing growth of 15% to 17% in constant currency, compared to a previous estimate of 11% to 13%

The 0.12-euro increase in full-year guidance includes 0.03 euros apiece from a better-than-expected tax rate and currency movements, with higher activity accounting for 0.07 euros, while Centric is guided to reduce full-year EPS by 0.01 euro. 

Details from Dassault Systemes' quarter

There are two key numbers to follow with Dassault, and both of them look good.

The first is its growth in new license sales -- the key to future subscription and support revenue. As you can see below, new licenses revenue grew 8% in the second quarter. It's a good result considering that Dassault's new license sales are becoming more back-end loaded.

Dassault Systemes revenue growth

Data source: Dassault Systemes presentations. Chart by author.

Management is forecasting 9% to 11% growth in licenses in constant currency for 2018. And by the looks of the first two quarters, it's well on track.

The second metric to follow is how Dassault is generating revenue growth from its 3DExperience platform. The good news is that CEO Bernard Charles outlined strong growth from the platform: "We are seeing strong momentum with 3DExperience, with new licenses revenue up 27% in constant currencies, and accounting for one-third of related sales of the 2018 first half."

That confirms that customers are now readily adopting the platform and building on the momentum started in 2017Indeed, Charles highlighted EDF Group (one of the largest electricity producers in the world) and ExxonMobil as two leading companies adopting 3DExperience.

Looking ahead

Dassault is making good progress with convincing customers to adopt the 3DExperience platform, and all its major software solutions achieved double-digit licenses growth in constant currency in the quarter. Provided the global economy holds up, it's reasonable to expect more of the same from Dassault in the second half.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Dassault Systèmes. The Motley Fool has a disclosure policy.