Another quarter and another strong set of numbers from engineering design software company Dassault Systemes (DASTY -1.63%). The European company continues to generate traction on sales of its 3DExperience platform -- more on that later -- and its overall double-digit growth aspirations remain in place for 2019. Here are the details behind another good quarter.
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Dassault Systemes' first-quarter earnings: The raw numbers
For reference, Dassault is based in France and reports figures in euros using International Financial Reporting Standards (IFRS). Just as U.S. companies issue non-GAAP numbers, too, in order to better represent trends in their businesses, so Dassault reports non-IFRS numbers as well.
Starting with the numbers from the first quarter:
- Non-IFRS revenue of 964 million euros, representing a 13% increase at constant currency compared with guidance for an increase of 11% to 13%.
- Non-IFRS operating margin of 32.8% compared with guidance of 31% to 31.5%.
- Non-IFRS EPS of 0.87 euros, representing growth at constant currency of 13%, compared with guidance for an increase of 8% to 13%.
In other words, Dassault's revenue and earnings came in at the high end of guidance -- that's not a bad result, considering all the doom and gloom that surrounded the industrial sector going into the first quarter.
Dassault Systemes' guidance
Given the good results and positive guidance for the second quarter, it's somewhat surprising that management merely maintained its full-year guidance. For example, revenue growth was 13% at constant currency in the first quarter, and guidance is for 10% to 13% in the second quarter, but full-year guidance remains for a 10% to 11% increase at constant currency.
It's a similar story with earnings. Management did raise the full-year earnings guidance range to 3.40 euros to 3.45 euros from a previous range of 3.35 euros to 3.40 euros , but this was a consequence of a forecast for favorable foreign currency effects of 0.05 euros in the first half.
Details from the quarter
As ever with software companies, it's a good idea to keep an eye on the development of license sales, because even though it's less than 25% of overall revenue, it's the key to future subscription and support revenue. As such, license and other software revenue was up an impressive 15% at constant currency in the first quarter, and guidance for the second quarter is for an 11% to 14% increase at constant currency.
However, management merely maintained guidance for a 10% to 12% increase in full-year license and other software revenue.
Data source: Dassault Systemes presentations. Chart by author.
Underlying growth of 3DExperience
Dassault's 3DExperience platform is the key driver of its future sales growth. In a nutshell, it's a platform that allows users of Dassault's design software to collaborate with other company functions (such as design, quality control, research, and sales and marketing) on a global basis, in order to cut production costs and better develop products and solutions. The platform helps make Dassault Systemes one of the most exciting stocks to capitalize on growth in digital twin technology.
During the earnings conference call, CEO Bernard Charles outlined that 3DExperience software revenue increased by 26% in the quarter, and "3DExperience licenses revenue increased 25% and represented 40% of related licenses in the quarter." Once again, Dassault signed some big deals in the quarter, with companies as diverse as mining giant BHP, elevator manufacturer Schindler, and electrical equipment and automation company ABB.
Looking ahead
You could make the case that Dassault's full-year guidance looks conservative, but the environment remains uncertain in 2019, and if the economy slows -- particularly in Dassault's home region of Europe -- then it's likely that companies will be more hesitant to spend on software.
No matter -- current trends remain strong for the 3DExperience platform as it continues to be adopted by major corporations. That should drive license growth, and in turn, long-term revenue growth.
