3D design software specialist Dassault Systemes (DASTY +0.04%) surged by more than 10% after the company gave a strong set of results on Thursday. Given the weak environment in Europe, the market would have been entitled to be a bit concerned about its results -- after all, the company generated around 46% of its revenue in Europe in 2014 -- but its fourth-quarter earnings report was strong all around. Let's look at the numbers in more detail.
Dassault Systemes reports strong results
Dassault is a French company and reports in euros, under International Financial Reporting Standards. It also reports non-IFRS figures. It's not important now to get into the detail of IFRS versus non-IFRS; suffice it to say that most investors will focus on the non-IFRS numbers, similar to how they focus on non-GAAP numbers for U.S. companies.
It's time to get into some numbers. Here is a breakdown of 2014 revenue:
Source: Dassault Systemes presentations. All figures are non-IFRS and in millions of euros.
As you can see, Dassault generates most of its revenue from periodic licenses, maintenance, and other software revenue (up 13% in the quarter). However, the key to its future growth prospects is the development of new license sales.
New license sales matter to software companies because they're usually the key to future licenses and maintenance revenue. As such, analysts follow new license sales closely in order to gauge a software company's underlying growth prospects.
The following chart demonstrates how strong new license growth was in the last two quarters.
Source: Dassault Systemes presentations. Figures are non-IFRS and exclude foreign exchange effects.
Moreover, the following chart demonstrates how new license revenue growth tends to lead to periodic license and maintenance revenue growth:
Source: Dassault Systemes presentations. Figures are non-IFRS and exclude foreign exchange effects.
Growth prospects
In other words, investors have two more good reasons to look positively at Dassault's strong growth prospects in 2015. First, a breakdown of its geographic growth shows that revenue growth has accelerated across all regions in 2014 -- an indication that its growth prospects are not necessarily aligned with the economy.
If they were purely aligned with the economy, then you might expect Dassault's Americas growth to have accelerated amd Europe's to have decelerated. This is because, during the period in question, U.S. GDP growth prospects have improved, while Europe's declined. Incidentally, growth in Asia appears to have slowed in the fourth quarter, but note that third-quarter growth was exceptional.
Source: Dassault Systemes presentations. Figures are non-IFRS and excluding foreign exchange effects.
CFO Thibault de Tersant outlined expectations for the full year: "Our goals for 2015 include organic, double-digit growth in non-IFRS new licenses revenue on a constant currency basis as we continue to focus on broad-based growth, combined with a relatively stable non-IFRS operating margin thanks to continued focus on operational improvements leading to about 12[%]-15% growth in non-IFRS earnings per share."
Turning to the outlook for the first quarter, management expects non-IFRS EPS (excluding the impact of a tax credit in the first quarter of 2014) to grow at 11%, with revenue forecast to grow at 15%-17% excluding currency effects.
All told, it's a strong set of results, and a demonstration that, despite an uncertain global environment, corporations will still invest in software if they can see a tangible return on investment from doing so.
