Dassault Systèmes (Euronext Paris: FR0014003TT8, DSY.PA), today announced IFRS unaudited financial results for the third quarter and nine months ended September 30, 2022. The Group’s Board of Directors approved these results on October 25, 2022. This press release also includes financial information on a non-IFRS basis and reconciliations with IFRS figures in the Appendix to this communication.
Summary Highlights
(unaudited, all revenue growth rates in constant currencies)
• 3Q22 IFRS diluted EPS increased 20% to €0.16 as reported. Non-IFRS diluted EPS grew 17% to €0.26 as reported, outperforming our objectives.
• 3Q22 total revenue and software revenue increased 8% (IFRS and non-IFRS), driven by strong subscription & support revenue growth of 10% (IFRS and non-IFRS). Licenses & other software revenue declined (2)% (IFRS and non-IFRS) due to our focus on increasing the mix of subscription versus license revenue
• 3Q22 3DEXPERIENCE software revenue rose 15% (IFRS and non-IFRS). Cloud software revenue increased 21% (IFRS and non-IFRS).
• FY2022 non-IFRS objectives: reaffirming total revenue growth of 9%-10%, in constant currencies. Raising non-IFRS diluted EPS target to 18%-19% growth to €1.12-€1.14, and on track to be fully deleveraged by year-end.
Bernard Charlès, Dassault Systèmes’ Vice Chairman of the Board and Chief Executive Officer commented:
“Virtualization is about applying science at scale, using the virtual world to extend and improve the real world. For forty years, we have been a trusted partner, leveraging science, to help clients overcome their most significant challenges, prepare for the future, and realize their greatest ambitions - from agility and resiliency to sustainability. Today, clients across all sectors, and society at large, face a complex and rapidly changing business environment. The role we play is as critical as ever; this was well demonstrated at our recent customer forums, held around the world. Virtualization opens possibilities well beyond digitization - it's the next frontier.
Our foundation in science is truly a differentiator. Our virtual twin experiences, powered by cloud-based 3DEXPERIENCE, are not simple renderings, they are fully integrated with scientific laws and principles and all of our technologies. Incorporating multi-physics, multiscale and multi-discipline, we combine modeling, simulation and data science for a holistic approach to innovation and business optimization. We empower our clients to create virtual universes to operate the lifecycle of their products and also the production systems. This establishes a valuable foundation to fully leverage the future of data science.
As data collection and analysis accelerate, virtualization of society and the economy requires the highest levels of security, trust and services. For these reasons, we announced our new strategic objective to elevate 3DS OUTSCALE, Dassault Systèmes' sovereign cloud infrastructure, to a brand, protecting environments for creating and operating sustainable virtual twin experiences. Trust is a topic of the greatest importance for all of society – consumers, patients and citizens.”
Third Quarter 2022 Versus 2021 Financial Comparisons
(unaudited, all revenue growth rates in constant currencies)
• Total Revenue: Total revenue grew 8%, IFRS and non-IFRS, to €1.37 billion. IFRS and non-IFRS software revenue increased 8%, to €1.23 billion. IFRS and non-IFRS subscription & support revenue rose 10%; recurring revenue represented 82% of total software revenue. Licenses and other software revenue decreased 2%, IFRS and non-IFRS, to € 221.3 million. Our focus on accelerating recurring revenue growth drove a higher than expected mix of subscription versus the license model, this quarter. Services revenue increased 16%, IFRS and non-IFRS.
• Software Revenue by Geography (IFRS and non-IFRS): The Americas revenue grew 7% to 41% of software revenue, driven by strong performance in Life Sciences and High-Tech. Europe demonstrated resiliency in a challenging environment; revenue increased 9% to 34% of software revenue. The region benefited from strength in France, Northern Europe and Southern Europe and from good performance in Transportation and Mobility, from an industry perspective. Asia Pacific rose 6% this quarter to 24% of software revenue, driven by double-digit growth in India and Korea. China was up mid-single digits as Covid-19 related shutdowns continued to weigh on activity.
• Software Revenue by Product Line:
o Industrial Innovation IFRS and non-IFRS software revenue rose 6% to €623.5 million, representing 51% of software revenue. CATIA exhibited continued strong momentum with revenue up double-digits. Cyber-Systems delivered excellent performance again this quarter. ENOVIA and DELMIA also showed strong growth during the period.
o Life Sciences software revenue rose 14% IFRS and 13% on a non-IFRS basis, to €294.6 million, representing 24% of software revenue. MEDIDATA continued to deliver strong performance driven by broad-based growth across product lines and end-markets. Life sciences companies are prioritizing R&D investments and with a renewed focus on value; MEDIDATA is mission critical to accelerate innovation, increase efficiency, reduce costs and to gain a competitive edge.
o Mainstream Innovation software revenue was €311.7 million on an IFRS and non-IFRS basis, an increase of 5%, and representing 25% of software revenue. Mainstream Innovation was impacted by complex macroeconomic conditions. China’s COVID related lockdowns were also a headwind, impacting SOLIDWORKS performance this quarter.
• Software Revenue by Industries: Life Sciences & Healthcare, Transportation & Mobility, High-Tech displayed some of the strongest performance.
• Key Strategic Drivers (IFRS and non-IFRS): 3DEXPERIENCE revenue increased 15% and represented 32% of software revenue. Cloud software revenue grew 21% and represented 24% of software revenue. 3DEXPERIENCE and cloud afford opportunities to deliver incremental value to our customers. As clients embrace a platform approach via the cloud, they are adding new users and new usages, capitalizing on the benefits of adopting all of Dassault Systèmes’ domains.
• Operating Income and Margin: IFRS operating income increased 12%, as reported. Non-IFRS operating income rose 11% to €433.5 million, as reported. The IFRS operating margin was 19.3% compared to 20.5% in the third quarter of 2021. The non-IFRS operating margin was 31.6%, versus 33.8% for the comparable period last year. Consistent with the plan we communicated early this year, and our long-term focus, we invested in future growth initiatives.
• Earnings per Share: IFRS diluted EPS increased 20% to €0.16 as reported. Non-IFRS diluted EPS grew 17% to €0.26 as reported.
Year-To-Date 2022 Versus 2021 Financial Comparisons
(unaudited, all revenue growth rates in constant currencies)
• Total Revenue: Total revenue grew 9% IFRS and non-IFRS to € 4.08 billion. IFRS and non-IFRS software revenue increased 9% to €3.69 billion. IFRS and non-IFRS subscription and support revenue rose 9% to €2.96 billion; recurring revenue represented 80% of total software revenue. Licenses and other software revenue increased 7% IFRS and non-IFRS to €727.5 million. Services revenue rose 13% on an IFRS and non-IFRS basis.
• Software Revenue by Geography (IFRS and non-IFRS): The Americas grew 8% and represented 40% of software revenue. Europe rose 9% to 35% of software revenue. Asia Pacific increased 11% to 25% of software revenue.
• Software Revenue by Product Line:
o Industrial Innovation IFRS and non-IFRS software revenue rose 7% to €1.94 billion and represented 53% of software revenue. Year-to-date, CATIA, ENOVIA and DELMIA exhibited some of the strongest performance.
o Life Sciences software revenue increased 14% IFRS and 13% to €823.8 million on a non-IFRS basis, representing 22% of software revenue. Excellent MEDIDATA performance has been the key driver of Life Sciences growth.
o Mainstream Innovation software revenue increased 8% on an IFRS and non-IFRS basis, to €921.5 million IFRS and €921.7 million non-IFRS. Mainstream Innovation represented 25% of software revenue. SOLIDWORKS grew mid-single digits while CENTRIC PLM delivered double-digit growth. Year-to-date SOLIDWORKS performance has been impacted by China’s COVID-19 related shutdowns, which have lasted longer than expected.
• Software Revenue by Industries: Life Sciences & Healthcare, Aerospace & Defense, Industrial Equipment, and Marine & Offshore displayed some of the strongest performance.
• Key Strategic Drivers (IFRS and non-IFRS): 3DEXPERIENCE revenue increased 21% and represented 31% of software revenue. Cloud software revenue grew 22% and represented 22% of software revenue.
• Operating Income and Margin: IFRS operating income increased 30%, as reported. Non-IFRS operating income rose 15% to €1,339.9 million, as reported. IFRS operating margin was 22.3% compared to 20.1% for the same period in 2021. The non-IFRS operating margin was 32.8% versus 33.3% in the comparable period last year. Throughout 2022 we have invested in future growth opportunities, as communicated early this year.
• Earnings per Share: IFRS diluted earnings per share increased 12% to €0.46. Non-IFRS diluted EPS grew 19% to € 0.80, as reported.
• Cash Flow from Operations (IFRS): Cash flow from operations totaled €1.281 billion, an increase of 2%, relative to the same period last year. The main changes result from tax cash flow differences related to the mandatory capitalization of R&D expenses for tax purposes in the USA and to withholding tax. Excluding those two effects, the cash flow from operations would have been up 10% year-to-date. Cash from operations was principally used for debt repayment, net of proceeds for €885 million, treasury shares buy-back and employee shareholding plan net of proceeds from stock options exercise for €359 million, and cash dividend payments for €224 million.”
• Balance Sheet (IFRS): Dassault Systèmes’ net financial debt at September 30, 2022 decreased by €682 million to €208 million, compared to €889 million at December 31, 2021, reflecting cash, cash equivalents and short-term investments of €2.788 billion and debt related to borrowings of €2.996 billion at September 30, 2022.
Dassault Systèmes’ Chief Operating Officer Commentary
(revenue growth rates in constant currencies, data on a non-IFRS basis)
Pascal Daloz, Dassault Systèmes’ Chief Operating Officer, commented:
“In a challenging environment, we delivered a solid third quarter thanks to the resiliency of our model and the broad diversification of our business. In Industrial Innovation, our flagship brands CATIA, ENOVIA and DELMIA drove performance with strong, double-digit software revenue growth. In Life Sciences, MEDIDATA delivered excellent growth against a high comparison base, again this quarter. Mainstream Innovation rose mid-single digits as China's COVID related restrictions continued to be a headwind, impacting results this quarter, particularly for SOLIDWORKS.
The relevance and criticality of our platform and industry solution experiences have never been greater. To navigate today's complex economic and geopolitical environment, clients across all sectors of the economy continue to prioritize investments to accelerate sustainable innovation and increase resiliency and agility by optimizing production and logistics. This is well reflected in our strong customer adoption this quarter, incorporating numerous domains including precision medicine, modular nuclear reactors and connecting supply chains.
This quarter, we announced the acquisition of StyleSage, a cloud-based market intelligence platform offering retailers and brands AI-powered tools for competitive benchmarking, price optimization, and forecasting. StyleSage will bolster CENTRIC PLM’s value proposition by extending its footprint from collection management to business planning & analytics as well as e-commerce. We continue to innovate and invest for the future both organically and through M&A.”
Dassault Systèmes’ Chief Financial Officer Commentary
(revenue growth rates in constant currencies, data on a non-IFRS basis, cash flow IFRS)
Rouven Bergmann, Dassault Systèmes’ Chief Financial Officer, commented:
“We delivered solid results in the third quarter, demonstrating the strength of our model. Total revenue grew 8%, in line with our objectives. Recurring revenue growth accelerated, increasing 10%, and now represents 82% of software revenue, driven by strong subscription revenue, up 16%. This shows we are well prepared for a progressive acceleration in subscription growth while continuing to support our clients with optionality that meets their needs. Our key strategic drivers, 3DEXPERIENCE and cloud, continue to build momentum, increasing 15% and 21%, respectively.
Our third quarter earnings per share rose 17%, to €0.26, outperforming our objectives and reflecting a favorable US Dollar impact. We reported an operating margin of 31.6%, in line with our target range, while hiring nearly 800 net new team members during the quarter. Years of strategic investments in technology, infrastructure and our organization enable us to protect profitability while continuing to invest in advance of our clients' needs.
Turning to 2022, we are reaffirming our total revenue growth objective of 9-10% to a higher absolute range of €5.610-€5.650 from €5.485-€5.535 previously, incorporating the full benefit of currency. We are adjusting our recurring revenue growth target to 9-10%, from 9% previously, and our license growth target to 5-7%, from 9-11% previously. In addition, we are raising our 2022 diluted EPS objective to 18%-19% growth, reaching €1.12 to €1.14, keeping us on track to be fully deleveraged by year-end.”
Financial Objectives for 2022
Dassault Systèmes’ fourth quarter and full year 2022 financial objectives presented below are given on a non-IFRS basis and reflect the principal 2022 currency exchange rate assumptions for the US dollar and Japanese yen as well as the potential impact from additional non-Euro currencies:
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These objectives are prepared and communicated only on a non-IFRS basis and are subject to the cautionary statement set forth below.
The 2022 non-IFRS financial objectives set forth above do not take into account the following accounting elements below and are estimated based upon the 2022 principal currency exchange rates above: no significant contract liabilities write-downs; share-based compensation expenses, including related social charges, estimated at approximately €172.5 million (these estimates do not include any new stock option or share grants issued after September 30, 2022); amortization of acquired intangibles and of tangibles reevaluation, estimated at approximately €400.5 million, largely impacted by the acquisition of Medidata; and lease incentives of acquired companies at approximately €3.0 million.
The above objectives also do not include any impact from other operating income and expenses, net principally comprised of acquisition, integration and restructuring expenses, and impairment of goodwill and acquired intangible assets; from one-time items included in financial revenue; from one-time tax effects; and from the income tax effects of these non-IFRS adjustments. Finally, these estimates do not include any new acquisitions or restructuring completed after September 30, 2022.
Mergers & Acquisitions
Dassault Systemes Acquires StyleSage, Cloud-Based Market Intelligence Platform to Enhance CENTRIC PLM's Offering: New York-based StyleSage's proprietary, cloud-native platform provides retailers with AI-powered competitive assortment benchmarking, price optimization, and trend forecasting. StyleSage's leading technology and AI expertise in image recognition compliment CENTRIC PLMs offering, adding real-world evidence capture and insight generation. This will provide CENTRIC PLM clients compelling end-to-end solutions, enable price improvement, margin and profit visibility as well as optimization across the organization. StyleStage also brings strong leadership and talent to the CENTRIC PLM team.
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