Coming off a strong 2005, Dassault Systemes posted healthy first-quarter results yesterday that show that the product lifecycle management vendor's momentum has carried over into the new year.
The Paris-based company saw software revenue jump 27% year over year, from €167 million in first-quarter 2005 to €213 million in the quarter just closed. The sore spot for the quarter was the bottom line, with net income only inching up to €31.3 million from €30.9 million recorded in the 2005 first quarter. Diluted earnings per share dropped a cent, from 27 in the first quarter of 2005 to 26 cents in the like period this year. Acquisitions over the past year increased expenses, which in turn ate into profits, the company said.
In the quarter, Dassault saw strong licensing gains for its SolidWorks 3D CAD product line. New seats for SolidWorks software reached 10,271, up 19% from 2005's first quarter, as revenues grew 28% year over year. Meanwhile, the CATIA CAD/CAE/CAM line managed just a 2% improvement in seat licensing quarter over quarter. Dassault CEO Bernard Charles told analysts during a conference call that revenue across all Dassault's applications -- among them ENOVIA and ABAQUS -- rose during the quarter.
"The dynamics in the mainstream 3D design market continue to be very healthy, with 2D-to-3D migration as the driving force for growth," Charles said when explaining SolidWorks' particularly strong reception.
Dassault's 2005 acquisition of simulation software provider ABAQUS contributed heartily to revenues in the quarter, accounting for €26.3 million of the total on a non-GAAP basis. Charles attributed some of ABAQUS's success to Dassault's V5 application infrastructure, an open middleware system that has made the company's product acquisitions easier to integrate into the Dassault environment, he said.
The next test of the V5 architecture will come from MatrixOne's products, contingent on final approval of that acquisition, which Dassault expects by the middle of this month. The $408 million cash deal will add a number of needed capabilities to Dassault's product stable, including sourcing, compliance, and business process modeling capabilities, plus deeper industry-specific functionality in high tech, semiconductors, and CPG.
"They're going to have to go through the same kind of integration exercise with MatrixOne that they have gone through -- or very similar to the one that they've gone through previously -- with SMARTEAM," said Ed Miller, president of market research company CIMdata (Ann Arbor, MI). "[The] SMARTEAM [acquisition] was not built on the V5 architecture, but in fact it is integrated into it and works in conjunction with CATIA, ENOVIA," and other Dassault applications, he said.
Miller noted that in addition to augmenting Dassault's position in a number of verticals, the addition of MatrixOne "should also provide them an opportunity to offer more ... large-scale enterprise management facilities."
Enabling a broader view of a product's role in the enterprise is the focus of the growing PLM market, and has driven Dassault's numerous purchases in recent years. Further, the expansion of product management into the general enterprise has required Dassault and others to deliver their applications on a wider range of platforms, including Microsoft Windows, as personnel outside the engineering department take hands-on roles in managing product data and delivery.
To that end, Dassault rival UGS (Plano, TX) announced earlier this week that it has expanded its strategic alliance with Microsoft to include delivery of all UGS applications on the Windows platform. On the conference call today, Charles deflected any assertion that the alliance would be deleterious to Dassault.
"I don't see this as an issue for us at all," Charles said, noting that Dassault formed its own partnership with Microsoft two years ago, and that Dassault considers it a unique one. "We have really very strong customer demand to continue to take advantage of the Microsoft infrastructure," he explained.
Charles said he considers it normal for Microsoft to partner with PLM players. "It's even an exciting way to continue to show how we make differences in our solutions," he added.
Miller echoed Charles' confidence, saying, "The fact that UGS has now established a more strategical relationship with MS -- I don't view that as a negative to Dassault at all." Instead, he said, the move is a reinforcement that as PLM vendors look to cover more of the enterprise that runs on the Microsoft platform, they are "working relatively closely with Microsoft at the same time to make sure that they're able to support" Microsoft's product upgrades and rollouts.
Charles noted that one of Dassault's goals for the remainder of the year is to expand its product footprint among smaller companies. "As we mentioned in our year-end conference call," he said, "our goal in 2006 [is] to continue to pave the way to grow and evolve our ... channels to better address the requirements and the opportunities of the small and medium-sized businesses."
In pursuing that objective, Charles said, Dassault will rely heavily on its network of value-added resellers to convey a sense of the needs of SMBs in each geographic area and industrial market.
As for the expected integration of MatrixOne products into Dassault's portfolio, Charles said the company has a new product roadmap that details its acquired tools, and will be visiting key customers in June to provide those details. He did not disclose whether Dassault will rely on its partner IBM to go to market with MatrixOne.
Thibault de Tersant, Dassault's CFO, enumerated the company's revenue objectives for 2006. Assuming successful completion of the MatrixOne purchase, he said Dassault expects second-quarter revenue of €275 million to €280 million and earnings per share of 35 to 36 cents.
For the year, officials said, the goal is to bring in revenue of €1.175 billion to €1.185 billion, which would equal 25%-26% growth in constant currencies. Seven percent of that, he said, would be attributable to MatrixOne.