Despite slowing demand for its flagship CATIA computer-aided design (CAD) product, product lifecycle management software purveyor Dassault Systemes yesterday announced positive financial results for its fourth quarter, growing total revenues for the period by 15% and increasing net income by 13%.
For the three-month period ended Dec. 31, 2006, Dassault reported total revenues of €349 million, up from €304 million reported in the fourth quarter of 2005. Dassault had net income for the quarter of €78 million, compared to €69 million for the like period a year ago.
Dassault President and CEO Bernard Charles, in remarks to financial analysts yesterday, said the company "delivered strong results and met all our objectives." He added, "We believe we have the roadmap in place and are tracking to double revenue and earnings between 2005 and 2010."
During the fourth quarter, Dassault reported new software license revenue of €134 million, essentially flat compared to the like period a year ago. Still, Dassault was able to grow overall software revenue during the quarter by 14% to €287 million, thanks largely to increases in recurring license revenues — from software rentals — and product development revenue.
For the full year ended Dec. 31, 2006, Dassault reported a 24% increase in total revenues to €1.2 billion. The company also saw a 15% rise in new software license revenue and a 23% increase in software revenues compared to 2005 results. Dassault reported 2006 net income of €180 million, up less than 3% compared to 2005 net earnings.
While solid, Dassault's fourth-quarter results represented a slowing in revenue and earnings growth compared to earlier quarters in 2006. Slower fourth-quarter growth was due at least in part to a 2% decline in license revenue from Dassault's CATIA CAD product line. For the year, revenue from new licenses of CATIA grew just 2%.
Charles noted that, including recurring rental license and maintenance revenue, total CATIA software revenue grew in excess of 10% for the year, nearly twice as fast as the overall CAD market, he estimated.
CATIA new license revenue, Charles said, was affected by Dassault's decision to renegotiate its long-term sales and marketing relationship with IBM. Effective last month, Dassault took over from IBM management of Dassault's indirect sales channel, which is focused primarily on mid-market customers. In exchange, IBM expanded its portfolio of Dassault products to include ENOVIA, DELMIA, and MatrixOne offerings in addition to CATIA. IBM will market those to large accounts, Charles said.
The transition to the new channel organization "caused some disruption of sales processes" that affected CATIA's results, said Thibault de Tersant, Dassault's senior vice president and CFO, on the conference call.
The transition to the new sales structure, which is expected to be completed in early 2008, increased Dassault's expenses in 2006 and will do so again in 2007. Charles estimated that higher sales and marketing expenses related to the transition will cost Dassault about a half a percentage point in profit margin in 2007.
Dassault also saw weak fourth-quarter CATIA sales in the U.S. and few large CATIA deals overall, Charles said, unlike in earlier periods in 2006.
In answer to questions from financial analysts, Charles said he could not promise positive CATIA unit growth in each quarter in 2007.
Dassault managed to overcome stagnant CATIA new license sales with the help of strong demand for the company's SIMULIA simulation software, its SolidWorks CAD tools, and its ENOVIA PLM collaboration products.
Dassault has also engineered what Charles called a "turnaround" in the MatrixOne business since Dassault acquired the company in May of last year. MatrixOne contributed GAAP profits to Dassault in each of the last three quarters, Charles said, and revenue from MatrixOne products grew by 20% during the year.
"We are very pleased with how well our acquisition of MatrixOne has performed," Charles said.
In the fourth quarter, Dassault saw revenues from its product lifecycle management (PLM) products — including CATIA — grow by 12% on a non-GAAP basis, while non-GAAP revenue from its SolidWorks CAD products grew 14%.
Looking ahead to 2007, Charles said Dassault expects its business to continue to grow. The company yesterday raised its 2007 revenue growth projection from the 11%–12% range to between 12% and 13% (on a non-GAAP, constant-currency basis). For the first quarter of 2007, Dassault expects revenues of between €282 million and €287 million, and non-GAAP earnings per share of between €0.31 and €0.32, Charles said.