Dassault Systèmes software sales continue to decline
Announced third-quarter results
(2021. 2. 5 update)
Dassault Systèmes announced its third quarter results on September 30, 2020 (press release).
An analysis of the figures, which the company describes as “strong performance,” shows that profits and sales were up over the same period last year due to cost reductions and the addition of Medidata sales from this year.
Looking at the existing (organic) business, the downward trend in sales since the beginning of the year has not changed, and the Q4 forecast shows no signs of improvement from this trend.
Of course, COVID-19 have a significant impact on this.
On the other hand, Medidata, which is not expected to be significantly affected by COVID-19, does not appear to have increased enough its sales since the start of the year.
However, with stable recurring license revenues and continued cost reductions, it should not be difficult to achieve the company’s year-end profit target.
Here are the details
New License Sales
Dassault Systemes’ software revenue is the sum of “Licenses and other software revenue” (“New licenses”) and “Subscription and support revenue” (“Recurring fees”).
Nearly all of Medidata’s revenue is included in the recurring fee category.
Thus, “New Licenses” is essentially the revenue generated by their existing business (Organic), which includes CATIA, ENOVIA and SOLIDWORKS.
The graph of new license sales by quarter is shown below. Additionally, because of the large fluctuations in each period (for example, business is concentrated in the fourth quarter), the graph of the moving average of the last four periods is also shown. I’ve also included the targets for the fourth quarter of this year that have been announced.
As you can see from the moving average graph, sales have been on a downward trajectory since the first quarter of 2020, and this downward trend will continue even if they achieve their newly announced fourth quarter sales target.
There is no doubt that COVID-19 has had an impact this year and the downward trend is not yet on track to improve at this time.
Recurring Non-organic (=Medidata) Sales
In 2019, Dassault Systemes acquired Medidata Solutions for approximately €5 billion, and starting this year its revenues are also included as part of its recurring charges (non-organic).
The change in Medidata’s revenue can be approximated by subtracting the amount of existing business (organic) from the total recurring charges.
Recurring Fees Organic (=Existing Business) Revenue
The following graph shows the organic (=existing business) moving average of recurring rates for each period and each of the four quarters average.
While we continue to see an increase, we don’t see much of an increase, especially as we move into 2020.
Proposed Objectives – Net Income
In reviewing the Dassault Systemes’ published material, it is our analysis that even if the company were not to meet its fourth quarter revenue targets, it would not be too difficult to achieve its income targets (e.g., EPS) due to some additional cost savings and other factors. This is due to stable recurring revenues and disciplined cost control as well as conservative planning.
Conclusion
Excluding the effects of new acquisitions, Dassault Systemes sales are on a downward trend in 2020, reflecting a downturn in the existing business due to COVID-19, while revenues from the acquisition of Medidata may not be growing enough.
While we believe they can achieve their annual profit target due to stable maintenance revenues and cost reductions, it seems to be important to re-start existing businesses as soon as possible and stabilize revenues from acquired software in a short period of time to achieve medium- to long-term business growth.
