Dassault Systèmes Announces Fourth Quarter and Full Year 2020 Results – Reality of the organic business
Continued downward trend in organic business : new license sales -19% for the year
Dassault Systemes has announced its fourth quarter and annual results for 2020.
Although the announcement is to the effect that the results were at the upper limit of the earnings forecast, there are a few points that need to be noted when examining the contents.
Dassault Systèmes Reports 2020 Fourth Quarter Results
Notes on the content of the announcement
The following items are highlighted in the published presentation materials and press releases, but each has its own caveats.
「FY20 revenue up +12% (ex FX) to €4.5bn」
This is the comparison between 2019, which includes 2 month Medidata revenue, and 2020, which includes Medidata for entire year. Based on organic business alone, sales would be negative year-over-year. (-3% at constant exchange rate)
「FY20 EPS up +3% to €3.77」
The number is on a non-IFRS (International Financial Reporting Standards) basis. On IFRS basis, the figure is €1.86, which is 20.5% lower than the previous year.
「Fulfilling commitment to retain all employees – R&D headcount +10%」
The number of R&D-related employees increased by 10.3%, from 8,900 to 9,818. On the other hand, the number of non-R&D employees, i.e., Marketing & Sales and General Administration (G&A), decreased from 12,316 to 11,679, a decrease of 5.2%.
「Strong Medidata performance」
Specific figures for Medidata’s non-consolidated sales are not provided.
Key points of the announcement.
Taking the above into consideration, the important points can be objectively summarized as follows.
“New License Sales Continue to Decline”
New license sales (Licenses and Other software revenue) in the fourth quarter were down 12% year over year, continuing the downward trend in existing business, and down 19% year over year for the full year.
“Subscription and Support Revenue”
The revenue from organic business increased by approximately 5% for the full year due to the addition of maintenance fees for new licenses.
In addition, due to the addition of Medidata’s , overall revenue increased by 25%.
“Services business down 22% in Q4, down 9% for the year”
As a result of the above, total annual revenue was -3% for existing business and +12% including acquired software (all at constant exchange rates).
“Earnings per share”
Despite an increase in R&D headcount due to acquisitions, non-IFRS earnings per share (EPS) of €3.77 was secured due to cost reductions in sales and marketing cost.
However, EPS under IFRS was €1.86, down 20.5% YoY, after taking into account amortization from revaluation of assets acquired through acquisitions.
Outlook for 2021
In this announcement, the targets for the first quarter (January-March) and full year (January-December) of 2021 were also announced.
According to the report, we expect new licenses (existing business) in the first quarter to be positive 0-5% (constant currency) compared to last year.
They are also conservatively forecasting a 0-2% increase in total sales.
We believe that pipeline management is likely to provide accurate forecast for these recent conditions.
For the year, goal is to increase total sales by 6-7%. In order to achieve this, they expect new licenses to increase by 13-15%, so from the second quarter, new licenses, or existing business, will need to return to its previous growth trend.
Medidata also expects a 14% increase.
We expect updates on these targets to be announced in the first quarter earnings release, so we will need to keep an eye on them.
If the company can achieve the above-mentioned sales growth, it should be able to achieve its EPS target of more than €4.1 (non-IFRS).
