Dassault Systemes Delivers Total Revenue Growth And Raises Full-Year Financial Objectives


During the second quarter, DS established a VAR channel in China to sell its V5 PLM software applications. While PLM revenue in China is currently at an emerging stage, the Company sees significant opportunity for the future. In order to respond to the needs of the Chinese market, this network of VARs is in charge of selling all DS PLM brands - CATIA, ENOVIA, SMARTEAM and DELMIA - in an integrated approach. DS is also active in China through SolidWorks with its VAR channel for the Mainstream 3D market as well as with CAXA, a DS partner selling 2D and 3D products based on DS V5 infrastructure.

In a separate press release also issued today, DS announced that it has acquired Paris-based Virtools SA, for approximately EUR 12 million in cash. Virtools' applications allow users not familiar with 3D modeling to quickly and easily add life experience to any 3D model.

In May 2005 DS entered into an agreement to acquire ABAQUS, Inc. in an all-cash transaction approximating $413 million, subject to certain adjustments at closing. ABAQUS is well recognized as a leader in non-linear finite element analysis software with best-in-class technology, which companies are increasingly seeking, that is capable of scaling from simple to the most demanding simulations. Headquartered in Rhode Island, ABAQUS employs over 400 people worldwide and has a customer base of approximately 2,500 companies in the automotive, defense, power, material processing, electronics, general manufacturing, aerospace, medical, and consumer products industries. The proposed acquisition is expected to be completed by the end of the third quarter of 2005.

Also in May 2005 DS and i2 Technologies, Inc. entered into a strategic partnership to develop jointly sourcing solutions based upon DS' V5 platform. The objective of the partnership is to integrate sourcing throughout the product lifecycle, thereby eliminating or significantly reducing barriers between the engineering and sourcing communities. More specifically, by aligning engineering and sourcing earlier in the product development cycle, customers should be able to realize reduced product costs, improved time-to-market cycles and enhanced initial product quality. On June 27, 2005, as part of the long-term agreement, i2 conveyed control of the competency center (originally hosted by i2) and technology licenses to DS for approximately $10 million subject to certain adjustments.

Version 5 Release 15 (V5R15), "Open Collaboration on the Proven V5 Platform" - announced in May 2005 for CATIA, DELMIA, ENOVIA and SMARTEAM builds on the strengths of V5R14 by providing unified working environments, or desktops, targeting the specific needs of key user communities, such as engineering, manufacturing and enterprise users more broadly. DS also further strengthened its coverage of business processes with new technologies designed to help improve productivity and innovation among companies across a number of industries. This new release leverages DS' open V5 platform, with the goal of providing companies in the supply chain with enhanced collaboration capabilities and process coverage. Highlights of this newest release include: (i) accelerated collaboration with suppliers by facilitating the exchange of engineering package data between OEMs and suppliers of all sizes and (ii) enhanced communications with 3D XML including the introduction of a new 3D XML viewer in V5R15, among other key highlights.

SolidWorks 2006 was introduced in June of this year. SolidWorks 2006 includes a multitude of improvements designed to simplify, accelerate, and integrate design engineering work, including: (i) a significant increase in performance; (ii) new user productivity tools such as Smart Components; (iii) new features for consumer product, sheet metal, and machine designers (such as Mounting Bosses, Snap Hooks, and Vents); (iv) new mainstream design validation capabilities that put sophisticated analysis in the hands of designers; (v) innovations that significantly ease the migration from 2D to 3D design, such as 3D Drawing View and Design Checker, as well as enhancements to the DWG Series (Editor, Gateway, Viewer); and (vi) enhancements in SolidWorks Office Premium that empower design engineers across the entire spectrum of their activities.

During the quarter DELMIA announced that its V5 DPM Assembly and V5 Human digital manufacturing software is being used by Lockheed Martin to simulate the feasibility of a moving assembly line at the mile-long Fort Worth, Texas facility slated for production of its new F-35 Joint Strike Fighter aircraft. The aircraft assembly process, tooling and line workers involved in the production process have all been simulated and tested prior to production.

In the second quarter DS and IBM introduced a new PLM industry solution, General Mechanical Design (GMD) solution that enables companies to improve design productivity and speed innovation by facilitating reuse of data and knowledge, re-adapted to a new context, from one project to another. Industrial Products companies often base new product designs on up to 70 to 80 percent of the data and skills used in previous projects. With the GMD solution, which helps reuse data and skills more productively, companies can reduce design time by up to 50 percent and can cut manufacturing and assembly time by up to 60 percent.

During the quarter DS announced the free availability of 3D XML (Extensible Markup Language) Specifications and Player, which will enable users to view and manipulate rich 3D data in a variety of industrial, consumer and commercial environments. 3D XML is a universal, lightweight XML-based format that enables users to share live, accurate 3D data quickly and easily. With 3D XML, 3D becomes a true, powerful communication medium allowing users to "see what you mean."

Business Outlook

Thibault de Tersant, stated, "We are raising our objectives for revenue and earnings growth for 2005. The higher growth expectations for revenue reflect the stronger than anticipated results in the second quarter, and our more favorable outlook for second half activity, as well as the inclusion of Virtools and our expanded SMB initiatives. Specifically, on a constant currency basis, our revenue growth objective for 2005 is about 15-16%, up from 12-14%. On a reported revenue basis, this translates to a revenue objective of EUR 910-915 million, up from EUR 880-890 million, and is based upon a U.S. dollar to Euro exchange rate of $1.27 per EUR 1.00, reflecting a change in our second half assumption for the U.S. dollar to $1.25 per EUR 1.00 compared to $1.30 per EUR 1.00 previously. For the full year, we are also increasing our EPS objective excluding acquisition costs to EUR 1.52-1.53, representing year-over-year growth of 12-13%, up from our previous objectives of EUR 1.47-1.49. We continue to maintain our objective of a stable operating margin of approximately 29% excluding acquisition costs, similar to what we achieved in 2004.

"We estimate that our underlying core business operating margin could be 150 basis points higher for the full year 2005 excluding acquisitions announced over the last year and a half, but we have used this improvement to make important investments in new initiatives aimed at enhancing future growth opportunities.

"For the third quarter of 2005, our reported revenue objective is about EUR 210-215 million and our EPS objective is about EUR 0.28 per share excluding acquisition costs." The Company is basing third quarter reported revenue and EPS objectives on the assumption of a U.S. dollar to Euro exchange rate of $1.25 per EUR 1.00, compared to its previous assumption of $1.30 per EUR 1.00.

Endnotes:

1. All comparative figures are given on a year-over-year basis unless specified otherwise.

2. All financial information is unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Additional financial information is also presented that is not in conformity with U.S. GAAP, in particular the presentation of operating income, operating margin and earnings per share excluding acquisition costs (acquisition costs are primarily comprised of technology amortization in addition to other acquisition-related costs). The Company has provided in the tables to this press release and on its website http://www.3ds.com/corporate/investors/ reconciliations between U.S. GAAP and non-U.S. GAAP figures.

3. The Company uses constant currency revenue growth to evaluate its financial performance in comparison to prior periods and as a measure of expected growth in planning and setting objectives for future periods. The Company believes this measure is an important indicator of the Company's progress and outlook because it provides a better gauge of the level of change in the business activity as it eliminates any changes arising from currency fluctuations. The Company believes the presentation of this measure is relevant and useful for investors because it allows investors to view revenue growth in a manner similar to the method used by the Company's management, helps improve investors' ability to understand the Company's revenue growth, and makes it easier to compare the Company's results with other companies, including competitors, whose reporting currency may be different from Dassault Systemes. Constant currency revenue growth, as calculated by the Company, may not be comparable to similarly titled measures employed by other companies.

Conference call information

Dassault Systemes will host a teleconference call today, Tuesday, July 26, 2005 at 3:00 PM CET/2:00 PM London/9:00 AM New York. The conference call will be available via the Internet by accessing http://www.3ds.com/corporate/investors/. Please go to the website at least fifteen minutes prior to the call to register, download and install any necessary audio software. The webcast teleconference will be archived for 30 days. Financial information to be discussed in the call will be available on the Company's website prior to commencement of the teleconference http://www.3ds.com/corporate/investors/ . Additional investor information can be accessed at http://www.3ds.com/corporate/investors/ or by calling Dassault Systemes' Investor Relations at 33.1.40.99.69.24.

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