MCAD/MCAE Industry View – An August 2010 Update

While Autodesk stock did not react too much on nominal Q2 2010 financial results announcement day August 12, 2010 (its stock opened at 27.26 and closed at 27.45), Friday the 13th was a different story: the stock opened higher at 28.57, visited a high of 29.68 (+8.12%), before settling at 28.12 (+2.44%) at the close. While ADSK then flirted with a smaller high of 28.55 on Monday, it drifted down to an even lower close of 27.66 on August 16. Meanwhile the NASDAQ was drifting very slightly lower over those 4 days.

On Tuesday August 17, the Autodesk stock again visited a high of 28.39 before closing at 27.91, up 0.9% for the day. The NASDAQ closed at 2209.44, up 1.26% for the day, reversing its 4 day drift.

On July 28, 2010 Dassault Systèmes (DS) (Paris: DSY) (Euronext Paris: #13065, DSY.PA) reported its IFRS[1] unaudited financial results for the second quarter ended June 30, 2010.

DS Q2 2010 Summary Highlights

  • 2010 second quarter earnings and operating margin were above DS' objectives
  • EPS growth of 82%, reaching €0.40 (IFRS)
  • IBM PLM integration well on track
  • Expanding into new addressable market with Exalead acquisition
  • DS upgraded its full year 2010 objectives to reflect recent acquisitions, currency fluctuations and Q2 2010 overachievement

“Dassault Systèmes had a very solid second quarter, with sales above the high end of our revenue target excluding any currency benefits, and earnings and operating margin results significantly above our objectives, thanks in large measure to execution at both the sales and operational levels. In the Mainstream 3D market, SolidWorks delivered strong results with new licenses up 20%, showing an encouraging business trend in the SMB market” commented Bernard Charlès, Dassault Systèmes President and Chief Executive Officer.

“On top of the smooth integration of IBM PLM, the second quarter was a very dynamic period with new strategic customer partnerships with leading, global companies including Michelin and Gap Inc., and more on the way. We added a new addressable market in search-based applications with the Exalead acquisition, expanded V6 PLM with a new release and with the Geensoft acquisition to advance in design and simulation for smart products. Looking forward, we are focused on the significant opportunity ahead of us to leverage both our direct and indirect sales resources to expand our presence across the eleven industries Dassault Systèmes serves.”

Anticipating the report of the details of Q2 2010, Dassault provided this preamble: DS completed the acquisition of the IBM PLM operations on March 31, 2010 and these operations were merged into the Company's operations within its PLM business segment for the three-month period commencing April 1, 2010. Due to the deep integration of former IBM PLM employees into the Company's operations, involving many changes in territories and responsibilities, it is not possible to track the IBM PLM revenue and profit since the acquisition date. As previously disclosed, the IBM PLM share of DS software revenue was estimated at approximately €53 million in the second quarter of 2009. The IBM PLM acquisition was a significant contributor to growth in direct sales and sales related headcount and in turn to revenue, expenses and earnings during the 2010 Second Quarter in comparison to the respective 2009 period.

    In constant currencies, IFRS total revenue increased 18% on in-line new licenses revenue performance and higher than anticipated growth in recurring software revenue. Total DS revenue in Q2 2010 was 385.6 million euros compared to 310.9 million euros in Q2 2009, and compared to 311.9 million euros in sequential Q1 2010.

    New license revenue increased 23.1%. Second quarter new licenses revenue and growth comparisons reflected some delays in transaction closings in the Company's PLM business segment, as anticipated in relation to its integration of the IBM PLM organization.

    Recurring software revenue increased 30.0%. The growth reflected a further improvement in subscription revenue trends as renewal rates are back to historical levels across the Company. In addition, second quarter recurring software results also included some one-time, catch-up payments by customers for maintenance renewals.

    PLM software revenue increased 30.0%.

    Mainstream 3D software revenue increased 20.4% New seats licensed increased 20% to 9,770 seats, and the average SolidWorks seat price increased 3%.

    On a geographic basis, Americas' DS revenues in Q2 10 rose 12% over Q2 09 to 116.2 million euros, Europe up 21% to 173.7 million euros, and ASIA up 22% to 95.7 million euros.

IFRS earnings per diluted share increased 82% to €0.40, up from €0.22 in the 2009 second quarter.

Thibault de Tersant, Senior Executive Vice President and CFO, commented, “The quarter unfolded largely as we expected from a revenue perspective. We saw some upside thanks to our recurring software revenue, which has reached a positive inflection point somewhat earlier than we had estimated. Our customers are moving back to their historical subscription renewal levels, confirming the value our software brings to them. Our bottom-line performance was particularly gratifying, with a non-IFRS operating margin of 28% and an EPS growth of 57%, coming in above our objectives thanks principally to the continued positive impact of our 2009 efficiency plan and our revenue performance.

“Looking ahead we are reconfirming our second half outlook and adding to it the recently completed acquisitions, leading to an acceleration of revenue growth to about 22% to 25% in constant currencies for the 2010 second half. Taking into account the second quarter over-performance leads to an updated full year non-IFRS total revenue growth objective of 16% to 18% in constant currencies. Our objectives are consistent with our view of a gradual improvement in the economic environment.

“With respect to our earnings and operating margin objectives, we are now targeting non-IFRS EPS growth of 21% to 26% to reflect our continued focus on driving efficiencies across the business and benefiting from the progress made to date, and to take into account the currency evolution.”

The Company's current objectives are the following:

  • Third quarter 2010 non-IFRS total revenue objective of about €365 to €375 million, non-IFRS operating margin of about 25% to 26% and non-IFRS EPS of about €0.52 to €0.56;
  • 2010 non-IFRS revenue growth objective range of about 16% to 18% in constant currencies; (€1.495 to €1.515 billion based upon the 2010 currency exchange rate assumptions below from €1.455 to €1.475 billion previously);
  • 2010 non-IFRS operating margin of about 26% to 27% from about 26%;
  • 2010 non-IFRS EPS range of about €2.25 to €2.35, representing growth of about 21% to 26%; (previous range €2.19 to €2.28)
  • Objectives are based upon exchange rate assumptions for the 2010 third quarter of US$1.37 per €1.00 and JPY128 per €1.00 and a full year average of US$1.35 ($1.40 previously) per €1.00 and JPY125 (JPY130 previously) per €1.00.

The Company's objectives are prepared and communicated only on a non-IFRS basis and are subject to the cautionary statement set forth below.

The non-IFRS objectives set forth above do not take into account the following accounting elements and are estimated based upon the 2010 currency exchange rates above: deferred revenue write-downs estimated at approximately €17 million for 2010; share-based compensation expense estimated at approximately €21 million for 2010 and amortization of acquired intangibles estimated at approximately €66 million for 2010. The above objectives do not include any impact from other operating income and expense, net principally comprised of, acquisition, integration and restructuring expenses. These estimates do not include any new stock option or share grants, or any new acquisitions or restructurings completed after July 29, 2010.

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