Third Quarter Financial and Business Highlights

• Total revenue €188.0 million, up 7% as reported and up 10% in constant currencies
• EPS €0.28 (up 17%) on U.S. GAAP basis
• EPS up 12% to €0.28 excluding acquisition costs
• Software revenue €156.7 million, up 3% as reported and up 6% in constant currencies
• PDM revenue up 11% as reported and up 14% in constant currencies
• Design-centric revenue up 16% as reported (up 26% in U.S. dollars)
• Reconfirming 2004 and initiating preliminary 2005 financial objectives
• DS and RAND Worldwide announce European SMB initiatives

 

Nine Months Financial Highlights

• Total revenue €556.7 million, up 6% as reported and up 9% in constant currencies
• EPS €0.83 (up 22%) on U.S. GAAP basis
• EPS up 18% to €0.84  excluding acquisition costs
• Software revenue €464.5 million, up 3% as reported and up 7% in constant currencies
• Process-centric revenue €452.1 million, up 4% as reported and up 7% in constant currencies
• PDM revenue €66.1 million, up 12% as reported and up 16% in constant currencies
• Design-centric revenue €104.6 million, up 14% as reported (up 25% in U.S. dollars)

 

 

 

PARIS, FRANCE, October 26, 2004 – Dassault Systèmes (DS) (Nasdaq: DASTY; Euronext Paris: #13065, DSY.PA), a worldwide leading software developer of product lifecycle management (PLM) solutions, reported financial results for the third quarter and nine months ended September 30, 2004.

 

 

 

Third Quarter Financial and Business Highlights

 

 

• Total revenue €188.0 million, up 7% as reported and up 10% in constant currencies
• EPS €0.28 (up 17%) on U.S. GAAP basis
• EPS up 12% to €0.28 excluding acquisition costs
• Software revenue €156.7 million, up 3% as reported and up 6% in constant currencies
• PDM revenue up 11% as reported and up 14% in constant currencies
• Design-centric revenue up 16% as reported (up 26% in U.S. dollars)
• Reconfirming 2004 and initiating preliminary 2005 financial objectives
• DS and RAND Worldwide announce European SMB initiatives

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 “The third quarter was a period of significant accomplishments across our businesses with major wins in our target industries, the introduction of our latest V5 PLM releases and solid financial results.  I believe Dassault Systèmes is well positioned to deliver strong financial results for 2004  based upon our solid performance through the third quarter of this year and our fourth quarter outlook,” commented Bernard Charles, President and Chief Executive Officer of Dassault Systèmes.

 

 

 

 

Revenue

 

 

Total revenue in the 2004 third quarter increased 7% to €188.0 million as reported and increased 10% in constant currencies compared to the third quarter of 2003 where total revenue was €176.3 million.  The growth in total revenue reflected increases in both software and service revenue.

In the third quarter of 2004 software revenue, representing 83% of total revenue, increased 3% to €156.7 million and increased 6% in constant currencies.  Recurring software revenue represented 55% of total software revenue in the third quarter of 2004.  New CATIA and SolidWorks seats licensed in the third quarter of 2004 increased 4% to 14,002 seats, compared to 13,478 seats in the year-ago quarter.  CATIA seats licensed decreased 4% as anticipated.  SolidWorks licenses increased 14% compared to the year-ago quarter.  Service revenue increased sharply in the third quarter of 2004 with service revenue rising 30% to €31.3 million and increasing 34% in constant currencies compared to the year-ago quarter.  Similar to the second quarter, the strong increase in service revenue was attributable to an increase in PLM projects already underway with customers.

Process-centric revenue, including PDM (Product Data Management) revenue, totaled €153.0 million in the third quarter of 2004, compared to €146.0 million in the year-ago quarter.  Process-centric revenue increased 5% as reported and 8% in constant currencies in comparison to the third quarter of 2003.  PDM revenue increased 11% as reported and 14% in constant currencies in comparison to the year-ago quarter.  PDM revenues totaled €23.7 million in the third quarter of 2004 and represented 13% of total revenue.  

In the Design-centric segment, SolidWorks’ revenue increased 16% as reported (26% if reported in U.S. dollars) to €35.0 million in the third quarter of 2004, compared to €30.3 million in the year-ago period.  SolidWorks’ had a very large number of wins in the third quarter, with approximately two-thirds of the wins representing decisions to migrate from 2D drafting tools.   Among its newest customers is F.L. Smidth of Denmark, who will be licensing 200 seats of SolidWorks software.

 

 

Operating Income and Margin, EPS and Financial Position

 

 

 

 

Thibault de Tersant, Executive Vice President and CFO of Dassault Systèmes, commented, “Our third quarter came in on target for revenue, operating margin and earnings.  We were particularly pleased with the level of earnings growth, continuing the positive trend of the last four quarters.”

 

 

Operating income increased 8% to €46.1 million in the third quarter of 2004 (24.5% operating margin), compared to €42.6 million in the year-ago quarter (24.2% operating margin).  Operating income before acquisition costs increased 5% to €46.3 million in the third quarter of 2004, compared to €44.0 million in the year-ago quarter.  The operating margin before acquisition costs declined slightly to 24.6% in the third quarter of 2004, compared to the third quarter of 2003 where the operating margin was 25.0% before acquisition costs.

Earnings per share increased 17% to €0.28 per diluted share in the third quarter of 2004, compared to €0.24 per diluted share in the year-ago quarter.  Earnings per share before acquisition costs increased 12% to €0.28 per diluted share in the third quarter of 2004, compared to €0.25 per diluted share in the third quarter of 2003.  The strong increases in earnings per share, as reported and before acquisition costs, primarily reflected growth in revenue, operating income and financial revenue.  Net income increased 19% to €32.3 million in the third quarter of 2004, compared to €27.1 million in the year-ago period.  Net income before acquisition costs increased 15% to €32.3 million in the third quarter of 2004, compared to €28.2 million in the third quarter of 2003.

The Company’s financial position remained very strong, with cash and short-term investments totaling €551.4 million at September 30, 2004.   Net cash provided by operations was €29.7 million for the third quarter of 2004.

 

 

Nine Months Financial Highlights

 

 

• Total revenue €556.7 million, up 6% as reported and up 9% in constant currencies
• EPS €0.83 (up 22%) on U.S. GAAP basis
• EPS up 18% to €0.84  excluding acquisition costs
• Software revenue €464.5 million, up 3% as reported and up 7% in constant currencies
• Process-centric revenue €452.1 million, up 4% as reported and up 7% in constant currencies
• PDM revenue €66.1 million, up 12% as reported and up 16% in constant currencies
• Design-centric revenue €104.6 million, up 14% as reported (up 25% in U.S. dollars)

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Strategy, Technology and Partnerships  

 

 

 

 

“During the quarter we had several strategic wins, including Siemens ICM in consumer electronics, Northrop Grumman in shipbuilding and Hydro-Québec in the hydroelectric power industry that clearly confirm the competitive strengths of our PLM software as we pursue our diversification into new industries.  We introduced Version 5, Release 14 for Product Lifecycle Management, bringing advanced collaboration functionalities and further strengthening of our product offer.  From a channel perspective, we have worked hard over the last year with our partners to better address the small and medium-size business market opportunity (SMB market) in the Americas, in particular.  We were, therefore, pleased by the 32% revenue growth in constant currencies delivered in the Americas this quarter.  We now want to use the same approach to further enhance our PLM SMB business in Europe and, in connection with this plan, we have signed a letter of intent with RAND Worldwide.   SolidWorks, providing significant leadership in the design-centric market, had outstanding results in the third quarter, delivering revenue growth of 26% in U.S. dollars, demonstrating our success in converting 2D users to our 3D software solutions,” commented Bernard Charles, President and Chief Executive Officer of Dassault Systèmes.  

 

 

In a separate press release issued today, Dassault Systèmes and Rand A Technology Corporation, operating as RAND Worldwide, announced their intentions to reorganize their strategic European partnership for sales of Product Lifecycle Management solutions.  In connection with this decision, Dassault Systèmes will acquire RAND Worldwide’s subsidiaries in the United Kingdom, Sweden, Germany and Switzerland, plus the subsidiary Rand Technologies C.I.S., Inc., which serves Russia  and will also increase its ownership of RAND North America, Inc. (Rand Americas), to 70% from 60%, for an aggregate purchase price of approximately €32 million.  Proceeds from the transaction would eliminate RAND Worldwide’s current outstanding debt with Dassault Systèmes.    

Northrop Grumman, one of the world’s largest defense and aerospace companies, has selected DS’ PLM solutions, including CATIA V5 and ENOVIA Lifecycle Applications to design, build and manage the United States Navy’s advanced, 21st-century surface combatant program, the DD(X).

Hydro-Québec, the largest company in Quebec’s energy sector, has selected DS’ PLM solutions, including CATIA V5 and SMARTEAM, for the design of its hydroelectric projects.  Hydro-Québec is the first owner-operator in the hydroelectric industry to use digital technology for the design and development of projects including dams, plant facilities and energy distribution infrastructures.  

Siemens ICM, one of the world’s largest manufacturers of GSM mobile and cordless phones, has selected Dassault Systèmes PLM solutions as its mechanical design platform for production of its cordless and mobile phone products.  Siemens will implement CATIA V5, for collaborative product design, and SMARTEAM, for collaborative product data management.

AREVA, through Framatome ANP, its joint subsidiary with Siemens, has selected Dassault Systèmes PLM solutions, including CATIA and SMARTEAM, for all of its units in France and abroad.  

F.L. Smidth of Denmark, the world’s leading supplier of cement production technology, has selected SolidWorks software as its 3D mechanical design standard in order to increase the company’s engineering efficiency and productivity in designing cement-making equipment and plants.   F. L. Smidth, a long-time 2D software user, is implementing 200 licenses of SolidWorks software.

Dassault Systèmes released Version 5 Release 14 (V5R14) of its Product Lifecycle Management portfolio, comprised of CATIA for collaborative product development, ENOVIA and SMARTEAM for product data and lifecycle management, collaboration, and decision support and DELMIA Product Lifecycle Management solution for digital development of factory and production processes.  

• The new release “Imagine and Work as a Global Team” introduces breakthrough technologies for industrial design and improved collaborative product development. For example, a new Workpackage Exchange product enables companies across the value chain to exchange detailed product definitions, promote concurrent relational design, and protect corporate intellectual property.  
• A revolutionary new CATIA Imagine and Shape product extends V5 PLM to industrial designers by enabling them to explore product ideas more rapidly, while permitting last-minute styling modifications for greater product success.  
• A new web-based ENOVIA LCA (Lifecycle Applications) navigator provides role-specific access to PLM information throughout the enterprise. Engineers and non-engineers alike can navigate product, process, and resource information they require to perform their jobs.
• DELMIA V5R14 offers an efficient collaborative workspace within the manufacturing community.

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Dassault Systèmes introduced 3D XML for PLM (Extensible Markup Language for Product Lifecycle Management), a universal, lightweight XML-based format that enables users to capture and share live, accurate 3D data quickly and easily.   3D XML compresses highly complex data, with file sizes up to 99 percent smaller than those of existing formats.  The new format will greatly enhance collaboration around 3D information.   Dassault Systèmes has incorporated the 3D XML format in its entire line of products – CATIA, DELMIA, ENOVIA, SMARTEAM, SolidWorks and Spatial – and will incorporate it into further releases of its solutions.  3D XML leverages and extends Lattice Technology’s XVL solutions and expertise as part of a partnership announced in July.

 

 

Business Outlook

 

 

 

 

“We are reconfirming our 2004 objectives for revenue growth of about 9% in constant currencies and EPS growth of about 16% in constant currencies before acquisition costs.    Our operating margin before acquisition costs is likely to be equivalent to or slightly better than our 2003 operating margin of 29.0%, based upon our revenue outlook for the fourth quarter, investment plans and key currency exchange rate assumptions.  For the purposes of calculating reported revenue and EPS objectives, we continue to maintain our assumption of a U.S. dollar to Euro exchange rate of $1.25 per €1.00 leading to full year objectives of about €795 million for reported revenue, and EPS of about €1.35 before acquisition costs.

 

 

 

 

“We are initiating our preliminary 2005 financial objectives at this time.  We believe the Company is positioned to accelerate revenue growth in constant currencies.  Our initial financial objectives are based upon a stable global economic environment, the continuation of interest we see in our target markets for our software products and solutions as well as the completion of the new agreement with RAND Worldwide.  More specifically, our preliminary financial objectives are for revenue growth of approximately 11% to 12% in constant currencies, accompanied by a stable operating margin in comparison to 2004.  Accordingly, our revenue objective is approximately €875-885 million based upon the same exchange rate assumptions as for the 2004 fourth quarter,” commented Thibault de Tersant.

 

 

 

 

Major Press Release Highlights

 

 

 

 

October 13, 2004. Dassault Systèmes Unveils 3D XML for Product Lifecycle<br/>

Management.

 

 

 

October 13, 2004. Siemens ICM Selects PLM Solutions from Dassault <br/>

Systèmes and IBM.

 

 

 

October 13, 2004. AREVA Selects Dassault Systèmes and IBM PLM Solutions <br/>

for Development of its Industrial Equipment.

 

 

 

October 12, 2004 Dassault Systèmes and Alma Establish CAA V5 Partnership.

 

 

 

October 12, 2004 Dassault Systèmes and CIMPA Announce CAA V5 Software <br/>

Partnership Agreement.

 

 

 

October 12, 2004. Magestic Systems Joins Dassault Systèmes CAA V5 <br/>

Software Partner Community.

 

 

 

October 11, 2004 Dassault Systèmes Teams with Volvo IT to Deploy ENOVIA <br/>

V5 at Volvo Penta.

 

 

 

October 11, 2004. Dassault Systèmes and Fakespace Establish CAA V5 <br/>

Software Partnership.

 

 

 

September 28, 2004 Dassault Systèmes and IBM Announce Version 5 Release <br/>

14 of their Product Lifecycle Management Portfolio.

 

 

 

September 28, 2004 Delmia Corp. Announces Version 5 Release 14 of its Digital <br/>

Manufacturing Solutions.

 

 

 

September 7, 2004. SolidWorks Opens New Office in Brazil to Serve <br/>

Fast-Growing Market for 3D Mechanical Design Software.

 

 

 

August 2, 2004. Daratech Study Names Delmia Corp. as Market Leader in <br/>

Digital Manufacturing Process Management.

 

 

 

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 before 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

 

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 DS’ results with other companies, including competitors, whose reporting currency may be different from DS.  Constant currency revenue growth, as calculated by the Company, may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

Conference call information  

 

 

The Company will host a teleconference call today, Tuesday, October 26, 2004 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 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 www.3ds.com/corporate/investors/. Additional investor information can be accessed atwww.3ds.com/corporate/investors/ or by calling Dassault Systèmes’ Investor Relations at 33.1.40.99.69.24.

 

 

Statements above that are not historical facts but express expectations or objectives for the future, including but not limited to statements regarding the Company’s objectives for 2004 revenue growth in constant currencies, 2004 reported revenue growth, 2004 operating margin growth objective before acquisition costs, 2004 EPS objective before acquisitions costs and preliminary 2005 revenue objective in constant currencies and 2005 operating margin objective are forward-looking statements (within the meaning of Section 21E of the 1934 Securities Exchange Act, as amended).  Such forward-looking statements are based on management's current views and assumptions and involve known and unknown risks and uncertainties.  Actual results or performances may differ materially from those in such statements due to, among other factors: (i) currency fluctuations, (ii) reduced corporate spending on IT infrastructure as a result of changing economic or business conditions that could negatively affect market demand for our products and services, (iii) difficulties or adverse changes affecting our partners or our relationships with our partners, including our longstanding, strategic partner, IBM, (iv) new product developments and technological changes,  and (v) errors or defects in our products.  Unfavorable changes in any of the above or other factors described in the Company’s SEC reports, including the Form 20-F for the year ended December 31, 2003, which was filed with the SEC on June 30, 2004, could materially affect the Company's financial position or results of operations.