Why Did Dassault Systèmes Have a Great Quarter? You Have to Understand Life

With Dassault Systèmes recent quarterly news, the company becomes the third of the Big Four design software giants to report a jump in revenue and profits at a most unlikely time: during the pandemic.

Dassault Systèmes reported €1.2 billion in revenue for Q4 FY2020, up 18 percent from €1.03 billion the previous quarter. Profits jumped up to €205 million, compared to €91 million in the previous quarter. It was enough to make the company €4.5 billion ($5.5 billion) for the full year.

No one, inside or outside those companies, expected anything but a decline in their fortunes. Many of the companies’ customers were themselves suffering from economic disruption brought about by the pandemic. Dassault Systèmes’ biggest and most famous customer, Boeing, would contribute only half of the revenue it provided in 2019.

PTC posted a similarly good quarter last month. Autodesk’s quarterly earnings are expected soon. But unlike the others, which have expanded by addressing markets they have more in common with (technology, engineering, design and manufacturing), Dassault Systèmes has grown by jumping into far-flung, seemingly unrelated industries with both feet. There was Netvibes, branding and social media; EXALEAD, a search engine; and Gemcom, mining software. Then there was Accelrys, which Dassault bought in 2014 for $750 million, that became BIOVIA and was installed in a division: Life Sciences.

But, only a year ago, the idea that these disparate companies would coalesce into one vision seemed clear to only one man, Dassault Systèmes CEO and visionary Bernard Charlès, but was a little blurry to the rest of us. At a 2016 conference that historically had served hard-core engineering simulation users of ABAQUS renamed Science in the Age of Experience, Charlès announced that Dassault Systèmes was now all about science. The users scratched their heads. Were they at the right conference?

In 2019, Dassault Systèmes made its biggest acquisition ever, buying Medidata Solutions, a company that supplied software for pharmacies doing clinical trials, for a whopping $5.8 billion, eclipsing the $4.5 billion Siemens paid to acquire Mentor Graphics. Deloitte had blessed the union, as analysts are wont to do, forecasting strong growth in the life sciences industry and predicting that Dassault Systèmes would benefit from the upcoming rise in health care spending. They had no idea.

Call it shrewd, fortuitous, clairvoyant, or a stroke of genius, as does Verdi Ogewell, it was also lucrative—on par with buying SolidWorks to have it become the mechanical design standard. Many of the companies developing vaccines for COVID-19 licensed Medidata to determine the efficacy of their vaccines. The sharp increase in business for Dassault Systèmes was perhaps the biggest factor in the company’s extremely profitable quarter.

“On February 6, 2020, we announced our ambition to extend our focus from things to life,” reminded Charlès during last week’s earnings call, referring to a strategic decision made, and that from then on, his company would be known for helping us all “live a better life”—with the help of a Dassault Systèmes-supplied digital twin. Just as the company had made a digital twin of the Boeing 777 in 1989, it would now do with the human body. How much better to use a digital twin—instead of your body or that of lab animals—for medical research, surgical techniques, design of orthotics and, though not mentioned at the time, vaccines.

Charlès could not have seen the skies darkening, the sickness starting to take hold, spreading silently and namelessly. It wasn’t until the following week that the World Health Organization would christen the pandemic COVID-19. He could not have known everything was about to change over the course of the next year, with governments desperate, doing anything, issuing blank checks—to find a cure, to protect their people, to defend their economies.

So, here we are. Charlès’ vision becomes clearer. We see now how life sciences and engineering do have something in common. The material, whether it be engineering’s material or living, are made of the same bits, as Charlès had told us.

The Life Sciences market segment has grown significantly over the last year and is now the company’s second largest division. The segment may have benefited from a desperate reaction to the pandemic, calling on the Life Sciences products, chiefly Medidata (used in 60% of COVID-19 vaccine clinical trials, according to Charlès), but it was an earlier interest and investment in biologically and medically suited apps that positioned Dassault Systèmes in the right place.

Medidata’s software analyzes pharmaceutical and biotech trials for pharmaceutical companies, including Pfizer, AstraZeneca and Sanofi, and has by all accounts played no small part in the rapid development of vaccines by those companies.

In all, 18 of the top 25 pharmaceutical companies, 9 of the top 10 contract research organizations, and 13 of the top 15 drugs sold in 2018 were aided by Medidata technology, according to the company as quoted in Healthcarenews.com.

Using Medidata, BIOVIA and SIMULIA, pharmaceutical companies were able to shorten the time to develop a vaccine from 15 years to 15 months, says Charlès.

“It is a big play for a medical digital twin by Dassault Systèmes, which theoretically can be used to develop, test or simulate reactions to vaccine,” said Charlès. While digital twin technology is mentioned by all the major design software vendors, their digital twins are industrial, like a digital twin for a factory or a machine. Dassault Systèmes’ digital twin is decidedly more human, in line with the company’s direction toward biology and medicine.

It was a bold move to get into the health and medicine industry by a company best known for helping engineers design airplanes and automobiles. As we have said before, for Charlès, airplanes and automobiles were only a means to move Dassault Systèmes into other businesses. Customers who may never have needed Dassault Systèmes’ design and simulation products may have recognized the company’s products to help with data, process, testing, production and distribution.

It was a bold move that has paid off. For 2020, the Life Sciences product line’s revenue accounted for €797 million, or 20 percent of the software revenue of Dassault Systèmes.

But as the company’s Life Sciences segment was being assembled, design and manufacturing industry analysts were ignoring it or stretching for unconvincing reasons why it was a good idea. Charlès must see vindication in the company’s record-breaking quarterly performance and satisfaction in—once again—being in the right place at the right time.

The mainstream segment, which contains the company’s SOLIDWORKS business, increased revenue by 10 percent for the quarter, with SOLIDWORKS revenue up 7 percent.

Tiniko expanded by adopting 3DEXPERIENCE to enhance its use of SOLIDWORKS, allowing the company to use SIMULIA for more sophisticated simulations.

Charlès paid his respects to the biggest community of MCAD users by acknowledging SOLIDWORKS, even though most customers choose the desktop over the cloud, and claimed that “more than 20,000 new companies joining the club of SOLIDWORKS community” in 2020. He implored them to try the 3DEXPERIENCE for “less than 40 euros per user per month,” and offered SIMULIA and ENOVIA as inducements as more sophisticated solutions for simulation and PLM, respectively, that are just “one click away.”

For the full year, 2020 mainstream innovation software accounted for €938 million, or 23 percent of software revenue.

The aviation sector was not all bad news. Aerospace, Spirit Aerosystems, manufacturer of aero structures, expanded its use of 3DEXPERIENCE.

Use of 3DEXPERIENCE increased with 2,700 additional “go-lives.” However, an analyst reminded the company of its forecast that 3DEXPERIENCE new licenses would represent the majority of new license business and was told that this was already true of the 3DEXPERIENCE sales entire product line but that it was too much to expect a majority of SOLIDWORKS license sales to include 3DEXPERIENCE as it was introduced only six months ago.

More medical and pharmaceutical wins were mentioned, including the first big sale to Denmark’s Novo Nordisk, which had been using SIMULIA and will be using 3DEXPERIENCE to design insulin syringes. Stevanato Group, manufacturer of pharmaceutical packaging machines, is using the 3DEXPERIENCE platform. Another pharmaceutical company, Horizon, is extending its use of Medidata with a multiyear agreement for use of Medidata and other cloud products.

Dassault Systèmes points to fashion as another industry where it is successfully engaged, mostly on the strength of Centric PLM, which it claims is the leading PLM solution for fashion, retail and consumer goods.

We don’t often hear of infrastructure wins by Dassault Systèmes, but here’s one: Lithium Valley, where several Western Australia companies have gotten together with an idea to create a battery manufacturing hub.

Renault selected Dassault Systèmes as its software partner for the Software République program, which with 1,000 engineers and data scientists, hopes to usher in the next generation of mobility using big data and AI.

Profit was not achieved by reducing staff. In fact, the company claims to have kept its workforce totals intact and noted that it will be adding a thousand people to its payroll this year.

In 2020, the industrial innovation software segment revenue accounted for €2.3 billion and represented 57 percent of the total revenue.

A regional breakdown of revenue was offered. America led all areas in licensees and software growth in the quarter with recurring revenue up by 16 percent total and 9 percent on an ongoing basis. America’s software revenue increased by 23 percent in total and 13 percent on an ongoing basis. The company admitted to “lost deals” in Europe in the quarter but claimed to have made up for it in China, where software revenue was up 20 percent for the quarter and 15 percent for the year. India and Korea, where the pandemic had more of a negative economic effect, were “soft.”

Charlès continued with the social responsibility—although with little response from the audience of financial analysts. Dassault Systèmes recently announced its Water for Life, part of its far-reaching and well-meaning The Only Progress Is Human campaign, told through 10 acts. In the first act, the company teams up with veteran explorer Mike Horn for Water for Life to educate the world about its decreasing clean freshwater supply. We covered it here.

The company also made Women in Technology a goal and is proud that half of its board, 40 percent of its executives and 30 percent of its managers are now made up of women. We want it to be higher, said Charlès, not satisfied with surpassing the industry average of 26 percent according to a National Center for Women & Information Technology (NCWIT) report.

Dassault Systèmes mentioned its acquisition of NuoDB in November. A cloud-based distributed SQL database vendor will be used as part of cloud infrastructure data. The cloud is 20 percent of Dassault Systèmes’ revenue at the moment, according to Charlès, who added that he expects it to grow to one-third by 2025.

Mentioned was Dassault Systèmes’ completion of the acquisition of NuoDB, the “cloud-native distributed SQL database leader,” which counts as its primary customer Temenos, the “world’s #1 banking software.” NuoDB had revenues of $6 million in 2019, small compared to Dassault Systèmes revenue of over a billion dollars, but might this signal financial services (fintech) as the next market the company will pry open, as it did with Medidata and medical services?