Due to the ongoing coronavirus pandemic, Dassault Systèmes (3DS) held its latest Analyst Event virtually. In general, the format was similar to the company’s past annual events held (physically) at its headquarters in Paris. While squeezed into just two half-day programs, both the content and the messaging for the virtual event were very timely. These zeroed in on the company’s strategy going forward, which will focus on three major economic areas: Life Sciences and Healthcare, Infrastructure and Cities, and Manufacturing Industries.
Bernard Charlès, CEO and Vice Chairman of the Board of 3DS, kicked off the first day of the event with his presentation. He was followed by Florence Verzelen, EVP of Marketing and Global Affairs, and Pascal Deloz, COO & CFO. Following the executive presentations were re-ports from the industry VPs for Life Sciences, Energy & Materials – Infrastructure & Cities, and Transportation & Mobility – Manufacturing.
Future Roadmap for Dassault Systèmes and Its Customers
Mr. Charlès’ presentation, “Experience is Human,” and the overall theme of his message focused on how 3DS is evolving the company’s 3DEXPERIENCE Platform to benefit people: at their work, as everyday citizens with their cities and environment, and to maintain their good health. He pointed out that the purpose of 3DS is “to provide business and people with 3DEXPERIENCE universes to imagine sustainable innovation capable of harmonizing product, nature, and life,” and – particularly relevant during this pandemic - to provide the science of the biomedical and life sciences. Mr. Charlès made it clear that, going forward, a primary focus for 3DS would be in the life sciences and healthcare areas. This will include drug discovery and vaccine research, clinical trials, pharmaceutical manufacturing, and patient healthcare.
Mr. Charlès discussed how specific 3DS brands are being used in the current global battle against the coronavirus to reveal the invisible and unknowns. BIOVIA is being used to simulate and model the SARS CoV-2 protein at the molecular level and accelerate the process of new drug discoveries for both therapeutic and preventive applications. He discussed how SIMULIA is used to simulate virus dispersal in ventilation systems and how Medidata, which streamlines the process of clinical trials, is currently being used in over 60 percent of clinical trials worldwide in the efforts to find an effective COVID-19 vaccine.
In February 2020, 3DS announced that the 3D experience would be making a major shift from “things” to “life,” that is, from products to experience. It would be a focus on the Virtual Twin Experience of humans. The intent here is to navigate the world through three strategic sectors of the global economy: Life Sciences and Healthcare, Infrastructure and Cities, and Manufacturing Industries.
Florence Verzelen, EVP for Marketing, Industry Solutions, and Global Affairs presented a look at the unprecedented state of business and industry during the global coronavirus pandemic. Ms. Verzelen pointed out some of the negative numbers and industry impacts due to COVID19: $147 billion drop of industry output in the EU, 22 percent drop in worldwide auto sales, $252 billion loss in airline revenue, and a negative 15 percent in industrial output in the US.
Ms. Verzelen stated that it was time for 3DS to go forward with the company’s new view of the world and its portfolio of solutions based on the three strategic economic sectors of Life Sciences and Healthcare, Manufacturing Industries, and Infrastructure and Cities. Taken together, these sectors account for 78 percent of global GDP and $88 trillion in global GDP.
3DS’s goal is to continue the company’s double digit-growth in manufacturing, accelerate growth in life sciences, and deliver a flagship solution for infrastructure and cities.
3DS is implementing life science initiatives against COVID-19 in the areas of drug research and discovery, clinical development (vaccine), virtual simulation for physical distancing, and patient care. Also, 3DS is working to provide solutions for business continuity in the pandemic in the areas of cloud computing and SaaS, “work from anywhere,” “anytime solutions,” and remote learning experiences. These solutions apply to product design, manufacturing, and services.
As “reasons to believe,” Ms. Verzelen pointed out of companies and solutions that are enabling 3DS and others to maintain degrees of business as usual in these challenging times. She mentioned Canoo, a cloud-based system that allowed 3DS to transition to a work-from-home environment, and Braun, a medical device manufacturer that worked with 3DS to provide lifesaving medical equipment. Then there was the Aden Group, which partnered with 3DS to build a new hospital in China in less than 100 days with the use of a virtual twin.
Dassault Systèmes Maintains Business Despite a Global Pandemic
Pascal Daloz, COO, CFO next provided the financial update for 3DS and the post-COVID-19 outlook. As he explained, 2019 was a very good year for 3DS, which more than doubled its earnings per share (EPS) to €3.65 billion, bettering its five-year goal of €3.5 billion. Software revenues for its 3DEXPERIENCE Platform also doubled to nearly 30 percent in the five-year period from 2014. Revenues for 2019 were up 13 percent to €4,056M, with FY19 EPS up 17 percent. Software revenue growth consisted of 6 percent in new licenses, and 15 percent in recurring software (maintenance) revenue.
3DS did well across the three global regions: the Americas, Europe, and Asia. Year-over-year growth in the Americas was the highest at 24 percent with a 32 percent share of revenues. The main reason for good growth in the Americas was good organic dynamics and strong subscription growth indicating a significant shift to this licensing model. Europe’s revenue growth was lower at 9 percent, with 41 percent share. And Asia’s YoY growth was at 7 percent, with a 27 percent share. Notably, revenue from China was 16 percent in 2019.
Mr. Daloz discussed the $5.8 billion acquisition of Medidata, a clinical trials software company, in 2019. He mentioned that this is the most the company has ever spent on an acquisition. He mentioned that the overall growth forecast for the life sciences and healthcare global industry is at around 5 percent GDP from 2019-2040. This compares to around 2 percent GDP growth for industry and infrastructure and cities over the same period.
Mr. Daloz explained that the per capita global spend on healthcare is around $1,000 today and projected to be $3,000 by 2040. Additionally, access to healthcare stands at around 50 percent globally today, with a goal to increase this to 100 percent in around 10 years. 3DS regards life sciences and healthcare to be the clear business trajectory for the future and regards its mission to provide health innovators with the best technology and solutions to power faster drug development and discovery, smarter treatments and therapeutics, and healthier people. The 2019 acquisition of Medidata figures very significantly in this strategy, along with 3DS brands like BIOVIA and SIMULIA.
Daloz went on to talk about Q1 2020 actuals and the impact of the pandemic on Q2 and some forecasts for Q3 and Q4. Revenue growth for Q1 came in at around 19 percent, a continuation of strong growth of 2019. Software growth for new licenses will be in negative territory for Q2 (-5 to -20 percent) due to the pandemic and resulting global recession, but recurring revenue (maintenance) remains relatively strong (28-30 percent).
This attests to 3DS’s resilient business model. Interestingly, subscription licensing models will benefit the overall enterprise software industry because of the recurring revenue this business model provides.
According to Daloz, the pandemic is having a severe impact on the transportation and mobility sector, particularly automotive. He mentioned that while aerospace and defense are somewhat less impacted, that doesn’t apply to the airlines and travel industry, which obviously are undergoing severe short-term impacts. Consumer packaged goods (CPG) and retail have weathered the storm reasonably well, and life sciences and healthcare are doing significantly well, which is not unexpected.
Regionally, the pandemic lockdowns were early in APAC (China, Korea, Japan), and 3DS was able to make some large account deals at the end of Q1 in China for high-tech and transportation and mobility. The outlook for the rest of 2020 in Asia is cautiously optimistic because these countries were able to restart their economies again because of early lockdowns, especially Korea. 3DS saw strong decline in Southern Europe for Q1 and into Q2 with slower recovery in Northern Europe. 3DS sees some recovery in the US by the beginning of Q3.
For the overall 2020 outlook, Daloz sees significant deceleration in global GDP for Q2, with progressive recovery in Q3 and Q4 depending on and consistent with individual country plans. Daloz expects recurring revenue to maintain a strong resilience in 2020 (26 to 27 percent growth) while reflecting lower new business activity and to a lesser extent increased attrition.
Daloz concluded by talking about how important cloud services have been during this pandemic, and how important they will be going for-ward. One outcome of the pandemic and the widespread need for everyone to work from home, is the use of the cloud and cloud services to continue functional operations and essential work. 3DS fully recognizes this and acknowledges a broad shift to cloud services of all types and subscription licensing business models.
Once again, Mr. Charlès’ message that “Experience is Human” and that the company is evolving its 3DEXPERIENCE Platform to benefit people at their work, with their cities and environment, and to maintain their good health will be the main thrust of Dassault Systèmes’ next five-year plan. Mr. Charlès pointed out that the purpose of 3DS is “to provide business and people with 3DEXPERIENCE universes to imagine sustainable innovation capable of harmonizing product, nature, and life.” Clearly, the company is shifting its primary focus from product to people.
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Keywords: Experience is Human, Life Sciences and Healthcare, Virtual Twin Experience, COVID-19, 3DS Five-Year Plan, ARC Advisory Group.