Life Sciences division continues to be a money maker for Dassault Systèmes.
Engineers may value the physical sciences, such as chemistry and physics, over the life sciences (biology), but leading engineering software vendor Dassault Systèmes has pivoted toward the life sciences. And judging by the last few quarters—the move has proved lifesaving.
It was the Life Sciences division of Dassault Systèmes that again reported the company’s biggest revenue boost, this time up 19 percent, up from €190 million in Q3FY2020 to €226 million. The star of the Life Sciences division was Medidata, maker of patient data management software used in the COVID-19 Moderna vaccination clinical trials and in 60 percent of clinical trials worldwide.
The Medidata acquisition by Dassault Systèmes in June 2019 for $5.8 billion seemed like a cross-discipline Hail Mary that no software company leader would dare attempt. Industry observers wondered what Medidata was or what, if anything, it had to do with engineering. Only one person knew, and that was Dassault Systèmes CEO Bernard Charlès, who has proved to be prescient if not clairvoyant with this acquisition. The following year, COVID-19 was to rock the world. To fight it, governments gave blank checks to services and products that provided vaccines, testing and treatment for the virus. The International Monetary Fund (IMF) found that by May 2020, national governments had already spent $9 trillion to combat the pandemic.
Decoding the Financials
From the press release, we confirmed that Medidata has benefitted with “strong momentum across its product portfolio, including Rave, Acorn AI and Patient Cloud, as well as across end markets including pharmaceutical and biotechnology companies and contract research organizations.”
By comparison, “Mainstream Innovation,” (DS-speak for SOLIDWORKS, 3DEXPERIENCE Works and Centric PLM) rose by 13 percent.
Another non-engineering software group, Home & Lifestyle and Business Services, grew its revenue by 20 percent.
The traditional industries that Dassault Systèmes serves (including transportation & mobility, aerospace & defense and industrial equipment) all grew by double digits when compared to the same quarter last year. From that comparison, Dassault Systèmes appears to have a well-rounded portfolio and its industry diversity strategy validated.
Flat Is the New Up
But compared to Q2, Q3 proved flat in both revenue (€1.16 billion, equivalent to $1.34 billion at today’s exchange rate) and profit (€180 million, or $208 million).
Flat may be the new up during these unpredictable economic times. Every quarter in which the charts don’t dip must be a big relief in the corporate boardroom. Another quarterly bullet dodged.
It’s taken a full year to come to start to come to grips with the pandemic’s impact. Only in the last quarter have product shortages become commonplace and “supply chain” become a household term. That so many people became sick or died from COVID-19 is beginning to hit home in many ways with a macroeconomic effect. The prospect of supply chains breaking down threatens industrial production and retail spending. Employees working at home has emptied business districts and is threatening to bring commercial construction to a standstill (see Will Our Economy Survive with Us Working from Home?).
Still, Dassault Systèmes has teased out enough nuggets of good news to make this flat quarter sound good.
- The diluted IFRS (international financial reporting standards, the EC equivalent to GAAP) EPS (earnings per share) increased 94 percent to €0.14 and non-IFRS EPS grew 40.0 percent to €0.2.
- Quarterly revenue grew by 12 percent when compared to the same quarter last year. (It is common to compare the current quarter to the same quarter of the previous year, a practice that may have more justification when seasonal spending is a strong driver (such as retail) or when sales are pumped up by once annual paid upgrades (no longer the case).
- The year-to-date revenue from 3DEXPERIENCE software grew by 18 percent and Licenses & Other revenue (perhaps subscription revenue?) was up 36%.
- The cash flow from operation was up 24.5 percent to €1.25 billion (IFRS).
- So encouraging is this flat quarter that Dassault Systèmes is raising its guidance for the fiscal year, now estimating an overall revenue growth of 10%-11%, or €4.8 billion).
Wins This Quarter
Within its traditional markets, BMW deployed DELMIA Quintiq at the company’s E-Drive production sites and five press plants, including Dingolfing, Leipzig and Regensburg in Germany.
Airbus is partnering with Dassault Systèmes to generate what may be the biggest digital twin ever imagined: the Earth itself. According to slides shown at the earnings call, the space imagery provided by Airbus will be used to build a virtual twin that can model natural phenomenon to predict food shortages, fight deforestation, create land use planning, and monitor climate change and sea level rise. Both companies hope to generate a new business model by monetizing the images Airbus has collected.
Renault adopted 3DEXPERIENCE and hopes to reduce the development time of its vehicle by almost a year while it increases the commonality of parts across its brands (Renault, Dacia, Alpine and Mobilize). Renault has the potential of 20,000 3DEXPERIENCE users. The company, which left the U.S. market in 1991, is the 2nd largest vehicle manufacturer in France (behind Peugeot) and 15th in the world.
The EXPERIENCE Is Life
The recently concluded 3DEXPERIENCE Forum would normally have users flocking to some North American location but was again conducted virtually last month. CEO Bernard Charlès led with sympathy for his American audience. The United States led all countries in COVID deaths (over 768,000 at the time of this writing). He praised the strength and resilience of U.S. companies that persevered through the health crisis, observing that it had not precipitated an economic crisis.
Never would a company credit COVID-19 for its good fortune and Charlès is no exception. We understand. But the benefits of COVID-19 for Dassault Systèmes are undeniable. More than any other company in this sector, it has health care software that experienced heightened adoption and use. It would be accurate, though insensitive, to say that Dassault Systèmes has kept its fortunes intact because of the pandemic—not despite it.
Long Live the Digital Twin
The booster shot from the Life Sciences division that keeps the Dassault’s revenue and profit curve flat from the last quarter to the present one continues to validate the company’s diversification, as well as its exploration of far-flung and unrelated industries. It also allows Dassault Systèmes to continue with its ongoing initiatives, such as digital twins, environmental and social causes, and perhaps most important, the company’s current main theme, the 3DEXPERIENCE, all of which may have been inhibited by a drop in fortune.
Charlès has always been ahead of industry observers and pundits with a clear big picture of the future. The pandemic has made his big picture clearer. After years of offering virtual reality as a way to understand physical reality as an abstract concept, Charlès can now point out that is all too painfully real. Again, if we (using Dassault Systèmes’ dreamy catch phrase) had a digital twin, think of the speed at which we could test drugs and vaccines. Though vaccines for COVID were developed in record time, it still took a year. The result: over 5 million lives, with many more shattered, making COVID-19 already the 7th most deadly pandemic in history.
“Can you imagine accelerating the development of a product by a factor of 15?” asked Charlès. “Well, this just happened. This was not a manufactured object, but something much more complex. It was thought impossible to create a vaccine in less than a year—until we did it. Before 2020, it took 15 years to create a vaccine. We have seen a revolution happen right in front of us, a revolution powered by the virtual world. We used the virtual world to extend and improve the real world.”
To make a digital twin so close to a human body that it would be useful in predicting the behavior of chemicals, organisms and living tissue spans is still a vision—though the vision has been made clearer. To model several systems as one is still leap across a tremendous gap—though the gap has been made smaller. The integration of disciplines of study has not happened in our schools—unless you include the stage from where Charlès was speaking.
A Matter of Scale
Chemistry operates on a scale of around 10-10m. Microbiologists operate on the next magnitude of scale and up, with the smallest virus about 10-9m. It’s a long way—9 orders of magnitude—to get to the operating scale of physicians.
We first encountered the reconciling of nanoscale, mezoscale and macroscale at … you guessed it … another Dassault Systèmes conference. It was June 2016, and Dassault Systèmes had rejiggered the annual ABAQUS conference as Science in the Age of Experience and was using it to introduce a rather skeptical audience of engineers to its most recent purchase, Accelrys. Dassault Systèmes had acquired the company in 2014 for $750 million. Here was Charlès explaining how engineering was really all about science, and so would be Dassault Systèmes. By that point, the company had already spent $1.2 billion to acquire companies in the realm of pure science, the biggest cross-industry expansion so far. And it was not done.
Under the BIOVIA brand, we heard presentations about how the gaps in scale would be overcome, how the molecular world and visible world would be joined.
A Consistent Vision
From then until now, Charlès has stood by his vision of a combined understanding of science and engineering—the harmony of life and technology. He has stood alone from others in the technical software industry. There are still many gaps in our knowledge and resources before we will be able to create a biologically accurate and useful digital twin—one that can fulfill the role of a test patient for medicine the way that a crash dummy does for automobile safety. We are closer to arriving at simulation for autonomous vehicles than making a biological model of a human being. We made vehicles and we can simulate them. But how a human is made and how it works still begs for a full understanding.
But let us not dismiss it as impossible. We must get there, says Bernard Charlès, and we will keep on trying. Let us combine science and engineering. The world needs us to.
