SIMULIA is well diversified by divested curve and as software revenue stream that is more than 90% recurring. SIMULIA completed the acquisition of Engineous last quarter and has already released an integrated product, I-SITE for Abacus, which provides design exploration and optimization technology enabling designers and engineers to perform rapid trade-off studies of real work behavior and accelerate product development.
Key questions and answers from the third quarter fiscal 2008 earnings call conducted by Dassault Systemes SA (DASTY) on October 29, 2008.
Jay Vleeschhouwer (Merrill Lynch):
The first question concerns of vertical markets you refer to industry solutions and the vertical orientation of the company, could you be a more specific as to how the vertical mix looks today, how it''s changed and specifically if you are concerned at all about your exposure to auto?
Bernard Charlès: To give you a data point for 2007, the new sector we''re presenting about 30%. So, it gives an idea that we are not at beginning of the process; we launched it two years ago that I think it has created some very good results. And the P&G announcement is significant. It''s a strong signal that this industry will adopt new processes.
They are really the dynamic to PLM in many new sectors with the success of ENOVIA, ENOVIA''s accelerators and also SIMULIA especially in the energy sector for example. But even in the life science is very critical on that standpoint. So, the 30% I talked about in terms of customer based on 2007 and we continue to grow this year or next year.
Related to the auto sector, we have demonstrated in the down term previously 2002, 2003 for example, or even before in the ''90s and when some heavy industries like this are going through down term, we are less sensitive to the production value and more sensitive to the product pipeline, the product tax, what is in planned for the next three, five years in terms of product rollout.
Especially for the Auto sector, I think we can continue to progress provided to size of the portfolio we have and when I say size, coverage of the product portfolio we have. There is a lot of work we can do to compliment existing instillations. I think as IT budgets will be probably reduced there will be cost reduction, but there will be also higher selections. And I believe at many companies will unified environment remove multi-CAD go to single CAD, remove multiple-PDM, concentrate on core PLM backbone on simplified operating environment and we will leverage all those factors.
Jay Vleeschhouwer (Merrill Lynch):
In the third quarter, the new license revenue that you reported was down 2% year-over-year, which you attributed largely to Japan. On the other hand if you look at the magnitude of the capacity editions by IBM itself by yourselves through the value channels in the last couple of years shouldn''t the net effect or that capacity in the last couple of years are more than compensated for the weakness in Japan recently allowing you nevertheless to have grown new business in the third quarter?
Bernard Charlès: I think the capacity increase, which is a fact based on the last comments we made related to the PLM value channel on what you refer including IBM and so on. The fact that we were able to deliver despite the worsening of the economical conditions basically just to deliver on the aim of our objectives is already approved that this capacity can be away to overcome the different challenges. And the system will have to continue to adopt because what we are going to do is make sure we have a flexible way to reallocate opportunities in a good way. Sometimes it''s better to sign two mid-size transactions and miss a big size transaction.
Thibault de Tersant: Because of the capacity increases, we stepped into Q4 with a better type of business than what it was one year ago. If our new license revenue growth was soft in Q3, certainly this better coverage of the market helps us continue to drive diversification, sales of applications and a better price that will close at its rhythm. Also in our Q4 objective we have an increase in new license revenues that is forecasted.
Jay Vleeschhouwer (Merrill Lynch):
About a year and a half ago, when UG was sold to Siemens, I think you took a somewhat conservative view as to what that would mean competitively. They seem to have done reasonably well with apparently some acceleration.
Bernard Charlès: I think what we observe is that they are loosing market share on which they would be publishing data, you probably would be very surprised with the results. So, I think there is a big difference between publishing data and giving impression. So, the impression is not substantiated with facts in my view.
Jay Vleeschhouwer (Merrill Lynch):
Solidworks did have a fairly large sequential drop in units from second to third quarter. So second quarter in a row that''s been down, on the other hand, Proe was up sequentially from June to September, maybe that was seasonal for PPC but it was nevertheless a dichotomy, so perhaps you could talk about some plans for Solidworks to reinvigorate its growth?
Thibault de Tersant: I think that the revenue in Q3 was satisfactory and at the high-end of our objective naturally for Solidworks. In terms of unit trend, we saw the impact from the economic environment in Q3 for Solidworks as well that''s different and the need is it is the revenue that we make with small companies in general which are indeed affected by the current downturn. But the growth prospects for Solidworks are absolutely clear in there and the competitive situation of Solidworks compared to its key competitors in our view is completely unchanged.
The year-to-date growth in unit is 9% and the total volume is significant almost 40,000. So we are speaking about a strong dynamic. And, I think the Solidworks team will be meeting its objective for this year.
You got very important amount of cash in your balance sheet, what would you plan to do with it? And secondly, do you have an idea of the percentage of your customers who use bank loans to buy your software and may be do you provide them some help or some financing help or some financing help in buying the software?
Thibault de Tersant: On the cash we are sitting on the suitcase and we don''t plan to open it. So, the cash is keying those days and we will continue to be very cautious. Related to the use of the cash we have free policy when it comes to dividends. Basically now more than 15 years almost 20 years we have been very constant. We take a sole of the profit in a year we give it back to the shareholders even at that time when the financial community were telling us not to do it, we are doing it and we will continue to do so. We control 52% of our shares. So family and management so I think that''s a good situation to us but because we are not subject to takeover and we are here for the long-term.
On the use of their cash, we have been very cautious not to dilute shareholders with stock option plans so of approved shares. So we have a policy to at least compensate to do a share buyback and we have an approval for that when ever it''s appropriate to at least compensate on that and not create any dilution for current shareholders.
Bernard Charlès: We don''t have plans to start becoming a bank for our customers and but we have available worldwide rental conditions for our licenses. And we are very happy when customer FedEx to choose them and in the current times we''ve see in fact the growing interest for all this rental terms for licensing. So to some extent, I think the percentage of new licenses that will be rented is going to increase in the coming quarters.
And maybe could you talk about the leasing of the software?
