• The Company implemented IFRS 15 effective as of January 1, 2018. While the implementation resulted in some quarterly variation compared to under IAS 18, the prior standard, it did not have a material impact on overall 2018 financial results. Specifically, for the full year 2018 total revenue and software revenue were both €3.1 million (IFRS and non-IFRS) higher under IFRS 15 with no difference in earnings per share compared to IAS 18 on an IFRS basis and a 1 cent difference on a non-IFRS basis.
• On an IAS 18 basis and in constant currencies, total revenue increased 10% (IFRS and non-IFRS) with acquisitions contributing three points to the total revenue growth.
• On an IAS 18 basis and in constant currencies: Total software revenue increased 10% (IFRS and non-IFRS) with double-digit growth for SOLIDWORKS, ENOVIA, SIMULIA and DELMIA and 4% growth for CATIA. Licenses and other software revenue increased 11% (IFRS and non-IFRS). Non-IFRS recurring revenue increased 9% in total, with double-digit subscription revenue growth including acquisitions and continued high support renewal rates on a global basis. On an organic basis excluding acquisitions, total software increased 7% with licenses and other software revenue higher by 9% and recurring software revenue up 6%.
• From an industry perspective and in constant currencies: IAS 18 non-IFRS software revenue increased double-digits in Transportation & Mobility, Aerospace & Defense, Industrial Equipment, Marine & Offshore, Consumer Goods-Retail, Architecture, Engineering & Construction, Natural Resources and Business Services.
• On a regional and IAS 18 basis: Asia non-IFRS software revenue increased 16% with double-digit software growth across all geographies. In Europe non-IFRS software revenue increased 8%, led by significantly higher license growth in Western Europe and strong recurring software revenue results generally. In the Americas, non-IFRS software revenue increased 7% reflecting the contribution from new acquisitions, strong growth in subscription revenue and continued strengthening in Latin America. High Growth Countries non-IFRS software revenue increased 18% and represented about 18% of total software revenue. (All growth rates are in constant currencies.)
• 3DEXPERIENCE non-IFRS IAS 18 software revenue increased 24% at constant currency in 2018 and represented approximately 25% of related software revenue, up 4 percentage points from 21% in 2017.
• On an IAS 18 basis, IFRS services revenue increased 13% and non-IFRS 14% in constant currencies, principally reflecting strong growth in 3DEXPERIENCE related services activities and the contribution from acquisitions. The non-IFRS services gross margin was 12.9% for 2018 compared to 12.7% in the prior year.
• IAS 18 IFRS operating income increased 5%. IAS 18 non-IFRS operating income increased 7% as reported and 10% at constant currency and totaled €1.11 billion. On an IAS 18 non-IFRS basis, the operating margin was 31.8%, compared to 32% in 2017. The Company improved its underlying organic operating margin by about 70 basis points, largely absorbing acquisition dilution of about 80 basis points. Currency had a negative impact of about 10 basis points.
• On an IAS 18 basis, and principally reflecting the US tax law changes enacted in 2017, the 2018 IFRS effective tax rate decreased to 28.0% compared to 30.8% in 2017 and the non-IFRS effective tax rate decreased to 28.2% from 33.2%.

• IAS 18 non-IFRS financial revenue, net totaled €16.3 million, compared to €1.7 million in 2017 with an increase in financial net income of €11.2 million and a €2.7 million lower impact from foreign currency exchange losses.
• IAS 18 IFRS diluted net income per share increased 8%. IAS 18 non-IFRS diluted net income per share totaled €3.11, up 16% as reported and 20% at constant currency.

Business Outlook

(In the discussion below 2018 figures on an IAS 18, non-IFRS basis, with revenue growth rates in constant currencies while 2019 figures are on an IFRS 15 and IFRS 16, non-IFRS basis)

Pascal Daloz, Dassault Systèmes’ Executive Vice President, CFO and Corporate Strategy Officer, commented, “The fourth quarter came in at or above the high end of our objectives driven by 3DEXPERIENCE. On an organic basis, we had strong results across the board in the quarter with total revenue up 10%, software revenue up 8%, licenses and other software revenue growth of 11% and services revenue up 26%. On a regional basis, the quarter was led by Asia, with broad-based growth and notable strength in China and Japan, and by Europe.

“Looking at the year, we delivered on all our financial objectives with total revenue and software revenue up 10%, license and other software revenue up 11%, organic operating margin expansion of 70 basis points absorbing almost all acquisition dilution, earnings per share up 16%, or 20% at constant currency, and cash flow from operations up 21% to €899 million.

“For 2019, we are targeting non-IFRS total revenue growth of about 10% to 11% in constant currencies and earnings per share growth of about 7% to 9% reaching €3.35 to €3.40, consistent with our expectations shared at our 2018 Capital Markets Day. We expect further progressive improvement of our organic software revenue growth, driven by recurring revenue representing 70% of our total software.

“In summary, the strategic drivers for sustainable growth we articulated at our Capital Markets Day last June, demonstrated good traction during 2018.

• Our platform strategy well addresses customer requirements to achieve true end to end digital continuity in their business and drove our 3DEXPERIENCE software higher by 24% this past year.
• With our industry solution approach, eight of our industries achieved double-digit software growth - including all of our core verticals.
• Our local focus helped drive geographic diversification and extend our overall market leadership around the globe reflected in software revenue growth of 18% for High Growth Countries.
• Finally, extension of our addressable market to $33 billion, as we expand our offer to bring the 3DEXPERIENCE platform to small and mid-sized companies.

Altogether we believe these drivers position us well for 2019, representing the completion of our current five-year plan and the start of our 2023 plan targeting €6.00 non IFRS EPS.”

The Company’s first quarter and full year 2019 financial objectives presented below are given on an IFRS 15 and IFRS 16, non-IFRS basis:

• First quarter 2019 Financial Objectives
  • 2019 non-IFRS total revenue objective of about €925 million to €945 million based upon the exchange rate assumptions below, growing about 11% to 13% in constant currencies; non-IFRS operating margin of about 31-31.5%; non-IFRS EPS of about €0.78 to €0.82, representing growth of 8% to 13%;
• Full year 2019 Financial Objectives
  • 2019 non-IFRS revenue growth objective of about 10% to 11% in constant currencies to about €3.81 to €3.84 billion; The reported revenue range reflects the principal 2019 currency exchange rate assumptions below for the US dollar and Japanese yen as well as the potential impact from additional currencies representing about 18% of the Company’s total revenue in 2018.
  • 2019 non-IFRS operating margin of about 32 to 32.5%;
  • 2019 non-IFRS EPS of about €3.35 to 3.40, representing a growth objective of about 7% to 9% as reported;
• Financial objectives are based upon first quarter exchange rate assumptions of US$1.16 per €1.00 and US$1.19 per €1.00 for the full year; and JPY130 per €1.00 before hedging for both the first quarter and full year.

These objectives are prepared and communicated only on a non-IFRS basis and are subject to the cautionary statement set forth below.

The 2019 non-IFRS objectives set forth above do not take into account the following accounting elements and are estimated based upon the 2019 principal currency exchange rates above: contract liabilities write-downs estimated at approximately €6 million; share-based compensation expense, including related social charges, estimated at approximately €105 million and amortization of acquired intangibles estimated at approximately €177 million. The above objectives also do not include any impact from other operating income and expense, net principally comprised of acquisition, integration and restructuring expenses, and impairment of goodwill and acquired intangible assets; from one-time items included in financial revenue; from one-time tax effects; and from the income tax effects of these non-IFRS adjustments. Finally, these estimates do not include any new stock option or share grants, or any new acquisitions or restructurings completed after February 6, 2019.