Edited Transcript of DAST.PA earnings conference call or presentation 22-Oct-20 8:00am GMT

Q3 2020 Dassault Systemes SE Earnings Presentation Vélizy Villacoublay cedex Oct 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Dassault Systemes SE earnings conference call or presentation Thursday, October 22, 2020 at 8:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bernard S. Charlès Dassault Systèmes SE - Vice Chairman & CEO * François-José Bordonado Dassault Systèmes SE - Vice-President of IR * Pascal Daloz Dassault Systèmes SE - COO & CFO ================================================================================ Conference Call Participants ================================================================================ * Adam Dennis Wood Morgan Stanley, Research Division - European Technology Equity Analyst * Charles Brennan Crédit Suisse AG, Research Division - Research Analyst * James Arthur Goodman Barclays Bank PLC, Research Division - Research Analyst * Julian Alexander Serafini Jefferies LLC, Research Division - Equity Analyst * Michael Briest UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research * Mohammed Essaji Moawalla Goldman Sachs Group, Inc., Research Division - Equity Analyst * Stacy Elizabeth Pollard JPMorgan Chase & Co, Research Division - Head of Software and IT Equity Research ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Dassault Systèmes Q3 Earnings Presentation. (Operator Instructions) I must also advise you that this conference is being recorded. I would now like to hand the call over to your first speaker today, François Bordonado. Thank you. Please go ahead, sir. -------------------------------------------------------------------------------- François-José Bordonado, Dassault Systèmes SE - Vice-President of IR [2] -------------------------------------------------------------------------------- Thank you, John. Good morning, everyone. I'm François Bordonado, Dassault Systèmes Investor Relations. From the company, we have Bernard Charlès, our Vice Chairman, Chief Executive Officer; and Pascal Daloz, Chief Operations Officer and Chief Financial Officer. I hope you and your families are keeping well and safe in these trying times. So I would like to welcome you to Dassault Systèmes' third quarter 2020 webcasted presentation meeting. At the end of the presentation, we'll take questions from participants. Later today, we will also hold a conference call. Dassault Systèmes' results are prepared in accordance with IFRS. Most of the financial figures on this conference call are presented on a non-IFRS basis, with revenue growth rate in constant currencies, unless otherwise noted. For an understanding of the differences between the IFRS and non-IFRS figures, please see the reconciliation tables included in our press release. Some of the comments we'll make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2019 Document d'enregistrement. I would like now to give the floor to Bernard Charlès. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [3] -------------------------------------------------------------------------------- Good morning, and good afternoon to all of you, and thank you for joining us. I think we have a quite interesting news flows to share with you today. If I qualify the quarter from my side, I would say it's a demonstration of Dassault Systèmes resiliency. And I will try to -- with Pascal, to tell you why. First, the license activity is showing improvement as compared to Q2 of this year. While, of course, the anticipation to be back to normal in 2020 is now out of the scope, as you all know, for the sectors you follow. The total revenue is up 17%, excluding exchange rate, as you have noticed, with a negative effect on the dollar aspect. Software revenue, which represent 90% of the total revenue, is well aligned with what we said on the guidance, up 22% and the exchange effect at 17%. Recurring software revenue is at 83% of total revenue, so it shows also the relative impact of the service. We'll come back to it. It's up 32% excluding exchange rate, 31% year-to-date. There is a solid renewal on the organic basis because of, of course, all of you know the effect, the positive effect on the new situation as produced with the move with the acquisition of Medidata, and the performance of Medidata are very good. The Q3 EPS is on the high end of the guidance and operating margin above. I believe we are demonstrating that the adoption of our platform for our own business is creating significant productivity improvements. And I will also make a remark later on, on this topic of Dassault Systèmes platform-based company to develop, sell and interact with its own customers and partners. And you know what, a year ago, we announced a big move with the acquisition of Medidata coming together, to really demonstrate our significant engagement in Life Sciences & Healthcare. And of course, I can tell you that it does echo very strongly our purpose in the company. So, I think we are walking the talk on harmonizing products nature on life, and you will see some illustration here. And, of course, in February, we'll come back on that. And finally, the framework that Pascal presented to you, Pascal Daloz in Q2, with the logic of arbitration of things. I think it allows us to reaffirm our focus on the EPS, with the EPS objective at EUR 3.70 to EUR 3.75, so above the EUR 3.65 of last year. Now, how can I put my remarks together to tell you how we believe we are really contributing on the innovation side at the center of many of the topics which are revealed by the current health, economical and social crisis; And the 3 aspect: industry, human and experience? Let me comment on that. First of all, the profile of Dassault Systèmes, when we will look back in a few years from now, it's probably going -- 2020 or 2019, F '20 [and F' 19], going to reprofile the company in a big way. To summarize what we do, collaborative platform innovation based on data on modeling for 3 sectors of the economy. Objects which are produced, so Engineering and Manufacturing; Life Science & Healthcare; and Industries & Cities (sic) [Infrastructure & Cities]. This is not an invention, this is what we do every day. So, a few observation about those 3 sectors of the economy and their association with the industry solution we cover. On Manufacturing Industries, I see an incredible dynamic for innovation. Simply said, first half, the panic call with the crisis was about OpEx reduction. Since summer, we see a preoccupation about the answer to the following question: How do I prepare my portfolio post-crisis? Because I have a cycle time of 3 to 7 years to deliver new products and solutions, I'd better start now. That balance is visible in the way we interact with our clients. Sustainability is a very core element of it. On the Life Sciences side, a marginal player becoming a mission-critical player. This is the way I would characterize Dassault Systèmes, to change the innovation process, to connect better with passion and to really transform those companies to a better digital continuity between research, development, lab, bioreactors in the case of biologics and clinical trial. I believe I can take tangible examples on these categories. In some way, it mimics what we did in the last 35 years for the space and aerospace sector, where basically you have to predict things before you actually do things. On Infrastructure & Cities, which is, by the way, up 6%, is really about having this capacity to change the way things are constructed and to plan them better. There are great examples here. Clearly, this will be driven by improved quality of life in cities because people are asking for that. Of course, the impact of this quality of life for health. And of course, there is a lot of incentive in many countries of the world where the incentive -- the economic incentive, the stimulus, is also oriented toward local job creation. So let's look at proof points, which I think should be interesting to evaluate. Johnson & Johnson, Janssen is really the pharma side of Johnson & Johnson, has really renewed at a big scale a material agreement, which shows that the Dassault Systèmes Medidata platform is really a true next-generation platform for unified clinical development. It's a big deal for this sector because it's almost half of the cost, half of the time. So, you better have to do it quite well. And, it's the direct connection with passion. Clearly, we are so pleased to be working together with Medidata on that side. Something that was not so visible before, BIOVIA, the modeling of simulation, the power of modeling and simulation, data science aspect of it, inside a world-class researcher group working and transforming their treatment for oncology, cancer, especially under autoimmune conditions. They are adopting this platform to really break through new research in finding new ways to design and optimize and to create what we call digital continuity with the lab activity and to improve also, of course, and optimize the full understanding of the biologic process. This is, for us, a remarkable showcase, a rare one. And, we are very pleased to see that because there is no reason why the other players will not adopt this solution. And, it's quite unique what we offer. Abbott. This is really leveraging the simulation side for really the [medical device] (corrected by company after the call) environment and especially the environment for testing lab activities. It's a good showcase because it shows the connection between what you have heard about, Living Heart program, and the equipment which is used in this environment for virtual testing and creating the proper conditions for efficient test with smart equipment. Another illustration, which shows the power of data-centric approach with the 3DEXPERIENCE. No one can debate that the volume that our clients are producing with our platform, the data volume, is gigantic every year. Absolutely a giant, probably among the largest in the world. People don't know that we are now leveraging those data to address new problems. So not producing the data, but using the data. In the case of the French railway system, they have decided to adopt fully the 3DEXPERIENCE platform on the cloud to manage all data collection from the rolling stocks in operation to predict, plan, maintenance and improve safety. That's a concrete example, where we don't have necessary -- but while Alstom is a great client, we don't have, by the way, as a side note, it was announced before on a great time with great performance, by the way, we are also now collecting the operational data with the platform with SNCF to really improve that process. The potential for data-center analytics like this, it's about 5,000 users. It's a big installation for us on the cloud. If we continue in Construction, Cities & Territories, I remember to be telling you that we are very serious in that sector. And, we are very serious. We think this sector is still sick, being dependent on drawing systems, and we believe we can change it. It will take time because it's an artisanal sector. However, there are proof points that things are happening. There are 6 cases here -- cases here where the platform, the 3DEXPERIENCE on the cloud, is used to create novel architecture with technology insertion. Create new type of digitally designed architecture with extremely, what we call, ecologic inspired by nature construction, which is going to reveal a lot of -- a lot more in sustainability. Large-scale printing, modular building and much more. If you have time, go on the website of those companies, you will see what they do and you will understand why it's impossible to do it with traditional solutions. So we believe that this will not stop. It will continue. And, as for new mobility, where we have almost 100% of all the players are showing that the direction is with 3DEXPERIENCE. We are doing the same with those new start-ups in construction. More to come. And, now microelectronics and complex systems with STMicro. We are very pleased to continue the development of the cooperation with them. And please keep in mind what we announced in the past quarters with Ericsson. And I think those players are in the agenda for the 5G and for sovereignty in infrastructure. The fact that our platform, the 3DEXPERIENCE platform, can be used to do those kind of complex system is very important. Centric PLM. We continue, despite the huge challenge in retail, we continue to be convinced that this is a good move. And this is, of course, at this point in time, a small deal, but a small deal with a gigantic player called JD.com. JD.com is the Amazon in China, basically, where they are using the platform to really organize their program and improve their time to market, reduce the cost and improve clearly the collaboration for what they deliver to consumers. So a lot of learning there. Space is important. We are in space and we continue to expand in space. Ball Aerospace is an example of that. Basically, it's about creating the digital twin and the collaborative experience to really integrate those program excellence with industry solutions. It's not functionalities. Those industry solutions are called program excellence for management, co-design to target, build to operation and clear to operate. You will notice with 3DEXPERIENCE, we are not selling functionalities, we are selling roles, process and solutions for the industries we serve, unlike most of the current players. This is why we are telling all our customers, massively decustomize, remove all your legacy code, use native, you will go faster. Patient Experience. I'm so pleased that working with the team at Medidata, with this team we are revealing the power of myMedidata. And myMedidata LIVE is quite interesting because I think the potential is gigantic. myMedidata LIVE is about connecting the sponsor during the clinical trial. The passion with the sponsors in real-time confirms this, so they can share their feeling and so on, and we can better track the -- what's going on during the clinical trial. You can imagine that the ambition on Medidata over time can be far beyond that. And we did a small acquisition, which is a quite interesting one, that -- Pascal you want to comment it now? Because I know you are passionate to do this move. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [4] -------------------------------------------------------------------------------- I can say a few words. So it's a small acquisition. It's a $2.5 million acquisition. In fact, it's an asset we acquired. MC10 is a company -- it's a startup based in Boston, and they were developing sensors, but probably more important, the framework to integrate any kind of sensors you have to use when you do trials. And as you may know, we have more and more trials, clinical trials using these options. It's almost 10%. And in the future, we consider that almost half of them will have these kind of devices. We are using at home to collect temperatures, sleeping, help breathe, I mean all these kind of things, and that's what we do. So it's the asset we bought, the software asset, the patterns, and we hired 10 people. And the interesting thing, it's a famous startup, in fact, for the people who know the sectors in Boston. Unfortunately for them, they invest a lot on a market which was probably not mature enough. But the team decided to join us because it was -- this company was in Chapter 11, so it's kind of option, if you want. And they decided to join us because they see us becoming, as Bernard said, mission-critical for many pharma company, and that's the game plan behind this. That's very important. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [5] -------------------------------------------------------------------------------- Thank you, Pascal. I see that you are convinced about it and I am, too. And by the way, it echoes the -- our equity position in BioSerenity, where -- and it echoes myMedidata LIVE because it's about connecting information during the clinical trial and more. We continue to learn with HomeByMe. It's a side activity, but it's becoming a core activity, because in some ways it helps us continue to understand what can we do 1 day, not in the B2B but in B2C. There are incredible experiences here. There are references with this incredible lady, Aurélie Tshiama. She organized on HomeByMe a full training class for people who are agencies doing home decoration, to tell them you can use that software to really accelerate your business. An amazing class. We didn't know here, we discovered her and she is our best ambassador. We are learning a lot. And she is very successful in what she is doing. There is a video following now, which is not what she did. You can find this on YouTube, by the way, if you key her name. But I want to show you another video about [Bernardaud]. Please run the video. (video) -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [6] -------------------------------------------------------------------------------- So this video, I think is a good illustration about how -- I think the takeaway for me is the applicability of our solutions, innovation and power of design is wide. And, we are at the beginning of what we can do. I want to address a question that directly or indirectly many of you have been asking. Is Dassault Systèmes transforming itself quickly enough? I want to talk about that just a few seconds here. The first thing, we are not focusing on the business model at first, we are focusing on the solutions we want to deliver to our customers. With the platform called 2021x, we have demonstrated that for those of our users and clients who connect and buy for $37.5 per user per month access to this platform. They can discover the world of possibilities in one platform. They can discover everything we offer in the context of the universe of 3DEXPERIENCE WORKS in their universe of education; in their universe of industry; online, being able to order or select what they have to select in terms of roles, process or solutions directly illustrated in the platform. So we are using our platform to develop, sell and make the SaaS roles, process and solution available. That's what we are doing with one platform that can be cloud on the edge for the client, some of these clients, cloud in a private environment or open cloud. That's what we are doing, and all R&D and technology are focused on that. It's becoming visible with the 9% back to growth of the mainstream market seeing the visibility on the interest of the platform with SOLIDWORKS. And this is just the beginning, because we also see that now the platform-based SOLIDWORKS clients are discovering the value of integrated analysis. And it's the beginning because then we have DELMIAWORKS, then we have supply chain, and we want to leverage that. The effect of that is -- this is the reason why most of the start-ups in new sectors of each of the industries we serve are adopting directly the platform. You have Xsun in Europe, Canoo in U.S., QEV Technology, Toyo Tires, INNOCEPT, Digital Orthopedics, Dasan Consulting, you name them. Look at what they do. I mentioned last time plenty in vertical farming in Seattle. They started with a few users, now it's hundreds of users. And I think it shows that innovation platform can bring on the cloud something absolutely unique that comes beyond what we have been doing in traditional manufacturing. Deepcell is another example, where they are really using the platform as a collaborative, multi-dimensional platform using ENOVIAworks with SOLIDWORKS. By the way, ENOVIAworks is becoming visible now for SOLIDWORKS customers. It's quite interesting, where even now the platform being used by AutoCAD users who are using the 3DEXPERIENCE platform to manage their AutoCAD data. And of course, the upcoming events are also very interesting with the scientific community with NEXT Global coming soon. And with different virtual events, I think they are -- well, we see, we are on a good start. We also did the Science in the Age of Experience, which was extremely well attended, with very, very influential people to show that science can help to change the world. And finally, I will comment the last remark before I give the floor to Pascal to illustrate how this is being translated in numbers. We continue to focus on the footprint and handprint, this means that the level that our solutions have to improve the world from a sustainability standpoint. Next year, we'll come back in February on a further illustration. With that, Pascal, back to you. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [7] -------------------------------------------------------------------------------- Thank you, Bernard. Good morning to all of you, and thank you for joining us today. I hope you and your family are well. I would like to begin my comments with a quick overview on our financial performance. So let's start. The revenue came at EUR 1.030 billion, growing 17%, improving compared to the first half of the year, because on the year-to-date the revenue was growing at 15%. An operating margin of 28.2%, which is 170 basis points higher than the objectives and EUR 0.80 for the EPS, which is a growth of 3%. And if you exclude the currency effect, 8%. So zooming on the different constituents of the revenue, the software revenue came right in the middle of the guidance at 22%. You remember, we gave an objective between 20% and 23% excluding the currency effects. From an organic standpoint, the revenue is flat in Q3 compared to minus 4% for the first semester. And the take away, and I will give more flavor afterwards, but the 3DEXPERIENCE has been the cornerstone because we have seen the growth of the 3DEXPERIENCE revenue increasing by 6%, and now representing 28% of the software revenue. The good news, I will say, for this quarter is coming from license and other software revenue, decreasing by 11%. But you have to keep in mind that for the first half of the year, we were decreasing almost by 30%. And it's well in line with the Q3 objective, you remember we gave minus 8% to minus 18%, so clearly, we are much more close to the minus 8% than minus 18%. So it's definitively an improvement. But as Bernard stated clearly at the beginning of the call, we are not anticipating the return to normal in 2020. Moving to the subscription and support revenue growing at 32%, excluding currency effects. The subscription has been driven by a good performance of Medidata with a double-digit growth, and solid renewals almost in every geo and every branch. So that's probably also an important message because we are not seeing churn, we are not seeing difficulties with our customers on this front. The organic growth for the subscription is 4%, which is well in line with what we have seen since the beginning of the year. The miss, because we have one miss this quarter, you know it, it's coming from the services. But I want to give you some analysis on this so the miss is, I mean, we are decreasing by 15%, excluding the currency, and there's 3 reason for that. The first 2, you know it, and there is a third one. I want to spend time to discuss. The first one is really, you know, we still have almost 10% of the project being frozen. So it's not new, and it's definitely due to the lockdown. Until the site will reopen, we still have people not being able to go on site. And automatically, the customers are willing to, they want to froze the project. The second topic, since the beginning of the year, we have seen the new signing decreasing and especially for the brand services, because for the majority of the services we do, usually it's a long-term contract we have. But for the brand services, usually, it's project almost for a quarter. So this is where we are seeing the book-to-bill ratio decreasing. With this, you almost explain what's happened in Q2. So the real differences compared to Q2 is -- because Bernard and I we took the decision to support the multiyear project timelines we have related to the 3DEXPERIENCE deployments. Why so? Because we want to preserve the 2021 and after software revenue. So this is very, very important. And we have the ability to do it because, as you have seen, thanks to the good cost control, we know how to absorb the fluctuation of the services revenue. So maybe you can see -- on both sides, you can blame us or you can see the positive side. And I think I encourage you to see the positive side because by doing so, we are maximizing our chance to deliver the expectation for 2021. So moving to the regional software review. Let me share a perspective on the impact of the pandemic in Q3 compared to Q2. So let's start first with Asia. Asia growth is plus 10% this quarter from 3% in Q2, so clearly it's an improvement. We saw a significant recovery in China, AP South and Korea, with a double-digit growth for this quarter. However, it has been partially offset by the softness in Japan and a real difficult environment in India, where the vast majority of the company are still in the lockdown. Zooming it on China because China is an interesting case. You remember we started the first quarter being minus 10%. Q2, we were flat compared to last year. And Q3, we are delivering 12% growth. So clearly, we could expect, and it's probably the only region of the world where we could expect Q4 to be almost back to normal. We had a significant win also in China specifically in High Tech, also Transportation & Mobility, and also Aerospace. Turning now to Europe, it's a much better performance in Q3, plus 10% compared to 4% in Q2. We saw a very strong improvement from an organic standpoint compared to Q2 in France, the north of Europe and also to a certain extent, the South part of Europe. Same almost then in Asia, but we still have some softness in Germany due to the exposure to the auto sectors. Now if I look at Europe, we have a very good dynamic with 3DEXPERIENCE platform. That's really something which is very important to notice, especially in the High Tech, STMicroelectronics is one of them. But also in the industries suffering like Transportation & Mobility and Aerospace & Defense. And the Life Science deals with Medidata were also among the largest transactions of the quarter we did in Europe. Moving to Americas, Americas is growing at 46%, relatively consistent with the first half of the year, plus 45%, with obviously a strong contribution from Medidata, similar to what we have seen in Q2. And also Americas has the most deals in the 2020. However, from an organic standpoint, we saw some softness, and we could consider that America has been almost in the situation where Europe was in Q2. LatAm is still suffering. LatAm, as you may know, the countries for most of them, they're still in a lockdown. Moving to a view of our software revenue by product line, we saw a quarter-to-quarter improvement overall across the 3 product lines. So let's start with Industrial Innovation software revenue, moving from minus 4% year-to-date to minus 2%. With some good news, as you can see, ENOVIA growth is plus 4% to be compared with minus 7% year-to-date. And ENOVIA license revenue growth was at the double-digit this quarter, which is very consistent with the good dynamic of the 3DEXPERIENCE platform. CATIA also is improving from minus 4% to minus 1%. And I would say, CATIA, we also see a good traction from CATIA 3DEXPERIENCE and also CATIA Systems with a high single-digit growth. And it has been partially offset by some pressure on CATIA V5. Moving to the Mainstream Innovation software revenue, Bernard stated clearly, so plus 9% compared to plus 2% year-to-date. So it's a significant improvement. We saw the improvement across almost all the geos, which is also a good sign. And it has been relatively well reflected by the performance of SOLIDWORKS, and you can see plus 10% to be compared to plus 3% since the beginning of the year. And SOLIDWORKS growth has been driven by a strong recurring revenue. And you remember, it was one of the concern or questions, I would say, you had, if we would have been able to maintain the renewal with SOLIDWORKS. So that's clearly a proof point. And we saw also the situation improving significantly on the license performance from Q2. Zooming in on the comparison of our revenue and operating margin results, let me share several takeaways. First, on the revenue side, we came roughly EUR 40 million below the midrange of our estimate. And you can see that EUR 14 million is coming from a higher-than-expected currency headwind, EUR 23 million coming from the lower services revenue and the rest accounts for the software, which is relatively well aligned, minus EUR 3 million compared to the mid-range. On the operating margin, what could we say? We made up with our core operations improving by 160 basis points compared to our expectations. So clearly, it's a significant performance. And also from the recent acquisitions, where we saw plus 40 basis points compared to our expectations. And we still have 10 basis points negative impact from the currency effects. As a result, we are reporting an operating margin of 28.2% to be compared with 26.2% which was the mid-range of our guidance. On an organic basis, our operating margin was stable year-over-year. And at the same time, as clearly stated, we are maintaining our investment for our customers. So that's very important to understand this. This good performance on the operating margin is reflected into the EPS with an EPS at the high end of the guidance, EUR 0.80, plus 3%; plus 8%, excluding the currency effects. Our operating cash flow for the first 9 months was EUR 1 billion. In fact, EUR 1.3 billion. Almost at the same level than a year ago, which is a good performance. Contract liability reached EUR 1.4 billion, up about 5% in constant currency and perimeters. And here, so remains stable on the constant perimeters. Our cash continue to grow now at EUR 2.5 billion at the end of September from EUR 1.45 billion at the end of December last year. This translated to a EUR 561 million improvement in our net financial position year-to-date. So clearly, we are also well aligned with our deleveraging road map we shared with you at the beginning of the year. Now moving to our outlook, there are 3 takeaways I would like to share with you. First, we are reconfirming our 2020 EPS of EUR 3.70 to EUR 3.75 aligning well with our financial framework shared in April. And it's mainly thanks to the resiliency of our recurring revenue and our savings program. Two, if you look at the EPS, in September, our currency was a negative factor by EUR 0.03, which we contained with an equal improvement from our operations. And then we are adjusting our revenue growth for the full year by 1 percentage point, moving from 12% to 13%, to 11% to 12%. This equates to first, minus EUR 15 million coming from a higher currency headwind, minus EUR 16 million reflecting the low utilization rate of the services activity and the investment we are doing for the strategic partners, and minus EUR 16 million coming from the software side, as we see a slower recovery in the marketplace. And you remember, when we designed the framework, all of us, we made the assumption that we will be back to normal or close to normal in Q4. And that's clearly not the case with the second wave, and we still have many countries being still in the lockdown. So taking into account, again, we are adjusting by 1 percentage point. On the reported basis, this translate to a revenue of EUR 4.444 billion to EUR 4.465 billion, (sic -- see slide 35 "EUR 4.440 billion to EUR 4.465 billion") which is a growth of 11% to 12%, as I said. And the way to split it between the different lines, the license revenue is now expected to be between minus 20% to minus 19% which is an adjustment compared to the previous guidance, which was minus 18% to minus 16%. The recurring revenue is unchanged, plus 26%, plus 27% for the full year. And the services revenue has been also adjusted to minus 9% to minus 8%. On the operating margin for the full year, we are targeting a 29.8% to 30% EBIT margin, which is half a point, percentage point, better than what was our initial objective. And it's mainly due to the savings plans we have put in place. And again, I insist on this, we are at the same time maintaining the investment on the research and development and the investment to support the strategic customers. This is translated into the EPS, which is unchanged as I said. Moving to Q4, we are targeting a revenue of EUR 1.195 billion to EUR 1.220 billion which is a growth of plus 2%, plus 4%, excluding the currency effects. With the license performance expected to be almost in line with Q3 and you remember in Q3 we did minus 11%, but this quarter for the new license is almost 3x bigger than Q3. So that's the reason why I narrowed the range a little bit just to be safe. So the range I'm proposing is between minus 15% to minus 12%. The recurring revenue is unchanged. Again, keep in mind that last year we had Medidata in our book for a part of the quarter, the Q4. So that's the reason why the percentage point could be perceived as not the same that we used to do, but it's almost the same. And services, in line with Q3, taking into account the investment we do. The operating margin will improve by 1 point to 1.6 to target 34.6% to 35.2%. And we are targeting an EPS of EUR 1.15 to EUR 1.20, which is an EPS being flat to minus 4%. To wrap up, let me say that we look forward to speaking with many of you at our virtual Capital Market Day scheduled next month on November 17th, and we will begin sharp at 2:00 p.m. Paris time. Hope to see you, all of you, at that time. So now Bernard and I would like to take and answer your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Julian Serafini. -------------------------------------------------------------------------------- Julian Alexander Serafini, Jefferies LLC, Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- I'd like to ask 2 questions. The first one on the guidance, specifically. You had mentioned that you don't anticipate license revenue returning to normal in 4Q. Can you share your thoughts on 2021 and how that may evolve? And do you have any line of sight on that? And then the second question also, I think, actually for Pascal, was on Medidata and on the billing specifically. I recall when the Medidata acquisition was done, there were some talk about potentially moving to longer billings durations. Can you comment on if that is something that is being implemented or if that has not happened yet? -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [3] -------------------------------------------------------------------------------- Bernard, you want me to take it? -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [4] -------------------------------------------------------------------------------- Yes. We have a habit which is to speak about the next year in February. -------------------------------------------------------------------------------- Julian Alexander Serafini, Jefferies LLC, Research Division - Equity Analyst [5] -------------------------------------------------------------------------------- I know. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [6] -------------------------------------------------------------------------------- No, but thank you for your question. Again for next year we are, nevertheless, crafting a scenario where we will progressively be back. That's the underlying assumptions. And I clearly stated we are right now taking all the decision we can take for the moment in order to preserve as much as we can the growth for next year. That's probably the most important messages for this quarter. It's clearly visible in the services, we have seen it. So we do expect some top line growth on the new license for next year. But we will discuss this much more next year at the right time. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [7] -------------------------------------------------------------------------------- On the framework at the market... -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [8] -------------------------------------------------------------------------------- And during the Capital Market Day, we will come back to the long-term objectives we have. Not giving specific details for 2021, but obviously you will be able to understand the dynamics or the trajectory of Dassault Systèmes. The second question, Julian, was related to Medidata, but I missed probably the question. -------------------------------------------------------------------------------- Julian Alexander Serafini, Jefferies LLC, Research Division - Equity Analyst [9] -------------------------------------------------------------------------------- No, it's fine. On the billings direction, because on Medidata, I think the billings duration was 3 months, right, typically before you acquired the company. And there was talk about potentially stretching that out, maybe annual contracts and annual billings. Has that been done? Or is that still something under consideration for Medidata? -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [10] -------------------------------------------------------------------------------- No, no. As you have seen, there are 2 parameters. So you are right, they do long-term contracts, and the average time is exceeding 3 years. And in vast majority of the cases, we are talking about 5 years. And sometimes, we have contracts exceeding 7 years. The vast majority are between 3 to 5. From a billing standpoint, we are still on a quarterly basis. However, you noticed that we did well on the margin as well as the cash flow. And you are right, I did not mention this. The cash flow for Medidata improved a lot over the last year and we are now exceeding EUR 100 million. And the contribution of Medidata to the current cash flow is almost a net, exceeding EUR 90 million for the 9 months. So it's a significant improvement, as you can imagine. Because we put much more discipline in the billing systems. And also, we have slightly adjusted the conditions for some customers and some CROs as well. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- And the next question comes from the line of Stacy Pollard. -------------------------------------------------------------------------------- Stacy Elizabeth Pollard, JPMorgan Chase & Co, Research Division - Head of Software and IT Equity Research [12] -------------------------------------------------------------------------------- I have 2 questions, please. Sort of following up on the 2021, I'm afraid. But maybe thinking about the services level, how long do you think this will be at the lower level and over what time period do you think that could recover? So it's not specific to next year, but just how you see that mapping out over the next few years, potentially? Second question, would you mind talking about the competitive environment? And do you think there's any chance that you're losing some market share this year? I mean, I guess, Siemens Digital seems to be -- is currently reporting high single-digit growth in software orders, maybe low single-digit on revs. Do you think that's a product area or industry differential? What do you think is happening there? -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [13] -------------------------------------------------------------------------------- Thank you, Stacy, Pascal? -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [14] -------------------------------------------------------------------------------- I'll take the first question and then will take the second one. So the services against the investment we are doing to support strategic partner, it's something we are planning to do in -- we did it in Q3 and we are doing -- we will continue to do it in Q4. We do not expect to do it in 2021. So it's point number one. Point number two, as soon as you have the new license growth being back, the services related to the brands, order book will automatically grow and the fact that we have some dynamic with SOLIDWORKS, the fact that we have a good dynamic with 3DEXPERIENCE on the new license is also an early indicator on the fact that we do expect the services start to grow again next year. And last but not least, I hope many sites will be reopened next year and we will have the ability to send our people to do the services on-prem as requested by some of our customers. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [15] -------------------------------------------------------------------------------- Stacy, thank you for also asking for the second part of the question, the competitive landscape, namely, you mentioned Siemens. Look, we are, like you: surprised, and I am, like you, surprised, with certain statements or kind of news flow with regard to that for a very simple reason. If I look at and take every segment, one by one. Aerospace, Transportation & Mobility, and I take them all Industrial Equipment. For the category of software we do, for the offers you know that we have, we gain market share and we replace Siemens. We don't lose. I cannot find customers where the situation would be the opposite of what I just said. So I don't think there is -- or at least, it's not related to the scope of the things we do. Now it might be coupled with hardware machines that they sell, most probably. But clearly, I can look at the customer base we have: not only we are gaining new customers, whether they are large or small, and I can take a long list of them, I can take in Aerospace the big players, all of them are now moving their military programs that some of them where on other platforms on our platform. All of them. We have announced, you remember a few months ago, Lockheed. You know what's going on with Boeing, and it applied to everything. And you know what's going on with Airbus. And I can take a long list of those with even new program, including China. So it is not relevant. In the automotive sector, Transportation & Mobility, the same thing. So I don't look at revenue, on my side, Pascal do it so well. I look at customers: who are the ones I win? And then for each customer, who -- how do we expand our footprint in modeling, simulation and collaboration. Sorry to take maybe too much time to answer, but that's the reality. If I look at now start-ups, the new players, it's the same. If it's not 100%, t'is 95% of the new start-ups in new smart mobilities, 95% are using today, are adopting the 3DEXPERIENCE platform. So if I go to Industrial Equipment, especially because, in that sector, SOLIDWORKS and 3DEXPERIENCE WORKS is the main player, for the competitor you mentioned, clearly, there is no topic there. There was a discussion about electronics. We won Siemens. We refer to Nokia. We refer to STMicro. Those were previous -- some of them were Siemens, they are not anymore. So of course, I don't want to be insulting, but facts are facts. Now when it comes to the other player, the one you have in mind probably with this so-called great business model, there is no platform there. The reason why I believe we are making the changes in construction and infrastructure, is because of the platformization power and the true native implementation of our roles and processes on that platform. So today, this other competitor in that sector is leveraging a huge installed base of drawing-based systems. It's the right thing they have to do, but the market will change. And as far as I know, people are very upset about Revit and not satisfied. And I think this will take a long time to change. I want to play that card, too. So we are respectful of our competitors, but we want to win. So I will respect more when I win even more. And we think we can because we are providing solutions that those are not providing. The last competitor that you probably have in mind in the area of simulation? The area of simulation is going platform-based. There is no way this will change. And the integration of the digital continuity, because people want out-of-the-shelf solutions. Finally, I want to be explicit. We believe that there is no room for Palantir in Dassault Systemes' customer base, 0 space. We believe our platform can do data science better than them. They probably can do government things. It's not our real market right now. But there is no room for them in our sector, and we believe that today, we are implementing with customers, real case, on SNCF, the French rolling stock network, with predictive maintenance on digital acquisition. So my answer related to that is the platform is collecting the data to data science for predictive maintenance and planning, and this is a significant opportunity for growth in the years to come. We have proof points today. So with that, I have almost done a 360 and a 3D review of the competitive landscape, we can go back during the -- Pascal, do you want to say something? -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [16] -------------------------------------------------------------------------------- Yes. To give you some analysis on the numbers because I saw it, and I was intrigued like you, Stacy. But this reminds me a story, which is the following. A few months ago, GE Predix was for sale, as you know. So we spent time to look at it. And what did we discover? That the vast majority of the revenue of GE Predix was coming from the internal usage. So my guess is, it's probably the same for Siemens. Siemens is a large company, and they are probably using this mechanism as a way to make up a little bit the top line. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [17] -------------------------------------------------------------------------------- Stacy, as you can see, we have a certain intensity in providing crisp answer on those questions. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- And the next question comes from the line Michael Briest. -------------------------------------------------------------------------------- Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [19] -------------------------------------------------------------------------------- Two from me as well. Could you just explain a bit more what you mean about making investments to support the strategic partners to drive software next year? I mean I would have thought you'd need the services people on-site to get the project live to then start recognizing revenue. Or are you sort of discounting the services so that the customer is in a better position to pay for the software next year? And then, Pascal, just looking at the Life Sciences performance, I think we can work out from the software performance overall if it's a 4% organic growth rate and 4% currency headwind. The acquisition contributed about EUR 164 million, EUR 165 million. And if that's all in Life Sciences because it's Medidata, what's happening to the rest of the business? It seems to be down about 20% year-on-year. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [20] -------------------------------------------------------------------------------- Okay. Thank you, Michael. The first question on the consulting and service, the way Dassault Systèmes -- first of all, we have a lot of partners doing service and consulting, system integrators and partners, as you well know. So our main activity in this area is related to -- is focused on strategy, large contracts, multimillion contracts, where the topic is the transformation of those companies. It's not even the implementation, it's the transformation of the processes, the platformization of that. In the case that Pascal referred to on the arbitration we did, it was in some way rather simple, not -- it was rather simple. We agree with those customers, that they want to keep the long-term dynamic that they have, the mid short term and short term, long term in terms of deployment because they know they need the solutions. They have tactical problems and we could have decided that we postpone the work we do with them to lay out the transformation plan that helps them deploy. This would have created an impact at the time at which they deploy then next. We decided with them - and it was extremely welcome with many of those clients who are really long-term committed with us, I mean there is 0 relationship issues with them, they appreciate it very much - we say: "Look, our people are going to stay with you in this tough time and we are going to make sure we don't change the plan that we have for the years to come because this is what you want to do." So it brings an incredibly positive goodwill in demonstrating that we are there in tough times without exposing the mid and long term. That's exactly the arbitration Pascal and I did. Our teams are happy to be with them, not go back and take opportunistic short-term tactical engagement and then exposing the follow-up deployment. That's exactly what we are doing right now. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [21] -------------------------------------------------------------------------------- Your second question, Michael. Yes, to a certain extent, you are right with your analysis. And there is a good reason for that, which is the following. In fact, we are moving toward a subscription-based model and SaaS model for everything we do in Life Sciences. So, as you may know, when we acquired Accelrys, the vast majority of their software were on-premise, on-prem, not integrated with 3DEXPERIENCE platform. Now the vast majority is integrated with 3DEXPERIENCE platform, and we are promoting as much as we can the cloud solution because this is consistent with the Medidata way. And next year, we will integrate the go-to-market properly, and this is the model we are pushing. So we are not waiting next year to start to basically promote the subscription-based model being SaaS-based. That's the reason why you can maybe perceive the rest of the Life Science business being underperforming. But the reality, as I was explaining, we are expanding our customer base by 16%, which is a lot. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- And the next question comes from the line of Adam Wood. -------------------------------------------------------------------------------- Adam Dennis Wood, Morgan Stanley, Research Division - European Technology Equity Analyst [23] -------------------------------------------------------------------------------- I've also got 2, please. The first one is just looking into the fourth quarter shorter term. As you flagged, Pascal, it's a very big quarter compared to Q3. And obviously, there's a little bit more nervousness about the environment than maybe 3 months ago. Could you give us a little bit of an insight in terms of pipeline coverage, how that would stack up against a normal year? Are you building in a need for greater coverage than normal to be able to hit numbers? If you can give kind of any metrics around that, that would be really helpful. And then maybe a little bit longer term. I thought the case around SNCF and the data platform was really interesting. Could you maybe give us an idea around how you're charging for that kind of data collection analysis? Is it to enhance the value of the platform for those customers? Or can you actually drive a separate revenue stream? And then I'm reluctant to ask about competition in the space, but it's a different set than the normal ones. And maybe not about functionality, but just about sales presence and the ability to get the message across to customers that you can do this as well. Could you talk a little bit about what you're doing there to drive sales? -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [24] -------------------------------------------------------------------------------- I will start, and Pascal -- thank you, Adam. I will start and Pascal will supplement on that. First of all, we have -- I have in mind, I cannot name the customer, but I have a customer in mind in aerospace where basically now we are in a situation - they were using the platform for the design production of airplanes - they are now using the platform for all the operational data as related to by tail numbers. The availability of their airplanes in terms of predictive maintenance and availability, it's -- they are private jets. On the revenue balance between all revenue we are getting from them from basically the product development, the revenue -- platform-based revenue, 3DEXPERIENCE with data analytics and data science for predictive maintenance, are going to become, in less than the next 2 years, equivalent. Equal. So basically, it's a double footprint for us, doubling the footprint for us. This is not one of a kind. We have a similar situation for a sophisticated equipment. So. And why are those customers doing that? For a very simple reason: it's easy to do. Because they can connect the data they collect with the way the product was produced, manufactured or engineered and then improve that process. So I think the message out with top executives - and well, with these companies, we know the top executives - is relatively easy without a specialized team because we can showcase very quickly. The last remark is related to manufacturing. We have done a lot with DELMIA on manufacturing engineering. You engineer your manufacturing process. But now, thanks to the data collection with Apriso, the data collection with DELMIAWORKS, the possibilities of data collection with IoT basic software -- that I don't really care, I want to get the data not the collection, not the technical aspect of it, can take the real-world evidence of a production system and put them back and match them to the virtual model about what should be the real nominal performance of the plant and improve the plant. So another example where data science is playing a big role, and we are doing that with one of the world's best manufacturing company and probably the biggest one in terms of scale, so you can imagine which one it is right now. Real-world evidence in manufacturing to improve manufacturing process. So Adam, I think that the balance that you will see in the evolution of our solutions between data generation and then data science coming from modeling and simulation. On data science, I mean, the other way around, data collection and then creating new set of services is going to be very visible in the years to come. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [25] -------------------------------------------------------------------------------- Related to the pipeline, Adam, we have a 220% coverage, so more than 2x the revenue we should do. The target is usually -- I mean, if I look at the benchmark the other years, it's much more close to 250%, so we have some differences. And the way to explain the differences is relatively easy, we have less large deals compared to what we used to have. It's not new. I told already this in Q2, and now it's visible. And we also have for the -- one of our indirect channel, which is the one selling the process, we have less opportunity in the pipe. So this is the way we I'm explaining the difference of coverage. However, the quality of the pipe is relatively good. And I think not having too much large deals, to a certain extent, should be a little bit less risky. The question is the conversion rate. Which is what I look at carefully. And believe it or not, the conversion rate of the pipeline have been pretty stable over the last 2 years. So clearly, I do not expect to have a drop in the conversion rate of the pipe. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- And the next question comes from the line of Mohammed Moawalla. -------------------------------------------------------------------------------- Mohammed Essaji Moawalla, Goldman Sachs Group, Inc., Research Division - Equity Analyst [27] -------------------------------------------------------------------------------- I just had one question. Could you comment around some of the other product areas? I mean you called out strength in ENOVIA, but SOLIDWORKS was particularly strong. What's driving that dynamic? And then also any comments around the simulation business? And any comments around kind of how some of the renewals are going? And then one of the actually question I had was you talked about Johnson & Johnson renewals . I think Moderna was another one that you had last quarter. What is the sort of uplift you are getting in terms of these deals when you renew them? And what is the sort of the stuff that you're kind of up-selling into those Life Sciences customers? -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [28] -------------------------------------------------------------------------------- Pascal, you allow me to start with a few remarks. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [29] -------------------------------------------------------------------------------- Yes, please. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [30] -------------------------------------------------------------------------------- On the SOLIDWORKS, we will see a very positive recognition about the value, more of the platform 3DEXPERIENCE, coupled with SOLIDWORKS, in 2 ways, what we call Power'By. So you have the platform for collaboration, SOLOIDWORKS on desktop and then you do the collaboration on the cloud base. And please remember, to SOLIDWORKS customers, we sell only cloud-based platform, not the on-prem for SOLIDWORKS client, except if it's a big company already using it internally. So that's one event. The second thing is, well, we were surprised with the interesting dynamic with ENOVIAWORKS to manage projects for those SOLIDWORKS clients, and I think this is a very good sign for the future. The third remark is there is a very excellent focus from the SOLIDWORKS team to change the game in simulation by having platform-based simulation. As you may know, we have let our plate open for SOLIDWORKS installed base to use non-Dassault Systèmes simulation software, which are relatively not so well connected. So going with platform and integration is welcomed by clients. So the 3DEXPERIENCE, the SIMULIAWORKS, is also showing excellent reference that I think we should replicate. The challenge here Mo, as you always said, now is to make sure that our resellers knows how to speak the music and make it happen. But the delivery system is different because it's on the cloud. So we can be involved to help them online, which is a big step as compared to just selling on the -- a PC, on a desktop. So that's the dynamic going on now. And I think the team at SOLIDWORKS is very excited. And last point is 3D Creator, which is SOLIDWORKS' native user experience, is absolutely native web-based on the 3DEXPERIENCE platform. And it's a red product, it's a SOLIDWORKS experience for the SOLIDWORKS community. And there is more to come in this area with Shape and others. So that evolution to cloud is a quite interesting dynamic. It's not a big lever in the numbers, the 9%. But what is the lever is the fact that people now know that SOLIDWORKS desktop has a big future leveraging the platform, which was a question mark before. That's for the dynamic in this area. And of course, I think DELMIAWORKS was not too bad also at plus 6% for this quarter. So the DELMIAWORKS, which is the former IPMS, as you know. The other aspect of the question, Pascal? -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [31] -------------------------------------------------------------------------------- Yes. Related to the large deals we signed recently in the Life Sciences sector, yes, you are right. I mean they are a sizable deals. But the vast majority of them, they have a starting date next year. So take Moderna. In Moderna, we are doing some trials right now with them. However, the full deployment is expected to be early next year. Why so? Because they have a device piece in those trials, as I was explaining previously. And we need to find a way to ship the device to all the patients after they have been on [board], and this is taking time from a logistic standpoint. And that's the reason why you have some lag effects between the signature and the renewal and the system being in operation at scale. So the good news with this is, Mo, we could expect to see some acceleration of Medidata next year. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [32] -------------------------------------------------------------------------------- Last question that more probably was implied in your simulation in large account. Simulation in large account, at this point in time, is very connected to the platformization of what we do with large accounts because each time we do a big step in platformization, they want to use out-of-the-shelf solutions. So I think that we have a lot of competitors in this sector, very specialized competitors. They are doing a good job, no doubt about it. But we think that the multi-physic integration is going to be an important factor, and it's becoming an important factor. So I think this field is really open for more opportunities to do different as compared to the way customers are working today, which we think is what I call the platform effect for them. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- And the next question comes from the line of James Goodman. -------------------------------------------------------------------------------- James Arthur Goodman, Barclays Bank PLC, Research Division - Research Analyst [34] -------------------------------------------------------------------------------- Just coming back on the -- a little bit on Q4, but really more broadly, just on the way the licenses are behaving. I mean I was a little surprised at the lack of progressive recovery expectation, given the strength in Q3 or the relative strength as you called out. But you mentioned the shift to subscription in the pre-existing Life Sciences business. I mean that's a theme across the sector at the moment. But customer behavior is also shifting in that direction. So I wondered whether you're seeing that more broadly from your customers as well as internally, whether in Q4 maybe you are making some allowance for any potential shift of customer uptake towards subscription, and whether there's any implications there just in terms of how we think about forecasting the license line as we look forward. And then just a couple of quick sort of clarification questions, if that's possible. The first one, just around the services margin. I mean the cost base in services was extremely well controlled. I'm just wondering how you're managing to do that, whether you're having to make quick adjustments in that cost base. Or you're sort of redeploying that resource, how you're managing the cost there. And finally, just around churn. I think you said there's been no uptick in churn this quarter, but you're, in the release, I think talking about some potential increase in attrition. So just some insight into sort of exactly what you're seeing around the renewal rate. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [35] -------------------------------------------------------------------------------- Okay, yes. I would say we start -- last part is important. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [36] -------------------------------------------------------------------------------- You need to comment that, yes. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [37] -------------------------------------------------------------------------------- Yes. So related to the subscriptions, it's not new in terms of trends. You have seen for the last almost 4 quarters, you have seen a dynamic in the subscriptions, sometimes being higher than the dynamic we have in new licenses. And as Bernard clearly stated, the business model will follow the offer. So first, we need to -- you change your business model because you have built the competitive advantage. And you need to build the competitive advantage first. And the competitive advantage is the 3DEXPERIENCE platform. So clearly, the goal for us is to have penetrated the installed base broadly with the 3DEXPERIENCE platform. And progressively, we will adjust the business model to subscriptions. There is one domain, nevertheless, which is Life Science, because we are a newcomer in the Life Sciences. And Medidata, already the critical mass, and we have the proof that the subscription model is a way to go because it has been well accepted by many of the customers. That's the reason why we can take probably more radical decisions along this way. Related to the services, yes, you're right. I think we did a decent job on the margin side. The way we did it, we -- in fact, I have adjusted subcontracting. I preserved the large project we have in conjunction with Capgemini, Accenture, Deloitte, because usually, they are also linked to the strategic programs we want to preserve. But for others, I have reduced by 1/3 the subcontracting, and this is reflected into the margin obviously. Because automatically, the utilization rate is improving. And last but not least, the churn. Keep in mind the renewal. In H1, we renewed almost 65% of the Support contracts and maintenance. So -- and the remaining piece is almost split between Q3 and Q4. So when I look at the trends, it's consistent with what I say last time. We are seeing a little bit of churn increasing with SOLIDWORKS. It has been well factored into the guidance. Because some companies are going to bankruptcy, and this is where the churn is coming from. And for the rest, it's pretty stable, so around 5%, which is what usually we had. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- The next one comes from the line of Charles Brennan. -------------------------------------------------------------------------------- Charles Brennan, Crédit Suisse AG, Research Division - Research Analyst [39] -------------------------------------------------------------------------------- Pascal, I think you'll love this one and it's back on the 2021 momentum, if we can. I totally understand that there's a lack of visibility on the license side. But there should be greater predictability in the recurring revenues. Are you in a position to help us with a framework to think about what recurring looks like for next year? We're obviously trending at 4% growth at the moment. I guess Medidata put some upward bias on that for next year, but the low level of licenses this year presumably put some downward pressure on it. So are you in a position to give us a framework for recurring? And then lower down the P&L, is it arithmetically inevitable if we see license growth that we'll see margin growth? Or is it possible that you have to put costs back into the business such that margins could be flat to down even if licenses grow next year? -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [40] -------------------------------------------------------------------------------- I am in agreement with your first statement, Charlie, I love your question. So no, I mean, it's a little bit early to give the framework. Nevertheless, when we are telling you that we want to preserve some of the software growth, especially with some of the large customers we have, and you know that some of them are basically in subscriptions with us. So clearly, you have a good sense about what I'm talking about. So namely, in Aerospace, we have large customers with commitments. And what I'm telling you is the commitment for next year will stay the way it is. It was part of the negotiation we had with them. So I do expect to have incremental revenue coming from those guys. And Medidata, yes, I think I will be not pleased, let's say this way. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [41] -------------------------------------------------------------------------------- Disappointed. -------------------------------------------------------------------------------- Pascal Daloz, Dassault Systèmes SE - COO & CFO [42] -------------------------------------------------------------------------------- Disappointed if we are at least not gaining 1 point growth -- organic growth with Medidata next year. Related to the margin, it's yes and no. Because we contain significantly the margin in order to absorb the volatility by preserving some of the investment, which are really the one being strategic. But at some point of time, we need to -- we still have gap in terms of coverage in some countries. We still have some positions to reinforce on the field. So clearly, I do expect to be back on the hiring process the way it has been in the past year. So -- and to a certain extent, let's say this way, if the growth is back, it will be a mistake not to invest. Because it's a way to fulfill the growth, it's a way to also build the relationship with more customers and that's the way we do it here. So I will not expect next year to have significant lever on the margin. Even if we had to do it, we still have the ability to do it, but that's not the plan. It was a long answer, but maybe between the lines, you can read it. -------------------------------------------------------------------------------- Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [43] -------------------------------------------------------------------------------- With that, thank you very much to all of you for participating. Really, we appreciate your questions on the relationship that we have built on transparency and integrity. And we will have a call this afternoon. And hopefully, we will also have a dialogue on November 17. Thank you very much. Have a good day, all of you. Bye now. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Thank you.