Good morning. Thank you for standing by, and welcome to the Dassault Systemes 2021 Q1 Earnings Presentation Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today, Francois Bordonado. Please go ahead.
Thank you, Seamus. I'm Francois Bourdonado, the Association Investor Relations. From the company, we have Bernard Charles, our Vice Chairman, Chief Executive Officer and Pascal Daloz, Chief Operations Officer and Chief Financial Officer. We hope you and your families are doing well, And I would like to welcome you to Dassault Systemes First Quarter 2021 Webcast Presentation. At the end of the presentation, we will take Questions from participants.
Later today, we will also hold a conference call. Dassault Systemes 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 And the first question is from the line of the financial results. Please note that the financial results are not included in the IFRS and non IFRS, Please see the reconciliation table 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
I will now hand over to Bernard Charles. Thank you very much, Hello to everyone. I think Pascal and I have quite interesting facts to share with you, that Fact that will echo very well what we announced and shared with you on February 6, 2020, Which I call the new horizon for Dassault Systemes. But first, when it comes to Q1, the Q1 of 2021, Software revenue was up 10%, excluding exchange rate, with 90 1% of this revenue being software of the total revenue being software. The license revenue is up 20 5%.
Our net EPS is also quite strong, up 20%, to be noticed, 28% if you exclude the exchange rate. The second remark, I think, is really the fact that we continue to play The role of being a serious catalyst for the transformation of life science at large, But also customer and consumer experiences as well as Reimagine the retail with Centric PLM and more, basically, with Cote and other announcement that we do today. Of course, our present debt equity to be focused on citizen customer and passion is not We don't take it lightly. Ammonite's product nature and life need to be translated in the way we deliver solutions. So we focus on Three sectors of the economy, manufacturing industry, life science and health care and infrastructure and cities.
And I think we have two points That we are progressing in those areas. And we really took serious commitment To continue to reduce our footprint and communicate our onprint, Which is basically the effect of the use of our software, and I will refer to by the industries, and I will refer to the excellent study done with Accenture and Dassault Systemes About the lever of virtual twin experience, virtual twin. And we are finally upgrading our Yes, guidance for 2021. Pascal will give you more detail interesting detail about that. So back to The raison d'etre on the focus of what we do and the way we engineer our solutions for the market, I think we are focusing on people at work, how they can become champion, learn and do better.
Of course, the co occupation with health and new therapeutics, and new even medical practices And of course, the conditions of our living environment with more sustainable environment. This is what you have illustrated here. This is the new profile of Dassault Systemes on how we conduct the arbitration of what we do. So basically, if I summarize it, It's human centric innovation, working with our customers and partners. And we see very practical Consequences of that, whether it's about food and health and wellness, New treatment or prevent treatment.
It's about also inclusiveness, It's about many, many aspects, whether I am a passion with the Passion Journey Or whether I'm using products that are not very useful, and I want to have a better experience with those products. So Why reformulating as we did a year ago with PASCAL With very precise publication, reformulating our role in the world of manufactured goods, In the world of life science and health care as well as infrastructure, I think it's a good way to understand our ambition on Horizon for the future of Dassault System. And we want to translate it to facts quarter after quarters to illustrate how it can generate a sustainable Double digit, hopefully, growth. Our reach today, if I do a quick zoom in on Life Science, We believe we are number 1 in market share in life science. We have over 8,000 plus active customers, the top 20 biopharma and medtech, All top 10 CROs, we have active partnership with FDA and IMI.
And we have, Of course, a strong position, both in drug development and medical devices. So it's really science based. It's more than tracking citizen. No, it's a science based platform. We have over 50 Percent of the world clinical trial are now supported by Dassault Systemes Medidata platform with above 20 2,000 clinical trials with billions of data points.
So we do big data. We don't comment it too often, but we do big data. We do big data in manufacturing, too. Wide access to passion On to physicians, here you see €6,500,000 for Passion and 45,000 physicians, A lot of access to hospital facilities, 22,000 on direct hospital connection, as you can see here, including the Treditable asset of imagery for 450,000,000 images to really continue to develop AI based predictive Understanding of what is happening. So numbers, but it's to tell you it's not a light position.
And we want to continue to develop it in a very sustainable and fair way for all the players. We are very pleased, and I'm proud to see BioNTech, a European company with all the scientists, scientists and research and the passion for science. We feel close to them. So we are very pleased to expand our partnership with them with OneLab, BioBIA through the experience, OneLab. And what they do with it is really a bioanalysis and clinical preclinical anticipation, Of course, increase the find the solutions, increase the speed, improve the collaboration, Standardize across labs and, of course, increase the quality of compliance and efficiency On MASTER, the full end to end from R and D clinical on production manufacturing integration.
So it's a beautiful Story as the one we have with Moderna, but we want to continue those kind of stories. We think that this is the system. Karyopharma, another example, using clinical metadata platform on the cloud. And really, They have moved from doing one study in 2014 to now 15 plus study in 2021 With consistent solution on infrastructure for it. So the revenue is important.
The performance of the company is important. But What it means for the impact on the society with those kind of partnership is also There are good reasons why people are joining us in the world to be part of the ecosystem story. Now on more traditional sectors, We are pleased to continue to expand with GLR, not the biggest producer in the world, but really, they are quite innovative, They have to be innovative. I think that Thierry's plan reimagine, refocus And create well positioned, high value solution is really something that Will happen with the 3DEXPERIENCE platform. What is noticeable here, you are quite familiar with what we do in manufacturing, But it's more than half of the user to experience platform is based on data analytics and data science.
This is not stable. It's not only modeling and simulation. It's data analytics and data science, cost, weight, energy performance, and we're going to do more together. And of course, this is To support our commitment to electrification and also clean hydrogen Fuel cell power development, where there is a lot of safety issues and infrastructure issues to be resolved. Last but not least, in a totally different sector where the consumer is the decision maker, Gauthier, they are doing home releases for home retailers, and they are really using now the adoption of 3 d In concept to really create new shopping experience, new consumer experiences, it's quite interesting to see, and I believe that It's the right timing because the new devices that we all are going to have in our hands are going to be fully 3 d enabled, And this will change retail, both for Centric PLM, for Home by Me and for many other activities Related to apparel retail at large food and beverage, where you want to see something as close as possible to the reality.
Finally, and I know many of you have been observing and maybe with a little smile about My conviction 2 years ago in 1999 when I said we will change the game in construction, The Bouygues announcement is not a minor one. I believe that is as profound as moving The construction site consuming only drawings to a construction site consuming virtual reality for all People, the virtual twin, for all people who are involved in the construction side. So we are not starting from the engineering of the building, But from actually the construction of infrastructures on the target number of users is not marginal. We Plan to have, in less than 3 years, over 15,000 users using the 3DEXPERIENCE platform, cloud, mobile Only. With 0 development of cloud but parameterization on smart, What we call intelligent experience.
So the current solutions don't offer that at this point of time. The current competitor don't have web based, cloud centric that can work on a Phone, you do airplane on a big TV, so it's cost efficient. A phone can do airplane on a big TV, And you can see the virtual twig of the construction. So Philippe Honard, the CEO of Bouygues Construction is really, really supporting this. I believe that this is the 3DEXPERIENCE platform in action.
Now there is a certain underestimation of what Why the what is the 3d x100 platform? To make it simple, it connects people, ideas, Data and help the world, the virtual world to be as close as possible to the real world. At the middle of it is the experience, show me how it works. So we basically are concentrating on modeling and simulation On data science, science for modeling, science for simulation and science for data. That's the unique aspect of our platform.
And I think the GLR extensive use of data science in everything they do is a good illustration of that. A slight remark on the event in the Q1. We did a very large virtual event for 3DEXPERIENCEWORKS, For the SOLIDWORKS lovers, was very successful 20,000 attendees. And you see The expansion of this, we will continue to invent new virtual events that are quite exciting. Perspective, the lesson learned from pandemics, I think it's quite interesting from that standpoint.
And finally, on the important topic, Satish, for us, We continue to be increase the clarity of our engagement on the footprint and on print. On the footprint, we signed the UN Global Compact as a Partner, world largest corporate sustainability
initiative on
the science based measure of how you reduce footprint. On the UNCRYNT, I have mentioned the study that we have been doing with Accenture, which is a very, very interesting study. And We are really very serious about leveraging the power of virtual Twin experience for all industries. And we are also a founding member of the EU Green Digital Coalition. And we are very proud to be part of this group, and we will be an active player to share ideas.
And there are more than 5,000 stakeholders engaged already. So this is to translate also intent That usually you see in annual reports to reality the way we execute. And A few showcases more. The expansion of our simulation environment for EV On hybrid with BMW, I think it's a great showcase, and I think it's going to provide Extraordinary references to many other players in the industry. As you know, we already mentioned that the giant Toyota is adopting PowerBuy platform.
This was announced last year, and they continue to expand. So in short, before I give the floor to Pascal, I believe we are walking the talk. Harmonizing product, Nature and Life, is an industry renaissance for both manufacturing, life science and health care as well as infrastructure. And we hope to continue to report every quarter stories that proves it. Back to you, Bastien.
Thank you, Bernard. Thank you all of us joining us today. I hope everything is going well on your side. So let's start with the performance the financial performance with you. Total revenue increased 8% at the high end of our 6% to 8% range at €1,774,000,000,000 So to revenue growth of 10% came in above our range of 7% to 9%.
From a profitability standpoint, lower than planned expenses, combined with the high end of the guidance for revenue, led to a significant outperformance at the operating margin and EPS level. Now let's zoom on the component of the revenue. License and other software increased 25% versus our guide of 0% to 5%. About 5 points of this growth came from a CapEx preference from our customers. And the other contributions to the upside came from Strong results in China, SOLIDWORKS and also large 3dEXPERIENCE platform transactions, especially in transportation and mobility.
Subscription and support revenue increased 7% versus our guide of 8% to 10%. And during the quarter, about one point of the estimated recurring revenue growth outlook moved to a CapEx purchase. However, the subscription revenue increased double digits, and the churn is really consistent with what we have seen last year. There is no concern at all on this front. With respect to services, we were able to improve our gross margin to 12.1% from 2.9% last year, thanks to the work completed last year despite the revenue decrease 9% compared to our range of minus 2% to plus 2%, and it's mainly due to the extended lockdowns we have seen.
Now let's zoom and let's move to the regional software revenue. In Asia, Software revenue increased 10% in Q1. China was by far the best performing geo, up sharply, Reflecting the strong growth across all the engagement models. It had the highest growth both on software licenses as well for the recurring software revenue. Korea, we saw the beginning of the recovery.
And both in Korea and China, we also had key wins for 3DEXPERIENCE platform. In Japan, we saw a strong performance in our indirect engagements And the vast majority of our 3d experience engagements, such as Toyota, are proceeding as planned. Just a side note, Bernard was mentioning Toyota. At Toyota, we have equipped almost 20,000 people And 18 car programs are ready on 3 d external platform right now. In India, despite the difficult environment and we have a lot of respect for what is going on right now for our partners, for our customers and also for our colleagues.
So but nevertheless, The situation is slightly improving. We saw some year over year improvement. In Europe, We are still seeing a mix environment with software revenue up 6% in total. And Europe is almost split in 2 different parts Where it's we have the deconfinance, we are seeing the growth. And where we still have confinement, the growth is a little bit more modest.
So to be precise, the North and the South of Europe were the best performing geo and improved activity in transportation and mobility, both with large mobility players as well as the automotive suppliers. And we still have a modest growth In France and Germany, despite the recovery, we were speaking about in transportation and mobility. In the Americas, software review increased 14% with a strong growth in Life Sciences, thanks to Medidata, But also in Transportation and Mobility, and this is an interesting case because it's a mix between the incumbents And also the newcomers, the new players, the EV guys. So clearly, we start to see a balanced growth between those 2 subsegments in the auto sectors. Now let's move to the split of the revenue by product line.
Few things I want to say before to give some details. First of all, we continue to increase the reach and the balance. During the Q1, the mainstream innovation represent 23% of the software revenue. Life Sciences was 20%. And within Industrial Innovations, CATIA accounts for about 1 quarter of our total software with complementary brands adding To 32%.
So clearly, if you look at if you step back a little bit and you look at what we did in the past, we have The revenue is relatively well balanced across the different product lines right now. So let's zoom on Industrial Innovations. Industrial division, we saw a strong momentum in these brands, notably Simulia, Innovia, DELMIA and NetVipes in Data Intelligence. Bernard, see a few words about it. While CATIA 3DEXPERIENCE software increased 12% overall, the activity led to a decrease to 1% for In total, software revenue increased 4% in Industrial Innovations.
Our Life Sciences software revenue increased 16%. We are seeing a strong momentum led by Mini Data where Software revenue increased 20% in Q1, driven by the 3 big product lines. So RAVE in clinical data management, Patient Cloud for all the solutions to connect patient from home and Acorn AI, the solution related to the artificial intelligence and data analytics. Medidata has also a solid operating margin performance and a strong cash flow from operation this quarter. Mainstream Innovations.
So software revenue increased 20% in Q1 and a strong growth for SOLIDWORKS and Sentri PLM. So SOLIDWORKS software revenue grew 18% in Q1 on both licenses software and recurring revenue strength. And the software was up double digit in all the three regions of the world. To be noticed also, our partners are also seeing good traction in 3DEXPERIENCEWORKS portfolio with the role leveraging our Trends in collaboration and simulations, especially. Now let's move to The key trend in the industry.
While we have covered a number of already industry indirectly, Let me share some Q1 performance highlights to give you a sense of activity by industry as we start the year. So beginning with Manufacturing Industry, we had a double digit growth software revenue in Transportation and Mobility, Marine and Offshore and Home and Lifestyle. Looking at transportation and mobility, this growth came from the strength across Number of domains, including simulations, data analytics with NetViper's. We are also starting to Your recovery with automotive suppliers and some acceleration of investment by OEMs as they advance their new mobility initiatives. Speaking about Centric PLM, we drove the double digit growth also in Home and Life Science.
In the Life Science and Healthcare sectors, Life Science software revenue grew 16%, benefiting from growth in Life Science product line as well as from an increased customer activity for SOLIDWORKS in the medical devices company as well as SIMULIA. We are also seeing an increased customer sales engagements in manufacturing with life sciences company. We spoke about it, but we see more and more of these Trends materializing in the revenue. In the infrastructure and city sectors, construction increased double digit, led by our activity, especially in China this past quarter. Now I want to come back to our growth strategy And to because you remember, at the Capital Market Day in Q4 last year, we discussed the growth axis.
And regarding the 3DEXPERIENCE platform adoptions, there are 2 axes. The first one, we call it value up, She's increasing the value we bring to the large installed base we have through a broader adoption of all the domain expertise we have 2, value wide, is nothing more than to extend 3dEXPERIENCE to new customers, including the mainstream market adoptions. So ValueUp and ValueY will bring 3DEXPERIENCE to represent about twothree of our software revenue by 2025. Now for the quarter, as you can see, 3dEXPERIENCE software revenue increased 18% With license and other software revenue up sharply, 57%, which is almost twice the growth of the license And also software revenue in general. The largest license deal in Q1 were more evenly weighted Toward Asia and especially China.
The second topic I want to Just back is the cloud adoptions. I know it's one of your favorite topic. We see this as an opportunity to bring To us, new category of users and new usages. So looking at the cloud contribution, it represents about 18 point 5% of our total software revenue in Q1, which is 2 point increase compared to 1 year ago. Based upon our end market sectors, we set the goal last year to reach €2,000,000,000 in cloud software revenue by 2025, which would represent an estimated onethree of our total software revenue compared to 17% in 2020.
Just a quick reminder, our cloud strategy is set to meet our clients Wherever they are in the context of their industries. And that's very important to take this into considerations Because we started the digitalization in the industry 20, 25 years ago. So clearly, we have this legacy to take care, And the starting point is not the same for all the customers we serve. That's the reason why our strategy is not one fit all, but we have different Paths for the cloud. First one is the native on the cloud.
And usually, this is a path used by the newcomers Of the new industry we are entering in, the extended with both on premise and on the cloud solutions, Which is usually a way to connect with, for example, the simulations capacity when you need a lot of computing power and maybe you do not have it On your premise, and you can leverage the cloud capability to make this happening. And also the connected with on premise software solutions Connected to the 3d xMAP platform on the cloud for collaboration purpose, which is our Power BI strategy. In terms of capabilities, with the release of 21x, 95% of our portfolio on premise capabilities are available as cloud solutions. And with the new release coming this year, we will have more application roles being available on the cloud that we have on premise. Now to illustrate this growth strategy, let me zoom on some customer case Just to illustrate that we won't talk.
The first one is I wanted to share one of our SOLIDWORKS customers, Thin Plastics, they have adopted the DELMIA works. In this example, Thin Plastics is a company developing plastic tubing for many medical applications, And they are able to quickly scale and manage multiple production sites at the same time, especially important As part of the COVID-nineteen swab testing products. So that's a good example how we can expand the scope of what we do, leveraging the largest salaries we have. And again, this trend coming from the works family is very visible on Mini France. In terms of value wide, let's say a few words about Centri PLM.
Sentry P and M Software and Services revenue were up sharply in Q1. Sustaining recovery began in Q4 last year with record But also a strong new customer acquisition, which has been multiplied almost by 3. It shows also improvement in key geographic markets, including Asia, especially a strong expansion in China is happening right now. And finally, in addition to its leading market position in home and lifestyles with a global brand in fashion, We are more and more diversifying Centric PMM in retail and food and beverage. That's something very key.
We will complete the acquisitions at the end of Q2. Another example to the cloud It's BIOVIA. As you may know, BIOVIA, we are shifting progressively to subscriptions and also to the cloud. That's the model we want to have for the life sciences at large. One example is Abzena.
It's an interesting company because it's a contract development and manufacturing organizations involved in manufacturing biological drugs, including COVID-nineteen related one. They had adopted the 3dEXPERIENCE platform with our license to Cure for biopharma And our 1 lap solutions, the 2 on the cloud. So that's, again, some illustrations To highlight the fact that we walked the talk and the growth strategy we have developed and presented to you at the Capital Market Day, we are monitoring them with precise KPIs. Now let's move on to profitability. A few words about our operating margin, It came at 33.9 percent versus the midpoint of our guidance, 30.7%, Which is 3 points more, not 4 points more.
The results the revenue result contributed to 70 basis points Of this upside. And the rest is coming from lower than expected operating expenses around 250 basis points. And just to give you some analysis behind this, half is coming from the travel and the marketing spending restrictions Because we still have many countries where the confinement is still going on. And the other half is coming from higher attritions Compare and combined with the lower hires than expected. So that's probably something I want to Draw your attention, Anne, the attrition used to be around 5% last year.
And for this quarter, we see the attrition moving from 5% to close to 9%, Especially in the United States. So clearly, we will not obviously continue along the same path. We will accelerate the hiring in order to offset this attrition level. Relative to the EPS, As I told you, lower than Air and Advanced Land expenses combined with the high end of the guidance for the revenue led to a significant outperformance of the EPS At €1.14 growth of 20% versus our guidance of between 3% to 8%. Few words about the cash flow.
We had a very strong Q1, up 40% to €642,000,000 Net incomes and noncash items grew 18% with the working capital devolutions, in particular, Non operating working capital up sharply, which led to our net financial debt positions at the end of March To €1,500,000,000 which is very consistent with the deleveraging plan we have set up. And we will be almost fully de leveraged at the end of the year. Now let's Turn to our 2021 financial objectives. The updates following Q1 are straightforward, you can see on the slides, Taking in the OpEx upside and maintaining our revenue comp at constant currency. So first, we are reconfirming our revenue objective range of 9% to 10% in constant currency.
Inside this, Nevertheless, we shipped up by 1 point of growth our previous software branch, bringing it to 10% to 11% growth. And for services, we sit down bringing the servicing growth to 4% to 6% growth, removing about a little bit more than 20 €1,000,000,000,000 coming from Q1 and €10,000,000 additional coming from Q2. We expect H2 performance to be in line with our previous guidance for the services. The top line growth for this year is essentially an organic one All the growth levers aligned with our midterms plan we shared with you at the time of the Capital Market Day last year. We also increased our operating margin to 90 basis points to 31.7% at the midpoint of the guidance starting from 30.8%.
We see a higher contribution mix, obviously, from the software revenue as Q1 lockdowns show on-site services work On the other hand, as well as the expense timings ramp up around travel and highs on the other side. And finally, we have increased our non IFRS diluted EPS objectives to €4.24 to €4.28 Thanks. Leading to expected growth of about 12% to 14% or about 15% to 18% in constant currency, capturing the earning upside from Q1. At the midpoint of the range, this represents an upgrade of 0.14 Thanks. Comprised of contribution from the revenue and $0.12 from lower OpEx Q1 and Q2 adjustment I just described.
And finally, with respect to Q2, we are targeting a revenue of 1,000,000 €130,000,000 to €1,155,000,000 growing at extreme currency effects between 12% to 14%, With software growth expected between 12% 15%, driven by a very strong license growth Between 29% 38%, recurring software revenue growth between 9% to 10% and the services growth Between 3% to 8%. This lead to an operating margin of between 29.4% to 30.1% And an EPS between €0.94 to €0.98 To summarize, I think we had a solid start to 2021 in financial terms. And looking at the growth in our largest industry, the strength In 2 or 3 year product line, definitely improving the dynamics of some of the large deals, and we have seen this. We look forward to speaking with many of you in the coming days weeks for virtual roadshow and conference. And I think Bernard and I would like to take and answer your questions.
Thank
you.
And your first question comes from the line of Stacy Pollard calling from JPMorgan. Please go ahead. Your line is open.
Thanks very much for taking my questions. 2 or 3, if I may. First of all, cloud, you're right, we love this topic, 18.5% penetration now. And of course, metadata is a chunk of that. Can you say also where your strongest demand is otherwise?
So for example, by industry, by client size, by software product type? So sort of interested in that. 2nd question, data analytics and simulation seem to be particularly strong. Maybe just talk about who your competition is there and what your unique angle is? And I think you mentioned embedded science functionality.
So We'd love to sort of dig in on that. And then sorry, third question, just you're a challenger in construction, you say. Buig, of course, is a great reference customer. Maybe where else are you making inroads? And is there an opportunity in China and Asia?
So sorry, that's quite a few, sorry.
Thank you. Thank you, Stacy. We'll share the answers with Pascal, if I missed that. Pascal on the cloud. On the cloud, yes, you're right.
I think the dynamic is stronger with both Centric PLM. Don't forget that. Centric PLM on Medidata platform. We also had a very successful Dynamic with 3dexperience works, especially When we provide now similar work, similar on the cloud for SOLIDWORKS desktop clients. And we have, Jean Paulo, CEO of SOLIDWORKS, who is now putting his arms around 3dEXPERIENCEWORKS at large, It's really creating a strong dynamic.
To be very precise, in the past, there were a lot of competitors Connecting to the SOLIDWORKS base, which is a huge base, and clearly, the fact that now we don't want to leave that Please for someone else. And I think the cloud is really In a strong dynamic for that. So basically, simulation, project management, project management for the, what we call, mainstream 3 markets are the levers that we see playing a great role going forward For cloud. Construction, we are doing everything to make it cloud only Because we want to be on the construction site. There is no good solution on cloud For construction site, believe it or not, distributing a drawing on a PC is not like providing The entire sequence for construction on the cloud through a browser, that's what I just said for fun.
But When you do from a phone AirPlay on a big TV, it's very different than having to get a PC on the construction side. The guys in the construction, they love it. So we think that the 15,000 ambition in In really short term for users for Bouygues, quantify this quite well. To touch your question about the construction, of course, China is important, very important. I think we have to accelerate cloud.
We had amazing showcase on premise, but I don't think the on premise is the best solution For construction, it should be cloud basically cloud only. So we are going to redirect our focus, which means To have cloud operator in China that are based in China, we have a good position there And more to come there, I cannot mention too much at this point in time. But I think if we can have Chinese based Cloud with the proper trust, I think it will accelerate from that standpoint. On the data analytics, On the data analytics, we were doing a lot, but unfortunately, we were not articulating well our offer. So there was a lot, as you've implied, functionalities, but not Suitable with the different type of users.
So now we are making this clear for supply chain managers, For barriers, for cost analytics, for weight analytics, And we are systematically creating what we call analytics roles, which fits with the way people work in their industries. And I don't remember. I think I mentioned that. For in the case of GLR, for example, more than half of the 3 d experience Roles are exploiting analytics. So We believe that because the data are there, because they are connected, because it's easy, because it's web based mobile, Even when you are on premise, it's web based on mobile.
We believe we can leverage that. So that's in short what I wanted to say. Pascal, please Don't hesitate to add more.
Maybe one comment I could add on the cloud because you touched the product line and the industry. But if I look at The manufacturing industry, we are seeing traction of the cloud solutions in auto and aerospace. And the traction is coming from the newcomers because the vast majority of them, they are starting straightforward with the cloud solutions. And it's not insignificant. It's really it's start to become materials for us.
Okay. That's great color. Thank you very
much. You're welcome.
Thank you. Your next question comes from the line of Mohammed Mowala calling from Goldman Sachs. Please go ahead. Your line is open.
Great. Thank you very much. Good morning, Bernard and Pascal.
Good morning,
Just from my end. One, Pascal, maybe you can help us understand this dynamic that you saw around the recurring revenue shifting more towards License or CapEx purchasing. Just help us understand given the shift in the broader industry towards More recurring purchasing. Why is this the case? Are there any sort of circumstances driving this?
And could this just be a temporary or short term momentum phenomenon? And then secondly, Bernard, a bigger picture question. As we come out of the pandemic and as you look at the signs of the sort of cyclical Or discretionary demand starting to return. How does this sort of alter the adoption, the conversation you have with customers around The platform and to what extent could this be an accelerator? So as we think beyond just 2021, where do you see sort of a lot of the big And in terms of the actual selling process, to what extent does it become sort of easier for you?
Thank you, Mau. Pascal? Okay.
I will start with the first one. So, Mau, you have seen The adjustment I made. So you are right. I mean, we see the CapEx Back. It was something where if you look at what's happened in 2020, we didn't have too much last Transaction has been CapEx based.
We had some investment, but it was much more focusing on the subscription model. It's mainly coming from the auto sector. And as you know, traditionally, this sector is a CapEx based industry, more than an OpEx based. And that's the reason why you have this, you will say, incremental revenue we put in the guidance under license, Which is almost 5 points. And on the other side, we have adjusted our recurring revenue By a little bit less than a point, which is the equivalent on the recurrent side.
It's again, as I always tell you, we need to have the both model because we have to respect The business model of our customers. If you take the auto industry right now, the profitability is at stake for many of them Because they are not they do not have the volume. They have to redesign a lot of, a lot of of their car. I mean, in many countries, they are still in confinement. So But at the same time, it's an industry where you still have to do a lot of investment in order to develop the next generation of products.
And the CapEx is really the way to go, and that's the reason why we still want to give this at these Options to our customers because I think on the long run, we are their partners. And we are here to help them, not to constrain them. That's what I can say for this topic. Related to the
platform phenomenon, you're right. There is It's really there are multiple driving lever here. Acting at different Pete, on journey is not the same for all the cases. As Pascal said, there are 3 Domains, where we see now systematic adoption of the platform, native, new commerce in industries. It's not only innovators.
It's about really new commerce with sizable companies. That's a driver. 2nd driver is, of course, all the sector related to GCPG, what we do with consumer goods with Centric, the clinical trial With Media Data. Also, the mainstream. And basically, the driver is not SOLIDWORKS itself.
It's Everything around SOLIDWORKS, project management, simulation, manufacturing. We plan To have native, former IQMS, meaning the ERP that Pascal mentioned, what we call DELMIA works, To be native on cloud platform for the 2022 business, which is a big Tipping point because it's easy to deploy. Then when it comes to the large clients In manufacturing, for construction, it's clear. We basically want to focus only on cloud mobility Because there is no solution today to tell you the truth, it's quite interesting. And for AB Manufacturing, Of course, many of those have a gigantic legacy.
The PowerBuying, the Toyota showcase, we think can be applicable to Which is to adopt the platform to connect all the elements together and then to use native platform based application In the process, this is a powerful for large customer, a powerful way for 1. So as you can look at it, in every businesses we do with the 3 That Pascal expressed, native cloud complementary, we could call it on the edge On PowerBuy, we think each time we want to engage systematically with the platform For all businesses we use. And the acceptance is a good acceptance. I think the limiting factor because I understand your question more about Acceleration. The limiting factor is the transformational speed for those clients more than anything else.
I think the solution is robust, But sure, they like it. So we probably need to continue to improve that aspect of conducting those changes We
did. Thank you. So your next question comes from the line of Neil Steer calling from Redburn. Please go ahead. Your line is open.
Good morning. Thank you very much indeed, and thanks for and congratulations on the results. So just two questions, if I may. Firstly, you've mentioned The aspiration to have onethree of the software revenues cloud by 2025. Can you give us a sense as to what proportion of those cloud revenues you Expect to be in the different buckets of cloud native, extended and connected.
And my understanding is that with the growth that you've got with the sort of The core cloud native services at the moment within Accentriq and Medidata, you'll probably get very close to that third of software revenues being in the cloud in any case. And the second question is on the attrition. You mentioned attrition up. Do you know why the attrition went up? And can you say where specifically and what functions you
Briefly, on cloud,
Wherever
it's possible, we push cloud first Systematically. So on but I feel I think that The type of customers we have, some of them are not ready for that. So doing what we call private cloud, And I hope this will be recognized private cloud will be recognized as cloud. Probably It is not really fully factored yet. Probably can be another positive factor.
The private cloud approach is really an interesting approach for clients Because we don't want to delegate the administration, so we really operate for them. But we guarantee I mean, we have a new level of cybersecurity that many of them need It's having a very precise isolation of the environment. So that's probably a factor I did not mention before that I have to come on top, but it's too early. It's really too early. You are right.
Mechanically, based on where we are and what we do now. I think Pascal Delo is committed for a relatively new objective. So I probably will have to push him a little bit more.
No, but you're right. I mean, when I did not the plan, to answer to your questions, really, what really That's more what we call native and edge. I did not factor the ability To probably accelerate the transition from on trend to private cloud. That's something we still have to develop to prove. We have the offer.
We have some good references. But now we need to scale having the proof point and the economics also with this. Related to the attrition, Clearly, the attrition is increasing specifically in North America. This is where we see Attrition is being back in typically in sales function, but also And some G and A function as well. As far as the research and development is concerned, It's relatively contained.
And you will see in the appendix of the presentation, we are still increasing significantly the number of people in research and development. So clearly, we are keeping the trend we had last year, and we are focusing, to a certain extent, much more on this
right now.
But we need to take care of the attrition anyway.
Okay. Thank you very much. Thank you.
Thank you. And your next question comes from the line of Nicholas David calling from Odorbe HF. Please go ahead. Your line is open.
Yes. Hi, Bernard. Yes. And hi, Pascal. Thank you for taking my question.
I have 2 actually. The first one is Regarding SOLIDWORKS, obviously, you posted a very strong performance in Q1. First is a clarification regarding that. Just am not sure I understood well, but you mentioned 18% growth both in license and recurring or it was just so could you clarify the level of license Please. And do you think that you have reached there with solid works and maybe also 3 gs experience that works like an inflection point regarding the adoption of The solution with VARs and Clariant being now understanding better the value of the offering?
Or do you see something else there like Exceptional revenue on the region, which is not related to that. So any clarification would be great. And my second question, I'm sorry because you announced a lot of great deals during the quarter, but I wanted to talk about a deal signed by one of your competitor, AVEVA, which Signed a deal with Parexel, a partnership with Parexel. So could you please comment this deal? And also mention if you were competing against EVARF To partner with Parexel also, any color regarding this data would be interesting.
And do you think that it would improve the ability of EVA to accelerate market
Pascal, sorry, sorry. So no, obviously, the 18% is not the same number For the license and recurring part, I think it was a combination of the 2, and I will not give you the splits. Nevertheless, I can give you some insight, which is the following. In volume, number of units, the growth is double digit. And in value, you could probably add Another double digit.
Okay. That's
an interesting point because Again, as Bernard clearly stated, we are at a point whereby SOLIDWORKS And the Works family, it's a way to establish the footprint, but it's a way also to do the value up because with the platform, we have an integrated environment For many of the company, we need to have one set of solution, if you want, do everything they have to do. And compatibility between all the different pieces, the fact that we have the same experiences, it has been designed with the same architecture, everything is running on the cloud, It's you have all the benefits of usually what a large company could afford. Now it's Affordable for almost all the enterprises. This is known, recognized, And we see, as you say, some tractions. And the best, I would say, proof point I have is the feedbacks From our resellers because they are the first one to be convinced in our model.
And they did great with the works Especially on the simulation side. And I just want to remember that it's something we say several times. The simulations the large installed base we have with SOLIDWORKS, we have a lot of competitors We addressed this installed base with simulations products, and it's time to stop it. We did all the investment from a research and development standpoint. We have trained our VAR and now they are working the talk.
So that's also a reason why you see the value increasing in conjunction with the number of units.
On the Paraxel, I'm not very familiar with it. We might want to Pascal, I don't know if
you are familiar. Paraxel is the CRO. Okay. So again, keep in mind, the CROs, they are doing 2 things. They have their own systems to run the productivity of their clinical research.
And they are also sometimes adopting the systems Prescribed by the pharma, the big pharma company. So it's not completely Understandable to have VIVA being also used by Barraxel time to time.
But do you think that Parexel will stop selling its internal solution and rely only on AVEVA? Or Is it just a way to put these 2 solutions?
Again, part of their business is relying on the demands from the big pharma. And as you will have seen, we still have having good tractions with the with Medidata, and we are continuing to gain market share in the trial. So No, I do not see this as at the beginning of the end.
Thanks.
Thank you. And your next question comes from the line of Michael Briest calling from UBS. Please go ahead. Your line is open.
Thank you. Good morning. 2 from me as well. Bascome, just looking at the software gross margin, it dropped about 200 basis points Despite that strong license performance and the costs were up about €25,000,000 year on year, can you talk a bit about the cause and what we should expect for the full year. I'm just wondering with the sort of 3 d experience works for the SOLIDWORKS space, is that Maybe sold more on commission than on a revenue share basis.
So you're booking more of the sales, but having to book more costs as well. If you could expand on that. And then just on disclosure, I mean, why are you no longer disclosing the Cutera, Innovia and SOLIDWORKS Revenue numbers, I'm assuming they're still pretty important product lines internally. And I mean, on Innovia, it was minus 11% in Q1 last year. Can you give a flavor for
Hi, Michael. So I will start with the last remark. Again, The point behind there is we do not want to hide something. We are the size whereby if we want to have some financial aggregates, Which makes sense. We need to find a way to split the different revenue by product line, by geo, By industry to make it understandable.
So that's the reason why we simplify by adding the product line, Industrial software, life science software and mainstream software. That's the reason we are in. Catia, I gave it to you. It's minus 1. Innovia, it's plus 9%, and SOLIMO, you have it, plus 18%.
So that's the point. Related to the software margin
However, Patria's re experience is growing. It's growing 12%. 12%, yes, double digit, yes, this is
what I said. Related to the software gross margin, the decrease you have seen is Mainly coming from against Medidata because as you know, the gross margin for Medidata Business line is not exactly the same better than the others because you have the cost of the cloud. And that's the primary reasons behind this. And on the full year, it's going to be relatively consistent with what you have seen in Q1. And the last question was related to 3dEXPERIENCEWORKS, right, Michael?
Yes. I guess you're saying that the gross margin is just metadata, but I was wondering if you were changing the mix of sales where you On SOLIDWORKS, you take just half the revenues or you take the net revenues and sometimes you take commissions or pay a commission and so report gross revenues?
No. The only I mean, that's we are still in a position base. The only case Where we do what you say is when we are selling SOLIDWORKS to large direct customers. It happens sometimes. And in this case, what we do, we take the full revenue and we expand the full cost.
It's not a commission base. But aside the direct customers, which is limited, we are not doing this.
Okay, understood. Thank you. You're welcome, Michael.
We will take the last question.
Thank you.
So your last question comes from the line of Julien Serafini calling from Jefferies. Please go ahead. Your line is open.
Thank you. Good morning for letting me on. So two questions to follow-up here. On the cloud discussion earlier, I think, Balan, you talked a lot about Construction as a vertical, mainstream as well. If we think though about the bigger verticals, right, like transportation and mobility or aerospace, I mean, is your expectation that they still largely stay on premise going forward longer term?
Is that how you guys are thinking about it? And then just 2nd quick question to Bhaskar. On the attrition, going back to that topic as well. I mean, you mentioned, right, sales and marketing and G and A is where it's located. I I mean, is it something that you understand the cause of and that's fixed today?
Or is that still something that's going on today? And I assume that's involuntary attrition, right, is what you're talking about?
Thank you, Julien. On the cloud, clearly, for construction, game changer with cloud mobile 1st, AMD and T and M, I think there is clearly all of them are talking to us about private cloud As well as shared cloud for their supply chain. So there are 2, I think, 2 environments that they like: private cloud for the highly sensitive programs Anur may come to ecosystem integration or program using the shared cloud on providing the service To your suppliers. So I think that's probably where we are going to differentiate In terms of solutions, for cyber question, cyber issues As well as IP, highly sensitive programs, where I think it's a good approach.
Okay. Related to the attrition, yes, you are right. I mean, the That concern is not something we are triggering. But now my point is It was very low last year, and suddenly, it came back to where it used to be. Because in average, if you look at the past, we have always been Around 8%.
And if you take an activity like Mediators, they used to exceed 10% attritions On a regular basis. So clearly, we are back to normal. That's what I'm saying. And we did not Anticipate enough in our hiring offset. That's what that was my point.
Now if you look at what we do, I mean, it's again, it's normal. I mean, we are in the tech company. We are in the tech business. We are serving very demanding industries. And usually, we have this outflow, Which is a normal way to run our business.
So not there is no concern except that we need to We accelerate the hiring process, that's what we have by the time.
Yes. We wanted to make sure we understand that we continue to invest. Okay. Yes, that makes sense. Thank you both.
That was helpful. Okay. With that, thank you very much And for your questions, of course, we continue to be here. And We are always here if you have additional questions. Thank you very much, and have a good day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.