Ladies and gentlemen, thank you for standing by, and welcome to the Dassault Systems Q3 Earnings Presentation. At this time, 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, Francois Bordonado. Thank you. Please go ahead, sir.
Thank you, John. Good morning, everyone. I'm Francois Gordon Nadeau, the Associate of Investor Relations. From the company, we have Bernard Charles, our Vice Chairman, Chief Executive Officer and Pascal Salos, Chief Operations Officer and Chief Financial Officer. I hope you and your families are keeping well and safe in his trying times.
And I would like to welcome you to Dassault System third quarter 2020 what casted presentation mean
At the end of
the presentation, we'll take your question from participants. Later today, we will also hold a conference call Basosystem's 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 Doctor. Mondor Alistrano. I would like now to give the floor to international.
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 served demonstration of Dassault System Resiliente. And I will try to with Pascal to tell you why. 1st, the license activities, so is showing improvement as compared to Q2 of this year, while, of course, the anticipation to 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 represents 90% of the total revenue, is well aligned with what we said on the guidance, up 22%. And, you know, 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 Exxon's rate 31 week day. There is a solid renewal, on the organic basis because of course, all of you know, the effect, the positive effect on the new situation has produced with the move with the acquisition of Medidata on the performance of Medidata are
very good.
The Q3 EPS is at, on the high end of the guidance, are an operating margin above. I believe we are demonstrating that the adoption of our platforms for our own business is creating significant productivity improvements, and I will also make a remark later on this topic of Dassault System platform based companies 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 the life science on NETSCAR, And of course, I can tell you that it does echo very strongly. Our purpose in the company. So I think we are working to talk.
I'm a nice product 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 Pascalos in Q2 with the logic of arbitration of things. I think it's, it allows us to reaffirm our focus on the EPS, with the EPS objective at 3.7to3.75 So about the 365 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, the current else, economical and social crisis? And 3 aspects industry, human and experience, let me comment on that.
First of all, the profile of Dassault System, when we will look back in a few years from now, is probably going 2020 or 2019 F2020 in 2020 going to re profile the company in a big way. To summarize what we do collaborative platform innovation based on data and modeling, for 3 sectors of the economy, objects which are produced, so engineering and background, life science on health care, on industries and cities. This is not an invention. This is what we do every day. So a few observations about those 3 sectors of the economy under association with the industry solution we cover.
On Manufacturing Industry, 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 clear occupation. 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 better start now that balance is visible in the way we interact with our clients. And sustainability is a very core element of On the life science side, a marginal player becoming a mission critical player. This is the way I would characterize the associated, 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, bio reactors, in the case of biologic, on 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 on aerospace sector, where basically you have to predict things before you actually do uninfrastructure on city, 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 this quality applied for Wealth. And of course, there is a lot of incentives in many countries of the world where the incentive, the economic 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 and Johnson, the Jensen is really the pharma side of Danssen and Johnson has really renewed in big scale and material agreement which shows that the Dassault Systemative data platform is really, really a true next generation platform. For unified clinical development.
It's a big deal for, for this sector because it's almost half of the cost half of the time. So you better have to do it quite well. It's the direct connection with passion. Clearly, we are so pleased to be working together with a medidata on that side. Some of the something that was not so visible before, byopia, the modeling and simulation, the power of modeling and simulation, the data science aspect of it, inside a world class researcher group working on transforming the treatment for oncology and cancer especially under autoimmune conditions, they are adopting this platform to really breakthrough new research in finding new ways to design and optimize and to create what we call digital continuity with the labor activity.
And to improve also, of course, on optimize the full understanding of the biologic process This is for us a remarkable showcase, a real one, and we are very pleased to see that because there is no reason why the other players, we know that this solution. And it's quite unique what we offer. Abbot, this is really leveraging the simulation side for really the, Metronic environment on, especially the, the environment for testing lab activities. It's a good showcase because it's shows the connection between what you are worried about, leaving heart program and the equipment which is used, in this environment for virtual testing on creating the proper conditions for efficient tests 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 heavily absolutely gigantic 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 stops in operation to predict plan maintenance and improve safety. That's a concrete example where we don't have necessary, but while our thumb is a great client, we don't have, by the way, as a side note, 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 and the potential for data centric analytics like this, it's about 5000 users. It's a big installation for us on the cloud. If we continue in construction, cities and territories, I remember to be telling you that 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 syncs are happening.
There are 6 case here, cases here, where the platform, the 3 d expands on the cloud is used to create novel architecture with technology insertion. Create new type of digitally designed architecture with extremely, what we call, ecology in spite 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 showing that the direction is with 3DEXPERIENCE, we are doing the same with those new start up in construction more to come.
Are 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 a sovereignty in infrastructure, a fact that, our platform, the Swedish center platform, can be used to do those kind of complex system is very important. Sandric 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 chai player called gd.com.
Gd.com is the Amazon of, the Amazon in China, basically, where they are using the platform to really organized our program on improved 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 on the Colabor experience to really integrate those program excellence with, industry solutions. It's not functionalities. Those industry solutions are called program excellence, management, co designed to target, build to operation, from clear to operate. You will notice, which should be experienced, we are not selling functionalities. We are setting 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 fast fashion experience. I'm so pleased that, working with, the team and Medidata Strike team we are revealing the power of My Medidata. And My Medidata Live is quite interesting because I think the potential is gigantic. My big detail at the live is about connecting the sponsor the during the clinical trial, the passion with the sponsor, in real time conferences so they can share their feeling and so on, and we can better track the What's going on during its clinical trial? You can imagine that the ambition in my 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 it now? Because I know you are passionate to do this move. I can take
a few words. So it's a small acquisition. It's a 2 point $5,000,000 acquisition. In fact, it's an asset we acquire. LC10 is a company, the startup base in Boston, 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. 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, hard breeze, I mean, all these kind of things. And that's what we do. So it's the asset we bought the software assets, 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 ton, an opportunity 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. Thank you, Pascal. I see that you are convinced about it on IIM 2. And by the way, it echoes the our equity position in Bio 17, where, and it echoes my medidata life because it's about connecting, information during the clinical trial and more We continue to learn with owned by me. It's a side activity, but it's becoming a core activity because in some way, it helps us continue to understand what can we do one day not in the B2B, but in B2C?
There are incredible experiences here. There are references with this, this incredible lady or early, she organized around, or maybe, a full training class for, people who are Ajamsi is doing home decoration to tell them you can use that software to really accelerate your business. An amazing class, we didn't know her We discover, 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 your name, but I want to show you another video about Bernardo.
Please run
Porcelain seems fragile due to its finesse and transparency. It's actually incredibly strong. It's dense, very resistant, and its uses are limitless. The raw material has been the same for over 2000 years, and it is still handcrafted by artisan. However, the constant search from new and more complex shapes, as well as new manufacturing processes.
Has led us to combine and know how with new technologies. I am Charles Bernardo, director of development at Bernardo. I'm deeply attached to this company, which has been in my family for more than 150 years. Over the years, Bernardo has become a global player in cable wear and the symbol of French excellence. Each generation has about different expertise at every key stage of the company's evolution.
With my engineering background as he porcelain from the reward technical standpoint. Pushing the limits of manufacturing techniques to create original pieces, is in our DNA. Optimize or historical know how with new technologies and 3 d modeling. It enables us to make FX shape that were impossible until now. The twist collection is a perfect example of death.
Today, Bernardo is a reference in terms of technological innovation. And I'm glad to play my part, and I'll clean up new perspectives while accompanying societies move towards sustainability.
So this video, I think it's 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 all what we can do. I want to address a question that Directly or indirectly, many of you have been asking, is the assistant 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 servers.
With the platform called 2021, X, we have demonstrated that for those of our users and clients who connect and buy for 37.5 dollar per user or 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 the universe of education, in the universe of industries, online, being able to order or select what they are to select in terms of roles, process of solution 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 a client, a sensitive client, cloud in a private environment or open cloud. That's what we are doing on all R and D and technology are for 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 DELMIA work.
Then we are supply chain, and we want to leverage that. The effect of that is this is the reason why most of the startups in new sectors of each of the industries we serve are adopting directly the platform. You have Exxon in Europe, canoe in U. S. QAV technology, toyo tires, InOSF, digital autopidics, doesn't consulting.
You name them, look at what they do. I mentioned last time plenty in that your vertical farming in Seattle. They studied with a few users now it's 100 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. Deep Sam is another example where they are really using the platform as a collaborative multi dimensional platform using Innovia Works with SOLIDWORKS.
By the way, Innovia Works is becoming visible now for SOLIDWORKS customer. It's quite interesting. We have even now the platform being used by auto cat users who are using the 3DEXPERIENCE platform to manage the auto cat data. And of course, the upcoming events are also very interesting with the scientific community, with the next global coming soon. And, with a detail on virtual events.
I think they are well received. We are on a good start. We also did the science engage of experience, which was extremely well attended with, very, very influential people to show that science can help to change the work. 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 on print.
This means that the lever that our solution has to improve the work from a sustainability standpoint you are here, who will come back in February on further illustration. We set Pascal back to you.
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 months. So let's start.
The revenue came at 1,000,003,001,000,000, growing 17%. Improving and 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 percent, which is 170 basis points higher than the objectives $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%. Remember, we gave an objective between 2023, excluding the currency effects.
From an organic standpoint, the revenue is flat in Q3 compared to minus 4% for the first semester. And the takeaway, and I will give more flavor afterwards, but the 3 d experience has been the commercial because we have seen the growth of the Street experience revenue increasing by 6 percent and now representing 28% of the software revenue. The good news, I will say, for this quarter is coming from license and other software value, decreasing by 11%. But you have to keep in mind that, for the first half of the year, we are decreasing almost by 30%. And it's well in line with the Q3 objective.
At, you remember, we gave minus 8 to minus 18%. So clearly, we are much more close the minus 8% and minus 18%. So it's definitively an improvement, but as Bernard stated clearly, at the beginning of the call, we are not 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 a solid of renewals, almost in every geo and every browse. 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 had one miss this quarter.
You know, 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 are three reasons for that. The first two, 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 before that. So it's not new and it definitely due to the lockdown. Until the site will reopen, we still have people not being able to go on-site and to make 3, the customers as willing to, they want to force the projects. The second topic Since the beginning of the year, we have seen the new signing decreasing, and especially for the branch services, for the vast 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 quarter.
So this is where we have seen the back the book to bill ratio decreasing. With this, you almost explained what's happened in Q2. So the real differences compared to Q2 is because Bernard and I, we took the decisions 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 had 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 So moving to the regional software review, let me share a perspective on the impact of the pump debit 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, APSOS 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 on China, because China is an interesting case. You remember, we started the 1st 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 in Q4 to be almost back to normal.
We had a
significant win also in China, specifically in high-tech, also transportation and 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 than 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. STMicro electronics is one of them, but also in industry suffering like transportation and mobility and aerospace and defense. And the Life Science deals with BD Data 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, +45. With obviously a strong contribution from Medidata, similar to what we have seen in Q2. And also America has a most deal in the top 20. However, from an organic standpoint, we saw some softness 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 contract, the countries for most of them, they are not 13 in the lockdown. Moving to a view of our software revenue by product lines. 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, Innovia growth is plus 4.
To be compared with minus 7s year to date. And Innovia license revenue growth was at the double digit this quarter. Which is very consistent with a good dynamic of the 3DEXPERIENCE platform. Casa 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 System with a high single digit growth. And it has been partially offset by, by some pressure on CACIB5.
Moving to the mainstream innovations of revenue, Bernard stated clearly, so plus 9% compared to +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 plus to plus 3 since the beginning of the year. So this strong and SOLIDWORKS growth has been driven by a strong recurring revenue you remember, it was one of the concern of questions.
I would say you had if we would have been able to maintain the renewal with SOLIDWORKS. So that clearly a proof point. And we saw also the situation improving significantly on the license performance from Q2. Zooming in on a comparison of our revenue and operating margin results. Let me share several takeaways.
First, on the revenue side, we came roughly $40,000,000 below the mid range of our estimates. And you can see that the million is coming from a higher than expected currency headwind. 23,000,000 coming from the lower services revenue. And the rest accounts for the software, which is relatively well aligned minus 3 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 locations. So clearly, it's a significant performance. And also from the recent acquisitions where we saw a plus 40 basis points compared to our expectations. And we still have a 10 basis points negative impact from the currency effects. As a result, we are reporting an operating margin of 28.2 percent 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 reflected into the EPS with an EPS at the high end of the guidance, $0.80 plus 3 percent, plus 8, excluding the currency Our operating cash flow for the 1st 9 months was 1,000,000,000, in fact, 1,000,000,000 almost at the same level than a year ago, which is a good performance. Contract liability reached 1 point 400,000,000, up about 5% in constant currency and parameters.
And DSO remains stable. On the concerned parameters. Our cash continued to grow now at 2,500,000,000 at the end of September from 1,450,000,000 at the end of December of last year. This translated to a 561,000,000 improvement in our net financial position year to date. So clearly, we are also well aligned with our deleveraging roadmap 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. 1st, We are reconfirming our 2020 EPS of to aligning well with our financial framework share in April. And it's mainly thanks to the resiliency of our recurrent revenue and our savings program. 2, if you look at the EPS, in September, currency was a negative factor by $0.03 which we contain with an equal improvement from our operations.
And then we are adjusting our revenue growth for the full year This equates to 1st minus 1,000,000 coming from higher headwinds, minus $16,000,000, reflecting the low utilization rate of the services activity. And the investment we are doing for the strategic partners. And minus 16,000,000 coming from the software side as we see a slower, a slower recovery in the marketplace. And you remember when we defined the framework, all of us, we made the assumptions that we will be back to normal or close to normal in Q4, and that's clearly not the case. We 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 it. On the reported basis, this translates to a revenue of 4 point 4,444000000000 to 4,465000000. Which is a growth of 11 to 12, as I said, as I said. And the way to split it between the different lines The license revenue is now expecting 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 recurrent revenue is unchanged, plus 26+20 7 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 a point, a percentage point better than the what was our initial objectives. And it's mainly new to the savings plans we have put in place. And again, I insist on this, we are, at the same time, mentoring the investment on research and development and investment to support the strategic customers. This is Moving to Q4.
We are targeting revenue of $1,195,000,000 to 1,000,000 120,000,000, which is a growth of +2+4 percent, excluding the currency effects. With a license performance expected to be almost in line with Q3. I remember in Q3, we did minus 11. But this quarter for the new license is almost three times bigger than Q3. So that's the reason why I narrow the range a little bit just to be, to be safe.
So it's the range I'm proposing is between minus 15 to minus 12. The recurrent revenue is unchanged. Again, keep in mind that we last year, we had we had media data in our book for a part of the quarter, the Q4. So that's the reason why the percentage point is could be perceived as not the same that we used to do, but it's also it's almost the same. And services, in line with Q3, taking into account the investment we do.
The operating margin will improve by points to 1.6 to target 34.6 percent to 35.2 percent. And we are targeting an EPS of 1.15to1.20. 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 pm, 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.
Ladies and gentlemen, we will now begin the question and answer session. And we do have questions that came through, sir. Your first question comes from the line of Julien Sarrafini. Your line is now open. Please go ahead.
So 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? Do you have any line of sight on that?
And then the second question also, I think FIFI was on Medicaid and on the billing specifically. I recall when the Medi Data acquisition was done, there was 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?
Hello, you want me to take it?
Yes, I think we have Okay. We have an habit, which is to speak about the next year in February. I know.
No, but thank you for
the question.
Against from 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.
You have seen it. So we do expect some, you know, some top line growth on the new license for next year. But we will discuss this much more next year at the right time.
On the framework at the market.
And during the Capital Market Day, we will come back to the long term objectives we have. Not giving specific detail for 2021, but obviously, you will be able to understand the dynamic of the trajectory of Dassault Systemes.
The second question Julienne was related to Medidata, but I missed probably the question. No, it's fine. On the billings direction, because I meant you did, 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 of Medidata?
No, no, as, as you have seen, there are 2 parameters. So you are right. They do, they do long term contract and the average time is exceeding 3 years. And the 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 the for Medidata improved a lot over the last year, and we are now exceeding 100,000,000.
And the contribution of Medidata to the to the current cash flow is almost in net, exceeding $90,000,000 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 adjust the conditions for some customers and some CROs as well.
Thank you. And the next question comes from the line of Stacy Pollard.
Hi, thank you. I have two 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? 2nd 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 Seemant's digital seems to be supposedly reporting high single digit growth in software orders, maybe low single digit on res. Do you think that's a product area or industry differential, where do you think what do you think is happening there?
Thank you, Stacy, Pascal? I take the first questions and then I 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 Q3. We did it in Q3, and we are we will continue to do it in Q4.
We do not expect to do it in 2021. So it's point number 1. Point number 2, as soon as you have the new license growth being back, you know, the services related to the brand's order book will automatically grow and we the fact that we have some dynamic with solid borrowers, the fact that we have a good dynamic with 3 d experience on the new license is also an early indicator on the fact that we do expect the services start to grow against, 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.
Stacy, the second thank you for also asking for the second part of the question, the competitive landscape, I mean, 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 segments 1 by 1. Aerospace. Patient 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 are we are in not only we are gaining new customers, whether it are large or possible.
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 were on other platforms, on our platform, all of them. We have announced, you'll remember a few months ago, Lucky, you know, what going on with Boeing, and it apply into 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, the same thing, So I don't look at revenue from my side, Pascal do it so well. I look at customers. Who are the ones I win. And then for each customers, who how do we expand our footprint in modeling simulation, on collaboration.
Sorry to take maybe too much time to answer, but that's the reality. If I look at now startup, the new players is the same. If it's not 100%, it's 95% of the new startups in new smart mobility is 95 are using today are adopting the 3 d stands platform. So if I go to industrial equipment, especially because the in that sector, solidworks and 3 d extrinsiligo is the main player for the competitor you mentioned, clearly, there is no topic there. There was a discussion about electronics.
We won't cement we refer to Nokia, we refer to STMicro, those were previous some of them were Siemens. They are not anymore. So So, of course, I don't want to be, uncertain, 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, The plat there is no platform there. Our the reason why I believe we are marking the changes in construction. And infrastructure is because of the platformization power and the true native implementation of our roles on processes on that platform.
So, today, this also competitor in that sector is leveraging a huge installed base of drawing base systems is to write things they have to do, but the market will change. And as far as I know, people are very upset about credit and not satisfied. And I think this will take a long time to change. And I want to play that car too. So we are respectful of our competitors, but we want to win.
So I will respect more when I win, even more. But we think we can because we are providing solutions that no reserves are 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, will change on the integration on 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 volunteer industrial system 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 the old case of on SNCF, the French rolling stock network with predictive maintenance on some digital acquisition is.
So my answer related to that is the platform is collecting the data do data science for creative maintenance and planning. And this is a significant opportunity for growth in the years to come. We have 2 points today. So with that, I have almost done a 360 and a 3 year review of the competitive landscape. We can go back during the.
Pascal, do
you want to say something?
Yes, to give you some analysis on the numbers because I saw it and I was intrigued like you stated. But at this, remind me a story, which is the following, A few months ago, Jeep predicts 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 G predicts 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 these mechanisms as a way to make up a little bit the top line.
Stacy, as you can see, we have a certain intensity in providing a crisp answer on those questions.
Thank you. And the next question comes from the line of Michael Breese. Your line is now open. Go ahead and ask your question.
Thank you. Good morning, Bernard and Pascal. 2 for 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, either thought you'd need the services people on-site 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 maybe 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, this is a 4% organic growth rate and 4% currency headwind. So the acquisitions contributed about 100 and to 1,000,000. And if that's all in Life Sciences, because it's metadata, what's happening to the rest of the business it seems to be down about 20% year on year.
Okay. Thank you, Michael. The first question on on this, consulting on service. The way that, first of all, we have a lot of partners doing service on consulting. System integrators and partners as you well know.
So our main activity in this area is related to is focused on strategy large contract where that 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 are 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 and the time at which they deployed them next. We decided with them, and it was extremely will come with many of those clients who are really long term committed with us. I mean, there is 0, relationship issues with them.
They appreciated 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 time without exposing the mid and long term. That's exactly the arbitration Pascal mine did.
And our teams are happy to be with them, not go back and take opportunistic short term tactical engagement, on then exposing the follow-up deployment. That's exactly what we're doing right now?
Your second question, my turn. Yes, to a certain extent, you are right with your analysis. And there is a good reason for that. Which is a following. In fact, we are moving toward a subscription based model and SaaS model for everything we do for in life sciences.
So as you may know, when we acquire Accelerists, 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 BD Data 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 SAS based.
That's the reason why you can be perceived, 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.
Okay. Thank you. And the next
question comes from the line of Adam Wood. I've also
got 2 please The first one is just looking into the 4th 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 could 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 this in CF 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 to those customers or can you actually drive a separate revenue stream? And then I'm reluctant to ask about competition in this 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? Thank you.
I will start on the Pascal, thank you, Adam. I will start on a Pascal will use something on that First of all, we have a, an I have in mind, I cannot 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. And they are now using the platform for all the operational data as related to by tail numbers, the availability of the airplanes in terms of predictive maintenance and availability, it's a it's a they are a private private jet, on the revenue balance between all the revenue we are getting from them from basically the product development. And 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 highly sophisticatedly to keep on. So on why are those customers doing that? For a very simple reason, it's easy to do because they can connect the data they collect, they collect, Babo, with the way the product was produced, manufactured, or engineered, and then improved that process. So I think the the message out with, top executives and 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 them on manufacturing engineering new engineer your manufacturing process. But now, thanks to the data collection with Apprisso, the data collection with, Denjia works. 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.
We 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, 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 don't I think that, the balance that you will see in the evolution of our solutions between data generation. Well, on the data science coming from bonding 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
related to the pipeline, Adam, we have a 220 coverage, percent coverage. So more than 2 times the revenue we should do. The target is usually, I mean, if I look at the benchmark the other year, 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 you, I told already this in Q2 announced 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 are 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, it 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 rates of the pipeline have been pretty stable over the last over the last 2 years. So clearly, I do not expect to have a drop in the conversion rate of the pie.
That's very helpful. And thanks for the explanation on the data. It's very interesting. Appreciate it.
Thank you.
And the next question comes from the line of Mohamad Moala. Your line is now open. Please go ahead.
Great. Thank you very much. Good morning, Pascal. Good morning, Bernard. I just had one question.
Could you comment around some of the other product areas? I mean, you called out in Innovia, 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 actually question I had was you talked about sort of Johnson and Johnson renewals.
I think Moderna was another one that you had last quarter. What is the sort of uplift you're getting, in terms of these deals when you renew them, and what is the sort of, the stuff that you kind of upselling into those life sciences customers? Thank you.
Pascal, you know me to start with here. She will be marked. Under solid works, we will see a very positive recognition about the value, more of the platform really experienced coupled with, SOLIDWORKS in two ways that we call Power BI. So you have the platform for collaboration SOLIDWORKS on desktop and then you do the collaboration on the cloud based. And please remember, 2 SOLIDWORKS customers, we sell only cloud based, platform, not the on prem.
For SOLIDWORKS, okay, except if it's a big company already using internally, but so that's one event. The second thing is, well, we were surprised with the, the interesting dynamic with Innovia Work 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 on the SOLIDWORKS team. To change the game simulation by having platform based simulation.
As you may know, we have left our plate open for SOLIDWORKS installed base to use known Dassault Systemes Solid the simulation software, so which are relatively not so well connected. So going with platform and integration is welcomed by clients. So the the 3DEXPERIENCE, the SIMDIA works, is also showing excellent, reference that I think we should replicate. The challenge here more, as you always said, know is to make sure that our resellers knows how to speak the music and make it happen, but to deliver a 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 on the PC on a on a desktop.
So that's the dynamic going on now on think the team at SOLIDWORKS is very excited. And last point is 3 d 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 solid work experience for the SOLIDWORKS community. And there is more to come in this area with shape on 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 delivered is the fact that people now know that SOLIDWORKS desktop has a big futures, leveraging the platform, which was a question mark before. That's for the dynamic in this area. And of course, I think DELMIA works was not too bad. So at the Yes.
6% for this quarter.
So, the DELMIA works, which is the former IQMS, as you know, You also asked me the question Pascal?
Yes, related to the large deals we signed recently in the life science sectors. Yes, you are right. I mean, they are sizable deal, but the vast majority of them, they have a starting date, next year. So take Moderna, 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 need to find a way to ship the device to all the patients after they have been enrolled. And this is taking time from a in 10 pumps. And that's the reason why you have some lag effects between the signature and the renewal and the system being operation at scale. So the good news with this more, we could expect to see some acceleration of Medidata next year.
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 solution. So I think that we have a lot of competitors in this sector, very specialized competitors. They are doing a good job no doubts about it, but we think that multi physics integration is going to be an important factor, and it's becoming an important factor.
So I think this field is, is really open for more opportunities to do different compared to the way customers are working today, which we think is what I call the platform effect for them.
Great. Thank you very much.
Thank
you. And the next question comes from the line of James Goodman.
Just coming back on the, a little bit on Q4, but really more broadly, just on the way the license is behaving. I mean, I was a little surprised that the lack of progressive recovery expectation given the strength in Q3 or the relative strength that you called out. But you mentioned that the shift to subscription in, 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 were making some allowance for any potential shift, of customer uptake towards towards subscription and whether there's any implications there just in terms of how we think about forecasting the license line and 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 costs there. And finally, just around churn. I think you said there'd 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 rates.
Okay. As far as important, you need to comment on that.
Yes. So related to the you know, it's not new in term of trends. You have seen for the last almost 4 quarters, you have seen a dynamic into 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 a 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 a life science because we are a newcomer in the life sciences. And media data already is a critical mass, and they are we have to prove 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 are right. I think we did a decent job. On the margin side. The way we did it, we, in fact, I have adjusted the subcontracting I preserved the larger project we have in conjunction with CAP Gemini, Accenture, Deloitte, because usually they are also linked to the strategic programs we want to preserve.
But for others, I have reduced by a third of the subcontracting 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, 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'd say last time. We are seeing a little bit of churn increasing, with SOLIDWORKS.
It has been well factored into the guidance. Because some company 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 have. Okay, thank
you. One last quick question
Yes, sir. The next one comes from the line of Charles Brennan.
Great. Thanks so much for taking question. 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 and L, is it arismatically inevitable if we see license growth that will 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?
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 won't preserve some of the software and 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 was part of the negotiation we had with them. So I do expect to have incremental revenue coming from those guys. Admitted data, yes, I think, I would be, not least, let's say this way, disappointed if we are at least not gaining one point.
Growth or any growth with BD Data 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 term of coverage in some countries. We still have, you know, some positions to reinforce, on the field, 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 would not expect next year to have a significant lever on the margin, even if 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 and regions.
Very helpful. Thank you.
With that, thank you very much to review from waiting. Really, we appreciate your questions on the relationship that we agreed on the transparency on integrity. And we will have a call this afternoon. And hopefully, we will also have a dialogue on November 17. Thank you very Much of a good day for all of you.
Bye now.