Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Dassault System's Q2 2019 Earnings Investors Conference Call. Session. I must advise you that this can is being recorded today, Wednesday, 24th July 2019. I would now like to hand the conference over to our speaker today, Francois Bernardo.
Thank you. Please go ahead, sir.
Thank you, Sherry. Thank you for joining us on our earnings conference call with Bernard Charles, Vice Chairman and CEO and Pascal Delos, Executive VP, CFO and Corporate Strategy Officer. Basosystem 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 rates in constant currencies unless otherwise noted. Some of our comments on this call will contain forward looking statements that could differ materially from actual results.
Please refer to today's press release and to the risk factors section of our 2018 Document Affairs. All earnings materials are available on our website and these prepared remarks will be available shortly after this call also I would like now to introduce Bernard Alice.
Thank you for joining us today. Well, when we unveiled our new expanded purpose in 2012, and then our 3DEXPERIENCE platform in 2014. We saw the possibility now we see the realities. Coming all together as industries, companies and users embrace the 3DEXPERIENCE platform on the immense value of the value of the virtual world on real work to work together. As our progress during this year, this year's first half demonstrates, we are focused on addressing 3 centers of gravity.
Customer centric, citizen centric, fashion centric experiences. All three are well aligned with our purpose as that's a system wants to provide people business with 3DEXPERIENCE universe to imagine sustainable innovation capable of harmonizing product nature on life. So let's look. At our scorecard at the midyear 2019. Within the backdrop, of a more volatile global environment.
Our revenues on earnings came in at the high end of our Q2 financial objectives. Key details include a record quarter for 3DEXPERIENCE and strong first half. Our software growth for, half for the 1st part of the year was well balanced across our core and diversification industries with double digit growth for both. Since 2012, we have shared our expectations that one day, life science would become a core industry for Dassault System. With the completion of the Medidata solution acquisition subject, to regulatory and shareholder approvals, that there is just a few months away of free.
Therefore, looking at our progress, I think it is a solid scorecard. Importantly, we are preparing the future. Songs to the enormous talents at Dassault System. We are working to advance the company but equally important our impact on the world. The core to our progress and opportunities for the future is the 3dexperience platform.
Without a platform to help them connect all possible contributors. They will not be able to maximize their innovation and performance. This is true for industries, and it's also true for cities, and in Health for Patient Care. Let me begin with Industries. With our largest industry, transportation and mobility to provide you with some examples.
Thanks to our platform strategy. PSA has selected us as the preferred digital partner for Transportation on across all providers, 8000 of them. Their digital transformation started with VV version 6, was upgraded to 3DEXPERIENCE started as one of the first customer to adopt our platform And we were absolutely impressed to see the transformation of money losing company to an extremely cash risk company. This shows the power of innovation. The Gongsu Automobile Group JAC from China, with 5 global R And D Centers, both in China and the U.
S. Has decided to move to the 3DEXPERIENCE platform too using our power buy functionalities with the platform. They will be able to increased our R and D efficiency and collaboration across more than 4500 users. Renault Group, a large 3DEXPERIENCE platform users since day 1, is now adding 3DEXPERIENCE on the cloud for its in house innovation laboratory for our disruptive mobility solutions for urban areas. Just a few words on the aerospace sector where there is a significant innovation underway.
In a number of areas on where the 3DEXPERIENCE platform is becoming mainstream. Safran electronics is using the 3DEXPERIENCE form to support our digital transformation and master the configuration management process of integrating software electronics and physical aspect of their products through its lifecycle. That's so aviation our sister company has expanded its use of 3DEXPERIENCE platform with not only Innovia, but big data analytics on cockpits exactly the net vibes to leverage AI on big data to improve fleet management as well as new category of services for their equipment as it regards to the service with their clients. An American start up, boom, is designing a supersonic passenger car, passenger engine, sorry, So it was customer indeed moving to the 3 d x period. It would be fast for a car, 3%.
So it was customer. Boom has decided to move to the 3DEXPERIENCE platform support or sorry, to support the ambitious effort from concept design to through manufacturing. Moving to high-tech, This industry faced a number of challenges as it's burdens, it's reached into every part of our lives. From wearable devices to connected experience, including smart products. The product cycle are very fast but are backed by years of intensive research, which is often less visible.
I-tech must deal with an entire branch of issues around safety, health, client and, of course, security. We are working with Bosch, car multimedia, who has adopted the 3 gigabytes platform on our model based system engineering approach to test and validate their digital models. Fujic Xerox, a joint venture is using our similarly magnetic studio called CST Studio Suite to virtually simulate electromagnetic compatibility before constructing physical prototypes. Now let's move briefly to our work addressing constructions, cities and territories. Of the global population to be in urban environments, the city that will survive and thrive in these decades.
Ahead will be those that are focused on improving the experience of its citizens. In this morning, presentation in Paris, we highlighted that one of our architecture clients, the firm is using 3DEXPERIENCE platform to help Hong Kong entities analyze how to improve workability of on citizens' experience through pedestrian flow simulation with a complete digital model of the city addressing the workforce of the future, highly ranked Southern California Institute of Architecture is an incubator for a new generation of problem solvers redefining architecture or looking out on other industries in other areas, on using the 3DEXPERIENCE platform to create new approaches on rethinking solutions to problems. Moving to Life Sciences, beginning with the proposed acquisition of Medidata solution. We held a detailed joint call on the day of our announcement on June 12th. And Medidata is a leader in the digital transformation of the life science industry for clinical development commercial and real world data intelligence.
This acquisition reinforces our position as a science based company by providing the life science industry with an integrated business experience for an end to end approach to research on discovery development clinical testing, manufacturing and commercializations of new therapeutics from small to large molecules on, of course, health technology and practices. Demonstrating our further support for passion centric experiences in Life Science is BioSerenity, a startup who has been part of our 3DEXPERIENCE Lab. It is developing wearable medical devices on digital point of care solutions that leverage textile innovation and artificial intelligence Importantly, its products enable patient centric care to move from the hospital or clinic to the home with online telehealth services. These devices could also be used in clinical trials, of course. Well illustrating the role of modeling on simulation in Life Science for practitioners is our living Heart project.
The 1st commercial and personalizable model of the human heart now available to anyone on the 3DEXPERIENCE platform in the cloud. Today, at our North American headquarters in Boston, we are holding the fixed annual meeting of the living heart project community, with representatives from industry research, legal practices, practice as well as regulatory agencies. We also we are also pleased to announce that the U. S. Food and drug administration has signed a 5 years extension to the living heart project collaboration on project to use a 3DEXPERIENCE platform on the living heart as a virtual patient population to reduce the time caused on regulatory burden on human and animal testing.
The role of Life Science is a critical enabler for Global Innovation was further underlined by the release this morning of the annual global innovation index with the theme this year focused on medical innovation landscape over the next decade. This study illustrates how critical is the life science industries, continued transformation towards passion centric experience. With that, Pascal, you have the floor.
Thank you, Bernard. Hello, and thanks to all for joining us today. I think our first half business and financial performance very well illustrates our key goals driver at work. They have helped position us very well with respect to the completion of our 5 years plan to double EPS to about in year 2019. More importantly, they are demonstrating that the principal components of our your 2023 plan are well in place and animating our results with the 3DEXPERIENCE platform, strengthening organic rose, our industry diversifications and our addressable market expansions.
Reviewing briefly our results we came in at the high end of revenues, software and ahead on EPS based on a strong operational performance. Both revenue and earnings per share were up double digit in Importantly, 3D experience traction is continuing to increase and in turn in representing a great portion of our software and license revenue. For Q2, 3DEXPERIENCE software revenue increased 52%. Bringing first half growth to 40%. 3DEXPERIENCE licenses revenue growth was up even higher for both periods.
On a regional basis, America Software increased 16% in H1, led by our direct sales channel, We had a number of 3DEXPERIENCE win from aerospace to energy to consumer goods, strong recurring revenue growth as well as the benefit from the acquisitions. In Europe, software revenue grew 11% for H1 with Q2 up 13%. The strongest performance were in Northern And Southern Europe as well as Western Europe. We had a number of large 3DEXPERIENCE deals in Automotive, Aerospace And Industrial Equipment. In Asia, software revenue was higher by 9% for Q2 and H1, with a mixed performance growth was very good in China and India, And from a channel perspective, both value solution and professional channel had a strong growth in license as well as recurrence software revenue.
Zooming in on brands. CATIA software revenue increased 12% in Q2 and 9% for H1, with licenses revenue up double digits in both periods. CATIA is now a key drivers of our 3DEXPERIENCE software revenue growth. Innovia grew 9% in Q2 and was up 14% in H1. On a double digit license growth as well, reflecting the high level of 3DEXPERIENCE Activities for the first half of the year.
Solid works is seeing a moderations of its growth on the mix results from license activities with strong growth in Asia Recurring software revenue performance continues to demonstrate very stable renewal rates. And overall, its software revenue growth was in H1, led by a very good dynamic in manufacturing with our DELMIA brand and a solid performance in simulations with simulia. Moving to our financial performance, a key part of our year 2023 5 years plan is the progressive improvement of our organic revenue and software growth towards high single digits. Looking at our total revenue and software revenue, they both grew 9% in H1. For the full year, we would expect this to be a little lower, but all in all, several 100 basis points improvement over year 2018 and year 20 17.
On an organic basis, license and other revenue increased 7% in Q2 and 8% in H1. Well supported by CATIA, Innovia and DELMIA amongst key brands. Recurring software revenue increased 9% on an organic basis, both Q2 and H1, with subscription growth led by CATIA and Innovia. We saw a solid performances across most of brands with respect to support revenue growth. On an organic basis, services revenue increased 15% in Q2 and 12% in H1, with a strong growth in 3DEXPERIENCE related services activity, in our manufacturing and global operation as well and in a digital marketing with an improvement with a significant improvement by 3DEXPERIENCE bios, sorry, 3Dxite.
A key takeaway on the services is as a forward indicator on opportunity enabler. As a as we help our clients deploy through the Experience Platform, once in place, it leads to a follow on orders. So a key priority for us and for our services partners is to ensure that it's well planned implementations and timely rollouts with the scope of the transformation and visions. In addition to a good top line performance, I think we are also delivering well in terms of profitability. For H1, our operating margins stood at 31.8 percent, ahead of last year by 140 basis points.
We had an organic improvement of 120 basis points, more than offsetting an estimate 120 basis points of the acquisition dilution. For the first half, currency had a 40 basis point benefit to the operating margin. EPS increased 19% in Q2 and 20% in H1, reflecting revenue growth, operating management and currency benefit the non IFRS effective tax rates were up slightly for both periods compared to the year ago timeframes. Takes away here is that our business and operating performance drove double digit non IFRS EPS growth for both Q2 and H1. Our net operating cash flow was up sharply in H1, increasing 38% to 1000000 Europe.
So 3 principle contributors were growth in net income and noncash items, account receivable management and a lower tax down payment in year 2019, where we now benefit from a U. S. Tax change on the Florence driven intangible set and act in year 2018. For the full year, we anticipate strong growth in the net operating cash flow moderating, however, from the H1 growth rates. Unearned revenue now called contract liabilities, total for 1,000,000,000 2,000,000 at June 30th.
This represents an increase of 8% at constant currency and parameters impacts. Before moving to our financial objectives, let me give a brief update on the proposed acquisition of Medidata. First, now from a timing perspective, since the announcement on June 12, we have now received antitrust clearance in the United States as well as Germany. We continue to work constructively with regulators to obtain or to obtain the required regulatory approvals. The ACC has approved the Medidata prospectus and Medidata's shareholders meeting to vote on the approval of the mergers has been scheduled for August 16th.
We are expecting to finalize the transaction in the 3rd fourth quarter if all the conditions closing are completed by then. 2nd is the transaction has been completed by our 3rd quarter earnings we will hand me the data to our financial objectives for Q4 and year 2019. In our Q2 presentations, we have a chart on the transaction summary, including our financial plan, on a financing plan. There are no changes to what we shared with you on June 12 in that regard. Finally, please save the dates November 13th for her half day deep dive meeting on our life sciences strategy, offer and growth outlook.
We plan to host the event in New York. At the same time, the Medidata will have their user confirms. Now let's move briefly to our guidance beginning with the full year over year 2019. First, we are confirming that our total revenue growth objective of 10% to 11% at constant currency. 2nd, we are upgrading our reported revenue range for the better evolution of currency in Q2 of 1,000,000 and update our exchange rate assumption for Q3, bringing a EUR 15,000,000 increase.
As a result, we are moving the midpoint of our reported revenue range higher by 1,000,000. And we are our total revenue range is now 1000000 to 1000000 $910,000,000,000, sorry, and our EPS range is to Our operating margins target tightens to about 32.5 percent from 32% to 32.5. And we now estimate an underlying improvement of about 100 basis points, exclusive of IFRS 16 and currency, up from our prior estimates to about 80 basis points. Pitting from a more favorable software mix with a higher contribution from the recurring software. For Q3, we are targeting a revenue range of about 890000000 to 1000000 and an operating margin of about 20% to 30% and an EPS range of about $0.70 to $0.74.
Our revenue range embeds a license growth rate of 8% to 12% and a recurring software revenue growth rate of 9% to 11%. Finally, just a further reminder that our Q3 and full year financial objectives are presented on a non IFRS basis with a revenue growth rate at constant currency. For the purpose of our guidance, we are using a USD 1.15 rate per exchange rate in Q3 and then a 1.20 rate for Q4. For the Japanese yen, a 130 rate per exchange rate before hedging for H2. To conclude, from a business perspective, our platform strategy is a game changer for customer centric, citizen centric, and patient centric experiences.
3 d experience is a significant contributor to our direct sales, and in progressing moving forward in our indirect channels. From a financials perspective, based on the first half results, and our outlook, we are well positioned to meet our 5 years goal of doubling our our non IFRS earning per share to about for year 2019. And as we look to the future, we are taking major steps to prepare our runway for growth over the next decade. We will now be happy to take your questions. And thank you for your participation on this call and our earliest webcasted meeting held in Paris.
Can we have the question please?
You. Thank you. And we have several questions now. Our first question comes from the line of Jay Vleeschhouwer from Griffin Securities. Your line is now open.
Good morning. I have a number of questions. Let me start with SOLIDWORKS since we are a bit concerned about the comments you made regarding weakening license growth. Are you anticipating taking steps to stimulate growth perhaps as we've seen in the past with respect to promotional or other kinds of activity, also at SOLIDWORKS World earlier this year, DS communicated to the channel an objective of evolving your sales focus to what's called at the time solution focused selling and industry aware selling, among other objectives, could you comment on whether any of those new modes of selling or focus are having an impact on the business than a couple of additional questions?
The SOLIDWORKS channel is going through a significant upgrade, if I may say so. Because what we see being the evolving customer demand is, wants to take advantage of, DELMIA Works that was announced at the beginning of the year, the following the acquisition in last January, January 2019 of IQMS. And basically, most of the solid work users in the world on company are producing things, so being able to provide to them MES on ERP functions in a very affordable way, requires a channel transition to elevate our capacity and knowledge to cover that. The second, the second elevation possibility for, or plan for the channel is really related to, the platform itself using the Colorado Business Innovation on the what we call PowerBuy in our jargon, basically to provide with desktop solidworks, all new collection of services online for collaboration, on this is going on. On the And of course, with that comes, with pretty nice results, the on signs this quarter, the SIMILIA Works, which is the capacity for SOLIDWORKS users to really have online services for simulation.
And they like it very much because for some of them, it's too complex to use current legacy or even competitor solution. And we believe that going we a cloud set of services. On last, but not least, also more and more of them are, are expecting native cloud mobility applications. We had an excellent feedback on on a product called X Design. And by the way, when 2020 X will be released in a few weeks, it will be called 3 d creator.
Which is web based mobile way to create a 3 d. So the reason why it goes to this list, JJ, is because cost partners and we had a we all the we held a major partner summit a few weeks ago in Paris. Worldwide submit. They are all looking for how to orchestrate double digit growth for the next 20 years, basically. As they enjoyed a double digit growth in the last 20 years selling almost only so it works.
So all this is going on as we speak, which makes It creates the disturbance. It creates a stretch use of the, of capacity on training program. I think it's the right thing to do on it's basically the right thing to do at this point in time, which because we know that the timing for platform move is there. So that basically what we observe being the main reasons. Today, the main reason is not because customer prefer to select some other solutions.
That's not the case. We still are. Preferred solution globally in all countries. And to tell you a little bit more, we think also that we have reached a very high level of PRASI that we need to progressively resolve with new provisioning of the licenses, but we'll come back on that topic. So all in all, channel is busy.
The executive team is very focused. They like the new excitement. It creates beyond solidworks and with the power of the platform on expansion. And we need to make it this, upon across the world.
Thank you for that. Pascal, let me turn to you. In the at the end of your prepared remarks, you spoke preparing the company for the next year's growth. And I'd like to ask you about certain internal investments you are making. As you probably know, we track, your headcount very closely or your plans to increase headcount And there's some really interesting trends going on over the last 6 to 12 months, specifically, at DS, there has been a material increase in your number of openings that you're looking to fill in Asia after years of almost under investing in headcount in Asia, now will significantly ramp up in that respect and your job openings there are even more than in the Americas.
When we look at it by brand, number of openings connected to DELMIA are significantly higher and it's even higher than the openings for a no via Simulia and SOLIDWORKS. Maybe you could talk about those trends and what your expectations are or ambitions are vis a vis headcount. So, and then, second or last question, you mentioned partnering Bernard. I assume you meant the solid works on BT channel partners, but let me ask you a broader question regarding partnering, given the trends in the industry. I recall about a dozen years ago at ECF in Paris, you talked about your partnership at that time with Microsoft.
Which we not heard very much about in the intervening dozen or so years. And yet, Microsoft has clearly shown a significant increase in interest on their part in your world, in manufacturing and industry. They speak of multiple use cases around their cloud business for intelligent supply chain, connected product innovation, and so forth, really interesting ambitions there. So perhaps this is a speculative question, but maybe update us on how you see yourselves working more closely with them. The obvious interest they have in your world and the kind of technologies you have.
Hey, Jay. So the first question related to the opening positions we have. You are right. I mean, I recognize you serving our website But I have to confess that we are giving more visibility on the opening position on the sales and size and what we do for research and development. So clearly, be careful when you do this because you only have one facet of what we do in term of investment and where we are putting the resources.
Now coming back to your questions, on services and sell side clearly, it's well aligned with where the growth is coming from. So right now, as you pointed out, the manufacturing space large is growing very well for us on both sales and services. And this is the reason why you see a mini delmia position being opened. Now if I project myself a little bit on a long range, I think for the next 5 years, we will ask to have more sales productivity, compared to what we did in the past. And we will invest more in research and development given the broad scope of what we do.
That's some indicators I want you to take into account when you will build your model because clearly, if you check the balance in the last decades, we have invested a lot to structure the go to market. And since the acquisition of IBM, in fact, the IBM Salesforce, we will continue to reinforce, but not at the same pace. And the cloud, all the new mobile edge computing solutions we are developing
are requesting
investment on research and development, and we will continue to fuel the engine with the appropriate resources.
Related to, the partnering with Microsoft, we have enjoyed a great partnership on the desktop windows on the servers. And there are a lot of customers who are still using this environment. When it comes to the evolution with cloud, our priority is really on with very strong support from the clients. Are with Amazon, as well as with our own cloud called 3ds outscale. When we provide, private cloud, private public on dedicated cloud.
Which are very core for many of our customers. So that's today, the choice. We don't notice any specific, customer attention on the Microsoft environment in the Manufacturing sector. They have a lot of legacy existing environment. But when it comes to mobility, the side of point solutions, I think the 3 experience platform contains integrated services for collaborative innovation, which are extremely well received by clients on the numbers show it shows it.
So, Now there are, of course, certain services that are used on, but that's all what I can say at the that I can say at this time.
All right. Very well. And by the way, the supersonic car you mentioned, Bernard, sounds in tweaking. I think it would be very popular here in New York.
Of course, it was plain and I was embarrassed. Maybe it's a secret dream. That's it.
Well, I hope it comes as well.
Thank you for this remark.
Thanks.
Next question, please.
Thank you. Yes, sir. Our next question comes from the line of Nicholas David from ODDO. Your line is now open. Please ask your question.
Yes. Hi. Hi, Bernal, Ipascal. Thank you for taking my question. Actually, I have 2 I may.
The first one is, could you give us, please, more detail regarding what drove actually the strength of Catya in Q2? Basically, which sectors and what kind of deal? Was it just the natural migration of the V5 or is it more larger transformation deals with, I would say, a steep ramp up?
And I have a follow-up then.
Okay. So the vast majority of the growth for Katya is coming from the 3DEXPERIENCE version of Catia. I gave some numbers this morning, but I just want you to keep in mind that more than 50% of the new license for CATIA through our direct sales force is on 3DEXPERIENCE. And now close to 20% for the indirect channels. So clearly, it's, I mean, it's a threshold answering your question from a sector standpoint, the vast majority is coming from the auto sector as well as the aerospace sectors and industrial equipments.
So the traditional CATIA V5 installed base And the point is the following, most of our customers, they have embraced 3DEXPERIENCE platform. With the collection of roles, most of them being Innovia roles at the beginning. And now with the new generation of EVA, with the new robotic systems for the industrial equipments. You know, they discover the power of CATIA 3DEXPERIENCE because the scope of what CATIA 3DEXPERIENCE is capable to do is much broader than the CATIA V5. And this is the reason why the traction is so, I mean, it's significant for this quarter and for each one.
Okay. And
The cyber Catya's cyber is very important just to, because Catya's cyber is about integrating, as Pascal said, software electronics on mechanical hydraulic and smelting discipline. That's very uniquely position, I think there is no competitor that can do this level of integration. And you see it in drones, in smart systems on future intelligence systems.
Thank you for that. And my follow-up would be on the rental model adoption. Because I think this morning, you mentioned, I think an acceleration, not having the U. S. Maybe beyond the Boeing ramp up?
Was it really material? And is it, something you see really because of the cloud? Or is it because some client decided to choose the rental model on the traditional on premise license. And also, do you see this acceleration? Going on for the next quarter?
And can it be slightly cannibalizing the license rational license model and maybe this is why you shaved slightly your license guidance for H2. I don't know. I mean, maybe more color on that would be helpful.
Okay. So, the rental model has been largely adopted aerospace sectors at large. As you know, for the flexibility, it's not it's not newer, And given the good dynamics of the aerospace sector, this is a good explanation about the good momentum we have on the subscriptions standpoint. The second trigger is really the simulations activities or the simulations business, which is also having a, which is also having a good momentum. And those are good drivers for the solution.
The cloud is coming in additions to that. And definitively, the cloud is adding some points, but the it's I will not explain 100% of the growth with only the cloud. And the second question was related to what Nicolas
It was about, do you expect this acceleration of rental model maybe cannibalizing a little bit your traditional license? Business? And maybe I could explain why you cut slightly or very slightly your guidance for H2?
In fact, for each 2, I made this adjustment, and you are right, in the previous guidance, I was giving a range for the license between 10 to 12 and I narrow the range from 9 to 11. But at the same time, I'm adjusting the guidance on the recurrence part on the high end, which is 10% growth. So if you do the math, it's nothing more than almost 10,000,000, you know, between the two. And the 10,000,000, if you do the computations, because I do not want to disappoint you guys, on the SOLIDWORKS growth, you remember, I guide the market by saying it's the growth will be between 5% to 10%. And just because now we have the first has been much more close to 5.
I took this into account in the new license. That's the point. So it's for me, it's for me a way to derisk if you want. But the reality, the contribution in software side is still the same. And there is no real cannibalizations between the two.
Now you have the explanation.
Okay. That's very clear. And by the way, congrats for the very strong results.
Thank you.
Thank you.
Thank you. And our next question comes from the line of Gal Munda from Berenberg Capital. Your line is now open. Please ask your question.
So the first one, I'd just like to expand a bit on the subscription, and like we said in the morning, Cole, you mentioned the subscription is the future. That statement, can you just kind of tell us your plans for subscription for if is the future, would you accelerate the business model transition in the future? And so what would be the rough timeline We know that some of your American peers have done so over the last couple of years. Is that something that's on horizon? And then I'll have a quick follow-up.
For PASCAL?
Well, if you look at this was, of course, the subscription is the future as it relates to, to cloud and mobility, and also it is as it relates to what we call a social collaborative platforms where you are very inclusive to all members of companies on supply chain and so on. The, so that's that's a logical evolution. The at the time you have a mix between the platforms on desktop applications, you are by default with subscription. Because when it comes to the entire SOLIDWORKS installed base, the plan is to have older users, using the 3 day experience powered by on the cloud for collaboration sharing. I would say, seem very similar to what Adobe did for their software solutions.
So it's a logical nature of the evolution of the the business model. And then when customers discover that the same functionalities can be web based or desktop. It also come automatically as a subscription model. Now what Pascal mentioned this morning is that subscription doesn't mean that all months or years are equal. And as you know, we have created models that customer lags very much.
I think you mentioned Pascal this morning, Schindler, where there is a kind of a significant upfront and then followed by a subscription fee. On, clearly, customer likes this model. They think it's provide them flexibility. And that's what I meant this morning, and I think it's the right way to go.
Okay, perfect. And Then as a follow-up, just two quick ones. The first one is considering if we assume that Medidata closes in, let's say, Q3, Q4, What does that mean for your kind of M and A strategy over the next, let's say, 3, 4 years? Does that mean that you could take a break effectively make sure that you integrate it on the platform and, the you can execute on that? Or would you potentially consider more deals, maybe in some other spaces you've talked about construction for a while.
So maybe that's an opportunity for you. How do you see that And then lastly, the question is just for Pascal on IFRS 16. Can you just give us an indication what the impact was in H1 and in Q2 from IFRS 16 on your income statement?
Oh, quickly on the M and A, we have, we had always a very selected selective and selected, on precise strategy for M And A. We did a lot of small midsized acquisitions, as you well know, and even the small that we don't necessarily announce, which are very sensitive few tens of 1,000,000 or below 1000000, which are very technology and IP sensitive. And we do plan to continue that policy. It happened that Medidata, of course, is the biggest ever but the modeling we have done with the companies to make sure we keep the freedom to continue to do what we were doing before. On the on that side.
And why so? Because we have a very strong focus on brand excellence, whether it's CATIA, SOLIDWORKS, DELMIA, SIMILIA, exhaled for big data, AI, with net vibes for cockpits or Innovia or now the Catcher cyber systems we, we have very focused acquisition policy. So, the Medidata situation based on the past track record will not change this much. And as you know, our leadership team are very focused on a brand love marks, brand leadership. They have a strong autonomy to, make the right steps for, to win on that's so no real change there.
It happened that clearly for Life Science, it's the step 3 is big. Step 1 was Bio Intelligence that was successful research program in France and Europe with 7 industry players, then acillaries becoming by Ovia, which was also a very good move are now the submover, connecting research development production on client clinical trust clinical trial as it goes through the approval process. Yes, it's a big one. It's really focused on Life Science. So that's basically the policy.
On
the IFRS 16, You remember, the impact for the full year is, at the EBIT level is 0.3. And to be more precise, it's an improvement of the operating margin of 11,000,000 and a decrease of the financial revenue of 13,000,000. And if you want to speak per quarter, it's almost equal.
Okay, that's really helpful. You so much guys. I appreciate it. Thanks for answering my questions.
Thanks. We'll take the last question.
Okay. Thank you, sir. And our last question comes from the line of Amit Harkandani from Citigroup. Your line is now open. Please ask your question.
Thank you. Good afternoon, all, Ahmed Harchandani from Citi. And I just had a couple of follow on questions. If I may. Firstly, to begin with, I think when talking about the regions and geographies in the morning call, you touched upon, Central Europe or Germany growing a bit softer.
I was just wondering if you could panned a bit more on what was that? Is it just a one off for this quarter or is there more to it that needs to in Germany and whether that's a function of competitive dynamics with one of your closest competitors over there? And then I have a follow on question.
We are we are we have an excellent dynamic in, in Germany, middle stand on cyber systems in multiple industries. And I don't know what you are hearing from the competitive landscape, but I would be surprised we have won almost all the new generation of PDM PLM selection process. In different groups, we have mentioned also the Audi Cyber Systems on many others. So the dynamic is, in terms of positioning, competitive positioning, which I understand is your question is very strong in Germany for that in the in the in the in the in favor of Dassault System. I will also notice that, as Pascal mentioned this morning, for the PLM decisions out of 31 decision against our German competitor.
So the 26 of them were, won by Dassault System out of 31 on, when it comes to PDM competition against our Boston based competitor, out of 10, even out of 11, 10 were won by us. And I don't even count on that. The centric PLM displacement of the PDM in the apparel sector where there is a tremendous success of Centric PLM in the last 12 months on this. So So I think that those numbers speak for themselves. We don't announce all the wins, but it might be a lot of wrong statement on the market.
I don't know.
The reason that was my understanding as well and which was a bit puzzled when I saw the softer growth in Germany. And I was wondering if there was anything related to that? And secondly
Which which, I missed the point. What you said, what? I
No. I was just trying to say that when I was looking through commentary earlier on the previous call with regards to growth in Germany, I think it was a bit slower than I think you called out Northern Europe and you called out strength Southern Europe. And I was just trying to think of whether that was just a one off in the quarter or there was something else that maybe I would have missed from my side?
No, no, but to compliment what they are now state. The market is relatively soft Germany for the time being. The it's not coming from the competitive situations. On this, I can, can prove And if we look at the pipelines, we have big transactions coming from Germany. So I would say it's much more the time frame whereby people were questioning their investments and especially in the auto sectors.
And especially in the supply chain, I should say, to be more precise.
That's why we insisted this morning on the incredible dynamic in China on the auto sector because they are investing massively for new generation of technology. And I think this will be, as we did, of course, with Tesla on users, And I think that, will probably create new challenges for traditional players to rethink about, how to insert faster innovation in their product. Product portfolio.
That's very helpful. I think that clarifies it. And Secondly, if I may, you've talked about how your revenue streams are evolving contribution from subscription changing over time. Some pickup in cloud. And then we always talk about the go to market between direct and indirect for the different products.
Is there could you maybe remind us or help us understand as things stand today? If in terms of your various products, to what extent each being driven by direct and indirect and has anything changed given the shift towards subscription that we need to be aware of?
Yes, there is no, specific, transition from 1 to 8 the other. Let me The direct sales force is focused on what we call business transformation with large clients. Then we have a second way of engaging with clients which is value solutions, basically those clients buy the platform and the process on roles, what we call process on roles. They don't buy capabilities anymore. They buy the possibility to do the new jobs for their workforce We call this process unrolls.
And then for the volume transaction base, the former PC channel, solid work channel, is evolving to a more industry sensitive with industry roles on and this is powered by the 3DEXPERIENCE platform, more mobility on the cloud. So basically, what is happening is each of those 3 nature of engagements are decided based on where the customer is in terms of driving all this on the platform's standpoint will help to edge, edge, who of the best partner should be fulfilling the customer needs. And that's how we are creating a built in omnichannel approach for the best engagement for the clients. There is more to say on this, but it's very clear from an engagement system with And that's how a boom client was a solid work for the prototype and became full 3 d experience for the new product that they will produce. That's how, company like, also companies doing robotics, I don't know if you have announced them, are also using, are also using the 3DEXPERIENCE platform in conjunction with solid work desk top.
So that new flexibility is really highly appreciated by the clients.
Thank you for the details, Bernard. Thank you.
Welcome.
We'll take one very, very last question. Michael?
Thank you sir. Yes, Michael Briest from UBS. Your line is now open.
You mean at the end, Francois. A couple from me, just on Pascal on SOLIDWORKS, you talked about a weaker license growth. Can you say whether units at grew or shrank in the quarter? And then just looking at the guidance for the year, particularly Q4 implies quite a slowdown? And I know there are difficult comparatives there both on Innovia and SOLIDWORKS.
Is that something you're mindful of? Or is the perhaps also an element of macro caution you're factoring in? Thank you.
Okay. So in term of units, I think we were flat compared to last year,
okay, for
SOLIDWORKS. But again, remember, last year was an exceptional quarter of on this front. Coming back to your second comments related to Q4, I just want you to remind one thing last year, we overachieved by
20,000,000.
And if you take the high end of the guidance, I gave last year, it was an over achievement, almost higher than EUR 10,000,000. So if you rebase, if you want accordingly by taking the 10,000,000 up, you will see that the growth we are targeting is decent. And at the end, Michael, the most important for me is to deliver the commitment TiVo took 5 years ago to where most of you have doubt in a year ago, we will be capable to deliver. That's
doubling the EPS in 5 years.
Understood. And then Bernard, just one for you. You mentioned Paris here a couple of times, this afternoon and this morning. You got any sense of the quantum of the piracy issue? And is this a solid work issue?
Is it more broad in the portfolio?
It goes across all portfolio. So we will have progressively to, to clean that. And we do it in a professional way. At the end, we want to make sure that customer is is okay with the way we proceed. And up to now, it has been a very good, acceptance, but we need to expand.
Okay. Thank you very much.
Thank you. Welcome. With that, thank you very much for all of you to be, some of you were this morning in Paris. So afternoon here. And of course, we stay connected to address any of the questions you might want us to address.
And I think we have now a new, a new date 2 new dates. In fact, we of course, the 3rd quarter coming. And
Yes. Science in the age of experience in Boston in October, mid October. And we have, potentially, if we have been able to close the transaction with Medidata, this half a day, strategic session with you guys, the 13th November in New York, So I hope most of you will be able to attend.
Thank you. This does conclude our conference for today. Thank you all for participating. You may now disconnect.