Good morning, everyone. I'm Francois Baldonado from Dassault System Investor Relations team. From the company we have Bernard Charles, our Chairman, Chief Executive Officer and Pascal Daloz, Executive Vice President, Chief Financial Officer and Chief Strategy Officer. I would like to welcome you to Dassault Systemes 2nd quarter 2019 earnings presentation, which is also being webcasted. At the end of the presentation, we'll take questions from participant and on the from the audience and on the with the casted call.
Later today, we will also hold a conference call. Vassosystem's financial results are prepared in accordance with IFRS. In addition, we have provided supplemental non IFRS financial information for understanding of the differences between the 2, 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 2018 document reference. Let me now hand over Bernard Charles, by Chairman and Chief Executive Officer.
Good morning, everyone. This is an exciting time with all the activities going on for Dassault System. Okay. Sorry for that. With, I know you have read by now the press release on, you have noticed that the revenue, all the numbers are on the top of the guidance.
So we want to keep that discipline. So Congratulations, Pascal. The total revenue is up 13%. Organic software growth is up 9%. On, we continue to have in our core industries as well as in diversification, double digit growth of new licenses.
Not disabled this quarter, transportation and mobility. The reason why we mentioned it is because there were a lot of questions related to the production volume going down specifically the China situation. For us, we observe a strong dynamic, why, for a simple reason, that the system provides collaborative platform to create the portfolio that you will see on the market in 5 to 6 years from now. So, that's the focus we have. The second thing is we provide digital manufacturing to really continue to improve and reduce cost of manufacturing, increase the quality on improved value chain performance.
So It looks like in, contradiction with the what is published on the sector dynamic for volume production, but it's not at all in context in the contradiction. It's aligned because it's about innovation. Same in aerospace And Defense, double digit growth. Home And Lifestyle, as you know, with the move to buy Centric PLM, we are really creating a mainstream product lifecycle management for apparel and retail, home and lifestyle, We have with Centric PLM announced many, many wins, significant wins around the globe. Winds like, of course, the LVMH group, Kering and many users, top brands, Moon player, for example, in France, on many users around the world of China.
So this new brand for Dassault Systemes is progressing very well. The UPS is up 20%.
I
think if you look at those numbers in context of our strategy implementation, both for my purpose, as well as strategic social industry experience. I think we have good illustrations about the fact that we are walking the talk to make it simple. Cloud adoption is very good. We announced illustrated this possibility to create cars, new vehicles like last mile delivery vehicles with the Renault group, all on the cloud. It's really a new way to organize the collaborative development and production.
Of new categories of products or new categories of customers, creating new categories of companies, not for example, Amazon Prime for a delivery on others. And we are confirming on upgrading the full year 2019 guidance. Pascal will come back on the correspondence of all these numbers in a moment. We are also very pleased by the way to confirm to you that the plan we are now for, that people announced with me in 2014, for a double doubling EPS over 5 years. So I think we are going to achieve it on this without taking into account media data.
So 5 years plan has been working and we, I'm sure, next year, at some point in time, we'll come back with an update provided the evolution of the scope. The diversity of industries is accelerating, diversification, but also diversity within industries. This is just an illustration of so many innovation programs going on around the world where we are at the center of this innovation fab labs, a new capacity for industries to do innovation. The core of what we believe is a sustainable double digit growth is the platform phenomenon for business. We call it the 3DEXPERIENCE platform.
It's not an IT view of the world. It's a collection of services on the cloud. On private cloud, we call it on premise or clients to connect all the actors that are contributing to the innovation process, engineering process, production process, uneven sales and marketing. Platform phenomena is known for consumers. It's happening for companies.
On Again, for us, there are 2 aspects with it, which we believe are fundamental for the next 20 years. One, the platform has a system of operation to develop highly complex products on the platform to create new business models. I will in the moment illustrate to you how this is happening in the market. Platform is game changer for the entire industry in the world. It's visible in our numbers.
And for those of you who are looking at the 3DEXPERIENCE as an update of software as compared to V5, it's much more profound than that. It's a game changer for all industries. Why so? Because the process for collaboration is changing, we have in our platform tools, which are as easy as WhatsApp, slack, messaging, all integrated in a secure way for collaboration. And it's as simple to use on mobile, as those, you know, when you exchange your reference, but as you know, those software, which are used for consumers are not acceptable for the businesses.
No IP production and no security. And no connection between the systems. Our platform does it all in an integrated way, and that speaks for the next 20 years. You see here illustration of what it means. Connecting that to purpose It's about the game changer of the platform to do sustainable innovation, harmonized product, Nikkeon Life.
On that aspect, we see it happening in all types of industries, transportation and mobility with electrification, autonomous vehicle. Whether it's fully autonomous or not, it's not really relevant, but the robotization of smart equipment in our lives is ear on ear for the long term, which means automaton reducing errors, increasing safety on many more. You see it also in compliance and certification to a secured environment. You see it in fundamental technology like battery technology, you see it in a new type of categories of vehicle or even flying systems drones and so on. And you see it in the new production systems, smart productions.
We are doing far more than industry 4.0. We are creating what we call on demand real time, flexible highly autonomous production systems where people inside the company inside those plants are at the center of the optimization. So people is at the center, not the automation. You have anecdotes in recently, from many companies where they have presented that this was important. It's about knowledge and know how, what we call the workforce of the future.
We were very proud with PSA to be recognized as the number to have helped them transform their companies. So when I saw the results last year, 1,000,000,000 of profit, I think we are something there. On the results out there, and they have systematically adopted the platform. It's important to notice that even the speed at which the platform was deployed across Opel in less than 18 months is probably have has been never seen in the sector up to now, never seen, which shows that the platform phenomena is something which is very profound for the future of the industrial 21st century. We call it industrial renaissance.
We continue to have a very strong dynamic in China with big players here. It's a gap group on its large installation and they use the platform as a common language to really power all the current legacy that they have step 1 and then step by step replace the legacy systems they have. So the platform is inserted, connecting all elements together, and then creating the digital pipeline for the future. I've already mentioned innovation group, local, where they have been developed developing very, very innovative vehicles for last mile delivery and for also our activities. Clean vehicle, green vehicle, all on the cloud.
So people are getting a perception, but cloud is good for action, social network and so on, it can work for the industry. It does work for the industry. Of course, we will do edge computing. What we call edge computing, computing aside, for plants, because when you do real time control of a plan, you cannot do it through the cloud. You have to be localized.
So we are doing both cloud, Edge and mobile. The architecture that we have at Dassault Systemes is absolutely unique for that. In Aerospace And Defense, we continue to concentrate on production systems, the performance of production systems and quality with the rate, the backlog of airplane which are on order has never been as high. So they need to be produced, managing the complexity with smart systems, and this is what we call cyber systems, integrating software, hardware on mechanical systems. Supply chain moving to value chain.
You remove the players, which are not contributing to the value production. And aftermarket as well as a lot of startups in the sector. It's unbelievable.
Safran Electronics And Defense is a company of about 8000 employees that is a world leader in optronics inertial navigation and embedded electronics. One of our issues is to improve our efficiency in terms of development. Develop faster, cheaper, more complex systems that require a growing number of business units within the company and among partners. To this end, we must modernize our processes by adopting a next generation solution. It's one aspect of our company's digital transformation.
The goals of Safran Electronics And Defense's digital transformation are to guide and support operational and functional management to strengthen the company's position in its markets to improve customer satisfaction and gain competitiveness and agility. The backbone of Safran Electronics And Defense is the mastery of the configuration management process. From the beginning to the end of the life cycle of our products. Therefore, PLM is at the heart of our digital transformation And that's why we chose the 3 d Experience Platform. Decency stem brings its expertise and its experience to enable us to implement the 3 d experience solution in the most optimized way with minimal customization and to have a scalable solution that will continue to be state of the art for decades.
On all those of systems together. That's the 21st century industry because everyone knows that all products we're going to use in our daily life in medical in house and so on are going to be smarter and smarter. And they need to be more sustainable, of course. But this integration that has been costing billions for the industry must be done at the platform level with a multidisciplinary collaborative approach. We are very pleased to have our sister company they were the first to start with what we call V6 at that time.
They were the 1st customer in the world, and they have created very innovative processes on systems and now by adopting the 3DEXPERIENCE platform, they are going further because what they want to do is AI based data centric services to their clients, which means new type of services, for example, availability of system operations predictability for maintenance. So we have the AI on big data technology in the platform to address needs that are used with some other solutions up to now and that I will make then point solution as compared to a platform integration. This is coming from the Exelite technology. If you remember some of you following us So this advanced approach is transforming the nature of service the companies can provide to their final client in this case in the military sector. BouMI Aerospace, they want to do a supersonic business chat.
They started the prototype with solidworks and they decided to adopt the 3DEXPERIENCE platform to go for the official products. So it's quite interesting because it's a startup, not a lot of people creating amazing innovation, on using the platform with suppliers to connect everyone together in a consistent way. So it's a showcase that shows that startups are changing the game. For many of the sectors. High-tech is also evolving, both from experience, nature of products which are produced as well as, of course, a fast integration of new technology because it costs a lot to do the substitution for them of new component when the technology is evolving and they want to create affordable products for people.
There is a connection, by the way, with medtech that need to be understood. We are one of the first player in the medtech sector, what they call personalized equipment on the connection for the future of health care system where tech equipment are connected with biologics is going to be an important factor topic that we will come back with Pascal in your Cloperating cash term, the Medidata. This finalization hopefully. Cyber is so important. Cyber has been used for military cyber is civilized.
Cyber is about controlling smart systems to provide the proper services to people in plants in real life on daily activities. So cyber system is at a very core of the future of our CATIA 3DEXPERIENCE solutions, integration of software, smart systems, big data on AI with physical systems mechanical system, hydraulic system and so on. So the cyber system, we are in a very unique position after the acquisition of No Magic This is used massively by DoD on many DoG, DoE, energy in MR on many other sectors. And it's a game changer because it's about integration of all parts. This is an illustration
connectivity is in course's team.
Connectivity is a big topic, and it's quite challenging to ensure connectivity outside and inside the vehicle. Manage all the data and fine tune the overall system.
The product development, connectivity generates more complexity. To master this challenge, We have chosen a model based systems engineering approach to ensure a holistic view of the overall systems, engineering, and the use of the 3 d experience platform ensures that all disciplines software, hardware, mechanics, can always access the most up to date data and the digital twin simultaneously.
Through Kaizen Clinic, that is harm, BIA.
Thus, we have a single source of truth. In addition, it was important for us to be able to integrate existing systems supporting different disciplines to the platform. We examined and successfully confirmed this during our proof of concept.
Courses stream hours of the automotive.
Another major concern that drives the automotive industry with initiatives like Ace Spice is full traceability from requirements up to validation within the V model with the 3dexperience platform. We can guarantee this traceability. With the 3 d experience platform, we ultimately ensure the competitiveness of Bosch Karn multimedia in the future. Hence, we can create products that are among other things, invented for life.
Of cyber system, the future of CATIA Cyber system to be very simple and clear. And this is what we are doing now. On the simulation, of course, multi physics is important. This is administration with Fuji Xerox. Doing full simulation of reducing massively the number of physical prototyping in this kind of highly sophisticated technology integration.
Now if we look at the purpose harmonizing product, nature on life, construction and city on are very core to Dassault System Future. How do we do the digital twin experience of a city, the infrastructure the way communication else are provided, health systems are provided, services are all mobility of people on goods are organized are part of what we call the game changer approach. For a platform based environment for development of cities.
Based on the research study by Mac McDonald in Hong Kong, the city is focused on improving the walkability of its various districts. This is a multidisciplinary project that requires the participation of 9 different governmental departments. Using the 3D experience Citi referential on the 3D experience platform, each department is able to collaborate effectively using the same data sources. With the City Mobility analyst role in the 3DEXPERIENCE City context, this multidimensional walkability study aims to improve the design and improve the walkability of Hong Kong, the city has established scoring criteria to compare different city districts. This 3 d experience role allows planners and regulators to simulate various itineraries and make informed decisions on urban development projects.
Improving the city experience for cities
because we are not convinced our hometown that they should use the same approach. But this is game changer, as you can imagine, because many of the agencies are not having hard time to connect to each other. It's highly complex. It's one of the most complex things, the city. When you look at people, goods on the way, quality of life distribution of energy and all services should be organized.
It's, of course, done with extreme costs today. It can be reduced. I mean, that's what we are playing,
here, which is basically the
old sector was called AEC Architectural Engineers Construction, We think that we are taking an approach, which is very holistic, which is really a global approach whereby the building is only one piece. It's one part of a more complex system. And that's the game changer approach that we want to have in what we call construction cities and territories. And it's working quite well with Singapore now Hong Kong, Shenzhen, a section of Sanjane is also being done this way. And there are more coming in this area.
Of course, the decision process are a little bit different than it is for B2B, but in certain certain countries, the city decision can be organized like a business. When it's too political, it does not work. On the education, we also continue to have a very strong focus with here, the showcase of Southern California and Secours of architecture?
We are really pushing the boundaries of technology, innovation, and it's a constant kind of reevaluation of architecture on this future generation of architects. Syedab is an incubator for a new generation of province to others, redefining architecture, looking out on other industries and other areas looking at for technology, creative way of rethinking the problem. And that forces us to really search for advancement within the software and within the technology that we're using. We are then using the 3DEXPERIENCE platform in a very specific way. To developing a baseline of knowledge on all these generic components.
Then I push a little bit forward and look at, okay, You guys are evolving in a very dynamic environment. You have a certain flexibility in the way you create things. Let's see how we can use 3 d experience. That has parametric technology. So now your geometry and the forms that you're creating have intelligence and they relate to each other and they on than certain relationship between these elements.
As the students become more engaged in the kind of designing and modeling with Tradisia's platform, It also allows them to start building up on these relationships.
There's very much the gap between architecture or art. And it's a good software for connecting the steel world because I'm thinking about what I need to make, like, in terms of geometry, in terms of starting from 1 and align and it becomes a building. It qualifies you not anymore as an artist, purely, but more as a professional
I think the 3DEXPERIENCE platform is in some ways a whole new world for them. The big moment is to realize that a 3dexperience model has a live cycle. And so once they begin to understand that frac people shift in thinking. And then we see kind of a large progression in the way they're able to kind of manipulate the information and the jump
That's only a question of political game. It's a question of imagination. And really the fact that all business can imagine new solutions will be at the core of a more sustainable circular economy because today, it's quite fragmented on the platform phenomenon for business is changing that approach. On the media data, we have announced our motivation to acquire the company. It's it's a big move for us next month in 1, 2.
And we believe that there are good rationale for this to be done. We need to go through the process and Pascal might add a few things in a moment on this. But what we observe is that if you look at the full cycle, life cycle for, all discovery of new biologics. It's a very long cycle. Dried development is about 10 years.
Cost of development is roughly about 1,000,000,000 each time for each molecule success rate is lower than 10%. Think about it. It's like if we are doing 10 airplanes on only one would fly underperforming underperformance are about 50%. So I think there is something to do here. In the way the collaborative process is done, the way modeling simulation is providing new value to it on the way clinical trial can provide higher visibility for this to be better integrated.
So that's what we have concluded. We with the 2 co founder, Taekon Glenn, and they are highly motivated to for us to be together to really be game changer at the beginning of this 21st century in that sector. So that's the motivation we have here. Basically, we take the same systematic approach. What is happening between the time you imagine a solution and the time you go through all the processes to deliver the solution on a solution that will be safe, efficient, the efficacy of medicine is very important and also ensuring alignment, compliancy.
With the way it's the practices are implementing in the medical sector. So it goes from a research discovery preclinical one what we call 1 lab designed to cure. Those blue box exists today, licensed to cure, which is basically collecting the documents to prove that you have done the right things made to cure, which is about really the way you produce those molecules And when you look on commercialization, of course, and then the implementation of the practices and when you look at this clinical trial is a huge section of this cycle, the spiral of innovation, as is the launch of the product, especially especially for, when it comes to trade training, and it will be increasing with personalized health when you work with smaller community of passion. So it's very complementary. This is not about synergy.
This is about the exponentiality of creating things that does not exist when we are together. So that's the what we have done. And we have also announced that we are investing in a startup company. In fact, the founder is a former ADASO system a mumber, creating a great, great company called Biocelinity and we are taking a position there. Investment position.
They are doing great things, personalized equipment to do hard surveillance or brain survey for people having a time to sleep. And we think that this is connected extremely well with medtech on the connection between their life science practices and the real time acquisition of data so we can better understand how to improve a decent environment for people. And of course, it connects with a lot of technology that we master well, IoT, for us IoT, which is just an enabler, what you need to do on top of it is really providing it the providing the final services. There is a big conference going on on July 23rd and 24th. In U.
S. With the FAA to really look at, it's called the 5th Annual Living Heart Symposium. We as you know, we have with our platform created the art model with a muscular tissue on called signals. It's used in many research activities related to art surgery and heart disease. And this conference is really extremely well supported by the FDA, with the regulator, which is like amounting to do more and more modeling and simulation in this sector.
So it happened that it's happening today on Finally, in India, there is a publication of the global innovation index in which we are very much involved on sponsoring also because we think that a lot of the characteristics of our solutions is to change the world of innovation. With that, thank you very much and give the floor to Pascal. So he will be revealing to you to sit right behind the numbers.
Thank you, Bernard. Good morning to all of you. It's always a pleasure to be here with you at that time before the summer break. I mean, it's even better when you have good news. So I think, you noted that the results, the Q2 results and the first half are extremely good, not only because we are delivering the high end of the guidance on the top lines, and we are exceeding, in fact, the guidance on the bottom, but because the growth drivers, which are supposed to fulfill the growth are in place.
And the corner stone is really the 3 d springs platform. And you have some metrics on these slides, and you see the license growth for the 3DEXPERIENCE platform is exceeding 17% for this quarter. The total software growth for this quarter is 52%. And if you look at, for the first half, it's 40% growth for the software related to 3DEXPERIENCE platform and close to 50% for the new license. So those metrics are extremely good.
And it's the proof that the 3 d experience adoption by the installed base is going on. Zooming on the different regions of the world, Americas is growing nicely, 16% from first half for percent for the quarter. It's mainly driven by the direct sales force. And, we have large deals going on especially in aerospace, energy and consumer goods where the traction is extremely good Also, we have a good contribution of the recurrent part of the software, and we have to notice that the U. S.
Market is probably more advanced in the subscription based approach compared to the rest of the world. And obviously you also have the contribution of the we did last year, namely Centric PLM as well as IQMS, so called DELMIA Works now. And if you look at the organic growth for Americas, we are close to 10%. So which is very good. Europe 13% for the quarter, 11% for the first half.
I would say Europe is, in fact, growing nicely everywhere except Euro Central. So if you look at the north, we are growing nicely more than 30%. If you look at the south and specifically France, we are growing between 15% to 20% and Euro Central and Germany, we are growing at 6 percent for the first half. Asia, 9% for the quarter and the for the first half, And almost the same story, we have a extremely good growth in China and India, more than 20% for both countries. And the rest Correa, Japan and EP cells, Asia Pacific sales, is growing a much a modest rose between 5 to 10.
So overall, the dynamic is good in all the regions of the world despite the macro environments. And I would say, the core industry as well as the diversified industry are really fulfilling the growth almost everywhere. For example, in Europe, the auto sectors is still dynamic for us as well as the aerospace. From a product line standpoint, few things to notice for this quarter and the first half, The first one is the CATIA, and I'm very proud of CATIA growth, 12% for the quarter, 9% for the 1st half, overall software. You remember, Katya, it's a 1,000,000,000 revenue line.
So it's significant. And as you remember, a few years ago, some of you challenging me about the ability of CATIA to grow more than 5% on the long run. Now you have the proof Then when the 3 gigs comes platform is deployed and in operations, this has automatically an impact on the ability to grow at double digit. Innovia, 14% for the first half, 9% for the quarter. Again, high double digit growth, it's pretty in line with the performance of the FedEx funds platform.
The key point I would like to focus on is the competitive win. Again, same story a few years ago, I remember So maybe all of you are challenging us on the ability of Innovia to win against windshields, and team center. And I will give you some statistics for the 1st half of the year. We have been in 11 times at the last round in a position to fight against PTC winching. We won 10 times.
We have been thirty times in the final rounds. We are fighting against team center we won 26 times. So I think this is a good metric for you to assess the competitiveness of Evelia when Innovia is combined with the 3DEXPERIENCE platform. The disappointment for the quarter and the first half is coming from solidwares, 4% growth And to understand a little bit, we have to dig into it. For point number 1, the revenue is the momentum is extremely good in Asia.
So the contract performance, I will say, is coming from Europe and U. S. Where we have the large installed base. The recurring part of the revenue is also in line with our expectations. So the takeaway is we are convinced that it's a time to accelerate the adoption of the 3DEXPERIENCE platform by the largest SOLIDWORKS installed base we have.
You have to prove that with CATIA, when it's happening, we are reenergizing, in fact, the growth. And I think this has to be done with study works as well. The product plan is on, I mean, we are on the product side, we are ready. The channel enablement needs to be done and accelerated. This is the the game for the 2nd half in order to be ready for the full year.
The other software lines is growing nicely at 20% to 21% for the 1st half. And we have a good double digit growth led by DELMIA as well as Simulier. And from a pure organic standpoint, because in this line, you have all the acquisitions. From an organic, we are growing at 15%. So clearly, the fundamentals are also very good in those lines.
And it's an interesting quarter because I remember a few years ago, you were challenging us on the fact that the growth was heavily dependent on SOLIDWORKS. Now you have the proof that we have more than only one engine to continue to fulfill the growth. Fewer being on the financials, and that will be very quick because you have all the details. So total revenue growth for the for the first half 13% excluding the currency effects, same for Q2. More important is the organic growth.
We are delivering 10% organic growth for Q2, 9% for H1. As more important, it's 9% for the software. And if you compare to last year, it's more than three points. And I just want to remind you when we gain one point on the recurrent part of the software, which represents 70% to 75% of the revenue. This has a significant impact.
So and you have, on the software side, the numbers. So if we zoom on the software and we split between license and subscription and support, 13% growth for license for the first half, 12 for the quarter. And 7% organic growth and 8% for the first half for the license. More important on subscriptions and support, 12% growth for the quarter and the first half of the year, and the organic growth is 9% for both. So clearly, it's an interesting first half because it's almost the first time where more organic growth is coming from the recurrent part and the license.
And this is, again, the proof point for you that The subscription is taking off for us. You have a large contribution of the large project we have Boeing being one of them. The mix is driven also by the 3DEXPERIENCE platform because you remember, the support maintenance rate is 2 to 3 points higher compared to the traditional V5. So those factors are really contributing to fulfill this growth. The services is also very dynamic for this quarter.
You saw 27% growth, excluding the currency effect, 15% organic growth. In order to fulfill all the projects. But I think the key points, going a step forward to the dynamic is it's the proof point that all the big project we sold last year or 2 years ago, we are deploying them because the services is a good indicator about the quality of the deployments. On the operating margin, 6 key improvement on the organic activities, with more than 220 basis points, which is largely sufficient to offset the acquisitions coming from the acquisitions 120 basis points. And we have a positive impact on the currency, which contributed to 40 basis points.
So clearly, a significant lever on the margins, for the first half, The the extension for the organic part is coming from the mix because the more recurrent part you have in the revenue, the battery the EBIT margin. And also, again, we are still a little bit late in the hiring process, especially on the research and development side, And we expect to catch up because usually in research and development, we are hiring the people in September, October when they are graduate, in fact. Moving on the EPS, all the good momentum you have seen on the revenue side and the operating margin side as a direct impact, $0.82. It's $0.04 more than the high end of the guidance we gave to you So and it's not due to the tax because you see that we have a tax rate slightly increasing compared to last year for the quarter as well as for the first half is really coming from the better performance in the execution. The cash flow, so the cash flow is I would say quite impressive.
Because we have generated last year of this first half, sorry, 814 sorry, 1000000, which is almost equivalent to what we did last year for the full year. So in half year, we did almost what we did for the full year. And we are lending with the debt financial position exceeding 1,000,000,000. In fact, it's 1,000,000,000, which is a good positions compared to what we have to spend for the acquisition of Medidata. And it's also the proof for you that We have a good machines to generate the cash to reinforce the debt.
We're going to raise to fund the acquisition of Medidata. The performance is coming on both sides from the net income as well as the operating improvement on the working capital. So those this is also very important for you to understand this. There is only one thing I would like to mention. The DSO has decreased by 2 days, and it's coming from the acquisitions.
So specifically Centric PLM as well as IQMS, DELMIA works. And in less than 6 months, We will apply the same disciplines we are applying to the rest of our business to catch up. From a financial objective standpoint, Let me give you some data points on Medidata and where we are in the process. So all the antitrust clearance has been received, especially the U. S.
And the German 1. So it's done. The ECC has approved the proxy statements. So the proxy statement has been sent to the shareholders of Medidata last week. And this is the reason why they've been able to organize the shareholders' meeting August 16th.
So we expect to have obviously a positive decision for them. If we look at the calendar we still expect to complete the acquisition in Q4 or possibly in Q3 if all all the condition to the closing are satisfied. So if it is in Q3, end of Q3, what I will do, I will announce the Q4 guidance and the full year taking into account BD data into the numbers. I know you have a lot of questions related to the synergy to the perspective on the long run. Again, do not expect me to answer to these questions today, but I will.
And do I am asking you to save the date and we will organize a life science day on November 13, 2019, in New York, So most of them will maybe be in New York because the SAP is organizing the capital market as the day before. But more important, we have our user conference with Medidata at that times, And we really want you to be, to be part of these events because you will have not only the comprehensive, presentation on the strategy for the life sciences, but I will disclose at that times the long term plans for Medidata. Coming back to the guidance, a few things. So first of all, we are adjusting the revenue and the EPS taking into account the currency gains we have in Q2. And the anticipations gain we're going to have in Q3, because we are also aligning Q3 at 1.15 for the exchange rates between the euro and the dollar, it used to be 1.20 previously.
This has an impact because it's plus 1,000,000 at the revenue level and plus at the EPS level. If we look at the numbers, so on the revenue side, on the top line, no change except the currency impact I'm taking into account. On the software growth against same things, 10% to 11%. So I'm confirming the guidance for the full year. I did one adjustment nevertheless between the license and the recurring.
If you remember in the previous guidance, I was guiding the recurring between 9% to 10%. So now I'm aligning on the high end of the range at 10% because we have a good visibility on this. And given the contract performance of SOLIDWORKS, you remember, I guide the market, previously telling you that it will be between 5% to 10%. So just because I just want I do not want to disappoint you. I took into account this into the license but overall, it's neutral.
On the EBIT margin, 32.5% against high end of the range, plus 6 points improvement compared to last year. And the key point for you is in the previous guidance, I was guiding 80 basis points organic improvements. Now it's 100. So it's a little bit better. You still have 120 basis point dilutions coming from the acquisitions.
And we have 80 basis points coming from the currency effects. Which allow us to lend for the EPS at the 3.45to350. Which is, as Bernard stated, our commitments, we did, we took 5 years ago. And we are not only proud, but I think it's it's a demonstrate to you that when we are stating and we are giving guidance, even if they seem sometimes a little bit long, we are sticking to it and we make it happen. Q3 is well aligned with the consensus for revenue be between $890,000,000 to $905,000,000, a growth between 10% to 12% excluding the currency effects software grows between 9% to 11%, license 8% to 12% and recurring between 9% to 11%.
The EBIT margins between 29% 30%. Table to plus one point. I put some flexibility here because I'm still expecting to catch the on the hiring side. And this is allowing us to deliver an EPS at 7 dollars to $0.74. I, you notice that I change the current the exchange rate for the dollar at $1.15 for Q3.
I kept $1.20 for Q4 So maybe you will see this as being a little bit conservative, but again, I've been fully transparent with the currency gains the beginning of the year. And usually, I'm taking, I'm giving, I'm really integrating the currency gains into the guidance. That's it for today. So in conclusion, it's a good quarter. It's a good first half We are committed to deliver the 3.5 EPS for year 2019.
And it's a good start for the next plan. The next plan starting from 2018 to 2023, targeting because all the world's drivers, place to make it happen. So Bernard and I are ready to take the questions. Thank you.
You have questions?
Good morning. It's La Rondeau from Kepler Cheuvreux. I have two questions. The first is going back to your full year guidance, the organic margin development. Basically, you improved by more than two points in the first half.
Can you comment a bit more on the investment, the magnitude of the investment you're planning for the second half? Because it seems extremely conservative to look for no improvement organic in the second half. And the second question is on the recent acquisition at QMS and Centric, if we could have a little bit color of the organic growth of the performance over the first half of this year.
Thank you. Okay. On the margin for the second half of the year, again, as I told you, I expect to catch up on the research and development side. So and this is key, yes, because Investment investment, yes. Investment, because we are, we are expanding significantly the scope of what we do.
We are accelerating the platform developments. We are transitioning massively to the cloud. So this is, I mean, we need to invest in a way to make it happen. So take into account that this will have an impact on the EBIT margin side. I also still see a lot of positive momentum for the services.
You have seen plus 13% for the first half. And as you may know, the services had to create some dilution at the EBIT margin. So this is also the reason why maybe you could consider that I'm a little bit shy, but I took those 2 points into account.
On the Centric on IQMS, IQMS is becoming DELMIA works. Part of the intent with DELMIA works is to do mainstream ERP. For all companies, we need we are producing 6. That ERP for all type of companies, ERP for the company is producing things where we start from what we call manufacturing execution system or manufacturing operation system, and we do all ERP. Function.
We are we just closed it in January. So,
it's
a little bit early to provide more in sites and we are really in, built up mode, because as you may remember, we explained that we are building, expanding the indirect channel called professional solutions. The former SOLIDWORK channel to expand the knowledge on the partners to sell indirectly. Most of IQMS sales up to now where direct sales and to go mainstream, we need to set up the channel on it's taking going to probably take over a year to set up this properly, but I think it's an important thing to do. Nevertheless, the direct sales force need to continue to do the job they have to do, but I think the labor for growth is going to come later. I left Pascal at whatever he wants to do.
On Centric PLM, extremely strong dynamic. In terms of brand prestigious brand acquisition. It's we are very pleased with the dynamic going on with that, I don't think we have published much detail, but it's very high double digit?
Yes. Or it's something I share with you about the good dynamics in the life lifestyle and home equipments segments. So this segment is growing more than 30% So with this, you have a good sense about the performance of Centric PLM. A point, which is very important for you, you remember Centric PLM was a license model mainly, and we are progressively transitioning to a subscription model. So this is also an important point for you to notice because the market is really suitable for subscription.
We'll take now one question from the
Operator?
The first question is coming from the line of Adam Booth. Please go ahead.
Hi. Good morning, Bernard. Good morning, Pascal. Thanks for taking the question. I've also got a couple if I could please.
And just first of all, coming back to Solid Works and then the general comments on the macro environment. Could you just maybe talk a little bit about the work when you've looked into that SOLIDWORKS weakness how you get comfortable that that's not a kind of forerunner of some macro weakness to come in the rest of the business. You've always identified that as a kind of lead indication of what's happening. So what reassures you on that? Can you maybe just talk a little bit in terms of what you're seeing linked to with, with new deals and customers, is there any increased reluctance to make commitments?
I think we've heard other companies talk particularly about Asia and China. Could you just talk a little bit about what you're seeing there and link it back to sort of the works? That would be really helpful. And then maybe just secondly, on the on the services business, you talked about a mix of 3 d sites and 3 d experience revenues driving that. Could you talk a little bit more about what you're doing particularly around 3 d experience.
Is this actual implementations that you're doing or is this also consultancy work that could lead to more projects coming through. Again, just a little bit more color on that would be great. Thank you.
Yes, Adam, thank you. I've related to solid work. The dynamic There is still a vibrant community, very positive feedback about the product as basically the users loves it. However, it's clear that we are going through a transition with solid works. The transition is to make it platform enabled.
Our platform is change is game changer and we are what we call PowerBuy, it's basically a way for SOLIDWORKS users to take the cloud of the 3DEXPERIENCE platform. To do data sharing, PTM functions, collaborative innovation using the platform. The channel is learning how to do that, but we are not there yet. And I think that's swelling, if I may. So consuming energy from the, what we call now, professional channels.
So if you add to the 2 things together. DELigna works in direct platform go to market preparation for the channel. The channel is busy. I don't think there is any, Adam, there is any structural issues that you should be concerned with. SOLIDWORKS is really competitive.
It's the best solution. For design for what we call mainstream sector. It's clear that if we look at the next 20 years, not 5, next 20 years, The lever we've platform on the linear works as well, by the way, single year works are going to be significant. Not add ons, but, digital transformation capabilities for midsize companies. And we want to play this properly That's probably the explanation for low-one digit growth as opposed to usually 2 digit growth, but I don't think there is anything outside those elements.
And we need to go through that transformation when we can afford to go through the transformation as the dynamic of the 3DEXPERIENCE platform is very strong. So that's for SOLIDWORKS. Service? Service? Feel free to add anything?
Yes. If I want to compliment and give you some high level numbers, again, Adam, remember that the dynamic is still very good for SOLIDWORKS in Asia and especially in China. So Sullywords being an early indicator of the macro. This is probably the region of the world where you could expect to have a slowdown and we are not seeing it. So this is the reason why we came to the conclusion that the explanation is much more what Bernard is seeing than the macro per se.
Coming to the services, your services questions, it's a good question. In fact, you have 2 third of the services dedicated to the deployment of the project, and you have 1 third dedicated to the high end consulting. We do to, at the early stage of the project. So clearly, and the dynamic is good on both. The
net
question is coming from the line of Stephen Pollard. Please go ahead.
Just on the 3 d experience platform. Now that's been a differentiator for you to win a number of large deals. Do you think any of your competitors have anything similar or who is for the salon in terms of developing something like it? And then second question, kind of following on that, given the many large deals that you had plus that 3DEXPERIENCE platform adoption, do you think this has improved your longer term visibility obviously in recurring, but any color you can give there? And then may I ask a quick third one, just to follow-up on China.
Can you maybe talk about industry verticals that were sort of stronger weak or relatively stronger weak?
3Dx thank you for all the questions. 3DEXPERIENCE platform itself, it's a very significant differentiator. And I don't notice any of the current players in the industry being even close to to what we have. And I think the gap is not going to reduce. It's going to extend significantly.
Our intent is very clear. This 3DEXPERIENCE platform is inclusive, but to be used by everyone that can use a Facebook or WhatsApp or slack will use the 3DEXPERIENCE platform. Believe it or not, and I can show it to you. We will show it to you. Real version, in February when we have a bit more time to do it.
So it's inclusiveness to connect with everyone in the company makes it so differentiating. On a mobile, are you it personally every day for everything. I don't use email anymore except with people sending me email, most of them are junk. But it's on the platform. All customer engagement that we are doing ourselves are going to be all on the platform.
So it's basically like Amazon. There is no CRM. We don't use Salesforce. We don't need Salesforce. We are going to have all customer users connected to the platform interacting directly with them online.
That's the game plan of the platform for us as a system of operation of our clients. So this is really big for the next years and we are there already. I can speak for hours to you about this and show you this, but it is something which is game changer for companies on for even the supply chain. So it's a big differentiator. I don't see why there is need for Dropbox, slack, or WhatsApp for our clients.
They don't need it. It's not secure. They can use directly the native IP centric safe environment, and it's so cool to use. So clearly, the impact for the long term is there. Politity to China, the dynamic is very good in all sectors.
We concentrate on I think that's more for us capacity to continue to develop the capacity or knowledge.
And the sectors driving the growth in China definitely in the auto sector, the aerospace and the industrial equipments, as well as the home and lifestyle. Because with Centric PLM, we are penetrating more and more of the Chinese markets, and it's a significant market per se. And the last question, which is the visibility provided by, I guess, on the business side, provided by the 3DEXPERIENCE platform, yes, There is an impact because when the when people are buying and deploying the platform, it's because they want to connect all the different pieces together. And usually, the vast majority, they have CATIA. And it's an open avenue for us to expand in the simulation space and the manufacturing space.
So we have this capability to do repeat business in a much easy manner when the platform is deployed.
The next question is coming from the line of John Kim. Please go ahead.
Good morning. Thanks for taking the questions. I had one focusing on SolidWorks. Could you just explain a bit more in detail what the plan now is. I think you said that you're accelerating the plan there.
Is that do we understand that's a prioritization of the cloud? Is that a migration from the historic parasolid kernel? Could you just explain that? And I had a follow-up.
Thank you, John. Daryl Lipa, last questions here inside the inside 1. First of all, all the collaborative backbone for solid work for the professional channel is cloud mobile based. Not on premise, except if the customer buy what we call private cloud, but then most probably they will also use also software like Ethiopia Civil or DELMIA. So it's cloud mobile.
And it's basically what we call Powerbyte So you have a desktop and you connect it to the cloud services for PLM of a collaborative innovation. It's very well received by the customers. The question is to train, to sales people, to really engage well with clients on that side. Related to your side remark on the kernel, it's clear that we are also step by step delivery, new categories of mobile based, web based, browser based, solidworks functionalities from any mobile phone or any device like this, where you have a browser, you can access to SOLIDWORKS capacity. It was called X Design when we did SOLIDWORKS 2019.
It's being is a gone through test, customer test when it will be fully available on the market during the next coming weeks. It's going to be called 3 d Creator. 3d creator because we want everyone to be able to use web mobile services to create 3d content. On its cloud, of course, by definition, web based. And it does use the CATIA modeling technology.
Neighboratively. So it's fully compatible with the 3DEXPERIENCE platform from that standpoint. So those are the economical aspect of it. And customers are very excited with it. There is an amazing good feedback with fab labs, innovators.
And I think that this shouldn't be a good sequence of events to be back with a double digit growth for this category of what we call mainstream solutions. For the industry.
And if I could ask another one, related to the recurring revenue Pascale, you talked about this, I think, a little bit, but obviously there's effect from Boeing. But is the maintenance revenue also stronger? Or are we seeing truly this is really subscription growth? And if so, I guess, do you have some kind of metric you could maybe give us around order intakes? I guess if that's the case, then perhaps just looking at licenses may not be the best way to evaluate your performance going forward.
The performance is going is coming from both. So the super enhancements as well as the subscriptions. The maintenance and support is driven by the mix. As you remember, when 3 d for 3dexperience platform, the maintenance rate and support at 20%, 21%. In fact, it's higher.
And on the subscriptions, Boeing is having an impact, I told you, knowing that the full impact will be positive impact. Positive impacts. So the full positive impact will be next year. So it's not fully deploying. But also the subscriptions coming from the simulation activities is also fulfilling the growth.
As well as the cloud. You remember, we announced early this year in Q1 that we won Schindler on the cloud. So it's a significant win. Now it's not only 1,000,000, it's much more close to 10. And it's a proof that we can sign big deals also so on a subscription with the cloud.
This is the reasons behind this.
The next question is coming from the line of Amit. Please go ahead.
Thank you. Good morning all. I'm at Archandani from Citi. And thanks for taking my questions. 2, if I may.
Firstly, I wanted to go back to the underlying margin improvement. If I remember from the Capital Markets Day, last year. You talked about an assumption of 50 basis points per year going forward. And I think in 2018, you did around 70 and this year and now you're thinking about doing 100. So clearly good execution there and I was curious to understand to what extent is this being driven by sales productivity?
Is there better pricing power given that you're running ahead of your original assumptions, what does this mean in terms of how you're thinking about margins for the rest of the 5 year plan? And then I have a second question.
Okay. So the 50 basis point is really what we expect to achieve every year for the next 5 years. Okay, compared to what you just stated today. Why I'm saying that? Because the vast majority of the improvement, you are right, is coming from the sales productivity.
We did almost we are halfway. We did almost half of the job, but we still have some productivity to gain. And the pricing power is still in place. I should look at in many, in many product
lines. Value power, I don't like the pricing.
This is why I want to come. So on a let me stick to the pricing first. If you compare with the competitions, we have still higher than the competition, but we believe it's not enough because given the value we are bringing to our customers, there is an avenue for us to change the equations. And you remember during the Capital Market Day, He both started to share with you some ideas related to the outcome, to the performance based pricing, having a much more high end consulting also. Those are the levers we are using in order to to change the approach and to be much more value based and less price based by feature, I should say.
And with this, you have the source of the organic improvement we expect to do for the next few years. I do not expect to do improvements on the research and development side. We will continue to invest the same way we did in
experience in terms of licenses, as you indicated earlier, up to almost 50% of licenses in the first half of this year or rather 44%, but growing 50%. Do you think we can extrapolate this trend to continue going forward? Or do you think maybe Q2 was too strong a contribution of 3 d experience and we should be a little more moderate in terms of our station for the second half and going forward?
So if you come back to the Capital Market Day last year, I stated clearly that If we want to fulfill the plan, the penetrations of the Fenix Trans platform inside the salvage will go from 1 third to 2 third in the next 5 years. If you do the math, it means that the 3DEXPERIENCE contributions to the new license should be more than 50%. And it implies a growth, which is definitively higher than 30% to 40%. Thank
you.
So to answer to your questions, yes, you could expect us to continue to fulfill the trend. Maybe we saw volatility from 1 quarter to another one because it's sometimes related to the large transaction we do. But this is the dynamic and the trend.
One question from
the call.
Thank you for taking my question. I wanted to circle back a bit on one point earlier. So on the subscription revenue, can you discuss what are customers currently preferring in your experience right now? Do customers prefer subscription option or are they opting more for more of the traditional license maintenance model? Is any data points you're sure would be really helpful?
And then I guess associated with that, do you think the end state for the market is everybody goes to subscription at the end of the day too? Or do you think that it ends up with a mix or a balance of the two models at the end of the day?
There is a lot of PRAC with our software, gigantic PRAC. So you can one can say it's a lot of revenue that we should have. Over time, the reality is there is a lot of policy. Around the globe, we should not only point the same countries each time. The reality is that's around the globe.
And it's for all categories of software. Strategically, my intent is very clear. Everything will become subscription. Okay.
That makes sense. So I guess one more question, if I may. Just on the cash flow, you discussed earlier the strength in working capital right now. Does that reverse later this year or does that strength in working capital carry through for the remainder of the year?
Scott, it's a good cash flow. It should love the question.
Yes. Again, if you look at the subscriptions, that means you are penalizing significantly your cash flow because I just want to remind you that half of the performance of the cash flow is coming from the net income And the other one, the other half is coming from the operating working capital improvements. So I think we have demonstrated a good discipline to do this. And it's not on a, it's not because it's on subscription that people cannot pay some upfront, if you want, to book the services for multiple years. This is something we know how to do.
Usually, the large customers, this is what they do with us, and we know how to do it. So I'm expecting this, to be neutral on the cash flow because we already have a large part of the revenue, which is already recurrent, as you may know. So the model is dependent on 23 between 25% to 30% on the new license. So I think I know how to manage it over the time.
We'll take one last question from the call. And then we'll take one question from the room.
Mohammad, your line is now open.
Bernard and Pascal, I'm wondering if you could just sort of elaborate a little bit more around the comment that you're seeing this sort of strong dynamic in aerospace Where are we in terms of supply chain adoption at Airbus And Boeing? And how do you expect that to kind of develop are Boeing's kind of current issues around the 7 37 MAX, likely to have a potential impact on supply chain ramp up? And then secondly, as we see more and more evidence of these standardization deals, I noticed the PSA announcement And then I also noticed some of your sort of competitive stats you gave. Can you give us a sense of the level of kind of footprint replacement that you're doing in here and the sort of uplift you're getting in terms of, so, revenue in some of what are already sizable existing customers? Thank you.
Thank you for the question on those 2 sectors. On the Aerospace, yes, indeed the the traction is very, very strong. How to explain it, I think there are 2 phenomenon One are really the visible decisions to move to the 3DEXPERIENCE platform. It's also the platform effect of it but it does not happen over the weekend. We do existing installations like CATIA V5 on VPN or specialists.
We expand that with new scope of capacity with 3DEXPERIENCE. I'll give you a concrete example. We have extremely good success with 3DEXPERIENCE for big data on AI applications related to cost analysis. We do index ERP systems, supply chain data, on, for aerospace companies, we provide them a completely new visibility in terms of how to simplify the cost, the parts sourcing, as well as part reuse. In fact, it's called one part on part reuse.
And it's extremely, extremely successful. That's the Exthalied technology. So don't be don't think that this is done with past year. It's not. It's done with our data centric system.
So that's Those are the expansion. 2nd expansion in aerospace is related to edge computing with DELMIA for manufacturing go to rate, where the platform is also used, both our logistics within the plant, as well as the connection with suppliers. So because those are the current challenge for new programs, 3 d experience is going to be deployed across the board for the customers. You have named it has already been announced. But today, it's expansion of the footprint more than replacement.
On the supply chain, it's following slowly. For the supply chain, they need to realize that they can save a lot on that investment in Dassault System solution. It's not a cost. It's a massive possibility to save and increase the performance. It will come because the players in all sectors have decided that the integration of supply chain is number 1 priority after production on big data analytics for improvement.
On the T and M, same phenomenon is happening. We call it power by. So basically power on V5 installations with the 3DEXPERIENCE platform. So it's happening progressively. That's why Pascal mentioned that it's really a visibility for double digit growth over many years.
And more the last point related to Boeing challenges. I think we had a discussion with them a few months ago, and I can reassure you that this will had no impact on our projects.
Thank you for taking my question. Derek Macron from Societe Generale. I've got 2, if I may. The first one is Given the strong performance of the 3 d experience in Q2 and in Q1, but mainly Q2, how do we reconcile the fact that Innovia is doing less than catch up, because I would expect the opposite, thanks to the uptake of uptick in the 3 d experience. And my second question is about the catch up that you were mentioning in term of investments.
If I look to the Q2 outcome, you were just at the midpoint of your guidance in term of cost base. So do you refer to the slippage that you had in Q1 that you want to catch up in Q2, sorry, are anything new compared to the plan that you had at the beginning of the year?
Thank you for the question. Related to the CATIA Innovia and as related to the experience platform, We've been mentioning on explaining that the Innovia of the Swiggy experience platform is not at all the Innovia of the V5. Architecture. The platform has integrated everything. And basically To make it simple, most of our competitors are providing PDM function, you connect 5 system data together in a PDN product data management approach.
We have put upside down, things upside down. We have created a platform And we have reengineered all Innovia application, so they become business application. An example of business application, cost management, quality management, pricing management, which suppliers marketplace connectivity. Another example in your project management, program management, which are functions, which are business applications now as opposed to data collection because the data collection on the AI and big data management is done by the platform itself. So that's the upside down.
It took 3 years to reengineer all the Innovia portfolio, but that's made our offer completely different from any of what is available from the competitors. And that is the simple, in some explanation of why the adoption of those new business experiences are slower because it's really a transition for clients. But I think it's expanding the footprint for our clients in, for our users, in a big way.
To complement what Bernard said is You have to remember that for the last few quarters, Innovia was outperforming significantly. And now it's time for the same persons to consider CATIA's 3DEXPERIENCE platform because, and especially in the auto sectors, people are discovering that if they want to develop the EV car, the autonomous car, this is a right road for them to follow. So that's the reason why you have such catch up. And the last point, which is also could explain for this quarter, you know, Innovia is heavily dependent on the large transactions. We had some, but it was not a quarter characterized by many large transactions, I should say.
Coming back to your questions, related to the catch up on the investment, no, I still expect to catch up what we didn't do in Q1 and Q2. That's it.
We'll take one very last the question from Gregory.
Two questions on my side. First of all, to come back on the Simuliya and the stronger if you had in the quarter. I was just wondering if it was sustainable or is it related to specific timing of term licenses, for instance? And my second question is to come back on the marketplace strategy. You had announced early this year.
Just to get an update on that and especially on the make marketplace on free printing? Thanks.
Pascal, any comments on Similla?
Yes, Similla, you remember it's a token based model. So it's already, it's not a traditional license. And the model is really working the way we want. 1000 extent, our frustration is coming from what Bernard said is given the value we bring to our customer, our ability to capture the value is quite limited at this stage, I should say. So the token based approach, it's a it's a good model to sustain the growth, but to capture the value, it's maybe not the perfect one.
But we fixed that Yes. The marketplace is we are putting a lot of attention on the marketplace of supply management. On also asset management. So that's why it's more the B2B than in some way, even for fab labs or the seaside of having people innovators connecting on the platform. We want to continue to develop that we are having a marginal attention on it as we speak now because, we think that the solidworks product portfolio, the mainstream, needs to be completed on the platform to make this more pervasive, like I talked to you about really creator because then the social dimension of having anyone being able to produce something with a supplier from anywhere or the world will accelerate.
So B2B is going well with the platform. The C side is slow because there are a few conditions we need to fulfill before. With that, thank you very much for your participation this morning. We always appreciate your questions. And of course, we are always there try to give you the best possible answers.
It's an exciting moment for Dassault System, and we are committed to do the next 5 years the way we announce it last year.