Thank you for standing by. Welcome to the Dassault Systèmes third quarter 2018 financial results call. At this time, all participants are in listen-only mode. A short overview will be given, followed by a question-and-answer session. At which time, if you wish to ask a question, you will need to press star and one on your telephone. I must advise you that this conference is being recorded today, and I would now like to hand the conference over to François-José Bordonado, Vice President, Investor Relations. Thank you. Please go ahead.
Thank you, Andrea. Thank you for joining us on our quarterly earnings conference call with Bernard Charlès, our Vice Chairman and CEO, and Pascal Daloz, Executive Vice President, CFO, and Corporate Strategy Officer. Some brief reminders. Dassault Systèmes financial results are prepared in accordance with IFRS. During 2018, the first year of implementation of IFRS 15, we're providing IFRS financial information on both an IFRS 15 and IAS 18 basis. All figures and comparisons on this call are presented under IAS 18 and are on a non-IFRS basis, with revenue growth figures in constant currencies, unless otherwise noted. We have provided supplemental IFRS 15 and IAS 18 non-IFRS financial information and reconciliation between IFRS and non-IFRS schedules in our earnings press release. 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 2017 document reference. The copy of this morning's webcasted presentation is available on our website. This prepared remark will be on our website shortly after the call. Bernard, the floor is yours.
Thank you all for joining us today. To begin, let me share my perspective on our progress through the first nine months. We have delivered a solid year-to-date performance on a strong first half, combined with a third quarter well in line with our financial objectives. For the first nine months, total revenue, software, licenses, and recurring revenue all have a common growth figure at 9%, excluding exchange rate impact. We are building a sustainable growth driver over the medium term with our 3DEXPERIENCE platform on industry solution experiences. On a year-to-date basis, our 3DEXPERIENCE software revenue grew 19% at constant currency. A major component of extending our reach on market leadership is through geography diversification. High-growth countries software revenue increased 18% year-to-date. They represented 18% of total software revenue.
We saw strong growth across many countries. The results also strengthened our market position in the different industries we address. Looking at our performance by industry, our year-to-date software revenue increased double digits in constant currencies in seven of our 12 industries, with transportation and mobility, energy, process and utilities, consumer goods and retail, consumer packaged goods and retail, marine and offshore, natural resources, and architecture, engineering, and construction. Finally, with our progress to date on our fourth quarter outlook, we are confirming our growth objective for 2018, targeting a total revenue growth of 9% to 10% at constant currency on double-digit earnings per share growth. We see a global industry shift. We call it the Industry Renaissance. Companies across all industries are reinventing themselves to provide new categories of experiences, revealing new categories of customers.
This long-term trend is going to accelerate with the platform factor. Producing new experiences requires excellence in operation and high added value ecosystem. With the 3DEXPERIENCE platform, we provide an operating system for customers to power industry solutions and new business models for customers to power their value network. The shift between supply chain to value network. Moreover, the 3DEXPERIENCE platform on the cloud enables company to very quickly launch and create full digital continuity from day one, as we see both in our commercial business and in our 3DEXPERIENCE Lab, our accelerator for startups. 3DEXPERIENCE Lab is really access to a footprint in the world of the makers. In that regard, last quarter, I discussed our 3DEXPERIENCE innovation centers on industry, on workforce of the future.
In our center in Wichita, in the U.S., we are helping clients innovate in new experiences, adopting new technologies, exploring how to streamline tools, methods, and processes in a very short period of time, thanks to the experimentation that they undertake at the center, where they can basically do everything across the life cycle. To a greater industry positioning at large, our 3DEXPERIENCE Innovation Center in Beijing is helping companies to prepare the workforce of the future to address new challenges. Today, I would like to discuss a second major initiative, which is our 3DEXPERIENCE Lab, giving us a footprint in the world of the makers. We want to create an environment that will effectively be an accelerator for startups. In our presentation this morning, we highlighted a range of projects underway.
Among them are Zero 2 Infinity, creating a small satellite launcher, as well as Leka, a multi-sensory robot for children with special needs. I encourage you to look at this amazing example. Our U.S. Fab Lab was set up in collaboration with MIT Center for Bits and Atoms, continues for MIT, the world benchmark. We were pleased that Professor Neil Gershenfeld, Director of MIT Center for Bits and Atoms, and a founder and key influencer on the global Fab Lab movement, spoke at the grand opening. Our 3DEXPERIENCE Fab Lab in Boston is connected to over 1,800 maker spaces worldwide through the Fab Foundation. We opened our first Fab Lab in Europe several years ago.
We provide those maker spaces with SolidWorks, and more recently, we added xDesign, the new generation of SolidWorks product through a browser based on 3DEXPERIENCE platform, as well as the 3DEXPERIENCE services, in particular, the social collaboration services, regrouping the million of SolidWorks users in the world, and all the marketplace services are also connected to that same platform. From our client to the makers world, there is a seismic shift underway. This is why we see a significant runway and opportunity for Dassault Systèmes. We believe industries are prioritizing investments around transformation that will drive significant innovation over the next five years. In other words, these investments are indeed time-sensitive. In all sectors that we serve, whether Transportation and Mobility, Aerospace and Defense, or even in Energy, Process, and Utilities, we observe a radical transformation of the offers.
All businesses are putting their next-generation portfolios at the top of their agenda. In our largest industry, Transportation and Mobility, there are significant investments being made with over 100 new startups around the globe in research and development to address the technological challenges with electrical vehicles and in autonomous driving, where virtual simulation will be required, will be mandatory for driving certification. At the recent Paris Motor Show, which is the biggest in the world, companies shared their expectation to have an important portion of their fleet be electrical vehicle within the next five years, on safety acting as an accelerator for introducing higher levels of assisted driving features. Safety, pollution, and traffic are key areas where innovation and resources are being focused. In Energy, Process, and Utility, companies are making significant investment in two principal areas. In capital facilities lifecycle management and in advanced materials lifecycle management.
Last quarter, we discussed EDF and also ExxonMobil. EPU represents another major industry undergoing transformation. We see that clients adopting our 3DEXPERIENCE platform are also using it to enable them to become platform companies in the way they deliver product and solutions. In 2017, we announced that Bureau Veritas, a world leader in laboratory testing, inspection, and certification services, had adopted our 3DEXPERIENCE platform for marine and offshore. Today, it is now using the 3DEXPERIENCE platform for the nuclear industry. As environmental and safety-related regulations in the nuclear industry increase in number and complexity, Bureau Veritas needed to improve its efficiency when interacting with manufacturers for their device certification. It adopted an integrated approach with our 3DEXPERIENCE platform as the foundation for its compliance activities, connecting its entire ecosystem.
One of Bureau Veritas' client, Framatome, is adopting the 3DEXPERIENCE platform on ENOVIA on CATIA application roles and portfolio to manage complexity and risk, enable long-term traceability, and transform the way they collaborate with Bureau Veritas through the certification process. In the formulation industry, the role of platforms is also crucial to support research and development. With One Lab Industry Solution Experience on our science cloud infrastructure, we integrate people, resources, processes, data, and interfaces for improved efficiency and collaboration. Evonik, one of the world's leading specialty chemical industry companies, is adopting the One Lab Industry Solution on BIOVIA to increase speed and collaboration and simplify research, avoiding unnecessary experiments and improving productivity for scientists to capture, retain, search, and reuse results, basically the knowledge on know-how. Moving to consumer goods, we see a similar opportunity. The industry is being upended in a significant manner.
Today, PLM is a critical software to manage the significant business process complexity in apparel, for design, for goods, leveraging our portfolio in design, simulation, and manufacturing, and in retail to provide white glove services everyone is looking for today. New up-and-store trends, for example, same-day delivery or having the store do the shopping for you with the same-day pickup. These are among three key trends that are driving the adoption of Centric PLM on why we acquired a majority interest early this year. We see Centric PLM establishing itself as the mainstream market leader, similar to what SolidWorks has done in design. Our goal is to help support Centric's software mission to accelerate the digital transformation of the fashion, retail, and consumer sector.
I'm pleased to report that Centric PLM is building on the momentum in the market and continues to expand its footprint in various geographies, in particular in China, across segments, i.e., fashion, outdoor, footwear, eyewear, and even retail, as well as along their entire supply chain. With that in mind, let me now turn the call to Pascal.
Thank you, Bernard. Hello, and thanks to all of you for joining us today. With our third quarter well-aligned with our financial objectives, we have delivered a solid year-to-date performance, demonstrating improving breadth with total revenue up 9%, software revenue up 9%, and new licenses up 9%, and recurring software up 9%. Earnings per share were up 12% or 19%, excluding currency headwinds year-to-date. Moving to our business review, let me begin with 3DEXPERIENCE. On a year-to-date basis, our 3DEXPERIENCE software revenue grew 19% at constant currency. It represented about 22% of the related sales year-to-date, compared to about 20% in the same period last year. Some of the largest transactions in the third quarter were in marine and offshore, aerospace and defense, consumer packaged goods retail, and in transportation and mobility.
Let me zoom in some of the specific examples of why companies are adopting our 3DEXPERIENCE platform and industry solution experiences. First up is GE Aviation Hamble, a subsidiary of GE Aviation that focuses on aerostructures and it is headquartered in the U.K. They will use the 3DEXPERIENCE platform from design to manufacturing to develop next-generation aerostructures. The second value is the control of the engineering activities and deliverables through project management. This represents a key win in the supply chain of the aerostructure, where suppliers are moving towards digital continuity from a design to manufacturing. GE Aviation Hamble is a supplier to Airbus and Boeing. Our second example is in the high-tech sector, where our largest segment is with semiconductors companies.
While we are not present in the design of the chips, we are the largest providers in the management of the semiconductors company's intellectual property. Nexperia, headquartered in Netherlands, is a global leader in discrete, logic, and MOSFET devices. An independent company since 2017, Nexperia's focus remain on efficiency, producing consistently reliable semiconductor components at a high volume, around 85 billion annually. They are adopting the 3DEXPERIENCE platform with our high-performance semiconductor industry solutions to improve the product quality, achieving zero defects, and in turn, improve their bottom line. The final example takes us to Asia to a value solutions channel customer, Takemoto, a packaging company serving companies in the CPG industry. They are adopting our perfect package mid-market industry solution on the cloud.
With more than 3,000 different types of glass and plastic packaging containers, Takemoto's business objectives are to improve global collaboration, increase its agility to produce and deliver products efficiently in small and large lot sizes, and drive innovation and cost performance. Now, let's move to a regional business review. In the Americas, software revenue increased 8% in Q3, 9% year-to-date. From a growth perspective, Latin America has seen sharply improving results. We have put in place strong teams, and they are making good headway. In North America, this quarter was led by CATIA, DELMIA, and BIOVIA. Overall, in North America, our results are solid to date, and we are also benefiting from the addition of acquisition. In Europe, software revenue increased 8% in the quarter and 7% for the first nine months. Activities in Europe were led by north and south of Europe.
Two areas becoming an increasingly important part of the European dynamics, demonstrating our geo-diversification in a very meaningful way. We also saw strong growth in Russia. ENOVIA, DELMIA, and Quintiq all had an active quarter in Europe with large deals. Asia continued to be the best-performing region in 2018, with software revenue up 13% in Q3 and 14% year-to-date. While China and India led the quarter, for the first nine months in total, we benefited from a broad-based growth. Zooming in on our brands, CATIA has continued to have a good dynamic with three quarter consecutive of double-digit license revenue growth. Its new acquisition, No Magic, also contributed to this growth, but on an organic basis, CATIA license revenue were up double digits.
In the third quarter, this was driven by our direct sales channel, while on a year-to-date basis, our value solution channel took the lead, with good growth across all three regions. CATIA software revenue was higher by 7% in Q3 and 6% year-to-date. As we shared with you last quarter, SolidWorks Q3 presented a very high base of comparison last year, which explained its software revenue growth of 4% in Q3 2018. For the year, in total, we expect SolidWorks to deliver a strong performance. As you can see, it's in a year-to-date software revenue growth of 9%. ENOVIA software revenue increased 5% in Q3 and 7% year-to-date. 3DEXPERIENCE sales represented over 70% of ENOVIA license software through the first nine months, driving its license revenue up double digits. Other software increased 18% in the third quarter and 15% year-to-date.
DELMIA and Quintiq were the strongest performers in the quarter, and we saw improving results at BIOVIA. Year-to-date growth was led by SIMULIA as well as DELMIA. Our recent acquisition are performing well, including Exa with PowerFLOW in fluid simulation and Centric PLM for apparel. Zooming in on our software, our license and other software revenue increased 7% in the quarter, and with a high comparison base, the organic growth was 4%. We had notably strong results for CATIA, DELMIA, Quintiq, and BIOVIA, all delivering a double-digit licenses growth and by channels, that was also the case for the direct sales and indirect sales through our value solutions channel. On a year-to-date basis, licenses and other software increased 8% on an organic basis and 9% in total.
We saw a good breadth with double-digit growth for CATIA, ENOVIA, as well as DELMIA, and well supported by high single-digit growth for SolidWorks. As a reminder, a large majority of SIMULIA software is purchased on a subscription basis. Recurring software revenue increased 10% in Q3 and 9% year-to-date. On an organic basis, the growth was 6% for the both periods and continue to demonstrate excellent renewal rates in all the three regions. Recurring software represents 73% of the total software year-to-date. Moving to the services, we had a better performance in the third quarter with revenues up 13% and constant currency on the 3DEXPERIENCE activities, and the benefit of acquisition as well. While we had softness in our smaller brands, it was to a lesser extent than in H1. Year-to-date services revenue increased 6% at constant currency and represented 11% of the total revenue.
For both the quarter and year-to-date, the Americas regions drove the growth in services revenue. The gross margin for services was 7.8% in the third quarter, compared to 12.4% in the year-ago period. The gross margin shift reflects several factors: mixed lower utilizations as we prepare for projects, as well as the new resources investment we are making in different parts of the world, which will take time to ramp. Moving to our operating margin, our third quarter was in line, bringing us a year-to-date operating margin of 29.4%, stable with the year 2017 period. We generated 100 basis points of underlying organic improvement, which enable us to absorb acquisition dilutions of 70 basis points, as well as a negative currency impact of 30 basis points. Earnings per share of EUR 0.71 was also well-aligned with our objectives, increasing 11% in the third quarter, with currency having a neutral impact.
The effective tax rate was 29.1% and is aligned with where we see our effective tax rate for the full year. On a year-to-date basis, EPS increased 19% in constant currency, benefiting from our revenue growth and lower effective tax rates. Our operating cash flow performance has been strong. Through the first nine months of the year, it has increased 11%, reflecting our growth in net income, non-cash elements, and a strong growth in operating working capital, translating to a total of EUR 747 million above the year 2017 full-year figure. Our unearned revenue totaled EUR 895 million at September 30 under IAS 18. This represents an increase of 7% compared to our organic growth for recurring revenue of 6% year-to-date, with both figures at constant currency and perimeter basis. Moving to the full-year financial objectives, we are reconfirming our total revenue growth of 9%-10% in constant currency.
On a reported basis, our revenue range move up EUR 12 million at the midpoint of our range to EUR 3.425 billion-EUR 3.450 billion, incorporating the third quarter currency upside. We are also tightening the range given one quarter remaining to the year. We are leaving unchanged our exchange rate assumptions for USD and JPY. In term of our operating margin objectives, move to 31.5% from 31%-31.5% previously. I believe we are doing a good job of managing investment for the future and delivering a good level of operating margin. In comparison to the 32% non-IFRS operating margin we reported in year 2017, our underlying operating margin performance will help us mitigate the full-year estimate acquisition dilution in the range of 70 basis points, and negative currency impact estimated at 20 basis points.
Combined, this bring to our non-IFRS earnings per share objective range to EUR 2.98-EUR 3.02, representing about 11%-13%, from 10%-12% previously. At constant currency, our EPS growth rate range will be about 5% points higher at about 16%-17%. Underlying our year 2018 full-year objectives, we are also confirming our licenses revenue growth target of 9%-11% in constant currency for year 2018, and a recurring revenue growth of about 9% in constant currency. For Q4, we are targeting a total revenue growth of 9%-11%, with software revenue growth of 8%-10% and earnings per share of 8%-12%. Our final objective are presented under IAS 18 and on a non-IFRS basis with a revenue growth rate at constant currency. All the details are in the Q3 presentation on our website.
To conclude, we are expecting a solid Q4 with a total revenue objective of about EUR 1 billion and an earnings per share reaching about EUR 1. Given the record high quarter we reported for new license and other software revenue in year 2017, first quarter, we believe these objectives demonstrate very clearly the market opportunity before us. More broadly, as Bernard and I have discussed, we believe our strategy and offer are well aligned with global industry investment priorities, driving a solid performance for us in year 2018 and a sustainable growth opportunity for us over the near and medium term. We will be now happy to take your questions, and thank you very well for your participation on this call and our early webcast today. Andrea, we can start the Q&A. Andrea? Operator, we are ready to take questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, you can press the hash key. Your first question comes from the line of Jay Vleeschhouwer. Thank you. Please ask your question.
Thank you. Good afternoon, Bernard and Pascal. Pascal, let me start with you, a short-term question regarding SolidWorks, then Bernard, some longer-term questions. On SolidWorks, over the last number of years, we've seen that on the margin, they have become more promotional in terms of offering periodic pricing promotions and the like. I'm wondering if you're expecting that will continue at the pace that we've seen over the last number of years for SolidWorks. Similarly, perhaps you could corroborate some arithmetic. I understand the difficulty of the year-over-year comparison for SolidWorks, but when we look at it sequentially versus the second quarter, would it be correct to say that the volume of new business, new CAD licenses, declined more from second to third quarter this year than might have been the case in previous years from a second to third quarter?
I'll ask that question for Bernard.
Okay. Coming back to the promotions, I just want to draw your attention on the fact that if you look at for the last five years, we have increased the price of SolidWorks. I'm not talking about the list price, I'm talking about the street price. The reason is because with SolidWorks Premium, in fact, we have been able, thanks to the multi-product approach, to enrich the configurations people are selecting. This is really what we did.
Now, coming back to the fact that sometimes we are using the promotion as a way to activate the pipeline creation, I just want to reassure you that if you look at what we did this year, we almost slowed down this practice because the reality now with SolidWorks, we have established not only a footprint but the reference for the market, and there is no need anymore to activate commercially with the promotion mechanisms. Your second question related to the sequential growth between Q2 and Q3. You are right. What you are saying is true. If I may, if you remember last year, Q3 was at the time when Autodesk announced the fact that they were basically asking all their customers to endorse a subscription-based model. We had the flow of users leaving, in fact, Autodesk to join SolidWorks at that time.
This is the reason why, by the way, the comparison base is high with last Q3 from last year. This is the reason why also you cannot draw a conclusion on the fact that between Q2 and Q3 this year, you have a drop in term of unit license being sold, because it's not a real way to compare things. I hope I answered your questions.
Yes. Thank you, Pascal. For Bernard, let me turn now to some longer-term issues. When you consider the difference, if there is a difference between your core customers in the aero and auto, for example, versus customers in your diversification industries, is there a material difference that you're seeing between the two classes of customers in terms of their new technology adoption or mix? Is one more heavily weighted towards V6 than the other, one more heavily weighted towards perhaps DELMIA or CATIA or anything of that kind, that you would think from a high level might distinguish the two classes of customers? Then as well, one of the things we've talked about over the years with DS is seeing more consistent growth in your manufacturing software business, DELMIA and Quintiq.
You had a good quarter now, but are you in fact expecting or seeing that the growth of business for DELMIA and Quintiq and Apriso will be more consistent and less lumpy than we might have seen over the last number of years?
Thank you, Jay. Good to talk to you. The characteristics between core clients on new industry, for.
They start directly on the 3DEXPERIENCE platform because there is no, basically, value to them to start on higher levels. That's a real trend, almost a de facto situation. You asked me the difference in behavior, so that's one. The second is, in new industries, we see faster adoption of cloud, 3DEXPERIENCE cloud. Those are two factors. Core clients do not do only conservative things either. For core clients, what we see for new domains like cyber systems, what we call integration of systems on I know, Jay, you are familiar with No Magic and what we are doing in the system approach, but to make it understandable for everyone. The cyber system, they directly start on the experience platform because they take this as an additional domain of coverage.
If I have to put a kind of extreme, I would say core clients, when they go for new domain of coverage, they go 3DEXPERIENCE. When they go for connected extension, they go with the current V5 architecture at the time being, for those who have not made yet the decision for the roadmap to 3DEXPERIENCE. That's basically the profiling of things. However, I should say that if I don't call them core clients but core industry, then the newcomers in the core industry, like EV startups, they directly go to 3DEXPERIENCE also. By the way, as well as some of the supply chain clients, because we have seen on I think this old statistic shows it in a very real number that, for example, in the CMMC ecosystem, the tier 1 and tier 2, the OEM, but tier 1 and tier 2 are investing a lot in innovation.
For example, for autonomous vehicle, a lot of the technology is done by tier 1 and tier 2. That's quick review of the profiling of things. On the manufacturing, you're right. It's coming from the fact that there are two phenomena. One is, as you mentioned, DELMIA Apriso has been very successful, in terms of MES, manufacturing execution system on manufacturing operations management, and we continue to see those. There is a phenomenon. In most of the cases, we are displacing existing players, where it's homegrown, or it might be one of the automation players, or it might be one of the ERP players. When you displace, basically, to avoid to be pushed out, they almost provide their software for free. We don't do so, but it creates a pricing pressure at the beginning.
When we are there and installed, customers don't see any problem to buy more at the right price. What they ask us is a price to enter, or a sign to enter, and then after it's easier. That's the phenomenon you see on the MES model. On the DELMIA engineering, I think we see a very interesting trend, which is basically what we call manufacturing engineering, the front-end part of it. There is clearly now a very clear conviction from customers that 3DEXPERIENCE platform connecting design configuration, what we call xBOM, engineering BOM, MBOM, manufacturing BOM, is a high value. Even DELMIA manufacturing engineering is also used now for construction engineering, sequencing of construction. We have very good feedback from the construction sector on that. I hope, to your fundamental question, can we see a more consistent quarter after quarter business dynamic there? I hope so.
The signs are very positive there.
Okay. Lastly, if I may, you and Pascal, in parts of your answer, used the term price and pricing. The broader question is following up on the analyst meeting from 4 months ago, you talked about outcomes-based pricing as part of your longer-term strategy. As you may recall, I had some, frankly, doubts about that. I'm wondering if there's any progress you can report on that concept or whether you've given any further thought to instead or as well, adopting more of a usage-based pricing model rather than the outcomes-based pricing model.
It's coming. We have not done big noise about it yet, but I think we have already signed contracts on outcome-based pricing. By definition, it will come with the outcome. It's not this quarter. It's probably not called an acqui-hire, but we are very pleased to have now the showcase in operation for that.
Okay.
To complement what Bernard is saying, okay, I will not oppose the two models. For example, we have real cases whereby people are using our software on the cloud, and we charge 15% of the end result, it's nothing more than a kind of usage-based approach. We are also taking a fee of 10% to do the intermediation with the end user. To follow my thinking, I think those two models could complement each other.
Understood. Thanks very much.
Welcome.
Thank you. Next question comes from the line of Monika Garg. Thank you. Please ask your question.
Hi. Thanks for taking my question. I have a couple on the macro side first. There is tariff discussion between U.S., other countries, and some of the auto suppliers have guided down. Caterpillar, the big industrial company here, talked about tariffs increasing their cost of goods sold. The question is, what are your customers telling you regarding tariffs? Do you see this could impact your growth over the next two, three quarters?
What is visible from a sector level now, in some way, as I mentioned it this morning, was visible to us six months ago. Many of those companies were already preparing themselves for cautious paths. The reality, when it comes to what we do, which is really basically the innovation platform, we see it will increase the selectivity of where do they invest. I believe that when it comes to the very nature of what we do, because it's really related to the portfolio and the performance output of what they have to deliver, the signs are positive on, I would say, simply the pipeline is providing a good visibility.
Just as a follow-up, how long would you say is your pipeline visibility? six months, nine months, 12 months?
That's related to the site. That is dependent on each of the three channels. To make it simpler, the relevant pipeline I'm asking myself, did we communicate that, Pascal?
No.
Actually, okay.
I think something.
Without telling to it too much, we don't want to provide too much there. We will usually use a time of reference of 12 months, six months, and three months.
Got it. Okay.
You can understand for which channel those 12, six, and three can apply to.
Got it. Yes. Thanks. The question on the construction industry. In U.S., we are seeing likely a lot of venture capital money being poured into a lot of construction startups. There are billion-plus private valuations of a number of companies here. Autodesk has been talking about construction industry. Nemetschek has acquired company. Maybe could you just talk about how do you see this market develop for you in the software side? In general, how do you think this market develops?
Yeah. As you know, we have a collection of wonderful showcases that we have basically established in the last year, whether it's the Gehry, Zaha, Kengo Kuma, but also very big player like Wicona with our announcement second quarter, and also with companies centered in China, like Shanghai Construction Group, and several others. That's for the background. Those are real cases, and each of them are scoped in a different way. I would add to that the showcase we are now doing for cities. It's not only Singapore. There are many other projects that are ongoing. That in mind, we want to do in architecture, engineering, and construction what we did for other industries, which is to be game-changer. How? I think developers will not continue to build buildings without having the context of the city. You need the city context.
Not only to insert the buildings, but to look at the building performance and the impact on the inflow, outflow, traffic, and many other aspects. Before, it was not possible. With our platform, for the first time ever, it is game-changer. We want to accelerate that approach. The second aspect of it is related to building performance on life cycle. Today, the world doesn't do life cycle management of buildings. It's just a collection of documents which are updated from time to time. We are the infrastructure to do building on construction life cycle management. China has understood that this is important for them.
The future program of construction in China will call not for the old BIM, which is called building information management, but will be construction life cycle management, which calls for really planning and operating the maintenance evolution of infrastructures. China is leading by far U.S. and Europe in this area. This is where we are, and this is where the territory where we're building these references. Indeed, and last point, the cloud. We have the highest adoption of our solution for cloud is coming from AEC. In fact, we are going to change the word AEC itself, next year. I will tell you more about that. I think the AEC is too old. There is so much dust on it that I want to change the name itself. That's for February.
Got it. Just the last one on demand trends across all geographies. I mean, the growth across all geographies was good. China was double digits. Even though we do hear China growth is slowing down, but you had very strong growth in China. Maybe could you just talk about what is your view on the demand trends across different geographies? Thank you.
Pascal, the pipeline overall is good. Pascal, add anything you want, I think the pipeline is consistent with the profile of the business we have reported year to date, going forward. In China, I think we're welcome.
If I compliment what Bernard is saying, what are we seeing right now? If you take Europe, you see Europe being split in two different parts. The north and the south, plus Russia, are growing well, in fact. Where we see a much more modest growth is in what we call Euro-Central and Euro-West, which is mainly France and Germany, where the growth is modest, I would say. In the Americas, we see a good recovery in Latin America, we started from very low, so I would not draw too much conclusions from this statement. North America are still growing well, and especially in the new sectors like life sciences. This is really where the growth is coming from for us.
We also do extremely well in India.
In India. In Asia, in fact, we have a double-digit growth in Asia. Sorry, in China, India, Asia, Pacific South.
Pacific South, Eastern West.
As well as Korea for the year to date. Japan is probably the only country where the growth is slightly below double digits.
Got it. Thank you so much.
Welcome.
Next question, please.
Thank you. Next question is from the line of Nicolas David. Thank you. Please ask your question.
Yes, hi. Good afternoon, gentlemen. Actually, I have two questions. The first one is about recurring business. I was a bit surprised not to see the material acceleration in Q3 of your organic growth on recurring business, neither actually in your guidance for Q4, as maybe we expected the beginning of the ramp-up of Boeing. Could you give us a bit of detail there, what's happening? That the Boeing contract, which is a bit late or the other part of the recurring, which is a bit soft. Thank you. I have a follow-up.
No, I do not understand why you see. We have an organic growth of 6% on the recurring revenue. You remember that we acquired Exa PowerFLOW last year. Clearly in Q4, you will have a comparison on a few organic standpoints. This will increase by the integration of the Exa contribution. Exa is only a subscription-based model. To a certain extent, you remember we are coming from less than 4%.
Yeah. It's accelerating.
I think it's accelerating. Coming back also to the question related to Boeing. The Boeing is going well, and we are preparing the ramp-up for next year. This is the reason why we have invested in Q3 on the services side just to be ready for the ramp-up.
We always said that there will be marginal effects. Since the beginning of the year, we reconfirm every quarter that there were margin effects on Boeing for 2018.
Okay. Just to make sure, to reconcile the figure of organic growth for the recurring, as you mean that it was 4% in Q2, 6% in Q3, and you expect something like 7%-8% in Q4. Is that the trend? Because maybe I had actually my contribution wrong for those nine. Is it true? Is that correct?
Something like this.
Thank you for granting me. That makes sense, actually. My second question is, regarding the pipeline for Q4, could you give us a bit more flavor around this? Is it about more large 3DEXPERIENCE deals you expect or an acceleration in the V6 apps selling to your install base, or is it an acceleration in the other software, the other brand you have? Could you give us a bit of flavor around that? Thank you.
Plus, we don't communicate more than just saying that the pipeline is good because we have provided the guidance.
No.
We want to have inconsistent statement.
I could maybe give some flavor in addition to this, because this is what I said this morning during the webcast. Q3 was really a quarter where we had a significant new reference. We call it a footprint quarter. In Q4, we have exactly the same kind of nature of pipeline. For sure, this is the end of the year, so usually the largest transactions are usually done in Q4, where we have the benchmark. It's really similar to the one we had last year.
Okay. Yes. It's a 3DEXPERIENCE, obviously, signing-
Yes.
Good for ENOVIA and-
I think so. Good for everything.
Yes. At the end of the day, for sure. Thank you very much. That's very clear.
We'll take a last question.
Thank you. Next question comes from the line of Gahl Minden. Thank you. Please go ahead.
Hey, thanks for taking my questions. I just got a few. The first one I'd like to just touch a bit on the recurring revenue growth a bit more. You say that CATIA and ENOVIA grew licenses in double digits in constant currencies. You said that SOLIDWORKS is growing in high single digits licenses. You look at the software revenue disclosure, it's 7%, 5%, and 4%, respectively. This kind of implies no growth in maintenance revenue for those three products. Can you just talk me through, is it the impact of the chargebacks that's kind of now gone away? Or what is it that's kind of causing maintenance revenue not to increase for those products? Thank you.
There is few things I should correct. SolidWorks for this quarter is not growing high digits. I was very clear on that.
High single digits, you say on page four of your presentation. High single digits for SolidWorks.
For the full year, not for the Q3. Q3.
Oh, that makes sense. Okay. That makes sense. Sorry. My bad.
Again, there is no trick behind. You remember, the recurrent revenue is composed by, on one hand, the maintenance and support, and on the other hand, the subscription. The maintenance and support is really the direct consequences of the license growth you had the year before.
For the subscriptions, it's mainly the simulation space is driving the growth, and the aerospace and defense sector, which is usually using this rental model at large. If you look at those two domains, simulation is growing very well, and aerospace and defense, not only Boeing, but this entire sector is also growing very well. There is no reason that the organic recurrent revenue should not grow the way we see.
No, I'm just thinking more specifically, if I can, for CATIA, because even if I look at for nine months, CATIA total software revenue growth is 6%. You're saying with double-digit growth for CATIA and ENOVIA is 7% with double-digit growth. That basically assumes that maintenance is growing much slower. Is it anything that you have on renewal side that's different?
The renew-
We had a few years when maintenance was actually outperforming licenses growth. I was just trying to understand what the dynamic is.
There is no trick. CATIA growing at 6% year to date, and the recurrent growing at 6% organically. It's very consistent. ENOVIA growing at 7% year to date. Again, those numbers are consistent, and there is no trick behind. This is, first, not our style.
Yeah, no.
If we had something, we will tell you. No, if you compute the numbers, you will find it works.
Okay. Maybe we can take that offline. It might be easier. Just in terms of questions on SIMULIA, you mentioned it's a very good market at the moment. Simulation is something we're all excited about. Can you just comment on the organic growth excluding Exa, what you were seeing in this quarter, and maybe for the nine months? Is it in line with that 8%-10% growth, what simulation market is growing, or do you think you're doing more than that?
The new license on a year-to-date is growing double digits for SIMULIA. I'm not talking about the subscription, I'm really talking about the new license.
Perfect. Do you think you're making market share in simulation?
This is a pure organic growth because Exa is only on a subscription basis.
Sure. Makes sense.
Yes, we are winning market share. Yeah, we are winning market share there.
Okay. Which products do you think are the strongest in terms of the winning the market share? Is it the Abaqus product that maybe benefited from some of the consolidation in the industry, or is it some of the other softwares that you've acquired recently?
Abaqus is really becoming the standard in the linear and non-linear structural analysis. There is not too much any more player in the game. On the electromagnetic, CST is also start to be established as a standard for the high frequency. Not yet for the low frequency, but for the high frequency, for sure.
Perfect. Just the last, if I can. You signed a few exciting deals last few quarters. EDF is one of those that stuck out. How do these deals compare in terms of the size and maybe split within licenses and services to something like when you do, when you sign a Boeing deal or an Airbus deal? Can you just talk about how is a similar impact? Should we get very excited about 2019 on the back of that?
EDF, it is a different kind of contract we signed because it is a framework, and then after, we have commitment by business unit. It is not a commitment at the group level. Which is very different compared to Boeing, because Boeing, it is a commitment for all the different business units.
Okay. It is kind of land and expand more. Okay, perfect.
Yeah.
That makes sense. Thank you so much.
Thank you very much to all of you, and thank you for participating to this call or this morning at our presentation in London. Talk to you in February or maybe before if you have any further questions. Have a good day.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.