Good day, and thank you for standing by. Welcome to the Dassault Systèmes 2024 second quarter and first half earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Béatrix Martinez, Vice President, Investor Relations. Please go ahead.
Thank you, thank you, Sandra, and thank you for joining our second quarter 2024 earnings conference call with Pascal Daloz, Chief Executive Officer, and Rouven Bergmann, Chief Financial Officer. Dassault Systèmes results are prepared in accordance with IFRS. The financial figures discussed on this conference call are on a non-IFRS basis, with revenue growth rates on a constant currency basis, unless otherwise noted. Some of the comments on this call contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and the Risk Factors section of our 2023 universal registration document. All earnings materials are available on our website, and these prepared remarks will be available shortly after this call. I would like now to hand over to Pascal Daloz.
Thank you, Béatrix. Good morning, good afternoon to everyone joining us on the call. This morning, we issue our earnings press release, confirming the information we shared two weeks ago during our preliminary release and call. So if I go straight to the point, our second quarter total revenue increased by 4%, and earnings per share rose by 8%. What did we learn from that? First, the delays in the customer decisions caught us by surprise in Q2. At the same time, looking ahead, we can confirm we have a robust pipelines, which is structurally stronger in the second half compared to the first one. Additionally, we remain on track to close this year the majority of the deals that have been delayed, and we see the maturity of those opportunity as improving as we advance through the year.
From a profitability standpoint, we are taking the required measure to preserve not only the operational efficiency, but at the same time, protect also the long-term investment. Therefore, I think we are in a position to confirm what we expect the EPS to be up 8%-11% this year. Now, let's start by discussing our business environment across the three sectors. First, in the manufacturing industry, despite the recent volatility in customer decisions, particularly in aerospace and defense, the demand for 3DEXPERIENCE solutions remain extremely strong, +23% for the first semester. We have several deals, including extensions and significant win backs. I think our customers, they are still seeking innovative way to differentiate in the market and strengthen their customer relationships.
Now, zooming in aerospace and defense, customers have a huge backlogs due to the manufacturing ramp-up delays, which is caused by the supply bottlenecks. This has created a cash flow issues for them and impacts, obviously, their investment plans. However, despite their investment pause in the near term, we are extremely confident that our solutions can help them to address their current issues. At the same time, we see transportation and mobility extremely resilient and well-represented in our second half pipelines, as we are not subject to the volume of productions. Now, speaking about consumer industry, I think we are growing strongly, and we expect this trend to continue in the second half. And in, and in addition, we have a much better pipeline in H2 compared to H1, with the right mix of volume and larger transactions.
Speaking about Life Sciences, we believe we are at a turnaround point and that the market contraction is behind us. In another world, I think we have reached the bottom. At the same time, we have reinforced our position with an increased market share and a new innovation cycle is starting, and the evidence of this is the launch of our new product, Medidata Clinical Data Studio. We officially launched this product at the end of June, and we already have achieved remarkable success, including significant winbacks clients, and we are using this as a competitive differentiators to expand the value proposal beyond the traditional EDC. And we believe this will completely transform the clinical trial in the year to come, but Rouven and I will come back, and I will explain why in a moment.
In infrastructure, the momentum continues, driven by the development of the 3DEXPERIENCE in our existing accounts. Now, I would like to highlight three major competitive win this quarter. The first one is Mahindra & Mahindra. They have selected the complete 3DEXPERIENCE portfolio for transportation and mobility, which means all the solutions we have, fully adopting it for all the future vehicle programs, and at the same time, we are displacing a competitor's solution which was widely used. This being said, the innovative things is also it's 100% cloud-based and it provide an out-of-the-box industry solutions for 3,500 users, including engineering services suppliers. And initially, they will start with three vehicles program, including their best sellers.
The key point also, in this case, is the data centricity part of the platform was a key decision factor, because it aims to reduce the cycle time and gain an edge against increasing competitions from China. In this regard, the ability to source locally is really critical, and this is also the reason why they have chosen us, as we enable all the business decisions capability to be integrated into the early design phases, thereby maintaining the low costs. And ultimately, the adoption of our platform enables Mahindra & Mahindra to gain unique competitive advantage and electrify most of their cars.
My last comment is, this win is also emblematic, especially to strategically reposition us in India, because for a long time, you know, we have built the capacity in India to serve the rest of the world, and now we are redirecting some of this capacity to expand and to accelerate our penetration of the Indian economy. Moving to Life Sciences, we also have an interesting case this quarter with Bristol Myers Squibb, BMS, because they have renewed its partnership with us after a deep benchmarking exercise. You can count on them, sorry, to evaluate all the solution on the markets. At the end, they have reconfirmed the collaboration with Medidata, expanding the successful 10 years partnership by an additional 5 years.
These new contracts include access to Medidata Rave, but also the AI capability, the new Clinical Data Studio , and also all the rest of what we do. Because this is... I think those solutions are giving really the ability for BMS to manage the complex and diversified clinical trial portfolio, which include the sales and the gene therapies, which is pretty unique. BMS has also adopted the Medidata Clinical Data Studio to integrate data sources, data from multiple sources, and it starts from, obviously, the electronic data capture, the EDC, but more and more, the electronic health record, you know, the system which is used at the hospital to collect the, the clinical information when people are under treatment. And more recently, we are expanding it with the sensor data also.
These expanded partnerships reflects BMS' commitments to advancing clinical research processes and reinforcing dedications to improving patient outcomes, and also, and obviously, the personalized medicines. My last example is an interesting company. Maybe you don't know them, Marmon. It's a highly diversified company owned by Berkshire Hathaway, and they are operating in many industries, such as construction, energy, industrial equipment, and transportation. What is interesting, they have chosen the 3DEXPERIENCE SOLIDWORKS on the cloud for an integrated approach. This decision involves replacing all the design and simulation point solutions they were using, while incorporating advanced collaboration capability at the same time. I think with this, it's another proof point that the 3DEXPERIENCE WORKS, SIMULIA, is pretty unique because we offer unified solutions on a market which delivers an unmatched return on investment.
I think this is demonstrating that the platform concept is also relevant for the mainstream markets. In parallel of those wins, where many of them are, by the way, we are displacing the competition, we continue to invest, and we are actively developing the AI-driven use cases to accelerate the future growth, again, across the three sectors of the economy we serve. Why I think it's we are uniquely positioned is because we are leveraging our largest multi-industry data sets. As many of, if not most of the products, manufacturing products, the drugs, the large infrastructure equipment, are created with our software, and the combination is allowing us to generate these experiences. There are three examples of those experiences available for our customers I want to highlight. The first one is so-called System Standard Compliance by Design.
It improves the process of writing requirements by using artificial intelligence to read and interpret all the relevant regulation and norms. When it's done, automatically, it verifies that the design meets the established performance criteria. This solution is playing a critical role in helping the EV makers to address their current challenges, specifically reducing the sales cycle and the time to market. It also ensures the accuracy the first time and enables the lifetime changes for the over-the-air updates. As you may know, the increasing level of autonomy of these smart products and connected products imply a rigorous traceability along the entire design processes, from the definition of the requirements to the ends of the verification and the validation processes.
I think we are currently collaborating with early adopters among the automotive OEMs and the Tier One Suppliers, and our plan to expand in aerospace and defense shortly. Following this initial engagement, we also scale our solutions to other players. The second domain where I think there is new things coming, and I already start to speak about it, is the Clinical Data Studio. It's in fact, a new generation of data management solutions, providing a seamless access to integrate data from various sources. Previously, you know, all those information coming from the EDC, the EHR, or the sensors, was added manually to the systems. But now, with the Clinical Data Studio, simplified massively the data aggregations, standardization, and the management workflow, using artificial intelligence to do this. And the net result is what?
This is enabling multiple users to work with real-time data, to reduce the workload, to speed up the reviews, to improve the quality, to lower the risk, and obviously, enhancing the patient safety. I think this new approach will really reshape the future of the clinical trial, providing a single source of truth for compliance and regulations. I encourage you to attend the next event in New York. We will discuss in depth this topic. The last example I want to use is so-called Perfect Consumer Product. In fact, these solutions are enabling the creation of unique experiences for mass personalization. And you know, to serve a large number of customers quickly, automation through AI is really crucial, in fact, because it's the only way to leverage the massive customer data to drive generative experience.
And this quarter, we have an interesting case for this. As you know, we are partnering with ASICS, the well-known Japanese sportswear brands, to offer personalized shoes. And we are currently building on the momentum of the Olympic Games in Paris. And, if you have a chance to come in Paris, you know, ASICS opened several locations across the city, where people can scan their feet to create customized running shoes with unique sole, tailored for each individuals. The most interesting thing is also, these shoes will be manufactured on demand and locally, and this is reducing massively the CO2 emission footprint. So if you visit our Paris campus in the coming months, you will have a chance to see this modular 3D printing manufacturing unit in actions, and I think, this would be an interest for you.
Now, let's, before to conclude, let's come back to, a little bit the business environment. Now I would like to conclude on to give you, the trends by regions. Europe remains resilient and continue to be a key anchor for growth. There is definitely a strong demand to transform the European industry, particularly in transportation and mobility, aerospace and defense, and home and lifestyle. In North America, we expect accelerated growth in the second half of the year. In the core industry, with notable progress in aerospace and defense, and ongoing contributions from transportation and mobility, but also in Life Sciences. In Asia, the growth dynamics are well-balanced across different countries. India represents a strong opportunity ahead, as I was saying, while Korea and Japan are expecting to deliver consistent and durable performance. China is also projected to grow, but remain subject to volatility.
To wrap up, and before handing over to Rouven, I want to emphasize that we have achieved multiple win backs this quarter, and meaning that not only we are competing successfully, but also we are displacing the competition. I'm convinced that our platform approach is a key differentiator and more, and more relevant for the industry we want to serve. This is giving us the confidence in our growth potential for the second half of the year and beyond. While we may experience short-term volatility, it's a topic we discussed a few weeks ago, you know, our game-changing visions attract customers who value our long-term approach. After this, I think, Rouven, you have the floor.
Thank you, Pascal, and hello to you joining our call today. First, I want to confirm our results of Q2 are in accordance with the preliminary announcement from July ninth. Now, let's review the performance of Q2 and the first six months in a bit more detail. Q2 software revenue was up 3%, with subscription revenue at 8%, and upfront license revenue down by 1%. As discussed, we closed fewer large deals as we experienced cautiousness in customer signings towards the very end of the quarter in a complex geopolitical environment. The relative strength on the bottom line, with an EPS at €0.30, growing at 8%, was driven by a lower expense growth, strong interest income from cash invested, and a lower tax rate. The operating margin was at 29.9%.
Looking at the first 6 months, total revenue was EUR 2.995 billion, up 5%, with an operating margin of 30.5% and an EPS growth of 10% versus H1 of last year. Subscription revenue was up 9%. However, when excluding Medidata, subscription growth was up 20% in H1, and 29% on a trailing 12-month basis at the end of June. Clearly, the momentum continues to be strong, reflecting our customers' appetite for 3DEXPERIENCE platform and cloud adoption. Important to highlight, the Medidata performance was largely in line with our expectations, which I will discuss in more detail shortly. Now let me briefly review the deviations to the midpoint of our objectives for the second quarter.
Total revenue came in at EUR 1,496 million in the quarter, which was EUR 44 million below the midpoint and EUR 29 million below the low end of our objective, including a positive currency impact. This reflects the volatility in customer decision-making. However, all important deals that have been delayed are still in our roadmap for future quarters, and when purchase decisions are made, our win rates remain very strong. Operating margin was 29.9%, below the low end of guidance. OpEx growth in Q2 was 5% and offset approximately half the impact from the shortfall in revenue. Thanks to an effective hiring and expense policy, we reduced net headcount growth in the first six months of 2024 to 270 FTE. Additionally, Q2 OpEx growth included a one-time benefit of approximately 1 point.
Now, going forward in H2, we will dial up the hiring to support our long-term growth strategy, and as every year in Q3, we are onboarding interns and young graduates to fuel our talent pipeline. As mentioned, EPS was €0.30, in line with our objective. The combination of lower OpEx costs, very healthy financial income, and a lower tax rate offset the miss in revenue. As you can see, we have taken a prudent approach to preserve our EPS objective, while ensuring the necessary long-term investments. Now, turning to our growth drivers. Despite the more challenging business context in the second quarter, we saw sustainable growth in 3DEXPERIENCE revenue, up 18% in Q2 and 23% in H1, driving the share to 36% of software revenue.
This quarter, over two-thirds of our 3DEXPERIENCE growth was driven by deals over EUR 3 million, with the remainder generated by mid-sized deals. Overall, this highlights the broad-based momentum and resilience of the 3DEXPERIENCE growth, despite the elevated scrutiny in some of sales cycles at the end of Q2. Cloud revenue grew 10% in Q2 and 8% in H1. Excluding Medidata, cloud growth was up 70% in Q2 and 60% in H1, driven by strong momentum in the adoption of 3DEXPERIENCE Cloud. In Q2, we had several large customers expanding their adoption of the 3DEXPERIENCE platform on the cloud, such as Mahindra & Mahindra, Honda, Biogen, and Safran. With this, let's review our performance for Q2 and the first half of the by product line.
Software revenue of Industrial Innovation grew 6% for the first six months, led by strong growth in NETVIBES and data science, and a solid performance of ENOVIA and DELMIA, growing at high single digits. CATIA and SIMULIA growth was particularly affected by the increased deal scrutiny and delay in decision making, while the subscription run rate remains solid and embarks for future growth. Life sciences growth was -2% for H1, with Medidata growth at -3%. This scenario was factored into our plan for the first half, and as we now transition to the second half, we believe that the period of post-COVID market contraction is largely behind us. In Q2, we saw study start volumes up sequentially for the first time since early 2022, after two full years. The trend of progressive recovery continued in Q2.
This is evident in the bookings performance, most notably in the study-based volume business, thanks to an increase in CRO partner consumption. Also, Patient Cloud bookings were up. While still early, we saw a good trend in bookings from new products launched in 2024. For the first time this quarter, Clinical Data Studio was adopted by several enterprise customers, as Pascal highlighted during his presentation. We also renewed with our largest sponsor, BMS, our multi-year contract. Importantly, BMS expanded their commitment, ramping up in 2025. On the flip side, we saw fewer large deals in the quarter. However, we expect this trend to normalize as the share of large transactions will grow with upcoming renewals in the next quarters, including 2025. To conclude on Life Sciences, it is clear that we are competing well in the market.
We continue to expand our market share in Phase III trials by over 2.5 points, and also in Phase I by over 0.5 point. All of the above contributes to the path of progressive recovery. Now moving to Mainstream Innovation . We see continued strength, mainly driven by Centric PLM. For SOLIDWORKS, the continued adoption of subscription contracts with existing and new customers more than offset the decline in upfront license. Now, I would like to briefly expand on the continued momentum of Centric PLM. This quarter, we signed several large enterprise deals with leading brands such as Lacoste, Hugo Boss, and Shopsense, a Reliance Industries company in retail tech in India. Many of those wins are displacements, as evidenced by the track record....
Centric PLM offers a highly integrated business platform for consumer-driven industries that encompasses all aspects of product development, from planning, pricing, inventory, market intelligence, and more. By bringing together product developers, planners, quality and compliance teams, buyers, merchandisers, and designers, Centric PLM optimizes every step of bringing a product to market. Consequently, we are well positioned to secure large-scale enterprise PLM contracts. It's now a completely different game. Turning now to the cash flow and balance sheet IFRS items. Cash and cash equivalents totaled EUR 4.031 billion, compared to EUR 3.568 billion at the end of 2023, an increase of EUR 463 million. At the end of the quarter, our net cash position totaled EUR 1.036 billion, an increase of EUR 458 million versus December 31, 2023. This clearly highlights a disciplined and efficient capital allocation.
Now, let's look at what drove our cash position at the end of the first half. We generated EUR 1,130 million in operating cash flow for the first six months, versus EUR 1,026 million last year, or a growth of 10%. As highlighted already in Q1, we delivered a positive catch-up in the second quarter, thanks to strong collections and improvements in the non-operating working capital, mainly from lower cash tax payments and expected reimbursements. For the first six months, cash conversion from non-IFRS net income improved to 1.42 times, versus 1.39 times last year. For any additional information, you will find the detailed operating cash flow reconciliation in our press release published this morning.
To sum up, operating cash flow was mainly used for the net repurchase of treasury shares of EUR 273 million and the dividend payment of EUR 303 million. In terms of CapEx, we invested EUR 106 million in property and equipment, which is around EUR 40 million above last year's level for H1. This is mainly due to the global office expansions and IT-related CapEx to support our cloud growth . We are investing in our operations in India. We are modernizing our DELMIA location in Detroit to strengthen our manufacturing presence in the United States, and we are further expanding at our headquarters in Paris. Evidently, we are investing long term to support our growth, and we are convinced that our workplaces are the foundation for collaboration, innovation, and our strong culture. Now, let's transition to our full year outlook.
Over the first six months, we made continued progress in advancing our growth drivers of 3DEXPERIENCE and Cloud. While we signed fewer large deals in H1, the number of mid-sized transactions is actually up by 8% in the quarter and over 10% for H1. At the same time, we experienced an elevated scrutiny in sales cycles across major geos in Europe and, now, specifically in the aero and defense industry at the end of the second quarter, which we discussed. Now, let's look ahead to H2. We see a healthy demand of our solutions in our customer base, primarily from platform adoption, value network, and domain expansion. Our pipeline coverage is well aligned with historical trends.
Now, taking all these factors into account, consistent with our pre-announcement from July ninth, we are updating our full year objectives with total revenue now in the range of EUR 6.26 billion-EUR 6.335 billion. This represents a growth now of 6%-8%, whereas, versus previous guidance of 8%-10% growth. For software revenue, we now expect 7%-8% growth, driven by upfront license revenue in the range of 3%-5%, versus 2%-5% previously, and recurring revenue of 8%-9%, versus 10%-11% previously. Subscription revenue is now in the range of 13%-15%, versus 17%-19% previously. This reflects the delay in customer signings, which impacted mainly large subscription contracts.
Finally, we expect services revenue to be in the range of 3%-5%, versus 8-9 previously. From a bottom-line perspective, we now expect an operating margin in the range of 32%-32.4%, which is flat year-over-year at the midpoint, and an EPS in the range of 8%-11% growth or EUR 1.27-EUR 1.30. The tax rate is updated to 19.5% for the full year, versus 20.5% previously. Now, I would like to share some additional points to help shape your models, reflecting the Q3 outlook. First comment is regarding the baseline comparison. Q3, 2024, is the anniversary of the JLR mega deal, creating a challenge, a challenging year-over-year comparison.
As such, we expect total revenue growth in the range of 4%-7%, with softer revenue of 3%-6%, driven by recurring revenue of 7%-9%. Subscription revenue is estimated to grow between 12%-17%. In this outlook, we expect Medidata to improve sequentially and be flattish. Operating margin is expected in the range of 29.4%-30.2%, and EPS between €0.28-€0.29, which is up 1%-6% year-over-year. The JLR effect is over 3 points on the revenue, visible in upfront license and about 120 basis points on the operating margin. EPS impacted by about €0.03. You can find all the details in the appendix of our earnings presentation.
Now, before I conclude, before I conclude, I would like to share a few remarks on the trajectory of the second half, for which we are now expecting 9% growth. This implies an increase of around EUR 300 million in revenue versus H1. Two-thirds of this sequential growth is related to normal seasonality. The remaining one-third is roughly split between the slipped deals to be signed in H2, and the impact of the back-end loaded year, which encompasses both 3DEXPERIENCE and Medidata. In conclusion, I want to reiterate our commitment to investing to support long term while expanding our margins. We continue to see strong customer demand and engagement across our 3DEXPERIENCE portfolio, Centric PLM and Medidata, all supporting our financial objectives near and midterm. Now, Pascal and I look forward to your questions.
Thank you. As a reminder, to ask a question, please press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take the first question. From the line of Jay Vleeschhouwer from Griffin Securities, please go ahead.
Yeah, thank you. Good afternoon, Pascal, Rouven, and Beatrix. Let me start with two longer term questions and then turn to the near term. So, Pascal, for the longer term, for next year, does it still make sense for you to think about EUR 2 billion of cloud revenue for the entire year? Or, would it make more sense to think about that two billion objective as perhaps more of an annualized rate towards the back half of 2025, particularly when we think about the lower base from which you're starting for Medidata? And then second longer term question, in your prepared remarks, you referred only briefly to infrastructure and cities. Could you talk about how you're thinking about the game plan there, particularly in 2025 and beyond?
DS was at a conference in London last month on AEC, so it's clear you're looking to reboot your plans there, but perhaps you could be a little bit more specific about how you foresee becoming more significant in that strategic market?
Okay, thank you, Jay. I like the long-term question for 2025. Anyway, I think you, you got the answer. I mean, the EUR 2 billion is annualized for sure. I mean, that's the only way. It's not because I think there is something to hide, it's because at the end, that's the way we measure the real contributions. Because if we want to have a snapshot, is to understand at the moment, but we automatically, you have the dynamic coming on for the next 12 months. So, so you got it. I think, by the way, outside of Medidata, the cloud is growing nicely at 70% this quarter, and 60%, if I remember well, since the beginning of the year.
So I think we are on plan on this, including with SOLIDWORKS, by the way, where we see a lot of traction going on. Coming back to infrastructure and cities, there are two or three key initiative for us. The first one is, you know, we do not want to do like the competition they have done in the past, which is to address the company one by one. I think this market is highly fragmented, you know it, and it will take a while to have the proper coverage, even if we have, you know, some of our resellers, which are capable to address this market. So the way to a certain extent, to defragment this market, is to address the large projects, and this is what we do.
We are targeting the large infrastructure projects, whereby we offer the platform as the foundation for the collaboration between all those different stakeholders. It's a way for us to address, if you want, the entire chain with one engagement, cells engagement. There are a couple of projects where we are part of the consortium, so we put ourself equivalence to the large civil engineering companies, the large construction company, and that's, I think, an innovative way to address this market. The second breakthrough we are bringing to this market is the modular approach. This topic is becoming more and more relevant in the constructions, not only for the residentials, but also for the commercials. Why so?
Because you need to reduce the cost for, you know, to build, and the modular approach is really the way to have, basically, to capitalize on the knowledge and the know-how, and have the efficiency on all the projects you do. So this is also changing the value chains, because if you are modular, it means you will have local facilities producing the sub-assembly, and when you are on site, what you do, you do only the final assembly, and you are not transforming the raw materials on site. I think we are pretty well advanced on this. The best example I can use right now is what we do with Bouygues, but they are not the only ones. And last but not least, there are certain subsegments of the market where we, I think we have a unique value proposal.
One of them is, for example, for the data centers, where, as you may know, you will have more data centers being built in the next decade than the nuclear plant. And the specificity of those kind of things is, you design the system, and then after, you build the concrete around. So for this, we have many engagements going on with hyperscaler directly, and the most well-known one, but also some specialists, you know, the people like Equinix and others, which are developing this. So those are, and we have other initiatives like this, targeting the subsegment of the markets.
So with this, I think you have a comprehensive understanding how we are addressing the market, how we are repositioning ourselves, and how we are taking the benefit of the platform, the multiphysics and the multiscale capabilities we have, the combination between modeling, simulation, and AI together, which I think is a game changer for this industry. But it's a long run, you are right.
Coming back to the nearer term then, for you then first, and then I'll finish up with you, Pascal, on SOLIDWORKS. So you referred then to operational efficiency, but at the same time you're going to have a steeper trajectory of hiring for the second half. So could you elaborate on what you mean by that efficiency? Are you making any internal systemic changes or other things of that kind? And how are you thinking about the trajectory of Medidata operating margin expansion year-over-year, if any, for this year? And then back to you, Pascal.
Well, thank you, Jay. I think the trick on the operational efficiency is to plan from the beginning of the year and have an ongoing planning cycle, because throughout the year, it's very hard to catch up if you want to be sustainable. So you see, we have been controlling investments at the beginning of the year with the objective to create the room to invest right. And that's what we will be doing in the second half of the year. We're coming in with a lower expense run rate into the second half, which gives us flexibility that we want to leverage. In Q3, we are going to bring in, as typical every year, a larger number of graduate young talent into the company.
They have already been identified, so we have clear visibility on the cost impact of this. Other than that, related to Medidata, you know, we are initiating a new cycle of innovation, a new cycle of leadership and management, that we started, and as a result of that, we also reviewed properly our priorities, the organization, and we came to the conclusion that there is an opportunity to make some changes, as we did in the second quarter. You see, there's an expense in restructuring expenses in the IFRS financial statement, which is related to Medidata, and that impacted about 150 people in the second quarter. But this is more about making the necessary adjustments to have the flexibility to invest right and accelerate our roadmap.
Maybe in addition to what you say, Rouven, there is an initiative going on, also at Medidata, is redirecting some of the people to the new growth area. As you may know, especially in the development side, it's not an easy things to do.
Mm-hmm.
But we are using the business environment, if you want, as a way to force this realignment to happen on a short term.
Okay. And to finish up with you, Pascal, on SOLIDWORKS, the company earlier this month, at least here in the U.S., introduced, as expected, some new packaging around various SOLIDWORKS functionality. How are you thinking about the impact of those? Will those be meaningful for you in terms of getting to your mid-teens volume growth expectation that you've given to the channel for growth this year? And is that new form of packaging something that could be applicable elsewhere, in the business, for example, would it make sense to do something like that as well for Industrial Innovation, or is that really more unique to the, the SOLIDWORKS business?
No, it's a good question, Jay. If you look at the dynamic of SOLIDWORKS, I think we are doing a good job for with our install base, which have more than 10 seats. I think we have a lot of traction and growth coming from there. However, the packaging we did in the past was not relevant for the segment of the company having 1-5 seats, and this is the entire purpose of this new offer you are talking about. So this is really where we are right now focusing, because we want to do the value up, but also we want to continue to have the volume effects. Now, coming back to your questions, I think this approach is something also we can do, and we are partially doing it for CATIA.
Especially for the same reasons, because we have a subsegment of the market having between 1 to 10 seats for CATIA, and we want this to be a volume-based approach more than only a value add approach, if you want.
Okay, great. Thank you both.
Thank you, James. Thank you.
Thank you. We will now take the next question from the line of Jason Celino from KeyBanc Capital Markets. Please go ahead.
Great, thank you. Just two questions for me. So the large deals that slipped out of Q2, you know, excluding the mega deal, you know, have you been able to close any of these deals so far in Q3?
Well, Ruben, I can take it if you want.
Yeah, we have already closed some of them, which is, by the way, giving a good sign of the start of Q3.
Okay, great.
Yep.
When we think about your large deal pipeline for the second half, you know, given you've seen some geopolitical, you know, delays already, you know, how much of your large deal pipeline is for U.S. companies, you know, given the upcoming U.S. election? Just trying to wonder, you know, how much variability, you know, you've built into the framework.
Yes. So when you recap the overall situation, H2 over H1, we have about a ramp of EUR 300 million increase, of which two-thirds is the normal historical run rate. So there's EUR 100 million of surplus when you compare that to the historical trend, of which about half is related to the deals that slipped from Q2 into the second half. And that's about 40% of the deals that slipped. They are clearly identified, and when you take those, about 60% are in the Americas, and 40% are in Europe.
Okay. Great. Thank you, Rouven.
Thank you.
You have questions? No.
So, from ..." Please go ahead.
Yes, thank you. Good afternoon, Pascal. Good afternoon, Rouven. I have a few questions this afternoon. The first is on the SOLIDWORKS and on the ramp-up of subscription that has been going on for a few quarters. Could you give us a little bit more granularity where you stand? Maybe a growth estimate between the license, subscription, and support as at the start of the year will be helpful for us to build our model on how we model the transition. The second question is back to Medidata and your comment about the Phase I trial and some market share win. Where do you stand there? Market share, just for Phase I, and how would you compare the market of Phase I versus Phase III? Of course, more deals, but much smaller.
But in total, the market value would be useful. And my final question is just a clarification on subscription and supports growing 4% means what happened to support revenue in Q2? They look unusually weak. Thank you for that.
Yes. Thank you, Laurent. Let's go one by one, and please remind us when, if we miss one of your questions, you can chime in, yeah?
Yeah.
So I start with SOLIDWORKS. So as we said, for SOLIDWORKS, the subscription growth in absolute terms more than compensates for the lower license revenue. So we already have passed the point where the net of both is lower than the year before. No, the net of both is showing an increase. Right now, in terms of revenue increase, we are in the low single digits for the quarter. And that's fairly aligned also with the support revenue. But we expect an acceleration in the third quarter and in the second half of the year. So in 2024, I think we will have a—we, we have completed another major step of shifting the installed base from upfront license to the subscription, and about 40% of the new bookings are already in subscription. So the momentum is picking up.
If you remember, about a year ago, this number was, like, 20% or less. But our objective for the year is to grow mid-single digits. So we expect an acceleration in H2.
Medidata?
On Medidata, Phase I. You know, Phase I, there are different segments of the Phase I market. There is a Phase I market in the biotech space, in the mid-market, and in the large enterprise, and they have different dynamics. We have always been focused in Phase I, more in on the biotech side. And large pharma companies have tend to use other software vendors to run those types of clinical trials, because simply our solution is much more sophisticated and advanced compared to the requirements they have. And it was not a necessity for them to be connected between Phase I, two, and three. Yeah, it was an early phase research, which was more or less going on at you know, happening at a different scale, in a different operation.
And it's when once you go to phase two and Phase III, the investment of the pharmaceutical companies is 10 times or more. It's a real massive shift that we have been geared towards, right? And our focus has been. But as I said, we have on aggregate one also in Phase I over the last 12 months, market share, about half a point. But it's mainly coming from the mid-market and the biotech, and we are starting to close the gap also on large pharma. And the size of the markets, it's about 15% Phase I in terms of the overall clinical trial market. And phase two and three makes the rest.
And then you have phase four, which can be very long observational trials that are happening vis-a-vis, you know, the drug already being approved in the market, where you have to prove the efficacy and safety net of the drug that's already commercially available in phase four observational clinical studies. And that's approximately 10% of the market size, but the sweet spot really is phase two and three, and Phase I is a much, much smaller market. However, it's not something that we are neglecting, I want to be clear. So what was your third question?
The support, bringing the 4%.
Yes. So, support, there was 2 effects on the support revenue. The first one is related to the timing of renewals in Q2, which had about 1 point of growth impact. And the second is related to the ongoing convergence of on-premise and of upfront licensed customers that we are transitioning to subscription, and that has about close to 1 point of impact. You see the strong and durable growth of 3DEXPERIENCE. These are and the 12-month trailing subscription growth, which is 29% ex Medidata. There's a large part of this from our installed base that we are converting to subscription, that is driving this momentum. Now, in this quarter, you know, we added in Q2 less new subscription contracts, and that resulted in the shortfall over on the revenue.
But, you know, when you look at the trend, it's very healthy, and the conversion of the upfront license model to the subscription had an impact of approximately, it's slightly less than 1 point. So normalized for this, it would be 4 points of growth. To answer probably your follow-up question already, we are expecting for H2 support revenue to be 3%-4%.
Okay, that's great. And for the following year, I assume that the growth rate will very slowly come down?
Yeah, it's around 3%-4% for the full year support.
Okay. Thank you, gentlemen.
Thank you, Laurent.
We will now take the last question from the line of Nicolas David from Oddo BHF. Please go ahead.
Yes, good afternoon, Pascal and Rouven. Thank you for taking my question. The first one is, could you help us understand why, at the end of the day, the shortfall of Q2 sales mainly came from recurring revenue? I understand for the support, but also subscription, despite the fact that it was more about large deals slipping and with some upfront. So, could you help us understand why it was more on the subscription side rather than license, which at the end of the day, were pretty in line with the guidance? And how comfortable are you, and what are the drivers to see subscription, you know, excluding Medidata, acceleration accelerate significantly in H2, despite tougher comps?
Is it thanks to the ramp-up of existing deals already signed, or is it the renewals or other elements? And my second question regards SOLIDWORKS. Thank you for sharing this, the weight of subscription. I think it was 40%, was it in Q2 or H1? And could you share what you expect regarding the weight of subscription in the new bookings for SOLIDWORKS, maybe in H2 or Q4? An exit rate would be interesting. And I think, Pascal, you mentioned this morning, SOLIDWORKS possibly getting back to high single- to even maybe low double-digit growth in 2024 to 2025. Is it on a full year basis or a bit more like for Medidata, like on the back half of the year?
Thank you.
Okay, so let's start with your first question on subscription revenue. You're right, subscription revenue growth was 8% in the quarter. We targeted 15%-16% in our guidance, and it was mainly the subscription has been impacted by the deals shifting into Q3 and Q4. We had several large subscription contracts that we were targeting to close in our roadmap. And as you know, for the subscriptions, we typically have an annual renewal term, which, you know, technically you speak about an annual performance obligation. Every year it renews, and this allows us to recognize the revenue at the anniversary every year, at the customer renewal. And with this, we spread also large subscription deals year over year.
But there's a revenue event when we sign them in the respective quarter, and this is the where the miss is coming from, from that revenue event in the respective quarter, which would have had an anniversary, of course, in the year after. But now we are seeing, and as we are closing this to Q3 and Q4, we will start, you know, that start date or that run rate at the point we sell, we sign this, this contract. And this accounted mostly for the miss. And you mentioned, you know, outside the mega deal, also, the mega deal is structured similar. It's a subscription contract with a recurring element.
So you see that there can be from time to time, depending on the success of signing deals, when we start to enter in these new subscription terms, some volatility in the subscription. But once we have entered it, it's recurring on an annual basis. It has an anniversary. Then your second question was related to the guidance. And how are we comfortable on the guidance on the subscription side? The first statement I would like to make is we risk-adjusted our full year in H2. The demand for 3DEXPERIENCE is unquestionable, as you see in the trends that we have established, and the need that our customers have in our solutions. And the 3DEXPERIENCE platform is mainly sold as in a subscription contract.
So with the strong demand in 3DEXPERIENCE, it's going along with the subscription business model transition. And also, Medidata, in addition, is returning to growth. So the momentum here is picking up, and it is going to add around 5-6 points H2 over H1 in subscription growth . Centric PLM is delivering strong numbers. The subscription revenue is growing strongly. And so the bottom line really is that we have the pipeline available, which was always geared towards H2, but now is, I think, even more pronounced, as we discussed. And this gives us, you know, the visibility into H2 and the subscription ramp-up, which will then also fuel the trailing twelve months going forward. That's how we measure the success here.
But from time to time, there can be some timing shifts, which we experienced in Q2. SOLIDWORKS. Yeah. So you mentioned - you asked for the run rate at the... As I said, we are expecting around mid-single-digit growth for SOLIDWORKS in full year 2024. We see an acceleration in subscription growth, which is growing around 50% year-over-year. So subscription is really picking up on a revenue stream very fast, while the licenses are declining. And the net of both in absolute terms, we see a growth right now of low- to mid-single-digit. And now, of course, going into 2028, we will see, of course, this trend to be established then as a subscription business, and the upfront license will be the exception.
However, in certain markets, we assume that it will still exist, like in Asia and China, where we have a strong end market for license, less so for the subscription. So I think we are on track with this. Also, the new offering, which was Jay's question before, is geared really towards the subscription model, some of which is, you know, the new is connected to cloud services. So with this, we bring the data, the content, the collaboration into the cloud, and more and more, we will transition to a full cloud model.
Thank you, Rouven. My question regarding SOLIDWORKS was more about 2025 growth prospect.
Mm-hmm.
Can it be already-
Well, but, you know, it will be hard, Nicolas. It will be hard for us to not talk about 2025. I think 2024 is where we are, mid-single-digit growth. For 2028, we will be transitioned into the subscription world pretty much. So that effect will be behind us. And in 2025, the comparison base and license will be much favorable, and I think we, we will see a, we should see an acceleration of growth with the subscription.
Nicolas, just to complement, if you conclude that this year we are at the mid-single digits-
Yeah.
And the ratio between the new booking between license and subscription is 60/40. You could assume that next year, at least at the minimum, it will be 50/50. We do not have any more of the base effect on the license, on the upfront license, as you say, Rouven.
Yeah.
Plus, the subscriptions will be spread, not over the year. I mean, we will have the full effects in 2025. So if you combine all those elements, this is how I'm landing between having a growth being between mid-single-digit to high single-digit. I hope it's clear for you.
Yes, that's clear. That's clear and helpful. Thank you.
Okay. I think, Béatrix-
Yes.
This is concluding the call?
Absolutely.
Right.
Thank you for joining, and we'll stop here for the moment.
Thank you so much.
Thank you.
Bye.
This concludes today's conference call. Thank you for participating. You may now disconnect.