Everyone, this is Béatrix Martinez speaking, Dassault Systèmes VP, Investor Relations. From the company, we have Bernard Charlès, Chairman and CEO, Pascal Daloz, Deputy CEO and COO, and Rouven Bergmann, CFO. I would like to welcome you to Dassault Systèmes 1st quarter 2023 webcast presentation. At the end of the presentation, we will take questions from participants. Later today, we will also hold a conference call. Dassault Systèmes results are prepared in accordance with IFRS. Most of the financial figures in this conference call are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between the IFRS and the non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results.
Please refer to our risk factors in our 2022 document published on March the 17th. I will now hand over to Bernard Charlès.
Good morning, everyone, and thank you for joining this call that we are going to share with Pascal and Rouven. The first quarter we qualified as solid. We could debate about the term depending about how you want to look at it, but the revenue was up 10%, the recurring revenue. Subscription was up 14%, and you know that we want to continue to increase that part of it. The 3DEXPERIENCE was up 10%, on cloud up 17%, which by the way, is connected to the subscription model. The cash was strong at 24%, and as you could notice, after 3 years, we have reimbursed all our debt.
Or at least we are cash positive after this significant move with Medidata, which I think was the right thing to do. Operating margin at 31%. We continue to invest. Remember, we invested the last year toward the end of the year too, and we continue to invest with head count up 8%. It's in some way counter cycle with the tech sector, but we think it's a proof point that we believe that we have opportunities forward. The beginning of the year in China was slow. We have seen a better March. I think the post-COVID was a little bit complicated there, but the market is a big market. Financial objective are reconfirmed for the full year.
With total revenue growth at 8%-9%, EPS on track to achieve our 5-year plan at EUR 1.2, which was EUR 6 five years ago, as you remember, the division by 5. Our ambition is to continue on, we are confirming that with the showcase we have for the first quarter on full year. Game changer innovation. I think the industry of the 21st century is not going to be the one from the previous century. The customer relationship is very high in terms of trust, in terms of cooperation, and in terms of long-term engagement. Our ambition, we'll come back, I will not cover that much because we have the CMD Capital Markets Day in June.
We'll come back on that topic. We will of course reflect on the key objective for the next 5 years plan with the new team on board. That's the highlight for the Q1. I think just as a teasing for the CMD, we are well prepared for the next 5 years. We have a clear vision on a pragmatic approach to really take advantage of what's happening. The extensive use of virtual twin experience in every markets we serve, whether it's physical goods, production system, life science, infrastructure. They are not equal in maturity, but I think this is really a solid foundation where we are continuing to differentiate.
If you look at the overall perspective of what we did, 3D Digital Mock-Up, Product Lifecycle Management, then putting the platform in place to create experiences on the virtual twin of now life, I think it's a very well architected environment for the long-term achievement for Dassault Systèmes. A quick video that will illustrate the progress to really realize the virtual twin of human, from the cell to the organs.
Dassault Systèmes has a 40-year legacy of innovation in the aerospace industry, which continues today as we deploy the virtual twin experience in the design, production, and operation of aircraft for the world's leading manufacturers. Whether the focus is advanced simulation of airframe structures for certification.
Solving the complex puzzles of air traffic control, the virtual twin experience provides the ability to rapidly explore potential scenarios, predict future behavior, and create precise solutions. The life-changing potential of the virtual twin experience is perhaps best seen in the healthcare and life sciences industries. Employing the virtual twin in the fight against heart disease has made huge leaps forward in innovation possible. The Living Heart Project uses the virtual twin experience to facilitate collaboration. Together, teams develop highly accurate, personalized virtual models of human hearts, removing the need for intrusive investigation, rapidly delivering new insights, and accelerating the approvals process through large-scale virtual testing programs.
Marc Gilzeri to board a member onto the new team, and soon Pascal to be the CEO, is that if we were to do an IPO those days, we have an extremely strong story for the future. This is why our Dassault Systèmes is long term. As everyone should remember, we are a family-controlled company, and that's an important thing because we can really put a lot of energy to prepare the future. I think this is a spirit in which we are going to prepare the CMD to really, the Capital Markets Day in June, to really provide a soundable perspective about why those levers are there. It's a new world for design, the 3DEXPERIENCE World. It's also a new world to automate things, not only production with robots.
At the 3DEXPERIENCE World Forum, which was very successful, we presented how the system will auto-generate parts from specification using AI-based technology. It works at scale, and we are going to have large customer test coming in the middle of the year. What you have seen with AI used in text analytics on a new user interface for people, in front of a screen, we are applying it to design, the design world on the evaluation of experiences, both for sustainability. How do you change material quality, material characteristics? There are a few, great stories about that Pascal will talked about soon, talking about customer. This idea that in the future of design, in the future of production, AI will play a big role. We are already there.
AI has been used in V5 for generative design for cars and planes, and we are continuing to expand that and explain to customers what we've never revealed of what is inside the system. We have a very, very deep understanding about different techniques to apply AI. By the way, natural intelligence is still useful. We have AI on NI, natural intelligence. Don't forget NI. Don't forget NI. Algorithms are still good. An incredible dynamic, and this is why I told the team in charge now, if you think about the footprint on the number of new logos we are touching with cloud, it's a new, exciting world. We have very small customers on cloud. We have also very large customers, but a lot of small customers.
It's an exciting moment to see how innovation is happening with very small companies. We have companies with 1 or 2 licenses growing. Remember the story that we talked to you about 16 months ago, Plenty doing vertical farming in Seattle. They started with 2 users. They have now more than 100 users. Nobody would have expected us there. Cloud enables us to reach those. This is why I think the landscape and the nature of those logos, you will have the print. For some of you having the time to just look at what those logos are doing, you would be surprised with many of them not expecting Dassault Systèmes to be there. I think that's a new world because it's not about design.
It's about how can I do the virtual twin so I can improve my business. Whether it applies to the what, the offer, to the how I do my business, and even who is doing it, my supply chain. More to be discussed in June. You have to really understand that our scope is changing, not only changing from physical thing, things, and a plane is a thing, to life, but also in terms of where virtual twin can be used. We have been in this IFWE Loop, we call it the IFWE Loop, on the left side of this loop, which is innovation. The right side is about experience in use, profiling how a vehicle is used by a consumer so you can improve the vehicle. We have the data for that now, it will change everything.
Profiling the physical products in use is changing the way innovation is going to happen in the future. We solve a lot of problem for companies like Tesla and others, looking at the data for their vehicle in operation. This is happening for airplane, this is happening for train, this is happening for many, many users. We call this the spiral of experimentation. You have one side, the spiral of innovation, the spiral of experimentation. On the IFWE Loop is the very nature of transforming how you engineer the next product. Very important when you do energy management for a vehicle, for example. If you don't know the profile or usage, it's very difficult to do optimization of it. It creates a new landscape for solutions which are really being implemented with certain customers.
One or two remarks on customer. I think what, the PepsiCo decision is very interesting decision. You know, on the reduction of raw material usage is massive to serve, as well as packaging efficiency with recyclability expanding. All companies on the planet have these challenges, and without simulation, it's very difficult to do it. I think it's a good illustration of how the trends on the footprint of Dassault Systèmes in different industries can play beyond removing errors, reducing engineering change, or improving capacity to produce. It's about connecting two things: the experience economy, the sustainable economy, and doing a synthesis of the two. I think this is our purpose. With that, I give the floor to Pascal.
Which it's clear you all know, I'm looking forward to have him telling me when he wants to be the CEO. I negotiated Deputy CEO, he accepted this year. I hope that he will soon say, "Okay, remove deputy." I will have to address those topics. Pascal, you have the floor.
Thank you, Bernard. Thank you, thank you. Hello, everyone. Good morning. It's always a pleasure to be with you in London at this time of the year. Let's start with some operational highlights and with, you know, the tone of the conversation we have with customers right now. For many of them, it remains volatile, let's say, their business environment, but the reality is an opportunity for us. Why so? Because they need to increase the agility, the profitability, and they are turning to us to get the solutions to do real-time analysis of the raw materials, the part substitutions, as well as reshaping their entire value network. In a context also where the regulations like REACH, for example, is imposing a lot on them. Let's zoom on a few examples this quarter. Let's start with the manufacturing industry and the mobility.
As you may know, we are driving, you know, most of the electrification of the car. Ford, you know, it's a longer time partner with us. They have decided to standardize all their, they call it e-mobility, which is, you know, the EV plus the connected car. They are standardizing on 3DEXPERIENCE platform. Why so? Because the game is changing. On one hand, you have the new generation of battery coming, you know. We are not thinking anymore about the lithiums, but the sodium is coming, and we could expect to have a generation 3, 4. You need to have the agility of a startups in order to introduce the innovations. At the same time, it's becoming a volume-based business. You have seen Tesla dropping the prices by almost 20%.
By doing so, they have put many of car makers out of the markets. It's not any more premium. It's becoming mainstream. If you need to have the ability to do both at the same time. This is the reason why the 3DEXPERIENCE platform is the choice for many of them, if not all of them. That's the reason why Ford took these decisions. Again, it's, we continue to diversify. Oops. What's happened? Oops. If we look at what's happened overall in this sector, which is interesting. You remember we started 10 years ago with all the newcomers, and look at them. All of them, they have standardized on 3DEXPERIENCE platform or CATIA or SOLIDWORKS, all of them.
The top 10s, all of them, they are equipped with our solutions. We started, again, more than 10 years ago. If you look at the OEMs, that's an interesting thing also. 72% of the car has been engineered with CATIA, for the last decade. If you look at the new EV cars, it's 85% of them, which basically means we have more penetrations with 3DEXPERIENCE platform on the EV segments than we used to have on a traditional car. 70% of the OEMs are already equipped with 3DEXPERIENCE platform, which is for the launch pad to continue to expand. You remember, by doing so, we almost double the revenue we do with them. I think no one will argue 1 sec that we are the de facto standard in this industry. If we move to life sciences.
It's also an interesting thing. The use of the data in AI is becoming also mainstream. There is no one single day where we are not receiving a call from sponsors, whether it's biotech of large pharma, asking us to get access to the set of data we have in order to do synthetic control arms or to use this as a way to improve the design of the trial, also to select the site. There are many, many different use cases we have developed on top of it. We are also developing in parallel what we call the synthetic patients, which is nothing more than building algorithms with very high accuracy in order to predict adverse events without having to test physically the products. Verastem is again is a good example of this.
They are selecting the synthetic control arm for rare disease in oncology. Again, why it's important, you have the traditional benefit of it, which is to maximize, you know, to accelerate innovations, to reduce the cost, and to mitigate the risk profile of the trials. The more important is, as you may know, for rare disease, it's extremely difficult to enroll patients. It's very, very, very difficult. For many of them, if you give the standard of care to a certain extent, you are not delivering the promise, which is to come with innovative therapeutics on the market. Using this synthetic control is really a way to ensure the patients have access to the most promising treatments. That's what is behind of this.
Same thing, if we step back and we look at the footprint on the market. You know, we just issue a press release a few weeks ago about 13,000 clinical trial and 9 million participants in those trials having used our solutions. It's really a milestone for the industry. It's really a milestone. You know, whatever the competition is claiming, they are only touching a fraction of the footprint we have established on the market. It has been done, obviously we are not alone, and we did it with all the customers and the partners. I think it's the demonstration that our ability to come on a regular basis with the flow of innovation, and we are really the one virtualizing these industries.
The proof of what I'm saying is, look, 75 of the new drugs approved last year has been developed with Medidata and BIOVIA. 75%. Again, no one will argue that we are also the de facto standard in this industry. I want to take the opportunity also to thank to, you know, to thank the 9 millions trial participants because I think they are helping us to advance the journey and also the patient diversity, which is a big topic for the trial. Now, if we move to infrastructures and cities, you know, when we, when we are saying to you we are purpose-driven company, it's not only for the marketing or for, you know, to only have a nice story to tell. Here is a proof.
By the way, if you have two minutes, go on our website and look at what we have a different commitment we took. One of them is ask for water and consumptions. You will see it's very interesting. You have all the program we have launched in order to physically treat the water as a precious resources. Why it's a precious resources? Because you know that in 2025, almost 2/3 of the populations will may face water shortages already. One way to contribute to this is, for example, this example. Ecolab is a company developing, you know, water treatments, if you want, detergents. In fact, what they do, they are using all of our solution, especially the deep science solutions, in order to reformulate their products to consume less water.
At the same time, they are managing the different regulatory, which is a big constraint globally. Obviously, they are fostering the collaboration across the multiple entire life cycle products. Why so? Because they serve many industries. Those detergents are used by the life sciences, by the aerospace, transportation, and mobility, you know, the food and beverage as well. Being capable to touch those company, it's really a way to have an impact on the society. Again, an example. Now, if we zoom on the, you know, the operational performance and the few comments we can do, let's start with Americas. Americas is growing 6%. The good result is coming really from the mainstream. I think you remember, the mainstream was flattish the second half of the year. Now we start to see the rebound.
We are also seeing good momentum in the pipeline, specifically in life sciences, aerospace, and high-tech. You should not be surprised, by the way, to see high-tech and life sciences contributing more and more to the pipeline. Why so? Because they are the ones spending the most in research and development anyway. I think we knew we had a good Q4 in Americas. We were expecting to have a slow start in Americas, and we do expect to have an acceleration in the coming quarters. Europe, extremely resilient, as you can see, +12%. It's really coming from the, you know, the large engagement we have with many companies in Europe, especially in France and the south part of Europe. It's driven by transportation and mobility and aerospace.
Clearly, we are extremely proud of what we have been able to accomplish in a region of the world where almost the industry is facing most of the problem, right? Asia, minus 3%. It's really, as Bernard stated, in the opening comment, it's really coming from China. China is down 8%. You remember last year, it was growing at 20%. The base comparison is not helping. We have good reasons to believe that we will have the rebound starting Q2. Why so? Because we saw in March, you know, an accelerations, and the pipeline is relatively strong. I think we have confidence that we will be able to catch up. India is growing double digits, and it's an interesting country, by the way.
We are seeing more and more investments flowing into India. To a certain extent, in the geopolitics environment, they are the one benefiting from the situation right now. As you may know, we have a significant footprint in India, so I think we are extremely pleased with the results we have been able to achieve. Looking from a product line standpoint, let's start with industrial innovations, which is still the core of what we do, +4%. Here, there are two messages. The first one, the subscriptions is up double digits for CATIA and ENOVIA. Which basically means progressively our core industry are moving to subscriptions. The second takeaway is SIMULIA and NETVIBES are growing double digits.
I mean, it's a good performance for this quarter. It's important because, you know, this is a domain where we are still facing competitions, and now you have the proof that we are still winning against them. Life sciences software, +11%, driven by Medidata, up 13%. Again, we continue to deliver with Medidata and the pipeline is good. Mainstream innovation, +4%. The SOLIDWORKS is up single digits. Again, we had a strong base comparisons because last year in Q1 was growing at more than 10%. This is where most of the impact in China is visible. However, I think we have more and more traction from Centric PLM. Why so?
I think we start to leverage not only the leadership position we have established, but also the diversification strategy. Let me give you some highlights on this. First of all, you know, it's a 12,500 brands which are already equipped, which is by far the largest footprint on the market. We are convinced if you do the market size, this business could reach EUR 1 billion at some point of time. Why so? We are expanding from the fashion and apparel to new markets such as food and beverage, cosmetic and personal care, home and furniture, consumer electronics. Those are sizable markets we can touch with the core modules they have developed, which is the collection management. For all the fast-moving goods, I think Centric PLM is the standard now on the market.
We are also expanding, you know, Usually, we used to target the brands. Now we are expanding also to the retailers and to the manufacturers and the consumer tomorrow we can touch with it. That's the second axis to diversify. From a geo standpoint, since the acquisition, we have reinforced significantly the footprint of Centric in Asia, especially China also where they've just started when we merged with them. From a product standpoint, I think it's important, the collection management is really the core, but more and more we see customers using them as the business platform. Why? Because this is becoming the backbone for the e-commerce.
If you have the product credentials, if you know how to put dynamic pricing in it, and you remember we did some acquisitions into it, you are becoming the foundation for many e-commerce activity, and this is how we expanding with Centric. Again, Centric will contribute also to accelerate the growth this year, starting Q2, right. I think it's time for me to hand over to Rouven to give more flavor on, you know, the revenue, the profitability and the 2023 objectives. Thank you.
Good morning. Wrong direction. Good morning, everybody, thank you also from my side for joining our call and today's meeting. As you heard from Bernard and Pascal, we had a solid start to the year. We had a solid Q1 performance as we remained focused on the fundamentals of our business model, which is increasing the share of predictable revenue with strong growth in subscription and cloud, up 14% and 17% respectively. While at the same point, delivering on our profitability objectives. The total revenue grew 8% as reported and 7% at constant currency, it's in line with our objectives, it's also relative to a high comparison base of Q1 last year. Recurring revenue was up 10% and now represents 84% of software revenue.
Now adding to the strong fundamentals, we generated this quarter a record high in cash from operations, which is up 24% to now seven. It was actually up EUR 783 million. As expected, we are now deleveraged nearly 1 year ahead of the schedule. Clearly, this highlights our trusted customer relationships, the value we deliver. The discipline as well when it comes to spending and our capital allocation policy. As you heard from Bernard and Pascal, our long-term structural growth drivers across the industries, they remain intact and strong. As such, we continue to invest in hiring. We added more than 300 net new employees in the first quarter.
While, as I mentioned, we continue to deliver on our profitability objectives with diluted earnings per share up EUR 0.28 and the operating margin at 31%, both in line with our objectives. Let's look at our results in a little bit more detail. First, for software revenue, where we're up 6% at constant currency, slightly below the objective range. This was due to the lower contribution from upfront licenses, which was down -10%. Remember, this is compared to already the guidance at the low end of -7%. This shortfall between -7% and -10% can be fully attributed to the lower than expected performance we experienced in China. You know, as we've discussed over the previous quarters, the operating environment there has been difficult over several quarters.
To recap, we experienced a soft performance in the second half of 2022 during the lockdown period, where software revenue growth was around 3%-4% and the license revenue was about flattish over that timeframe. This was our baseline assumption that the growth in China would remain muted in Q1, in line with this trend. While we were expecting and are expecting a progressive recovery throughout the remainder of the year. Q1 turned out to be much lower at -8% in software revenue growth in China, and more specifically in the first two months of the quarter. As the economy and the production cycles were preparing the restart, the investment levels in innovation and science remained rather muted and low.
This lag contributed the 3-4 points of growth to the license miss. Only in March, investment in innovation started to return, materializing in our pipeline. While we remain focused, we believe that this progressive trend is raising the potential and giving us the confidence to the recovery in the rest of the year in China. On to service revenue, which was a strong quarter, up 21%. It was driven by the completion of milestones as well as outcome-based service engagements, mainly in life sciences. Here, we're seeing a few biotechs who are turning to Medidata to deliver end-to-end study build services with the purpose of accelerating the patient enrollment and the time to market. While we continue to shape this offering, we do expect the trend for professional services to normalize throughout the rest of the year.
As mentioned, recurring revenue rose 10% to 84% of total software revenue, this is up a strong 310 basis points year-over-year. Also, as mentioned, this growth was driven by good and strong acceleration in subscription revenue, up 14% versus 10% a year ago. Consequently, the increasing share of predictable revenue provides us greater visibility and resiliency. Our strategic growth drivers of 3DEXPERIENCE and cloud are at the center of the shift to the subscription acceleration. As highlighted by the customer examples presented by Pascal, clients, both incumbents transforming and new entrants disrupting, are adopting 3DEXPERIENCE and cloud. They are leveraging the full potential of our technologies to increase agility, scale, and accelerate innovation and growth.
3DEXPERIENCE revenue grew 10% at constant currency, and it now reflects 31% of 3DEXPERIENCE addressable software revenue, which is up 1 point relative to last year. The cloud revenue rose 17% at constant currency to now 24% of software revenue, which represents an increase of 3 points. We are confident that we will continue to capitalize on our leading position in key industries and capturing above market growth with 3DEXPERIENCE and Cloud. I should have moved the slide. Now let's turn to how we performed relative to the objectives we set for the first quarter. The total revenue of EUR 1,434 million was EUR 3 million higher than the midpoint of our target range.
We reported software revenue of EUR 1.288 billion, which is up 6% and EUR 25 million below the midpoint and EUR 10 million below the low end of the guidance. We expect to recapture this gap through the remainder of the year. I will discuss this further in the objective section. As mentioned, this shortfall was driven by the decline in software revenue in China, which explains the gap to the low end of the software revenue range or one point of growth. We reported service revenue above the midpoint by EUR 11 million, which essentially offsets the gap at the total revenue level. We benefited from an FX impact of EUR 17 million during the period. We reported an operating margin of 31% in line with the objective.
It is clear from the numbers we delivered on our profitability objectives, while we continued to invest in hiring during the quarter. As we look to the remainder of the year, we will continue to take a disciplined and balanced approach as we continue to invest for the future. As such, we also expect the overall OpEx increase to slow down, highlighting the fact that we are on track to absorb the cost run rate from 2022 carrying forward into 2023. Now turning to earnings per share. We reported $0.28 as reported, well aligned with our objective range of $0.27-$0.28. The non-IFRS tax rate for the quarter was 20.7% and is also well aligned with our guidance of 21%. Now turning to cash flow and balance sheet items.
As you see, cash and cash equivalents were strong. They totaled EUR 3.468 billion, compared to EUR 2.769 billion at the end of 2022, which represents an increase of EUR 699 million. At the end of the quarter, our net financial position totaled EUR 459 million, which is an increase of EUR 686 million versus a net financial debt of EUR 227 million at December 31st last year. We are now deleveraged, nearly one year ahead of schedule. Let's look at what is driving our cash position at the end of the first quarter. The operating cash flow increased 24% to EUR 783 million, and this is a record result.
As expected, strong collections in Q1 contributed to a favorable change in operating working capital of EUR 350 million. The operating cash flow was mainly used for CapEx of EUR 33 million and the repayment of lease liabilities of EUR 25 million, which is slightly up versus last year. Lastly, of note, we had a negative FX impact of EUR 44 million during the first quarter. Now let's turn to our fiscal year 2023 objectives. We are maintaining our guidance. That's the key takeaway, and we are well positioned and are on a good trajectory to achieve our long-term financial objective of EUR 1.20 earnings per share.
Total revenue growth between 8%-9% at constant currency remains unchanged and is adjusted in absolute terms only for the favorable FX impact, which is EUR 17 million, to a range now of EUR 5,940 million-EUR 5,990 million. This, as I mentioned before, assumes that we expect a positive impact driven by an increase in contribution from large deals in our pipeline starting to materialize in Q2. We also expect to return to low mid-single digit growth in China and also throughout the year, further progression as more and more investments are directed towards innovation and science. Finally, we reaffirm our operating margin range of 32.3%-32.6%.
Before I move to the Q2 objectives, I would like to emphasize that the unchanged full-year revenue guidance assumes that we maintain our growth rate at constant currency for software revenue at 8%-9% and service revenue of 5%-7%. We also continue to expect recurring revenue growth of 10%-11%, with strong subscription revenue increasing in the range of 17%-18%. In spite of the lower performance in upfront licensed revenue in Q1, we remain confident for the full year on the range of 2%-5%. Now let's turn to our Q2 objectives. We're targeting total revenue growth of 7%-9% at constant currency, with recurring revenue increasing 9%-10%. It's driven by strong subscription growth of 16%-18%.
We are forecasting upfront licensed revenue growth of 0%-5% for the quarter. This reflects structurally improving pipeline, assuming 3 elements. 1, an acceleration in North America, 2, continued momentum in Europe across key industries, and 3, return to mid-single-digit growth in China with the benefit of a lower baseline effect. For services revenue, we are predicting a normalized 6%-8% growth. In terms of profitability, we're forecasting operating margin of 30%-30.5% and diluted EPS of EUR 0.27-EUR 0.28. Let me conclude. We had a solid start to 2023 with well-aligned fundamentals supported by our strategic growth drivers of 3DEXPERIENCE and cloud. Our first quarter results demonstrate that our technologies have never been more relevant and critical for our clients, as strongly evidenced in Europe.
We are focused on execution to deliver sustainable growth across geographies throughout the year, and as such, we remain confident in our ability to advance towards our EPS objective of EUR 1.20. In closing, we are planning road shows in London, Paris, and later in Q2, New York, as well as Boston. I also want to remind you to join us for our Capital Markets Day, where we will discuss the next horizon. It will take place this coming June at our headquarters in Paris. Now I'd like, Bernard, Pascal, and I are happy to take your questions.
Thank you.
Thank you, Rouven. We'll start with a question from the room. We have time.
Great. Hi, Bernard, Pascal, Rouven. Just you talked about some of the factors underpinning your confidence around sort of the second half. You also kind of alluded to some sort of larger transactions in the pipeline. Maybe if you could sort of talk to how you've kind of qualified the pipeline? Is there anything different you have done given obviously what you sort of observed in China? To the extent that you can comment on the discussions with customers around some of those larger standardization deals, these have obviously been, you know, fluctuating a bit, but it seems that sort of spending and spending around digitization is still pretty resilient. What's your kind of view around the drivers of some of those standardization deals and if there's any that you can point to?
The second one was just on, you know, the comment, obviously, you delevered sooner than expected. Perhaps you can kind of remind us around your kind of strategic priorities. I know that you're kind of looking at multiple fronts and, you know, in terms of the discussions you're having with sort of sellers, you know, is valuation no longer an issue? Is there been a correction and, you know, what are the kind of stumbling blocks or the challenges around perhaps executing on the M&A pipeline? Thank you.
Pascal, maybe on the customer conversation.
Yeah, please.
Just for, thank you for the question. Clearly, as you said, all governance meeting we have with large customers, it's on the agenda. It's priority number 1 for them because they need to find new answers to supply chain moving to value chain. They need to find new answers for material substitution. Those are reality today. In Europe, it's rich. We should not underestimate those kind of challenges for the clients. The nature of the portfolio themselves, electrification becoming an obvious case. People have light understanding of it 5 years ago. Today, it's a reality. Also in infrastructure, more modular construction or of course, the huge challenge of energy sector.
The conversation, if I look at 40 years perspective, I think it has never been at the highest level as of today in terms of topic on the CEO's agenda. Before it was, or the VP of R&D or the VP of manufacturing, it is becoming a CEO topic. It's not related to ChatGPT, it's related to how to transform their business. I think as a Chairman, Pascal wants me to spend more time with those top guys. I love it, as you do know after years. It's, your question is a very important one, because the ownership of the topic is evolving, those days. It's not anymore the CIO for at least what we do. Pipeline, Pascal, you are a specialist.
You know, when we started the year, we told you that the pipeline anyway was backloaded, especially in the U.S., right? Where, as you may know, most of the large transaction are coming from. Just we confirm that's the case. Given China, I think, we have much better visibility, and there are multiple factor. One of them is, as Rouven was saying, the priority for China was we need to relaunch the manufacturing capacity in order to serve the consumer market. Now we start to see innovations and industrial investments being the topic for many of our customers. That's point number one.
Point number two, for many state-owned company who are also, you know, large customer for us, they were waiting the reelection before to take any very deep decision or having a huge engagement and commitment for the future. Those are behind us and I think we have good visibility on many transactions which are sizable, and we make the difference. Earned gains, it's the differences we have on the license, it's almost a EUR 10 million plus will be easy to recover. I think we have enough visibility to tell you that it will be done. Related to the priority for the M&A, again, let's say this way.
We never fail because we were not capable to converge on the valuations in any discussion we had in the past. Why so? If you have a good strategic framework, if the people wants, the founders, or the managers wants to do it, we always find a common ground. When the company is for sale, it's also because the management start to feel the limit of what they do, right? For some of them, they need to feel the pressure before to take the decisions to take another road. To a certain extent, the current situation is helping us much more on this side than the pure valuation side. Let's say this way. That's what I can say.
From a priority standpoint, remember the framework for the M&A has been architected along 3 legs. 1 is to complement the domain of expertise, and we still have some where we could reinforce. Supply chain, for example, is 1 of them. Continue to expand from an industry standpoint. I was mentioning that Centric is becoming a platform to address the consumer market at large, and there are many things we can build around it, and we will continue to do this. Bernard shared with you the loop. We spent 40 years to focus on the innovation cycle. We want now to be a significant player in the product in use. I think this is opening also a new thought process on our side to consider different type of targets. That's what I can say at this stage. Chris?
Thanks. That's Adam Wood from Morgan Stanley. Morning, everybody. Just maybe a quick follow-up to Mo's question. You mentioned big deals quite a lot in the comments. Is there an unusual reliance on big deals in the pipeline, or is it just a normal kind of exposure? That was the first one. SOLIDWORKS, it feels like that's been running a little bit slower for a few quarters. I guess you've commented on Centric being strong, so that would suggest that SOLIDWORKS is a bit weaker. The pickup there, is that macro-dependent, you know, partner training-dependent, China-dependent? Just help us on why we should see acceleration on that side. Maybe finally, just to come back on that point around the product in use side.
In terms of collecting the data and then feeding it into the platform to be able to inform what you do on the design side, is that a partnership? We've always had the discussion around IoT and being able to collect data. Is that something that you feel now is more central to you? You're still very comfortable to partner for that to be able to collect that data and get it into the platform? Thank you.
I start with the large deal and maybe, Owen, you can say a few words about SOLIDWORKS if you want. Sure. The large deals, I think, we had a good Q4, right? As you know, when we have a good Q4, it's usually because we close large transactions and we did most of them, especially in the U.S., in Q4. We knew when we came to you with the guidance that Q1 will be light in terms of significant transactions. Significant means for us, EUR 10 million, right? That's what it means. Nevertheless, if I look at the pipelines in 2023 compared to 2022, the mix is equivalent. I mean, there is no discrepancy between the size of the deals compared to what we have seen in 2022.
Obviously, it's much better than what we used to have in 2020, right, at the time of the COVID. This is true across all the region of the world. I mean, it's. The large transaction are not only a new new logo, right? They are also significant customers continuing to deploy. I was mentioning Ford. Ford is just we are just opening, right? The fact that they are adopting the 3DEXPERIENCE platform means ultimately they will connect not only the design, but the simulation, the manufacturing. It's not only for the product design, for the vehicle design, it's also for the battery designs. The Gigafactory topic will be also on the agenda.
To a certain extent, this is a route to go to expand significantly, and this is how we fulfill the machine with a large pipe, with the large transactions. SOLIDWORKS? Yes, thank you. On the SOLIDWORKS side, you're right, Adam. SOLIDWORKS has had an impact on the macro in 2022. We were referring to that there is, there's a connection. The good news is, in the first quarter, we saw actually a very good uptick in our pipeline and performance in March. We expect the SOLIDWORKS contribution and growth to progressively increase throughout the year. Please also keep in mind that Q1 last year, it was a very, very strong quarter, and so the comparison was tough.
Nevertheless, we delivered growth in SOLIDWORKS, that's because the momentum picked up in March, we expect the trend to be positive to continue in Q2. Coming back to the under the umbrella of IoT. In fact, a lot of our existing customers have collected massive data that they have never used. I take a few real example in aerospace engine, for example. They have all the records for all the flights. They basically never use it. We did amazing program with Safran to really reveal through NETVIBES AI data science the health of each engine on, it works very well. The first message is there is a big discussion on IoT, there are a lot of data which have not been used.
The same goes with airplane health, like massive data related to the maintenance of the airplane, you know, and different characteristics of parts evolution. Now we see customers coming back to us and saying, "Can you help integrate those Excel files, those data record in a way where they can be projected against the virtual twin of the plane, the engine or something else?" We have done it. It's a real showcase. We have a big showcase also in equipment availability, especially in A&D. We have a big program on that to do predictive maintenance. It has been a topic on the agenda, but very little has been done the, in the reality of things. If you look at EVs on new cars, they are connected. There is much more records.
Before there were basically no records. You could not basically load the data that you had in your car. Now it's going the other way around, and it provides a completely different view to the way things have been engineered or produced. I think IoT isolated will not solve the problem. We can solve the problem, and that's why the Experience Platform being able to massively connect the dots. We call this connect the dots. We did it for Renault. We did it for Gulfstream. We did it for... When I say we did it, we did it already in operation. For Jaguar Land Rover, we did it for Dassault Aviation.
We have enough proof points now, and we need, as Pascal implied, we need to set up the evolution of our sales team to really engage on that side because those are different decision makers. Related to IoT, not to take too much time on this, but this spiral of experimentation is a very core one. I think it's a bigger market than the one we have been serving up to now personally. When you think about a clinical trial, it's on the right side, not the left. It's because we observe what's happening to people. You create AI to reveal what is not observed by human. You conclude about the positive the value and the risk to really do precision medicine.
Maybe data is a proof point at scale that in those two spiral, the one on the right side related to real-life experimentation, it's called real world evidence. We are not taking an IoT approach, we are taking a real world evidence approach. We are applying biologic to physical world.
Very interesting. Thank you.
Yes, for corporation, of course.
Hi. Good morning, Fred at Bank of America. If we can get a quick update on the on cloud demand appetite from customers, tractions you're seeing on 3DX, what type of, you know, upsell metrics we can discuss. Back in Q3, you said some of the impact on licenses were due to some customers shifting to subscription contracts is something we've seen to a degree in Q1 and what do we expect for the rest of the year? Thank you.
The cloud for us, you remember, it's more than ever, it's a way to expand the footprint. In our strategy, we have what we call the value up and the value wide. The value up is really how we increase the total value of the solutions, the value wide is how we continue to conquest new domains, new users we cannot reach with the current system we have in place. I think the real value for the cloud is this, come with a new proposal, you reach new users you are not able to equip with the traditional way. That's the primary objective for us. This is a reason why, you know, we...
I think on the management side, we spend more attention on how many new logo we continue to win, what is the usage of those solution on the cloud, how many content, how many activities they do, which are the real KPI we are tracking. Why? If this is happening, the revenue will follow, right? That's the right sequence. Having said that, from an industry standpoint, it's easier to start when we do not have a legacy. For all the new industry, whether it's life sciences, the consumer goods, consumer packaged goods, to a certain extent it's infrastructure and cities, construction for sure, we start day one with cloud. That's point number one. Point number two, for all the industry which are project-based, it's extremely relevant to use the cloud because this is giving the people the flexibility.
You know, the project is starting, at the end, not sure they will have another project. To a certain extent, you can see the trial like this. There is a start and there is an end. This flexibility to connect different people each time is extremely valuable for those industries. Clearly life sciences, construction is one of them, the design offices are also the one adopting massively the cloud. All the startups, right, whatever is the sector, I mean, they start with the cloud. Time to time, believe it or not, we have to shift from the cloud to on-prem. For regulations and compliance reasons. For example, if you develop systems could fly and transport people, at some point of time, you need a certification.
You need to certify not only the object, but the tools, the processes, the people, the entire systems. If you come with the cloud with the regular updates, this is becoming so much trouble because you need to freeze for certain times the entire systems to get the certifications. Why I'm taking this as an anecdote because, you know, we started with a very innovative company adopting the cloud for all the reasons you know. When you start to scale, when you start to become industrial, you face different set of constraints, and the ability to, again, offer the mixed environment is extremely valuable for many of our customers.
The last comment I can make on the cloud, now we For the vast majority of our large customers, they have a roadmap to move to the cloud. Right. Obviously, it's not something they can do overnight. It's 5-10 years roadmap, and we are one of the players, I mean, helping them to craft this roadmap and to make it happen. I mean, Renault is a good case. They had a huge legacy, you know, on our systems, and we are moving them to the cloud. We started with some programs. We started with some specific use cases, again, and progressively, everything is moving smoothly. I think what is probably behind your questions, are we on track to deliver the commitment we have to have, you know, the EUR 2 billion revenue? I think we are.
We are.
Shift to subscription.
Yes.
The second question was about.
Sure.
the shift to subscription in Q1 versus Q3 last year.
No, I think, again, it's obvious that the subscription is going faster than the license. It's not a repurpose of an existing install base. We are moving to subscriptions. It's much more new program, new projects or extension of an existing programs which are moving to subscriptions. You have, I mean, there are differences from a geo to another one. It's becoming almost a standard in the U.S. The vast majority of the new programs, the new projects are subscription-based. It's balanced in Europe. In Asia, it's an exception for the vast majority of the countries. This is where we are. Again, it's not something dictated by the customer, because we still have many industries willing to keep a CapEx-based approach.
That's the reason why I can claim that the license, the upfront license model will not disappear completely. Remember, it used to be 30% of the total revenue. Now it's 16, and we are pretty convinced we will land at around 10. Right? Not go below 10, at least for a certain time. That's what I can say.
Hi, it's Charles Brennan.
It works.
It's Charles Brennan here from Jefferies. Just 2 questions from me. firstly, a high-level one. If I'm being critical, you've maybe underperformed the growth potential that it feels like there is in Dassault. What do you think the gating factor is to get Dassault back to sustainable double-digit growth? Is there some license to subscription dilution? Is it possible that market shares can be too high? If you've got an 85% market share, does that limit your growth? Do you need to invest more in sales? Do you need to lower your margin to capture it? What's the high level driver to get this business to sustainable double-digit growth? secondly, just a modeling question.
You did 14% subscription growth in Q1. Looks like you're targeting 17% in Q2. We're used to subscriptions driving, recurring revenues. Getting a 3-point acceleration in growth in a recurring revenue business is quite challenging. Is there more point in time revenue recognition coming into that business model?
I will start with the first question. It's a valid question, by the way. I accept it. But remember, it's only Q1. I think the question will be valid at the end of the year, if I may. Last year, I remember in Q3, you asked almost the same question. Finally, we landed properly. If you look at the fundamentals of the business, we are not constrained by the size of the market, right? It's obvious. It's already EUR 100 billion. With the extension we do, as Bernard was stating, you know, it's a factor of demultiplication. We are not constrained also by the penetration of our install base. We still have a lot to do.
I have many proof points I shared with you over the last few quarter where in, for example, transportation and mobility, in larger com, you were convinced we were set, and we have been able to double. We are not yet also constrained on the ability to cover the market. I think having a direct sales approach and an indirect sales approach is giving a lot of room to foster the coverage of the market. If you look at all those things, frankly speaking, there is no limitations. The competition, and I'm glad that you come back to this topic because again, I saw some research coming, whatever it's by the way, coming from the financial industry also from, you know, the specialists, where I think they have hard time to compute the numbers. Right? Why so?
I think the definition of the market is not the same. That's probably where the trick is coming. I can guarantee to you that the winning rates we are facing in all the product line we have, in all the verticals, is exceeding 80%. I mean, it's something we are monitoring precisely, and that's really the case. There may be some domain or subsegment of the market we are not covering properly. That's probably the reason why, you know, others continue to expand. The competitiveness is not at stake. I think execution, that's where we are focusing right now.
To a certain extent, I like having a, let's say, a year which is back-loaded because this is putting a lot of pressure on the quality of the executions, if you want to deliver at the end of the year. That's my duty. I am accountable for that, and I think the management team knows it. That's this is clearly the focus. Now, why we are speaking about much more of the midterm? We have the Capital Markets Day coming. Right. Usually we know that if we come with the story only once, it's not enough, we have to repeat. Bernard is starting to tease it, right? That's what he's doing.
Okay. To your question on the subscription growth, I think first to make sure to clarify everything that is one-time related is not part of the subscription revenue line item, right? It's in software and other license and other revenue. The upfront component moves to the license and other component. When you think about the acceleration in recurring, it's always a function of the timing of renewals of existing transactions as well as new transaction, right? We renewed in Q1. That will have an impact to Q2. We also have sizable transactions in Q2 that are incremental and new. That's where the acceleration is coming from.
Michael Briest to UBS. Just two quick ones. On the cloud growth of 17%, obviously it's deceleration. Pascal, you said you're gonna hit the EUR 2 billion, you need to grow over 20%. Can you talk about the dynamics of when that will accelerate? Maybe specifically on Medidata, 2 quarters at 13% growth, the midterm ambition is 13%-15%. Can we get back into the upper end of that corridor anytime soon? Then maybe just a sort of preamble to the CMD. I remember Thibault a few years ago had a slide showing the lifetime value equivalence between license, subscription, cloud. Can you just refresh where we are on maybe a 3-year value, if you like, between them as prices have moved around and mix has moved around? Thanks.
Okay. You're right. To achieve the 2 billions, the CAGR should be at 20%. You have some, you know, from quarter to another one, you have some volatility anyway. I mean, you have some seasonality to peak also. Now, if you look at the performance where I'm very pleased, it's, you know, if we are growing at 17% and Medidata is growing to be precise at 13.5, right? It means that the rest is growing much faster. To a certain extent, the most important for us is the growth of the rest. I'm very pleased with the traction we have with ENOVIA. I mean, ENOVIA is really moving to the cloud, subscription and cloud at the same time. Why so?
Because again, it's a way for us to reach people which are not equipped, not having, you know, a deep usage of all the set of application we do. I mean, sometimes we have some casual users we need to connect into the product life cycle, and we have a collection of applications for that. CATIA is also moving to the cloud, definitively with all the newcomers, you know, and the Tesla of the world, the BYD of the world, they used to be small, 10 years ago. Now they have, you know, large engineering departments, and many of them are on the cloud. Now we start to see also the traction coming from this front. Clearly, most is coming from the newcomers and also the transition of some large customers we are orchestrating over the time.
Medidata, I think, again, the performance of Medidata is coming from different things. The number of trials, right? The number of trial is still growing. We do not have any more of the extra growth coming from the COVID, but nevertheless, the trend is still at 6%-7%. Which is good, and we are capturing most of it, which is probably the most important. The second thing is the ability to expand outside of the core product, which is Rave. The two flagship product for us are really AI on one hand and Patient Cloud on the other hand. Both are becoming mainstream. I mean, if you look at the attach rate, it's extremely high. The third piece is the renewal.
Sorry?
Renewal, sorry.
The renewals. The renewal is extremely important because for the large enterprise, the way it works, we have, you know, a contract for multiple years. The renewal is the time to do the uplift the value up. Last year, we didn't have too much renewal. This year, we have a lot of renewal, which gives us the ability, and in average, when we do a renewal, the uplift is around 20%-25%. By doing so to a certain extent, we are fulfilling the bookings, and you will start to see also the benefit of it in the Medidata performance. The last point is, you know, the life sciences revenue is not only related to Medidata. The other part is also starting to take a significant piece.
BIOVIA, I think we are starting to reach the end of the transition to subscriptions. The pipeline is good for BIOVIA. We are not yet at the level of the transaction we want. There are still small and mid-sized transactions. It's probably due to the nature of the market itself. However, we have large transactions coming from DELMIA and ENOVIA in this field. This is very important for the future. Again, remember when we did the acquisition of Medidata, it was not to have a coexistence of the business. It's to link with the rest of what we do. Now, you know, I have been engaged personally with at least many discussions where this is the topic. This is really the topic. Why it's the topic is because, believe it or not, this industry, the process is broken.
I mean, they have so many piece of software they are using in order to connect. They spend their life to connect them in order to have workflows. Now they have understand the difference between the workflows and the single source of truth. This is happening. This is really happening. Pretty confident for Medidata for sure and the life science at large.
Michael, to the lifetime value, I think the theory would suggests, you know, that the break-even point is somewhere between 3 to 4 years. The reality, though, is in our situation, where, as I said before, the shift to subscription is really happening to the 3DEXPERIENCE adoption. That is a multiplier of deal size in terms of value up opportunity that in many, many cases, deal sizes are actually increasing and are much larger as you're moving to subscription 3DEXPERIENCE base compared to a traditional license transaction, right, of a client who was using V5 before. We've made a lot of progress on this transition. We have, you know, we talked about all the customers today are 3DEXPERIENCE-based. So we see that acceleration in terms of the value up opportunity and potential.
Yes, our standard pricing models, you know, have the break even between year 3 and year 4. The reality is that we are exceeding that in most of the cases because we're able to expand from a value proposition and an adoption standpoint. Another example for Medidata, for example, when you compare it to a already established SaaS cloud opportunity, for most of the enterprise contracts that we renew, as Pascal was saying before, on average, we are increasing the rate compared to the baseline by 25%. We just renewed with a top 5, top 10 life sciences sponsor, we almost doubled the deal size because we were able to value up significantly.
That's really the strategy, is to bring, you know, adopt and expand to more users, expand along our platform, and with this, you know, drive higher contribution to growth outside, I would say, the traditional break-even model.
Cloud relative to license as well?
Yeah, cloud relative to license.
Cloud how much?
It really depends on the deployment, right, and the size.
Oh, okay.
you know, typically it's 3 to 4 years. On a like for like basis.
The multiplier effect is that you say for 3DX platform is a minimum of 2 times.
Mm-hmm.
With the cloud is 1.5 times. If you move to 3DX platform on the cloud in subscriptions, right, you have the benefit of the 3 levers if you want. That's the strategy.
We will now take one or two questions from the call.
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The first question comes from the line of James Goodman from Barclays, please. Please go ahead. Your line is open.
Morning. Thank you very much for taking my questions. Just on the discussion around China and Asia, I mean, I wasn't entirely clear. I mean, Asia, I think is about 10 points lower growth than Q4. I might be off a bit on the China weighting within that, but it looks like, you know, there was some broader weakness across APAC. Maybe you could clarify? Just within China, I mean, the discussion we've been having for a few quarters has been almost exclusively around the SOLIDWORKS distribution in China. Was it a broader product issue this time around? The other question is, could you just give a quick update on the adoption around the Works family?
I'm sure we'll talk more about it at the CMD, but any color on the adoption there and around 3D Creator perhaps would be helpful. Thank you.
Okay, James, thank you for your question. I address the first one on the around APAC. Just to clarify, first of all on the numbers and then I go one step further. For APAC, as you, as Pascal presented, was down -3% in software. China was in this -8% in software. Remember in Q1 last year, China was up 20%. If, so it was on a difficult comparable basis. Nevertheless, for the reasons that we've discussed, right? Starting the production, accelerating the consumer cycle, it took a little bit longer to re-accelerate the investment into innovation. That is the backdrop of the lower performance in China that we see progressively improving. About broader Asia.
We refer to the very strong double-digit performance in India and the growing pipeline we see there. It's a market that is very, very promising to us. There's lots of customer conversation. We see the growth to continue. We're very, very optimistic on this market. Japan and Korea were more flat year-over-year, also compared to a stronger Q1 of last year. In essence, right, the -3% in Asia is due to the miss in China. We expect Asia to return back to mid-single-digit growth once we return to growth in China, which we're confident to see starting Q2.
Regarding the 3DEXPERIENCE Works family, we continue to expand the portfolio with simulation, manufacturing. Remember the IQMS acquisition now making it DELMIA Works. As well as providing web browser-based solutions. There are more and more startups using browser-based tablets to do design, and I think it's working very well. I think for the biggest challenge with the 3DEXPERIENCE Works family is this 3DEXPERIENCE Works family is to train the resellers who are being used to sell PC-based desktop application called SOLIDWORKS to really have them being trained to sell the platform for collaboration and sell the platform as a way to expand. This is probably in the next coming quarters the biggest topic of attention.
We have proof points that certain resellers have done this transition extremely well. We have also proof points that there are new resellers that we have hired who are doing only cloud-based 3DEXPERIENCE Works selling with efficiency. It's a transition for, as Pascal said, for the speed of execution to create a double-digit growth there. I'm confident it will happen.
Great. Thank you.
I guess we will have to finish here. We have a call this afternoon to take some further questions.
Thank you very much for all of you participating here in London and all of you connected, and we have the call as always, as Patrick said it this afternoon. We are always here to answer your questions. Thank you very much and see you if not this afternoon at the CMD in June ninth. At the campus. On the dinner before. Don't forget the dinner. Thank you very much. Have a good day.