Good day, and thank you for standing by. Welcome to the Dassault Systèmes 2026 Q3 Earnings Presentation 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 and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and 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, Marie Dumas, Head of Investor Relations at Dassault Systèmes. Please go ahead.
Good morning, good afternoon, and thank you for joining. I am with Pascal Daloz, Chief Executive Officer and Chairman of Dassault Systèmes, and Rouven Bergmann, Chief Financial Officer, to discuss our third quarter 2026 results. Dassault Systèmes results are prepared in accordance with IFRS, and the financial figures discussed on this conference call are on a non-IFRS basis, with revenue growth rate at constant currency, 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 factor section of our 2025 Universal Registration Document. All learning 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.
Merci, Marie. Good morning or good afternoon to all of you, and thank you again for joining us today. Before Rouven takes you through the numbers, I really want to start with the big picture. It is about what we are building and why it matters for the rest and for the next era of the industry. At the start of the year, we called 2026 a foundational year. Foundation year means it is not a year of waiting. It is obviously a year of building, exploring new product categories, building an AI-native platform, and deepening the partnerships with our customers and partners, all in services for the next phase of growth. This is the role of our virtual twins and Industry World Model to ground AI in science and in the behavior of the physical world.
This is why this 3DEXPERIENCE is evolving into an agentic platform, so intelligence can be moved from generating ideas to helping deliver trusted outcomes for our customers. Now, let us start with the Q3 performance, because execution matters. First, I think we deliver strong executions at the high end of our objectives. Total revenue grew 5%, software up 5%, 3DEXPERIENCE plus 25%, the cloud grew 14%, and the EPS reached EUR 0.32, up 8%. This performance gives us even more confidence for the full year, so we are raising our full year objectives with a revenue growth, which is now expecting to be between 4%-5%, up from 3%-5%. And EPS growth, which is now expected to be between 6%-7%, up from 3%-6%.
This is obviously part of the updated outlook, and Rouven Bergmann will walk through the assumption and the financial details. I think there are three priorities which are driving this progress. The first one is we are really helping existing customers to transform their businesses and to turn industry's pressure into opportunities, and it's extremely visible with the 3DEXPERIENCE platform and the cloud, which continue to perform strongly this quarter with new customer wins and broad-based performance across industries and countries. The second one, I think we are taking a major step forward in life sciences with the addition of ArisGlobal into the portfolio. Why this is an important one, because this is helping us to build toward a unified AI-native platform, which is changing the game. To make this happen, we are putting a dedicated leadership in place.
The third one is we are expanding 3D UNIV+RSES to turn AI advances into practical industrial values. We see this every day in our work with customers, and we shared a few great example at GTC Berlin last week. I think our strategy is clear, deliver today and build for the next wave, but more importantly, to connect the two. Let's start with some highlight for the quarter. The first one is China, where we are seeing a strong momentum across High-Tech, industrial equipment, and automotive. You know, the next step for many of those industries is to move to industrialize this innovation and bring them to the global markets. We see this similar shift in robotics, pharmaceutical, aerospace, where the complexity is increasing and the ability to connect the discipline matters more than others. Take COMAC as an example, the China leading commercial aircraft manufacturers.
Its ambition is to bring its first large wide-body aircraft to the global market. To make this happen, COMAC needs to industrialize the program, secure the certifications, and get ready to bring the aircraft to the market, both in China and internationally. That's the key. Because global market needs to be part of the plan from day one, not something you think or you add later on. I think with 3DEXPERIENCE, we are bringing design, system engineering, simulation, and manufacturing planning together in one unified environment. This is giving everyone a shared view of the program. With the model-based systems engineering teams, we are really giving them the ability to tackle the complexity early on, when changes are easier, less costly to make, and decision can have the biggest impact.
That's how we are helping our customers to manage complex program and to turn their global ambition into reality. Now, let's have a look at life sciences, where I think we have start to see some positive sign. The first one is pharma and biotech are picking up. You have seen with me, CROs are reporting better results, and we see more and more major partners and players moving forward with their key trials. We are also seeing things improving quarter over quarter at Medidata. Medidata is flat this quarter, and we expect the return to growth in Q4. Another encouraging sign is that the customer are increasing seeing the value of the one platform approach. We saw this with Worldwide Clinical Trials in Q1. We are seeing this also with new customers, something similar with Everest. The idea is pretty simple.
Instead of using different tools for every trial, we give CROs one platform to manage their clinical operations. The benefits are very clear. Teams can work much more efficiently. They can have better insight from the clinical data and ultimately improve the profitability. Let's turn to our diversification industries, which grew at a double-digit rate this quarter. We are seeing a particular strong momentum in High-Tech, especially around the AI infrastructure. For the one who are following us for a long time, you know we have built a lot of expertise in the nuclear domain, which is one of the most complex system to engineer. We are now putting this expertise to work in another equally demanding area, which is the AI factory. Because an AI factory is much more than a room full of GPUs.
You need the compute, the networking, the power, the cooling, the software, and all of this needs to work together. When you change one element, it could affect everything else. You need to think about the whole system from day one and to be ready to adapt as things are evolving over the time. That's exactly what we are working on with Vertiv, a leader in the critical digital infrastructure. The designs, the simulations, how they will be deployed with one single solutions. The goal is pretty obvious. We spend so many investment into this space that the AI infrastructure needs to be up and running faster and reduce the time to the first token.
That brings us back to the bigger picture, which is, AI infrastructure become more complex, and I think we could apply the same system-level engineering expertise we have developed in some of the world's most demanding industries. In July, we made the 3DEXPERIENCE platform agentic and introduced a virtual companion with specific skills. Why this is important? Because it's a way for those agents to work alongside people. We are exploring this with early adopters across industries around the world, from the AI-native startups to some of the biggest global players. So far, we have around 100 strategic customers partnership engaged today, and we are working with them to deeply and to fine-tune all the new use cases.
The focus is really on taking this early success to the next level, and starting 2027, the plan will be to scale up, moving from promising use cases to solutions that can be deployed and more broadly and repeatedly across our customers. Let's make this much more concrete with two example we share at GTC Berlin last week. Let's start with Volkswagen. Their virtual companions help engineering team to streamline their workflow and get things done much more efficiently. AURA acts as the coordinators. It bring action plans together, assign the task, and keep the work moving. When more specialized engineering expertise is needed, AURA is calling automatically LEO, our engineering virtual companion, to explore the design options. The real value is not just automating tasks, it's getting different skills to work together with industrial knowledge and human oversight built in from the start.
Now, let's move to another example, which is how you move from engineering workflows to the factory floors. It's something we have done with humanoid robots from Agile Robots and in the context of one of the manufacturing facility of Audi. In this case, LEO used our Industry World Model to create the virtual twin of the factories. You know the robot, they have their own virtual twin too, which means they allow the teams to explore how they behave in the virtual environments that reflects the real physics. This is where it's getting, in my view, very interesting. Before deploying robot in the real factory, teams can test different scenarios, check the safety, assess the cycle times, and see how production throughputs might be affected.
That's really the common thread between the two example I just shared with you is we can now explore, learn, and validate in the virtual world before taking any action in the physical world when you are embarking AI in all the physical products. So in manufacturing, we'll call this physical AI, but in life sciences, we call it biological AI. So moving to life sciences, there are also something very interesting. Too often, what we learn from the real world does not flow back quickly enough to inform the next discovery, the next scientific discovery. To closing this gap, I think it's one of the biggest opportunity we see in life sciences. This quarter, I think we took an important step in that direction with the completion of the acquisition of ArisGlobal. But I think it's much more than only adding drug safety capabilities.
It's about connecting the entire pharmaceutical journey from molecule to patients, then bringing what we learn from the patient, from the real world, back to science. So our ambition is to make that connection possible on one intelligence AI-native platform, helping life sciences company to bring everything together and turn the real world insight into the next wave of scientific progress. To make that ambition real, we are also putting a new operating model in place. We are bringing together the expertise from the discovery, the lab, the clinical developments, the manufacturing, the regulatory compliances, and the real world safety, and soon the medical practice. I think we are unifying these capabilities within our 3DEXPERIENCE offer and streamline how we go to market. The goal is straightforward.
One coordinated organization, a more integrated offer, a simpler way for our customers to access the solution they need. I'm also pleased to welcome Dr. Ash Zenooz to Dassault Systèmes as an Executive Vice President, being part of the Excom of Dassault Systèmes, and also the CEO of Life Sciences and Healthcare. Ash is a physician and a technology entrepreneur with a strong experience in the digital health and AI. What makes her background particularly valuable is that she brings together the two worlds, medicine on one hand and the technology on the other hand. That's exactly the combination we need to bring our ambitions to life. Her role will be to lead the strategy and to bring Medidata, BIOVIA, and ArisGlobal together in one AI-native platform, against connecting molecules, patient, and the real world outcome and back into science.
She will lead the Life Sciences & Healthcare as one business with a clear focus on science-driven innovation, operational excellence as well, and building even stronger relationship with our customers and partners. For those joining us at the Capital Markets Day, you will have a chance to meet Ash in person and hear more about her visions for the business. We look forward to sharing more with you at our Capital Markets Day in Paris on November 17th. Before to hand over to Rouven, let me sum up the key messages. The first one, I think we are making good progress on our priorities, and this is giving us confidence in our updated full year objectives. The second one is we are moving from AI roadmap to the real world adoptions, and I think we are taking an important step forward in life sciences.
With that, Rouven, the floor is yours.
Thank you, Pascal, and also good morning to all of you joining us from the U.S. and good afternoon for the rest of the world. Thank you for connecting and joining our call today. As you heard, we enter the final stretch of the year with momentum. Our focus remains squarely on executing our growth model and delivering on our objectives. The ARR is up 6%, and as you can see, the transition to subscription cloud and suite experience is creating a durable growth of our recurring base. Revenue grew 5% at the top end of our objectives. The operating margin expanded by 150 basis points to 31.6%, and this is well above our objectives for the quarter, while the operating profit rose 10% year-on-year. Strong profitability is converting into cash.
Cash conversion reached 111% year- to- date, and it's driving EPS growth of 8% and operating cash flow growth of 20% year- to date ex-FX. In short, we are stepping up execution as we head into the close of the year. Looking at the details of the financials for the quarter. Total revenue reached EUR 1,552 million. It's up 5%, with subscription revenue growing at 6%, while licenses are growing 14%. The license growth mainly reflects robust performance in China and also compares to a low baseline versus last year. Consistent growth in subscription revenue, 6% in the quarter as well as year- to- date, highlights the progress in our business model transition. This quarter, we are reaching an important milestone because subscription revenue now represents 50% of our recurring revenue.
Finally, service revenue was up 7%. This top-line leverage and continued operating discipline translated into an uplift of 10% operating profit with the operating margin of 31.6%, which is 150 basis points better than last year ex-FX. EPS was $0.32, growing at 8% ex-FX. Year- to- date, that brings us to EUR 4 billion, 617 million in total revenue, growing at a rate of 4% and solid expansion of the operating margin by 80 basis points to 30.6%. EPS reached $0.93, up a healthy 7% ex-FX year- to- date. In summary, third quarter revenue reached the top end of our expectations, while the operating margin EPS surpassed them. Looking more closely at our recurring revenue growth. In the quarter, we added EUR 62 million in annualized contract value when compared to Q2. This brings the total ARR to EUR 4 billion, 505 million, or growth of 6%.
Subscription annual run rate continues to accelerate quarter-on-quarter towards mid-teens, driving the underlying annual run rate growth. Importantly, as of Q3, the subscription annual run rate now accounts for half of the annual run rate, and it is up from 46% at that time of Q3 last year. So over the last four quarters, we improved the subscription ARR share on total ARR by one point per quarter. This is an important milestone as it is shifting our business model further towards growth acceleration. Equally, we saw continued growth in cloud bookings and the contribution for multi-year subscription deals with higher total contract values. In fact, the net increase was driven by strong SaaS growth subscription and cloud in our core industrial business, also with Centric and Medidata generating sequential growth. The top 15 deals accounted for 80% of the net increase in subscription annual run rate.
Turning to our growth drivers. 3DEXPERIENCE rose 25% and cloud 14% in the quarter. 3DEXPERIENCE cloud grew 46%. Growth in 3DEXPERIENCE and cloud reflects customers' increasing focus on transforming their operations and preparing for industrial AI at scale. With AI, we are virtualizing the real world, leveraging virtual twins to provide intelligence to engineers, scientists, and business users. Our agentic platform lays the foundation to scale AI with virtual companions. This quarter, clients such as EDF, Mahindra & Mahindra, Eaton, Embraer, Honda, Vertiv, among others, highlight this momentum. Turning to the geos. Looking at our geographies, Asia was excellent, up 12%. Europe was resilient, growing at 9%. While Americas executed well, it was down -3% due to a tough year-over-year comparison. In more detail, starting with Asia. Strong growth was broad-based across the region, supported by an excellent performance in China.
We saw good momentum in aerospace, including the COMAC deal, as highlighted by Pascal, and important wins in High-Tech. In Europe, healthy growth was driven by renewals in the U.K. and France, despite softer performance in Central and Southern Europe. By industries, the performance was broad-based, supported by good momentum in 3DEXPERIENCE and subscription growth. In the Americas, we saw negative growth, -3%, as a result of tough comps when compared to prior year quarter. On the positive side, Life Sciences is improving, while Home and Lifestyle, High-Tech, and Industrial Equipment are growing well. Our growth drivers performed well with strong growth in cloud in the Americas. Important to highlight is also that we are advancing fast with strategic clients, creating concrete plans to adopt Gen7.
Vertiv is an excellent example highlighting our Gen7 portfolio and how we are expanding our reach in building sustainable AI factory infrastructure. Overall, the Americas is a bit more back-end loaded this year than other geographies. Moving to our performance per product line, Industrial Innovation grew a healthy 5% despite a strong comparison base, and the growth was driven by solid performance in 3DEXPERIENCE and cloud, with ENOVIA leading the momentum. Competitive wins across both core and diversification industries highlight the strengths of our integrated platform and sustain competitive win rates across our solutions. Mainstream Innovation was up 8% and it continued its momentum with Centric and SOLIDWORKS. SOLIDWORKS performance was broad-based across geos, with unit growth up double digit. The traction on AI is solid with over 40 use cases, and this is driving the move to subscription from CAD to simulation and manufacturing.
Centric delivered another strong performance in Q3 with several significant wins, including a global leader in sports merchandising and licensing, as well as a significant U.S. fashion and outdoor brand. This reinforces our confidence in the business to remain at the forefront of consumer-driven transformation across several verticals such as food and beverage, retail, and sports apparel, and it is augmented by Centric's end-to-end platform and AI. Now to Life Sciences. As you heard from Pascal, the performance improved. We are up 1% and we reached two milestones. First, Medidata improved sequentially and it was flat year-over-year. It is on track to deliver growth from Q4 onwards. The shift to the enterprise platform business model is underway and we are replicating the deals we signed with WCT in Q1, also now in Q3, where we signed a significant expansion with Everest.
Overall, we are expanding our pipeline of transformational platform agreements across CRO partners, mid-market, and enterprise clients. This is resulting in a positive impact on renewals and bookings growth over the last quarters. Now from a solution perspective, Patient Cloud and Study Experience are the fastest-growing categories with AI delivering tangible gains for our customers. Second, we completed the ArisGlobal acquisition the second half of September. ArisGlobal revenue will be reported as part of the life sciences product line going forward. The revenue contribution in Q3 was not material. One more point. With Pascal, I share the excitement to have Ashwini Zenooz join and lead our teams across life sciences. I look forward to working with her to reveal and deliver the full potential of our business in this new chapter that we are now starting. Now turning to our cash performance.
We generated strong operating cash flow year- to- date, EUR 1.567 billion, up 20% ex-FX and 18% as reported. This was driven by strong operating performance with higher billing activities and good cash collection. In the third quarter, cash flow from operations was up over 77% on a strong operating result and continued focus on working capital management. Year- to- date, our free cash flow was up 25% ex-FX year- to- date at EUR 1.388 billion and it is driven by strong operating cash flow performance. All of this results in cash conversion at 111% year- to- date, which is well ahead of last year. To complete this picture, cash and cash equivalents reached EUR 3.814 billion at the end of September 26. Year- to- date operating cash flow has already funded the EUR 1.5 billion ArisGlobal acquisition, leaving cash and cash equivalents broadly unchanged.
This also includes the repayment of our $0.9 billion bond, which was due in September. Our net cash position of EUR 1.049 billion provides the financial flexibility to invest selectively in our long-term growth and value creation levers going forward. Now let me turn to our full year objectives. First, I would like to take a step back. Since the start of the year, we have progressively increased top-line growth rates from 3% in Q1 to 4% in Q2, and now 5% in the third quarter. This consistent improvement in year-to-date performance now in combination with better visibility as we enter Q4 gives us room to narrow our full year guidance range from which was previously EUR 120 million to now EUR 60 million while we are integrating ArisGlobal. What does it mean for the guidance range?
For the full year, we update our revenue outlook from 3%-5% to now 4%-5% revenue growth. The new range of EUR 6.399 billion to EUR 6.459 billion reflects an increase of EUR 103 million to the low and an increase of EUR 43 million to the high end of the previous range. With this, our midpoint is increasing by EUR 73 million, which documents our confidence in our 2026 outlook. Reflecting this positive momentum, we are raising the operating margin outlook and now reflecting a range of 32.5%-32.7% versus 32.2%-32.6% prior. Finally, we lift up our EPS objectives to now 6%-7% growth versus 3%-6% previously or an EPS of EUR 1.35 to EUR 1.36. For the fourth quarter, we expect revenue growth of 5%-8% and this includes a 2-point contribution from ArisGlobal.
We expect operating margin in a range of 37.2%-37.8%. EPS at $0.42 to $0.43, up 3%-7% ex-FX. For the exchange rates, the Q4 guidance now assumes $1.14 per euro and JPY 170 per euro, and a tax rate of 17.4%. Hence, combining the anticipated growth in Q4 with the quarterly progression that we have achieved throughout the first nine months of the year, 2026 reflects a healthy balance and growth acceleration throughout the year. Now let me summarize. We continue to execute on our growth strategy. We are delivering sequential improvements quarter- over- quarter. Our growth drivers show that the strategy is in place and it is working. The shift to subscription is well underway. 3DEXPERIENCE and cloud growth are accelerating.
We enter into the fourth quarter 2026, and as we look ahead, our focus remains on execution, advancing our growth drivers, accelerating AI, and shaping our life sciences business to deliver sustainable growth going forward. We continue to expand the margins. We improve cash conversions to generate consistent long-term value for our clients, the company, and our shareholders. This will be at the center of our upcoming Capital Markets Day. Thank you, and now Pascal and I look forward to take your questions.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We are now going to take our first question. This one comes from Jay Vleeschhouwer from Griffin Securities. Please go ahead.
Thank you. Good afternoon. That was close. Pascal, you have referred to 2026 as the year of execution, and in the press release for Q3, you noted the execution with regard to financial results. The question is, from here, looking ahead, what do you think are the remaining most important or most challenging executables? Not just with respect to Q4, but going ahead in any respect, financial, technical, channel, or otherwise, what would you list as the ongoing critical executables? Secondly, at the corporate level, you referred to the new organization for life sciences and healthcare. I can see the logic of combining those entities, but the remainder of DS is still a relatively complex organization. Would you see any logic in some kind of consolidation elsewhere in DS, not just in the life sciences area?
Okay. Thank you, Jay, and again, thank you for those two great questions. Related to the first question, which is the priority for the executions. If we step back a little bit, you remember last year what was the key points. First one was Centric. You remember we had basically the pressure on Centric last year. I think it is fixed. You see consistently for the last three quarters, we are executing well. We continue to perform. The visibility is there, the leadership is in place, and now we can capitalize on this to continue to scale. The second thing was life science. You have seen, we said H1, we will be under pressure, but H2, we will be back to growth. We are flat this quarter. We are going to grow next quarter. Rouven Bergmann gave the indication this morning around 2% plus.
We should now add on top of this the contribution from ArisGlobal, which is again creating a new dynamic because with the pipeline and the bookings we are creating over the last few months, the nine months, I think we have a much better visibility to enter 2027, and we can already tell you that we are going to grow next year. We know it. Still things to do, because from an execution standpoint, we have to integrate all the pieces and we need to scale because the platform phase is at scale, and that is the reason why we are also coming with this new way, new operating model. The third element is the channel. Because if you look at the performance over the last few quarters, I think we are delivering well with SOLIDWORKS. You see the consistency between the growth of quarter after quarter.
But it is not yet the case for the CPE partners. That is still something we need to focus on and to fix it. One of the reason is very simple, and I say it many times, the big difference between the two channel is very obvious. One is selling basically very productized products. The second one is basically managing the entire offer. And it is difficult to find one partner who has the experience, like large system integrators to do the integration piece of the platform.
You need to also have the cloud expertise like a hyperscaler, because you need to define the cloud architecture to connect everything we do. You need to be also in engineering services to understand all the domain expertise we have, from simulations, manufacturing, designs, and obviously, you need also to have the sales capacity. If you look at this, it is extremely difficult to have one partner having all the skills. And it is needed anyway in everything we do. And now with AI, on top of this, we are introducing another level of complexity. So here is the point. I think it is not only one partner, it is an ecosystem of partner we have to rebuild in order to go to market with high efficiency. And this is really a domain where I think the execution is still in front of us.
The last piece on the execution is obviously the adoption of the AI strategy. We just released in June the agentic platform with the companions, with the skills to use almost half of the portfolio of application we have. We have engaged with 100-plus customers around the world to design and to define the most interesting use cases. Now we need to scale with this. And that will be a clear execution point for 2027. With this, I think you have a pretty good understanding of what is high in my agenda, Jay, and where I will focus in the coming months. Coming back to the second part of the question, which is the organization. Yeah, you are right and wrong at the same time. You are right because you are right, we have different brands, different industries, different channels. And to orchestrate this matrix, it is complex.
However, there is a very tight integration between everything we do, because by design, this has been imagined and engineered to work together. So the question is not too much the complexity of the organization. It is much more the agility and the accountability of the organization to deliver. And this is where I think there are still room for improvement. Life sciences and healthcare is a little bit different. Because if you look at most of the geos we have, they are well-equipped to address the manufacturing industries. But they do not have the scalability to address the life sciences and healthcare. And that is the reason why we need to come with an integrated model. So integrating means on the offer for sure, but also on the go-to market, on the post-market introduction also, support services, customer success. Right? And this is how we are redefining the things.
The last comment I will make on the life sciences and healthcare is also many of the assets are coming through acquisitions, and we have duplications between the different organizations. It is obvious, for example, if you look at the general function like finance, like human resources, like legal, where I think there is a lot of value to consolidate it in the appropriate way. It is also becoming critical for the AI-native platform because our agents, our virtual companions, they need to cross all the domain expertise. They are not dedicated to one domain, per se. That is what we do. If we are super successful with this way of approaching it, maybe it will open maybe a different thinking process for the rest. Let us focus on this one to make the life sciences and healthcare work the way we want.
Okay. One quick follow-up, if I may. A quarter ago, you made some interesting comments with regard to competitive displacement as a new phenomenon in the industry. I am not sure you recall what you said. The question is: Was there any of that in Q3, or is there anything of that kind in your pipeline that would constitute a displacement?
Yes, it is still a topic. There are good reasons for this. One is the consolidation of the market going on. For example, the move of PTC, which neither will definitively question some of the positions PTC has. In front of this, I think we have not only a relevant offer, but we have a muscle in order to change certain position. That is one axis, the consolidations, which is going on. The second one is really the AI-native solution, which is also a game-changer. We have seen and, for example, Mahindra was a good example. You remember it was Siemens shop almost on everything. The tight integration, the native integration of AI within our platform, in conjunction with the next generation of design solution, has been basically the triggering event for them to shift.
We have identified also certain basically targets in order to make this happen. That is really where we see the two driving force to lead basically the displacement of certain long position, which has been built over the time.
Okay. Very good. See you in three weeks. Thank you, Pascal. Thank you, everyone.
Thank you, Jay.
Thank you, Jay.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone. That is star one and one to ask a question. Our next question comes from the line of Jason Celino from KeyBanc Capital Markets. Please go ahead.
Great. Thank you for taking my question. Rouven, I think you mentioned that in the Americas, it was setting up to be a little more back-end loaded. I do not know if that comment was for Q4 specifically. But maybe can you speak to if this is just renewal activity or if this is just the way the deals are shaping up? I understand that the Q3 performance was affected by the difficult compares. So I am just trying to understand how the business environment looks. There are some events in North America that are happening that may delay deals, such as the election, potentially. So just curious on your comment there.
Yeah. Jason, happy to address this, and thank you for raising this point. I wanted to put in context with this comment that we understand that Q3 is really due to a baseline comparison, and there is no issue in the performance in the Americas. We have a pipeline. We entered into the year that was well-balanced in terms of industries, but it was a bit more back-end loaded towards Q4. But those transactions that are in the fourth quarter are well-identified and it was part of our plan. So we are expecting an acceleration for the Americas region in the fourth quarter. That is the simple message, and that is also built into our planning.
Okay. Perfect.
I do not expect that the elections or things will have bigger impacts because those transactions are, I think some part is renewal, some part is in long planning stages. The election should not affect this.
Okay. No, I appreciate that. Then I know this morning there was some discussion about the implied Q4-
Yep.
organic growth, the deceleration. You talked about a range of outcomes with the range of the guidance. Maybe speak to what is incorporated at the high end, maybe what is incorporated at the midpoint. Just curious if there is a little more conservatism or if there are assumptions around large deal activity. Thank you.
Yeah. So the guidance range for the fourth quarter with ArisGlobal is 5%-8%. We have good visibility to the midpoint, and this is aligned with the midpoint of our full-year guidance. The situation in which we have, and this is really what we have worked very hard throughout this year, is building this track of Q1, Q2, Q3 progressive improvement, is that we have put us into a position where we have some flexibility in the fourth quarter. So that is what I mean with the range. We have now the flexibility, factoring in the overperformance year- to- date, the impact of the acquisition to narrow the guidance range. With this also increase from an absolute value, the midpoint by over EUR 70 million. That is reflected in the 5-8 points of growth. One point of growth approximately represents EUR 18 million.
So it is now in total around EUR 60 million of range in Q4. We are on the midpoint, and again, we have flexibility to manage that. So to me, Q4 is well on track. Now we are focused, as we said before already, on building the foundation for 2027. We will talk more about this at Capital Markets Day.
Wonderful. Thank you. Thank you so much.
Thank you.
Thank you. We are now going to take our next question. This one comes from Derric Marcon from Bernstein. Please go ahead.
Good afternoon, guys. Two questions for Rouven. Sorry, Pascal, I will keep my question for you at the Capital Markets Day. The first one on contract liabilities. When you look to the sequential decline between Q3, Q2, it seems very low compared to previous years. It's helping your cash flow generation in Q3. Can you explain the mechanism behind that and if it is structural or linked to a one-off? My second question on ARR subscription growth, accelerating in Q3 compared to the first two quarters of the year. Can you help us to make the bridge with the impact this will have on your subscription revenue growth in the coming quarter? Because you said ARR is a good indicator for next 12 months.
Should we understand that from the 6% subscription growth pace we saw in Q3, things could accelerate mechanically given what we see playing in the ARR for subscription? Thank you.
Of course. Thank you, Derric, for these two questions. Let's start with ARR first, and then I go to the balance sheet at the end. For the subscription growth at 6% this quarter, what you need to factor into this growth is the base comparison last year, where we had strong growth in subscription, double digit. That point comes back to the point that we discussed previously around ARR. With the ARR metric, we look forward and we have the 12 months run rate, where we have no spikes from revenue recognition of previous quarters because we signed large deals. The 6%, first of all, from a revenue standpoint subscription, needs to be taken into context of baseline comparison with this very strong growth of Q3 in last year. If you were to normalize for that, the subscription revenue growth is actually much higher.
If you take that one-time revenue or this elevation from Q3 of 2025. The second point, important when you do this math between ARR and subscription and walking you through the puts and takes here. The second piece is that in our subscription, when you sign large subscription multi-year contracts, the upfront portion is recognized in upfront license. You don't see the full subscription value in the subscription line. This quarter, about 15%-16% of the upfront license comes from those multi-year subscription impact. Also that when we do the comparison to ARR, that's why we introduced ARR, is to have a consistent view on subscription on the ARR, which is driven by the subscription growth. Now I come to the decomposition of ARR, where the subscription ARR is occurring around mid-teens, low to mid-teens, approaching mid-teens.
The maintenance run rate is more flattish. The real dynamic of the subscription line is very consistent between the revenue, if you normalize for the year-over-year comparison, and you also factor in the reallocation of the upfront part with the ARR on subscription that we see in ARR. Now we are reaching the 50/50% of parity for the ARR with subscription run rate and maintenance run rate, as well as for the revenue recognition in our recurring revenue, where maintenance represents 50% of the total recurring revenue as well as subscription. It's even now. Now with the acceleration of subscription growth, we should see an overall growth acceleration in recurring revenue as well as in ARR. From that perspective, we are at an important point in terms of business model evolution for the company.
That this parity has been achieved, and subscription ARR is the growth driver going forward, where the business model becomes the growth engine of the company. For the P&L, where we report recurring revenue with subscription, where you have some element in upfront license and some element in recurring, that I understand is still difficult to track for you. As we move more and more towards ARR, I think you should focus on the ARR momentum. This is where we see really the business momentum happening.
But Rouven, I thought the upfront license part coming from subscription or let's say at least hybrid flex contract was now fully recognized in subscription since 2024. Does it mean that-
Only for, Derric, l et's not make it more complicated. It is only true for cloud contracts or contracts that have cloud elements like hybrid contracts, but not for on-premise contracts.
Okay.
For on-premise contracts, the revenue standards do not allow us to spread the revenue. It has to be taken upfront. That is the rules.
It's clear.
Okay, super. For the contract liabilities, the increase in contract liabilities is coming from the good business performance from Q2 and Q3. We also see that reflected in the AR balance. We have reduced year-over-year, the AR balance, slightly higher than comparably last year, which results in some positive, which comes from good cash collections. But contract liabilities are a result of increasing business activity. There is no other issue, no other topic than that.
Great. Thank you.
Thank you.
Thank you. There are no further questions for today. I will now hand the call back to Pascal Daloz for closing remarks.
Thank you, and thank you for your questions. To wrap up, let me leave you with three key messages. One, first, we are delivering. We had a strong Q3. You could look at the way you want, but it's a real strong Q3. We raise up our full year objectives, knowing that we spend a lot of time to discuss the revenue. No one is basically challenging the fact that on the EPS, now the high end is becoming the low end of the range. So it's a real significant improvement. Second, I think we are bringing AI to the real world. This is extremely important because with 3DEXPERIENCE, our agentic platform, our Industry World Model, and the virtual twins, we are really helping industries and customers to put AI to work in the real world environments.
This is where they can test it, this is where they can validate it, and this is where they can trust the results. Third, I think we are making important progress in life sciences. Obviously, with the completion of the acquisition of ArisGlobal, with the venue of Dr. Zenooz, which brings us new ambitions to, again, come with one integrated platform working to connect the dots between the molecule, the patient, and the real world outcome. I use this, everything we learn, with the real world evidence to basically flow back to science. Those are the key priorities. They are obviously closely connected, and I think this is helping us to build a stronger customer relationship, to focus on investment, and to create value for the long term. So we look forward to sharing more with you at the Capital Markets Day in Paris on November 17.
In between, have a great day. See you soon, and thank you so much.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.