Dassault Systemes Sa Adr

I'm Beatrix Martinez, Dassault Systèmes VP Investor Relations. From the company, we have Pascal Nalloz, CEO, and Ruben Berkman, CFO. I would like to welcome you to Dassault Systèmes' first quarter 2025 presentation. At the end of the presentation, we will take questions from participants, first in the room and then online. Later today, we will also hold a conference call. The ESO system 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 2024 document d'enregistrement universel published on March the 18th. And I will now hand over to Pascal Dalouze.

Thank you, Beatrix. Good morning for all of you. And thank you for joining us today. It's always a pleasure to be here in London with you for the Q1 earnings announcement. I think we had a strong start to the year with subscription and 3D experience revenue driving our EPS at the high end of the expectations. And here are some key highlights. Software growth plus 5%, driven by subscription revenue plus 14%, and 3D experience revenue plus 17%. And before handing it over to Reuven for more detail on the financials and guidance for Q2 and the full year 2025, I would like to emphasize three points. The first one, I think, in today's volatile environment with tariffs affecting many sectors, we are well positioned to help our customers to navigate the uncertainty. The second one is in Feb. This year, we introduced the next generation of our customers' virtual universe. We call it the 3D universes. And this has been extremely well received by the markets. And why so? Because the company eager to integrate artificial intelligence often struggle without having a unified platform to do it. And this is where I think 3D Universes comes in transforming 3D experience into the next generation platform for knowledge and know-how and positioning it as a global IP management platform. The third point is we are actively investing in 3D universes right now, and I will discuss it further. But this is also including some acquisition we did this quarter. One is content serve and a strategic investment in click therapeutics, but I will come back on this. Now let's take a closer look of the sector trends and also the key wins. So if you start with the manufacturing industry, I think we saw a strong resilience in Q1. Transportation and mobility performed well in China, Japan, and North America. It was obviously soft in Europe, as you could imagine. But the key takeaway is we are really expanding in key Chinese players. I mean, just to name a few, BYD, Xiaomi, Ximpeng. And also, we are more and more serving the new entrants in these EV markets. More broadly, I think there is something happening also is all the manufacturers everywhere are reassessing their strategy due to the tariff pressures. And I think we are, again, well positioned to help them to adapt quickly and optimize their supply and the demand chains. Aerospace and defense, I think we maintain a solid momentum, support by the rising and the continued investment in key programs. You maybe have seen this morning the press release for Airbus, where it was a deal we signed in Q4, but nevertheless we have some contribution this year. And new choices, it's really strategic because it's for the next decade. in order to address the three strategic priorities of Airbus, which is ramping up the production systems, defining the new platform for low-carbon emissions, and also coming with innovative and breakthrough ideas in defense and the space industry, where you see more and more startups coming. High-tech, we continue to see a very good momentum and it's driven by many things, the simulation at large, especially for the consumer electronics, but also we see more and more attractions coming from the data centers where our offer for the energy efficient infrastructure is extremely relevant. We renew the Google partnership this quarter and it's an extensive one. Speaking about life sciences, I think there is a big shift happening in life sciences and it's extremely visible right now. The shift is from research and development and clinical trial towards manufacturing and supply. And it's a trend which is really further accelerated by the tariff. So in this context, the demand for end-to-end platform to connect research and development and manufacturing is also rising. And there are some good examples of this. This quarter, Sanofi or Amgen, they are expanding the 3D experience platform across the entire value chains to reflect these evolutions. We also saw an expansion of metadata with some key players such as Regeneron and new customers like Merck, KGI, and I will come back on this. Infrastructure, as I was saying in my opening statement, you know, in the infrastructure and city sectors, the demand for sovereignty infrastructure is rapidly increasing. And we are accelerating our expansion along this way. The primary focus for us was really on the energy transitions, in particular in the nuclear, where we had a strong focus the last few quarters. But now we see more and more demands for defense and security, because it's part of the sovereignty as well, but also building AI capabilities through high-performance data centers with national borders. And it's really a topic where, keep this in mind, I think we are relevant on multiple fronts. Now let's look at some key wins for the quarter. And I will start with transportation and mobility. I already spoke about it briefly, but we enter into a strategic partnership with Xinpeng, one of the fastest growing EV manufacturers driving the future of the smart mobility. Dipeng, you know, they are really reshaping this EV landscape with innovative electrical vehicles and autonomous driving technology. But more importantly, they start now to internationalize the company. And this is where I think we play a key role because they need to rely on supply. They need to rely also on different facilities to build the car. The Xpeng G6, which is the premium car for the EV, is offering really high-performance things. I don't know if you know, but it's specifically rapid charging. You can move from 10% to 80% of the charge in less than 20 minutes, which is really very unique on the market. And they also offer a suite of premium services. This at a very competitive price. And why they are able to do this? Because they master extremely well the cycle time for development. They are reusing a lot of things. And they came with this new architecture, which is what we call the software-defined vehicle. And they are extremely good at that. So this partnership obviously is leveraging the 3D experience to accelerate the innovations, but also the time to market. And I think in a way they start to set up the benchmark in the smart mobility. So it's a strong signal, you know, because even if the sector is challenged by the tariff, by many other problems, you know, the innovation leaders are choosing us to accelerate and scale. Now, speaking about life sciences, Merck, KGS, which is the German company, has selected Medidata for its new standard for clinical development. And it's an interesting case because it's a new logo for us, right? We had some touch points with them, but it's really the first time we are seeing an enterprise agreement. But it's also a competitive displacement. And you could imagine who is the competitor we used to have in front of us. And why it's an interesting case also, because Merck was subcontracting a lot of studies to CROs, and they took the decision to re-internalize this. And that's the reason why they are looking to have a platform which is helping them to streamline the clinical trial, to increase the speed. And I think we are the standard on the market, especially for the phase 2 and phase 3. The key point also for them was in these new games for the clinical trial, you need to integrate a lot of source coming from multiple systems. The EDC is one of them, which is RAVE, as you know, but also you need to collect many other information coming from, for example, the real-world evidence. I think with these new solutions we have, so-called clinical data studio, we have now a very compelling solutions in order to do this. This has been validated by Merck also. The last point which is something I really want you to keep in mind, it's probably not visible enough from you. One of the key differentiation we have is the domain expertise. And in this specific case, it's really in particular on the oncology. And why this is extremely important? Because when you start a clinical trial, you are saving a lot of time if you start with a pre-configured template, if you want. There are many things which are standardized when you are doing an oncology clinical trial. And we have capitalized over the year this knowledge into the platform. So I think this is a good example that not only we are defending our position, but also we are expanding it. Now let's speak about sovereign infrastructure. And I took this example Because usually when we speak about infrastructures and city, we spend a lot of time to speak about construction. Here I'm speaking about national security, defense. And as I was saying in my opening statement, you see more and more startups coming into this space, which was not at all the case, I don't know, five years ago. And here is an Indian company. It's a different startup. It started, I don't know, five years ago. Two guys coming from the MIT. And they have been tasked by the government to develop the cutting edge autonomous drones. with an in-house design, so they have to master completely the design, but also they want to be sovereign from a manufacturing standpoint. So there is absolutely no dependency on foreign providers. So it's a challenge by itself. And this goal has been achieved with a speed which is unique because it took months to develop the drones, usually taking years. And now they also are entering into the new phase, which is to leverage all the breakthrough technologies such as 3D printing, but also precision-grade electronics to become self-sufficient in the production side. So I think RAFE has selected the 3DX platform to scale quickly, to reduce the cycle time from years to months, but also, as I was saying, to have the full autonomy from the manufacturing standpoint. And I think you will start to see more and more examples like this into this space. Now, let's say if you're worried about Gen 7. You know, back in Feb, During our full year results, I introduced the 3D universe concept, which is our generation 7 of virtual universes for our customers. And here you have basically the key pillars. I will not comment on them, something I will probably do at the Capital Market Day. But the point I want you to keep in mind is the following. For 40 years, we have been building the virtual world for the real life. with one constant thing. We are creating scientifically accurate representation of the world. And 3D Universes is making a fundamental shift in a way because it's integrating the modeling and simulations powered by artificial intelligence and spatial computing with one single platform, which is a 3D experience platform. And in this context, I'm very thrilled to announce the partnership with Apple to bring this vision to life. And, you know, 3D universes for the 3DEXPERIENCE platform is now natively integrated with Apple Vision Pro. So let's see it in action. Please launch the video. Thank you. As you can see, you can now immerse yourself in life-size experiences, navigating with your eyes, your hands, your voice, bringing the entire team along as matter where they are. And it's pretty unique because for the last 40 years, we were building these 3D dimensions, but we were at the end hurting ourselves on a 2D flat screen. So we do not have any more of these limitations. And this is giving, I think, a new relations, if you want, with the concept of virtual twin. Because now the virtual twin on the 3D experience platform can now interact, if you want, seamlessly with the physical world. At the same time, with the scientific representations, because it's probably not the first time you see these kind of things. But most of the time, it's fake. I mean, it's a representation which has been developed for the entertainment. Here, you have the real science. You have the real accuracy with the physics. And this is pretty unique because with this, I think we are creating a different way to innovate, to drive the creativity, the productivity, the learnings, and all the possible customer experiences. And I think the possibilities are really limitless. Speaking about investment, also in the GEN7 in March, we acquired ContentServe, leading AI-powered product information management, which is the system centralizing all the specifications, the descriptions, the images, all in one place to support the marketing activities. And they are also developing what we call the product experience management, which is a system which is tailored to bring this data for each channel, whatever you sell online or you sell physically or you are using a marketplace to do this. It's really a way to create these indications and to drive the personalization and the conversions. So it's a company doing, I mean, they have 200 employees, 1,600 customers across multiple industries, such as consumer goods, retails, electronics, just to name a few. And I think it's really a perfect fit with our strategy because by integrating content serve with Centric, now we can ensure that from the moment the product is developed, right, it can be enriched and optimized and ready to be converted for the sale. And this notion of the permanent collections is really the one driving this transformation of those fast-moving consumer goods industry. And I think this is how we are helping the industry not only to short-term the time to market, but also to boost the sales through the personalization and also the scale. There is another topic I really want to address quickly this quarter. We reinforce our commitments to the patient journey in life sciences. We made a strategic investment in a company called Qlik Therapeutics. They are the leaders in the prescription for digital therapeutics and software-enhanced drug therapies. So what does it mean? They are developing two kinds of applications. for the patients. One is really to support the patient when he's under treatment, and it's a way to connect and to collect data, to help to do the prescriptions and so on. But also they have developed a new category of application, which is what we call the digital therapeutics, which is an application which is curing the things. And they just received FDA approval for the first digital treatment for the migraine. So it's really a new category we are opening whereby now the digital could be used also to treat the patients. It's not anymore a chemical action or a biological action you could have for certain disease. You could also use some cognitive simulations and the applications can do this. This is an interesting thing. I mean, the FDA validated the results whereby these applications it's better than the best drug on market for the migraine. So I think this partnership extends the metadata patient engagement far beyond the clinical trial, as you can see. And it's maintaining, I think, the willingness for us is really to maintain the continuous connections between the patients, and through the colonizations and beyond. And I think it's a critical step for us integrating the patient journey from research and development to what we call the real-world care. Now, a few remarks before handing the floor to Reuven. I think we still, I'm still believing we have a tremendous long-term opportunity ahead and we will come back during the Capital Market Day on this. And while the markets are volatile, the need for our solutions has never been greater. Believe it or not. Tariff is a fiction, but what we do is a reality. And it's a reality for our customers to navigate this uncertainty, to use a virtual twin as a way to relocalize, to develop new supplies, to transfer manufacturing plant from one place to another one. And it's something you cannot do overnight. And you need to be equipped to do this in order to evaluate all the options and to minimize your risk. And that's clearly what we do. And the 3D universe is, my view, is an ideal environment for the artificial intelligence. Why so? Because it's trustable. And at the end, this is extremely important, most of our customers, they are scared with the intellectual property. And they want to rely on a platform which is ensuring the fact that no one is stealing their intellectual property. It's almost the opposite. We are protecting their intellectual property. And this is also true for us, by the way. The second thing is all the results artificial intelligence is producing should be certified. It has to be trustable. It cannot be a black box if you want. I think this is where the combination between modeling and simulations with AI is extremely relevant. This combination, believe me, it's not an easy thing to do. It's not the coexistence of the different technology on platform, it's how you connect them, how you integrate them on the multiple use cases. So this is our directions. I think we are the trusted partner for all the customers because we help them to strengthen what they do. But at the same time, we are also building the barrier to entry in our space. And this commitment is guiding us as we move forward. So it's time for me to hand over to Ruben for more financial details and, you know, a few perspectives for Q2 and the rest of the year. Thank you so much.

Thank you, Pascal, and thank you to everyone joining us here today in person on this earnings call. Our Q1 results were solid, as you heard from Pascal, and in line with our expectations, driven by strong subscription growth, which was up 14% across key growth areas in the manufacturing industries. Operational efficiency was good as we reached the upper end of our EPS guidance, and we also saw strong growth, excellent growth in operating cash flow, increasing by 21%. Now let me turn to our results in more detail. Total revenue was up 4%, with software revenue growth of 5%, as mentioned, driven by good subscription growth of 14%. As you can see, the momentum continues to build, When excluding metadata, subscription growth was up 21% year-over-year over the last 12 months. This was due to renewals and the baseline effect from large deals which we signed in previous quarters. Recurring revenue grew 7% and now reflects 86% of software revenue. Services revenue were negative in the quarter, mainly due to some timing effects related to the start of new projects, which we expect to normalize in the year. We also had a lower contribution from Centric and Medidata. Operating margin came in at 30.9%, and our EPS for the quarter was 32 cents. Now with that, let's review how our growth drivers performed. While 2024 set in motion a series of competitive wins and expansion of 3D experience across industries, domains, and geos, now in 2025, we expect continued momentum in the adoption of 3D experience driven by AI and cloud. And 3D experience grew 17% and it now makes up almost 40% of eligible software revenue, up three points from Q1 last year. While cloud revenue for the group was 7% XFX in the quarter, we saw strong momentum in the adoption of 3D experience cloud, which is up 41%. And over the last 12 months, 3D experience cloud revenue is growing to 270 million. This confirms the positive dynamics as our clients across the manufacturing industries embrace the potential of our platform and AI. Cloud represents 25% of our Q125 software revenue. Now, let's review briefly how we performed relative to our objectives for the first quarter. Total revenue came in at 1,573,000,000, which is 5 million above the midpoint, benefiting from a positive currency effect. Operating margin was 30.9%, about 10 basis points, so slightly below the midpoint. Selective investments in business growth were balanced by continued disciplined expense management. EPS at 32 cents was at the high end of the range, thanks to the solid operating performance, good financial income, and a slightly positive currency impact. Now let me turn the focus on our geos and product lines. Europe was up marginally in Q1 on tough comparisons. We saw good growth in aerospace, offsetting softer performance in transportation and mobility. Home and lifestyle and high-tech industries also had a solid quarter in Europe. In the Americas, revenue was up 7% in Q1. led by broad-based strength across the manufacturing industries, most notably aerospace and defense, marine and offshore, transportation and mobility, as well as high-tech. Following 3DEXPERIENCE World in the US, we saw a strong engagement with our customers, firming up their roadmaps to adopt 3DEXPERIENCE and accelerate the use of AI and Generation 7. In Asia, performance was solid. with first quarter growth led by double digit growth in India, while AP South and Korea were up high single digits. The performance of China was resilient and impacted by high comms when compared to last year, Q1. Now let's review our product line performance. Industrial innovation software revenue grew 8% in the quarter. AI and cloud act as catalysts for the adoption of 3D experience. And this is driven by the demand of the next generation use cases to operate in an increasingly competitive and complex world. Looking at the brands CATIA and DELMIA, they were up high single digits, while NETVIPES and NOVIA and 3DXITE were all up double digits. Life sciences was flat in the quarter. 2024 was a year of transformation to reposition metadata in our life sciences strategy. The strategy was validated by good Q4 renewals with several top 10 farmers, including several win-backs and platform expansion with our most strategic accounts. Now, in Q1, we had a mixed picture. On one side, a continued positive trend in the mid-market across the US and Europe. In large enterprise segment, we won Merck KGA as a new customer, as highlighted by Pascal. Merck selected MediData to standardize data management on RAVE, leveraging AI, and to improve the control over data and speed to market. And this is key to insource the core clinical trial management system and improve autonomy. On the flip side, CRO partners continue to adapt to a more cautionary environment of clinical trial starts, with booking levels remaining low and revenue contribution decreasing. This impacted metadata growth by about one to two points. Despite the volume headwinds, we expanded our market share by over one point in clinical trials, driven by a large share gain in phase three and two. The business dynamic for large pharma is driven by innovation and transformation from lab to manufacturing, We're strategically positioned to cover the entire value chain, leveraging the strength of the 3DEXPERIENCE platform, as evidenced also by our partnerships with Sanofi and Amgen. Now, over to mainstream innovation, which was up 2% in the quarter after a strong performance in 2024. SOLIDWORKS was up low single digits. Solid bookings and good subscription growth confirmed the shift in business model and the momentum of 3DEXPERIENCE adoption. However, we noted in the last weeks of March a more muted quarter and uptick, which we believe reflects a more cautious purchasing behavior in this changing and more uncertain market environment that started to develop in the last weeks of March. Centric was down on timing differences of renewals after an exceptional year of growth in 2024, and we expect good performance for the remainder of the year. As you heard earlier from Pascal, we successfully completed the ContentServe acquisition in the first quarter. This position centric as a business platform for consumer centric industries. ContentServe adds a real time feedback loop into the market to adapt product design, pricing and sourcing strategies, leveraging AI. Now over to the cash flow. Cash and cash equivalents totaled $4,243,000,000 at the end of Q1 in 2025 compared to $3,953,000,000 at the end of 2024, an increase of $290,000,000. At the end of Q1 2025, our net cash position totaled $1,788,000,000, an increase of $329,000,000, versus a net cash position of $1,459,000,000 at the end of last year. Now let's look what is driving our cash position at the end of the first quarter. We generated $813 million operating cash flow for the first quarter, an increase of 21% versus Q1 of last year. This is an excellent result. And this was driven by positive working capital as accounts receivables decreased with DSOs down by 10 days versus Q4. It reflects also good collections following Q4 wins. And for further detail, I refer to our appendix with a detailed reconciliation which we published this morning. Cash conversion was 90% from non-IFRS operating income over the last 12 months. So it was strong performance. This reflects, as mentioned, good collection trends, both on ongoing multi-year partnerships and recent signings. expect this conversion to be in line with our prior projections in the mid 80 percent for the full year of 25. to sum up operating cash flow was mainly used for acquisitions and investments totaling 287 million this includes the acquisition of content surf for 191 million and 56 million for investments in capex we also repurchased treasury shares for 80 million in the quarter, and we repaid debt for 59 million on short-term loans. Now let me turn to our outlook for 2025. Entering 2025, our approach was to provide a risk-adjusted financial outlook for the year. Since then, the introduction of new tariffs has created a more volatile market environment, specifically with some of our end markets like automotive clients. While the pipeline remains resilient, we could be impacted by delays in decision making. Overall, our visibility for now remains aligned with the midpoint of guidance and therefore we keep it unchanged. As such, our full year targets of 6% to 8% revenue growth and 7% to 10% EPS growth remain the same. As it relates to the margin, we decided to provide some headroom to make focused investments in Gen7. Now is the right time. The year-on-year margin improvement is now 50 to 70 basis points, with a 70 to 100 basis points previously. As you know, we are a long-term oriented company and a reliable, trusted partner to our clients. This is what our customers value the most. In this constantly changing global environment, we see the Sweet Experience platform in combination with Gen7 as a strategic choice for our clients to be future ready as outlined by Pascal. So now for Q2, let me provide some additional insights which will help you to update your models. Like in Q1, we are guiding to a wider than usual range in the second quarter, which is 3-7% top line growth. This takes into account market uncertainty and the caution on timing of deal closing based on current information. To complete the picture, subscription growth is anticipated in the range of 10% to 15% and upfront license revenue between minus 6% to 1% growth. For services, we expect 3% to 7% growth with good bookings from prior periods converting to revenue. In terms of profitability, we expect the operating margin to be in the range of 29.8% to 29.9% and fully diluted EPS at $0.30 to $0.31, up 1% to 5% year over year. Now, in conclusion, our conversations so far with our customers across geos and industries support our growth ambition. However, the recent tariff announcements have increased uncertainty in the macro environment and the situation will most likely remain dynamic for some time. As previously stated, 3DEXPERIENCE Cloud and AI continue to be the primary growth driver. It has created a shift in the market dynamics as evidenced in the competitive wins over several quarters. Clearly, customers who are advancing in the adoption of 3D experience benefit more than others. The pace of adoption will support either the upside scenario or potential downside as reflected in our 2025 guidance range. Thanks again for joining us this morning. And now Pascal and I look forward to taking your questions.