Dassault Systemes SE

F:DSY

Earnings Call Transcript 2018-Q1

[François-José Bordonado]

Good morning, everyone. I'm François-José Bordonado from Dassault Systèmes investor relation team.From the company, we have Bernard Charlès, our Vice Chairman, Chief Executive Officer; and Pascal Daloz, Executive Vice President, Chief Financial Officer and Chief Strategy Officer.I would like to welcome you to Dassault Systèmes First Quarter 2018 Earnings Presentation, which is also being webcasted. At the end of the presentation, we'll take question from the audience and from participants on the webcasted call. Later today, we will also hold a conference call.Dassault Systèmes' financial results are prepared in accordance with IFRS. During 2018, the first -- which is the first year of implementation of IFRS 15, we will provide IFRS financial information on both an IFRS 15 and IAS 18 basis, so all figures and comparison during the presentation are under IAS 18 and on a non-IFRS basis, with revenue growth figure in constant currency unless otherwise noted. We have provided supplemental IFRS 15 and IAS 18 non-IFRS financial information; and IFRS, non-IFRS reconciliation schedule in our earnings press release.Some of the comments on this call will contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and to the Risk Factors section of our 2017 Document de référence.Just a word before giving the floor to these gentlemen. I would like to invite you on June, Friday, 15, for our Capital Market Day, which will be held in Dassault Systèmes campus. Let me now introduce Bernard Charlès.

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you, François-José. Good morning. I am pleased to talk to you again, and thank you for your continued interest on Dassault Systèmes.I'm sure you have read what we have announced. I would have loved to have Thibault's 3DEXPERIENCE twin with me. Maybe one day we will have Thibault augmented reality. He says hello to all of you. And he was part, of course, of the preparation for what we are communicating today. So he is going -- doing well, and he's very busy more than ever. I have many topics for him.Anyway, so Q1. As we -- as you can notice, we are on a good start with good software revenue, margin as well as EPS to really deliver on the full year. As you may have noticed already, the organic license revenue is up 14% and with a very strong 3DEXPERIENCE license dynamic up 53%. I'm speaking with excluding exchange rate so it gives you comparable. Strong license growth on the 3 sales channel, with almost this being the case for almost all the brands and 9 of the 12 geos. And you can see also that there are core industries, which are double-digit growth. And we continue to have double-digit growth on new industries, like Natural Resources and on what we call CG retail and AEC where I stated to you that there is something to do in that sector. It will take some time, but we are going to do something.Pascal wanted to add the Daloz signature on the way we report, so there are a few minor presentation changes, but there you will see there it's not a revolution. It's consistent. So he wanted to mention that, yes, we do focus on implementing our strategy social industry experience. The key point for social this quarter is the adoption of cloud, which is really very strong; and also the announcement of the new portfolio that supplements SOLIDWORKS to make it really powered by 3DEXPERIENCE on the cloud. And the SOLIDWORKS World event was very key event this year, and things were extremely welcomed by the users and the sellers. On the industry side, we continued to really focus on the mover and shakers. If you look at the industry, you have traditional players, and there are more and more new movers and shakers in those industries. And the number of those companies is exponential. The nature of those companies, I will come back to it, are very interesting, small, but all users are using our system. In the past, big companies, limited population within the big companies, but I believe that this is a very strong argument for the more conservative companies to open their eyes about the fact that something is happening. I will come back on that topic. Experience, with really new approaches in terms of solutions around our customer centricity when you create new product lines, what -- how you create experience for the customers. The consumers or the citizens will see that also.We reconfirm our full year guidance, and Pascal will come on that topic.So here is the way I see the evolution of the industry. 12 industries, 70 segments. We look at the industry reference we have, and we look at the new shakers coming in. And we look at all the numbers of those companies around the world. And we target maximum footprint for their adoption, which means that there are not big installation in the beginning but the penetration in those companies is high upfront. And I don't know if you realize, but there are more than 600 new companies doing emobility those days. I'm not talking about the existing ones in the world. You probably have in mind 10, 15, but when you'll sum up, it's a significant number. And it's true in many, many sectors I have illustrated here with the -- of course, the air transportation, ground mobility but also constructions. So there is, I think, something happening. And it's a good timing because with the cloud we provide affordable solutions with low CapEx at the beginning and a model which is a very sustainable model going forward. Our KPIs are very simple for cloud. It's number of users and data volume. And I know the number of user and data volume is there. Revenue will come.Talking about the industry, I believe we are going far beyond Industry 4.0, far beyond, with simple, key showcase clients because it's not about only the production side of the industry. It's about the ideation side to create new categories of products. Clearly in many of those sectors there are new categories of products being invented, and it's changing the way the ideation process works. It's also changing the way you serve the product on the market, even to sell, you -- how you sell it and market it. And of course, we continue to increase our penetration with market with the makers and innovators. We are in the 1,200 innovation centers and hub labs in the world, and we are also doing that now even for life science.So there is, I believe, at this beginning of this 21st century, I think, a new dynamic in terms of what are the future categories of products that will serve consumers, citizens and customers. And I think that a company like Tesla has demonstrated to a very conservative EV industry that new categories make sense because it's new set of services. And this is happening also in air transportation, mobility with Joby Aviation and many others. And you have seen many of those, including those we cannot yet mention.And the 3DEXPERIENCE is now complete in terms of scope.It's an operating system for our solutions. It's also an operating system, not in the sense of IT. It's an operating system in terms of what it means operating your company and the solutions. And it's also expanded now to do Power'By, so we can connect legacy application to it. On the other side with the marketplace it's becoming a new business model: how do you buy, how do you produce and how do you sell. And as you know, on January 20, we opened the marketplace after 1 year of tests. And I will come back on this, but it's a new business model from that standpoint. And we plan to use the marketplace for 2 things, for users building communities but also for companies using the marketplace inside so they can change with that marketplace the way they trade with their value network.The dynamic on 3DEXPERIENCE is good, as you see, 53% up excluding exchange rates. And we continue to focus on the 3 dimension of this strategy; and more to come, in fact, this year.A few concrete illustrations before I give the floor to Pascal. A well-known company, at least for many of us, Kärcher in Germany; and they are -- they have adopted the 3DEXPERIENCE platform on the cloud. And when you do that, you reach new nature of users, including sales, marketers, because all is there. You just have to connect. You just need an ID to connect. And through a browser, you can see product configuration. And the quality of what is represented now on screens, tablet and so on, is so high you can really make the difference between a picture and what you see in terms of real data. So they have made that decision. It's a significant one because, first of all, it's not a startup. And it's a real industrial company, and they have made this to reduce their product development costs but also to integrate all of -- all the production system. And they have a plan to use it for sales and marketing really to promote easily to the marketers in the world, the distributor in the world the products they are doing.SOLIDWORKS World. We announced 5 things. We announced social collaborative services online. We announced SOLIDWORKS PLM services for SOLIDWORKS users. They were PDM centric before managing their parts. SOLIDWORKS Product Designer, which is really reuse of technology from the CATIA world; SOLIDWORKS xDesigner (sic) [ xDesign ] which is basically through a browser anytime and you can use a browser-based tool for design; and 3DEXPERIENCE Marketplace. You'll remember, 3 or 4 years ago, we have got some question from you about new startups in this area that I will not name. They have almost disappeared. And I think this is going to be -- this is a groundbreaker because it's the power of SOLIDWORKS through a browser on the marketplace for make and PartSupply.Transportation & Mobility, we focus on 3 core things: the -- not the electrification, much more important, the new vehicle architecture because those vehicle are not architected the same way; of course, the regulation and what it means in terms of certification versus testing because they are discovering what has been -- we have been doing in aerospace for 30 years, the difference between testing and certifying. And it's a big difference because you need to prove. And then the cost and quality, of course, because the value chain for an electrical vehicle is very different. They are not getting the profit from the same things. Before, the engine was making a lot of the difference, but now the battery is the engine, not the engine. The battery is the engine of those things.EVELOZCITY. This is a new startup, a significant startup. They are creating new type of emobility, and they are really starting with our entire solution upfront with the experience platform on the cloud. And so we've been able to see at which speed they could start. The speed at which they could start has never been achieved with implementation of software on premises.Aerospace & Defense, we focus on production rate. The backlog is so huge that -- and basically our digital and manufacturing solution are more and more the industry standard in aerospace. Their backlog is so huge that their top line is coming from the capacity to deliver, and that's the case on most of the players in this area. Mechatronics and systems, because of the sophistication and the customer experience. If you look at on -- it's interesting if you want to have industry focus in terms of analysis. If you look at the annual report of those companies and you look at the projected revenue in service for part supply maintenance, there is a game changer aspect going on in this industry as we speak. They are changing the nature of what are the service, and it's tens of billions of future revenue made on things which are service online for the operators. More to come on this area also. We continue to work on the supply-to-value chain optimization with Quintiq. And this is a good illustration with Lufthansa Cargo, where they have been optimizing the full flow by using Quintiq. So we are changing the boundaries of even what PLM is about because we want to optimize the full value flow.And biopharma. As you remember, we invested a lot in the past years into biotech. I think that biotech and bioscience will change the manufacturing world, and we shouldn't underestimate it. If you look at the hub in Boston related to bio not only for life science, for material science and for the future of making physical goods, things are changing in this area. I think it's as important as what chemical was at the beginning of the previous century. So patient-centric innovation. We deliver experience, so it's not about only small molecule going big molecule but it's about the process by which you go with treatment, which means equipment and personalized equipments. So it's -- we are connecting things which have never been connected before. Gilead science adopted BIOVIA in -- and it's a very, very interesting showcase. And it's more than BIOVIA. It's BIOVIA and of course the experience platform.And with that, Pascal, I'll let you comment the numbers. Thank you very much.

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

Thank you, Bernard. So welcome to all of you.It's a pleasure to start with a good quarter in my new role. And if I look at, basically we were expecting a good start of the year, continuing the strengths we have seen in Q4, and this is the case. This is really the case. And not only this growth is solid, but it's a broad-based growth. So Bernard said we saw the growth across the 3 channels, 9 of the 12 geos, most of our core industry as well as the diversified industry and in all the major brands. So this is basically the key point for this quarter.Now if I look at a little bit more on the numbers.So the revenue reported is EUR 771 million. And you remember the guidance we gave to you was EUR 750 million to EUR 770 million, so we are in this range. The growth excluding currency effect, at 9%, so it's the middle because we gave to you 8% to 10%. So it's 9%, but we are in the high end of the software growth because we had the 10% growth. And if you remember, we gave to you this high end in the guidance. So basically the gap is coming from the services, and I will give more detail about it. If you look at the operating margin, 27% operating margin, again high end of the guidance and a significant improvement because it's we are talking about 80 basis points compared to last year.And EPS at EUR 0.59, which is again higher than the guidance we gave to you because it was -- the high end was at EUR 0.57. So 11% growth taking into account the currency effect; excluding the currency effect, 26%. So I think we can qualify this as a good quarter and a good momentum.From a software standpoint by region. So we had a significant good growth in Americas with 11%. And it's coming from NAM, North America; as well as LatAm. So that's good point. In Europe, and it's comes -- I mean it's the growth is also coming from all the major brands, so in Americas. For Europe, 6% growth. I want you to keep in mind that, last year, Europe was growing at 11%, so basically we had the comparison-based effects. It does not explain everything, but at least it's a good point. And Europe growth is driven by France and the southern of Europe essentially and as well as Russia. The good news are really coming from Asia with a strong growth in Asia across all the major countries, including Japan; China; Korea, South Korea; and India. And if you remember, Japan was a little bit weak last year, so basically we are recovering the situations, the good manner in Japan. And China, we are back on track what we used to have, which is close to 20% growth.The software revenue by brand. So CATIA growth, 5% on the software side. If I look at the new license, it's a double-digit growth. And it's driven by Asia. It's led by Asia at large. And it's also led by Americas and also the indirect channels globally. ENOVIA, which is also the good news from this quarter, you'll remember, Q4, ENOVIA was a little bit weak and 3DEXPERIENCE was having a good momentum. So here we have ENOVIA being aligned with the good momentum with 3DEXPERIENCE platform as well. So plus 11%, which means in term of new license it's up 36% growth. So clearly it's a good dynamic. And the dynamic is coming from Asia and Europe to the large extent and also North America as well. SOLIDWORKS, we continue the good rise, plus 13%, so a double-digit license growth coming from basically all the geos.And the other software, I would like to mention 3 of them. So SIMULIA, again good performance on SIMULIA. And I will come back a little bit more in detail just after. DELMIA and GEOVIA are basically growing on the new license more than 20%, so clearly good dynamic and again demonstration that it's a broad-based growth. It's not only 1 or 2 product lines driving it.Let's zoom on simulations and SIMULIA. Why I want to make a [indiscernible], because again this is probably the first time we are disclosing to you the weight of SIMULIA in our revenue. So it's 15%. And again, I'm not talking about all the simulation activities we have inside DS because this is not taking into account what we do for a company in the Life Sciences or what we do also on the manufacturing side. So it's really the [ co-product ] simulations, which is equivalent to our peers.If you look at the organic software growth. It's up 9%, and it's driven by the core industry. I will say Transportation & Mobility but also the diversification, High Tech and Life Sciences, which is medical devices. We had a strong performance of Exa this quarter. And this is good because, you remember, last year, Exa, before the acquisition, was a little bit suffering in term of growth. And we have been able to reestablish good dynamics. And just for you to do, overall the growth for SIMULIA this year is 26%, so if I take into account the Exa performance; a 9% organics -- on organic growth.And the key point I want to mention, we are really expanding the market leadership in simulation. And with all the acquisition we did, we are covering 70% of the market in term of coverage, if I take the 3 dynamics: structural, analysis, the high frequency as well. And when we do the pro forma and we compare with others, we are definitely the #2. We are not yet the #1. We still have a big competitor in front of us, but if you look at all the acquisitions, our competition indeed in the simulation space, we are still #2. And we have a well-established position into this space. So keep an eye on simulations because this will continue to grow at a significant pace.Moving on the financials.So the software growth, I spoke about it, 10%, which is the high end of the guidance; and the organic growth at 8%, if you exclude the currency effects. If you split the software growth by the new license and the subscription and support, so an organic growth on the new license of 14%, which is very -- a very good dynamic. And I really want to draw the attention on this. And this new license growth is really coming from 3DEXPERIENCE platform. And Bernard said it's 53% growth for this quarter, and it's a significant momentum. And we still have a good momentum with SOLIDWORKS, I believe, probably somewhat high for the year. I would really want you to consider a moderate pace for the -- for SOLIDWORKS.The good news is really coming also from the subscription and support because, if you remember, we shared with you a range between 6.5% to 8% growth on the recurring parts. And we are at 9%, so it's exceeding not only the consensus but also our guidance. And this is reflecting really the renewal rates at large. And if you look at a little bit more in deep, the improvement is coming from the subscription. We had on a pro forma basis an organic growth which is higher than 10% for the subscriptions for this quarter.Moving to services. So we are flat, excluding the currency effect, so it means a EUR 6 million gap. The point is clearly the following. It's, if I look at the nature of the services, the gap is not coming from all the services related to 3DEXPERIENCE platform. You'll remember all the big project we signed last year are really delivering growth on the services. The gap is coming from the branch services and especially 3DEXCITE where clearly we are still suffering. The prophecy for Q2 is much better, so clearly we expect a recovery from 3DEXCITE and to a mixed result on others, but again we are talking about a EUR 6 million gap. And this gap is largely offset by the performance of the software either on the new license and the recurring part.On the operating margin, significant lever, as you can see, a 240 basis points improvement organically. And it's basically the direct contribution of the bigger recurrent revenue because it's, well, not a pure margin; and also a tight control of costs we have put in place for Q1 in order to basically have the disciplines. So this has been offset by the currency effects, 110 basis points; and the acquisitions of Exa, which contribute to a 50 basis points dilution for this quarter. So overall, 80 basis points improvement, so it's a good lever. And at the end, we are delivering at the high end of the EBIT margin of 27%.On the EPS. So EUR 0.59, EUR 0.02 higher than basically the consensus and also the guidance; growth excluding the currency effect, at 26%. And it's the direct contribution of the margin expansions and also lower tax rates compared to what we shared with you. So EUR 0.01 is coming from the tax rate, okay?And cash is king. And look the dutiful cash flow statement, EUR 407 million, growing by 17% compared to last year. Again, we are landing with a net financial position at EUR 1,845,000,000, so a significant cash position. And if you zoom a little bit, the improvement is coming from the good collection; and also the increase in the another revenue, which is consistent with basically the organic growth of the recurrent revenue. So basically the -- again the cash flow is really solid.Now let's zoom on the objective for the full year.So we are reconfirming the full year objectives. And just as a reminder: 8% to 9% growth with excluding currency effects; and a license growth between 8% to 10%; and operating margins between 31% to 31.5%; and an EPS in a range of EUR 2.83, EUR 2.88; and a growth as reported between 6% to 8%. We are not changing the -- our assumptions for the exchange rate, so we are still keeping basically for H2 a $1.20 for the dollar and a JPY 135 for the yen. And if we have to do it, we will do it in Q2.Now if I zoom on the full year and the Q2. So for the full year, again the only changes is coming from the services, whereby I shared with you last quarterly call basically the 12% growth for the full year, which was the initial guidance. We are slightly reducing it to 9%, but again it's still a good numbers because services are back on track. And again, it's largely compensated by the better recurrent revenue on the software side, so no significant impact. And I think from a mix standpoint it's much better. So which basically means for the full year the total revenue growth between 8% to 9%, so no changes; and the license between 8% to 10%; the recurring between 7% to 8%. The -- and operating margin, it's between minus 1 and 0.5 points, which is coming from the dilution of the acquisitions for 60 basis points and the currency effects for 40 basis points. Tax rate, at 29.7%, no change; and EPS still in the same range.For Q2, we are targeting a revenue range between EUR 815 million and EUR 830 million, which is a growth, excluding currency effect, between 8% to 10%. The -- and operating margin is stable, at least on the high end of the guidance. And an EPS which is in the range of EUR 0.65 to EUR 0.68, it is a growth at -- reporting growth between 5% to 10% and, excluding the currency effects, a growth between 16% to 22%. So clearly, Q2 which is a good and solid one and in the -- almost in line with what we have seen until now and in the perspective of the full year. That's it for today. I think we are ready to take the questions with Bernard.

[François-José Bordonado]

We'll take, first, question from the room. And after, we will take questions from the call.

[Mohammed Essaji Moawalla, Equity Analyst]

You have now done 3 consecutive quarters of double-digit organic license growth. For Q2, Pascal, you're sort of indicating kind of 10% more at the upper end. And I think your comments on pipeline activities still seem to be pretty good, so should we read anything into that? And how do you expect sort of the year to develop? Everything sort of points fundamentally in the kind of right direction, so am I reading too much into this from a cautionary standpoint?

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

But again, I gave you the range, and obviously we are targeting the high end of the range. So we still want to have a 10% growth on the new license, and the pipeline is here to deliver it. So there is no specific synergy then behind this. And again, if you combine Q1 and Q2 for H1, it means that basically we will land close to 12% growth for the new license, which is exceeding the double-digit growth. For the rest of the year, the pipeline is solid. And Q3, we'll have a relatively good visibility. Q4, it's still a little bit early because, I believe, the pipeline is here. It's difficult to assess the maturity, so nothing specific to say on this.

[Bernard S. Charlès, Vice Chairman & CEO]

And at the same time, we don't want to -- you to conclude on a overestimate. We want to continue to build a attractive comp which -- on which we can deliver, so we are careful about not creating the overexpectation that are already difficult to manage. And you'll notice that in what Pascal and I presented we put a lot of attention on new clients; on new -- I will say, new situation, new setup for the evolution of the market because the cycle at which the existing companies are transforming themselves is not only dependent about our sales efficiency. They have cycles. And so we want to grow as quickly as possible the footprint because that provides a long-term visibility. And it's about assigning the resources properly.

[Mohammed Essaji Moawalla, Equity Analyst]

And obviously, you signed in middle of last year the Boeing deal. And I think it wasn't the Boeing deal that excited you but the implications of that, .so sort of 9 months on, can you give us an update on how that's perhaps changed the conversation you're having with many existing but also potential new customers and the strategic engagements that you're having, not just in aerospace but in autos and the other verticals?

[Bernard S. Charlès, Vice Chairman & CEO]

Yes, we were astonished ourself with the effect of this announcement. While we have not said so much, I think what was astonishing for the market is the scale of it but not only that. It's also the wide spectrum, the scope; and of what Boeing -- what is called Boeing that was discussed with Muilenburg, the CEO Muilenburg, about what they call the Boeing second century, called Boeing 2CES. And in this program it's centered on this 3DEXPERIENCE platform. It has changed the behavior of many large clients in terms of looking, understanding the scope from a manufacturing ideation, of course engineering simulation but also using the platform for service. So the conversation is different, which is good for the midterm. We have to orchestrate things properly. One thing that we did not mention, but I think we are pleased with the evolution of the behavior of the key CSIs, consulting and system integration, companies. They -- I think it's becoming a topic on their agenda. And we need the capacity [ where deployed ].

[Unknown Attendee]

A quick question on the other software growth running at 14%. How much of that was Exa?

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

Well, if you look at SIMULIA, I will say new -- SIMULIA represent 15% of the total revenue. And the growth for SIMULIA for this quarter is 26%, and if you exclude Exa, we have 9%. You'll be able to compute the number.

[Unknown Attendee]

And then on SOLIDWORKS growth, what was the split volume and pricing?

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

The -- in term of unit, the growth is at 8%, on the unit. And the balance is coming from the pricing.

[Bernard S. Charlès, Vice Chairman & CEO]

There is also another topic of attention, if I may add, Pascal. The -- as you know, the subscription attachment level for SOLIDWORKS is lower than what it is for all the other software we have. And we are putting a lot of attention, and this contributes to the recurring part of it, on that topic because it's good preparation for subscription with cloud services. So we still have levers to use here in a positive sense. I mean to provide then the flexibility for them to use basically either or, desktop or. And as you may remember, we have not spent too much time, maybe in middle of the year we will, consumers or customers who are subscribing to the subscription. And we don't segment announce anymore. It's a subscription. They get a lot of evolution of the product, but they get also many, many contents which are available on MySolidWorks and training and so on, which is almost reaching 1 million user subscription. So it's becoming a visible line in terms of potential of development, especially with what I told you about the new 3DEXPERIENCE-based services for SOLIDWORKS desktop. If they are connected already, it facilitates their adoption of broader set of services. So in short, focusing our channel for increasing the attachment rate on the existing installed base for the subscription. [indiscernible].

[François-José Bordonado]

Another question? Yes.

[Unknown Attendee]

A couple from me, for Pascal; and one for you, Bernard. And Pascal, just on CATIA there was sort of 5% growth overall, double-digit license. Can you tell, say, is there a mix shift here from rental to upfront licensing? Or what's going on with the recurring? And is this led by V5 now you've got the Power'By offering? Or is it actually V6 adoption? And then just on SOLIDWORKS, for the second half, I think maybe Bernard was alluding to that, are you now teeing us up for a more significant shift to cloud and that's why the license growth was slow in the second half and maybe into 2019? Or is this just the tougher comparatives? And Bernard, as Mo said, 3 quarters of strong growth. Do you think this is about sales execution; or more where the product maturity is now post Boeing, with Power'By et cetera?

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

Okay. So we'll start with CATIA. I will give you a specific which will be, I think, straightforward. Half of the last year, we had for CATIA on 3DEXPERIENCE platform, so I think it's really taking off. And for SOLIDWORKS, no. I think the point is not the one related to the massive cloud adoption and is it a reason why we are -- we will be more cautious on the second half. It's really because the base of comparisons is significant. So this is the point.

[Bernard S. Charlès, Vice Chairman & CEO]

And related to the visible double-digit growth, we still have a long way to go to improve our sales system. We have improved it, but there's a lot more that we are doing. I'm not saying about additional investment. It's about the value engagement itself. It's making sure we don't spend too much time in the early engagement because -- so what -- basically what is happening is 3DEXPERIENCE is on the agenda not only for our clients but for prospective. So it's visible now. Before, it was something like what is it as compared to PLM. Now the visibility is much higher. So the time we spend to explain what it is and why it is game changer, it's much less. But the other factors you mentioned in your question, we still have room to improve. Because basically we have -- you have seen in some of the showcase we have proof points which are very significant in terms of value, not the cost of the software but the value that it brings. And the quality in which our sales globally can explain to clients, "Here is what you are going to be able to save," is improving. And this is facilitating the engagement and also the negotiation of what they are going to acquire. So that's basically where we are. So I think that, in the next year, we still have -- in the next quarters, we still have a lot of levers to exploit. I'm confident.

[Unknown Attendee]

Pascal, could you maybe just talk through the bridge to the margin guidance for the full year of minus 1 to minus 1 -- 0.5 points. Obviously you've had a good performance this quarter. It could be flat next quarter. Just maybe talk about the phasing of costs that means that margin is down overall for the year, firstly. And then secondly, on SOLIDWORKS, I think historically you have been pretty generous with the commissions that you pay to resellers. I think you were up in the mid even high 40% level versus competitors in the mid market paying more like 30% or so as a commission. Do you have room to be less generous on the commissions to the SOLIDWORKS channel or maybe adjusting in some way?

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

Okay, well, we start with the first question. So remember for the full year for EBIT margin we say that the currency effect will account for our 40 basis points. The dilutions coming from the acquisitions, mainly Exa, account 60 basis points. And we are still targeting improvements, which is 0.5 point, which is 50 basis points [indiscernible] speaking. So this is what we have in the guidance. Now we started slowly hiring people for this quarter. And we expect to accelerate, which is usually what's happen in Q1. It's not abnormal because with all the kickoff, all the new organization to put in place. So we will accelerate a little bit on Q2 and Q3. So clearly we are still on this plan.

[Bernard S. Charlès, Vice Chairman & CEO]

Related to the -- if I may, on...

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

You go, please, okay.

[Bernard S. Charlès, Vice Chairman & CEO]

I think it's there is a lot of engineering that Pascal is doing, on the second part of your question, of course, with Thibault and the team about the model, the right model, for resellers. The first statement I want to say is, unlike most of the other players, we are putting a lot of attention and a long-term commitment for our indirect channel. It is significant. In fact, we believe that the 2 indirect channel will create more growth than our direct channel, okay? And the efficiency of the model, took us years to set it up, is very good; and I insist to say, unlike most of the players. So related to your question, without revealing too much, too many secrets because it's a little bit early: Our priority #1, as you might imagine, is to make sure that those resellers for volume channel are value partners for VS and transition to cloud. And we are not going to do cloud without them because we know they can provide a lot. The nature of what they are going to provide is different because they are also going to use the marketplace. So basically in some way, instead of installing software, I talk in the old way of on premise, they will provide indirect service, direct output results to their clients. So that's a very, I think, differentiating model. And there is a lot of potential because in some way our marketplace calls for more players to provide service in it, not application, service. Our application word in the marketplace is not application. It's to service, like, "Can you do this design for me, please? Can it be ready by tomorrow morning, 8:00? For how much? Or have you made this 3D printing? For how much, when? Or can you do laser cutting?" or et cetera et cetera. So you -- the nature of this is going to be the seller on the door of the services. We plan to leverage our powerful networks of partners, again unlike most of the players in the industry.

[François-José Bordonado]

We'll take now questions from the call. Serge?

[Operator]

Stacy Pollard of JPMorgan.

[Stacy Elizabeth Pollard, Head of Software and IT Equity Research]

Sorry. I couldn't quite make it there today, but three for me. First of all, how much of the Boeing contract is flowing into 2018? And I understand you won't be able to give an exact amount, but could we just get a sense of timing of the ramp-up and flow over the next few years? Second question, you said 3DEXPERIENCE software revenues up 26% and the cloud activity up significantly. Again, can you give us an idea of the actual size of these 2 numbers or order of magnitude, percentage of revenues, that kind of thing? And then third and kind of a follow-on to that on the cloud, just to make sure that I understand, can you tell us which products are -- sort of what products are the cloud revenues mainly coming from? And how much of CATIA is in the cloud?

[Bernard S. Charlès, Vice Chairman & CEO]

For you.

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

Okay, and I will start with the first one. So the Boeing contribution for next year...

[Bernard S. Charlès, Vice Chairman & CEO]

'18...

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

For '18. Sorry. It's -- I was in mind at '19, because usually this is the question. Is less than EUR 10 million. I will not give you the exact number. And for next year, it's having an impact of 1 point. So with this, I think you have a good order of magnitude. On your second questions, we are not disclosing the number for the cloud. And I think Bernard made the statement in introduction which is, at the end, the revenue is a consequence of something else. The something else is the footprint, and the way we measure the footprint is by the number of users and the volume of activities those users are doing. This is basically the KPIs we have right now. And as far as I remember, we shared with you at the last presentations the number. I was expecting to have some questions, but we have 15 million connected users [ apply that ]. All of them are on the cloud. So it's also -- as part of this number, it's not only the professional. You have also the consumer side from [ byme ], but nevertheless it gives you indicators about the footprint we are talking about.

[Bernard S. Charlès, Vice Chairman & CEO]

And we will probably provide a little bit more at the general meeting. The point is there are 2 surprising remarks. One is clearly no churn when you start with [ the cloud ]. And the second remark is the impressive data volume. And the last is most of the project are not [ contract ]. We do the job, which is not very frequent with software on the cloud, the type of when I'm talking about software use not for consumers but for enterprises. So they, those are not evaluation. There are clear programs going on. And I think we have now a very, very robust [indiscernible]. 2 weeks ago, we did -- we do major evolution every 3 months. And it goes smoothly, very smoothly, [indiscernible] direction. And we are running now to go from 3 months to 2 months. We will go to 1 months so they can get the full benefit real time. So the infrastructure now is -- has reached a level of extreme robustness. And it's very critical because, unlike many startups in the cloud, for us they are doing cars or planes. For Kärcher, I mean, they are going to build their next product lines on our system. That's the work. It's not just for evaluation. So those are very interesting special characteristics that I think made the bar to entry very high.

[Operator]

[Operator Instructions] Amit Harchandani of Citigroup.

[Amit B. Harchandani, Vice President and Analyst]

Amit Harchandani for Citi. Two, if I may. My first question really relates to the growth we have seen in the 3DEXPERIENCE platform. You talked about very strong new license numbers there. Could you maybe help me understand a bit more how should we think about this level going forward, particularly also the drivers that you see? For example, is it coming more installed base versus new customers? Any comments in terms of regional or adoption in different industries? That would be helpful to get a better understanding of the drivers. And secondly, if I may, well, you've talked about cloud computing. Could you help me get your perspective on the adoption in case of hybrid versus public cloud as it relates to your solutions? And what are you hearing with your customers? And what are the kind of discussions you are having?

[Pascal Daloz, Executive VP, CFO & Corporate Strategy Officer]

Okay, so I will answer to the first questions. So you are right. I mean the dynamic for the new license for 3DEXPERIENCE platform is exceeding 50%. In fact, for this quarter, it's 53%, to be precise. Keep in mind that, at the last -- for the last quarter, we gave to you the numbers, which was 25% of the software -- the total software revenue is coming from 3DEXPERIENCE platform. And from an adoption standpoint, clearly what is the difference we are seeing for the last few quarters? For the last few years, the traction was really coming from the diversifications, so all the new industries starting from scratch, basically [ the way they hand off team in ] day 1 the 3DEXPERIENCE platform. Now since a few quarters, we are seeing massive adoptions of the cloud industry. And this is the reason why, for at least the last 2 quarters, we are saying to you not only we have a good new license growth but it's coming from Transportation & Mobility. It's coming also from Aerospace & Defense. So clearly this is the shift we are really seeing for the last few quarters. And this is also accelerating, thanks to the Power'By because we just released the Power'By early this year and we already have customers adopting it. And we again basically shared with you that a large Japanese auto company has adopted the Power'By products, and it's in our book for this quarter. And if I look at the pipeline, for the full year, it's already exceeding EUR 10 million. And it's basically in the ENOVIA numbers. So basically the -- to answer to your question, the 3DEXPERIENCE dynamic is coming now from the multiple industry.

[Bernard S. Charlès, Vice Chairman & CEO]

Relating to the call, if I understood well your question relating to the conversation topic on the cloud, it's relatively easy, in fact. You have new categories of players that basically know our reputation in terms of the power of the software, whether it's CATIA, SIMULIA and others. And they just say, "Okay, we go and we go on the cloud directly." We announced 2 of them today. I mean Kärcher, EVELOZCITY and others. And those guys are doing real large-scale program. Joby Aviation, we talked about it in the past. So that's one category. It's basically the category where they know they are having access to the power of what we provide to big companies and they can do it quickly, so an extremely easy deployment. There is -- as you remember, we also provide our own end-to-end infrastructure in addition to Amazon because we want to do very specific things related to security on the entire stack, on the hardware, up to the service. And we will continue to do so. The second is -- are large companies who wants to do semiopen innovation. And basically they have already on premise, whether on V5, whether on the new experience platform. And they want to establish ecosystem innovators around them. And they really evaluate -- they will not only evaluate. They use the cloud to do that. That's the second. And the third factor for us are new sectors like AEC. In AEC and architecture, this is a game changer because there is little CapEx. And they can start quickly. Kengo Kuma. We mentioned many of them already, SHoP of New York, Kengo Kuma in Japan and others. So those are proof points, but they have started and they don't stop. They continue to expand. And we see the data volume produced is quite interesting in terms of dynamic, as well as the user or number. It's -- and again we've -- so that's the topic. The last one, certain customers for us are basically the size of a country if you take their ecosystem. Those very big one are really asking us to prepare hybrid cloud for them, subject to be discussed at that further point in time. And the reason for that is not only for the Power'By. It's also about the marketplace because they are going to massively simplify their transaction management with suppliers. So they enjoy complex -- you have a supply chain system. You have an ERP system. You have to consolidate it between different units. And we have a proposal where we say we take care of the transaction ourself. We do everything for you end to end. We do everything, one shop. And we trace everything. This is game changer. More to discuss on that topic.Are we done? Okay, thank you very much for participating to this call. Once again, we are always available for you, of course. And as you may notice, I think we are starting with a good smile for 2018.So see you in June. And we see a lot of you on the campus, because I think there is a lot of interesting topics that we will cover at this point in time.Thank you again, and have a good day.

[François-José Bordonado]

So I'll remind you that on the 15th of June is our Capital Market Day, to which you are all invited. Thanks. Bye.