Dassault Systemes SE

F:DSY

Earnings Call Transcript 2022-Q1

[François-José Bordonado, executive]

Good morning, and thank you for joining us on our first quarter 2022 analyst meeting. We're extremely happy to see many -- a few present in the room. And we'll be with Bernard Charles, our Vice Chairman and Chief Executive Officer; Pascal Daloz, our Chief Operating Officer; and Rouven Bergmann, our Chief Financial Officer.

I remind you that Dassault Systemes results are prepared in accordance with IFRS. Most of the financial figures discussed on this conference call are on a non-IFRS basis with revenue growth rates in constant currency unless otherwise noted. Some of our comments on this call contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and the Risk Factors section of our 2021 universal registration document. All earnings materials are available on our website, and these prepared remarks will be available shortly after the call.

I would now like to introduce Bernard Charles.

[Bernard Charles, executive]

Thank you, Francois-Jose, and good morning. It's good to see you physically after so many sessions through virtual world of conferences. And what I would say is I think Dassault Systemes is at rendezvous for the first quarter, if I may say so, because I think we are quite pleased with the first signals that we are getting from the quality execution that Pascal Daloz is leading Dassault Systemes now with Rouven. The total revenue was up 8%, license subscription is up double digit and EPS is up 20% despite, as you will see, the continued investment we are doing in R&D to prepare the future.

A few remarks before I give them the floor, to Pascal and Rouven, which is about the observation of what we see with our customers. 2 priorities globally have emerged in the last years. The first major perturbation for their own resiliency. How do I readapt my supply chain? There are a lot of constraints on materials and basic materials and many user components. This is a question that goes across the board. And as you know, we serve a lot of customers in a lot of countries and in a lot of industries.

The second remark is the tone that the ESG reporting is not only a problem of reporting anymore. It becomes a question of doing things and taking decisions, material substitution, process transformations. We think we are in a sweet spot to play a big game in the years to come. It's going to take time, but there is no doubt that material substitution, circularity on new process transformation will happen across all sectors of the economy. This is what I want to say on the second piece here.

The third aspect is, how do we interact with our clients? We are basically building an infrastructure so they stay connected with us online, real time, not only thanks to cloud and mobility, but also in the way we built up our future CRM is on our own platform, the 3DEXPERIENCE platform. So then we can guide them directly online, whether they are small or large clients. This is what we call the 3DEXPERIENCE, if we look on science-based virtual twin.

I love science for many years, and I think science makes difference. SBTi, as you are aware for the green initiatives, science-based initiatives is essential. Without science, going to be hard for companies to prove that they become greener, and it's going to be very hard to build circularity without science. So Dassault Systemes has invested for years in science, and we'll continue to do so with science-based solutions.

So the net of all of this for the first sign of Q1 is we are updating our financial objective, both on the top line or roughly about 2 digit, 9% to 10% on the EPS following that line of 9% to 10%. More detail to come. But an initial setup of the year at between 3% and 6% for the EPS. So I think it's a good confirmation that we have visibility for the full year.

This is the agenda we are going to cover. A few remarks on resilience and sustainability. I use this picture because I love it. This was a picture that was presented at the London Design Museum here at the end of last year. And there was a beautiful exhibition on waste, why waste becomes a value.

This is the beautiful set of cubes, and I hope everyone sees it being online, and you will see it in our posted presentation anyway, is that if those cubes were able to talk, they would tell you for 10 years, I have been a car serving the humanity from moving from A to B. Look how beautiful are those cubes, and they would tell you next, what can I do for you, sir? That's the story that I see about how the world is upside down in looking at materials and material substitution, not for how it's used for a given product, but how it's going to be used after. And this is where, I think, science is playing a major role.

So it's good to listen those cubes speaking. And this is what I consider Dassault Systemes can do that not many companies can offer in the world, to transform how the build between how do we transform materials, process them, recycle them will happen in this 21st century industry and how it's going to disrupt the entire supply chain and value to a value chain.

If we look, imagine there is a platform that allows you to imagine, create, produce and track the way products are used by consumers or customers, welcome to the experience economy. If I can observe the way my fleet of cars are used, I will not design the same cars. If I can observe the way airplane engines are working, flying people around the world, I will not optimize the engine the same way.

Dassault Systemes is moving its solutions from creation and production centered solutions, innovation process, to real world evidence, how products are experienced in their real life. And this is data science and business experiences. More to come.

There is a good illustration of that with -- in a context, which is a gigantic context of the CPG market -- consumer packaged good market, which, as you know, they are reformulating and repackaging everything. Let's look at the video.

[Presentation]

[Bernard Charles, executive]

And we think it's connecting the virtualization with the reality. This requires a lot of science. You know we continue to invest and we will continue to invest to make sure we can do multiphysics, understand material science, transformational processes. That's the framework you see here at the nanoscale level or the functional level.

So no one today in the competitive landscape can connect those dots as well as we do, thanks to the 3DEXPERIENCE platform. So the virtual twin experience is a relevant way to address resiliency, sustainability and help our customers create their future portfolio from that perspective. And you know the V+R stands for reducing the distance between the imagination and the realization of things.

And if we can reduce this gap to 0, things will be done right first time and better optimized. I think I still can speak about a few customers, Pascal, before you take the floor.

So a few showcases for this quarter, which I think are quite unique. The dynamic on applying this technique for Life Sciences is really very successful. As you know, the Medidata move. We are cleaning up the branding. Everything is built around Medidata with 3 categories: Medidata Rave. This is the data platform for health, the Medidata AI collection of AI-based business processes like synthetic control arm and Medidata Patient Cloud to really create remote, distributed clinical trial. And my intent is very clear long term, is to use the patient cloud also to track the implementation of therapeutics to -- for precision medicine.

But at the current time, we focus on the clinical trial, decentralized clinical trial. This is client Celsion. They have confirmed on expanding the use of it. And the business value is very clear: speed, profitability and integration with a better science understanding. The synthetic control arm is a revolution, is the third arm. Placebo, therapeutics group, getting the treatment and then virtual group, and it's a massive shift to accelerate clinical trials, which please remember is 50% of the total cycle time to create new therapeutics, about 50% of the time, 50% of the cost, roughly even my -- correct me a little bit, but it's about that scale.

Gilead really adopting the 3DEXPERIENCE. Here is an interesting case. They are adopting the 3DEXPERIENCE platform for design to cure on what we call BIOVIA Generative Therapeutics design. So this is about the new type of engineering for new therapeutics.

And it's a slow process because it's highly complex in research and development. They are risk adverse, but the virtualization of modeling and simulation is going to play a bigger role in the future of therapeutics. This is a good example here with a highly credible customer.

And we want to continue to make 3DEXPERIENCE, virtual twin experience mainstream and really personalized with mobility. The full platform today can be accessible from a mobile phone, from an iPad, from a tablet which was not the case for the category of software we had before in the Dassault Systemes history. And this is changing a lot because then we can provide data science, business analytics, navigation an entire airplane from a phone.

And this is making the difference because it helps us to reach users we have never been able to reach before, but also creating new business models for service, a new business model to interact with our clients. So working together any time on creating this new collaborative process. Think about it. People are now writing without knowing what it is about metaverse. If we can see the imagination, the creation, the production life cycle in this virtual world, we can really change the way companies are working on how they are cooperating with their supply. We continue to focus massively on innovation.

I love to see those many start-ups joining the 3DEXPERIENCE club. We call it the 3DEXPERIENCE Lab. Every quarter, we select new start-ups around the world and we power them for their new innovation, whether it's mobility, energy and many health sector and the 3DEXPERIENCE education platform is being adopted in so many schools now to transform the way the education process through experience-based education can work every quarter. I will come back on those 2 topics because this is going to prepare the workforce of the future for the society.

So I think we are walking the talk, and I think we are proving that harmonizing product, nature and life can be possible in a new society where the product and services are going to be engineered differently, produce differences and life cycle through circularity.

With that, I give the floor to you, Pascal.

[Pascal Daloz, executive]

Thank you, Bernard. Hi to everyone. Again, it's a pleasure to see you in person, has been so long. As Bernard, as you say, all progress is human. So I will focus much more on my presentation, my sections on the relationship we have established with some of the customers. And I select them to clarify either some confusion the competition is creating sometimes or to convince you that the newcomers are also entering into industry where you will not expect them to come. Also that the manufacturing industry, which is our core industry for a long time, it's not only the industrial part, but more and more the consumer part. So that's basically the menu.

So let's start with the CROs. Despite what the competition is claiming, all of them, and I put the largest one, all of them are standardizing on the Medidata platform, the Rave platform. Why so? Because as Rouven will explain many times, it's a unique combinations between the data -- the clinical data management capabilities with artificial intelligence and patient engagements. And it's something where we are the only one being capable to deliver this functionality to them.

The second thing is only -- it's not only a platform for the sponsor, but it's also a platform for the contract research organizations to execute. So it's an operating environment for them.

And last but not least, I think we have -- we are leveraging 20,000 -- 28,000 clinical trials globally, and it's a unique set of data we can repurpose for the synthetic control arm of, for example, for selecting the patients when you enroll them. So there are many, many advantages for the CROs to consider that we are the platform of choice, and that's a reality.

The second thing, which is also something the competition make some announcements recently, is Boehringer Ingelheim. So why I decided to use this one is because we have a long-standing relationship with this company. We are working with them for the last decade, and we just renewed the contract for the next decade. And by doing so, not only they are standardizing against on Medidata Rave but they are expanding into Medidata Artificial Intelligence and Medidata Patient Cloud. So this is extremely important to understand that we have with, in life science, more than 2,000 customers, and all of them are expanding what we do with them. They are not reducing what we do. That's for the life sciences.

If we move to the consumer or to the manufacturing industry and the consumer side of it, I think Shiseido is an interesting case. Why so? Because like really health and beauty company, they don't have to reformulate the entire product portfolio in the next 2 to 3 years. And at the same time, they are producing 100 SKU per year. So which is quite a challenge because you have to produce at scale and at the same time, to introduce new product almost every day. And that's the reason why after L'Oreal, L'Occitane, just to give some names. Shiseido has decided to standardize against on 3DEXPERIENCE platform with Perfect Production, which is a solution dedicated to produce in order to master this complexity.

The next example is an interesting one. Naarea is a start-up. Developing what we call extra small modular nuclear reactors. So who could have believed that a new start-up could enter into the nuclear business and changing the games. And why so? Because again, we need this kind of technology to transition to the sustainable renewal energy.

You know the nuclear will not disappear in day 1. However, there is a way to do it in a different way, which is much more small, reusing the waste as a combustible. And it's a new breakthrough this startup is providing to the market. Why it's an interesting case? Because this company started less than 2 years ago. Now they are fully equipped with 3DEXPERIENCE platform on the cloud. It's a large engineering company, and they have more than 100 people. And they are one of the most promising start-ups, at least in Europe in this space.

Now let's zoom on the business side region by region. Let's start with Americas, plus 7%. Americas is now the largest part of the revenue of Dassault Systemes with 40% after the acquisition of Medidata. And we see a continuous momentum supported by the good performance in aerospace and also the Life Sciences. Europe, plus 6%, very consistent with what we have seen in H2 last year. Despite the fact that we are suspending our operation in Russia, and we see a good digit growth -- double-digit growth in France in the South part of Europe and again aerospace is driving the momentum as well as industrial equipment.

Asia growing at 13%, and it's a combination of the market expansion. We can see in Japan, Korea and India. all those countries are growing more than double digits. And China up 20% compared to, if you remember last year, Q1 was up 42%. So clearly, it's a good performance in China. We have not been penalized by the confinements in Shanghai because it was only the last 2 days of the closing. So that's -- let's see how it will go for Q2.

If we look at from a product line standpoint, Industrial Innovation software revenue up plus 5%. And the key point is the license and subscriptions are up double digit for CATIA and ENOVIA, which are the 2 largest product lines in this category of software.

Life Sciences continued to deliver good growth, plus 13%, again driven by Medidata up 14% with a strong comparison base compared to last year, plus 20%. And BIOVIA is also had double digit, which is also a good sign.

And last but not least, the mainstream innovation software revenue, plus 12%, driven by a strong performance of SOLIDWORKS plus 10%. And again, if you remember last year, Q1, it was plus 18% so -- and this growth is really broad-based. It's happening in all the geos and all the industry. And Centric PLM continued to deliver an outstanding performance. So clearly, we are extremely pleased with this ability to create a footprint also in a much more consumer-centric industry.

To conclude -- maybe before to say a few words about the growth drivers. There is one thing I want to come back because I noticed some of piece of research coming recently on the market claiming that we are losing market share in the design space. This is not true at all. if I may say, we are ranked #1 by far. We are twice the size of the follower. And every year, we are winning 0.5 point market share.

So I know we are -- some of you are reusing some piece of research done by industry analysts. But I think you have all the information to check the numbers. So I count on you not to create confusion on the market by not doing the proper job and checking what the others are doing. So I think this is important, guys, because I cannot let people saying that we are losing the market share in a context whereby you see CATIA, you see SOLIDWORKS for almost decades growing double digits. And clearly, we have established a footprint which will be difficult for the others to catch up.

Now for the growth drivers, which are also important for you, I think 3DEXPERIENCE continued to deliver good momentum, plus 21% growth compared to last year and plus 5 points in terms of contribution in the mix of the revenue, which is achieving 30% of the total mix, which is a good number. And for the cloud, same growth, plus 21% by chance or by coincidence. The growth is fulfilled, obviously, by the good performance of the Life Sciences, but also by the performance of the 3DEXPERIENCE adoption. And we see more and more people adopting the 3DEXPERIENCE platform directly with the cloud approach, and this is reflected into the performance. And now the cloud contribution is equal to 21% and it's plus 2 points compared to last year. That's it for these sections. I think it's time for me to hand over to Rouven to give you the financial details. Thank you.

[Rouven Bergmann, executive]

Thank you, Pascal. Thanks, Bernard. Hello, everyone. It's also a pleasure to be here with you today. So now let me focus on the financial highlights as well as our objectives for the year.

As you heard, I think we are clearly off to a good start into 2022. I'm very pleased with our results for the first quarter. We delivered strong revenue growth, well aligned with our Q1 objectives. And this, we delivered on the back of a relatively difficult comparison of Q1 of 2021.

From a profitability perspective, we outperformed, while at the same point in time, we continued our strategic investments to deliver our ambitious hiring plan on targets. EPS are up strong 20% for the quarter to EUR 0.27. These results clearly highlight the resilience as well as the momentum of our business model. And we achieved these results, of course, as you're all aware, despite the negative impact of discontinuing our business in Russia, which impacted us when we compare it to the Q1 objectives by lower EUR 5 million in revenue and an additional EUR 2.5 million of expenses that we booked in the first quarter to reflect some litigation risk potentially.

So now let me give you the overview on the revenue year-over-year comparison and all the growth rates you see on this slide are ex FX. So total revenue grew 8% to EUR 1.32 billion. Software revenue also up 8%, including the impact of Russia, as I just mentioned. License and other revenue rose 10% to EUR 235 million, again, against a strong comparison basis. Q1 last year was up 25%.

Subscription and support revenue increased 8% and to EUR 971 million, driven by double-digit subscription revenue growth, driven by strong performance of Medidata as well as 3DEXPERIENCE, as you heard earlier and as well as expected, we talked about this last quarter, we saw the strengthening of support revenue growth, which is a good sign.

Services revenue was strong, up 9% for the quarter and above our objectives. And we delivered this at the same point in time at an improving service margin of almost 400 basis points improvement year-over-year. And that's thanks to our strong and higher utilization rate.

Now let me zoom in on some of the changes when we compare our Q1 lending with the objectives we set at the beginning of the quarter for the first quarter. So our operating margin of 35%, certainly a highlight of the quarter, outperforming our target of 32.7%. So 230 basis points up compared to the objective and over 100 basis points up compared to the performance of last year.

So what were the drivers of the growth? First, you see the really large driver of 230 basis points improvement from operating leverage, lower travel, lower events and lower marketing spend. We still see the impact of less business travel and activity in the first quarter in some parts of the world, it was still restricted, right?

And we factored that into initially and not so much into our plan. But I also want to highlight the operating leverage [ tonight ]. There is really strong operating performance improvement also coming from Medidata, as well as the service margin that I alluded to before, right? That's driving this performance uptick.

We had an over performance in revenue, as I mentioned. We have a slight marginal impact of FX in the first quarter on the operating margin level. As you see on the operating margin level, we are almost hedged, but it had a slight impact. And all of this together, we more than offset the negative impact from discontinuing the business in Russia. And we delivered this at the same point growing our net headcount well aligned with our objectives, as I mentioned, 7% for total headcount and 9% for our workforce in R&D. So I think we are very happy with this result.

Now let's move on to the EPS comparison versus the objective. Some of the impacts I mentioned earlier, the operating performance here was EUR 0.02 of improvement. Our objective was to come in at EUR 0.24. We are now coming in at EUR 0.27. EUR 0.02 of improvement from the operating performance to the impacts I mentioned earlier.

The FX update in Q1, the actual average rate was at -- for euro to dollar was 1.12 versus the assumption in our objectives was 1.17. So that had 0.8 cents impact to the EPS. And then we had also lower taxes. The rate initially for the quarter assumed was 23.2%. We are now at 21.2%. So maybe a quick comment on what's driving the lower tax rate. You see the comment here on the right side, but the lower tax rate in is mainly the result of the higher CD tax deduction in the United States resulting from the new requirement to fully capitalize R&D expenses for tax purposes. And so at the time when we issued our guidance, we assumed that this requirement to fully capitalize R&D expense in the United States under the CD mechanism would be canceled in the course of the first quarter. So that had an impact in Q1.

And then we had some discretionary items that were more favorable in the first quarter, this quarter -- this year than the first quarter of last year. So that together results in the improvement that you see. Now let's move on to our cash flow and balance sheet performance. Cash and cash equivalents totaled EUR 3.8 billion, as you see here on this bridge, at the end of the first quarter 2022, compared to EUR 2.979 billion at the end of last quarter, so an increase of EUR 29 million over the period of 3 months.

Our net financial debt in March 31, 2022, decreased by EUR 257 million to a negative EUR 632 million on the right side of the slide. And this compares to EUR 889 million 3 months ago, right, at the end of last year. So this puts us well ahead of our deleveraging objectives that we set. And so also in this context, I wanted to highlight the positive news we received last evening, the upgrade from Standard & Poor's in terms of our credit rating from a single A-minus to a single A most notably highlighting the strong operating performance of the company, the resilient cash flow generation as well as the continued organic growth profile that we've been able to establish, thanks to the diversification we have done.

Now let me provide some additional color on what's driving our cash position this quarter. So first, cash from operations was up EUR 630 million, which is slightly down versus last year in parts driven by some onetime items and the timing of changes in working capital. Second, we continue to repay our debt, loan repayments of EUR 232 million. And third, cash from operations was used for treasury stock repurchases of EUR 328 million. This comprises our long-term incentive plan for 2022 as well as our employee shareholder participation plan, which we announced successfully.

So this number also, you might see us a little bit higher than last year as we took advantage of market fluctuation and purchased stock at a relative discount in Q1. Also, I wanted to remind you, importantly that our policy regarding equity compensation is unchanged. Specifically the 5% of total revenue as a share-based compensation expense stays in place. So now I think you are curious as well to understand what is driving the slightly decline in operating cash flow year-over-year. And that brings me to the next slide.

So first, I want to make a remark that last year. When we look at cash from operations, we were actually up 40% in Q1 2021. So we are comparing this to a strong comparable basis. And we had some favorable impact in Q1 last year, but you always, when you compare it to next year, you have to benchmark yourself against. So it was a strong comparable base.

So first, I think net income, adjusted for noncash item, you see is up 16%, EUR 62 million, which is strong and that's what we would expect. I would also highlight that some of the noncash items in the adjustment are higher than they were last year, so they are less favorable. And the net income on an IFRS basis was up 52%, right? So you see the underlying strength of our business.

So some of the highlights that I want to point to. So first, what you really take into account to understand the Q1 operating cash flow as we -- we had a onetime benefit in the withholding tax reimbursement in Q1 of 2021, which has a negative impact of EUR 22 million. So that was a withholding tax reimbursement we received last year in Q1. That is, of course, not recurring. So that's a onetime item.

And then secondly, I would like to highlight the lower decrease in accrued compensation, which had a pronounced impact of minus EUR 43 million when you do the year-over-year comparison. Why is that? Because we had a very successful 2021. And our commission and bonus payments that we typically do in the following quarter of the following year is much, much higher compared to the year before when you compare 2020 with 2021. So we had a higher accrued base, and now we decreased that because we paid all the bonuses and commissions.

And so if you take these 2 factors into account, our cash from operations would not be down 2%, it would be up 8%. At the same point, maybe I highlight another third impact, the decrease in trade accounts receivables, which was lower this year than last year, which had a negative impact on a comparable basis of minus EUR 13 million. This is actually the result from very strong business activity in Q1 2022, where we had strong billings at the end of the quarter because of the really good performance we had, which we, of course, will collect in Q2. So we will catch up. So this impact will balance out over the next quarter.

And I also want to highlight that we had really good collections in the first quarter from the Q4 billings, right? So that's why our DSO is down, as you see in the appendix. So I think that's enough on cash flow. Let's go over to the objectives for 2022.

So first, starting with the revenue variation and then the operating margin, and I will go through the EPS and summarize at the end. So first, total revenue, as you see, we are reaffirming our total revenue growth rate objective from -- which is 9% to 10% in constant currencies, but we're doing that at a slightly higher absolute range. And you see the bridge here, what's driving the absolute higher range, it's first, the adjustment on FX. That is due to the first quarter, right?

The Q1 actual FX rate that's now playing in. as well as an upgrade or an update we did on the remaining year FX assumption, which used to be 1.17 for euro to U.S. dollar, and it's now 1.15. So we made that adjustment in the first quarter seeing the overall currency fluctuations and taking some of that into account into our model, which I think will help you as you refine your models to simulate 2022.

We also reflect the overperformance from revenue in the first quarter. I think it's important to do that to reflect the Q1 performance now in the full year outlook. And with this, we are offsetting the negative impact from Russia, as you see here. So for now go forward, we will take that out of the consideration that's taken care of. From an operating margin perspective, the strong performance in the first quarter is now reflected in the full year guidance. and objective. That's why we are raising our operating margin from 32.9% at the midpoint is 33.5%, which is an increase of 60 basis points.

You see the FX full year impact because we are leveraged, and Russia for the full year had a negative 40 basis points, which we are offsetting, thanks to the good operating performance.

Now on the EPS. We are raising our EPS outlook. At the midpoint, it was EUR 0.99. It's now EUR 1.05. So from a growth perspective of 3% to 6%, now to 9% to 11% and 10% at the midpoint. So what is driving this update and this change?

Of course, the change in foreign exchange assumption place you see has EUR 0.014 impact. The revenue and good performance of the first quarter we are reflecting. And as well, we are updating our tax rate for the positive impact in Q1, and that has a EUR 0.016 impact. And we're offsetting the negative impact of Russia.

So what we really do in summary is you see in this guidance reflected the change in currency that we saw in Q1 as well as the slight update for the remainder of the year in currency that we did, plus we are reflecting our good Q1 performance, and this gives us the confidence to raise the EPS objective for the year.

Now in summary, our proposed objective, you see for the full year, maybe I give -- I just walk you through the revenue line items because I already highlighted the key statistics in terms of total revenue, operating margin and EPS.

So for software revenue, it remains unchanged between 9% to 10% of which license is 10% to 12% growth. Services revenue is 8% to 10%. And recurring, we now project at about 9%. It used to be 9% to 9.5%. But here, you see some of the unfavorable impact of Russia reflected in the recurring revenue, which we're now projecting at 9%, so it's marginally changed.

For Q2, our proposed objective. I think I want to just quickly mention that before I wrap up. Total revenue of 9% to 11%. With license, we are expecting in the range of 14% to 19%, recurring 8% to 9% and service revenue of 9% to 11%. So the basis for the license revenue, we still -- we see the same dynamics as in the first quarter, and our pipeline and mix of business is in a good place to support this.

Our EPS target for Q2 is between 11% to 16% EPS growth, and the range is EUR 0.24 to EUR 0.25. The operating margin reflected in this EPS is 31.7% to 32.4%. So you see here, that's a slight decline versus the first quarter performance. Why is that? Maybe I mentioned that at the end. The reason is we will see the salary and wage adjustments. They will become effective 1st of April. We will see the hiring that we've done in the first quarter, now fully reflected in the second quarter financials.

So these are mainly the key factors. And as I mentioned before, we stick to our hiring objective. So we are expecting the same amount of net increase in terms of headcount also in the second quarter as in the first quarter.

So to conclude and wrap up, for the full year 2022, we reiterate our objectives for total and software revenue to grow at 9% to 10% ex FX. And we confidently raised our EPS target to reach now 9% to 11% growth. We expect a solid second quarter, and we look forward to keeping you appraised as we make more progress throughout the year. Thank you. And with this, I would like to open up for Q&A.

[François-José Bordonado, executive]

We'll take first question from the room.

[Mohammed Moawalla, analyst]

Great. I guess first one for Bernard. There's obviously some concerns out there around the macro environment. So could you just contextualize the discussions you're having with customers? Are you seeing any kind of impact around the edges and as you look forward?

And the second part of that question is there's obviously a lot of the stuff you do is quite strategic. And so far, the reporting from companies seems to indicate enterprise demand is still quite resilient. So how do you think the strategic projects can hold up because they're obviously quite critical around driving digital transformation for customers? That was the first one.

Second one for Pascal. Again, as we look at this with a different -- there were different sort of verticals, could you talk us through some of the dynamics you see within, say, the new industries versus the traditional industries? Because I think one thing you've pointed out is the disruptors versus incumbents that is something that is still quite a -- there's kind of a difference between the characteristics on how those customers behave.

And then the last one, just maybe for Rouven, is on the recurring revenue, I think you started to see the maintenance and support reaccelerate again. Obviously, licenses are still growing how should we think of this dynamic, along with the subscription shift around that recurring revenue line in aggregate, can that sort of accelerate towards the sort of double-digit mark over the kind of next 12 to 18 months?

[Bernard Charles, executive]

Thank you, Mo. Related to the first question with the customer feedback from dialogue we're having. I see 3 blocks of topics. One, with the customers we have, the question they are really addressing now is, where do they need to change their supply? They all are taking seriously the sustainability issue. And they are putting the sustainability issue well connected with their own resiliency.

We see a lot of sectors where they have -- they are limited in what they can sell because there are component restrictions, there are material cost issues. So this substitution of things, it goes the same way. When you look at the impact of sustainability and the way they have to report, the way they have to do what I call the eco-build of what they do.

In the currency of the price, raising for certain materials. They have to change some of those materials on the way they do recycling. So I see a convergence with this block of customers. And they are taking the subject very seriously. We have seen reports from past years where it was more about annual report, making sure there is a good story. But now it's about acting. So that's one block.

The second block, newcomers in so many industries. Think about mobility, think about new energy. Those newcomers, they want to change again. They go directly with the right approach. The adoption of 3DEXPERIENCE in the mainstream market is quite strong from that perspective. So that's another attitude, if I may so. They start on new bases, and they want it's happening in vertical fooding, it's happening in energy. It's happening in new robotization, smart devices for equipment, big thing, especially in China, the biggest growth in China was from what Rouven shared with me was in the industrial equipment because they are doing smarter equipment to remove the need for people in difficult tasks. Second block, this newcomer.

And the third block is related to the supply chain. Supply chain has been optimize only on cost issues in the past 30 years. Supply chain is going to be based in the future on the value chain of redesigning the scope of what each of the players should do and will do based on the reporting on sustainability. So those are the 3 blocks we see.

And the last one is related -- so when it comes to the macro economy in that context, they have to arbitrate and clearly, I would say that we had no very strong pressure on price because they need to solve those volumes. The customers. So this is a customer view on the digitalization and transformation. I think it's taking another asset, which are related to the resiliency of what I said. It's not the pure digital topic. It's please help me to solve a problem I could not solve before. So whereby digitalization is an answer, but it's not the end of the topic. It's the answer to something else.

For us, frankly speaking, it's a very good news because we can differentiate from that standpoint. There is a big difference between IT company coming to say, I can help you digitize versus, I can help you solve a real problem that you need to solve anyway for your own business, the top line and the performance.

So I'm very confident despite the perturbation -- and the last thing, I think it was the right move to invest massively in Life Sciences. You see the numbers on the scope of the company as reshaped significantly from that standpoint, and we are not going to stop there.

[Pascal Daloz, executive]

It's a good transition to the second part of your question, which is the balance and the dynamics between the industry across the different sectors.

So we start with the manufacturing industry. To be noticed, almost it was the case last year, but it's also the case in Q1, is Aerospace and Defense is going extremely well. And this is true not only in the OEMs, but also in the supply chain. So we see really the adoption of the 3DEXPERIENCE platform at large by the supply chain. And this is true globally, North America, Europe and Asia as well. Industrial Equipment, we spoke about it, double-digit growth, broad-based, same story. It's -- there is an effort of all the country to modernize the production systems. And there are so many money which has been invested by the government to reinternalize some of the productions that we see a drag effect on this industry.

The consumer side of the manufacturing sector is also growing extremely well for us. It's an untapped market for many of them. They are starting to be equipped. We are seeing this with Centric PLM, but not anymore. It's also -- we have a proof point with what we do with ENOVIA, for example.

And the Auto sector is probably the only sector where we see the situations putting pressure on them right now, specifically on the supply chain where we are not seeing the adoptions at the pace we wanted. However, the demand stay steady because they still have to electrify their car and this is driving the demand for the new generation of tools, if you want and platform.

And the second thing is we see also new things emerging like the battery. We see a lot of large investments and many carmakers willing to control this business, not only on the design side, but on the production side. And it's a domain where we are extremely well positioned, and we are taking the lion's share on this. And we are still also growing with the newcomers because the newcomers, they started to be equipped on the design side a few years ago. It's not a decade ago for some of them. Now we are spending on the manufacturing side because they are starting to produce at scale. That's for the manufacturing industries.

Life Sciences, we spoke about it, good performance of Medidata and BIOVIA. But to be noticed, we see more and more large projects growing much more broader than that. So it's much more -- it's becoming a PLM story. This is true in the Med Device, but we are seeing more and more. This is happening in the biotech and the pharma sectors. So we signed large transactions Q1, and we have a large transaction in the rest of the year along this way.

Infrastructure, City and Construction, I think we are still referencing. That's the strategy for us. And clearly, we are focusing on the newcomers. I showcase one of them. Or the one willing to be project based, the one willing to have the platform becoming the core system for them, not only the design tools or the simulation tools, the one willing to aggregate all the different stakeholders, structure, the entire value chain. And that's our strategy.

And I think we continue to have this momentum along this way.

[Rouven Bergmann, executive]

Okay. I take the last one on the acceleration of the recurring revenue move. We have -- we see really good momentum in our subscription business. We have parts of our business that is pure subscription-based, like Medidata, which is growing nicely and strong and continued, but also 3DEXPERIENCE. So some very strong growth in 3DEXPERIENCE.

And then, of course, over time, as we saw cloud revenue growing 21% in aggregate, right, that's, of course, all showing up in the recurring line item. And that number is growing more than twice as fast as the total revenue of the company. So we will catch up, right, on the subscription revenue side. It's very clear.

So we make you -- give you a simple answer. Yes, we will see that number to continue to progress and grow faster. But I also want to highlight that we're -- our model is not to transition everything to subscription. We are offering licenses as well as subscription, right? We are growing 10% in licenses and double-digit in subscription. And for now, that's our strategy, while we are accelerating subscription revenue growth as well as giving our customers the choice to continue to consume the licenses and take advantage and capitalize on the prior investments, I think, which is really critical differentiates us, right?

But it doesn't disrupt the path to the cloud, nor it impacts our business model. And the last point I would say is to the support revenue, I made that comment. It's a very good signal to see that the support revenue momentum is accelerating and growing because our support base is large, yes. It has a large weight on the overall revenue and it has an impact on the total growth rate. So that's an important area of focus for us to ensure that we see strong growth rates in this area. And it's driven by our license revenue growth that's growing double digit. So I think in that context, we are on track.

[François-José Bordonado, executive]

We take another question from the room, and after we will go to the call.

[Stacy Pollard, analyst]

Stacy Pollard with JPMorgan. Just a few questions from me. Rouven, probably this one's for you. Medidata margins. Can you give us an update or a sense of where you are versus target set at the acquisition? Following from that precision medicine, how far away are we from that? What tech do you think you'll need to build or buy to get there?

And then since I hinted at build or buy, maybe you haven't spoken in a while about how much of the EPS contribution will come from M&A? Any thoughts or updates there?

[Rouven Bergmann, executive]

Okay. So I'll start with the margin and then maybe make a few first comments on the precision medicine side before I hand it over to both of you.

Okay. So the margin is very simple. The story -- since the acquisition, we delivered -- over delivered on our objective. I remember the objective is 200 basis points of yearly improvement year-over-year on a non-IFRS operating margin, and we are well on track.

And I would like to highlight that at the same point in time, we are growing our workforce, and we're making strategic investments, right? The Medidata AI and Patient Cloud investments are really our focus, and these are our growth drivers for the future. So while we are seeing synergies and efficiencies through the combination of both organizations, we are very focused on making the right investments and capital allocation to grow for the future and build the foundation.

So I think it's performing according to plan and better. In terms of the precision medicine, my first comment to this is Medidata's legacy has always been to be affiliated with science and the progress that our customers are making. And we are -- and it's a data-oriented business model. And with data our ability to analyze the data and access the data and anonymize the data and leverage the data of 28,000 clinical trials gives us an extremely good starting point to really advance science and work with our customers to provide treatments for an n-of-1, right, for a personalized individual person.

Because at the end of the day, it's a data problem that you have to solve. You have to understand the data composition of an individual person to find the right efficacy level and safety level for treatment. So it's been in the DNA for the company from day 1, right?

So we -- I think that really differentiates us. And that's why we are successful. You see some of the things that we talked about on the synthetic control arms, they are really in the context of providing precision medicine because we are analyzing an individual subject, an individual patient, right, and simulating that patient in context of the efficacy of a new treatment.

So we are getting very close to the precision medicine promise, right, in what we do. And of course, we are very open and focused on monitoring what is going on and how we can actually accelerate -- BIOVIA brings us an additional capability on this promise to bring research and clinical development together. And I think the next problem that we have to solve is on the manufacturing side because you have to manufacture these treatments at scale. And I hand over to Pascal and Bernard.

[Bernard Charles, executive]

Know that you're right. I mean, the one side of the equation is the data story. The other one is the process is becoming the product. And the process becoming the products, it's reshaping the entire value chains.

And in this case, you need a platform. You need bundling and simulation at the core. And I think to answer to your question, Stacy, it's much more an organic development because we are the -- we are one of the few companies having all the different elements, if you want, to combine in order to make this a reality. So I will not look our M&A policy along this line, probably much more how to connect with the practitioner, which are the ones we are not serving right now.

[François-José Bordonado, executive]

We'll take one question from the conference call. Nicolas?

[Nicolas David, analyst]

Yes. Good morning, everyone. First, could you please come back on the magnitude and timing of price increase you expect for this year on your key brands? Because it seems that there was some in communication of some VARs causing maybe some customers to rush to buy some licenses as soon as Q1. And also more broadly on that topic, how do you judge the level of discipline of your VARs and save people internally to pass those price increase without offering higher discounts?

And my second question is what is driving your confidence to expect such a sharp acceleration of license sales growth in Q2? Is that obvious to me that you have easier comps, unless I'm missing something. So it is actually an acceleration. Why, Rouven, I think you are talking about the same trend continuing after Q1. So any color about that would be helpful.

[Bernard Charles, executive]

You want me to start? Okay. Let's start with the price increase. There are -- we have 2 moments within a year to do the price increase. The vast majority of them are happening midyear. We decided the previous year, the time to inform the customers, the VAR, the retailers.

Usually, it's effective in the middle of the year. There is one exception, which is SOLIDWORKS. Usually, we do it much more in Q1. So -- and what we did in Q1, we -- half of the countries have implemented the price increase based on the inflation, right? And the other half of the country will do it in Q2. That's for the maintenance and support as well as the new license, the price list.

And for the subscriptions, for the large contract we have, usually, we have the pricing index mechanisms, which is based on -- to take into account the inflations in our space every year. And that's how we protect the prices for long term.

[Pascal Daloz, executive]

The decision to the VARs -- you also asked these questions. It's their interest. At the end, they are seeing the same inflation on the compensation than we do. So there is maybe some anticipation sometimes, but it's -- I will not say it's explaining the performance we have.

And to a certain extent, Bernard was saying the price used to be sometimes discussion with the customer, but it's less and less, I would say, a topic of discussion right now, the topic of discussion with many of the customers is how fast we can implement what we are delivering to them. So I will not expect a bad behavior from the resellers playing again against the price increase. They are taking this into account. They are leveraging it because it's also their interest.

[Rouven Bergmann, executive]

Okay. And then to the -- to your last question in terms of license revenue expectation for the second quarter. So my comment in terms of similar mix coming into the first quarter. What's important is when we look at -- and I look at the pipeline of opportunities that we have in the second quarter, this is shaping since the beginning of the year and the visibility we have into the transactions and the composition across our segments and the diversification, not only across from a geo standpoint, but also from a product standpoint and a business segment standpoint, it's very healthy. So direct was indirect, for example.

We see good momentum in our channel business as well as in our direct business. We see resilience in Europe. We had a very strong first quarter in Asia with very good performance in China. Now I think we mentioned China right now. Before, there could be a question mark on the China performance in the second quarter, depending on the duration of the confinement, but that's a potential risk at this point. And the mitigation is worked on. So I think this -- we don't expect a worst-case scenario in the second quarter from China.

The deals are well ahead, and it's robust. So that's really the sentiment. And then the rest in terms of numbers, when we compare Q2 over Q2 last year, yes, we had also good growth in Q2 of 2021. But when you look at the absolute numbers from a total revenue perspective, Q2 is very comparable to Q1. So that was kind of where my comment was going.

It's kind of consistent, but that it results in also higher growth for license in the second quarter, right? So that you always have to look at your starting point in baseline as well when we look at the growth rates. So that gives us the confidence. But this Q2 plan is actually what was built into our guidance at the beginning of the year, right? So I'm not making any changes at this point. So it's consistent with our 9% to 10% total revenue growth and our license of 10% to 12% for the full year, right? So that's all factored into the model.

[François-José Bordonado, executive]

We'll take one more question from the call, and then we'll be back briefly to the room for Adam. Please go on, Toby.

[Toby Ogg, analyst]

Just a couple from me. Just firstly, on the license developments through the year. Q1 obviously in line with your expectations, Q2 a little bit higher. I guess I would be keen to hear your thoughts around any conservatism that you've got baked into that full year guide at this point in the year?

And then secondly, just on the end markets, specifically on automotive. You mentioned that the supply chain isn't seeing that adoption at the pace you'd wanted. Any sense as to the drivers of that slower pace. And I guess when do you think that could reverse and that pace of adoptions to be back up?

[Rouven Bergmann, executive]

That was the first one. So in terms of the first question, what we reflected now in our update is the performance of Q1, the rest of the year remains unchanged.

And so we're confident in our plan that we've issued at the beginning of the year. I think we made some technical updates as it relates, for example, to FX to be a little bit -- to make one step closer to the actual rates. I know there's still a gap, but that's a step into that direction. The operating performance I mentioned in my presentation before, was impacted by some lower spend in the first quarter. We are not factoring that in for the rest of the year because we stick to our investment plans.

And from a total revenue perspective, ex FX, our plan has not changed, right? That remains unchanged. So the assumptions are not changing. We're updating for the performance of the first quarter. And when we are meeting us again after the first semester, of the first 6 months, I think we'll have a good, better view then and information to provide in terms of is there any further updates, right, for the rest of the year and what to expect.

But for now, we wanted to make those technical adjustments as well as reflect the overall performance from Q1, which you see nicely represented in the update for the EPS growth.

[Bernard Charles, executive]

Related to the adoption of the 3DEXPERIENCE platform by the supply chain, I will say there are 2 driving factors. One is obviously the new car program. They need to develop, design and produce and the volume of productions. On the new car program, I think the demand is still there, and this is driving the adoption. However, to accelerate if we want to see a change, we need to be back to a certain volume of production of the car, which is not yet the case.

So I would say this will be probably the triggering event to see an acceleration in the adoption by the supply chain.

[François-José Bordonado, executive]

We'll take one question from the room. Adam?

[Adam Wood, analyst]

Can I ask you a few, please? Just first of all, Bernard, you alluded to the supply chain changes. Can maybe first of all, you just talk a little bit about the scale of changes that companies on the manufacturing side are putting through on supply chain? Is this something that's happening at real scale today? Or is this something that you envisage will happen as companies face, as you described, the component shortages and the issues of security of supply?

And then I think traditionally, people would have thought of SAP is kind of the leader in thinking about digital supply chain. Could you maybe just compare a little bit the differences in the offerings and how you would propose a different solution to what SAP would go in and propose in that area? Secondly, I think Boeing came out and talked about a deal they did with the hyperscalers, and they talked about running digital twin simulations on the hyperscale environments. You obviously, when you run cloud, want to run it on the upscale environment, non-hyperscalers. But for your customers, do they have a choice to run licenses that they've acquired from your rental licenses on a private cloud, they could choose differently? And if your environment is more efficient, could that cause problems down the line?

And then maybe just finally, you talked about one of the challenges more than pricing being the pace of deployment. Do you face any issues around services resources and being able to get people into customers to be able to help them manage the implementation and change requirements that they need or is that something that's well managed today?

[Bernard Charles, executive]

Thank you, Adam. On the 3 first questions. The scale of the transformation, the company's transformation. There are companies like you may have seen the recent announcement from BMW, for example, where they have said they are going to do a full holistic sustainability approach for vehicle where they will demonstrate that all the material they use in the car they deliver are going through a predefined recycling process, upfront during the engineering and defining their manufacturing process. It's the official announcement has been visible on the market, which calls for massive transformation in the basic materials they use for the car itself. In fact, there are a few communication on that topic.

When you position this, and I take this example, I will take also examples from other industries, when you position this, the suppliers are not going to be the same, or the suppliers will have to transform the way they produce things. If they are getting bumpers with plastic, oil-based production and they want to change this to more organic kind of materials, believe me, it's going to be something where they have to do new process, new simulation, new material characterization.

So yes, it's a deep transformation. It's going to take time. But it's happening, and I don't think it will stop. So some of them are very clear. Some of them have not made the decision yet, but I think it's going to create an organic strong growth for us long term. That's the trend.

The same thing is CPG. We announced -- Pascal mentioned Shiseido. But packaging, think about it, just quick remark. We could have -- we'll talk more about this in June further -- but today, most of the packaging companies in food and beverage, they put pallets in a truck, run the truck for miles and miles to verify that the package is robust. Think about it.

And it's not an anecdote. It's the truth. 80% of them do that. No one knows it. And they have those trucks running. And when they come back after miles of logistic testing, they destroy everything. There is something wrong, but that's a reality. We have data on this. And you can imagine that we can change that. So reformulation of what is inside, but also massive transformation of the package and the processes. So those are significant moves forward, which is another example in the sector.

The last one, I think, is smart, very robotization at large. The robotization is not about the former robots that looks like a human and so on. No, it's about smart systems to really reduce the dependency on the manpower and improve this. And it's happening across all industries.

For the hyperscaler environment and cloud, we do have, of course, our own cloud infrastructure. We are going to provide 3 levers of cloud. We also have this agreement with AWS, which is working very well. We probably will have another player at some point in time. This decision will be made based on the credibility and the cybersecurity issues that we have to address.

But basically, the strategy for Dassault Systemes goes with 3 tiers approach: public cloud, private cloud, secured dedicated. In a dedicated, those 3 levels, very same architecture, same way of operating them, but in the dedicated cloud, they provide the words. The physical, we specify which environment, and we operate them and we provide SLA. But for military program, this is going to be the growth, the way forward. So we are doing those 3 tiers.

So you can imagine that even for Boeing, we are discussing with them about when do they need what. It's not going to be one thing because they have a high diversity of programs, as you can imagine. And for most of the customers, they probably will also have a different approach when it comes to the common platform for suppliers versus the highly sensitive internal platform. But will they go cloud, the answer is absolutely yes.

In fact, they are going today without revealing too many secrets, they are building the virtual twin of the company's operation using the 3DEXPERIENCE platform under our cyber system approach to really evaluate both risk and robustness of their own company because of the nature of the program they do. So that's on the hyperscaler environment.

There is a confusion today with some of the -- the fact that the cloud techniques are used to administrate an on-premise legacy system doesn't mean you're on cloud. The cycle time to date, look at -- you know your own banking environment is not cloud, okay? We know that. It's massively legacy. It's going to take years before they go to the new cloud, where you can update this every week or every other week.

But I think the manufacturing and the health care environment is going to end up cloud faster from that. But they need those 3 levers, and we are those 3 levers of offer.

The last comment was related to the services, right? So you remember in 2020, we kept the capacity. When many companies was firing people, we kept the capacity. So internally, we have not seen the disruptions. However, the ecosystems need to accelerate the hiring in our practices. And this is probably where some of them have some challenges, right? But we are not yet short in capacity if they are capable to hire this year.

[Operator]

We'll take one more last question from the call. Michael?

[Michael Briest, analyst]

Yes. And apologies for not being there in person. It's a busy day. But just 2 for me. Firstly, Rouven, looking at Slide 26, it looks like the cloud growth is as reported, 21% is not a constant currency number. And with Medidata up 14% at constant currency, I'm assuming it's around 20% or so as reported. So the non-Medidata cloud growth doesn't look particularly strong. Can you maybe comment on that and what you expect for the balance of the year? And then as Medidata faces even tougher comparatives in Q2, would you expect a further deceleration before accelerating in H2?

And then Bernard, just in terms of hiring. I mean you -- Pascal said on the services side, things are good. Just thinking about the level of interest in the skills that a company like Dassault has on R&D. So we've got NVIDIA investing in Omniverse, A lot of excitement about metaverse and all the physical realizations that it requires. What are you -- what are your concerns about talent retention and making sure Dassault remains a sort of premium place to work? And if that involves higher salaries, perhaps?

[Rouven Bergmann, executive]

Thanks for the question. Maybe let me clarify. So cloud is growing 21% year-over-year. And the -- it's a share of software revenue of also 21%. We -- and that's proven, you're right, Medidata's performance of 14% growth ex FX. And the non-Medidata parts, as you can tell, are actually growing much faster.

[Michael Briest, analyst]

But surely, Medidata is growing about 20% in euros.

[Rouven Bergmann, executive]

Sorry, Medidata?

[Michael Briest, analyst]

It must be growing about 20% in euros, the dollar is 7% stronger.

[Rouven Bergmann, executive]

So Medidata is growing about around 14% at constant currency.

[Michael Briest, analyst]

But in euros, it's 20%?

[Rouven Bergmann, executive]

No, no. At constant.

[Michael Briest, analyst]

[indiscernible] is in euros at 21%, not at constant currency.

[Rouven Bergmann, executive]

Yes. Medidata is growing 14%. So that indicates that the rest in the non-Medidata business is growing much faster, right, than what Medidata is growing.

Now think about Medidata is a $1 billion business now. I talk dollars, so it's about EUR 870 million growing at -- which is at a high level, growing 14%. I characterize this as very strong, continues to win market share. We can talk about that separately, but that's -- is growing -- is a continued growth element for us. But the non-Medidata cloud segments or businesses are growing much -- growing accelerated, right? Do you see that 21% for the total company, 14% at constant currency for Medidata.

[Bernard Charles, executive]

Related to the hiring, thank you for asking the question on the talent attractiveness for Dassault Systemes. I think we have -- I believe we have a very unique position. The proximity of what we do versus the -- what the new generation of our kids, my grandkids are looking for, is great. There is a direct impact when you say that you are improving the clinical trial, that you are changing materials, that you are doing recycling.

So I noticed that both on education, the attractiveness of school, an engineering school or many other schools to adopt our application, our software platforms to learn by experimenting in the virtual world is very strong. The second, and it's more fun than using AutoCAD, okay, or other kind of software like this, it's not fun at all even using an office environment for work. Processing of PowerPoint has no fun for people now.

The second remark is the attractiveness for start-ups and makers is very strong. In fact, our maker program, where we provide 3DEXPERIENCE at 99.9, like 99 something, okay, dollar, per year, right?

[Rouven Bergmann, executive]

Per year.

[Bernard Charles, executive]

Is amazingly strong. And we see makers adopting it, using it. And in fact, when you look at the profile of usage, they use it on Saturday, Sunday. They work when all others are not working. We see that. We noticed that. This is cloud.

The third is the experience lab with innovators. We see a lot of adoption there also. This is why I mentioned them in my presentation. I will report to you every quarter the trends on the project. Those are extremely good signs, and it is exciting for people.

So I think from that standpoint, the talents we hired are unique profile. And they know why they are joining Dassault Systemes. They do. And I think I like that. I think it's -- people are not deciding only on compensation anymore. They want to really have a -- bring value in the job and have fun.

And as you noticed, I have fun, too, myself even if not, because I'm not the same generation anymore. But this is why we have been told to change my title just to show the seniority. But aside of that, my mind is still in the innovation side. Isn't it, Pascal?

[Pascal Daloz, executive]

For sure. No doubt.

[Bernard Charles, executive]

Thank you very much to all of you. It's a great pleasure to see physically a few of you here, and I hope we'll continue to do that because I think rebuilding the link, the connection, the relationship. We're asking our people in our company to really go meet with customers, meet with our partners after 2 years of being isolated. Virtual is nice, but having a good connection with people is more important if we want them to continue to love us and appreciate what we do for them. All the best. Enjoy your time, and see you soon.