Dassault Systemes SE

PAR:DSY

Earnings Call Transcript 2020-Q1

[François-José Bordonado]

Good morning, everyone. I'm François Bordonado, Dassault Systèmes, Investor Relations. From the company, we have Bernard Charlès, our Vice Chairman, Chief Executive Officer; and Pascal Daloz, Chief Operations Officer and Chief Financial Officer. In this very special context, I hope you and your families are keeping safe. And I would like to welcome you to Dassault Systèmes First Quarter 2020 webcasted presentation meeting. At the end of the presentation, we'll take questions from participants. Later today, we'll also hold a conference call. Dassault Systèmes results are prepared in accordance with IFRS. We adopted IFRS 15 in 2018. And so all comparative information is presented under IFRS 15. In addition, we adopted the new IFRS 16 lease standard as of January 1, 2019. Most of the financial figures on this conference call are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between the IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2019 Document de référence. Let me now introduce Bernard Charlès.

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you, François-José, and hello to everyone. Of course, this First Quarter 2020 announcement is in a very special context. Half of the world has been frozen, in some way, and confined. There is a lot to be shared with you. So I'm going to share that, of course, with Pascal and provide you with, I think, quite interesting insights about the way we observe the sectors we serve and its implication for the Dassault Systèmes plan for the next quarters and the full year. Above and first of all, before I go through the highlights, I want to really mention that we have been able to -- with our people to really continue the operation globally, thanks to their incredible focus, even though they were all working from home. And I will come back on that topic. And of course, we also associate ourselves with all the research development to find out ultimately the proper vaccine for this world challenge. Now highlights. The revenue is coming 2.5% below the low end objective, and you are aware of that. And we -- 18 hours after the closing of the quarter, we gave you some insights. I think you appreciated that. And the total revenue for Dassault Systèmes is up 17%, excluding the exchange rate effect. The recurring revenue is at a level of 83% of the total revenue, up 30%, excluding exchange rate, with solid renewal on, of course, good Medidata momentum. I would say, good or very good momentum for Medidata. We'll come back on this. Operating margin and EPS at the high end of the objectives. And due to the situation, everyone might keep in mind that only 6 months ago, we invested EUR 6 billion, being convinced that I think a new approach to digitalization would be needed, which will be beyond documents for the Life Sciences market as well as the healthcare system that should adopt technology that has been adopted already for other industries. And it happened that with this crisis, this health pandemia. We are, as a consequence of those moves, really on the front line on many aspects. And Pascal and I will share with you a few insights about that. First and above all, of course, using the collaborative virtualization to help our clients and partners to continue their business from home. Second, providing fundamental platform and technology for research and also, of course, clinical trial in multiple aspects. Third, we are on time, and thanks to our team here for the delivery of the major evolution of our platforms on time. There was not even 1 week delay. And last point here, related to the very deep purpose that we basically communicated on February 6, 2020, for the next 20 years of our plans, and we provided a 10-year visibility, but I think it's a bigger plan. We believe that the virtual world of modeling simulation on large data science are going to help the real world being improved and being more sustainable. That's not a light commitment. I believe we are proving it and making it happen. And I think you will see today that it's even more real than what people might even think of. We are updating our financial outlook, and providing because of the complexity. And Pascal will give you a very comprehensive view of that, a framework of thoughts, because it's very difficult to provide one number without having the articulation of the basis of it. So let's start with the business highlights. More than ever, we believe that our belief is having an impact. The virtual world extend and improve the real world. We are not -- for 40 years, Dassault Systèmes has been making step major breakthrough to help the industry work differently. You are now familiar with the value of digital mockup, the value of life cycle management, the value of the experienced economy where product is not enough, experience is of value, and the decision that we made to make those technologies available for life, not only for things. And we call this the virtual twin experience of human. So frankly speaking, despite this pandemia, it's providing a very special light on why Dassault Systèmes is Dassault Systèmes on what we are doing every day. So we want to reveal a few essential elements. As you know, we have a comprehensive set of brands on one platform, the 3DEXPERIENCE platform, which is the collaborative multi-discipline platform. And I would like to provide some quick highlights on the impact of BIOVIA, which is about modeling and simulation of -- in the biotech world and the material science world, the power of simulation to predict, the value of a powerful Medidata platform to improve treatment on practices. And 2 side noes, but which are important, open innovation, those days are becoming critical to bring talents together to provide solutions that were not expected before. And also the education online with the 3 experienced education infrastructure. So briefly, BioVia has been used -- is being used to really refine our understanding about the SaaS of 2. And really the phenomenon related to this understanding from the DNA and the behavior of this virus, how it could be mitigated, that's a very clear illustration why we invest in science and Dassault Systèmes. And I think this acceleration of adoption, BIOVIA, is real also in our numbers. The second thing, which is another extreme, which is very different, which is related to the reveal that was done in our cooperation in China and the capacity to really, and I am on Page 12 of the presentation, the capacity to do modular, safe, simulation-based validated infrastructure and secured hospital. And there is a short video of one minute here. Please launch the video. [Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

So I hope you could all see in the streaming this -- about this video. For those of you who have been following us in the manufacturing sector, it looks obvious. But the reality, when you look at the world today, even advanced hospital, we're having extreme complexity to just establish confinement area. And we believe that this is really a real cap -- the situation is a real catalyst to really change the way virtual twin experience can be used for infrastructure. And I think more to come. We announced today a cooperation with a gigantic group in China called; Aden. They are providing facility management for our sophisticated mission-critical infrastructure. And they have decided to really -- we have decided to work together to create virtual twin experience of critical infrastructure. So they can be used for construction, manufacturing, operation and maintenance with smart buildings. The second, of course, important -- the third point that I want on the COVID-19 line is the acceleration of multidimensional trial, powered by Medidata. Clearly, the Medidata platform is a unique science-based platform to empowering almost 60% of the worldwide trial actually going on with COVID-19. We have seen it doubling in the -- recently, and we are leveraging the AI on the gigantic data from the past clinical trial to help establish synthetic arms so we can improve the speed at which discovering can be done on the quality of clinical trial including the patient journey. You may have noticed today an announcement, which is not a minor one. It's called my MyMedidata. This idea is to really continue to make this infrastructure so easy to use by passion themselves that, in fact, the data collection consentment and data collection will become something useful for the passion and essential for the organizations which are working on discovery. That's the meaning of the announcement today. Once again, there are many competitors in this area doing digital documents. We are putting science at the core of what is needed for this industry. So I'm always astonished to see some successes of digital document companies because I think at some point in time, it's going to be absolutely useless and the virtual twin of phenomenon will win, as it did in aerospace, automotive and other manufacturing sectors. Medidata adoption is going extremely well. And thanks to our friend and the team, we feel very well together on -- despite the fact that we have been only together for 5 months, we continue to win new accounts with PPD, a big CRO, contract research organization, a very large one, has made the decision to use Medidata clinical trial and also the data science, data analytics and predictive modeling. And there's a difference between document-based and science-based. You cannot predict with document, you can predict with modeling and simulation. MyMedidata, as I shared with you in the announcement today, I'm excited with that. This is the kind of result of working together, and convincing the team, the genius of Medidata that one step further is possible. And MyMedidata data is one step further. There is a video. I am now on Page 16, and there is a video, which is 23 seconds, so please run the video. [Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

So I think it's easier to see the video on the real experience of the product than it is to look at the PowerPoint. So I hope you noticed the simplicity, the efficiency of such kind of approach. MyMedidata, I think, will be something that is going to be a game changer to expand from professional clinical trial to use the infrastructure for more generic therapeutics implementation. Of course, the 3DEXPERIENCE Lab is open innovation. We continue to support it at our own cost by providing this infrastructure for so many innovators around the world. There are more -- there are over a 100 worldwide projects going on with extremely innovative people to find new solutions for mask, protection, new solutions for even respirators on medical equipment, even frugal engineering for our countries where the healthcare system is less developed. And they will have to face this pandemia too, unfortunately. So we are working on those topics, and I think the team is highly excited to connect with universities, startups and so on. It's the real power of open innovation with experience-based design, production on using 3D printing and other techniques to really provide those results. You see here several examples in simulation, creating new type of low-cost medical equipment as well as, of course, data intelligence and global collaboration. On the education side, we have created a classroom environment, which is 3DEXPERIENCE-based classroom environment. I think there is a video here. So we are going to launch the Classroom video conference right now. [Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

Experience-based training, I think this is a breakthrough. We are using it for our partners. By the way, we are recertifying all our people in the company. And speaking about our people in the company, believe me, I am on Page 20, young talents redefine the workforce of the future. It's happening inside Dassault Systèmes too. I was amazed to discover certain cockpits that people have been setting up at home like the one at the center page here, where this is a friend of one of our colleagues in Dallas, in America, Texas. And you see how people are setting a cool environment. Some of them are even better than when they have it at the office. So I think there will be a before and after. And I believe that when it comes to Dassault Systèmes, using the 3DEXPERIENCE platform everywhere, we are removing our CRM. We are removing our HR system. We are removing our supply chain system. We are using 1 platform, 3 collaborations to connect all those elements together, and it's getting some results. By the way, we are learning how we should sell our own platform in a better way. So I want to go over Page 21. On this environment, I think customers are also realizing that the answer of integrated collaboration goes beyond just working from home. It's a different new set of practices. And of course, despite the bad and difficult things, related to this incredible difficult situation, the pandemia, I believe people are discovering new way and new practices and new ways of working. And we are taking advantage of this to really make sure we can provide to our clients' new visibility on how they could do differently at a lower cost and more efficiently. This weekend, we are going to put online our next evolution, major evolution of 3DEXPERIENCE platform. And by the way, simply said, we are going to use our own platform as a channel. The platform itself will connect users, companies and partners in one, what we call Infinite loop of continuous relationship. The platform will have integrated marketing element in it. In fact, what are the solutions, the roles, the processes for each industry? You can navigate -- customers will be able to navigate the platform to look at what other industries are doing. What they could learn from other industries, and all this online. There is also a snapshot of this on Page 23, which looks complex. But let me tell you, we have done a platform that integrates all traditional disperse, tools and choice that you can find on mobile. Connecting conversation, community, dashboarding, pipeline of ideas, program management, to-do list, 3DEXPERIENCE themselves, video conferences, all in one for $37.5 per user per month, $37.5 per user per month, EUR 37.5 per user per month. You have all of this. Customers are discovering the power of this integration because ideas, people on data and processes are all connected, which is not the case of any platform available today on the market. Of course, our goal is to serve our customers, first, those doing complex things. But I believe this is really why our platform is now being used for other activities inside Dassault Systèmes, including replacing the CRM system, the supply chain system. It's also our platform for development. So all our software is under control of this platform and all the collaborative process is under the control of this platform. So the consequences are significant. To conclude, I want to cover briefly 3 big sectors of the economy. You have understood now that in Life Sciences and Healthcare, there is something significant happening, and it's needed and it's revealed here, and we are focusing on that, on personalized knowledge capitalization, reinventing the value chain, transforming the research, development, clinical trial and manufacturing, and of course, being able to build the total quality discipline. Celsion adopted Medidata for something specific, which is going to be probably a first in the world. We are -- they are using Medidata for Synthetic Control Arm. What does it mean? When you do clinical trial, you have 2 groups of passion. One group will get the therapeutics, another group will get nothing. Okay? Water, basically. And basically, what we think we can do is based on the data science, we can simulate what we call a virtual arm of comparison, Synthetic Control Arm, and help improve clinical trial by having different kind of comparison. This is a very profound evolution. FDA is involved in that process. They like the approach. So basically, the placebo for one group could also be powered by the comparison to virtual Synthetic Control Arm. We believe that this is the future and it's essential to improve that sector. Related to infrastructure and city, we have selected the example of the cooperation of Aden. And there are many more we need to work on. This sector has been low -- improving slowly in the past 45, 50 years. We believe that modular applying the manufacturing discipline to construction is still a very valid point. I am on Page 27 with the modular architecture that we are deploying with Aden through this cooperation. And in the manufacturing sector, we believe that there will be a before and after because both supply chain will be restructured and -- as well as the way the manufacturing the processes are working on the supply chain. You see this illustrated in Page 28, 29. On Page 29, we believe that the supply chain, which are very static in poor ERP systems today, can be much more agile and dynamic with resource reallocation based on the needs and sensitivity of the geographies or sensitivities of the suppliers involved. On this real time, we have the technology for that with DELMIA Quintiq, and we are demonstrating that it can work in so many sectors, distribution included. So as a conclusion, we spent time on February 6, 2020, to formulate what will be the big plan for Dassault Systèmes for the next 20 years. We gave you some indication for the next 10 years. We had the November meeting in New York for our Healthcare and where we explain what we are doing in Life Sciences. I believe we are really walking the talk more than ever, and we are very proud that Dassault Systèmes to be at the center of what should be improved for healthcare and research in Life Science. And with that, I give the floor to Pascal because he has interesting things to share with you. Pascal, back to you.

[Pascal Daloz, COO & CFO]

Thank you, Bernard. So if we go to Page 32, and we say a few words about the quarter. First of all, I think this quarter revealed a lot of things of what we have been told to you for almost a few years. Point number one, we -- if you take all of Bernard's examples he used, no one is having any more adopt on the meaningful things we do because what we do is critical not only to manage the crisis, you have seen it with Medidata and all the clinical trials, but it's also needed for after the crisis because things will not be the same. The second thing is being able to, to a certain extent, preannounce 18 hours after the closing of the quarter. I mean the commercial closing, not the financial closings. It's a proof point that we are fully operational. And to do so, in fact, we are using 3DEXPERIENCE platform as a way to run our business. And you -- I'm sure you understood from Bernard's presentation that we are also using the 3DEXPERIENCE platform as a channel. It's a way for us to engage with customers. It's a way also to engage with our partners. That's the reason why we are fully operational. The last point, the last highlight for the quarter, is, I think you have the proof that how our business model is resilient. And if you look at the P&L against taking the revenue, EUR 1.144 billion, which is 2.5% short compared to the guidance we gave to you, but in a pure reporting line, excluding the currency effect, we are on the guidance. And if you zoom 17% growth for the total Software revenue, and as we stated to you, the counter performance is coming from the license, minus 20% compared to our objective, which was flat to minus 5%, new license -- the new license. But the recurring revenue is on target, with 30% growth compared to the 28%, 30% we were targeting. And more important, the operating margin is also on target. And to a certain extent, on the high end of the target, with 29.2% which is a good demonstration of our ability to react quickly to put the right measure in place, to counterbalance the lack of revenue coming from the new license. And last but not least, the EPS is at the high end of the guidance, which is not only the proof that we are managing properly the cost, but also, we are keeping -- and we are keeping our commitments to you guys to be on target on this topic. That's the key highlights for the quarter. If we look at -- and we go page 33 and if we look at the different sectors, you have different dynamics. Let's start with the manufacturing industry, which represents 70% of the revenue of Dassault Systèmes. You know, this sector has been, for us, heavily impacted by mobility and transportation. We had this, to a certain extent, this concern starting last year with the supply chain. Now we see the OEMs being impacted by the situation. The good news is really coming from the aerospace because unsurprisingly, the aerospace is growing at double-digit for Q1. So we do not expect to have the same trend for the rest of the year, but it's a proof that our model is resilient. And when people are really in a tough time, we are giving to them a way to manage the situation. Consumer packaged goods retail is also growing at double digits, which is obviously driven by the consumptions and also the good performance. And it's also highlighting the fact that we made a lot of progress in this space. You'll remember a few years ago, it was almost anecdotic. And now it's becoming to be critical in what we do. If you move to the Infrastructure & Cities, representing 10% of the revenue, we are growing at double-digit despite the fact that these sectors have been severely impacted by the crisis. If you take the oil and gas, if you take the constructions, all those sectors are suffering. But we are finding our way, that's my message to you. And in Life Sciences, we are representing 20%. It's the second largest industry after Transportation & Mobility. And we are growing at double-digit with Medidata being right on plan. But BioVia also growing nicely, especially on the recurring part of the revenue. And I will come back to some statistic for Medidata afterwards. A good example of the momentum we have in Life Sciences is Hyundai Pharm, the current company, doing pharmaceutical products, but also health food drinks and also medical equipment. And they have decided to select our solutions, Medidata, to do many things, not only to manage what we call the Electronic Data Capture, which is almost all the data you need to put into the system to do the trial, also the supply chains, all the targeted source data, but more important, also the Electronic Trial Master File. And why I'm saying that is because it's a win against Veeva. And as you may know, Veeva is a new players in this field. And the way they usually enter into this space is by targeting the document management, which is so-called the Electronic Trial Master File. But there is a limitation, and this is a proof. People, they want to have only one single source of tools. And this documentation has to be generative. There is no way you can manage a single source of tools with documents. So the way that it's fully integrated, it's a way to understand how we counterbalance our value proposal and how we are displacing them, even if we are not fighting on a day-to-day. Moving to the next topic, which is related to the Infrastructure & Cities. Logistics is becoming critical also for us. And Bernard stated out clearly because the supply chain management will not be the same. And this ability to replan on a constant basis to be dynamic is also new because it's a combination between the modeling and simulation capabilities with the optimizations. And most of the players that are coming from the optimizations, but they do not have the ability to develop new models. And when it's normal, it's relatively easy to do. But when you have a crisis, the model doesn't -- the optimization doesn't work. You need to evaluate a multiset of scenarios in order to take the decisions. That's what this proof point is about. Going to Page 36 and zooming to the different product lines. And you will notice that we -- the new way we are reporting for all the software related to what we call the Industrial Innovation. You can see the overall performance for the quarter is minus 1%, which is strictly in line with the performance of CATIA, and the performance for ENOVIA is minus 11%. What could we say? We can say for those 2 brands, which represent the bulk clearly, the recurrent revenue is growing extremely well, but has been offset by the decrease in the new license. And especially for CATIA and ENOVIA, Transportation & Mobility still represent a significant part of their revenue. That's where it's coming from. We should notice also that DELMIA is growing at double-digit because all this crisis is highlighting the fact that you need to prepare how you -- we're going to restart. And you need to do a lot of engineering upfront. That's the reason why, I mean, we have a good momentum with DELMIA. Zooming to the Life Sciences, the plus 384%. The point is Medidata is right on plan, growing at 13%, 1-3, which is fully in line with the plan. And we can notice that not only we have a lot of competitive displacement this quarter. But also, we start to achieve a certain critical mass. Now we have 1,500 customers with Medidata. And definitively, we are accelerating in new geo. And later in the presentation, I will give you the example of what we do in China. So we start to have the synergy in place to expand the scope -- the geographic scope with them. Zooming to the mainstream innovations. And this -- in this category, you have several brands, including SOLIDWORKS , Centric PLM,3DVIA. You see that we are growing at 2% per. And SOLIDWORKS' dynamic have been relatively correct compared to the situation, plus 3%. And if you zoom a little bit, in fact, in the 12 geo we are serving, more than 6 of them, they were growing on the new license. So the counter performance is really on the new license is coming from Asia, specifically. And the recurring revenue is still good for SOLIDWORKS. It's growing at plus 6%.Centric, PLM have been impacted by the situation because, as you may know, in the Fashion & Luxury Goods, China does represent a significant part, either of the supply chain or the market, the demands. And that's the reason why in terms of new license, they decreased by 20%. But we have good reasons to believe that before the end of the year, it will restart. Moving to the geo, Page 37. So let's start with Asia. If you look at Asia, most of the country has been in lockdown, almost started in January, was the case of China as well as Korea. And later in the quarter, we had India and Japan. But the growth is -- for the full year is -- so far is for the quarter is plus 7%. And on an organic basis, its minus 1%, which is not so bad compared to the situations. And zooming specifically on China, we saw the last month of the quarter, in March, some rebounds. So it's probably too early to express that it's starting again. But we saw rebound in unexpected sectors, which is the Transportation & Mobility as well as the High Tech. So we have good reasons to believe that the pipe will continue to grow in Asia, in the rest of the year. Zooming to Europe, the growth is plus 2%. On an organic basis, it's minus 5%. And Europe is almost split in 2 different parts. The North is on plan, growing on the recurring part of the revenue, including also the new licenses. But the south part of Europe, specifically France, Italy and Spain, has been even impacted by the lockdown. So -- and this is where we saw the majority of the decrease of the new license. Germany was also impacted this quarter. Americas, the growth is 46% for the quarter. So obviously, you have the contribution of Medidata. But on an organic basis, the growth is plus 4%. And as I was telling you, we had a good momentum in Aerospace this quarter in Americas. If we go to Page 38. Here is a good example of what we do with Medidata. R&G is one of the largest contract organizations -- research contract organization in China, and we have been able to expand what we do with them, specifically related to the COVID-19. So -- and as you may know, Medidata, they have a significant footprint in the U.S. and China and Europe and Asia, and Europe still represent, I will not say, an untapped market, but the market where they can improve significantly their footprint. And here, you have a proof point that we are gaining momentum into this space. Page 39. Zooming to the growth. Clearly, the total revenue and the Software revenue growth is fully online with plus 19%, plus 17% on both cases. And on an organic side, the organic revenue, whatever it's -- the total revenue of the Software revenue is minus 1%, excluding the currency effects. If you split and you go to Page 40 -- if you split the Software revenue between the License and the Subscription and Support, the License organic growth, in fact, is decreasing by minus 20%, and the Subscription and Support is growing at plus 30%. And on a pure organic basis is growing plus 5%, which is, again, a good demonstration of the solidity and the resilience of the model. Zooming to the Services revenue, Page 41. The Services revenue is growing at plus 14%, excluding the currency effects. On an organic side, it's plus 1%, which is, again, not so bad compared to the fact that many of our customers, they either postponed some of the projects or sometimes they did not open their facilities for our teams or they did not want to have our teams to work remotely using their information systems. So we have developed many new offers in order to counterbalance these situations. And we are managing the low utilization rate due to the restrictions, and you can see this has an impact on the gross margin, but the gross margin is still positive at 2.9%. Zooming on the operating margin, Page 42. As I was telling you, I think we did well during the quarter to take the right measures at the right time in order to deliver on targets. And here, you have the comparisons compared to initially what was the expectation. So what you can see is we have been able to improve by 0.5 point the core, so which basically means we are improving our core activities in terms of productivity. The currency effects is having a slight effect. And from an -- from the dilutions coming from the acquisitions, Medidata did a little bit better compared to the plan. And this gave us the ability to offset the counterperson of Centric PLM and IQMS, because they were slightly below in terms of operating margins. Moving to the EPS, Page 43. The EPS growth is driven, obviously, by the top line and especially the recurring revenue, the good margin, but also this quarter, a lower tax rate at 24.3%. And here, you have the full effect of the different tax regime, whether it's the new French tax regime for the software or the UX -- the U.S. one. But also the fact that for this quarter, we were probably more weighted on Americas in terms of the revenue because if you look at the good performance of Medidata, combined with the good performance of Americas at large, we had this mix effects, which is explaining the fact that the tax rate is a little bit below than what we were -- higher -- sorry, below than what we were expecting. Moving to the cash flow. The cash flow for the quarter, for Q1, is reaching EUR 458 million, slight decrease compared to last year, and I will give you more detail. In fact, it's mainly coming from the DSO. We have 3 days additional DSO, and the DSO impact is the fact that Medidata, in terms of payment terms, they are much more close to 100 days, which is not the standard in Dassault Systèmes, and we will continue to align their practice accordingly to what we do. For the rest, you can see that in terms of capital expenditure, we expanded our facilities in India, because we are reinforcing our activities in these countries. And we also did some share buyback to offset, in fact, the -- to -- when we did the acquisition of Medidata, at the time of the closing, we had convert their -- all their long-term incentive plan with Dassault Systèmes shares. And the few weeks before the windows closed for us in order to do it, we bought some shares in order to cover all the plan for '20, '21 and '22. That's what we can say. In terms of -- for the full year, we will probably have some impact on the cash flow. And the reason is because we gave some -- we extended the payment terms for the partners. Usually, they are at 30 days. And given the situation, we gave to them 30 additional days until June. And it's also a way for the direct sales when the customers are coming back to us to -- we need to renegotiate sometimes the recurring part of the revenue. We prefer to expand the payment terms rather than to negotiate the maintenance and the subscriptions. So why I'm saying that? Because for the full year, maybe we could have an impact on the cash flow, which is close to EUR 200 million, which is nothing compared to our ability to generate the cash. So I think we are in a good position. Coming to the dividends, we confirm that we're going to pay our dividend on time at EUR 0.70, which is an increase of 8%. And why so? Because we think we had a good practice. We have developed over the year. Remember, we are -- the payout for the dividend is only 1/3 of the net income in the IFRS. And I think it's a good practice, and this practice is still valuable in this time frame. Moving to the -- some details of the cash flow, I already commented it. So I do not want to spend too much time. So if we can jump to the financial objective for 2020, so let's go to Page 47. So here, the way we did it, we have developed a framework. And the framework is based on one goal, which is easy for you to understand. We are committed to maintain the EPS level at the same level that it was in 2019. If there is one thing you should remember about what I want to say is this. Okay? So that's our commitment. And you will see for the full year, we are targeting EUR 3.55 EPS on the low end of the guidance and 3.72% on the high end, which is nothing more being flat or plus 2%. Then after, we build the revenue -- the top lines. And the way we did it is by developing a scenario. And this is what I will explain to you right now. So the scenario we are seeing is a significant decelerations in Q2. It's not us telling this, it's all the economists and a progressive recovery in Q3 and Q4. So what does it mean concretely? Q1 and for the new license, we were at minus 20%. Q2, we are expecting to be minus 30%. Q3, we are expecting to be almost close to minus 20% and do the balance in Q4, which basically means minus 11%, minus 12%. This gives you, for the full year, New License revenue decreasing by between minus 20% and minus 17%. If I zoom on the recurring revenue, the point is the following. We have been able to demonstrate in Q1 that the solidity of this recurring revenue, but we have to take into account the fact that we will not have the contribution of the New License at the same level that we were expecting. So I factored this into the guidance. And the second thing I took into account is the fact that we expect to have additional churn, mainly coming from the mid-sized market. And I took one point additional churn in my guidance. That's the reason why we are lending to plus 26% to plus 27% ex-FX for the full year. I checked these assumptions related to what happened in 29%, when we had this crisis between 28% and 29%. And to a certain extent, I discovered that we are almost on the same patterns. So that's the way I did my sanity check. For the saving's program, the way I computed it is relatively also easy to understand. The gap in terms of revenue coming from the activity is EUR 370 million. And if you offset some currency effect, the pure gap will be EUR 340 million. So the saving plan has been designed to offset half of the gap, and half is coming from nonrelative personnel cost and the other half of the saving plan is coming from personnel cost. So the half coming from the non-personnel cost, the way I did it is I looked at the cost structure for '19. And I say because I'm keeping the commitment to maintain the EPS level at the same level of the '19, the cost structure would be equivalent to '19. That's the way I did it. And I rebase the budget accordingly. And for the personnel-related costs, the commitment we took is, point number one, we will not lay off. There is no reason at this stage to consider this. If the situation is going very bad, maybe we will have to reopen these discussions. But at this stage, there is no reason to do it. And why so? Because we want to keep the capacity we have. And as you know, in our sectors, hiring people, training people takes time, and it's a lot of investment we are doing. So if we can preserve this investment, it's the best thing we can do. So nevertheless, I'm taking some measure. And the measure I'm taking is to maintain the same number of people we have end of March for the rest of the year. So the way I will manage it is by being very selective on the hiring. And I will, to a certain extent, hire as much as people than the one we are leaving. That's the way I'm going to do it. So if you compute those numbers, and you go to Page 48, you'll have the impact compared to the previous guidance. So for the New License, we are decreasing by 25 points to guidance, being plus 5% to 10% and now being minus 20% to minus 17%. If you look at the Subscription and Support, we are decreasing by 1.5, the guidance. So moving from 28% to 26%, 27%. And on the Services side, we are decreasing by 13 points, so decreasing from 19% to between 5% to 7%. And you have, on the slides, the impacts of it in euros. Moving to the operating expense, Page 49. You have the frameworks I just explained to you. So we did almost EUR 35 million savings in Q1, and I'm going to do EUR 135 million savings for the rest of the year. And I already explained my savings plan. So if you go to Page 50, you have the variation of the revenue and the EPS. So moving from EUR 4.840 billion to EUR 4.5 billion and EUR 4.55 billion, the new guidance at the revenue level. And on the EPS, moving from EUR 4.15 million to EUR 4.20 million to EUR 3.65 million to EUR 3.72 million, which is the new guidance for the EPS. And last slide, which is at 51, you have the numbers for 2020. I will not comment it again because I already did it. And you also have the guidance for Q2. And as I was telling you, I'm expecting a decrease on the New License between minus 28% and minus 31%. The recurrent revenue, which is consistent with what we saw to a certain extent in Q1, I'm expecting the recurring revenue to be probably a little bit more impacted H2 due to the lack of New License and probably the churn, which will be increasing a little bit. And the Services revenue being minus 3% to plus 6%, depending if we are capable to work differently with some of our customers. On the operating margin, the operating margin will be between 25% and 26.5%, which leads to an EPS of EUR 0.72 to EUR 0.77 for Q2. Before to take the Q&A -- to open the Q&A session, a few additional things I would like to share with you. The first one, I will do a roadshow in the coming weeks, and I will participate to many virtual events. So we will have an opportunity to meet virtually and to discuss more in deep these presentations. The second thing is our Annual Meeting will be behind closed doors, but we will stay -- we will keep the dates, and the date is May 26. And last but not least, we decided to postpone the Capital Markets Day. It was initially planned to be mid-May -- mid-June, sorry, the 12. And we came to the conclusion that not only was not probably the best usage of our time, the management time, given the situations. But also, I think we will have a much better visibility for the full year. And the goal of the Capital Market Day is to make a status on the EUR 6 plan, and I think we will be in a much better position to share some analysis and highlight at that time. So the new date is in November and November 17. That's the new date for the Capital Market Day. That's it for me. Now we are ready to take the questions.

[Operator]

[Operator Instructions] We will now take our first question, which comes from the line of Adam Wood from Morgan Stanley.

[Adam Dennis Wood, European Technology Equity Analyst]

Maybe just first of all, I wanted to possibly dig in on the Asian side of things. You've obviously got quite a big business in Asia. It was very helpful to see a little bit about what you're seeing at the end of the quarter. But maybe could you go into a little bit more detail there around how New Licenses performed through the quarter? Any help on close rates, renewals on recurring? And then particularly over the last few weeks, what you've started to see in those countries as those lockdowns have ended, and maybe business is probably not back to normal, but at least is starting to move in that direction? So any help of what we could learn from that in more detail would be really interesting. And then maybe just to dig in on the recurring revenue side. I guess a lot of investors would see the exposure you have, particularly to Automotive and the auto supply chain and then possibly also to Aero and feel that only take 1 or 2 points out of the recurring growth is a little ambitious. Again, maybe could you just go into a little bit more detail there, whether that's comparing to the financial crisis or explaining what you're seeing in those sectors to justify why that's realistic? And especially may be talking about what you're thinking about from a new rental or new subscription business. That would also be useful.

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you, Adam, for your questions. So Pascal?

[Pascal Daloz, COO & CFO]

Yes. So I'm going to take probably the 2 questions. Bernard is free to have what you want. Asia, overall, the New License decreased by minus 20%. So -- and it was relatively consistent across the different countries. It was less in Japan. But if I look at Korea and China, is also the same. However, the recurring revenue was strictly in line with our expectations. And that's a point, which is probably good to notice that when I was stating that the organic growth for the recurring revenue was at 5%. Overall, it's relatively consistent from all the different geos, across the different geos. So there is no discrepancy. And I do not have seen, specifically in China, the recurrent being under pressure in Q1, if it is the question. Related to the recurring revenue, the question is, as I was clearly stating, there are a few components. So you'll remember, the recurring revenue is composed by maintenance and support plus subscriptions. So maintenance and support. Keep in mind that we renewed 40% of the maintenance and support in Q1. So we still have 60% to renew for the rest of the year, but we are close to have down half, which is in the -- given the situation, probably not so bad. So that's point number one. Point number two, I do not expect to have churn from the large account, as I was clearly stating. But I do expect to have some churn on the midsized market, the same thing we saw in 28% and 29% because some of the companies will probably go to bankruptcy. And I need to factor this. So that's the reason why I took an additional point. On the subscriptions. Again, the subscription is composed by renewal and growth. The growth will be impacted the same way than the new license. So when I gave it to you minus 30% in Q2, minus 20% in Q3, to a certain extent, you could extrapolate that the subscription will be hit the same way. And for the renewal, the thinking process is exactly the same than the maintenance and support. I do expect to have an additional churn, probably much more spread across the large company and the small one, because subscription, as you may know, it's relatively easy to adjust depending the capacity. I hope you have all the details, Adam.

[Operator]

Your question comes from the line of Mohamed Moawalla from Goldman Sachs.

[Mohammed Essaji Moawalla, Equity Analyst]

I had 2 as well. The first one was just on Medidata and the Life Sciences business. To what extent has the customer conversations were not changed versus, say, the initial point when you made the acquisition? And sort of as we've gone through the kind of current crisis, anything around decision-making cycles, sales cycles that you can kind of comment on? And to what degree, from a competitive standpoint, do you feel that you're kind of more differentiated? And then the second question was, again, more generally on kind of pipeline and visibility. Do you feel that the kind of license assumptions you have made, at this stage, in terms of that kind of gradual improvement, what are the kind of key risks around? Is it simply the duration of lockdown? But do you see some of your manufacturing customers, for example, really being able to go back to kind of decision-making, perhaps as they were a few months ago, and would that not prolong into next year?

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you, Moawalla. Good to talk to you. Maybe I'll take the first one, Pascal, if you allow me. On the -- related to Dassault Systèmes and Medidata together, I participated to several reviews with the team, with Director of Glen, to co-founder of Medidata, and we participated to top executive calls with the sector. A few observations that might be helpful for you. First of all, I think they recognized, we collectively now can set the conversation at the Executive Committee level of those companies. That's clearly a big step. That's the first thing. And why it is because very often, the clinical trial process is one piece, which is, in some way, relatively isolated from the overall CEO preoccupation of a big pharma. Because basically, you have to think about the pipeline, you have to think about the commercialization, and you have to think about many aspects. Together, we can have a conversation on digital continuity across research, development, lab test, clinical trial, production. That's visible. And in fact, it's visible on the agenda when we have the calls. That's -- so the broad connection. And the reputation of Dassault Systèmes to provide collaborative platform to extremely large companies for years now on addressing extremely complex costs. The second thing is science. Clearly, what differentiates us, more, and I think everyone should -- and there is a cost to it, is the fact that we focus on the science aspect. And it is illustrated very well in a few things. Of course, on the modeling and simulation side, but also in Data Science. And with Acorn, with Medidata Acorn AI, we do things for Synthetic Control Arm that no one else can really do because you cannot do that from documents. So that's becoming visible. Of course, it takes time for these Executive Committees to make up their mind about how to evolve with their digital road map. But I think we are changing the game of their thought process. Synthetic Control Arm is -- was new, was going on when we acquired Medidata. And I think together, we are really concentrating on that. And the last point, MyMedidata, the announcement today, that's part of the result of an intense passionated conversation between the teams. And really they love each other. The people love each other. And they know that if we make it so easy, because the statistics for clinical trial for other medication, other therapeutics than the COVID situation. The passion acquisition is becoming a massive problem for all the industry sector. In fact, it's a problem also for the healthcare system because, as you know, many people having other disease like in Oncology sector or heart vascular have basically reduced the contact with the medical sector on exposing their own life. But clearly, the statistics shows that the clinic -- the passion acquisition is becoming something which is critical, on which will expose the sector longer term if we don't -- if they don't adopt the kind of platform we have. And I think that's the framework, analytics platforms continuity and the breakthrough of Synthetic Control Arm because I believe that this is quite important. Related to the second question about the key parameters for the restart. Pascal, you have a view. But I want to make a few comments because I was talking with manufacturing -- really deep manufacturing companies. Clearly, there is a lot of work done by companies now to rethink about their supply chain. Of course, it was triggered by the sensitivity of the supply chain related to its critical exposure. I mean some of the players becoming bankruptcy. But at the same time, consolidation will happen in different sectors of manufacturing. The second thing we think is becoming more visible, and I cannot mention explicitly the case, but I think that there will be new mutualization of production capacity between competitors. In some way, when you are using supply chain, that's what is the factor, which is happening. But -- and I think this will create the need for, what we call, manufacturing engineering to accelerate, not only the product development process, but the manufacturing engineering, the very actual twin of how you produce and manage. Those topics are back. I was astonished how quickly they could be back on the agenda. And Pascal mentioned also the logistic aspect, which is becoming something that needs to be -- needs to evolve because the current infrastructure, really if you think about it, the world is still highly static in some of those big gigantic sectors. It's set, and it's very difficult to reshape it. I think this will change. There will be a before on and after from that standpoint.

[Pascal Daloz, COO & CFO]

Regarding the pipelines. Again, when I computed the number, I did a bottom up approach, not only a top down. From a pure bottom-up, we clean up the pipeline, and we took almost one by one all the deals we have. And where we are, we are almost 20% below compared to last year after this review. That's where it's coming from. From a behavior standpoint, what do we see? You're right. Part of the plan is based on the fact that we have some duration for the lockdown, and we expect that the -- at least in mid countries between May and June, we will be able to restart completely, either fully, but restart. And China gave some indications to us. As I was telling you, in the last months, I mean, we did some significant deals in China with large accounts in a sector where you are not expecting to have those kind of deals, like Transportation & Mobility. So it came to me. The question is, why so? And the why so is relatively easy to understand. To restart you need to behave, you need to operate in a different way, and you need a lot of money and simulations to prepare what you're going to do. So that's the reason why, to come back to your questions, what's -- if I look at the pipe, what has been impacted? Really, it's all the large enterprise deals. All the people engaging large project transformations because right now, the mindset is not yet there. It will come again due to the necessity of the crisis, but the mindset is not there. But the mindset is definitely there to buy some roles, processes in order to optimize, to reengineer, if you want, what you're going to do. And we saw a lot of add-on sales, if you want, on the existing customers, our installed base and also new customers is coming to us. And my last point to you, Mo, is if you compare to 28% and 29% there is a big difference. And the big difference is the following: 50% of the revenue of Dassault Systèmes now is coming from industry, which is not Automotive and Transportation, Industrial Equipment and Aerospace & Defense. And the other industry are relatively going well in this environment. So that's the 3 takeaways to extend if I look at the pipeline.

[Operator]

Your next question comes from the line of Julian Serafini from Jefferies.

[Julian Alexander Serafini, Equity Analyst]

I guess my first question is you made a comment earlier about the strong growth in Europe Aerospace & Defense protocol. I guess, can you give us some more insight into what actually drove that? And my assumption is that this shouldn't persist through the rest of 2020, but it would be interesting to hear your take or your outlook for that vertical for the rest of the year.

[Bernard S. Charlès, Vice Chairman & CEO]

I think the -- on the Defense side, many countries are going to continue to fund significant progress achieving on programs because it will be a way to also sustain the economy, not only the Defense aspect, but the innovation. So we -- I think this is well -- quite well accepted in many observations of the economical sector. And we are benefiting from that, clearly, with the different contracts going on. That's probably one of the -- you remember, we are -- we continue to expand in Shipbuilding and Defense sector. We continue to expand in highly sensitive specialized equipment, in system engineering for Defense. Those are things which will have value also for the civil activity. So difficult to say -- to predict per quarter, but the trend is more positive in that sector. Pascal?

[Pascal Daloz, COO & CFO]

There is maybe a second topic. And Bernard, you touched it. We will see consolidation in Aerospace & Defense and especially in the supply chain. And usually, when consolidation is happening, it's an open door for us because you need to integrate different systems. And you need to have the synergy -- the cost synergy put in place very rapidly. And 3DEXPERIENCE platform is very valuable in this specific context. So I do expect the consolidations to trigger new programs for us.

[Operator]

And your next question comes from the line of Stacy Pollard from JPMorgan.

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

Two follow up, well, for me. Just maybe the competitive environment, are you seeing any competitors struggling? Have you seen any changes at all in terms of pricing in the market? Or any activities that have been more or less aggressive than in the past? A second -- just a question on the cloud. Do you think COVID-19 will accelerate the uptake of your cloud offerings? Maybe you can remind us what percentage of revenues, what you'd like to achieve and where you're going with that?

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you, Stacy, and I know you are following us carefully. And thank you, by the way, for that. On competitors' behavior briefly, difficult. First of all, we -- because the reprofiling of the company and the recent moves that you are very aware of in the last 6 months. We are also learning from our side, the new landscape for the competitive landscape. And we are having an increased clarity about how we should proceed to basically win. And Pascal mentioned several wins, which were, for example, when it comes to Medidata, significant wins of Medidata against Veeva as a -- to name them. In the other aspect of the landscape, I think it's too early to say. But as you -- as we are announcing a major evolution of the product portfolio with the cloud platform, which is part of your second question that I will let Pascal address, the -- you -- I think we communicated at the 3DEXPERIENCE World that the evolution of SOLIDWORKS is with a package, which is fully connected to the cloud. It's happening midyear of this year, where basically the license enablement of the SOLIDWORKS desktop and services will be done mainly, and only, from the cloud. Because we believe that we -- on $37.5, we can have a better collaborative environment than Dropbox Slack on WhatsApp. It's more secure, more integrated, but we need to make it visible to the market. So to make it visible to the market, this is the approach, making it mainstream. So that's -- at this point in time, I think July will be better, Stacy, to give you more insights about the other trends. I have nothing special on that aspect at this point in time.

[Pascal Daloz, COO & CFO]

So just to add a few things. So as you know, I'm not disclosing the revenue coming from the cloud. And not because I want to hide it. It's because -- take the example of SOLIDWORKS. I mean, what we do. We are connecting the desktop installed base with 3DEXPERIENCE platform and the cloud. So the question is, how do I need to account this? So from a pure accounting standpoint, that's a little bit tricky. But to a certain extent, you have the strategic thinking behind. The second thing, which is also key to notice is in this specific environment, many partners cannot visit anymore their customers because they cannot travel. So they like us, they have to do it remotely. And more and more they are using 3DEXPERIENCE as a channel to make it happen. And as you may know, you'll remember what I told you, the opportunity for us is now to have the partners promoting 3DEXPERIENCE platform and especially on the cloud because the vast majority of the revenue coming from 3DEXPERIENCE platform is still coming from the direct sales. This time frame is appropriate to make these transformations because this is definitively the solution. It's the only way to do it, and no one is arguing about potentially what could be the impact on my compensation, on my revenue plan, on the way I will manage my cash flow because if they're not selling something, they're going to -- they will not have any cash flow. So that's probably one of the opportunity for us in this time frame, is to accelerate these transformation through the indirect sales.

[Bernard S. Charlès, Vice Chairman & CEO]

And there are partners, by the way, who are nearly fully aligned. I'm thinking about the one that I usually would avoid to name them, to not make too much difference, but I think TECHNIA, for example, in Euro North, they are really fully in for the cloud.

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

And just kind of touching on that question about any pricing discounts or concessions being requested by customers? Or do you feel pretty in your situation?

[Pascal Daloz, COO & CFO]

So point number one. When people are asking discounts, as you may know, and I was being explicit during the cash flow presentations, open the door to negotiate the terms of payments, but I do not want to change the discount policies. That's the way we behave right now. And the reason is because, again, if you look at what we do and you look at the situation, we are bringing to them a tremendous value. And our frustration, Bernard and I, is EUR 1.5 trillion investment on our platform, and we are a EUR 4.5 billion company. So to a certain extent, the discount is not the point. So the fact for us to demonstrate that we are empathic with them, there is solidarity with our customers, is to help them on the cash flow. That's the reason why I stated clearly that on a full year basis, I continue to have probably EUR 200 million cash flow being postponed to 2021. Now -- nevertheless, to promote cloud, that's right. We launched a marketing program, whereby you have some incentives. If you are a newcomer, and you are starting with the cloud, on the pricing for the first quarter. But we didn't change radically our pricing policy.

[Operator]

Your next question comes from the line of Stefan Slowinski from Exane BNP Paribas.

[Stefan Julien Henri Slowinski, Research Analyst]

Pascal, just a follow-up for question on -- the first question about the non-Medidata subscription revenues. I was just wondering how you expect those renewals to evolve, I guess, going into next year. You mentioned the one extra point of churn for the smaller customers potentially difficulty to this year. But what about the larger customers? What scope do you see for them to potentially lower their subscription amounts? So maybe if you could help us understand the average time frame for those contracts. Are they rolling one year renewals that could be reduced on January 1 of next year, for example? Or are they typically multiyear contracts, and therefore, there's maybe limited risk to those being reduced in terms of scope?

[Pascal Daloz, COO & CFO]

So for the large companies, the vast majority of them are multiyear contracts. Okay? So to a certain extent, it's a way to be secure. There is probably one point I did not factor in my guidance is, as you may know, Boeing is going under tremendous pressure. And 2020 is a significant year for the ramp-up. So depending the situation for them, if they do not have the people on site, if the situation is complicating the ramp-up, maybe the ramp-up will be postponed. That's probably the only open point I have at this stage.

[Stefan Julien Henri Slowinski, Research Analyst]

And what kind of impact would that have on yourselves? And would you still receive -- would you still book the revenue even if that ramp-up is postponed?

[Pascal Daloz, COO & CFO]

No, that's not the way we do. We usually book the revenue when the license are used.

[Bernard S. Charlès, Vice Chairman & CEO]

Yes. Remember, this year, we -- the plan is for Boeing, and it's something I shared. It's plus EUR 20 million for the full year. We did Q1 on plan. So assuming that Boeing is taking the decisions to ask us or to come to a compromise to adjust a little bit. Potentially, the impact is around 10% to 15%.

[Stefan Julien Henri Slowinski, Research Analyst]

Okay. And has that been incorporated into your guidance already? Or is that potential?

[Pascal Daloz, COO & CFO]

No, no, because we are not there. And they have many things we can do for them. And as Bernard stated, we expect the governments to fund some different program to help them. But there is a lot of value to accelerate our expansion in this part of the company because you remember, we -- the de facto standard for the commercial side, but on the Defense, we are substituting competitors' installed base.

[Stefan Julien Henri Slowinski, Research Analyst]

Okay. Okay. Great. And maybe just one follow-up on the cash flow. Just to be clear, you mentioned the EUR 200 million of potential headwind. I mean, just to be clear, on the full year, what could we expect you're -- on the current guidance, the cash flow from operations to be? And what about CapEx this year?

[Pascal Daloz, COO & CFO]

Our CapEx would not change because it's relatively consistent year-over-year. And I think '19, minus EUR 200 million could be a good base.

[Bernard S. Charlès, Vice Chairman & CEO]

We'll take one last question.

[Operator]

And your last question comes from the line of Alexander Tout from Deutsche Bank.

[Alexander William Tout, Research Analyst]

Just a few quick ones. So could you please just confirm that your expectation around Medidata growth for FY '20 overall remains about the same at 13% or any change there? It looks like it might actually have been a bit stronger than that in Q1. Secondly, could you remind the percentage of the recurring revenue base that you consider to be mid-market customers? And just, finally, the simulation performance, SIMULIA, in the first quarter and how you expect that to maybe perform over the remainder of the year?

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you very much. Pascal?

[Pascal Daloz, COO & CFO]

Okay. So Medidata, the plan is still the same, just 13% growth for the full year. And by the way, Q1 Medidata is right on this plan. So do not see one single reason to change it. Related to the recurring revenue coming from the mid-markets. Again, let's slice it. On one hand, you have the Maintenance and Support. And on the other hand, you have the Subscriptions. For the Maintenance and Support, which represent almost -- close to 80% of the total recurring revenue, the percentage is equivalent to the percentage of the revenue coming from the different channels. So to a certain extent, 25%, 26% is coming from the mid-market. And for Subscriptions, the vast majority is coming from the large corporations. Because you'll remember, it's solutions widely used in Aerospace. And usually in Aerospace, all the companies we are serving as the large ones, I mean, with the subscription model. And the rest is coming from the simulation. So the piece coming from the midsized market is not the bank. Do not have the numbers in mind, but it's somewhere around 10% to 15%. Okay?

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you very much all of you for your questions. We have -- we are hosting another call in this afternoon at 3:00 time. You're always welcome if you have more questions. Thank you, and enjoy your day. And let's go through this crisis in the most safest way possible. Thank you very much, again, for your attention to follow Dassault Systèmes.

[Operator]

That does conclude your conference for today. Thank you for participating. You may now all disconnect