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Ladies and gentlemen, thank you for standing by, and welcome to today's Dassault Systèmes '20 Q2 and '20 Half Year Earnings Presentation. [Operator Instructions]. I must advise you that this conference is being recorded today, Thursday, the 23rd of July 2020. I would now like to hand the conference over to your speaker today, François Bordonado. Please go ahead, sir.
Thank you very much, Sharon. Good morning, everyone. From the company, we have Bernard Charlès, our Vice Chairman, Chief Executive Officer; and Pascal Daloz, Chief Operations Officer and Chief Financial Officer. I hope you and your families are keeping safe, and I would like to welcome you to Dassault Systèmes' second 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. Most of the financial figures are presented on a non-IFRS basis with revenue growth rate in constant currency 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'll 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 d’enregistrement universel. Let me now introduce Bernard Charlès.
Thank you, François. Thank you for joining, and good morning or good afternoon. Well, the first thing I would say for this second quarter announcement is that in this incredible pandemic and crisis, I think it's a special moment to reveal resiliencies of companies and the differentiation between themselves. It's true also for our customers and partners. And it does apply and it reveals a lot of different attitudes. It also reveal about not only the resiliencies of companies but also the values which are associated with the companies. And I think the way we have prepared a program for you this morning is really to provide you with some insights which are not only about numbers but about what actually do we do with our clients and how do we observe the evolution across the world of the so many sectors we cover. So the financial results are well-aligned with the new guidance we set up at the end of Q1, with the total revenue up 10% and -- which -- in Q2 and 14% excluding exchange rate for the first half. The recurring revenue is strong and represents 83% of the total revenue, up 30% of course also with the effect of the diversification acceleration we initiated at the end of last year. Solid renewal on an organic basis as well as good Medidata performance. We'll come back on this. The operating margin and EPS at the high end of the guidance on a strong operational performance. I think Pascal and the new executive team did a lot of creative things to really not only do cost control but very selective investment, and we'll talk about that. I think what is common across all the sectors, and we have a wide scope of observation right now, is that the virtual twin experience is relevant. It's -- don't make the confusion between digitization and virtual twin experience. Virtual twin experience means you can evaluate what if on the way you operate, on the what you develop, on how your customers are using your products, you can do the what-if and evaluate them real time. It's very different from having a static digital view of your company. More to be said. And as you remember, on February 6 of this year, we said we want to apply this to life. We want to apply this to our relationship with our clients and partners by using the platform for everything we do with them. And we want to transform the modeling and simulation approach to the world we have been serving for almost 40 years now in the industry with AI-based engines that allows you to create things mankind would not create. That's what we call making to growing. A tangible example of that is when you do 3D printing. The process to give birth of the part, not the other way around. And the human aspect of it is very important more than the social aspect for us. The human aspect of it is about usability, adoption by people, the way we can -- to look at the way our software is used and the relevancy of it in the different sectors we serve. The last point on this purpose-driven aspect, which is important in tough time, a purpose is at the core of what I think makes difference between companies. What I would like to say here, the Proxem, beautiful start-up, top-profile people in France, we have -- are joining together. What we want to do is we have EXALEAD to tag, search, find, reveal information. We have NETVIBES to dashboard them. And -- while now with Proxem, we are going to be able to build ontology and semantic and basically take a document and be able to, between code, increase the level of understanding of this document as opposed to the keyword. More to be said, but as you can understand, it will serve in a big way in the life science sector because everything is document in life science. And we reaffirm our 2020 EPS with the objectives, and Pascal will give you the details about that. Even though we are frustrated with the consulting and service, like many companies, I think the software dynamic is good. So in the -- Q2 was marked by the importance of how we reveal the purpose. But before I talk to you about that, let's run a quick video. [Presentation]
So when everyone is observing the pandemic, the economical challenge and everything, it might be irrelevant to build upon this video. But what I want to tell you is that in a tremendous crisis, as I said in my previous comments, people are important. Behavior and willpower is important. And I have to tell you that really when Pascal and I, without knowing the duration of the crisis, the impact of the crisis early April, we said we are not going to -- we are going to keep all the profiles of people, we are -- and we are going to continue to sustain and make sure that our partners can continue to stay in the business. It was not a minor engagement, and it's not a minor engagement when you are in an unpredictable economy, like what we have seen. But I have to tell you that the customers were extremely deeply associated with that, that also they noticed that we were there to help them stay and run their business. Noticeable, for example, the ecosystem of SOLIDWORKS, they said, we have never seen so much empathy in the relationship that you have with us. We think that this is also driving the business in certain ways. So basically, the purpose we have that you know now, harmonizing product, nature and life, it's on the agenda, and I think we are walking the talk, you would see in a moment. No doubt that the perception of what we do, moving from tool to an infrastructure to use the virtual world to improve the real one, has never been accelerated as in the last 3 or 5 months. When big companies developing complex products had to work from home, it was not a toolkit question or a conversation question or a video conference question. It's where are the data, can I manage the process and can we work together. And that's what I believe is more revealed today and making the difference. The second thing that we formulated in February on the ambition, things to life, ongoing relationship with clients instead of only connecting, making to growing. Making to growing, let me give you a very simple example. We believe that technicians can do what engineers in most companies are doing now in our company. The direct effect is cost reduction by 50% of the same job. That's a tangible thing. And when companies are reducing their workforce, it's becoming so important, and it's not a question of functionalities. It's a question of OpEx, selective CapEx in terms of investment. On the human centricity, of course, an example of that is if we can simulate how a plant is working and how we can make the workers work in a safe environment, I think we have an impact. So we continue on the line of what we said in February despite the gigantic crisis that the world is facing. And we are going to work on many topics that we continue. You will see all along the year, actions in the context of water, city, energy, mobility, consumption, nature, health and others. So in order to make sure our ecosystem can act consistently, we continue to come back to why we are a purpose-driven company. Let me translate this now to how we are orchestrating that. As you remember, the platform is operated in 2 manners: As a system of operation and to create new business model. I'll give you a few examples, but new business models means that you are 1 click away to be able to find someone who's going to be able to produce a part for you, even if it was not in your supply chain, which is incredible agility. And system of operation means that when you have the digital information, you can do data intelligence on it. I will take a few examples on those. The next example I want or next statement I want to make is, as you know, we have announced today Bouygues with cloud and mobility, Moderna for Phase III and on clinical trial. We have also announced Ericsson, and we're going to talk about it, and Airbus Defence and Space. Wow. If you try to connect that, many people say, what is connecting those together? Is it the toolkit question? No, it's virtual twin experience for all of them. Here are a few observation for the 3 sectors, economical sectors, that we are now looking in the common eyes: Manufacturing Industries, Life Sciences and Infrastructure & Cities. In short, in the manufacturing industry, what we see is tactical action to amplify the use of the software to reduce cost of operation. I took the example of a technician doing what an engineer is doing or using the workforce but still having the same plan. But it's also related to the speed at which a portfolio can be transformed, of the service associated can be transformed. I have an example in aerospace which I want to take now. I will not name the company, but that company has adopted the 3DEXPERIENCE platform for a while now. And what they said, they have cut all their IT investment but one. They are using our data science to improve and reduce massively the warranty cost of the product in operation with predictive, to be able to increase the service level. So they are, in a few months, adding 7,000, double the size of the user community, just doing data science on the data we have there accumulated with our platform. That's a tangible example of rapid return on investment. Many companies are also looking at value chain transformation and also, of course, the concern about survival of some of the players in the supply chain. On the sovereignty topic, we see highly visible, and I think it's going to increase. Life Science is another dynamic. It's innovation and centricity and the passion. And for life -- for Infrastructure & Cities, no doubt that a lot of money will be invested in constructing and improving the infrastructures at large on energy. We want to play a role there and we feel we have something to do there. Let's take a few examples. Moderna, we are very pleased that it can be revealed. My friend, Stéphane Bancel, was talking a lot about what he was doing. And one day, I call him and I said, you should also talk about the fact that you use our platform. So I think they are using our platform. It's an incredible showcase for a clinical trial with Medidata platform. And it's really about electronic data capture, clinical customer assessment and centralized statistical analysis. This is the data science associated with it. I think it's a beautiful showcase. They are in Phase III with almost 30,000 patients, as you can see here on the slide. And we believe that it translates to a reality the importance of data-driven platform. And more than that, as you know, we are doing a lot for virtual control arm, which is basically a way to use massive data and use them to compare with real therapeutic supply to patients to evaluate risk, efficiency and validate the approach. Galapagos, another example. By the way, I should mention that the 3 Phase III biggest clinical trial now, without naming anyone, are based on Medidata platform. Galapagos, yes, adopted also the 3DEXPERIENCE platform. This is more on the ONE Lab solution. This is associate -- ONE Lab solution is associated to BIOVIA brand, but it's really integrating the lab development. As you know, research, development and lab are very disconnected today in that sector, and we are connecting them. The other showcase that we want to mention today is Ericsson. We have a very important program going on for multiyear program to really use the excellence platform to improve the operational efficiency, increase the flexibility of manufacturing as well as being able to readapt related to political constraint. Where do you produce what and how do you do it, because the current political situation is creating new type of constraints where the agility to relocate is becoming obvious. I don't need to say more about that, but I think that the platform is a critical element. I was pleased to see that our friends from Tesla, who are the early adopter of the 3DEXPERIENCE platform, are positive for 4 quarters in a row now. So I think it shows that -- I think we offer something there because the platform has been used to do all the development engineering and also improve their processes. And now having Nikola Motors, which is on the news from what I've seen in the last weeks, they have also widely adopt the 3DEXPERIENCE platform. I think that the Electro Mobility Accelerator industry solution, you notice, we just say what it does, electrical mobility accelerator industry solution. So we don't sell functionalities anymore. We sell industry solutions unlike our friend competitor. So this is changing the approach for many of the companies adopting our solution. So that's a reference. By the way, it's a strong signal for all the legacy customers that we love for years because they know that as we win all the new player, we are also probably the best solution for them for the new portfolio they want to do. GDC Technics also adopted the EXPERIENCE platform to -- with the Cleared to Operate industry solution experience. This is really related to reducing cost to -- time to reach clients on creating an attractive environment for the MRO. Another important aspect, Airbus Defence and Space. This is important because I think the ambition of the programs in the space and defense sector is visible in all key countries in the world. So adopting Program Excellence, Co-Design to Target Ready for Rate, it says -- it speaks about the outcome of the solution, not what it does, but the outcome of it. Cleared to Operate, which is certification; and Keep Them Operating, cost reduction in the operation, those are the solutions which are being adopted on 3DEXPERIENCE platform for Airbus. Bouygues Construction, we start strengthening our partnership with cloud and mobility. And the solution here is Creative Building Design. No doubt that the construction sector will become more modular, will use manufacturing discipline to build modules and assemble them and will become parametric in the way things are constructed. So we have a huge potential there. It's slow because it's a long transformation from the workforce. I think the limit here in speed is the workforce. And finally, 3DEXPERIENCE, it's a data-centric platform. We don't think our clients using the 3DEXPERIENCE platform will need to use some players which are doing data science side. We think we can do all of this with a collaborative data intelligence. This is an example that situates why we are making the acquisition of Proxem. Simply said, when you have the real world and the virtual world, there are 3 phenomenas. First, before the real is happening, the virtual need to be imagined, developed and produced. When it's done, it's going in the real world for production, for usage and operations. You want to connect those worlds and you want them to learn from what we call experiences, how you're going to improve the business. So in order to do that, we are massively using our 3DEXPERIENCE cloud infrastructure, building on the data, what we call knowledge graph, and ontology, using machine learning and using semantic processing, which is the reason of Proxem, to really enable to continue to improve and invent new type of solutions for the products and services our clients are doing. This is the east side of the compass, it's called information intelligence. So we now know how to do tagging, search with keywords, dashboarding. We can integrate now the semantic with it with ontology and create things that people cannot observe without those systems. So we are moving from a product-centric, capability-centric to solutions and experiences because real-world evidence applied to -- can apply to manufacturing systems also, not only to health care. This is the Proxem acquisition and why it's done. It's a core technology related to collaborative data science. With that, I give the floor to Pascal. My message to you is very simple. We are walking the talk despite the challenge in the economy. I think the echo with our clients is positive. We are there for them and we will continue to do so.
Thank you, Bernard. Good morning to all of you. We hope you and your family are well. I would like to begin my comments with a quick overview on our financial performance for this quarter. So let's start. Revenue of EUR 1,071 billion, growing at 10%, excluding the currency effects; 14% for the first semester. For the quarter, it's at the midpoint of the guidance, the growth. Moving to the operating margin, 26.7%, which is at the high end of the guidance. And to achieve this performance, we have been able to contain the operating expenses from an organic standpoint by reducing them by 5% and delivering an EPS at EUR 0.80, which is on the high end of the guidance, because you remember, the guidance I gave the last quarter was EUR 0.72 to EUR 0.77. Zooming in our revenue details. First, the software revenue is growing at 12%, excluding currency effects, well-aligned with the Q2 objective, you remember, between 11% and 13%. The organic is decreasing by 7% and it's due to the impact of many [indiscernible] on the new business activities. Zooming and focusing on the subscription and support revenue, which you remember, represent 83% of the software revenue. We are growing at 30% and it's the demonstration of the solid renewal, and it's true across all the deals as well as the excellent momentum of Medidata growing at double digits. The organic growth has been 4% for the Q2 and 5% for the first semester. Zooming on the licenses and other software revenue. We are decreasing by 32%, which was what we were expecting. It's at the lower end of the Q2 objectives we gave. But nevertheless, we expect Q2 to be the weakest quarter of the year. That's probably the most important message. And we expect a slow ramp, albeit much better for H2 compared to Q2. The services revenue has been impacted this quarter, and the COVID-19 has, in fact, created some significant headwind. And you see, we are decreasing by 5%, excluding the currency effect. We have almost 10% of the project being freezed for the time being. That does not mean they are lost. They will start again in a few quarters from now. And that's the reason why, to echo what Bernard said, we decided to keep all the people, even if we have more than 300 people on the bench. The people we have internally are very high-skilled people, and it's difficult to hire, difficult to replace them. And I think it's a valuable things we do. To contain, nevertheless, the impact, what we did, we have reduced the subcontractee and we are reallocating them to a very strategic project, whatever, internal or external. Moving to the review by regions. Let's start with Asia. Asia is growing at 3% for the quarter, 5% since the beginning of the year and represent 25% of the total revenue. We saw a very good revenue in China and as well as Japan. China is growing at 9% for this quarter, 5% from Japan. Nevertheless, this performance has been offset partially by a strong decline in India. And I do not expect the situation in India to improve significantly in Q3, given the health situation they are facing. You will see we have a significant transaction in China in many different sectors, Construction, Transportation & Mobility as well as High Tech.Europe is decreasing by 4% in Q2, minus 1% since the beginning of the year, representing 33% (sic) [ 36% ] of the total revenue. The key point is the impact is almost the same across the different countries, whatever it's from, Germany or the North of Europe. The crisis has been slowing down the decision process. And you can see the impact. Nevertheless, we had some very healthy industry still growing, Life Sciences being one of them. Americas growing at 43% this quarter, 44% since the beginning of the year and now representing 39% of the revenue. So it's a significant change, if you remember, compared to last year and obviously due to the contribution of Medidata, but not only. You still have industry like aerospace and believe it or not, despite the difficulty they are facing, we are growing at 4% for the semester overall. And especially in Americas, aerospace was growing at 7%. Zooming on some key wins, Page 23. Zooming in China. Our direct sales had the best performance, continuing to show a pickup activities we saw at the end of Q1, with deal in High Tech, Marine & Offshore and Transportation & Mobility. And here, it's an interesting case. NIO, it's a high-end smart electric vehicles OEMs, headquartered in China, 7,500 employees. So when we say they are newcomers, they are not a small company anymore. I was just -- just to be clear. And they have selected the 3DEXPERIENCE platform, again with the Electro Mobility Accelerators, in order to roll out an R&D platform to support rapid global expansion, design and launch new model faster. And the core is really improving the collaborations, bringing together all the different disciplines and accessing complex -- complete and complex vehicle data at any time. That's what we do for them. Zooming in Europe. Our traction in Life Science is further demonstrated with MIGAL. MIGAL is a research and development center based in Israel. And they have selected also the 3DEXPERIENCE platform with Designed to Cure industry solutions. That's an interesting one because we say a lot about Medidata having a significant position in the -- to develop the new vaccine. But here, you also have the proof that BIOVIA is extensively used in conjunction with the research they are doing. And what they want to do is just to fast-track the development of the vaccine based on the existing virus research. That's what they do. Zooming to North America. We had most of the deals in the top 20 in Q2, so spread across a number of industries, such as Energy & Materials, Consumer Packaged Goods. And here, it's an interesting example, Dot Foods is the largest foodservices redistributions. You know what they do, they sell the product to distributors in all the 50 U.S. states and more than 35 countries. They have decided to expand their use of DELMIA Quintiq to optimize the pickup sequencing in their warehouse across the U.S. and Canada. And at the same time, they are integrating also the supply chain processes. It's a significant differentiator for them. And you could consider that you will see, on a regular basis, this kind of win because I think with Quintiq, we have something unique to make it happen, yes.Moving to software revenue by product lines. Industrial Innovation software revenue decreased by 9% this quarter, minus 11% for CATIA as well as ENOVIA. Despite a good resilience of the support revenue against across all the different countries, you have to remember that last year, the base of comparison is not helping because we had a very good quarter for -- and semester for CATIA and ENOVIA plus license up 10% and 20% for ENOVIA last year. I was checking anyway for ENOVIA, the competitive win rate. And I think you will be interested to know that the competitive rates have improved significantly against Siemens. We used to win in 71% of the cases, and we have exceeded 80% since the beginning of the year. So I think this maybe could explain why they are trying to do something with another partner. Moving to Life Sciences software revenue, as you can see, plus 526%. Medidata performance is extremely good with a double-digit growth in Q2. We had some headwind, and Tarek say a few words about it to some investors because the study by study has been impacted by the difficulty to hire -- to enroll new patients, but also we had some delay. But nevertheless, the situation is back to almost normal on a worldwide basis. And we are very confident to deliver the full year total revenue up 13%. And to demonstrate this, I think we have very good indicators on the bookings side, up more than 20%. And we see also an acceleration of the backlog growth specifically driven by Patient Cloud. We introduced last time myMedidata, and myMedidata, it's a way to shift the trial from being site-centric to patient-centric. And we saw -- also saw a significant backlog accelerations on the data analytics, which are used to enroll the patient more specifically to identify the right profile but also to accelerate the trial with, what Bernard said, the virtual control arms. Related to the Mainstream Innovation software revenue, minus 2%, with decent performance of SOLIDWORKS, minus 3% compared to CATIA, which is a good sign, because SOLIDWORKS is usually used as an early indicator of the situations. And we saw not only a very strong recurring revenue, even if it has been offset by the license decline, but much more contained compared to CATIA. We could notice also that in Q2, we had a growth for Centric PLM and DELMIAWORKS, very small growth, but nevertheless, given the situation happening in the fashion industry and for the midsized market, I think it's a good performance. Zooming in our profitability. Our operating margin of 26.7% came near to the high end of our objective range. And you remember 25% to 26.5% with 2 principal factors. The first one is really a strong performance in our core business. And you can notice, it's plus 120 basis points, which is a proof that the saving plan is already in operations. But also, we had a good contribution from Medidata coming ahead of the plan. It's almost a 500 basis point additions on the operating margin compared to last year. And now the operating margin is exceeding 20%. So it's a -- they are not only on plan, but they are going a little bit faster. However, this -- compared to the previous guidance, on the profitability, the lack of revenue has been slightly impacted Centric and DELMIAWORKS. You saw it's minus 15 basis points compared to the previous guidance. So I just want to remind you that our saving plan targeting EUR 170 million and offsetting half of the revenue reduction is already well in place. At the end of H1, we are in line with the target with more than half of the saving being achieved. And at the same time, which is a very important message to you guys, we continue to reinforce and hire additional capacity in research and development. And you will notice in the appendix that we have been increased by 5.5% the number of people we have in research and development organically. If you add Medidata, it's much more. We continue to do some M&A to reinforce. And the reason is because we want to focus on the value creation for our customers, and this is the right time to do it. So despite the savings plan we are putting in place, we continue to invest and to create the differentiations. Moving to EPS. The good operational performance has a direct impact on the EPS. I'll say already it's EUR 0.80. And the contribution of the currency effect is adding EUR 0.02, so it's not explaining everything. The good performance on the operating margin is really reflecting to the EPS. Our operating cash flow for the first semester reached EUR 894 million. Strong level overall, with just 4% below the H1 2019. And there are a few things I want to say. First, we benefited from, again, Medidata improved cash flow situation. It's almost more than EUR 50 million. It's 3x more compared to last year. And we also did very well the way we were -- we are collecting the cash, you will see afterwards. However, this has been offset by extending the payment terms. If you remember, we gave 30 additional days to the customers and to the retailers to ease their cash flow, and this is reflected in the cash flow situation. Having said that, our cash position in banks has increased by 23% in H1. And we are almost back to the level we were before spending billions for Medidata. And if you combine this cash generation and this cash position with the level of debt of EUR 4.6 billion, our net financial position improved by EUR 460 million this quarter and we are well-aligned with our deleverage trajectory. A few words about the operating cash flow. So you saw it, minus 4%, so it's almost EUR 39 million below compared to last year. On the net income adjusted for noncash items, it's mainly driven by Medidata, as I was telling you, representing 80% of the plus EUR 60 million. The trade accounts receivable, as I told you, we had a good collections. And the DSO is stable, excluding Medidata. With Medidata, it's plus 4 days. The contract liability, the deferred revenue, plus 3%, which is -- has to be compared with plus 4% on the recurring software, so it's relatively consistent. The key point, I could say, we had some delays. So not only we gave some extended delay for the payment, but also some of the customers we're supposed to renew on time, they took some additional weeks. Nothing to say on the accrued compensation. It's mainly driven by Medidata. It's a 2019 bonus payment. On the accounts receivable, we do not have too much activity with the lockdown, so it's not a big deal. And the difference is really coming from the Medidata acquisition fee. And in the income and payable tax, we -- it's combination of a lower profit before tax and an effective tax rate and the last payment of the known tax litigation we had. So that's what is explaining the variation of the cash flow. Moving to the objective for the full year. As outlined last quarter, our key objective and our commitment is to achieve a stable EPS for 2020 compared to 2029 (sic) [ 2019 ], so I want you to keep this in mind. And based upon the results and the assessment of the -- assessment for the first -- the second half, sorry, here are the updates we are doing. On the revenue side, we are maintaining our revenue growth range at 12% to 13%, excluding the currency effect, with some puts and takes, plus EUR 26 million for the currency effects, minus EUR 30 million for the services, which is not more than the gap we had in Q2 as we took the decisions to almost roll out this gap for the Q3 and Q4. However, we are a better visibility on the pipe, and we are capable to offset with EUR 20 million additional software revenue. That's for the revenue. So the mix slightly changing, but the overall performance equivalents.For the EPS objective, we are now targeting EUR 3.70 to EUR 3.75. We had the EUR 0.02 of the currency gains plus EUR 0.01 on the operational performance, which explains the EUR 3.75. And we narrow the range on the lower end to EUR 3.70. And this is reflected in the proposed objective for the full year, now targeting EUR 4,515 billion to EUR 4,565 billion revenue growing at 12% to 13% based upon on the pipeline we saw. If I zoom on the software revenue, it's 14%, plus 15%. It's a slight improvement compared to the previous guidance because it's -- last time I was mentioning plus 13% to 14%. And this improvement is based on the updated pipeline for the year. And we do see the willingness of part of the clients to resume their investment. And we also have less risk in the pipelines. We have less dependency on large deals. That's the reason why we -- the visibility has improved. The recurring revenue is unchanged, and we have removed EUR 20 million from the services and consulting, now decreasing between minus 2% to plus 1% compared to plus 3%, plus 7% last time. And this is really reflecting what I told you, the effect we have on some services projects. On the operating margin, 29.3% to 29.4%, and the organic operating margin decreased by between 1.4 to 1.3. So nothing to say. And the EPS, I already said, the key point is the tax rate of 25.2% is unchanged. Related to the currency effects, we did not change. I just want to draw your attention that we have some volatility on the exchange rate between euro and dollar recently, just after the announcement of the EU government plans. That needs to be taken into account. But I was checking with the consensus, and most of you are still at 1.1. So I think all of us, we have to do our job to update if things are moving forward. For the Q3, EUR 1,055 billion to EUR 1,085 billion. A growth of 18% to 21%, excluding the currency effects, reflected in the good software revenue growth plus 20% to 23% with the license in between minus to -- minus 8% to minus 18%, which is, compared to last time, almost in the same range except the lower end was minus 20%. Now it's minus 18%. So it's -- I think we have a slightly better visibility. And the recurring software growing at 33%, which is in line with what we said last time. The services revenue is now expected between 0% to 10%. So the range could be seen as a little bit large, but it's -- I want to be cautious. So when I took the 10% -- the EUR 10 million impact on a quarterly basis, it's reflected into the services guidance. The operating margin, 26% to 26.5% and the EPS range between EUR 0.75 to EUR 0.80, which is consistent. In summary, while our business is not immune to the COVID-19 crisis, our financial results demonstrate the resiliency of our business model. Moreover, I think the strong level of profitability and financial strength allow us to continue to invest in our strategic priorities, to create value for our customers and position us for the growth reacceleration when we will exit the global health crisis. That's it for me. And I think Bernard and I now would like to answer to your questions.
Operator, Sharon, can we -- can you open the Q&A?
[Operator Instructions] Your first question comes from the line of John King, Bank of America.
Two, please. Maybe first one on Medidata. Any further comments you can make around -- it feels like you've had a positive from -- in terms of bookings growth obviously offsetting some of the negatives in terms of delays on trials. Any further comments on perhaps quantifying what you've seen in terms of bookings growth? Is that above or below the revenue growth for the business? And where that nets out, I guess, as you look out into the medium term on Medidata growth rates because obviously the backdrop feels like it should be supportive in the medium term at least. And then the second question was, just more generally, outlook on larger deals. Are there any big deals now within the guidance that you've provided? I think that would -- it feels like at least 3 months ago, they dropped away quite significantly. So perhaps your updated thoughts around whether you could see some larger deals close this year and how much is included in the guidance on that.
Thank you, John, for the 2 questions. I will take them. Related to Medidata, again, the headwind I was talking about is an equivalent of EUR 3 million. So I mean it's real, but it's not material. Now giving some visibility on the backlog, there are a few things. We are -- one of the indicators we are following is what we call the 12 months renewal at par -- the 12 months backlog at par, meaning that you make the assumption that the renewal will be at parity. And it's growing at double digit, so well-aligned with our plan. And I was also checking another indicators, which is how much we are increasing the spending when people are renewing with us. And I did this analysis for the last 12 months. And in general, we are improving the bill by more than 20% when we renew. So the 2 combined has definitively an impact on the backlog. And also, I checked, and I want to thank Tarek and the team, they are -- they did a great job to monitor this metric for me. The customer retention is 100%, so that's what I could say on Medidata and you saw it's widely reflected in the operating margin as well. Coming back to the second question you had related to the mix in the pipeline between the small and the large deal, we still have large deals. However, I think the sales force did a great job to slice them. Rather than to have one big deal where all the different topics are linked together, they have decided to have a much more tactical approach, looking for very short return over investment. And they have sliced the opportunity in the smaller piece, if you want. So that's the reason why, when I say we do not have any more large deal, I say -- in fact, the number of opportunity being a little bit less term of value is more prominent in the pipelines because it was a way to manage the risk. And it's a way -- it's a new way to engage. The second topic, I could say also, it's much more easy right now with some customers to start with the subscription model that it used to be. Why so? Because in this current time frame, the subscription is a way for them to start without having to do -- to spend too much CapEx upfront. And I think we see this change happening and especially in Americas. That's what I could say. Same few words about the pipeline, maybe compared to last year, we are at between 85% to 87% of the pipe, but the quality is much better. It's almost 10 points better in term of maturity. And we have less dependency on some significant deal. That's the reason why for Q3, I think the guidance has slightly improved. And Q4 stay almost unchanged. Q4 is not done. Because it's a significant number, so in terms of PLC, we have to deliver. But I think the pipe coverage is enough to make it happen.
And actually, could I just squeeze one more in on China? It seems like there's a little bit of pressure there in the automotive segment. I don't know whether that's related to COVID or not. But maybe any comments about what you're seeing in China given your license exposure.
China is on a strong dynamic for us, even automotive, almost all sectors with a very decisive approach in terms of using EXPERIENCE platform across the digital pipeline. So it's a positive dynamic in China. Pascal, I think you mentioned that in your comments. I think China and Japan are compensating for the significant slowdown in India. But China is quite strong.
Yes, remember, it was 9% in China. And as I was explaining, the growth is mainly coming from the direct sales force, so Transportation & Mobility, Marine & Offshore, High Tech has been the industry driving the growth since the beginning of the year. And also, just for you to know. I made a quick check on Transportation & Mobility in the pipeline to understand if we're slightly below or in line. In fact, it's pretty stable. The contribution of the Transportation & Mobility is stable compared to the beginning of the year, so exceeding a little bit more than 20% of the pipe. Where I see some differences for H2 is really on the Aerospace & Defense, where we see less contribution from this industry into the pipeline.
And your next question comes from the line of Stacy Pollard from JPMorgan.
Just again, looking at that pipeline and demand from the core industries as we go into H2, any other color you can give on Boeing? Short-term delays, perhaps, but do you think they will continue into 2021 and get back on track? Or that's just not clear yet? Also, any other callouts from diversified industries with regards to H2 expectations? I guess you touched on High Tech in China, but maybe more broadly geographically. And then second question, how do you think the COVID-19 crisis has impacted your midterm outlook? Do you think there will be a faster drive towards digital transformation in your key industries? Or do you think the delays sort of that are happening now are causing more fundamental reconsiderations and maybe things turn out a bit slower for the midterm? Just kind of thinking a little bit longer term there.
Stacy, thank you. Pascal, you want to take the first one? I cover the long -- yes, yes.
Maybe I can answer for Boeing and also the diversification, and you will address the midterm outlook?
Yes, right.
So coming back to Boeing. I told you the negotiation is not yet finalized, but we are very -- we are close. And we will still grow with Boeing this year. So remember, the incremental growth was EUR 20 million additional. We did plus EUR 10 million for H1 and I consider we will be pretty stable for H2. That's the concession we did for the software. And on the services, I took this into account in the guidance because we are expecting to -- Boeing to reduce their spending on the services side by EUR 10 million, so it's already reflected. That's for 2020. And for 2021, I think we are supposed to be back to the normal. Related to the diversification and the trend we are observing. So High Tech is not only in China. It's also almost everywhere. We see -- Bernard was mentioning Ericsson. It's a good proof point. You remember, we signed this partnership a few years ago with them and we continue to expand what we do. The 5G is really driving this -- the cycle for many industries related to High Tech. So that's one. Consumer Packaged Goods is also an industry delivering good momentum for us. And the last one is the construction. Bernard said a few words when he was mentioning Bouygues. We could expect many a government plan to focus on construction. But as Bernard said, it's time to think differently because the infrastructure needs to be designed in context of the city, in context of the territory. And as you may know, that's what we do with the platform. It's a system by itself. Each time you want to, for example, to introduce an electrical vehicle into the city, you need to have this electrical vehicle to communicate with the different systems inside the city, and you need a virtual model, you need a virtual twin to make it happen, and that's the big differentiators we have. So we could expect, maybe not now on the short term, but when those plans will be put in place, us to see some tailwind in this sector. And last but not least, Life Sciences is really having traction, not only for Medidata, but also for BIOVIA and also for the medical devices, which is a core market for SOLIDWORKS.
The -- on the midterm and longer term, I think we have a very positive analysis of the perspective. To make it simple, I think that fortunately, but the reality is this crisis is revealing an increased selectivity on where companies should transform. We see it very visible. In fact, we have learned a lot over the last 4 months even in terms of how to entertain the dialogue with executives across the world in their sector. And the initial talk about reducing the software bill, let's say, the software line, just as a -- is really moving to, wow, we can get a quick return on investment, on reducing our global OpEx by better leveraging what we have already done, data science and others, or what we can do with investments, which are important, as seen by us, and relatively modest as compared to the cost of operation of those companies. And I've been in a meeting -- several top executive reviews across the world in, Stacy, in the last -- almost 10 per week in the last weeks, and the tone has moved in that direction. Now I don't want to overstate things but I think the mission-critical aspect of what we do is becoming even more visible than ever on building good rationale for the future. So we remain very positive on the midterm, long term. As a matter of fact, Pascal and I believe that we have not changed in some way the -- if we consider this year as kind of neutral as compared to 2019 over the long term that we discussed at the last meeting, altogether, we keep the same horizon. We'll come back on that topic regularly, but the case are strengthening the value of what we are doing.
Your next question comes from the line of Julian Serafini from Jefferies.
So Pascal, I think last quarter, you had talked about the churn, and you mentioned you were not expecting churn from larger accounts, but potentially a step-up from the mid-market, and you talked about a 1-point increase in churn. Is that still the case? Did you actually see that in 2Q? And are you expecting that to go forward through the rest of the year? And then the second question is on the payment terms as well. Similarly, I think you had talked about a $200 million impact or EUR 200 million impact to cash flow. Is that still the expectation this year that, that might slide into the 2021 due to just delay in payments with customers?
Thank you, Julian, for the questions. The churn, I mean, so Q2 has been an interesting quarter. We have not seen the radical change on the churn. That's, by the way, the reason why the recurring revenue is delivered at the high end of the guidance. Nevertheless, if you look at the impact of the crisis, I still do expect to see the churn increasing in Q3 and Q4. Take what's happened in Europe. The vast majority of the company who are supposed to be in bankruptcy will be in September. So all the measure has been taken by the governments in many countries, pre -- I mean has helped the company to survive and to be -- to start again, but not all of them will be able to continue. So that's the reason why I didn't change the guidance for the churn. So I still do expect to have plus 1 additional churn for H2, but it did not happen in H1. That's a fact. The payment terms, yes, you are right. I'd say, on the cash flow, you should expect at least EUR 100 million impact, maybe [ EUR 200 million ]. You -- the COVID -- I mean, the extended payment terms has an impact of roughly 3 days on the DSO. That's probably the best way I could answer to your questions. Until now, we have been able to counterbalance it by having a good collection. That's the reason why you are not seeing the impact improve for Medidata and the improvement from Medidata as well. So if you combine the 2, I mean, that's the reason why we are slightly decreasing on the cash flow. For the full year, I'm probably a little bit more optimistic. And we could expect to be almost stable compared to last year, meaning the EUR 1.2 billion cash flow generation. So the key point is not Q3 because you remember Q3, usually, we are -- we have a negative cash flow. So everything will be at stake with the Q4. But that's where my indicators are telling me right now.
Your next question comes from the line of Nicolas David from ODDO.
First one is regarding the recurring revenue guidance for Q3. I mean you expect an acceleration of constant currency growth for recurring revenue, despite, I think, tougher comps. You mentioned higher churn, delays on the Boeing ramp up. So I'm trying to understand what are the drivers. And should we expect Medidata to accelerate sharply as soon as Q3 above 13%? Or do you see other driver on your core business explaining this acceleration? And my second question is regarding the margin guidance. What is prompting you to be more cautious regarding your full year margin despite the fact that you did well in H1? And actually, your revenue mix for H2 is slightly better than what you initially expected with more revenue on software and of course, less on services, but the mix is supposed to be better.
Thank you, Nicolas, for your questions. So the first one related to the recurring software revenue. It's a combination of things. But the first one, I still expect the churn to increase. However, I was expecting this to happen in Q2. So the base is not the same. That's the first point. The second one, yes, Medidata, the Q3 for Medidata is probably an interesting quarter because we have some renewals. And when we do renewals, usually we're improving the spending -- increasing the spending with the key customers. And last but not least, the -- if you look at the renewal, it has been pretty stable across all the different geos. And I was expecting also some geo effects. And it seem that whatever the geo we are talking about, it's almost the same. So that's the reason why you see some improvement on the recurring revenue.Moving to the margin expansion. Yes, but you make the assumption that we'll not continue to invest. And I won't because I think it's the right time to do it if you -- obviously if you have the capability to do it, and that's the reason why I think I committed to you to have a stable EPS. It's also our interest, and I think it's also your interest for us to -- if we have the ability to do it, to start to hire people and especially on the sales side, to prepare 2021. That's the reason why maybe you can see me a little bit conservative. In fact, I'm not because I think I still want to invest.
Your next question comes from the line of Deepshikha Agarwal.
Two from my end. So firstly, please can you comment on the shape of recovery that you're currently expecting to see over the near term, especially in the context of the rebound of digitalization spend in your core market? What are the type of...
Deepshikha, I'm sorry. We cannot hear you. The line is very poor.
Am I audible now?
Yes, yes, it's better, it's much better. Thank you.
Thank you.
Thank you.
Yes, yes. So coming back to my first question, please, can you comment on the shape of recovery that you're currently expecting to see over the near term, especially in the context of the rebound of digitalization spend in your core markets? And what are the kind of projects that you're seeing there and what risk would be for 2021? Then the second question would be following up more on Medidata. Can you elaborate more on the scope for growth acceleration going forward and whether the Moderna deal will capitalize the pipeline, driving further conversion of the pipeline?
I think this is all related to 2021.
So to answer for 2021, I believe the -- please wait the end -- until the end of the year because we will have probably more visibility and when we provide the guidance. Nevertheless, coming back to the first part of your question related to the rebound, I don't know if it is a rebound or a base effect. You remember, last year, Q3 was probably not the best quarter we had. That's point number one. So it was not the case. The first half has been good last year, especially for the new license. So I feel that's the reason why you're -- to be perceived as a significant rebound. But a part of it is coming from the base.And the second thing is really what I told you is the maturity of the pipe is a little bit better. And the conversion rate, which is a way to check, you take the pipe you have, and at the end of the quarter, you look at how much you have been able to convert into revenue. And I did this exercise in Q2, compared to last year, and in fact, it's better despite the fact that we are not -- we are decreasing in terms of new license. Nevertheless, the ability to convert the pipe has been better, slightly better. That's the explanation of what you are calling a rebound. I don't know if there is a rebound for economy stake points, but at least that's the way I'm explaining. Nevertheless, I could echo something which is probably important. Why Americas performed relatively correctly, I should say, in Q2? It's because they have anticipated the lockdown. And at the early days of the quarter, we saw some transactions being closed. And usually, we have to wait the end of the quarter to see them because people, they were expecting the lockdowns to happen, and they decided to transact before. In Europe, we have been in a situation whereby we had almost no real decisions in Q2 because people, they were taking their time to think about how they will plan the rest of the year. And we see the situation improving. We -- Bernard was mentioning, he's doing a lot of, a lot of calls with many customers. And now they start to have a plan. They have been very selective in what they want to keep in terms of investment, what -- where do they want to disinvest, but they have a plan. It was not the case at the early Q2. And Asia, it's almost the opposite. Since Q2, and especially China, we -- it's obvious that they want to accelerate and to do the catch-up. That's the reason why we see some traction in China. That's the early indicators I can give to you to make your mind about what you call the rebound.
Okay. And on Medidata, basically, like the question more on the path forward. Can you give some color what can drive further growth acceleration in Medidata? And how -- like will Moderna be capitalized in the pipeline for Medidata going forward?
No. I told you that I'm pretty confident to deliver the 13% growth for the full year. And H2, we have good visibility. In fact, we have a 95% coverage for H2 already. So it gives you a sense of how much we should close. And for 2021, please accept that I need to keep some good information with me.
Your last question comes from the line of Michael Briest, UBS.
Just a couple for me as well. Just commenting on SOLIDWORKS. I mean it's a very robust performance. I think you said on the Q1 call that the licenses there were down 7%. They're obviously down a bit today, but could you maybe say by how much? And your comments, Pascal, about sort of churn, one would have assumed SME-centric customers might be more vulnerable to that. What are you expecting to SOLIDWORKS in the second half of the year? And then just on Centric PLM. I think there's an earnout due on that quite soon. Have you got any more clarity on how much that might be? And then finally, Bernard, obviously everybody has been working from home for the last 3, 4 months. There's talk about changes of work patterns and cloud has been a big beneficiary of that. Are you seeing anything or preparing anything in terms of the portfolio shifting more quickly to the cloud? Is that something you anticipate in the next year or 2?
Okay, Michael, thank you for your questions. So I will try to answer rapidly. Related to the performance on the new license, the decrease for SOLIDWORKS was twice less than CATIA, which is between minus 15% to 20% depending on the countries. And this is also a good demonstration of the solid growth we had on the renewal as well. Related to the churn, as I told you, I was expecting a plus 1 point for SOLIDWORKS. In fact, 2 points, sorry, for SOLIDWORKS, 1 point in total. And I was expecting to move from 8% to 9% to 10% to 11% churn. So this is what I have in the guidance. But right now, I'm still on the historical level. And related to the earnout for Centric, so this earnout is due next year because we have to finalize the transactions in H1 next year. So let's wait the end of the year to understand where they will land. It's true that if it's based on the H1, we will not have to pay too much. But I do expect them to recover a little bit the situation in H2.
The cloud, we continue with the approach, Michael, that we already explained which is, as you may have seen with the 2021x that was just released a few days ago, to create add value -- value-added with cloud connected to the client solution. We have a new packaging offer for SOLIDWORKS cloud, new packaging offer for SOLIDWORKS cloud mobile. We have new packaging offers on the 2021x, the same thing for what we call Power'By. So we do expect a growing effect of cloud as supplemental to the solutions we have, which I think is pleasing clients. And now -- but at the same time, there are new type of customers we are reaching now. The Bouygues announcement is a quite interesting one because it's all cloud and mobile, as well as many of the other start-up or midsized companies. So we are leveraging the 2 aspects: Cloud as supplemental and cloud as native in sectors where the simplicity of accessing and deploying is such that it works. And I will remind everyone, we are truly with a native-cloud architecture, unlike all the current players, all but one of the current players on the -- that 1 is a niche solution. So I think it's a very, very credible architecture.
Okay. Sorry, Pascal, is the 15% to 20% what you were saying was SOLIDWORKS decline or CATIA decline?
No, it's SOLIDWORKS.
With that, thank you very much for participating to this call. We really appreciate your question, and we take them to continue to even improve the way we manage our business, and we'll continue to do so. It's a tough time for the economy, but I think we have also a lot of levers to contribute to help our customers go through it. And that's what we want to do, customer focus. Thank you very much and maybe you will be connecting to this afternoon call. Have a good day and a good summer, if we don't talk more later on.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.