Dassault Systemes SE

PAR:DSY

Earnings Call Transcript 2018-Q3

[François-José Bordonado]

I'm François-José Bordonado from Dassault Systèmes -- company, we have Bernard Charlès, our Vice Chairman and Chief Executive Officer; and Pascal Daloz, the Executive Vice President, Chief Financial Officer and Chief Strategy Officer. I would like to welcome you to Dassault Systèmes Third Quarter 2018 Earnings Presentation, which is also being webcast. At the end of the presentation, we'll take question from the audience and from participants on the webcast -- webcasted call. Later today, we'll also hold a conference call. Dassault Systèmes financial results are prepared in accordance with IFRS. During 2018, the first year of implementation of IFRS 15, we're providing IFRS financial information on the -- both on IFRS 15 and IAS 18 basis. All figures and comparison during the presentation are under IAS 18 and are on a non-IFRS basis, with revenue growth figure in constant currencies unless otherwise noted. We have provided supplemental IFRS 15 and IAS 18 non-IFRS financial information and IFRS, non-IFRS reconciliation schedules in our earnings press release. It should -- we should arrive and end with this double reporting in -- at first quarter 2019. Some of the comments on this call will contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and to the Risk Factor section of our 2017 Document de Référence. Let me now introduce Bernard Charlès.

[Bernard S. Charlès, Vice Chairman & CEO]

Good morning, everyone. Q3 is in line with what we said, a good quarter, double digit on year-to-date. I think we have consistent growth quarter-after-quarter, 9% up total revenue year-to-date for the first 9 months. License is also up 9%, excluding exchange rate, both on -- of course, on the software revenue. On the 3DEXPERIENCE, revenue is up 19%. We continue to have good success in high-growth countries. As you can notice here, we've upped 18% on double-digit growth in Transportation & Mobility; Energy sector; Retail, CG & Retail; Consumer Goods; Consumer Packaged Goods; Marine & Offshore; and even in Natural Resources. So basically, we are implementing our strategy that is based on 3 directions: social, industry, experience. Industry is the value creation. Social is the virality of things. And experience is the game changer for the 3DEXPERIENCE platform. And as you will see in some of the showcases here, the priority that we have put this quarter, I will say for the single purpose of this year is footprint. So we reconfirm, as you notice in our press release this morning, the guidance of 2018. And Pascal will tell -- give you more insight about it. So about the strategy, we focus on 2 things: the platform as an operating system; and the platform as a marketplace to do value network, to basically move from traditional supply chain to value network. The -- what is noticeable this year is the number of new players in existing traditional industries. We mentioned it last year when we did the full 2017 review. But it's clear that in each of the industries we serve, the number of newcomers are significant. Even in extremely heavy, capital intensive like automotive, Transportation & Mobility, we continue to see newcomers. And as we referred to last quarter, those newcomers, they do use cloud directly. So we have corporate product development going on the cloud directly without using traditional approach, 0 customization, we just configure the software, it's up and running, which provides a fast ramp-up for them. And also, it's a flexibility from a business model because it's subscription-based, so you can take advantage of it. And we see it in aerospace, we see it in automotive, transportation, even in the energy sector. We see it in most of them. So that's why I will show you a few things related to that. Even in life science, with the new personal equipment for medical -- the medical sector. There is a collection of what we call 3DEXPERIENCE Lab programs going on that you can see here. And you see the diversity coming from what we call LEGO car for our last-mile delivery. Those are very modular car for cities which are used really to do different types of delivery, what we call last mile. And the start-up companies are doing vehicles now and creating new categories of products that were never done before. You may have noticed also in China what is called micro cars, which are extremely small vehicles. And I think they sold 1.5 million last year. So there is really, of course, all the articles on the news, logos on the autonomous vehicle, electrification and so on. What I observed for every industry and why we are putting a lot of attention on the footprint is newcomers redefining product portfolio. So I've taken the example of XYT here; also multi-sensorial robots, there's a lot of things going on with mid-sized, small-sized companies on the robotization aspect of it, we see here is LEKA; Digital Orthopaedics; energy (sic) [ EEL ENERGY ]; Biomodex for printing the digital twin, on making the digital twin experience before the partition will do the surgery; and you can see BioSerenity, which is really something related to AI-based wearable to have your body surveillance basically for people who are having difficulties or heart disease or something like this. So those are companies using our solution. XSun, this is -- and also a project for solar plane; or iLumens for training of the partition in the medical sector. It's very noticeable in the last 24 months about the number of this new reach that we can have based on the fact that the solution is available on the cloud. And by the way, it's not -- for most of them, it's not with SOLIDWORKS, it's directly with the CATIA solutions on all associated roles as we speak about them. This is a quick video that shows you an illustration that was presented at the Founders Forum in Boston 2 weeks ago.[Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

So this -- in these videos, all project are real. They all are real. It's not your regular project. They are going on, and they are using the industry solutions. They're not using just a collection of small functionalities on a desktop. It's really cloud-based open innovation platform. So the question for -- the priority for us is taking that footprint because they will influence the big players. In fact, we continue to do that even with the MIT FabLab and makers lab worldwide. You see all the dots here. This is the coverage. This will go to 10,000 centers where we want to put the 3DEXPERIENCE in operation. This is Neil Gershenfeld, very well known. I was with him 2 weeks ago. And Dassault Systèmes is building up the infrastructure for those companies. It is changing the world of manufacturing. And this is why in the press release, we said we don't believe that the 21st century industry will be digitalization of the past century. I think there is a real renaissance going on, and it's a big wave. And it's much more than digitalization. And those are practical examples why -- on proof points that this is happening. Now by the way, all the example that you saw for our open innovation are almost touching the 12 industries and 70 segments we target. So they are not only in 1 sector, it touches -- they touch everything. We are going to cover today mostly Consumer Goods, Retail, Energy, Process, Utilities and Transportation, while there's a lot happening in the other industries. And clearly, the priority for us in the Transportation & Mobility is the cyber system. Cyber has been used for defense, but cyber is, in reality, defined as governance. How do you govern automated system, that's the definition of cyber. So we are building, with the acquisition of No Magic, with the system approach of our 3DEXPERIENCE platform, a cyber infrastructures to do cyber systems, to do mechatronics, which are connected with smart things, which really can be orchestrated altogether. The No Magic acquisition has been a significant move for that. They are used, of course, by the -- many of the U.S. defense players for system modeling, enterprise modeling, on mission modeling. And this is part of the cyber system, what we call CATIA cyber system approach. It's being used for almost all sectors. Anything that needs to be connected to a set of service online needs a system mobile, to be managed, tested and validated and even produced. So that's a key focus here. There's, of course, electrification with battery technology. You have noticed that in BIOVIA, we have material science, so it's a very core thing for chemistry. And it's a core thing for the future of modular battery and including power management, of course, the stimulation. Autonomous vehicle, everything that happen with cyber system cannot be tested physically 100% and will not in the future. So there are massive needs to do virtual simulation because it's impossible to test physically all cases. And that's why this is really an intensive focus. We had many wins, many -- unfortunately, we cannot speak about them yet. It will come, and I will not mention any names, but they are prestigious names. We're addressing the problem of how do I test and validate those extremely complex systems. This is a quick video that shows you the trends.[Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

We are connecting the dots. This is not a pre-announcement. While many of those people in the video are good friends. And this is game changer because I think it's a big different attitude from the one of doing a software update between V5 and V6. It's really about taking a holistic approach to those problems. The same thing is happening in Energy, Process & Utilities. Pascal will present a few significant win there. Whether it's capital facilities life cycle management, you'll remember the announcement of the full nuclear value chain in France that has now decided to unify those at 3DEXPERIENCE platform that was announced at the end of Q2; as well as in new material science, where I believe it's going to also change the way the industry is working. The -- so footprint, innovation and makers seeking in all industries cyber system to do modeling, simulation and testing of things which cannot be done in the real world. So we are basically here looking at another expansion of it, which is the problem of certification. Now this video that you are going to see, don't take it lightly. Certification will become mandatory for all automated systems. It was only applied to sensitive energy sector up to now or to aerospace sector, civil. You don't certify satellites. They just blow up if it doesn't work. But you have to certify airplanes. And you have to certify in the future all autonomous vehicle. We'll have to be certified, which means not to be tested but to be certified, and there is a big gap between the 2. And to do certification, you need digital continuity between the one who is designing, the one who is producing and the one who is going to prove that it works. Not only that, in case of problems in operation, you have to define who is accountable of what. And as you know, in all industries, this is changing the rules. So this is the video that illustrates for an existing sector, what will happen in all sectors.[Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

Once again, this was not -- don't look at this only from a player's certification, it will have to be applied for all industries which are providing automated cyber system. And that's why this learning curve to really show digital continuity and predictive test coverage simulation and doing test in the virtual world, that will never be done in the physical world, otherwise, you will never ship the products, what needs to be done differently. So this is what I call a platform phenomenon, to have the continuity for service and operation. And this platform phenomenon is also necessary in life science and chemistry. Here is illustration.[Presentation]

[Bernard S. Charlès, Vice Chairman & CEO]

The acquisition of Accelrys 2 (sic) [ 4 ] years ago, people were asking us why are we doing that. I think we are doing that because we believe that material science is going to be a major factor, as chemistry, especially with battery technology, but other things. And it's happening, and it's working well. In fact, BIOVIA delivered very good results this quarter, and the dynamic is very positive. We want to do with BIOVIA what we did with CATIA for manufactured objects but applied to chemistry and bioscience. Evonik is a good illustration of that. In Germany, a great group, a large group doing highly sophisticated chemistry-based products, and they really are really building up the platform for their development certification and delivery of solutions. As you remember, we concluded the acquisition of 66% of the shares of Centric Software last quarter and with an agreement to buy 100% in year 2 or year 3 based on the evaluation of their performance. And I -- we -- I must say we are very, very pleased with the dynamic that Chris Groves and his team is putting there. We have decided to follow a policy, that is the policy we did for SOLIDWORKS for 20 years, fully dedicated channel, fully dedicated to this sector, because we think that they have a solution which is very innovative and very focused for the apparel on Consumer Goods sector. In fact, the dynamic for the footprint is quite -- well, gives you also beautiful pictures for marketing, what they do. But those are the key wins this quarter, where you see here very big names even in retail for white label. So you see also the effect of cooperation like the win of Marcolin Eyewear is having an effect on the LVMH-Marcolin joint venture, where we basically won the both of them for the collaboration. So there -- again, here, I think it's good illustration of footprint positioning in a sector which is a sector with an incredible dynamic around the world. And I'm astonished with the number of companies who are really in that segment in the world. It's just, of course, less concentrated than what is car or planes. It's hundreds of thousands of companies, and having the proper solution here is, we believe, a high potential. I think we have the best solution in the market. It's affordable, and we want to do with this solution what we did for the mainstream market for -- with SOLIDWORKS or CAD, to do it for PLM mainstream, starting with this huge number of companies around the globe. It's working well, and I think the company is in a good dynamic, and we'll see more when we do the February announcement for the full year. So our strategies in action for both social, industry, experience. The takeaway this quarter is footprint diversification, platform phenomenon and the connection between the makers and innovators and the big players. And as you will see when you look at sector analysis, if your colleagues are looking at sector analysis, we have an incredible view of what is happening in so many sectors around the world. Some sectors are under a tremendous pressure. I don't think it's a bad news for us. I like it, frankly speaking, because it's going to force accelerated changes, and we are in good position to serve those customers. With that, let me turn it over to Pascal, and thank you very much again.

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

Thank you, Bernard. Good morning to all of you,, and thanks for joining us physically. Always a great pleasure to see you face to face. With Q3 being well in line with our objective, I think we are delivering a solid year-to-date performance with what I call the triple 9: so 9% growth for the revenue; 9% for the software; and 9% for the license. So easy to remember. And an EPS at EUR 2.01, growing at 12%, 19% if you exclude the currency effects. So this growth is, in fact, fueled by the 3DEXPERIENCE platform. Bernard said a few words about it. So 19% growth compared to last year, and now it represent 22% of the software revenue, plus 2 point compared to last year. This quarter could be characterized by -- in fact, we do not have large transactions the same way we did early this year. But as Bernard stated, we have expanded our footprint in a number of industries. And if you look at in Q3, in fact, among the 12 industry we serve, 7 of them are growing double digit in term of license. So this is, I think, a good sign. As part of this growth in multiple industry, I have extracted some example. In Aerospace & Defense, I think GE Aviation is a good case for you guys. One, because we told you that in '19, the supply chain in Aerospace will start to envision 3DEXPERIENCE platform, following basically the Boeing decisions. And we start to see this happening. And GE Aviation, this -- they -- in fact, we are equipping the subsidiary dedicated to the aerostructure. Those guys, they had to ensure digital continuity from the design to the manufacturing and also being very straight on the project management. The reason is because they need to reduce their cycle time and optimize their response times to customer requests. And GE Aviation is serving both Boeing and Airbus at the same time. So this is my first message, this one. The second one is, do you know that GE used to be a Siemens boutique for a long time? So I think it's also a proof point that we are displacing our favorite friends. And also, they have their own platform with Predix. And they have decided to use 3DEXPERIENCE platform as their platform to collaborate with the suppliers. So I think there is much more we can read behind this deal than only just a simple win. The second one I'm using is in the high-tech sector, Nexperia. Probably you know this company. They used to be called NXP, part of Philips a long time ago. So now it's an independent company, 11,000 employees, 1 billion revenue. And they are producing, if I remember well, 85 billion component per year. So why I'm selecting this? Because -- it's not because we are not involved in the design of the chip, we are not predominant players into this space. Why? Because we have decided to focus on the IP management. This is where we have established a footprint in the semiconductor space. And we are by far the largest player into this space. And here is a proof point because, again, they have decided to select the 3DEXPERIENCE platform with high-performance semiconductor solutions on top of it. And why they want -- what they want to accomplish? They want to have this capability to manage the quality because they are producing billion things, but also to be able to change -- to manage the change management in a seamless way. So each time something is changing as they are developing, they know how to propagate the change to the rest of the company. And they are also using, by the way, the platform to collaborate with some of our customers in order to design specific chips for them. So again, it's a good example of the footprint expanding with 3DEXPERIENCE platform. My last example, it's a small company, it's in Asia. In fact, it's Takemoto. This company is developing packagings for the CPG markets. And they are using the cloud solutions, so they are using a solutions called Perfect Package, available on the cloud. It's a mid-market solutions. This deal has been won through the channel, so through our partners. But why it is also interesting? Because this company does not have the size of P&G or Anchor, but to a certain extent, they need to achieve a certain level of performance in term of high-quality productions. And they are producing -- they have 3,000 different packagings, and they produce small series. So they do not have the times to do the ramp-up. They need to be at the performance very rapidly without waiting too much. So again, good example. They are using also the cloud because they have groups and teams everywhere in many, many countries, close to the customer center, and they want to use the platform as a way to engage also with them and with the customers. Now coming back to the business review per regions, a few things to notice. So America, 9% growth year-to-date, 8% for this quarter. And what we can see is the situation in Latin America is improving well compared to what it used to be, and I think it's a good sign. We -- for those who know us very well, we changed the management a year ago, and we'll start to see the benefit of this. And we are also seeing a solid contribution from North America, also benefiting of all the recent acquisition we did because some of them have reduced revenue coming from North America. Europe, 8% for this quarter. What we can say, Europe is split in 2 different parts. You have the north and the south growing at double digits, including Russia. And you have what we call [ E-West ]; it's mainly France and [ E-Cal ] and in Germany, growing at 5% to 6%. So this is where we are for this quarter.Asia, still leading the pack with 13% growth for this quarter. And again, it's a double-digit growth in many, many countries. Specifically for this quarter, China and India are leading the pack, but you can see that South Korea as well as Asia Pacific South is also growing at double digit. So we still had a good momentum in all the Asian countries. From a product standpoint. CATIA is growing at 7% with a double-digit organic growth. And I think this is important to notice because this is the third consecutive quarter where we are seeing CATIA growing at double digits. And this growth is really organic because, in addition, we also had the contribution of No Magic on top of this. And the growth is also -- is coming from the direct sales as well as indirect sales. So on both sides, we have a good momentum. ENOVIA, growing at 5%, 7% on a year-to-date. I think it's relatively linked to the fact that we do not have a significant transaction or a large transaction for this quarter. Because if you look at the app's year-to-date license revenue, it's up 14%, so still a good momentum. And we are still considering that ENOVIA is on a good track. SOLIDWORKS, 4% for this quarter. So you remember, in Q2, I pointed that in Q3, given the comparison base we had last year, with more than 30% growth in license, we will -- we have to achieve a double-digit growth. So it's 4%, 9% for the full year. We are still expecting to reach 10% for -- on a full year basis for '18. So the other software line is growing well, 18%. And we should notice that DELMIA, all the manufacturing space at last is growing very well for us, as well as the simulations. So those are the 2 key domains where we see the top momentum. I could also say a few words. BIOVIA situation is also improving. We are back to growth. And for this quarter, we had double-digit growth for BIOVIA in terms of license. If we look at the revenue growth against total revenue. We spoke about it. So let me focus on the organic growth, which is probably the point you want to discuss. So 5% excluding the currency effects in Q3 and 6% year-to-date for the total revenue. And for the software, it's 5% as well for this quarter and 7% for year-to-date.If we zoom on the software and we split between license and subscription and support. So on the license, the organic license is up 4% and 8% year-to-date. But I want to draw the attention on this, on one specific point, which is the following. This is, to a certain extent, the consequences of the performance of SOLIDWORKS and Professional channel for this quarter based on the huge comparison base we had last year. Because if you look at the performance for the direct sales and the indirect sales independently of SOLIDWORKS, the 2 channel are growing double digit. So clearly, we still have a good momentum, and there is no sign about the fact that we will not be able to achieve an organic growth better than 5% for this year. The organic recurring revenue up 6%, Q3 and year-to-date, so reflecting basically the solid support revenue and the renewal rates we are seeing since the beginning of the year. On the services side, we are back to growth. You remember, in the first half, we were almost flat. Here, it's plus 13% growth, including the currency effects. And the growth is coming again from all the services related to 3DEXPERIENCE platform, which is a good sign. In fact, it's relatively in line with the license growth. And also, we had some good recovery in some brands. If you remember, the contract performance on the first half was coming from some brands like 3DEXCITE and Quintiq. So it does not mean that we are fully back on track with 3DEXCITE, but I think we -- the situation is improving. The Q2 -- the Q3 margin, sorry, is a little bit low compared to last year. And the main reason for the services I'm talking, and the reason is because we have to anticipate a lot of work in order to be ready for '19. And the reason is, if you remember, we had this big ramp-up with Boeing, and we had to hire a lot of people, also to train them and also to invest to a certain extent just to -- and to have to do this early January next year when it will be the time for us to act. So this is the reason why you can see this margin a little bit under pressure at least compared to the performance on the group.On the operating margin for the full year, almost the same -- sorry, that's for the full year -- for the 9 months, sorry. Same story than what I said to you in Q2. We are offsetting with an organic performance dilutions coming from the acquisitions as well as the currency. You will notice that in Q3, the picture is not exactly like this. We still have 1.1 point dilutions coming from the acquisitions. We have some benefits coming from the currency effects, so 0.2%. And we have a minus 0.2% on the organic performance. Again, this does not mean we are not improving our organic performance. It means that, if you remember, we were late in term of hiring early this year, and we have decided to catch up and especially on the services side. And also on the marketing side, it's time for us to invest to prepare next year. So this is the reason why we are launching also all the marketing program intensively for this quarter, Q3 and Q4. And last but not least, last year remember we were a lot of -- we were backloaded, and Thibault used to be very cautious in the way he was controlling the costs just to be sure that the end of the year would not be squeezed. So we also have some base effects compare. So nothing to say, except that we are -- I think we are on a good track on the operating margin. EPS, 11% growth at EUR 0.71. So slightly higher than the consensus and the guidance we gave to you. 19% growth, excluding the currency effects for the full year, and this is a direct consequences of the margin expansion and the lower tax rate. And as a reminder, I put the year-to-date tax rates going from 32.6% to 28.6%. So clearly, 4 points gain compared to last year.In terms of cash flow, EUR 747 million for the 9 months, which is above the full year last year. If you remember, last year, we generated EUR 745 million for the full year. So in 9 months, we have accomplished what we did in a year last year. So I think it's a good sign. And you see also basically the cash out from the acquisitions. As part of this, you have all the acquisition we did since the beginning of the year. Centric, obviously, No Magic as well. And also, we had the remaining piece of the 3D PLM when we took the full control of 3D PLM.On the different line, nothing specific to say. The unearned revenue is really in line with the 7% growth like-for-like. So clearly, it's relatively consistent. For the financial objective for the full year, so we confirm the full year objectives. What we did, we have reintegrated into the revenue, the EUR 12 million currency gains of Q3, and now we have the full year revenue range between EUR 3.425 billion, EUR 3,450,000,000. And we have also reintegrate EUR 0.02 at the EPS level, and now with an EPS range between EUR 2.98 to EUR 3.02. EUR 0.01 coming from the currency effect and the other one coming from the good activity from the organic improvements.So in a nutshell, this is the full year objective. So I already commented the revenue. So if we go on a lower level on the software side, it's 9% to 10% growth, excluding the currency effects. On the license, 9% to 11% growth. The recurring at 9%. On the operating margin, we have lending on the high end of the range we gave to you early this year, 31.5%. We have seen on visioning dilutions coming from the acquisitions of 0.7 point and the currency effect of minus 2 points. Tax rate at 29%. And an EPS, as I told you, growing at 11% to 13%, like -- and if you exclude the currency effects, 16% to 17%. I just want to remind you that compared to the first guidance we gave to you early this year, it's EUR 70 million more in terms of revenue, half coming from the acquisitions, the other half coming from the currency effects. But also we had EUR 52 million and EUR 15 million services by EUR 15 million software revenue, and we are adding EUR 0.14 at the EPS level, EUR 0.08 coming from the activity, if I remember well, EUR 0.03 coming from the tax and EUR 0.04 coming from the currency effect and minus EUR 0.01 coming from the acquisitions dilutions. So I think it's a pretty decent number. We are keeping unchanged our -- the exchange rate for the full year.Q4, I think I do not want to comment line by line, it's written. I think I want to draw the attention on two numbers, because I think they are symbolic number. One is EUR 1 billion of revenue. First time we are achieving EUR 1 billion revenue for a given quarter. And EUR 1 EPS, which is also a symbolic number. So it's also, as a conclusion for this presentation, a good sign about the opportunity we are seeing in front of us and the quality of the pipe we have. So Bernard and I will be ready to take your questions and pleased to answer.

[Adam Dennis Wood, European Technology Equity Analyst]

It's Adam Wood from Morgan Stanley. I've got 2, if I could, please. Just first of all, when we look into 2019, you've commented previously that you're still comfortable of doing the original guidance in the long-term plan that you gave. Maybe first of all, could you just say whether you're -- after what you've seen in Q3, do you stick to that? And then maybe when we think about how we get there, you've talked about a couple of points of revenue acceleration needed. We've not really seen any acceleration in Q3. I know you had a tougher base comp. Again, on the license side, it feels like it's in a similar range in Q4. Could you just give us some feel for the mechanics of what you see in the pipeline and the deals that you have coming through that gives you the confidence that, that can happen? And then secondly, maybe just on the environment more broadly. I think software companies have been pretty bullish about the demand environment. We've actually had a relatively weak reporting season in Q3 and profit warnings are company-specific until they're not and it becomes a sector thing. Could you maybe just talk a little bit about what you're seeing in terms of demand in macro and whether what we're hearing in the current macro environment is putting any pressure on the sales?

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

Bernard, I'm taking the first two, and you will say a few words for the last one.

[Bernard S. Charlès, Vice Chairman & CEO]

Okay.

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

So for next year, I do not want to give guidance more than what we did during the Capital Market Day. So we still have the EUR 3.50 target for next year. And as I was stating clearly during the Capital Market Day, organically, we are pretty confident to achieve EUR 3.30, and EUR 0.20 will come from the acquisitions. We already did some acquisition. So if you compute the number, we see that we are close to EUR 0.10. So we are short to a certain extent EUR 0.10. This is what we have to find in terms of acquisition between now and next year. On the accelerations, you are right. I mean, against the -- the Q3 performance has been hurt by the base comparisons. If you look at the -- what we are envisioning for Q4, I give a range between 8% to 13%. Maybe you will challenge me about the fact that the range is a little bit large, I know you guys. But I want to draw the attention that if you take the high end, it implies 10% organic growth, which is what we stated to you guys. So we are still in line with what we are saying. And on the lower level of the guidance is almost the organic growth we had for this quarter. Why is such? It's because, as I was saying to you, we -- compared to Q3, we have a lot of large transaction in Q4, and you know some of them are sometimes difficult to predict. So this is the reason why you have this range. But to them, I'm convinced you will see an acceleration.

[Bernard S. Charlès, Vice Chairman & CEO]

I think we've all what we have seen from the news flow to -- about your second question about the sector news flow, the sector we cover, of course, our market target on the effect of this news flow on our business. I have 2 answers. The first one is what I tried to illustrate here. There is really an increasing selective focus on those companies to invest on the right topic for the portfolio they need to do. And when things are easy, because on infrastructure like for us to be concrete, V5 was perfect. So now with electrification and so on, there is a need for battery modularization on many of those things. So we see that without again doing any preannouncement as this acceleration-decision factor, that's my first element of concern. The second is the pipeline is good. That's it.

[Adam Dennis Wood, European Technology Equity Analyst]

Just coming back on sort of the outlook? I mean, you talked about sort of footprint expansion. You're clearly now a lot more diversified or getting more diversified. If we look at the last time we sort of saw a downturn and we don't know what sort of -- if there is a macro slowdown, what it looks like. Digitization across all these industries is at a kind of unprecedented level. So how do you see sort of the -- to what extent is some of the spending for your customers discretionary versus necessary? And based on sort of your views on the pipeline and the product cycle that are mixed, how would you sort of see the business? And then how do you manage it accordingly? And that -- is that an opportunity to further accelerate the footprint expansion or land grab?

[Bernard S. Charlès, Vice Chairman & CEO]

Yes, we -- thank you. We think that way exactly. The reason why 2 quarters ago when we thought we've -- the team about our focus for the second half, of course, we have to focus on execution and doing the traditional business, but we already saw things that you are discovering in the news flows of the sectors in which we are. Of course, we don't need to speak for them, but we saw it already 6 months ago about the tension coming and discussion with CEOs and the executive committees thinking about how they were preparing those sectors to face any slowdown or face any new landscape, the shaping of their market. That's the reason why we did first the moves we did in the last even 16 months. No Magic is one of them, the cyber focus -- cyber system focus is another one. The chemistry for material science is concrete. Now we cannot reveal when we do these announcements, why we are doing them per se, except to say it fits well. Sometimes people are asking us why it fits well, but is it core? I think now, it's core. So the dialogue with those companies on -- I can imagine the kind of names you have in mind based on your question or more is the dynamic is they are deeply looking at what have they missed that they should reconsider and what do they need to reshape the portfolio. Now I will not do that remark exactly for aerospace because for aerospace, they cannot keep up delivering on the backlog. The backlog is gigantic. But of course, it's a very concentrated market, but the backlog is huge as you -- if you just look -- for those of you who look at the sector, please look at it. You will see that they have a backlog for 2027 or more, 2030. And it's -- there's a challenge of production and ramp-up. So they have a visibility, and I think it's visible on those top 2. So that's what I will say. So the footprint to really connect those things that were never connected before, for us, is very key because you need proof points. If we want to be the world leader in -- I think we are about to be the world leader in battery technology to design, to power management, safety, test, you need to have proof points. I think we are the only one in the landscape that can do the connection between chemistry, power management system on safety crash. Now this is on the agenda. Before, it was marginal. I need a few cars being electrified. Now it's got all the announcement in the last 4 months are -- reveals to the public. So that's basically what -- why we focused this quarter on saying what we have been preparing is to lever on leverage this dynamic. It's going to take time, but I think we want to be on the preferred list for solving the problem. That's true also for -- not only T&M, but it's true for the energy sector. It's even for the medical sector, now there is an incredible pressure on the pharma sector. You have seen all the debate about the payer, the issue on pricing of new molecules. I'll remind you all that Amgen is our biggest customer in the sector, and they are probably the world's biggest leader. Regeneron is another one. We are there with the platform, and those are best-in-class companies. And they are showing too many also big players where the biotech is going from a development where, in this area, for example, and I will stop here, the product is the process, not the molecule. The process is the product, not the molecule anymore, which -- and we are there for those evolutions. So last but not least, if I remember, 2008, we demonstrated the resilience because of the footprint, because of the geo side and because of the diversification. But I think we are in even stronger position today from a diversification standpoint. You have seen the number over the year that we communicate. That's it.

[François-José Bordonado]

We'll take a question from the call. Stacy?

[Operator]

[Operator Instructions] We will now take our first question from Stacy Pollard from JPMorgan.

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

Sorry that I cannot -- I couldn't make it there in time in person. A couple from me. First of all, at the Capital Markets Day, you mentioned a desire to get more aggressive in the AEC space. So just asking how that's looking. And what is your competitive advantage there? Secondly, when we think of 3DEXPERIENCE deals, is that usually CATIA as the majority of that deal or as the leading application? Are you now driving that from other major applications, maybe that simulation or ENOVIA or DELMIA? And then the third quick one, just on M&A plans. I think your guidance -- mid-term guidance suggests you're going to get more aggressive there, just wondering what the pipeline and areas of interest are.

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you, Stacy. On the -- there are multiple questions, so I missed the first one.

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

AEC?

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

The first one was about the AEC.

[Bernard S. Charlès, Vice Chairman & CEO]

Oh, the AEC. Well, I think that's an important question. We -- I mentioned a clear statement at the beginning of the year, if you remember. Well, I think, overall, the win that we had, that win and the many wins we have in China are proof points that something new is happening. What -- the way I will summarize our competitive advantage here is building some of the more constructive -- for being a building by itself, but being inserted in a city, and many of the activities we have now are related to how a building performance will be. So the dialogue is with developers, not only with the engineering firm, because it's about positioning the building in the city, looking at the economical performance of the investment, looking at the economical performance if it's an economical building versus -- for people to live in. So this sector is changing. As a matter of fact, the BIM, what is the famous BIM, is also being redefined in many countries. So I think we will be able to reveal in the next quarters. We need BWIG. We need others, significant new Zahner. We need, Of course, Gehry. We have also mentioned many other project in the past 16 months that there is a game-changing situation in that sector. Smart building, cities, management of infrastructure, connection between all those elements. We are the only one that can do it on the -- I think I'm very confident that what we stated will happen. As a matter of fact, we have now to show the proof points. They are coming.

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

You want me to address the 2 other questions?

[Bernard S. Charlès, Vice Chairman & CEO]

Yes, yes.

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

So in fact, what -- which brand is leading the 3DEXPERIENCE platform adoptions? The first one is ENOVIA just for you to keep in mind because you have more than 70% of the subsequent revenue of ENOVIA being already on 3DEXPERIENCE platform. The second one is DELMIA. DELMIA, you have a little bit below than the half being already on 3DEXPERIENCE platform and after CATIA and SIMULIA at the end. And you remember, we have registered 22% of the total subscriber revenue. The question related to the M&A, yes, this is -- you're right. I mean when I communicated the capital -- during the Capital Market Day, we have an aggressive plan of the M&A. I think the market condition is helping us, I should say, would have been much more difficult to do it a few months ago. Now I think opportunity are maybe much more affordable. And we have built a pipeline. We still have 5 years, anyway, to execute. And maybe in 5 years, we will identify new targets, I hope so, but we already have a preestablished target list. And the domain where we are looking are still -- if you look at the 12 industries, 70 segment we are serving, we still have verticals at a subsegment level. We could reinforce. So this is one access. And the second one access is really on the 2 other big domain we want to tackle, the city at large, the territory, I should say, more than a city, and also the life science outside the traditional pharmaceutical and med device industry. There is a lot of things we can do, and the platform is really well-tuned for this market. So those are the 2 key domain where we are working on it.

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

That's very interesting. Thank you.

[François-José Bordonado]

A question -- Stacy, please go on.

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

Oh, no, I just said thanks.

[François-José Bordonado]

We'll take a question from the audience.

[Charles Brennan, Research Analyst]

It's Charlie Brennan here from Crédit Suisse. Just 2 questions. Firstly, can I come back to the organic growth? It feels like there's a disconnect at the moment between some of the very large deals you're winning and the relatively muted growth in the quarter. I know you've talked about tough comps from the prior year, but at the same time, we've got some softness in the services gross margins. I'm just wondering if you're encountering any implementation complexities that's deferring any of the license recognition? Or is it all due to new signings in the quarter? And then secondly, just a number of clarification. It seemed like the M&A contribution to this quarter was slightly bigger than I was expecting. I'm sure I can do the numbers from the math, but just to make life easy, can you break out the M&A contribution between license and subscription? And lastly, what's your M&A guess for the fourth quarter based on the current deals?

[Bernard S. Charlès, Vice Chairman & CEO]

Thank you. I will comment on the implementation aspect. At the beginning of the year, we did a significant evolution of the organization for what we call value engagement, which basically is a process by which we sequence the course of action to do successful implementation, and I think we see a big progress there. In fact, it's visible on the service performance this quarter, finally. You remember, our Q2 was weak. So the practice are being well established. We have a new executive in charge of that globally, by the way, that joined us when she was the CIO before for -- she was the CIO for a very big firm, so she came to Dassault Systèmes for that topic. So as a matter of fact, it's a good question, we'll probably give you better visibility next quarter on this. But it's improving significantly. At this point in time, it's not a factor that slow us down. The one that slow us down is prior to implementation, which is helping the client to orchestrate the transformation. That's why what we did with Accenture and BWIG is a good learning curve for us. As you remember, we announced that this is a joint activity with Accenture. We also did Capgemini on -- for EDF. So implementation is improving. In short, front-end consulting to orchestrate the transformation needs further improvement.Qualitative to the number, I mean, it's in the deck, by the way. If you look at the organic license, it's 4% compared to 7%. So difference 3 points is coming from the acquisition. And on the recurring part, it's 6%, the organic growth, compared to 10%, the reporting, excluding the currency effect. So 4 point is coming from the acquisitions. And the reason is because you have Exa, Exa in PowerFLOW -- the PowerFLOW. It's really a recurrent model. So the vast majority of the revenue is in the recurrent parts. For Q4, Exa will be almost integrated because we will not have any more of this discrepancy because we conclude the acquisition only last Q4 last year. Did it answer your questions?

[François-José Bordonado]

Thank you. Another question. Alex?

[Alexander William Tout, Research Analyst]

Alex Tout from Deutsche Bank. Could you please confirm the contribution from Centric from a license and a total software perspective in the quarter? And is that business progressing as well as you hoped it would do? And I guess, they did EUR 16 million of revenues last year, growing I think strong double-digit, suggests potentially an impact to about EUR 10 million in the quarter, which I guess would've all gone into the ENOVIA segment, which suggests that the ENOVIA segment barely grew excluding the acquisition. So -- and given the comment that this is where most of the 3DEXPERIENCE revenue is recognized, given the slowdown in 3Q for 3DEXPERIENCE relative to the first half, are you kind of pleased with the performance that you're achieving in 3DEXPERIENCE relative to some of the stronger growing areas like simulation and SOLIDWORKS?

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

So there is few things I should correct. So point number one, Centric revenue is not in ENOVIA. It is in the, what we call, other software. The way we spread by product lines. So all the acquisition usually are here. And when it's not the case, we say it, point number one. Point number two, for the quarter, it's exactly in line with what I told you last time. You remember, there is some seasonality with Centric Software. You have 55% of the revenue within the quarter, which was a July month. So July, obviously, is not in our revenue. So we are -- we have only 45% of the quarter. But we have 2/3 of the costs. So this is the reason why you have the dilutions at the margin level, okay? So -- but it's exactly in line with what I told you, so the growth compared to last year is 48%. So it seems we still have the momentum. Now for the -- for Q4, I think this is probably the question, because you remember we also have the same effect because January is also a month usually representing 55% of their Q4 quarter. So what I put in the guidance is very simple. The quarter is expected to be for them, at least EUR 30 million. So you take 45% of this number, and then you have 60% software and 40% services.

[Bernard S. Charlès, Vice Chairman & CEO]

Of course, next year, we're going to align all that.

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

Yes, yes. I think January 1, everything will be based on our calendar year.

[François-José Bordonado]

Alex, you have finished? Or do you have another...

[Alexander William Tout, Research Analyst]

Yes, I guess the general observation that the growth this year, year-to-date has been driven more by SOLIDWORKS and simulation. I guess, we don't know the exact growth number, but those look like they've been the really strong areas year-to-date and stronger than 3DEXPERIENCE.

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

I am not in agreement with your statement because, as I stated, CATIA, EUR 1 billion run is growing nicely, and this brand is able to deliver double-digit growth for the last 3 quarters. So I will not be in agreement with your statement about the fact that the growth is fueled only by SOLIDWORKS. It's not true.

[François-José Bordonado]

We'll take a question from the call. Gerardus?

[Operator]

We'll now take our next question from Gerardus Vos from Barclays.

[Gerardus Vos, Senior Analyst]

I just have a question on 2019 and perhaps beyond on the whole Boeing and the potential supplies chain standardization there. Are you able to give us a bit more kind of color how you expect that to impact '19 kind of number? What kind of tailwind should we expect in '19? And when do you think that will peak between, let's say, the '19 and '21 kind of period wherein I expect that rollout will happen?

[Bernard S. Charlès, Vice Chairman & CEO]

I think it's too early to speak about 2019. I would give you a color or not on the numbers, but the partnership with Boeing is going extremely well. And as a matter of fact, we continue to expand even beyond the scope of what we signed because we are expanding in a concrete way on the manufacturing side if there are new programs. So -- but too early to speak about it. It's clear that the Boeing ambition is significant in terms of unifying all supply chain. But I think we will integrate that, that's part of the 2019.

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

And to complement your answer, Bernard, it's still in line with what I -- what we told you at the time of the Boeing announcements. So '19 will be the time where we start to engage with suppliers. We'll see some revenue materializations in '20.

[François-José Bordonado]

Next and probably last question from the call. Michael?

[Operator]

We'll now take the question from Michael Briest.

[Michael Briest]

A couple from me as well. Just on SOLIDWORKS, Pascal, obviously, Q3 you highlighted the tough comps there on licenses. What is the situation for Q4 and going into next year? I mean, SOLIDWORKS 2019 is out. Is there any sort of accelerated shift to the cloud you foresee for that product? And then secondly, on the GE win, just to understand the context of that. I mean, it's GE Hamble, which I think is a single site. Presumably, there's a lot more to GE Aviation. Can you talk about how this relationship may develop? It seems odd that they would pick to use you just in a single site, if you like.

[Bernard S. Charlès, Vice Chairman & CEO]

You take SOLIDWORKS, and I'll take next year on cloud and relationship?

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

Okay. Yes. So for SOLIDWORKS for the full year, that was clearly stated. We expect the 10% growth for the full year. But if you compute the number on the year-to-date, we are up 9%. It should be easy for you to extract the growth for Q4. And we are pretty confident.

[Bernard S. Charlès, Vice Chairman & CEO]

SOLIDWORKS 2019 is out, and I think it's going to be well received by the market. Related to the account effect for SOLIDWORKS, we will see it as a marginal effect in 2019, a marginal effect from a revenue standpoint. But very interesting effect from reaching new footprint because as you may remember, we are doing SOLIDWORKS web-based capabilities on 3DEXPERIENCE platform. So with 0 download, it's browser-based modeling. But it's -- I think because it's a subscription model, it will be marginal to the total SOLIDWORKS revenue in 2019. We'll discuss about that. The GE relationship, in fact, for cloud, I think the fastest is 3DEXPERIENCE with all the industry solution because this is now in operation, and it's quite successful in the implementation we have for vehicle, whether they are cars or even airplane on the cloud. And we also said about packaging in the Consumer Packaged Goods. GE relationship, yes, it's -- there is a positive dynamic here because GE is restructuring massively. And through that restructuring, it seems that what they thought was useful for them in terms of in-house development is less useful than what they thought. And I think our platform is going to bring them value and analytics, value in many, many things that the -- are welcome at this point in time. And as you know, GE is already our client. The motivations were in that. We are not -- we are cracking the divisions that we are not. I don't see why we should stop. I think it will probably be continuous.With that, thank you very much for your question and participation this morning. And of course, we continue to be available to address any further questions. Have a good day, and we're going to enjoy the fourth quarter.