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Edited Transcript of DSY.PA earnings conference call or presentation 24-Oct-19 1:00pm GMT

Q3 2019 Dassault Systemes SE Earnings Call

Vélizy Villacoublay cedex Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Dassault Systemes SE earnings conference call or presentation Thursday, October 24, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bernard S. Charlès

Dassault Systèmes SE - Vice Chairman & CEO

* François-José Bordonado

Dassault Systèmes SE - Vice-President of IR

* Pascal Daloz

Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer

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Conference Call Participants

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* Andrew Lodovico DeGasperi

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Jason Vincent Celino

KeyBanc Capital Markets Inc., Research Division - Associate

* Jay Vleeschhouwer

Griffin Securities, Inc., Research Division - MD of Software Research

* Michael Briest

UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Dassault Systèmes 2019 Third Quarter Earnings Investors Call. (Operator Instructions) I must advise you that the conference is being recorded today, Thursday, the 24th of October 2019. I would now like to hand the conference over to your first speaker today, François Bordonado, Vice President of Investor Relations. Please go ahead, sir.

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François-José Bordonado, Dassault Systèmes SE - Vice-President of IR [2]

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Thank you very much, Sam. Thank you for joining us on our earnings conference call with Bernard Charlès, Vice Chairman and CEO, and Pascal Daloz, Executive VP, CFO and Corporate Strategy Officer.

Dassault Systèmes results are prepared in accordance with IFRS. Most of the financial figures from this conference call are presented on a non-IFRS basis with revenue growth rate in constant currencies, unless otherwise noted.

Some of our comments on this call will contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and to the Risk Factors section of our 2018 Document de Reference.

All earnings materials are available on our website and these prepared remarks will be available shortly after this call also.

I would like now to introduce Bernard Charlès.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [3]

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Thank you. Thank you for joining us today, both in London with this call. I would like to begin our call a little differently. I'll share my personal perspective on several conversations with clients. Today, we see industries with tremendous opportunities to change our lives. At the same time, significant challenges, engineering, scientific, business, and financial to successfully bring these opportunities to reality. It is very clear that sustainable innovation in customer experiences and business models is a strategic imperative of the 21st Century. All companies are talking about it. Dassault Systemes is recognized as a leading player in this transformation, from ideation to design, to supply, to manufacturing, to go-to-market, to use and operations across all industries. I believe that the 3DEXPERIENCE platform is coming at just the right time for that. Whether in sectors where we have had a long history or those where we are now establishing multi-year partnerships with industry leaders, we are there to work closely with these companies and to be part of these journeys.

You have all seen our figures for Q3 2019, with revenue up 10% and EPS at 20% and similar performance year-to-date. What is the story behind it? The first one is the strong dynamic around recurring revenue which represents 75% of our total software revenue. And the addition of Medidata, all subscriptions, will further enhance this.

Second, from an industry perspective. Software revenue grew 10% in our core industries with Transportation & Mobility up 9%, Aerospace & Defense up 25% for the first 9 months. Diversification Industries increased 9% with good growth for High Tech, Marine & Offshore as well as an excellent dynamic in Home and Lifestyle with Centric PLM.

Third, 3DEXPERIENCE software revenue grew 32% in the first 9 months of this year. Our 3DEXPERIENCE platform is establishing a very strong position in the Aerospace & Defense industry as powerful catalyst and enabler of sustainable growth models. And in Transportation & Mobility, despite difficulties in the sector, especially on the volume side, companies are investing in transformation, therefore, engineering of future portfolio.

Fourth, we are advancing our purpose with Life Sciences, now becoming one of our core industries with the completion of the Medidata acquisition. We received the final clearance last night, as you now know.

Finally, we are very well positioned to reach our 5 years goal of doubling EPS to 3.5 -- EUR 3.50 in 2019 based on the 2014 plan and this is really before adding Medidata.

Let's talk about Transportation & Mobility briefly. Moving to this industry review, I would like to begin, of course, to mention the Toyota Motor Corporation adopting 3DEXPERIENCE platform with what we call the Power'By solutions. We have built a long-standing relationship with Toyota over multiple decades and see this extending into the future in a very meaningful manner. With the 3DEXPERIENCE platform, there will be one single tool from design to manufacturing. Our 3DEXPERIENCE platform will replace internal systems, legacy systems, at Toyota similar to what occurred when, several years ago, Toyota selected CATIA V5. Secondly, this will be a very wide deployment involving more than 40,000 users overall across a multiyear timeframe spanning multiple branch applications depending on the user's role. So we are very happy to share this news which probably will influence the entire sector.

In the world of specialized racing cars, Spark Racing Technology, a motorsport manufacturer specialized in the development and engineering of high-performance e-mobility cars and modules, has adopted the 3DEXPERIENCE platform and several of our industry solutions. In a separate press release issued this morning, we announced that Lockheed Martin Aeronautics is standardizing on the 3DEXPERIENCE platform and leveraging multiple industry solutions for all new advanced development programs. This is a multiyear partnership agreement encompassing engineering and manufacturing software solution, of course. The objective includes improving affordability and manufacturability. This was a very competitive win, but more importantly, it's a very significant transformation for the company.

We have a broad presence in Aerospace, working with many companies under associated ecosystem. Using our DELMIA Quintiq solutions, SATS, Asia's leading food services supplier to airlines, is creating a 3DEXPERIENCE twin of kitchen, industrial kitchen basically, that pairs virtual and physical operations to provide data-driven analytics for better resource planning.

Moving to Consumer Goods & Retail. L'Occitane, a leading health and beauty company, has selected our 3DEXPERIENCE platform, leveraging our DELMIA Apriso application to improve its manufacturing production planning.

In Home & Lifestyle, Centric PLM is truly leading the way, working with more than a thousand brands worldwide, well-known brands. It's helping companies increase incomes on sales, improve inventory management and reduce logistic costs, consolidating into more new products for the collection, increased efficiency, faster time to market, and more importantly, improve sustainability, thanks to less waste.

We have now passed our 1 year anniversary since the acquisition. Centric PLM's leadership in Home & Lifestyle is evident with strong growth in booking new clients, acquisitions and revenue growth.

Moving to the world of Construction, Cities & Territories. Let me share 2 customer examples. CRDC, China Railway Construction Company is the Chinese leading railway company. It has adopted our 3DEXPERIENCE platform and multiple industry solutions to improve its collaboration amongst stakeholders and increase its design efficiency, leading to more productive construction process by testing in the full virtual world experience before building the real world.

In the U.S., CO Architects selected our 3DEXPERIENCE platform because it helps increase architects' creativity by creating a tighter collaboration between the architect and builder, working better together, reduces waste and inefficiencies from design to construction. Their name, CO, C-O, signifies the belief in tight collaboration. It could not be a better reference.

Now I would like to move to the world of health. Italy's largest independent partner research organization for drug discovery and preclinical development, a company called IRBM have selected the 3DEXPERIENCE platform and the ONE Lab Designed to Cure Industry Solution Experience. IRBM has built a world-class drug discovery partner to the pharmaceutical companies since its original establishment as the Italian site of Merck Research Labs in the year 2000. In South Korea, GC Pharma, specialized in the development and commercialization of pharmaceutical products for use in the fields of oncology and infectious disease, has adopted our ONE Lab Designed to Cure Industry Solution on the 3DEXPERIENCE platform to take full advantage of the resources a

nd optimize them from initial research development to manufacturing. We are preparing to close the acquisition of Medidata very shortly and look forward to seeing many of you at our Life Sciences Day in New York on November 13. We will share our perspectives in great detail but let me briefly highlight some key points year-to-date. Health is now core. We have a simple dream: to bring the right treatment to the right patient at the right time in the age of precision medicine and new patient experiences. Combined together, we bring a new unified end-to-end approach to research and discovery, development, clinical testing, manufacturing and commercialization of new therapies on health technologies. The 3DEXPERIENCE platform becomes the only platform to combine modeling, simulation, data science, AI, Artificial Intelligence, and collaboration in the virtual world to achieve sustainable innovation in life science.

From a customer perspective, the opportunity is significant. We have potential reach to 4,500 pharmaceutical and biotech companies and over 50,000 medical devices companies. Finally, with Medidata, we are adding a software portfolio, which is 100% SaaS and subscription, growing double digits. It will be a specific brand in our information intelligence domain and great talents joining Dassault Systèmes which we are delighted to welcome. Pascal, you now have the floor.

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [4]

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Thank you, Bernard. Hello, and thanks for joining us today. Let's start with another view of our financial performance.

Beginning with Q3, we qualified Q3 as a solid quarter. Revenue up 10%, operating margin expanding 140 basis points and an EPS up sharply. Zooming in, we delivered strong performance across subscriptions, recurring software, services led by 3DEXPERIENCE deployments and operating margin, culminating in EPS growth of 20%. The key disappointment is coming from the slippage at the end of the quarter, having in mind the Q3 is our smallest quarter for licenses and we have not been able to fully compensate those slippage.

With respect to our 9 months performance, all figures, revenues, software, operating margin and earnings per share, delivered very good results. On an organic basis, the growth was broad-based, with revenue software and recurring software all at high single digits. We saw a strong progress with 3DEXPERIENCE software, revenue up 19% in Q3 and 32% year-to-date. And from a license revenue perspective, a similar dynamic with 3DEXPERIENCE licenses software, up 21% in Q3 and up 40% for the first 9 months, representing 43% of the related license mix.

Finally, cash flow from operations were also very strong, up 34%, crossing the EUR 1 billion milestone for the first 9 months period.

So let's zoom to our regional software performance. The highest growth was in the Americas with software revenue up 19% on strong licenses and recurring revenue results. Americas also grew double digits on an organic software basis. In Europe, 3 of our geos performed well: northern, southern Europe and France, offset in part by the macro weakness in Germany, bringing Europe software growth to 5% for Q3. In Asia, our 2 largest markets, Japan and China, showed good financial results with both, in fact, with software revenue up 10%. Overall, Asia grew 4% in Q3, reflecting weaker results in Korea and India. On a year-to-year basis, software revenue grew 17% in the Americas, 9% in Europe and 7% in Asia.

So let's move to the revenue backgrounds. Following a strong first half for CATIA where license revenue was up double digits, we encountered some softness in the automotive supply chain in Q3. In contrast, 3DEXPERIENCE adoption is progressing well with OEM's transformation driven by the product range electrification. This is also evidenced by No Magic's good performance as part of our cyber system strategic initiative for CATIA. Overall, CATIA's software revenue grew 5% in Q3 while year-to-date CATIA's software revenue has increased 8%. CATIA 3DEXPERIENCE software revenue is up sharply for the 9 months and -- sorry, similarly, following the strong first half, ENOVIA's software growth slowed to 3% in Q3, principally reflecting several large slipped deals. Overall, for the first 9 months, ENOVIA software revenue increased 10%.

SOLIDWORKS software revenue increased 7% in the quarter, above the 5% for the 9 months. It continued to show a strong growth in Asia, up double digits and some improvement in Europe and the Americas. Its recurring software revenue performance continues to demonstrate a very strong stable renewal rates and we are benefiting from the high-level of license growth in year 2018 as clients renew their support revenue.

Looking at the market opportunity for SOLIDWORKS, today, we work with about 22% of the target companies in this space with more available in both the 2D world as well as the 3D world. On top of this, with 1 million cumulative commercial seats sold, we have a significant opportunity to expand our footprint with SOLIDWORKS customers, thanks to both the 3DEXPERIENCE platform and the 3DEXPERIENCE. WORKS solutions.

Other software grew 17% for Q3 and 19% year-to-date. And on an organic basis, other software grew double digits led by DELMIA and SIMULIA. Our manufacturing solutions continue to gain traction.

We are pleased to share that Ericsson is expanding its use of 3DEXPERIENCE platform, and second, more specifically, broadening its usage to our solutions to manufacturing engineering, leveraging DELMIA as well as ENOVIA applications. 5G represents a significant new opportunity for companies. Challenges include time-to-market on the one hand and highly complex, configurable products on the other. Therefore, it is critical to be able to manage the process from design to manufacturing, including and ensuring that for a lower volume, high configurations product companies need to be able to seamlessly manage plant reconfigurations.

Zooming quickly on our revenue results in more details. We are benefiting from an improved recurring revenue dynamics, driving both our software as well as total revenue growth. In each of the 3 quarters to date in year 2019, recurring software has grown at a higher rate than licenses. As it represents 75% of our total software, this is a very good dynamic. Second, it is also driving the growth for our total revenue and software revenue on an organic basis towards the high single digits. This is an organic revenue higher by 8% in Q3 and 9% year-to-date.

Software revenue. If you look at the recurring software and license and other software, zooming in more details, what do we see? We see on an organic basis, license and other software decrease by 1% in Q3 on slipped deals and weakness in the automotive supply chain. And for the 9 months' period, license revenue increased 5%.

Recurring software revenue increased 10% in Q3 and 9% year-to-date on an organic basis, with a double-digit growth for subscriptions and a very solid support growth across all customer channels.

On an organic basis, services revenue increased 16% in Q3 and 14% year-to-date, led by 3DEXPERIENCE deployments. On a 9-month basis, the services gross margin was 9%.

On the operating and profitability and margins, we continue to deliver strong operational results. Our operating margin for the first 9 month period at 31.3%, up 140 basis points. We had an organic improvement of 200 basis points compared to our acquisition dilution of 100 basis points. Currency had 40 basis points.

EPS came in the high end of our guidance at EUR 0.78, increasing 20% in Q3 and 19% year-to-date. So strong growth in earnings per share came from our operations - revenue, operating margin expansion - excluding currency EPS was up mid-double-digit for all the 3 and the 9 months periods.

Zooming on the cash flow and balance sheet. Our net operating cash flow cross the EUR 1 billion milestone for the first 9 months of year 2019 increasing 34%, up 28%, excluding the IFRS 16 lease implementation effect. The principal contributors were the growth in the net income and noncash items, accounts receivable management and a lower tax down payment in year 2019 where we are now benefiting from a U.S. tax change on a foreign driven intangible assets enacted in year 2018.

Unearned revenue, now called contract liability, increased 7% at constant currency and perimeters -- and the same perimeters.

Zooming to the final sheet of the cash acquisition. Few words. In September, we completed our euro bond financing in the amount of EUR 3.65 billion to fund a large portion of the financing of Medidata acquisition. The offering was well received, so we also refinanced a EUR 650 million euro bond loan set to mature in year 2022. The euro bond financing has 4 maturities, from 3 years to 10, translating to an average terms of 7 years with an effective borrowing rate of 16 basis points.

Looking at our borrowings, our net estimated financial expenses are about EUR 9 million of Q4 and EUR 41 million for 2020.

Now I would like to move to our guidance. I would like first highlight the key full year, year 2019, figure for DS on a standalone basis. Point #1, we are reaffirming our total revenue growth objective of 10% to 11% at constant currency. Our revenue objective takes into account the strong dynamics we have, with the recurring software, representing the large majority of our software revenue and at the same time, our revenue outlook also reflects the potential for continued volatility in license activity in Q4. We then updated our currency for Q3 actuals and Q4 updated outlook, leading to a total revenue range of EUR 3.912 billion to EUR 3.952 billion.

We are also confirming our earlier EPS objective and updating for currency for both Q3 and Q4, bringing our non-IFRS EPS objective range of EUR 0.05 to EUR 3.5 to EUR 3.55, representing growth of 12% to 14%. With these objectives, I think we are well positioned to reach our 5 years' goal of -- to 5-year goal to double EPS to EUR 3.5 by year 2019.

With the expected closing no later than October 31, we are adding Medidata to our Q4 and full year guidance, assuming a 2-month contribution. For Q4, we are estimating a non-IFRS revenue contribution of about EUR 103 million and about EUR 0.02 of our non-IFRS earnings per share. Just remind that we have been carrying interest expense on the related funding debt starting in September.

With respect to the year 2019 on a combined basis, we are targeting total revenue of 13% to 14% at constant currency, translating to a revenue range of EUR 4.015 billion, EUR 4.055 billion; the non-IFRS operating margin of about 32%; and a non-IFRS earning per share of EUR 3.52 to EUR 3.57, up 13% to 14%. Further detail on the fourth quarter are in our earnings press release and in our earnings presentation on our website. In terms of currency rate, we are assuming a U.S. dollar to euro rate of 1.15 and a Japanese yen to euro rate of 125 before hedging for Q4.

To conclude, we are advancing our purpose across product, nature and life. Our platform strategy and our science-based DNA is really starting to be visible from the outside. From a financial perspective, recurring software revenue is moving front and center as a key enabler of our strengthening organic growth. Looking forward, we are focused on continuing to improve our execution. We have a strong financial model and a significant runway of opportunities, thanks to our growth drivers.

We hope to see many of you in New York on November 13 for our Life Sciences Day. And we will now be happy to take your questions, and thanks again for your participation on this call and our earlier webcasted meeting held in London.

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François-José Bordonado, Dassault Systèmes SE - Vice-President of IR [5]

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Operator, Summer, we're ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jay Vleeschhouwer from Griffin Securities.

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Jay Vleeschhouwer, Griffin Securities, Inc., Research Division - MD of Software Research [2]

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I'll save the Medidata questions until we see you here in New York in a few weeks. So I'd like to start with my first question concerning the BT business. You noted the Toyota and Lockheed Martin news. And the question there is, those are among 2 of the oldest, most established customers in the industry, of course, for your kind of software. Those selections or decisions now were perhaps years in the making.

And so the question is what other large customers of that kind are you seeing perhaps in the process of reconsidering or potentially retooling deployment decisions that were made 5 or 10 or even 15 or more years ago? How have the selection criteria changed for these kinds of decisions versus the original criteria? And in the meantime, when you are doing large BT renewals in your core markets, what are you seeing or trying to achieve in terms of pricing or incremental pricing versus the prior contracts? And then a couple of follow-up questions.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [3]

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Thank you for the question. I think there is a wrong perception that we need to resolve with existing customers. What was announced, and I will be explicit on that just to help clarify, in the context of those customers, they have been long-lasting customers of Dassault Systèmes in a certain scope of usage, mainly CATIA V5, sometimes manufacturing DELMIA. Here, for example, with Toyota, if you read carefully the press release, it's not about what we do now, it's about the total new core infrastructure to replace gigantic legacy systems that are many years old. And that's the case of so many companies, even existing clients, whether it's legacy PDM or multiple information systems where the unification is changing the core system for everything. So it's not even PDM. It's the next generation integrating single version of truth across all disciplines. That's the case of Toyota. When it comes -- so basically, still to be announced will be the next generation of product solutions in many domains of application specialization. So in short, significant new footprint.

Same for Lockheed Martin. Those companies are doing highly sophisticated processes, high-tech systems. And there are a lot of legacy application on systems. And in the case of Lockheed Martin, they authorized us to communicate the fact that they use on their power order product design, simulation, production from one single platform. Again, a new scope of coverage, which really addresses the specialized audience but a much broader, all people involved in the collaborative process. So this is what is happening. In many clients, Ericsson is another example of what we have announced, there are hundreds of information database that they want to remove and replaced by 1 single version of truth. And this has never been done. So again here, it's a new scope.

So I think we see that more and more with clients. And the net of all this is the size of the business we could do with those giants is at least x2 or more. In fact, as proven with the giant contact that we signed 2 years ago with Boeing, where the scale of the contract had nothing to do with what we did for the past 20 years. That's, Jay, what is behind those announcements. And it's changing also, of course, their ecosystem. Because the nature of the products they are doing is evolving. They are creating new generation of vehicles for e-mobility connected vehicles. Electronics is part of it. Software connection and configuration is part of it. And this is why this is really not only a new game but game changer. So keep in mind, a long-lasting, fully committed Dassault Systèmes client, having done great business with us and we -- and us having done great business with them, we can multiply by x2 to x3 the potential business with them.

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [4]

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I think a few comments on the pricing, Jay. As Bernard said, the equivalent scope, knowing that the purpose is to expand the scope, less 2 months for equivalent scope. You have the price of the platform coming in addition, okay? So it's -- I mean it's EUR 1,000 per users. And then you have the maintenance and support rate increasing from 18% to 21%. So the goal is really what Bernard explained is to expand the scope either on the upstream or the downstream using the platform. That's really where we are creating the value and how we do it.

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Jay Vleeschhouwer, Griffin Securities, Inc., Research Division - MD of Software Research [5]

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The second question has to do with your cloud ambitions. I watched your webcast 2 days ago. You presented, Bernard, on your cloud offerings. And we talked about this a bit a quarter ago when I asked you about your relationship with Microsoft, for example, vis-à-vis cloud. And the question has to do with the -- your internal investments on your own cloud infrastructure and whether in the long run, the most prudent thing to do is to be largely, if not mostly dependent, on your own internal infrastructure, in this case the Outscale, versus working more with the hyperscale companies to pursue your cloud ambitions just in terms of achieving better economies of scale as your customers presumably will adopt more and more cloud, not only for CAD but for the other businesses. And then my final question after that.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [6]

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So thank you for participating to the -- our cloud seminar. I think the testimony from customers were quite impressive in terms of how they are using cloud on new projects. You're right. I think the reason why Outscale is becoming 3DS Outscale, a core brand, is because we believe that customers value the fact that there is a fully controlled stack and security and efficiency and optimization, delivering the service to them. So the number of clouds we have around the world are -- is increasing significantly. And as you know, one of the things we have done which is unique is we have done our own PLM to manage our own multiple clouds. So we offer 3 types of clouds: public, private and dedicated cloud based on the customer needs.

We have a good relationship with Amazon and we use them for elasticity. But there is no doubt that our customers want to have the guarantee of total service and also alignment fiscally and legally on their territory. And so your point is well-taken and we agree with it. And we continue to develop our own cloud infrastructure to differentiate. Because basically, as Pascal said this morning, from a profitability standpoint, all in all, whether it's on-prem -- whether it's with a PLC/ALC basically upfront on an annual license charge or subscription base, for us, the operational margin is the same, which is a performance because it's not the case for many companies.

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Jay Vleeschhouwer, Griffin Securities, Inc., Research Division - MD of Software Research [7]

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The final question has to do with your management of the portfolio. That is to say the existing DS portfolio is quite complex in terms of numbers of roles and apps and the large number of what you call trigrams. And we've sort of gone back and forth over the years in terms of the portfolio growing, then you try to simplify and so forth. And where are you in terms of that complexity and managing the very large number of roles, but at the same time doing so at scale and profitably so that the portfolio isn't, so to say, overbuilt? And we've sometimes seen in your industry almost an inverse relationship at times between complexity and growth. And so perhaps you could address that issue.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [8]

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Yes. Well, the reality is that with the number of industries we cover or number of processes we cover or number of segments we cover, what will continue to happen is the number of roles, meaning type of champions, we want to serve, the number of process, meaning teams, on solutions, meaning the outcome for the company, is going to grow because we want to be highly dedicated to the segments we serve. The reality is that it's very easy for a start-up company and small company to understand what they want and what they need. Because for an analyst to look at the total portfolio is one thing. But a customer is in one industry and is covering a limited number of process. So when you go and instantiate that for a given customer, it's very simplified.

And so that's a unique approach that we have because most of players are based on functionalities. And we don't want to sell functionalities. We want to sell outcome, excellence or virality of the roles, outcome of the solution, performance of the solution, virality of the roles. And the testimony from our cloud-based customer -- and we have a quite large installed base of cloud-based customer. We have a very large installed base of education, student, schools, very large base, probably much bigger than some of the latest announcement from what I have seen last night in terms of acquisitions, far bigger. It's simple for them to provision the roles. And it takes just a few hours. So that's the reality on the feedback of what they're saying.

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Operator [9]

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And our next question comes from the line of Andrew DeGasperi from Berenberg.

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Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10]

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First, I guess on the SOLIDWORKS growth. Is there any scenario that you see returning to that double-digit range in the near mid-term? And then maybe broadly speaking, given there's a potential that the market becomes more competitive, do you think the product is adequately priced at this point?

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [11]

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May I say this, Pascal, before you provide the insight? You have to know that now with the SOLIDWORKS family, it's becoming a family, we announced what we call 3DEXPERIENCE. WORKS at the beginning of the SOLIDWORKS World. I want to explain briefly the following. There are 3 types of things we offer to the SOLIDWORKS type of clients. Number one, SOLIDWORKS desktop, selection number one. Number two, SOLIDWORKS desktop powered by the 3DEXPERIENCE platform on the cloud. And that's why we have seen SIMULIA growth for SOLIDWORKS customer recently because they use SIMULIA directly on the cloud.

And number three, web-based native mobile application natively on the 3DEXPERIENCE cloud. And it was called xDesign during the field test and the customer test that we ran for almost 12 months. And it's going to be delivered to the market and available to the market under the name of 3D Creator. And that category, web-based, no apps on the device, it's extremely well received. And ultimately, this will have the same functionality as the SOLIDWORKS desktop but everything through a web browser. And progress are being done. So those under the SOLIDWORKS line, all these will appear to be the evolution rather than a new one. With that in mind, Pascal?

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [12]

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But I think if you -- element of the answer of how competitive the products against the different solution you have on the markets because no one can claim to have this scope of solutions and at the same time just a level of integrations between them. It's point number one. Point number two is if we zoom only on the traditional SOLIDWORKS, I still believe the reservoir for growth is still there. You still have 40% of the market still being in 2D. And you still have a migration from 2D to 3D, it's almost 4%. You have the 1.5 million companies, 40% of them being still in 2D, migrating into 3D every year. And for SOLIDWORKS, like what I said this morning, it's 40,000 new license every year.

For 3D to 3D, as you may know, we are now winning market share in the 3D space using SOLIDWORKS. And we are replacing some of the incumbents with a well-priced and very functional solutions called SOLIDWORKS. And I look at the track record, we are almost gaining 1 point market share in the 3D space with SOLIDWORKS every year for the mainstream market. And then you still have the large installed base we have. And as you know, many customers are growing and they continue to buy on a regular basis new licenses. When you do the math, I mean if you combine all the goal drivers we have described by Bernard plus the one I just gave to you, I mean I'm still convinced we can go back to double-digit growth.

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Operator [13]

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And our next question comes from the line of Jason Celino from KeyBanc Capital.

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Jason Vincent Celino, KeyBanc Capital Markets Inc., Research Division - Associate [14]

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Just one for me today. Can you just provide a little bit more color on some of the business dynamics you're seeing in Europe and Asia? Just maybe what products, what industries and how this compares to maybe prior times when business demands weren't as robust.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [15]

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A few insights. China is a major driver of Asia as well as Japan, by the way. China being significant double digit with 20% growth.

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [16]

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10% for the quarter.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [17]

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10% for this quarter and...

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [18]

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20% for the first 9 months.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [19]

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20% for the first 9 months. Thank you, Pascal. And there was a lot of concern about the sectors like Transportation & Mobility slowing down. It is, in some way, in volume. But in terms of product portfolio on the bench to be developed through engineering and design for new electrified vehicle, it's a huge, huge number of programs around the globe. So that's one thing that should be noticed. Aerospace was up 25%, so it's a strong dynamic. And also a new scope for us because it's about rate production as well as supply production. Related to the supply chain, what we see is that the startups in the sector, in both domain by the way, for e-fly or e-mobility at large, incredible number of new startups.

Most of them, I can claim -- we can claim are based on the 3DEXPERIENCE cloud solutions on-premise, but it's 3DEXPERIENCE in almost all cases. And then in the middle, you have what we call Tier 1, Tier 2 large suppliers. They initiated the adoption of 3DEXPERIENCE before the OEMs. And this quarter, there was a certain slowdown in that segment -- subsegment of the market. But we don't think it's -- we don't think it's a trend. Because they are creating a lot of innovations, think about Valeo, Delphi and many others. So that's basically the feeling we have. Pascal mentioned this morning that the pipeline is good for Q4. And I think our visibility for [2020], it's too early to speak about it.

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [20]

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If we look at what we call the diversified industry, not the core, we are also observing some key trends. The life science sector is growing well at large, Europe, Asia as well as the U.S. The Home & Lifestyle segment is also growing very well. We continue to gain market share with these companies. But if they are suffering to a certain extent, they are so far behind in terms of digitalization, they are investing a lot to catch up. The high-tech sector also is growing well because with all those new equipments, with the IoT, this is driving a lot of the demands. And last but not least, believe it or not, the shipbuilding is also a domain where we see a lot of growth and especially coming from Asia.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [21]

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I think we are building the Asian standard for shipbuilding, replacing legacy systems, simply said.

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Operator [22]

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And your next question comes from the line of Michael Briest from UBS.

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [23]

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A couple for me. So just in terms of SOLIDWORKS, I think you walked through some of the drivers of unit growth this morning, Pascal, around 80,000 being the target. But can you talk a little bit about the unit volumes in Q3? And I think the comparators are reasonably hard for Q4. So I mean do you think you can sustain that 7% growth?

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [24]

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That's the goal. That's really the goal.

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [25]

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And in Q3, I mean...

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [26]

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I do not have the exact unit number in mind for Q3. But usually, if you apply the seasonality of the revenue, you will find it collectively correlated to this -- to the growth.

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [27]

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Okay. And then there's a useful slide on 31, looking at the proportion of business coming from 3DEXPERIENCE. And you're now a little over 1/4 of total on 3DEXPERIENCE from total software. Can you maybe say on CATIA where you're up to on that transition?

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [28]

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Last time I looked at it, you have more than 20% of the installed base, CATIA being under the 3DEXPERIENCE platform, whether it's native or through the power of buy approach.

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [29]

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And are there any standout sectors which are sort of either ahead or behind that 20%?

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [30]

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All the new sectors for CATIA obviously are starting directly with 3DEXPERIENCE platform.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [31]

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Construction -- architecture, architecture, construction, all new startups in e-mobility, all native. So as you said, all new sectors are directly going 3DEXPERIENCE native, zeo customization and provisioning the service that they need.

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [32]

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The aerospace also is moving very fast with CATIA and 3DEXPERIENCE platform. And the automotive sector, where probably the one being more difficult to move. But as Bernard said, with the electrification of the car, we are seeing the acceleration because you need the new generation of CATIA to do it.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [33]

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What we call [CATIA Cyber].

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [34]

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Okay. Just finally on the guidance on Medidata, I think there was a question this morning around this. If I take the consensus of $196 million, apply your exchange rate and take 2/3, I come to about EUR 113 million. And that's about EUR 10 million more than you. I mean it's a cloud business, so presumably the 85% of revenues from cloud are locked and loaded. So why are you being so conservative on what you expect to get from the business?

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Pascal Daloz, Dassault Systèmes SE - Executive VP, CFO & Corporate Strategy Officer [35]

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So I mean your computation is probably a little bit extreme. But nevertheless, I say it explicitly this morning, I took some cautiousness. And again, believe me when we do this kind of move, you take the risk to defocus the company for a few weeks. And this is the situation I would like to avoid. And that's the reason why we are taking some cautiousness. And again, I'm not talking about only Medidata. I'm also talking about Dassault Systèmes. Because the time we spend with -- as an executive with the Medidata teams are the time we are not spending with our current customers. So maybe you can blame me to take too much cautiousness, but I'm fine with it, Michael. But it's less than what you stated.

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Operator [36]

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Thank you. There are no other questions at this time. Please continue.

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Bernard S. Charlès, Dassault Systèmes SE - Vice Chairman & CEO [37]

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Okay. So very -- thank you very much for participating this morning and this afternoon for some of you. And we are always there to address your questions. And we wish you a good day. Thank you very much. And see you mid-November.

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Operator [38]

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