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Executives

François Bordonado – IR

Bernard Charlès – President and CEO

Thibault de Tersant – Senior EVP and CFO

Analysts

Adam Wood – Morgan Stanley

Milan Radia – Jefferies

Dassault Systemes S.A. (OTCPK:DASTY) Q1 2013 Earnings Call April 25, 2013 3:30 AM ET

François Bordonado

Good morning, everyone. I’m François Bordonado, Dassault Systèmes Investor Relations. From the company, we have Bernard Charlès, our President and Chief Executive Officer; and Thibault de Tersant, our Senior Executive Vice President and Chief Financial Officer. I would like to welcome you to Dassault Systèmes First Quarter 2013 Earnings Presentation, which is also being webcasted.

At the end of the presentation, we’ll take questions from the audience and from participants on the webcasted call. Later today, we’ll also hold a conference call. Dassault Systèmes financial results are prepared in accordance with IFRS. In addition, we have provided supplemental non-IFRS financial information. For an understanding of the differences between the two, please see the reconciliation table included in our press release.

Some of the comments we’ll make during today’s presentation will contain forward-looking statements which could differ materially from actual results. Please refer to our risk factors in our 2012 Document de Reference.

Let me now introduce Bernard Charlès, President and Chief Executive Officer. Bernard.

Bernard Charlès

Good morning everyone, thank you François-José. This is one new that appoint for our plan for 2013 so let’s give you what we think about it. First of all the results are in line with what we expected to deliver. Our focus right now is to expand on the – and take advantage of the 3DEXPERIENCE platform to expand in diversification, both from an industry standpoint, geographic standpoint, on user type standpoint.

The announcement that we did last year about the 3DEXPERIENCE platform application and solutions are really getting a lot of attention in terms of business value, when we talk with customers we did roll through last year and now we are showing the platform in action. And in fact this is the major rollout for this year.

We are expanding our footprint in energy process on utilities and then we illustrate some names here on very significant wins, as you know when we sign the contract we only recognize the revenue that we get with the installation. But the potential in process on utilities on energy is high.

We announced also two acquisitions which are very, very key technology acquisitions, and really confirm our full year 2013 objectives. So let’s review the business on the Q1 performance.

Revenue was up excluding exchange rate 7%, 8% public software we’ve not disabled growth of the recurring. On the operating margin at 29% with EPS at 0.78 up to 10%, so strong financial performance in the compact software soft market environment.

Product line wise, what we can see now is that there is an impact on the economical environment on CATIA, ENOVIA on SOLIDWORKS. CATIA is up 3%, ENOVIA is flat. PLM software revenue is up 71%, and has a strong dynamic in specialized applications and SOLIDWORKS is up 8% for an aggregate total of 8% total software revenue.

Significant demand on specialized application, SIMULIA, DELMIA with a strong quarter, DELMIA is digital manufacturing we see a lot of attention from customers who continue to automate the production systems. And we believe that for many years with TBO, we have been convinced that this is one day should be a much bigger market and maybe we’ll see finally the sign that automation in production systems are – modular production systems are really becoming critical and we see that specially in America.

Software revenue excluding Gemcom on the different transactions where SquareClock as well the spinoff of Transcat is up 6% excluding exchange rate.

A few illustrations about this dynamic, with SIMULIA, you have to know that SIMULIA is not only an application collection. It’s a set of solution to do virtual testing in – for each of the industries we serve. So it’s becoming not only the application side but the imposture side – Mazda is a great showcase, the business value is really about balancing performance on weight to reduce the weight of the car. And we have significantly demonstrated improvement of quality, optimization of the design from a structural standpoint – on the safety standpoint.

Automotive, adopt this really expensive platform more so with ENOVIA applications, it’s a big world leader in safety system, headquartered in Sweden with global presence. And it’s really almost 10,000 users globally.

Austin in Russia, this is really in the consumer goods, its largest Russian Apparel retailer with many offices in Kazakhstan, Ukraine and China, and the business value is about improving efficiency of product development and process and cross functional collaboration. And it’s really about the unification of the best practices across their sites and they have adopted here the platform to design sourcing and supply chain.

This is an interesting showcase, this is SFR and this is Telco Company in France. They have about almost 900 retail stores. Why is it an interesting showcase? It’s because if you recall we acquired a company called SquareClock last December. And SquareClock is now going to be renamed and put as part of the 3DVIA product family. This is online under cloud through a browser you can do 3D design and do what we call floor planning, very interesting scenario, why so? Because by providing this easy cloud browser based 3D capabilities, SFR is the most traded that brought people in the store, could themselves do the store planning without even being asked to do it.

And what was the value for them of doing the store planning is because when they received merchandizing on marketing program equipment, as each of the stores are different, they need to do a proper setup. Many of the store managers were not so pleased with what they were receiving. They decided to create the store planning and provided to the headquarter online so the headquarter will deliver better marketing materials for the stores.

The improvement are significant because the cost of merchandize in production and logistic has been reduced by 25%. And the store merchandizing develop on time has been reduced by 50%. I think the lesson learned is online through the browser on the cloud for casual user is the way to go.

On the number of casual users is amazing because it’s average of three users per store, which almost makes it 3,000 users, casual users online creating 3D for planning to improve merchandizing. That’s why we bought SquareClock, that’s why we are doing what we call 3DVIA store. I’m going to do 3DVIA store, 3DVIA office and 3DVIA home. So, the usage is really to create reality of 3D usage with that and ask very often when do you think cloud is going to be a value for 3D design, this is a good illustration about how it works and why.

In some way, people driven adoption can create completely new environment for domain of merchandizing that probably was not addressed the same way before, more to say in the next quarters on this.

So, in terms of revenue by region, America was up 7%, Europe 6%, Asia 8%. What I could mention here is you go North, especially Italy, UK was very strong. Outstanding performance in India and I will come back on this on the energy side. And as well as in America while in America we continued to reshape our organization because we believe that the potential is even higher than what we have been able to realize up to now. But we’ve got double-digit growth in America I think you can’t compare each of the sign.

By industry, I would like to review today the energy process on utility in the CI lines. This is a very core sector for us going forward. We think that there are a lot a cross-system approach here, first of all – new energy, sustainable energy. But also the distribution aspect of it so not only production, distribution, maintenance on life-cycle management in nuclear – life-cycle management, training of the personnel is very essential.

In nuclear there is a need to improve safety but also need to improve lifetime of these huge installations. And of course nuclear is very critical in China as well as Nortia and the civil countries. Wind, is also a big evolution for us. We see an illustration here so we are focusing there, highly complex, large number of users, complex process to engineer, construct, operate and maintain the installations. So we think we are uniquely positioned to do that.

So, we are expanding in the sector, we have put practices in place. There is an industry organization, you remember last year I talked about the 12 industry organizations in place. The leader is Stéphane Declée, he’s really someone with 25 years of experience in both development industry solutions and he’s really leading this sector in a marvelous way. So we focus on nuclear, hydro power, thermal wind, oil and gas on utilities.

And the game is changing in this sector, because this sector for years have been drawing based sector, very conservative, old methods on techniques, and I think the adoption that we have seen in aerospace in the last 20 years or in automotive is now becoming a reality in the energy sector for efficiency, safety, of course put in this CL process in place but also of course, innovation and the balance between demand and supply, here as a sure illustration.

So, what are we focusing on? We are focusing on two categories of challenges. One category from the consumer standpoint, how can we make smart grid, simulate them, because it’s basically about smart supply and demand. Of course sustainable energy, so new type of solutions or affordable energy because as you know it’s a big debate today especially in Europe, many of our current in industries are really concerned about the cost of energy.

As you know, I think America from a strategic standpoint are taking a growth past over used cost of energy which is significant with a different solution on technology. And of course safety is becoming – it has always been but it’s more than ever significant factor for social acceptability.

On the company value, operation and maintenance cost is going to be developed in long term in structure of globalization of the value chain, traceability is very key, traceability in many of those sectors never, never been equivalent to what you have been aerospace, on some of those processes must be adopted.

And of course it’s a very competitive sector so the bid to win ratio on how companies can provide project bid on estimated risks on cost is significant and manage after the project delivery, as you know in those very large 20 million project the management of what we call compact based delivery on product development, contact based development is unique. We have a unique solution for that, no one else can provide compact base product management, that’s what we provide in our new industry solutions and of course the compliancy.

Here are a few illustrations, so first of all we are created industry solutions for that, they were announced last year. One is called optima energy and process utility, optimized plant construction, and also our industry solution is sustainable wind turbine. Here are illustrations. This is a video of real-time demonstration that will help you understand why we bought actual video for our landscaping modeling, because we need to do urbanization of a site of energy site.

This is now the business platform, this is the demonstration of the Dassault Systèmes business platform. In operation you see the leverage here. If you know noticed the characters on the screen, you see the real-time dash-boarding of who is doing what, where and when, what we call the 6W, you have the blog, you know when the project is, you can navigate. This is actually the user interface of the business platform that we are providing to customers.

You can see a real-time dash-boarding of the formation related to supply sourcing, project completeness. This is a real illustration. And you see the collaborative platform in action where people use this 3D as a reference to understand who is going to do what, where is the cost allocated, which supplier is going to be involved, and the first – you cannot read the screen but you can imagine that this is more fun than in an ERP system, which is very boring because you don’t know what is happening.

This is the real-time project progression including all dash-boarding on budget allocation cost tracking on Dassault allocation. This is an example of operations during the construction, whereby when you validate the scenario with a supplier, the supplier can verify that the equipment they are going to deliver is going to fit in the installation.

It might be looking as a cartoon some of this 3D illustration. The reality is a significant transformation of the industry, because before people were working with drawings. In this case, you can use the 3D referential model as a way to organize the team, evaluate the risk, evaluate the cost on follow the project with what we call contractual based delivery which is significant there.

The business Dassault Systèmes 3DEXPERIENCE platform is becoming a business platform. The reason why we acquired is to be able to dashboard every information coming from financial systems, sourcing systems, supply chain system, no matter what they are, even on grown system, very critical for the future.

And in the EPU where our revenue is up 18%, you see the global need for energy, I’m sure you’ve been looking at this. This is a significant sector for us and we believe that is going to be a very big sector.

We signed a contract here with (inaudible) in UK, New York, adopting the three platform. Basically this is nuclear specialist covering both CL and Dassault sector across complete life-cycle. The business value is really to government’s management of cost ability, on safety.

For engineering and design, expanding to manage the data validity to all the detailed design on construction phases. And it’s about optimizing the plant construction and we think the industry solution experience, and the partner is Data Technology with this company to really do the implementation more and more of the – implementation we do with large customers, we are going to involve system integrators, because we believe now – we need to scale with new type of partnership like this.

Hydro Power, China, this is China Hydro. As you know by 2020, China will be the world number one producer of energy from hydro. It’s a huge potential in China and we deliver turn-key on time, on budget installations. So it’s not about design only, it’s about construction, sequencing, supplier management, cost on budget allocation. And it’s – to optimize the construction as opposed to optimize the design, which as you can imagine for those kind of construction sites are extremely, extremely complex.

So, everything of the application used on this really experience platform, CATIA, ENOVIA, SIMULIA, 3DIA, I remember, I know that is not anymore the platform. ENOVIA is a collection of applications. The platform is the 3DEXPERIENCE platform, there is a lot of confusion, we are not doing PDN, we are maintaining the 3DEXPERIENCE platform and creating collection of applications on top of it.

And Vision, this is also this is the leader in wind, also headquartered in China. It’s about the design process optimization, the business value and it’s about supporting the transformation from on-shore to offshore, offshore wind program is very complex because you need to make it right first time, very difficult to access. So you need to reduce the cost of ownership because the cost of maintenance is huge on offshore installation. So, and those systems are really huge in terms of size.

In India, we had an outstanding quarter in India. And this is a project in India for power grid, whereby really it’s about driving the smart grid structure to understand how from a system standpoint, modeling and simulation and visualization of urban phenomenon to really understand energy management but also water management, waste management traffic management. So it’s a system view of an entire urbanization environment from both energy on different type of resources and traffic.

That’s I think a good lead to understand why we made the 3DVIA acquisition. This is a small company, 20 employees, very critical technology and it’s about urban environment planning to provide 3D city or landscape modeling. We will expand ENOVIA vivid. And the idea here is to have generative technologies so we can quickly create the entire landscape generatively as well as cities in such a way that we can use this as a reference model in the 3DEXPERIENCE platform when you are managing intelligent traffic, when you are managing resource distribution and providing a collaboration platform for multiple disciplined interactions.

Here is an illustration through this video which we are integrating in the 3DEXPERIENCE platform creating a social environment using 3D modeling so people can understand, where is what, information intelligence, to connect this environment together. And the idea is to simulate a collaborative environment for urbanization whereby you can really involve or moderate the exchange between what the citizens are expecting whereas what is going to be the urbanization project.

So, you are – we are a social collaborative environment and this is an illustration we did in China, where what you see, is, we use the social environment to define the needs. You can have multimedia environment share ideas, create scenarios in the social multimedia environment. And then you can look at the landscape evolution. This is why we think we need to have a very precise globe, submitter precision for many, many usage and this is what is possible with 3DVIA because we not only – you need the exact landscape but you also need to be able to create cities – to create the city very quickly from open data source.

We can create no prior section of Paris now taking open source on generating automatically the view of the city, so we don’t need Google card for that, we need precision about the landscape. So you can then manage the network, whether it’s traffic network modeling or urbanization or evolution. Of course it’s useful for existing countries like here, cities like here in France, we have done a project, we’ve – where we demonstrated that we could really create new type of approach to manage the evolution of the – and it can be used for wind installation.

Here is the real time with in terms of objects, here more and more objects measuring Dassault characteristics in the cities, we can source those information and put them in the context of the city so people can see the different formation and though the analytics. And this is a project that has been presented two weeks ago in (inaudible) about new type of transportation.

I spent 10 days in China, and illustrated to many cities in China, how they could plan the urbanization of the big cities which are under construction in China using these kinds of techniques. I think we’re getting a lot of attention on that.

So, urbanization, 60%, the word is going to be in cities, it needs to have a system approach. Today it’s only by section and discipline. We believe that we can create an environment where people will be able to see the same thing before they actually do it.

Now, a very techie acquisition. And because believe it or not Thibault was the one who convinced me we should acquire this very scientific acquisition. I will let him comment to you why we bought this company, Thibault, you’re at the front.

Thibault de Tersant

Good morning all of you. Okay, why not. So, the interest of non-parametric optimization is the topic here. Optimization, the design optimization is about designing for a certain targeted robustness of the product such that you can optimize your design and remove material and until you have removed all material necessary for the targeted robustness of the car with chassis or whatever and part you are doing.

You have two methods to do that, one is parametric optimization, the other one is non-parametric optimization. And believe it or not the words here are confusing because the one which is more automated is the non-parametric optimization method and one the opposite. And so this is the interest of this acquisition, it’s frankly the best technology for a non-parametric optimization and this does drive a lot of savings in time in order to run this optimization process.

It’s based in Germany, 50 employees, a nice customer base with more than 200 customers. So, in Germany they are based in (inaudible). And the customer names are Genève Moraz, Siemens and some others.

Turning now to the financial highlights. As you have seen our revenue growth was 7%, with 8% growth in software. And in software, if you look at our organic growth, it was 6% in this first quarter. So, clearly this was at the high end of our guidance. New licensees were down by 2%, we were anticipating that they would be down in the original guidance, if you remember and this is a factor of course the beginning of the year which is soft in economic environment which wasn’t since the third quarter of last year in a marked way.

But also a good comparison, strong comparison base, we had an increase of 18% in new license revenue in first quarter 2012, if you remember this was our best quarter for new license revenue growth in 2012.

The rentals grew by 13% and this is of course the factor of the good renewals we see in our maintenance and rental agreement. But it’s also in this particular case a nice comparison because if you remember, in first quarter 2012 a few purchase orders slipped to second quarter. And so if you compare all-in-all, it’s probably a 7 million help in the comparable base for recurring. So the 13% is very good but it’s a big high because of that.

SOLIDWORS, SOLIDWORKS is a good sense or good indicator of the economic activity with a short sales cycle they have and also the fact that we then already seen what is happening at the level of the small companies, small suppliers, particularly well. So the number of new licensees was essentially flat up by 1% compared to last year and that’s a significant indicator.

However, the price per seat was up by 2% so the dynamic here to settlement value is there, on SOLIDWORKS. And the total revenue growth was 7% and here are as well with a good level of renewal in subscription and maintenance agreements.

The service revenue was down by 7% with a margin which is essentially, it’s more or less unchanged compared to last year. The service revenue is of course very much linked to new license sales and particularly for the ENOVIA brand and so you see it here, the influence of first quarter new licensees on services.

Operating income was at 29%, so very much at the high end of our guidance, slightly down compared to last year. But we started some marketing programs in first quarter as anticipated and announced, so it’s very much in line with the forecast. And the EPS was up by 10% and this is also a reflection of a good financial income in first quarter. And also a tax rate which was a little bit less than last year because in first quarter we were able to recognize the full handy tax credit in the US.

If you remember we could not recognize it in 2012 because the low was not voted yet and it was voted in January of this year so we were able to actually in first quarter to recognize the tax credit in the US. And this of course helped our tax rate for first quarter by a capital of percentage at points.

Cash flow from operations was very healthy in first quarter at 185 million, an increase of 12% compared to the year ago period. And the cash position was increased in a significant manner as we can see here by 210 million.

Turning now to our financial objectives for second quarter and full year. In the second quarter, we are anticipating to renew with a growth in new license revenue. We really believe that there is a significant healthy pile of projects that our customers want to launch in our field. And that yes, the beginning of the year was soft because customers take their time in decision making. But second quarter should renew with new license revenue because there is a point where the projects have to be launched.

And also second quarter of last year was a good quarter but the comparable basis, a little bit easier than first quarter. The recurring revenue will not benefit from the delays in taking purchase orders of 2012. And so recurring revenue should grow at 9% in second quarter, normalizing for this phenomena, which still establishes at a very high level of renewals. In order to achieve this we need to renew 98% of PLM maintenance and 80% of steady growth maintenance so it’s a good level for both.

And so, based on that we are also confirming our full year objectives. We are also getting a little bit of currency generates. We keep the data at 140 but if you remember the yen was at 120 yen per euro in our original guidance, we are now at 130, so we are updating the objectives at 125 yen per euro going forward.

So, if you look at the full year evaluation, we are in fact adding 10 million in reported revenues, 4 million of them are coming from currency in fact. 2 million are coming from the better activity in first quarter and 4 million are coming from the two acquisitions that we have just presented to you. It’s not more because actually design, we already had an OEM with them, so there is already – actually a 3D design revenue embedded into our SIMULIA product line.

EPS, is unchanged because the yen change is costing $0.02 and the activity is adding $0.02 so we are keeping our EPS objective for the year. And so, in reality we are confirming our full year objective.

Second quarter should be at 550 million, a 7% growth. So same growth essentially than first quarter but with better new license revenue and less growth in recurring. And an $0.80 EPS growing by 5%. This is essentially the update on our financials and our guidance.

And now, with Bernard, we’ll be happy to answer your questions. Yes, Adam.

Question-and-Answer Session

Adam Wood – Morgan Stanley

Thanks to you guys, Adam Wood from Morgan Stanley. Just, on the outlook for the second quarter and the rest of the year. On the one hand, we’ve got SOLIDWORKS units that were quite weak in Q1 and you’ve talked about the weakness since Q3 last year. And then when we hear you talking about the pipeline and projects that customers want to do you sound more optimistic. Could you just kind of reconcile that for us, is it the pipe that’s making you confident, is where you kind of more visibility and hope you can give us an outlook there, to explain away the SOLIDWORKS strategic normally the indicator and the more eCommerce in that side.

And then, a longer term question on the product set. One of the themes that has been coming out is around 3D printing, it’s potentially a very big thing. Could you help us understand how Dassault might fit in with that, I’ve seen you wouldn’t want to get involved in the hardware side, then in terms of design works that maybe feeds into those prints. Is that an area where your products could play or maybe there needs to be a cheaper on-demand version of your products that could feed into that to help drive growth in the future, is that an area we’re looking at? Thank you.

Bernard Charlès

Thibault, you want to consolidate the first part of the question, thank you Adam.

Thibault de Tersant

SOLIDWORKS was and still is a good indicator of the economic activity and environment. They did an effort in Q4 of last year so we are able to deliver a decent Q4 but actually the environment is visible through SOLIDWORKS results since the middle of 2012 and still visible in this first quarter.

If you look at the situation of the word, they are still a few countries which are managing very decently with cloud environment. So it’s not a complete disaster. And particularly in Asia, what we see in India, in Korea, in Japan, is definitely encouraging and going in the right direction. We saw a little bit of softness in China, but frankly the opportunities in China are very significant for us, so I made very confident with Asia.

And I think there is also somewhat of a positive trend in Americas, certainly in Latin America. And some improvement in North America as far as we can see. We also see an improvement in UK. And the situation is incinerating further in Europe, in the rest of Europe, including in Germany. But it’s still healthy in Germany and Northern Europe and will take more time for Southern Europe very clearly.

But what we see is that all-in-all, the pipe is very decent, it’s in fact even which of project with customers needing to adapt to this environment and new trends and new customer behaviors. So we see many transformation projects from our customers. At the low end of the market, it’s true that it’s a little bit weaker. And that is for SOLIDWORKS. Also in Asia, SOLIDWORKS can certainly continue to improve its performance with a better coverage.

So, really what we see is that we’ve targeted actions in the right countries to increase our coverage and sales forces and distributor networks. We can pay our cards and I knew with license growth, without a doubt.

Bernard Charlès

Making a comment for the second part of the question following the term. Just one additional comment for SOLIDWORKS. The early mark formula, here we noticed that the sellers were expecting certain kind of discounting program at the end of the quarter. We decided to stop that.

It was not really visible on the ASP because the ASP was very good but they were expecting these kinds of things, so this quarter we decided to do that and it was a good decision. But industry did a little bit of shaky conclusion for the quarter but I think longer term it’s a positive decision. And all the resellers I’ve met are saying that indeed it’s probably the right decision. So now they know they cannot expect the last week of the quarter in the discount form.

The certain thing is why ASP was still a very stable, is because of multi-product. But the thing with multi-product we can also create value with that even for SOLIDWORKS installation, multi-product remember electrical molding on their additional products on top of basic license. So, clearly the trend for SOLIDWORKS is to continue to add value around SOLIDWORKS.

On the screen printing, it’s very – we are in present, it’s really printing for a long time or when they remember stereolithography, back years ago. Everyone was saying well, that we reported stereolithography, of course yes, please push the print button. So we do have a print button on CATIA, SOLIDWORKS, 3DVIA, even DELMIA for 3D printing. I see a lot of attention on that and it’s a valid attention because it’s a way to change production system for small quantity.

But from the impact of the upper – it’s significant because it’s very easy to report. It’s push the print button please and we do the processor in some way to make sure you are convinced about that, it’s as easy to do as doing processor to do the NC milling of report. So, yes, it’s an evolution because it will change the supply chain, it might even create new ways for companies to provide maintenance box, specifically when they are in certain materials without having to produce them locally.

We do a lot of experimentation on that. As you know some of our advanced customers are even trying to invent new printing machine for highly sophisticated composite materials. We were at the Milano Show last week, Tom Dickson a very famous and architect here in London was there on the presenting at the Milano Show for internal design.

And furniture design coming out from 3D printing with people doing modular design of what they want to add in their home, if you search from insertions and you will find what a growth story there. You see Dassault system, with Tom Dickson doing printing on site in Milano.

So it’s part of 3DVIA, it’s part of CATIA, it’s part of SOLIDWORKS, there is no development for us to be done. More devices, lower would be the cost, easier will it be for customers to adopt this technology. No specific development to be done. On the full portfolio, of course (inaudible).

Unidentified Analyst

Thibault, can you quantify the impact of Gemcom in the second quarter of particularly on the new licenses? And secondly also ENOVIA was flat in the quarter but you talked about the shift to rentals. Can you just help us understand the shift and the impact on the deferred revenue dynamics as well. How do you actually flow through? And for the pick-up in license activity, you sort of indicated to, what should we be thinking – because the Gemcom is still there for the second quarter. So, what would be the kind of ex-Gemcom run rate you would anticipate?

And then secondly for Bernard, just in terms of the organization, you sort of hinted to some of this are tactical changes you’re doing in some of the industries and some of the product lines. Where are we in terms of that and your kind of visibility around execution and potential acceleration and growth, when could we see that. I know the economy is a factor but from your standpoint, do you look at where sales productivity versus where you’d like it to be, can you help us understand how the dynamic can play out?

Bernard Charlès

Yes, thank you. Thibault will take the first part.

Thibault de Tersant

Yes. So, Gemcom is for second quarter, both 2.5% of software revenue. And our target for software revenue growth in second quarter is essentially the same as for first quarter 8% both with more new licenses revenue growth and less recurring, so that’s about it.

I think the question is more headed into the second half in reality, where that will not be the addition of Gemcom. And our scenario is still to see a continued trend in second half, like in February guidance.

And this assessment is in fact not based upon the belief that the economic environment with all of a sudden improve in the middle of this year, it’s more based upon the compared base. And hence of the pipe of opportunities that we see.

Bernard Charlès

Related to the second part of the question which is basically the balance with the industry factor on the diversification factor on the channel aspect. I could summarize it with a few key words.

Three channels, for what we call the professional channel which is basically products on quick sales. So it works on others. We are expanding to multi-products, that’s one thing. On expanding the capacity, not only from NFT standpoint from Q1 but also from a number of resellers.

On the second channel, which is called value solution channel, this is industry centric solutions as supposed to the first one. And the ramp up with new partners we acquired a significant number of new value partner last year that we want to leverage and we see the impact on how we can expand the diversification factor in energy and reserves. So, it’s picking off from that standpoint, not pushing a product but pushing a solution. In fact that performed quite well in this quarter and we believe that on a long-term five-year plan, it’s probably going to be the fastest growing on a new line.

Then the third channel is, our direct sales force. Related to our direct sales force this is of course deal by deal. We continue to specialize the sales force by industry solutions. And what we need to do is to engage with system integrators in a bigger way because the wins that we presented this morning was either on energy, I mean cost structure of a high potential.

As always we start small with installation, we have been mentioned in China it will fall wide, I mean, but we continue to expand but there are new installation like ENOVIA here in the UK, nuclear recycling, where our system integrators are very key. So, to your question, it’s yes, about sales productivity but it’s also about making sure that transactions are repeatable and larger, which we believe is the value of industry solution. So that’s in – the actions on the strategic.

Thibault de Tersant

Absolutely, you had a question on ENOVIA rentals and deferred revenues. So, the ENOVIA rentals were good in this first quarter as well growing 26%, during the quarter. If you remember this better dynamic in rentals started in the middle of last year. So, these are not up for ENOVIA yet and you don’t see the impacts on the deferred revenue in first quarter of the rental dynamic, not yet.

The deferred revenue as you may have seen in our balance sheet are up by €75 million in this first quarter compared to fourth quarter of last year. And if you compare through what happened in 2012 first quarter, if my memory serves me well, rental, deferred revenue were up by €64 million. So, there is an increase in this increment of deferred in first quarter which is a critical system with the business growth. And knowing that Transcat was out of it for €8 million. The increase is even better than what it appears.

Bernard Charlès

Was another question here?

Adam Wood – Morgan Stanley

Thank you very much. Just, a couple – one, following up on this topic of rentals. You said 26% for ENOVIA but what was the rentals growth overall for the group. And what could be the impact on the license growth if you can make some sort of adjustment on that? And then, I think you’ve provided that before the percentage of recurring revenue that it comes from rentals so it would be helpful to see if that’s the stable trend.

And then the second part of my questions on the V6 evolution, I mean, you’ve been giving us the metric of the percentage of V6 contribution to the PLM licenses. So if you could give that metric, and indicate what do you think that’s going in for the rest of the year? Thank you.

Thibault de Tersant

So, okay. The full, the full light on rentals. Total rentals were up by 16% in first quarter. They represent exactly 22% of recurring revenue in first quarter. Fourth quarter is always better in rentals because you have customers installations where you do a catch up of the year, they have the flexibility to our licenses and then you addressed at the end of the year what they should have stayed for the full year.

So, as the year, rentals are slightly down in the first quarter but still growing year-to-year as I have indicated. The computation of what this represents in new license growth is actually one which is not so easy to do, it takes a little bit of time to do. But my estimation is that we are not embedding lot of new rental licenses in this first quarter I think it’s just the continuation of the strength as seen in last year.

Milan Radia – Jefferies

I’m Milan Radia from Jefferies. Just thinking if you’ve ever seen this acquisition of LMS late last year. I was just wondering about the competitive impacts of that and whether there is a product gap in terms of partnership that emerges from Mechatronics acquisition by Siemens?

Bernard Charlès

Believe it or not we are pleased at the Siemens board members because we think what has happened original goal with Vista-G, if you remember for composite, whereby on the Vista-G installed base more than 60% of the world installed base of Vista-G was already get your customers. We think that in the next three years we will have replaced almost all of them.

I think the same thing will happen with LMS. It’s not an elegant statement it’s a reality, customer of once integration. And there is a very little probability that an LMS customer will move to Siemens in the opposite way then will move to the integration with our system, when I say system, I’m not speaking about software system, I’m talking about the system creating intelligent systems.

And so the dynamic is very positive and we have got lot of visibility from customers on the fact that they want to – on our solution faster. So, that’s competition, it’s within but would we have to do it again even for much less? We would not buy LMS. I think it’s a nozzle heat-up point for you to understand. It was a very well optimized team, at the end of a journey.

François Bordonado

We have a question from the webcast. Caroline, if you wish to transfer us the question from Jarvis.

Operator

Okay, Mr. Jarvis, your line is now open.

Unidentified Analyst

Hi, good morning all. Just a couple of questions. Would it be possible to give us some color on the kind of V6 adoption like you have done in the past? And then secondly, on the kind of sales cycle, from what I get, that is lengthening a bit or at least lengthened in Q1 and how do you expect that full to full year. And do you still expect license growth to be in line with the guidance you provided at Q4 numbers?

And then finally, given the difficulty and that you increasingly need to look for kind of license growth elsewhere. Is there a risk of the cost of new licenses simply goes up? Thank you.

Thibault de Tersant

Okay. So, first of all on Version 6. Version 6, is continuing – it’s held out. And actually when we alluded to the very good performance of DELMIA in first quarter, this is very related to Version 6, DELMIA Version 6 is truly very good version, actually here to implement and use for customers and is helping to this very good performance of DELMIA.

So, Version 6 is now starting to hold out for competitions. First quarter was not a great quarter for ENOVIA as we have already allotted and so this has an influence on when you look at the total Version 6 percentage as total revenues which is relatively stable compared to last year of 15%. But the hold-out of Version 6 applications has started. And we are frankly very confident that Version 6 is major breakthrough that our customers are going to take.

And in fact, most of the projects in our pipeline I was mentioning before explaining the guidance of Version 6 projects in effect. Your second question is related to our ability to meet our new license revenue guidance. First of all I confirmed that there is no change on that front compared to the guidance issued in February, we very much confirmed that all-in-all, our goal is to deliver around the 5% growth in new license revenue in total in 2013.

And in fact, in first quarter compared to our guidance, we did slightly better in new license revenues although certainly we want to do better. So, the first quarter is not at all for us an indication that the guidance is now at risk. It’s more confirmation that we are well aligned with the original goal we shared with you.

Bernard Charlès

Well, related to the last part of your question, related to quality, the cost I suspected you were referring to the cost of selling a new license. It’s very critical for us this year or next year to focus all what we call the 3DEXPERIENCE platform on new type of customers, new type of usage. Why so, because we know that the migration is a given, it is given. We don’t lose customers when we go from one generation to another one, we expand the customers.

In the last couple of years where we mostly never lose customers, when moved from one generation to another one, it’s the opposite. So, it’s built-in for the long term. So the priority to increase the footprint in energy, in cost structure, hi-tech, CG, CPG, is really what we need to do. And that’s what we are doing now.

When we sign those contracts that’s more at the beginning, I said that takes time. But when you look at the customers, China Hydro, China Hydro is becoming as big as an automatic customer. So, it takes time but entering there, on being there is key. So that’s the strategy we’re pursuing with what we call the V6 architecture, whether it’s big companies or mid-tier companies.

Unidentified Analyst

Got you.

Operator

(Operator Instructions).

François Bordonado

Okay. If there is no question, maybe Charlès, will have a word of conclusion.

Bernard Charlès

Yes, thank you very much. Thank you very much for participating to this quarterly presentation. And of course we continue to be a valuable tool. And thus, any further information you need to add for your own question. Have a good day. Thank you very much.

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