Dassault Systemes CEO Discusses Q4 2010 Results - Earnings Call Transcript

Feb.11.11 | About: Dassault Systemes (DASTY)

Dassault Systemes (OTCPK:DASTY) Q4 2010 Earnings Call February 10, 2011 5:00 AM ET

Executives

Francois-Jose Bordonado – IR

Bernard Charlès – President and CEO

Thibault de Tersant – Senior EVP and CFO

Analysts

Antonin Baudry – HSBC

Milan Radia – Jefferies

Laurent Daure – Kepler

Fred Grieb – Credit Suisse

Gunnar Plagge – Nomura

Adam Wood – Morgan Stanley

Gregory Ramirez – Bryan, Garnier

Derric Marcon – Societe Generale

Michael Briest – UBS

Presentation

Francois-Jose Bordonado

Good morning, everyone. I am Jose Bordonado, 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 fourth quarter and full-year 2010 presentation, which is also being webcasted. At the end of the presentation, we’ll take question from the audience and from participants on the webcasted call. Later today, we will also hold a conference call. For those participating in the webcast, the presentation will include some videos which you will not be able to see, but will of course hear Bernard’s comments.

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 will make in today’s presentation will contain forward-looking statements, which could defer materially from actual results. Please refer to our risk factors in our fourth quarter press release and in our 2009 document de reference.

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

Bernard Charlès

Thank you, Francois-Jose. Good morning, everyone, and I’m sure you have looked at our press announcement this morning on all the numbers, so let me share with you few insight about how we’ve been able to deliver this – I think this great performance for 2010, and why Dassault Systèmes in my mind is a new company after the last two years or three years of significant transformation.

So I will review the business first and its strategic achievement, and try to give you some ideas about why we believe we have some operating leveraging for the future. First of all in terms of new license, you’ve noticed that we have achieved our objective with the double-digit growth, the operating margin has also improved significantly as to reach the five year’s target.

The closing of the IBM acquisition and the execution has been, I think second to none in terms of quality. I remember, it was April 1st last year, we have integrated the team. And in the last nine months of the year, we have been able to un-stack our resources to really go and reach more customers in more countries.

Industry diversification is going well and we’ll come back to that. V6 adoption is more than we V5 + 1. It’s really I think the second generation of PLM, product lifecycle management, because the former model difference between V5 world and the V6 world is online. The addressable market is expanding and I think we will also cover that.

I think we truly now have the responsibility and the leadership for the reach on the engagement with our customers directly or through our partners, and clearly currently for the last two years it has not been the case, because we were always counting on someone – we are still counting on some partners – but we have the responsibility and the lead to coach on direct priorities around the globe. And we serve, as you know, 83 countries now that we sell.

We have increased and probably you all have noticed the cash flow I’m sure for last year, but I think and probably to takeaway for people looking at a financial leader, but for me the takeaway is adding 16,000 new clients. Not new users, new enterprise clients in one year. Some are very small, of course. Many are very small, but those are new clients which potentially does represent 16,000 new customers.

So the revenue is at – the growth was up 21%, excluding exchange rate 26% on the value. New license revenue excluding exchange rate is 30% for the new license, and the total software 24%. The operating margin has improved to 28.6% that’s just come under full year, as you can notice that Q4 was quite strong. And the operating margin growth has improved by 3.6 points. EPS at EUR2.5 with a growth of 34%.

In a year where we had to integrate and transform our entire direct engagement model by integrating in the last nine months of the year, the IBM sales force. So I think we have been able not only to execute well, but very quickly take advantage of this new organization to leverage it.

So let’s talk a little bit about the strategy that we have, because I believe it’s very essential to understand why we are doing that. First of all, we still believe 3D is a medium that will be used to sell, buy, support and communicate, and we are going to do that more and more, 3D as a medium not only as a design tool, but as a way to communicate. You see here some illustration of what we are doing with our 3DVIA site and our 3DVIA software.

3D in the mobility world is going to be an incredible way to understand each other, create multidiscipline exchange, and even influence education, marketing, selling and buying. So that’s a core focus to reuse our highly sophisticated technology on making affordable for our broader and wider audience. Once again, if you have an iPhone, please install the 3DVIA Mobile! it’s a very cool application. And if some of you are using Google Sketch, please replace it by 3DVIA Shape, because it’s far better – seriously it’s far better.

The second wave of things we are doing is replacing physical mock-up with the digital mock-up. It’s a well known, well adopted process for high complex products like planes or of course cars, but it’s not yet fully adopted across all industries. In energy, infrastructure, are still very behind in terms of adoption of that. That’s one parameter.

The second perimeter is all products are becoming smart. They contain on-board software and electrical system. And what you see here in this video is the fact that now we can represent, do the modeling and simulation on the design of smart products. We announced today that BMW has made the decision to use the next generation of CATIA for systems to really design, simulate, and program the on-board computers on the car, which is a way to go from shape on mechanical assembly to true product behavior.

If you think about the product you use everyday inside of a car, highly sophisticated product, they all are now providing consumer experience or consumer customer experience where the experience is also not only the shape or the assembly of the parts that the way you interact with the product. Even a fridge will become smart. So we believe that it’s essential to be able to do the modeling, simulation and collaboration on smart products.

The third aspect of it is related to tracking this all along the lifecycle and that’s we are called PLM. Well, what is new in PLM then? What is new in PLM is we want to make it affordable for anyone who use 3D to design something, make it affordable and affordability is coming with online. No need to install servers, no need to install complex database or manage them.

So the online aspect that we announced, for example, at the SolidWorks World three weeks ago or four weeks ago, we’ve in the presence of a 6,000 users was to tell them, “Look, you can connect, subscribe. And in the next six months you’re going to be able to connect, subscribe, and create a virtual plateau, virtual collaboration, without installing in anything. You just connect on the cloud and get these services.” That’s one aspect of PLM which we believe is important to change this feel of influence, which means all can use those capabilities.

The fourth phase which is about what we will continue to focus as we move on is really to create and reuse these difficult data. Today, if you think about what Dassault Systèmes has been doing, we recreate application software to produce digital assets. It’s the digital IP of our customers. In the last 12 months, we are acquired and are integrating technology to not only produce the digital asset, but to reuse and transform existing digital asset. Reuse and transform existing digital asset. I will give you two examples.

Draft site; customers are owning so many AutoCAD based digital format in 2D, it’s a huge asset in the world. We provide for free now a product that can help them read, modify, and help them reuse those data to create 3D objects. That’s an example.

EXALEAD; EXALEAD is a way to search the intelligent aspect of the information, to feed the innovation pipeline. In EXALEAD, we don’t produce data, we reuse the massive asset of Internet or the massive digital asset of the company. So Dassault Systèmes is not only now building rich application to produce digital asset, we are creating application to reuse the world digital assets available, to improve the innovation pipeline on a shared review additional information here.

This video that you see here right now is a software center for operation on our platform. Think about the potential to create digital training centers for safety, rescue. In many, many domains the easier it is to create those environment, the easier it will be to diffuse the use of this digital experience online. So this is where we are going and I think we proved in 2010 that it was possible to go there. So it’s just the beginning.

From that perspective, there is a few consequences that I would like to mention. I think we are being concentrating to serve the business, but I believe we can also now much more serve education, research and the society at large. When you sell and buy and use 3D assets to sell and buy, you serve not only B2B, the B can serve the C, by providing catalogs, by providing reusable digital assets in that context, and I will be back on that topic. Also in a moment we have a few illustrations.

And last but not least, all this is a part of a very open architecture whereby we have connected in a collaborative platform all the brands we have. Our customer do not need to buy everything. They buy what they need. But if they buy the different brands, they can take advantage of the integration.

So what do you have here? You have the SolidWorks World with SolidWorks application to get your world. This is virtual product and 3D for professional. What you have here is SIMULIA, an incredible potential to continue to simulate the real world. DELMIA, to simulate the way you produce connected to a consisted platform called ENOVIA for collaborative innovation on content management. On top of it, we want to build user experience. User experience that is so easy that we make the difference between how you produce the data and how you reuse the digital asset, how do you reuse 3D in a way you can sell, support, maintain. This is the 3DVIA product family that brings here.

How do you connect communities inside companies, so you can connect people together, so they can do innovation? This is a product that we are launching this year called 3D SwYm, which is the social network for enterprise. It’s a secured software network environment for the enterprise. It’s called 3D SwYm. We use it today. And if you want to see what it is, you can go on 3DS.com, go on the application store, register on the app store. You can do it, easy, you have nothing to pay up to now. And you go there and you go, for example, in the 3DVIA site user community. 3DVIA user community, 300,000 downloads, 15,000 users in the community, the community management system of that system online is our own software. The software you see in action when you connect on 3DS store. You go on the 3SVIA site, that software is the sole software we are going to deliver to companies to do innovation platform.

This is also the software we use inside Dassault Systèmes to connect all our people around the globe, so competencies can be shared through a community network like my kids are sharing their information with Facebook. It’s a Facebook of the enterprise for innovation. That’s the orange sphere. On the blue sphere, you understand its EXALEAD. Lucky enough was the blue color for EXALEAD before, so we’ll keep the same color. But EXALEAD is about searching on using the digital asset outside on Internet or inside. With EXALEAD today, we can connect ERP, CRM, supply chain system, PLM system, and provide a single view of all these digital information for customers. So I believe there is something unique here which really explained why on where we are going forward, we call today social innovation.

And, for me, social innovation is very simple to explain. You have co-creation, people want to create the connect. You have collaborative innovation, you connect with your extended enterprise. You want to do social innovation, you connect with your consumers, you get ideas from them. You get ideas, you outsource and you do a better product. This is where Dassault Systèmes is going.

So let me illustrate how we’ve been able to demonstrate in many cases that we need to scale and that we need to replicate. Let’s start with CATIA, because I think we had a very strong dynamic with CATIA last year in 2010, 31% growth in software revenue. Strong dynamic in automotive and industry equipment, strong dynamic in high tech.

High tech has been using 3D before, a connection of heterogeneous systems. But you know there is something interesting happening in the world. People are becoming highly concerned about the IP side of the digital asset they create. It’s a very interesting problem, because if you do collaboration by sending the data, you will never know where they go. The day you send them, you have lost control.

The reason why high tech is adopting V6 is because they never leave the data alone. They can ask the suppliers to connect to the system and go and access to the data where they are without moving them. I believe that for IP protection, online system is more secure than transactional systems, because you always know who is touching what. That’s why we believe in the high tech, the way to adopt the online PLM backbone is going to be stronger than in many of those sectors and that’s why the offering piece is one aspect of the topic, having the offering piece connected to the collaborative platform is essential, you see here a lot of highly realistic, this is real-time visualization. It’s not computed in the background. You can navigate and see this quality on the screen.

So it’s a broad product portfolio. It’s becoming life-like CATIA, based on V6 platform, and it does cover system behavior, and that’s why we announced today this big decision by BMW. So that’s for the CATIA dynamic. So we are not in an synthetic position for CATIA. We think that there is a lot of potential to expand.

I’ve talked about this; we’ve embedded system on architecture integration for BMW. We believe that this number of customers is at least, at least one-third of the existing install base in addition for people who are doing smart products. Those are not 10 people, there are thousands of people doing these kind of work, it’s highly complex. That’s why we bought Geensoft, maybe you have not noticed that last year, a small acquisition. We have not made so much noise about it. But Geensoft has the technology to translate our computerized model of a car behavior to a code that can be understood by the car. So you download the code on the car, like you download an application on your iPhone, and the car will behave differently. This is why we bought Geensoft. A small acquisition, advanced technology.

Here is an illustration of what we call innovation Innovation Spiral. In Innovation Spiral, you have requirement. Then you have to define how the function are going to perform. Then you have to define how they work; logic of it. Then you will have to see how physically you make those functions happen. We did an interesting example for BMW. They wanted to have a function where you – if you are transporting something and you want to go in your car and put something in the trunk, of course you cannot take your keys, because your two arms are really busy. So we developed, we showed them how they could develop something where you just push your foot and the trunk will open, and then you can load your car.

Now, what do you think is required to do that? You think it’s a mechanical problem. No, it’s electrical and software problem. And when you add all the functions which are now smart function, which are in your car, that’s how you end up with high complexity that needs to be managed.

This is another example. So this is a consumer experience, but, of course, they are also more serious example. Like here are two cars which are really going to test drive. One is controlled – dynamically controlled and the other one is not. This is not a movie. This is a real simulation of what would happen to the car which is not under traction control. So we have achieved a level of reliability and compliancy where we can say, “Now, we can represent with CATIA PLM system, very sophisticated behaviors of complex systems.”

I use cars, because we, of course, are going to serve this industry first. Think about hybrid, think about electrical car, but we have to apply this to so many industries wherever there is a piece of software, hardware and electronics. And, here you see the illustration about how it works. We connect the requirement with the function, the logics, and the behavior, and we can produce the code. It’s very serious; this is not a pilot, this is a big scale contract. I don’t think all customers are ready to adopt it. But believe me the one who are the most innovative will really have already need do it. So that’s for, what we call, virtual product in real life.

SolidWorks; absolutely great performance. Unit growth up 18%, revenue growth up 15%, excluding exchange rate. The ASP, our average price is up, and we exceeded 1 million license in education. By the way those are not free licenses, they are not at the same price as professional licenses, but they are not free either. And I think the growth driver are still strong for the future 2D to 3D migration. I talked to you about why we did draft site. We know other competition. I believe SolidWorks can build 3D de facto standout what we call 3D for professional. Customer acquisition is very strong and multiproduct traction. This channel now can sell 3DVIA composer for technical documentation and it’s a very strong channel.

Here are a few illustration where both now, CATIA and SolidWorks is used at SNR, a gearing company; Abbot for medical equipment; Trek in US for bikes, design tools, innovation. The ENOVIA under the PLM environment going through a very strong dynamic. The growth was up to 29%, excluding exchange rate. We reached end user of revenue up $318 million. And we had very strong wins with ENOVIA V6 last year. Here are some great example and I will comment on some of the them.

The V6 customers are adopting the ENOVIA collaborative platform, so the 600 enterprises which have made a decision to be running the V6 environment are all using the ENOVIA backbone. Here are some examples. In the apparel sector with Charles Vögele; energy with Skanska, FLSmidth; and Bell in aerospace. Tesla, you know the famous Tesla. I think I have a quick demo, which shows you what ENOVIA is about.

[Video Presentation]

So it’s not only about managing data, it’s about connecting the ideas to the function and the delivery, and that’s what we do with ENOVIA. Big win at ALSTOM replacing a competitor’s product. ALSTOM will be unifying, addressing on ENOVIA V6 for multi-site collaboration on a global basis. They’re a very interesting win, because two years ago, the decision was against ENOVIA and we just replaced everything and this is very interesting specifically as the competitor is a big firm starting with “S.”

SIMULIA: Realistic Simulation. There is a big play here. I think we are number one in structural analysis and we are expanding the structural analysis to do a lifecycle simulation and realistic human simulation, which is for life science are very critical, very, very critical domain.

Here are some illustrations in aerospace where we do real-time stress simulation; in automotive, of course, like tire, safety simulation; and expanding that to the energy. Energy is a big sector for ENOVIA. There is a lot of requirement for simulation in the energy sector. Of course, industrial equipments, lot of them needs to be improved in terms of safety, quality, simplification. Architecture and construction, also high potential. We have very great chances there, ship building. And those are again realistic simulation, complies with the real life. And life science, the best medical school – universities in America are now standardizing on SIMULIA platform for skin simulation and modeling, because they believe it’s very essential for the future. Packaging, and of course, more traditional type of machinery and energy sector. So the ENOVIA simulation engine has a high potential to diversify in all the 11 industries that we serve, and the very advance aspect of it is the differentiator.

DELMIA; DELMIA is evolving. It is a long journey with DELMIA, because the problems we have to solve are so complex for production. But the reality today is we see more and more customer using the DELMIA digital information to run the supply chain. This is an example here of what we are doing with what we call enterprise resource management.

How do you organize your plans around the globe to optimize the flow? We can do that now with DELMIA. And I believe that this easy way to look at what is happening, we’ll probably provide a new set of possibilities that goes beyond what has been called in the past, traditional manufacturing ERP system, we’ve a big partnership here with Michelin for example in this area.

Universal application; we produce highly rich IP digital data. We need to be able to reuse and transform them. Here is an illustration with 3DVIA to really create a realistic simulation to provide ambience and create showrooms. Customers are now looking at how this technology can be used. It can be real-time. There was a TED Conference the other day in Paris and we agreed with TED to be able to provide real-time 3D participation to the conference using 3DVIA SwYm. So I think those kind of in-context collaboration, we change the world of innovation. This is for 3DVIA, so the imagination aspect.

The social aspect is as I said 3D SwYm and it’s really about – you can go today on a website, I forgot the name – Rightmove - UK. Rightmove.com or Rightmove.co. You go there and if you are looking for a house in UK, you go on this site and you can – if you really do a very, very multi-facet search, this is EXALEAD power. Not only that, you can even put some lines on the map and say, “This is where I’m looking for the house,” and immediately the search will converge.

Better than me describing what it is, I’ve tried it, it’s very interesting. Go and try it, it’s Rightmove, it’s an interesting site as you know Yellow Page, Pages Jaune or ViaMichelin you go on those sites, or Yakaz, we talked to you about those. Those are powered by EXALEAD. For French people here the Elysee site is also powered by EXALEAD. So if you want to know where Mr. Sarkozy pronounces certain name, you just do real-time streaming and retag the video. So the potential for new type of usage of search of rich media is high, and we want to serve the innovation process for companies. Our first priority is companies or the ecosystems that goes with it. It’s quite interesting use of it.

So an example of use of EXALEAD. For Russia, Tier 1 supplier, they have SAP, they have PSNext for project management, and they have our ENOVIA platform. And their challenge is – and they have more than 5,000 users of ENOVIA. And what they wanted to ask is 360 view of all information regarding any topics no matter where the data are, whether they are in the IP, CRM, even email or any other archive, and that’s what we are doing for them to really help them understand and grab all information relative to the project to monitor the business transformation, because so when they acquire a new business, they are able immediately to have access to all the digital asset without having through a long digital transformation to really put commonality in the design tools. So the value of EXALEAD for Dassault Systèmes is to make sure that the PLM window can have access to any related information across the company, no matter where they are stored. This is what we call search-based application. So this is the new portfolio.

On the left side, you have the rich application portfolio. You know what we have been doing there. We have CATIA, SolidWorks, SIMULIA, DELMIA. We have a common platform, ENOVIA. And on the right side, you have what we call, our universal apps, can be used for everything, for data we have created or for any digital data available on the planet. That’s why we use 3DVIA, we can connect to any 3D format; 3D SwYm for social networking in a secured way; and EXALEAD for search-based application.

So industry diversification; this is the bottom line we have increased in 2010. The contribution to the revenue is now up to 23% from 20% in 2009, coming from new sectors like consumer packaged goods, ship building, energy. Ship was an old sector, but small one; consumer goods; construction; life science; business services is so general that there is huge diversification inside, already we’ve EXLEAD in – more than 150 year financial institution they’re using EXALEAD and we are going to continue to serve them. We’ve EXALEAD on some of them. We’ve 3D SwYm, because they do need social networking to capitalize knowledge. High tech; so this new industry has been growing faster than the existing industry we serve. However, we believe that there is a strong dynamic to continue to grow in the existing industries.

A few examples of big, big groups in 2010. General Electric Energy. You know this is a significant part of GE. And they are adopting ENOVIA V6 and this is going to be about 40,000 users in production online with one global single instance of information available from everywhere. So it’s designed somewhere, manufactured anywhere, and it’s really about multi CAD, they have multi CAD [inaudible] systems, they are multisite designs, and they use all portfolio management, project management on single source of information, using V6. So ENOVIA V6 works.

Carrefour, another interesting showcase here, that we believe is going to be a quite interesting. In fact, Mr. Gonzalez is really in-charge of the Group Merchandising Director, came and spoke to our user conference and really he was presenting, and I think there is a video how 3D experience will enable them to improve the consumer experience. And here is how it works. We can map now the shelf structure with the business model for the distribution. So we can connect the financial performance of a shelf with the way it’s layout.

We can also – this online, this is the capture of the online demo, its online where anyone around the globe in one of the 16,000 retail points can really get the best practice about what they should do for the local store. I believe that this is easier than just a picture, because you can do real-time adaptation and layout. In P&G they are using similar function, it’s called 3DVIA Shopper, where we can track when a consumer is looking at a screen, we can track where the consumer is going to look on and in which area of the brand packaging. And this is being used for brand management, what we call text and labeling, very complex process in the consumer packaged goods, because as you know they are different by countries.

So this is a quick illustration. VF, the world’s biggest apparel company, they own 22 brands. You know them; North Face, Lee, Wrangler, all these. And we have won the ENOVIA contract. We are just starting the first implementation at North Face with 300 users and the results are so significant that we believe it’s going to be adopted across all the other divisions.

Clarion, high tech environment. V6, CATIA, they have shortened their design time by 20%. They are now doing new innovations to use with design and they really demonstrating that they are even more competitive working with their supply chain.

So to conclude, because as I said, it was a milestone for Dassault Systèmes, integrated the IBM sales force, integrating the indirect channel, using two indirect channel, a volume channel, professional channel, a value channel for PLM called VS – PLM VS on the direct channel. We now have executive in 14 region of the world, we’re in-charge of making sure, we grow our market share, we have a local presence and that we can drive those three channels to sell all the products we have. So we are still a compact company. We leverage a lot of partners, system integrators, and that’s the way we want to expand the coverage. Interesting enough for people who still think we are a French company, we have 94 nationalities in the Group, which I think is an interesting demonstration that is highly diversified.

With that, I will let Thibault, provide some further detail about where this revenue is coming from, from those geography and business sectors. And then, we’ll be back for the questions.

Thibault de Tersant

Good morning. So let’s start with our software revenue growth. I think that what I would like to highlight here is in the fourth quarter the fact that we didn’t have any mega transaction, we had very high number of mid-sized transactions. So the machine has been working full capacity or close in the fourth quarter.

The recurring was also quite good in fourth quarter, growing 33%. I want to highlight here, because we need to keep that in mind when we’ll speak about the objectives that in the recurring we also had some reinstatements of customers who had stopped maintenance agreements and went back under this maintenance agreement. So there is an element, there are 11 million of nonrecurring items, if you want, in the recurring in fourth quarter. Just to keep in mind when computing the basis for 2011.

The brand performance was covered by Bernard, so all I can say is that, PLM had a great performance with CATIA and ENOVIA contributing very well. The other PLM, were also growing at 16% for the year and SolidWorks was growing 15%. And you can see here, also the improvement in the pace of growth of SolidWorks which is always a good indicator of growing from a – growing to a 22% growth in fourth quarter.

From a geo standpoint, I think that we need to give particular acknowledgement to the growth in Europe. Europe has been dynamic, all Europe has been dynamic in 2010, not just Germany. Germany, of course, is our largest country by far in Europe, but all our different geographic regions in Europe has been growing nicely actually in 2010. Asia grew, so Europe grew by 22% excluding currency impacts. Asia grew by 28% and Americas grew by 13% for the year 2010. And you can see the improvement in America, in Q4, which is quite clear, and also in Europe and Asia.

The service revenue, you always need some area to remind you that not everything is perfect. And we chose services, so we have been very successful at it. They know it was less than 10% of our revenues and that’s fortunate. However, without not being too humoristic about it, there are signs of improvement. Now, in services, you can see that, in the fourth quarter we had gained some growth – 11% growth in services. And for the first time in 2010, our gross margin improved compared to last year. And we had essentially 14% gross margin in Q4 in services.

The operating income grew very nicely, 43% in Q4, 44% for the full year. So there was a very nice expansion. In this margin expansion, currencies helped about one point, 90 basis points, the tax reclassification we had to do with the tax professional becoming CVAE in France, and therefore going to the tax line accounts for half a point in the margin improvement. But even with that, we still have a 220 basis points improvement in operating margin in 2010. EPS grew as you already know.

I’d like to highlight that 2010 has been a year of investment. If we look at the staffing when we closed 2010, it is increasing by 15% compared to the staffing at the end of 2009. So very clearly, I think this, if you need a vote of confidence from the Dassault Systèmes management in the future prospects, you just look at the staffing growth, and I believe it’s a good representation of where we think we can go.

My favorite chart is this one. However, it is change in net financial position. What you see on it is a cash flow from operations of EUR408 million in 2010, pretty good cash flow from operations, if I may say so under all angles in reality. And what you also see is that in spite of the fact that 2010 has been a very active year. In terms of acquisitions, we spent EUR462 million in acquisitions. In 2010, we also distributed EUR55 million in dividend. We ended up essentially at the same net financial position as at the end of 2009. So we have still a very good flexibility in front of us in order to manage our future growth.

2011; I’m sure you’re more interested in 2011. Even in 2010 now at this point. Well, I think on one side, we have seen a progressive improvement in 2010. And Q4 is a good illustration of this progressive improvement as well as Q3. At the same time, when we look at our pipeline of opportunities, it’s very strong. We end 2010 with a nice pipe of opportunities, so two very positive elements. At the same time, the economic environment could remain volatile. I can see – I’m not going to lecture you on that, but I can see a few reasons why the economic environment could remain volatile. And also, the currencies trends are very hard to predict. In former years, I was known to have an opinion on currency movements. I must declare today, I don’t have an opinion guys for 2011. Forgive me for that.

So when we mix all of that, what we say is that excluding currency movements, we believe that we can grow revenue by 9% to 11%. And this is based upon, essentially a 15% growth in new license revenue and a very decent growth in recurring which is higher than 9% growth, excluding currency impacts.

With these assumptions, we are targeting a 50 basis points improvement essentially in operating margin. And based on the currency assumptions we took, and again I don’t to want to liable for being wrong this time on currencies, but we took $1.40 per Euro and a 120 Yen per Euro, so we have a headwind again in these assumptions. From a currency standpoint, we see a 6% to 10% growth in EPS to essentially a EUR2.75 at the high end of the range.

But currency are in fact hampering this EPS growth by about four points. So please bear in mind that the currency headwind has an influence – significant influence on EPS growth based on the assumptions we decided to take here.

So these are our assumptions. The first quarter is just playing essentially the same trend. As you know, the third and fourth quarters of 2010 with a 25% to 28% growth in revenues and improvement in operating margin and a nice EPS growth. If you look at the new license revenue, I said 15% for 2011. This is actually relatively similar to our pattern of growing new license revenue in 2010, right? It’s a couple of points below, which for a guidance initiation I don’t think is that bad.

So that’s essentially the story of what we did in 2010 and the assumptions for our 2011 guidance. And, with that, I think Bernard and I, will try to answer your questions.

Presentation for American Investors

Operator

Thank you for standing by, and welcome to Dassault Systèmes’ 2010 fourth quarter and annual financial results call. At this time, all participants are in a listen-only mode. A short overview will be given, followed by a question-and-answer session. (Operator Instructions).

I must advise you that this conference is being recorded.

I would now like to hand the conference over to François-José Bordonado, Investor Relations. Please go ahead.

François-José Bordonado

Thank you, Lizzie. Thank you for joining Bernard Charlès, our CEO; and Thibault de Tersant, our CFO, for a review of our fourth quarter and fiscal year 2010. Dassault Systemes’ 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 tables included in our earnings press release.

Some of the comments we will make on this call will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in today’s press release and in our most recent document de reference and half year report.

I would now like to turn the call over to Bernard Charlès.

Bernard Charlès

Thank you, François-José. 2010 was a great year for Dassault Systèmes. We delivered on all our objectives, both financial and business. In an ordinary year, this would certainly be a good accomplishment. But 2010 was indeed not an ordinary. We were integrating IBM PLM, the largest acquisition in our history.

So let’s look at how we did with respect to our objectives. New licenses; we met our target to drive double-digit new licenses revenue growth. Operating margin; our goal was 100 basis points expansion and we achieved it. And as you can see from our 2011 operating margin objective, we are well advanced toward our operating margin goal of 30%. IBM PLM closing and integration was completed. We completed the acquisition and fully integrated the teams around the world very quickly, with minimal disruption and high people satisfaction. About the industry diversification, we made good progress with target industries approaching 23% of end-user revenue compared to 20% for 2009. Version 6 adoption; we saw an inflection point in Version 6 during the second half of 2010. With its online collaboration capabilities V6 PLM Generation 2 is becoming the best way for companies to create, manage and protect their intellectual property. In terms of customers, adoption of Version 6 is ramping up, with more than 600 enterprise customers now engaged in V6 projects compared to 250 customers at the end of 2009.

Addressable market expansion; we are entering into new domains which offer significant opportunity, including CATIA Systems and EXALEAD in search-based applications.

Customer reach; with both a global reach and a local presence we are well positioned to serve our customers. Thanks to this reach we added more than 16,000 new customers during the year of 2010 and we look forward to extending our relationship with them in the coming years. It is also clear that we continue to expand our relationships with our existing customers.

So we are very happy with what was accomplished in 2010. Moreover, this performance puts us well advanced on our five year’s objective to more than double EPS.

Let me turn the call to Thibault at this time for more detail.

Thibault de Tersant

Thank you, Bernard. My comments today are based upon our non-IFRS financial results. In our press release tables you can find the reconciliation of our non-IFRS to IFRS data.

Our financial results for 2010 reflect the significant increase in our direct sales force following the integration of IBM PLM as of April 1st and also include the acquisitions of EXALEAD and Geensoft since July 1st.

Now, let me review briefly our fourth quarter financial performance. Our fourth quarter non-IFRS revenue was EUR467 million, up 31% in constant currencies compared to our objective of 20% to 24%. Specifically, adjusting for the better evolution of currency, we came in about EUR30 million above our objective range from a pure activity perspective. Really all areas are to thank for this performance.

In constant currencies, both new licenses and recurring revenue increased by 33%, with services revenue up 11%. We had a large number of mid-sized transactions, so completing them all during the fourth quarter demonstrated very good execution by our sales teams and those supporting them.

From a regional perspective no surprises, with all geos contributing to the results of the quarter.

Most of the revenue upside came through in higher operating income and margin. Looking at the figures, non-IFRS operating margin was 33.9 percent. Non-IFRS EPS increased 22% percent to EUR0.83, compared to our target range of EUR0.68 to EUR0.78.

Now I would like to turn to an in-depth review of the year’s results. New licenses revenue increased 30% in constant currencies in 2010. Contributions from all our brands enabled this performance.

Recurring software revenue increased 23% in constant currencies. We have seen a better evolution of recurring revenue all along the year. As we have indicated renewal rates are back to historical levels.

Turning to a regional review, let me first begin with Europe. Revenues increased 22% percent in constant currencies. Looking by countries, I would say it was really very good breadth, with double-digit growth in each of the five geographic regions in Europe – in Germany and France, our two largest markets, and also in Northern Europe, in CEMA and in Russia.

In Asia, revenues were up 28% in constant currencies. Here we are benefiting from growth in a number of countries and also by the fact that our largest market, Japan, is back to investing after really being at low levels since the summer of 2008. India is doing well where we are seeing a sharp uptick with engineering services companies, automotive and industrial equipment customers. We also benefited from a good performance in Korea.

In the Americas, total revenue was up 13% in constant currencies. Latin America is one of the strongest of the developing regions for us. North America also performed well.

Our operating margin for the year was 28.6% compared to 25% in 2009. 220 basis points of the increase came from operating leverage. About 50 basis points reflect the expense reclassification from G&A to income tax pursuant to a change in a tax rule in France, which we first reflected in our second quarter results. And quite rare for us, we had a currency tailwind of about 90 basis points for the full year.

Earnings per diluted share were EUR2.50, representing an increase of 34% compared to 34% compared to 2009. I am sure you noted that our effective tax rate increased 4 percentage points to 32.5% from 28.5%. There are three reasons for this: first, our different tax benefits are fixed amounts in that they do not vary with the level of income. This reason accounts for 2 points of the increase; second, we had the reclassification of operating expense to income tax which accounts for 1 point; and third, a variety of discrete elements in the 2010 fourth quarter accounting for 1 point also.

We generated EUR408 million of net operating cash flow in 2010 compared to EUR298 million in 2009. I described our net operating cash flow to someone as the most beautiful figure in our financial statements. It truly evidences the strength of our business.

Another number I would like to highlight is our days of sales outstanding. Looking at our receivables, from a payment perspective, our DSOs were 80 days, which is a 7% improvement over the 2009 fourth quarter level.

Turning to our uses of cash, we returned about EUR55 million to shareholders in the form of cash dividends, representing a pay-out on 2009 IFRS earnings of about 30% percent. And we used about EUR462 million in cash for acquisitions, net of the cash acquired.

Our net financial position at year-end was EUR846 million, compared to EUR858 million one year-ago, so all-in-all a pretty good figure given everything we did this year. We also benefited from an important level of stock option exercises, simply reflecting the fact that one of our largest stock options plan is coming to the expiration of its tenure life.

Turning to our financial objectives for 2011, let me share some general comments first. We are optimistic about our growth opportunities in 2011 for several reasons. First, some of the economic indicators closer to our business, in particular, industrial investment spend are showing improving trends and are forecasted to increase further in 2011. Second, we are encouraged by our performance in the fourth quarter and third, we are pleased with our pipeline of opportunities entering the year. So these are well aligned with our views of a progressive improvement in investment plans by our customers.

On the other hand, we think it is appropriate to temper this optimism with the fact that the economic environment is still not easy and we see a number of things that could cause it to remain volatile.

Adding these together, we see a good year for Dassault Systèmes, with new licenses revenue increasing about 15% in constant currencies, a healthy progression of recurring revenue, even with the important level of one-time maintenance renewals in 2010 and further improvement in our operating margin.

I would point out that in the fourth quarter we had about EUR11 million in recurring software revenue that was one-time in nature and would not be part of the balance going forward.

Our 2011 non-IFRS revenue growth target is targeted at 9% to 11% in constant currencies. Based upon our currency exchange rate assumptions this brings us to a target revenue range of EUR1.680 billion to EUR1.710 billion.

With respect to our earnings, our objective is EUR2.64 to EUR2.75, representing 6% to 10% non-IFRS EPS growth, and a non-IFRS operating margin of about 29%, compared to 28.6% in 2010.

For the 2011 first quarter, we have set a non-IFRS total revenue objective of about EUR390 million to EUR400 million and a non-IFRS EPS objective of about EUR0.53 to EUR0.57 cents per share.

Our financial objectives incorporate two key currency exchange rate assumptions. First the US dollar, where we are assuming an exchange rate of $1.40 per Euro and for the Japanese yen, 120 Yen per Euro. Of course currency rates are particularly difficult to predict these days, so these are just assumptions and not a prediction. But what I really want to highlight is that these currency assumptions have a negative impact on our revenue growth in [inaudible] terms by about 3 points, but also on our EPS growth a negative impact of about 4 points of growth.

And with this, let me now turn the call back to Bernard.

Bernard Charlès

Thank you, Thibault. We have taken a very consistent approach over time to expanding our addressable market, doubling it in each new phase of development of Dassault Systèmes. Beginning in 1981, we have helped our customers virtually design their product in 3D and we continue today.

We then helped our customers see a virtual representation of their product with digital mock-up and we continue today. Beginning of 1999, we helped companies represent the entire product lifecycle from design to simulation to manufacturing and that continues and is further improved with Version 6.

Each new step came without detracting from the former ones as we have maintained an important level of investment and in fact each new step we have taken has also strengthened each of the strategic moves which preceded it.

We are now further expanding our addressable market with 3D for lifelike experience to help our customers represent the future usage of their products – so product in life.

Enabling customers to do this opens up new audiences for us. For example, in marketing we can help foster sales in a way that was not previously available to a company, enabling their marketing dollars to go further, generating new sales avenues and bringing many other benefits with virtual showrooms, virtual consumer tests and virtual products on the web before manufacturing has even begun.

In education we can help students first learn in a virtual environment, for instance in a virtual lab to learn how to conduct experiments as we show on our website. And in research and development we can help researchers anticipate the influence of a drug on a human cell.

So the timing is perfect for Version 6, where we can connect everyone with a simple web connection to this virtual platform to do business, to sell, to search and to learn.

For companies the number one inhibitor to collaborating is their concern regarding how to protect their intellectual property. The best solution is to provide an online environment where everyone is identified and can have access to the appropriate level of information without transferring the data. Version 6 is unique as it was architected from the ground up to be online.

IP, intellectual property protection is important to all companies. In SolidWorks the latest release it has introduced a defeature tool where you can remove details from a part or assembly and save the results as a new file in which the details are replaced by solids without feature definition or history. You can then share the new file without revealing all the design details and design intent of the model.

Our brands are the vehicles for expanding our addressable market. That is why we place so much value on having each of our brands being a leader in their respective markets. And if you look around it is clear that no one in our industry has more leading brands than we do. 600 enterprise companies have now adopted Version 6, with its online capabilities and V6 is strengthening the value of each of our brands as you will see.

CATIA had a very good year, with a strong dynamic in automotive, industrial equipment and high tech. Non-IFRS software revenue increased 31% in constant currencies. Renewal rates have been back to normal since midyear and this has had a positive impact on CATIA’s recurring revenue growth during 2010.

CATIA’s broad portfolio, its new embedded system offering which is critical to deliver a realistic user experience for complex systems, Version 6, and CATIA lifelike experience are four key drivers of growth going forward. This morning we announced that BMW is implementing our Version 6 solutions for embedded systems architecture, integration and design. In addition to the automotive industry, embedded software is a critical component to all the products that have now become what we call smart products, including, of course, aerospace. So our new systems product line is really quite strategic to many companies.

SolidWorks had a strong 2010 performance with non-IFRS software revenue growth of 15% in constant currencies. New SolidWorks seats increased 18%, over 42,000 seats licensed, and the average seat price, ASP, was up 3% in constant currencies. SolidWorks has a very strong new customer dynamic. It surpassed the 1 million mark in licenses for education, alone, which is a key area of focus for us. This milestone shows the strong traction SolidWorks has.

Growth drivers are many here with 2D to 3D, competitive displacements in 3D, its multi-product strategy, and a vibrant sales channel. I was at SolidWorks World in late January, a very well attended user event. There are a number of initiatives at SolidWorks which we will be introducing this year.

And finally, I want to thank Jeff Ray for all he has accomplished at SolidWorks and welcome him to his new role as Executive Vice President, Geography Operations. Taking the helm seamlessly as SolidWorks’ new CEO is Bertrand Sicot who moves up from his position leading the global sales channel for SolidWorks. He first joined SolidWorks in 1997.

ENOVIA is a leading provider of global enterprise solutions. Its non-IFRS software revenue increased 29% in constant currencies and its end-user software revenue totaled $320 million for 2010. ENOVIA had a number of promising Version 6 wins during the year. I am happy to announce that Alstom Transport, one of the world’s leading provider of equipment for the rail industry, selected ENOVIA V6 for multi-site collaboration. This decision replaces a legacy competitive solution.

SIMULIA had a very good year, with strong demand across each of our major regions, leading to double-digit software revenue growth in constant currencies. It had a good level of demand across virtually all the industries we address. Along with ENOVIA and SolidWorks, SIMULIA is a key driver of our industry diversification. Based upon market analysis, SIMULIA is number one in the world for structural simulation for two years running. Just as a reminder, SIMULIA grew through the deep recession of 2009 and has not had a down year in its entire history.

We are encouraged by an improving dynamic for DELMIA. We had told you it was coming and in fact it has begun. DELMIA’s performance strengthened over the course of 2010, and leading to a strong second half. Version 6 unified platform is a key driver for DELMIA’s future growth. It is also benefiting from an expansion of its addressable market into what we call dynamic enterprise resource management. Michelin is using DELMIA to visually manage the complete manufacturing subcontracting chain. Looking forward we think DELMIA’s trajectory is very encouraging.

Every industry needs to sustain innovation and we are focused on broadening our addressable market by investing in diversification across verticals. During 2010 we made further progress, in particular with a dynamic year in high tech and energy.

We are working with GE Energy, where ENOVIA V6 was selected to replace a legacy PDM system. One of the key elements in the selection process for GE Energy was the openness of the solution they choose. And as I mentioned last quarter with respect to LG Electronics of Korea, it is clear that Version 6 is open. There is no one seat of our design tools there, not something I hope to be the case in the future obviously. But it clearly illustrates my point on openness.

We are growing our presence in the retail industry. Carrefour, the largest retailer in Europe and the second largest in the world, has selected Dassault Systèmes to help it improve non-food merchandising in its 15,500 stores in 34 countries.

Faurecia, among the top ten automotive suppliers in the world, has 5,000 ENOVIA users in production. And it is using EXALEAD to help it manage a business transformation following numerous acquisitions. With EXLEAD they can have instant access and intelligent dash-boarding, something that would take a great deal of time with a traditional ERP system, so much better access to information to compare and analyze.

VF Corporation, the world’s largest apparel company, selected ENOVIA at the end of 2009 for design and development, and sourcing and production. During 2010 it has been rolling out ENOVIA to users in its North Face brand where the goal is to reduce the cycle time between concept and having the product on the shelf.

In summary, our diversification is well on track. New industries represented about 23% of our end-user revenue in 2010 compared to 20% in 2009. We saw good growth in many of our target industries, with high tech and energy leading in 2010. We achieved this higher contribution from new industries even with the very active year of growth with automotive and industrial equipment companies. Of course, I don’t mind having this type of problem to manage; success in new industries and success in our core industries.

Dassault Systèmes has a large global footprint and is engaged with customers in more than 80 countries through our sales channels. We are also well present at the local level around the world. With more than 90 nationalities representing among our employee base and Jeff Ray now heading up Geographic Operations, we are very well positioned to continue to develop our local teams.

More broadly we have invested in all parts of our organization during 2010. Our marketing and sales organization is higher by 20% and G&A by 17%. And we also continued to grow our R&D resources with our teams now larger by 9%. In total, we have now over 9,000 employees.

In summary, 2010 was an excellent year for Dassault Systèmes, meeting all our objectives. As a result, we enter 2011 with a strong product offering, our distribution channels well positioned on their respective markets, and a good pipeline on business opportunities.

I would like to thank everyone for their participation here on this call and at our morning webcasted presentation in Paris earlier today. Thibault and I would be happy to take any questions now.

Question-and-Answer Session

Francois-Jose Bordonado

So we are going to take the questions. And there is someone here.

Unidentified Analyst

Bernard and Thibault, can you maybe talk us through your investment plans for 2011? Obviously through the downturn, you didn’t reduce headcount or cost as much as many of your competitors. And so as the growth comes back, you saw some of that operating leverage in 2011, why is the sort of pace of margin expansion more moderate in 2011 or are we just being conservative and is it sort of upside on the top line that will drop through later in the year?

Bernard Charlès

Let me start for this question. Let me start and Thibault, be prepared to add anything you think can be useful. I think we made a good decision by protecting our employment in 2009. It was not an easy decision when you compare to what the competitors are doing. But I am very happy that we did. Even though we protected employment, we did a significant cost structure savings, if you recall, about 15% of our total cost was reduced. So, because in our domain, there is a lot of science, it takes time. It’s not about just writing code at least for Dassault Systèmes is doing. So I think we have a – we can – so number on.

Number two, we have done a lot of progress in 2010 to globalize, to do a truly global R&D. We have 22 labs and they now can work real-time on a consistent product portfolio, including SolidWorks. We are doing massive use of V6 technology inside SolidWorks. Now that’s why you notice some of the expansion of the products. So from an R&D standpoint, we have, I think, labors with constant capacity to do more better and faster.

The – on the sales aspect, which is three half of the capacity now with the introduction of – integration of IBM, I think we have also a lot of flavors this year to really better use, if I may use that word, better leverage the knowledge and competencies we have. The unstacking process takes time. We have to relocate customers. We started last year and I think that’s why you see the performance on the – even improvement in the operating margin. But I think we are not at the end of the journey nor we are in the way we engage with our customers. As you know, we have put a social network environment in place, which works today, connecting all partners to share knowledge, which significant improve productivity.

So the reason why I gave you some practical example is, I believe that the structure of what we have built now has some labors to perform with more productivity with the same capacity. Of course, we have a lot to do and a lot of opportunities, so we’ll have to be smart in the way we do further investment, but basically the priority in 2010 – in 2011 now is to really, really take advantage of the structure we have built.

Thibault de Tersant

Actually 2010 has been a year of investment. I’ll show you that our staffing – growth in staffing grew by 15%. And if you look at our operating expenses for 2011 what we are forecasting is excluding currency movements between 9% and 10% increase in operating expenses. But this increase is really coming from essentially the level of expenses we already experienced in the fourth quarter of 2010. Our total expenses in the fourth quarter of 2010 are about EUR209 million if I am not mistaken. And our forecasts for the full-year 2011 in expenses is EUR1.205 billion to EUR1.210 EUR, so you see we are precise on how we define the expense levels. And there is not a lot of crazy expense increases and investments in 2000 – as you can see from this figures, of course, we will increase salaries and we are certainly hoping all sales people will get their bonuses in 2011. But there is a modest staffing increase, because as Bernard said, we now have quite a good infrastructure in place.

Unidentified Analyst

Just a quick follow-up; what was the license growth in ENOVIA in Q4?

Bernard Charlès

I have in mind the total software revenue growth for ENOVIA in Q4 which was 30%. The new license growth was slightly higher than that. But my memory doesn’t serve me well enough to give the exact figure.

Unidentified Analyst

Okay, thank you.

Francois-Jose Bordonado

We’ll take another question here.

Antonin Baudry – HSBC

Hi, good morning. Antonin Baudry, HSBC. I have two questions if I may. The first one is about IBM PLM. Do we see the full effect of the integration of IBM PLM, because in 2011, we'll have a full year of that acquisition? So which kind of synergy we would see this year top line on margins? This is my first question.

The second one is about acquisitions. You are now full of cash, I would say. The integration of IBM PLM is done and we saw new sector to cover. So do you expect new acquisitions and on which expertise or which segments? Thank you.

Bernard Charlès

Thank you for the question. On the IBM leverage, I think first of all the integration that was very, very successful. People are happy, yes, very happy. And you know IBM is a good company, so it’s a good benchmark to see that when people are joining Dassault Systèmes they are very happy. And if you talk to them they are very happy to be at Dassault Systèmes. So I think from me and the people side, it’s a declared success.

On the optimization, we still have a lot of potential to do, because, of course, remember, this is was the integration April 1st, so we were going full year. We’ve already a pipeline established, quota established, territory established, specifically for the direct sales people. We did the frontend work. But I think there is much more we can do to improve and fundamentally to improve the revenue per sales person, because we believe we can increase this efficiency. And with the wide product portfolio, we can do better. So, no, it’s not finished. Yes, it’s declared success. The people are happy to be here. Now we have to improve the total performance of the process and the way we engage with customers and sell and improve the revenue per sales people. So there is a potential to improve and that’s what we are going to do in 2011.

On the acquisition side, the – of course, the acquisition of – the internalization of the IBM resources was a very special situation. In some way it was our sales force for years, so I think it was logical step to do. We are very happy to have done it. And as much as the indirect channel taking the control of the direct channel has been a very successful foundation in the last 24 months or 2 years. So we are selective. So that’s what’s special. I continue to claim that our intent is not to buy market share. We are not interested to target companies to just buy their install base. I don’t think this is worthwhile to do. And I think our sector is moving so quickly, so many new opportunities, I talked to you about the strategy that this was new. So we will not go in that direction.

There are very spot key core small technology, very critical that might be of interest to us and we will do those kind of moves. But if you look at Geensoft, it was a very small structure with a high leverage, high leverage, because now we can serve so many customers. So we continue to be – despite the pile of cash, we are going to be very cautious in terms of which kind of technology and teams we target. And the main driver will be like what it has been for the past years. Again a side of the IBM special case will be about key technology with significant revenue growth potential and significant complementary with what we do. But, maybe, Thibault you want to add something.

Antonin Baudry – HSBC

Which kind of sector do you target, energy, oil, something?

Bernard Charlès

I think with our offer today, we can do a lot in the energy sector. What is astonishing for me in the energy sector, those sectors are changing very slowly. They are very conservative. However, the best market for energy sector for us is China, because they don’t hesitate to jump to next generation. The only country in the world where I see people thinking about energy centers as – with the new way of doing digital design, simulation, and so on, is believe it or not, in China. They do now hydropower installation the same we do airplane in the western world.

So I believe that India and China for energy and infrastructure are going to adopt next-generation set of solutions, which has a counter implication, which is that I think many of those engineering – civil engineering and architecture construction companies in America and Europe, they have wake up quickly if they don’t want to be surpassed just by the quality of the processes, so it’s something. Energy and infrastructure for us in China and India is important.

[inaudible] we are there, they are on catch up mode. They will adopt our solutions. We don’t want to push too much. Sustainable development is about that too. But in area where there are new things, adopting new technology we are going to leverage that. And this year, it has been presented at the SolidWorks World, we are going to introduce new type of online solutions for architecture design, because it’s still a flat world for architecture designs, so we have announced that we will be introducing this called live building capabilities this year.

Milan Radia – Jefferies

I'm Milan Radia from Jefferies. The first question is on the BMW contract. Who were you competing with on the short list? What were they using before? And what are Daimler using for these type of complex computerized systems within their vehicles?

Bernard Charlès

Well, thank you for this question. It’s a very, very significant aspect of how we see the future, and we have invested in the last six years on basic technology for that. So first, who were the competitors? None of our traditional competitors. T

he competitors, some are partners, so I don’t want to be too explicit. But the competitors were traditional companies providing software development toolkits – I said software development toolkits – for companies providing function to do document management, requirement managements, because there is a lot of specs, qualification documents. So it’s very interesting, because why your question is so key, is because what we offer is completely different from what the existing players were offering. What are they using today?

To give you an idea, most of those companies are using office documents, word processors, Excel, basic documents, and they just try with those documents to document what will be the behavior of a highly sophisticated, maybe, 50 computers onboard, highly complex code. It works, but it costs a lot of money. So we believe we have created a platform where it’s a new level of our presentation where you can really, really connect requirement with function, with physics, and with the code which is loaded on the car in a way similar to what has been the revolution of digital mock-up to produce a thought.

Today, when you produce a thought, you do the geometry on the NC machine will not be manually programmed. The NC machine will work on milled part or everything in the world. Automatic NC machining exist everywhere. We are doing that for onboard code. So we are generating the code instead of have it being handwritten.

Let me give you a sizing. A fighter airplane, one of the most complex project in America, the investment was about $8 billion. There was an overrun of $8 billion just for the onboard software. It gives you size of the problem the industry is facing with smart products. So I believe we have really on BMW the decision where the decision maker of doing all the electronics onboard competitors I’ve told you about, it’s about replacing 250 or almost 300 toolkits which are done now.

I have a lot of anecdotes in this domain. It’s the beginning, but I believe that – you’ve asked question about another name, they are all at the same level using very old niche tools. And I believe as much as digital mock-up has been adopted for the physical definition on production of cars, we believe now there will digital mock-up for car behavior on all the electronics, it works and it can work. And we are talking about a large number of users. As I said in my presentation, this is – it’s a very large set of users. I think it will serve many industries.

Milan Radia – Jefferies

Second question I had was on nuclear and just trying to understand where you are in China. For example, on the nuclear opportunity, who your partners might be, and whether you're now starting to discuss opportunities with the design agencies over there.

Bernard Charlès

You mean in nuclear sector.

Milan Radia – Jefferies

Yes.

Bernard Charlès

In nuclear sector, the most advanced country we have is Korea. The Korean nuclear industry has been using our technology for years. Maybe this is an explanation why the French team lost the contract recently.

Milan Radia – Jefferies

Just one final question if I may, it was just on organic growth and looking at the software revenues that you presented for Q4 and the fully year. What would be the organic equivalent and are they materially different to the headline numbers that you've expressed in constant currency terms?

Thibault de Tersant

Like I said, in terms of new license growth, our guidance for 2011 is not very far off from our level of organic new license growth in 2010. We are just capable of points of growth below, so we are going to keep on the same trend.

Francois-Jose Bordonado

Yes, go ahead. And then we’ll take the question over there.

Laurent Daure – Kepler

Hi, good morning. It’s Laurent Daure from Kepler. I have just three quick questions. The first is on EXALEAD. I think you were shooting for nearly 40% growth. So, so far, are you in line with your business plan?

The second point is on the services component for 2011. And given the ramp up on the V6, can we expect a real acceleration of the revenue growth in services next year – this year?

And the final point, I just want to have your view on the win of petition in Hyundai, and was it just a question of prices? Thank you.

Bernard Charlès

On EXALEAD, I don’t recall that we spoke about 40%, but whatever, the dynamic is going to be stronger. But I don’t think we can tell you how much. But it’s going to be stronger than that.

On the service side, and the potential is, we believe significant. We want to do three things with EXALEAD.

We want to use it as a platform to really provide a unified access to any digital information in a company in a secured company. And even provide companies ways to index the entire web and import the index in their own company. We can index the 60 billion pages and import the index inside. So when you search for innovation you are not tracked. That’s one thing.

Second thing is, use the platform to develop applications. Quick, fast applications. I talk about Faurecia, an end-user project going on, in finance, banking, in innovation processes, which are very interesting to see.

And the third aspect is, be a provider of a very powerful engine for online applications. Develop by [inaudible] develop by third party. I don’t use, of course, or refer to the fact that we’re also going to use it for own software, because that’s a logical evolution of our software capabilities, but those are the three things.

So the potential is very exciting and it makes me switch to the service in an interesting way. Our priority is to lineup with big system integrators, but we will do very selective contracts because we don’t want to have integrators which are agnostic. We believe that they will have to choice to sign the rest or to sign with our competitors, but not both. For simple reason we believe that the IP we have in certain business processes are so differentiating that we don’t want them to be transferred to other players. So – but we are going to sign with very large system integrators. IBM is a good partner for that, of course.

So that’s the priority for our own service organization not only dealing with loan with customers, but dealing, growing shoulder to shoulder with large system integrator, because the scale of the deployment we have to do now are such that we need this high quality partnership.

Thibault, of course, you can add anything you want on the Hyundai thing. It’s like a year-ago, each year I have a specific case. A year-ago it was Nokia. If you recall at the same period this year, it was Nokia. As far as I know, Nokia, we are in very good shape, despite the fact that our competitor announced that they have – they won. I think we are in better shape than they are. I don’t think they have got any money. I predict the same thing with Hyundai.

We’ll talk in a year from now and see who has got the money to install the PLM environment. I am confident that it’s not an issue.

Thibault de Tersant

In services, Laurent, the growth rate in our guidance is in fact slightly lower than the software growth rate for the reason Bernard explained. I think we should also give an opportunity to the call to ask questions.

Francois-Jose Bordonado

Operator, do we have a question from the call?

Operator

Yes. Question from telephone will be from Fred Grieb with Credit Suisse. Please go ahead.

Fred Grieb – Credit Suisse

Hi, thanks a lot guys. Just two quick questions from me. One is on the catch-up maintenance payments we saw this quarter. Were these kind of on the larger side of what we could expect? And do they typically stack up in the fourth quarter or maybe will we see some of these come through in maybe Q1 or Q2?

And then my second question is just on the fact that you saw a lot of medium-sized deals come in, in Q4. Are there some large deals outstanding that maybe didn't close in Q4 that they could come in, in the beginning of this year? Thanks a lot.

Bernard Charlès

Thibault.

Thibault de Tersant

Yes, the cash maintenance payments, actually is something that we have seen not only in Q4, but also in the two former quarters in 2010. I’m giving precisely the Q4 figure of 11 million, because it’s useful of course, to [inaudible] the recurring for 2011. But we had essentially the same level in the former quarters.

Fred Grieb – Credit Suisse

Any comments on the deal size?

Thibault de Tersant

The deal size was good news. I think it’s also because customers are no more reluctant to do the type of mega deals that we have seen five years ago. They want to do implementations, but by going from one step to another. And so the deal pattern has certainly aligned to that – plus policies in terms of pricing and discounting is certainly enough to favor mega order in order to benefit from a very steep discount. So no, I mean in the pipe we have a good pipe. But there are no mega transactions for these reasons and we did not miss in Q4.

Fred Grieb – Credit Suisse

Great, thanks a lot.

Operator

Our next question comes from Gunnar Plagge with Nomura. Please go ahead.

Gunnar Plagge – Nomura

Yes, hello Thibault. Last quarter you commented a little bit on the visibility that you have in SolidWorks on the units and I was wondering whether you could repeat that again. And then related to this, you made a significant management change in SolidWorks, Jeff now focusing more on what you said is localization of content. So what does this mean for the SolidWorks business model 2011? Does it have any margin implications and could you a little bit elaborate on that? Thanks.

Bernard Charlès

You take the visibility Thibault on the SolidWorks.

Thibault de Tersant

Yes.

Bernard Charlès

Yes.

Thibault de Tersant

So what I was saying, what I was saying on SolidWorks was that, there was actually in the course of 2010, a progressive strengthening of new units growth for them and of total revenue growth as well. And for sure SolidWorks is an advance indictor for us, because the sales cycle is shorter than for other products. So when we see in Q4, 22% increase in new units, it’s very good and healthier sign for the pattern of industrial investment by our customers.

Bernard Charlès

Related to the evolution of the executive management team, I think this is a very strong and useful for everyone. Your context of SolidWorks is very strong. You have to remember that when before becoming the CEO of SolidWorks, Jeff was the COO – was in-charge of global sales for that professional channel when John McEleney was the CEO of the brand. And, by the way, John McEleney was the COO when Jon Hirschtick was the CEO.

Bertrand Sicot has been the COO of SolidWorks for years. Bertrand Sicot is now the CEO of SolidWorks. So it’s almost predictive what we are going to do in terms of moves. Bertrand Sicot was the number two employee in Europe for SolidWorks. He built up all the European distribution channel, then he went to America to fix the America channel. Then he took over the worldwide sales for the professional channel. So I think there is no one better positioned than Bertrand to take over the CEO responsibility of SolidWorks. He has been at SolidWorks at Dassault Systèmes in fact, because he joined SolidWorks in I think ’98, 1998, so outstanding type of guy strong leader, extremely well appreciated all partners. I only see positive upside.

Jeff, no question about transition. Jeff has an excellent understanding about how to better leverage Dassault Systèmes for SolidWorks and vice versa. So he is doing more than localization. He is going to be leading all the General Managers in the 14 regions we have. And his goal is really to have clarity on market share in each other regions, skill, know-how, knowledge, performance, and really building up local partnership.

We have global functions, but they need to perform extremely well on a local basis. And that’s Jeff’s job and this is why he is the member of the executive committee. He is also to be – Thibault and I, are spending more time with the financial communities and partners to really communicate about where we go, because there are more and more people who want to know where we go. So way to scale up. And it will give me a little bit more time to think about the next steps.

Francois-Jose Bordonado

Fine. Next question from the webcast please, and after we’ll go back to the room.

Operator

Our next question will come from Adam Wood with Morgan Stanley. Please go ahead.

Adam Wood – Morgan Stanley

Hi, good morning.

Francois-Jose Bordonado

Good morning.

Adam Wood – Morgan Stanley

Good morning Bernard. Good morning Thibault. Two questions. Just first of all coming back to the guidance, I wonder, first of all, if you'd possible help us understand how much the kind of concerns about the economy tempered the guidance that you're giving and if we assumed that things were to remain more stable over the year, where you might be?

And then also on leverage within the guidance, you've been very explicit about the expenses you're assuming in there. If the revenues come in better than you expect in that guidance, what would be the movement on the expenses? Would you allow a lot of that to flow through? Would you be tempted to increase investments?

And then secondly, you've also mentioned on SolidWorks you're going to be launching an architectural solution online and moving that on to the V6 platform. Could you just give us a little bit more detail about the opportunity you see in architecture and construction, and maybe that move of SolidWorks on to the V6 platform? Thank you.

Bernard Charlès

Thank you, Adam. Thibault.

Thibault de Tersant

Yes. Your first question is, of course, not a very easy one, Adam. But the way to look at it is the following. There was a continuous strengthening in 2010. For the guidance in 2011, what we have taken is really more or less two points below what is the average growth pattern for 2010. So what we have not taken is the fact that in the second half of 2010, there was really a further strengthening. And that’s the way we tried to moderate the guidance. However, I would continue to claim that a 15% new license growth is not so bad and I don’t think we feel ashamed about it. And I don’t want to give the impression that we are excusing ourselves for the 15% growth in new license revenue.

The leverage in the guidance is very clear. If we can exceed this revenue, I’m not saying we are going to do it, but if we exceed this revenue level, a very significant part of the excess will flow into the bottom line. The expense level has been set and so we have really a plan on expenses. The only thing that is not embedded, of course in the guidance are acquisitions. When we decide to do acquisitions they may have an impact we don’t know yet, which one. But, for sure, there is an operating leverage and I think it was very clear in our 2010 results.

Bernard Charlès

Relating to the SolidWorks online, it’s too early to quantify what will be the contribution. We are going to do the ramp up of this product, we have done already called live building – SolidWorks live building. We have done already beta test with it with outstanding feedback. But we will be a new comer in that sector.

We have been doing complex, very complex architecture project as you know with Gehry, but those are very niche project, very big, successful, but rather niche project. And now we want to really expand in the sector. And we believe we have really with V6 platform something absolutely unique in that area. So I think it’s too early. We’ll build up the experience this year and see. I think it will be in better position at the end of the year to really quantify. But I think it’s – the potential is a significant potential, specifically because of the online.

Under SolidWorks leveraging V6 technology, we announced it a year-ago, more than a year-ago, this is to make sure we don’t create any surprise with the user base. They really loved our products. I think this project is going extremely well. And, in fact, they are already inserted V6 technology inside SolidWorks which are not visible, but which makes the economy of scale and contribute to make the product even more competitive.

Ultimately, it’s a huge install base that we have when you sum up, CATIA and SolidWorks and ultimately we want to be able to upside applications, sales including PLM. And last but not least, as you know, we have announced that we will provide online PLM for SolidWorks users, it’s called SolidWorks NFuse. You connect, you subscribe, then you can build a virtual collaboration online like you do for some of the existing online services, you already know the domains.

Customers are very excited with that. They believe that it fits well for small companies. They cannot afford to do it themselves. And I think it’s opening the gate for additional upside. So very good test for this year to really ramp up and create probably marginal revenue stream for 2011, but I’ll assume that we’ll continue to go at we will do the same with the CATIA environment, by the way that will be also online services. So we’ll built up the experience for CATIA.

Adam Wood – Morgan Stanley

Great. Thank you very much for the detailed answers. Thanks for clarifying that too. I appreciate it.

Bernard Charlès

Thank you, Adam.

Francois-Jose Bordonado

Question, now back to the room. Gregory Ramirez, and we do not forget people still waiting on the call.

Gregory Ramirez – Bryan, Garnier

Yes, thank you for taking my questions. Gregory Ramirez, Bryan, Garnier. Questions on two topics. First of all on North America, the growth has been improving in H2 but still lagging versus Europe and Asia. So could you give us a broader picture about the situation in the US, what has to be improved and how to make the growth coming back to the level that we have in Europe and Asia. This is the first topic.

And the second topic is to come back on EXALEAD. And, in fact, I assume that EXALEAD now is at breakeven in H2 as it was planned or maybe it is also now profitable. I don't know. But also, what is the, I would say, the share of the business which is now generated by EXALEAD on the ENOVIA, but compared with what we have with, I would say, external customers?

Bernard Charlès

North America, Thibault, any specific comments.

Thibault de Tersant

Yes. Well, first of all, it is true that our growth in North America has been smaller than in Europe and in Asia in 2010. However, our fight for North America is pretty healthy. And as you pointed out the situation has been improving in the course of 2010, Q4 was good in North America. And the prospects for 2011 are actually much more promising than what we experienced in 2010 in this region.

Bernard Charlès

EXALEAD is healthy. It’s going well and we are on plan I think for the first, second half, but that was just a small data point, because the reality is the top side that we can do. Relative to the ENOVIA, what we want to do – first of all, ENOVIA will take advantage of these capabilities. Where it’s not done yet, we are still for the time being using a product which is called Autonomy which clearly is going to be a competitor now with EXALEAD, so we are going to replace Autonomy by EXALEAD. This will come at the middle of this year. In fact, May timeframe. So all ENOVIA customer will take advantage of this immediately. But real business was EXALEAD, of course, that’s a value for ENOVIA.

The real business for EXALEAD is to build search-based application, to really build, create this kind of catalogs on the number of possible search-based application is just very, very impressive. So those are very quick to develop, very efficient, they create, they provide a great user experience. And that’s the way forward. The revenue coming from just connecting it to existing product is not really the key parameter we are looking for, we want to upside for new users and new type of usage. And as you may have seen, we are now going to price EXALEAD based on the application value which runs on the engine. I don’t want to sell a tool kit. I have not seen so many companies doing a lot of business with toolkit, so we want to sell the application value. There is one here and one here.

Derric Marcon – Societe Generale

Yes, good morning. Thank you for taking my question. Derric Marcon from Societe Generale. The first one for Thibault. You had roughly EUR20m, EUR25m one-off on maintenance revenue in 2010. Correct me if I'm wrong. Do you expect additional one-off in 2011 or not?

And the second question, still for Thibault, could you give us any color on the momentum of periodic license revenue, excluding SIMULIA revenue please, so i.e. the 10 largest customers you having chosen renting solution, or renting business model, rental business model? Thank you.

Thibault de Tersant

Well, we had slightly more than EUR25 million of one-offs in maintenance in 2010. Actually, I think it’s rather a EUR36 million what we had. Of course, these customers are now under maintenance – back under maintenance and we’ve got recoveries as we have said. It’s very hard to forecast new recoveries in 2011, so for the time being, the guidance there are no recovery. And I certainly would not view to – would not likely to make the assumption we can do the same performance in 2011. We may face some recoveries, but I think the bulk of the work has been done now. I’m not sure I understand your question on the periodic license revenue.

Derric Marcon – Societe Generale

Licensing the lease growth versus the – excluding –

Thibault de Tersant

The rentals?

Derric Marcon – Societe Generale

Yes, the rentals.

Bernard Charlès

If you do the math, excluding the contribution of IBM PLM in 2011, the organic growth of recurring revenue should be roughly 5%. Could you break or could you split this growth between periodic license and pure maintenance annual fee? Thank you.

Thibault de Tersant

First of all, the recurring revenue grew slightly, but a lot of it is coming from the EUR38 million I mentioned, but grew slightly more than 3% to 5% to start with. And the rental licenses grew faster than the maintenance revenues. I would say probably twice as fast, more of maintenance revenues.

Bernard Charlès

Last, one last question, certainly.

Francois-Jose Bordonado

We’ll take one last question from the webcast, please.

Operator

We have a question with Michael Briest with UBS. Please go ahead.

Michael Briest – UBS

Thank you. Good morning. On the V6 customers, you have about 600 now. Can you give us an idea of how many of those are new names and how many are upgrades, and perhaps how many have come within auto and aerospace, your traditional industries?

And secondly, you set out an ambition for a 30% margin in 2014. You've obviously made very good progress in 2010 and this year will get you even closer. Can we expect any update on that or why you shouldn't exceed it?

Bernard Charlès

The Version 6 dynamic now – the Version 6 platform adoption is, in fact, when you look at the diversification 23% of the revenue, almost our biggest share of that diversification revenue is V6 platform. The auto and aero customers are slower than the diversification, because first of all, they have huge installations so we need to plan or by program or by new opportunities. I think this will accelerate. We are very large aerospace like Bell, we mentioned Bell. Bell Helicopter with very large installation where we are replacing so many PDM – legacy PDM by – with ENOVIA V6. And many of them are going to install first ENOVIA before they install the application set.

Now, few customers which are big firm in aerospace and automotive, but I think we have not announced them officially yet, who are switching over this year, adopting the entire product line. But I think we will communicate us, it becomes really official in their operations. I think we shouldn’t provide too much visibility it’s officially announced. But the dynamic is a good dynamic for V6.

Thibault de Tersant

Concerning the margin, Michael, excluding the impact from acquisitions, which is a – I have to forecast of course. My estimation is that we will have reached to the 30% margin, the magical 30% margin at least one year before 2014.

Michael Briest – UBS

Okay. Thank you. That still doesn't suggest much leverage in 2012, 2013. Why is that?

Thibault de Tersant

The leverage is coming from – at least two factors I would like to highlight. One is the sales capacity we have. We’ve certainly pointed out we kept our sales capacity. And now, very clearly, we can continue to improve in productivity on sales. And the second reason or the effort we are doing to develop shared services. We are putting together all our back-office functions and we grew from an organization where back offices were distributed in our brand and many entities to an organization where we have regrouped them. And so there is still very good leverage to take advantage of with that.

Bernard Charlès

With that, thank you very much for participating to this conference. We will be hosting a conference for our American friends at 3 PM this afternoon. So anyone connected who got any difficulties to hear what we were saying, we will be having this new opportunity. Have a good day and thank you for following us. And don’t hesitate to ask us additional questions offline.

Question-and-Answer Session for American Investors

Operator

(Operator Instructions). Your first question comes from Michael Briest from UBS. Please ask your question now.

Michael Briest – UBS

Good afternoon, Bernard. Good afternoon, Thibault. Just in terms of the PLM end-user spend, you give it as $318 million. And I’m just trying to square that to the four quarters you’ve reported which are about EUR200 million. Obviously there was a period pre-IBM acquisition which needs to be factored in, but I’m still perhaps missing something about that. Could you sort of walk me through that, what’s in there Thibault?

Bernard Charlès

Good afternoon, Michael. Thibault is going to take your question.

Michael Briest – UBS

Thank you.

Thibault de Tersant

Yes, Michael. This figure is our software end-user figure for ENOVIA. You know that, from time-to-time we maybe wrongly depicted as having a small market share in data management and collaboration, so I thought it was useful for 2010 to highlight in dollars our revenue just for the ENOVIA software. And it is $320 million in 2010.

Michael Briest – UBS

And is the difference between that and the EUR205 million or $270 million you’ve reported, basically IBM in Q1.

Thibault de Tersant

Well, we convert in dollars and we think end-user spend expense, all right. So, of course, in the end user, the IBM share is included.

Michael Briest – UBS

Okay. So it’s just Q1 obviously you didn’t have IBM, right?

Thibault de Tersant

Yes.

Michael Briest – UBS

And then, Bernard a question for you. I mean the North American performance was solid and its improved through the year, but it still lacks Europe and the US, as Europe and Asia, which is in odds with what a lot of other companies are seeing. Can you talk about the dynamics or whether you think this there is something which can change there?

Bernard Charlès

Yes. As you notice in your question Michael, the fourth quarter we saw an acceleration of the growth in North America. I think that – which was a good sign – I think that we noticed basically in addition to that growth is that the diversification process is going quite well as a matter of fact in America. And I think that’s – of course when we go in new sectors, the footprint at the beginning in small or the ordering are smaller than they are when you have already a big install base. But I think we are making good progress. The professional channel is – and almost all the brands are doing well. I think on the PLM side now, with the integration of IBM, we can really improve our performance there. I think our coverage was little bit weak for the PLM world, taking hold of IBM offering. But by unstacking now our capacity I think we can do better moving forward. The pipeline is good and it’s up to us to execute I think.

Michael Briest – UBS

Okay. And then just a final one, Thibault again. In terms of the maintenance catch-up, can you give us an idea whether that’s purely in the PLM business or would SolidWorks also have seen some of that?

Thibault de Tersant

Yes, Michael, it is – it is in the PLM business.

Michael Briest – UBS

Okay. So all of the 11 million and the 36 is PLM?

Thibault de Tersant

All the 11 million in PLM. That’s exactly right.

Michael Briest – UBS

All right. Thanks very much.

Thibault de Tersant

Michael, the last point I should have mentioned you know, when we develop the end-user spend for ENOVIA, of course we also include the share that is kept by the VARs. And there is also a portion of ENOVIA which is being sold to SMB customers and they constitute full end-user spend, [inaudible] VARs is also included in the $320 million.

Michael Briest – UBS

Okay, that’s helpful. Thank you, Thibault.

Operator

(Operator Instructions). There are no more questions at this time. Please continue.

Bernard Charlès

Okay. If there is no more question, first of all, once again we hosted a financial conference this morning in Paris with a well-attended conference, so I suspect that we have addressed all the question this morning. Thank you for all of you who could not be with us this morning to connect this afternoon. And with that, we’ll be pleased to take additional question offline if you have any. And have a great start for the year. I’ll talk to you for – in a brief for the first quarter results. Thank you again.

Operator

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

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