Dassault Systemes' (DASTY) CEO Bernard Charles on Q1 2016 Results - Earnings Call Transcript

| About: Dassault Systemes (DASTY)

Dassault Systemes SA ADR (OTCPK:DASTY) Q1 2016 Earnings Conference Call April 21, 2016 9:00 AM ET

Executives

François-José Bordonado - Investor Relations

Bernard Charlès - President and Chief Executive officer

Thibault de Tersant - Senior Executive Vice President, Chief Financial Officer

Analysts

Jay Vleeschhouwer - Griffin Securities

Nicolas David - Oddo Securities

Laurent Daure - Kepler Cheuvreux

Monika Garg - Pacific Crest Securities

Michael Briest - UBS

Operator

Thank you for standing by, and welcome to the Dassault Systemes First Quarter 2016 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 today.

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

François-José Bordonado

Thank you very much. Thank you for joining Bernard Charles, CEO; and Thibault de Tersant, CFO to discuss our 2016 first quarter financial performance. This conference call follows our web casted presentation earlier today in London.

For your information, Dassault Systemes’ financial results are prepared in accordance with IFRS. We have provided supplemental non-IFRS financial information and reconciliation tables in our earnings press release. Some of the comments on this call will contain forward-looking statements that could differ materially from actual results. Please refer to today’s press release and to the Risk Factor section of our 2015 Document de Référence. Revenue growth figures are in constant currencies, unless otherwise noted.

I would like now to introduce Bernard Charles.

Bernard Charlès

Thank you for joining us here on earlier the webcast. I would like share with you a few key points today. As you saw we delivered our first quarter financial results at the high end of our guidance range. Total revenue came in at EUR694 million, on EPS at EUR0.51 up 19% in total.

We had a strong increase in the recurring software revenue growing 8% in constant currencies. We continue to strengthen the creditability in our financial model. Thanks to our long standing focus on recurring software overview.

New licenses revenue activity as anticipated was muted on a year ago comes and 2016 where we've seen clients’ investment coming in the more backend manner. At the same time, the transaction with 3DEXPERIENCE came through loud and clear translating it into a 33% increase in 3DEXPERIENCE new licenses sales in the first quarter.

We believe 3DEXPERIENCE represents a very significant transformation for our clients under market moving from PLM which is mostly file based to the 3DEXPERIENCE platform which is better driven on model based. This strategy 3DEXPERIENCE platform on industry solution experiences with this past quarter - the wins in this past quarter illustrate very well the direction leading companies are taking. The power of the 3DEXPERIENCE platform in combination with our industry solution experiences is also strengthening our presence in diversification industries as illustrated which wins in High-Tech as well as Marine and Offshore.

With this dynamic looking ahead, we are conforming our 2016 financial objectives as Thibault will discuss in greater details.

Moving to the quarter on a regional basis, our growth was relatively similar across Europe, The Americas and Asia. Looking underneath at our 12 geos, we had an excellent dynamic in China, the strongest of all. In Europe, Southern Europe continued to perform very well and we had a solid level of activities in Central Europe. In the Americas, North America and Latin America both contributed to the growth of the quarter.

I indicated at the outside of my remarks that we are seeing a good dynamic with 3DEXPERIENCE. During the first quarter, 3DEXPERIENCE new license revenue increased 33% in constant currencies as I indicated and from a mix perspective, it represented 30% of related new licenses sales at 7 points from the year ago period. Why? Looking at companies in different industries, all of them are increscently challenged with driving growth of their business.

We believe that our 3DEXPERIENCE is a great suite at form moving business to a new world of innovation on execution capacity. Companies want to create experiences rather than continue respected product announcements. To do this they need to collect and analyze large quantities of data and use them to model successful experiences.

With the 3DEXPERIENCE platform, we are delivering to them the required data driven on model based platform to eliminate far and enable them to dynamically model experiences with a full digital continuity. On these customer experiences can evolve, thanks to the ability of the 3DEXPERIENCE platform to interact on the clients improve these expanses based on the analytics embedded modeling at all levels including multi-physic behavioral modeling, social collaboration on decision support.

All this is done on a single platform creating a leap in productivity on business. Importantly, our business platform is delivering by ability to our full digital continuity always connected on always in real time.

Let me share two examples with you at this point and I will share some further illustrations later on my presentation. The first example is IPSEN headquartered in France. It is a global specialty driven biotechnology group with fields of expertise covering oncology, neuroscience and endocrinology. You may recall that IPSEN was one of the companies partnering with us for over five years in bio-intelligence. They selected our 3DEXPERIENCE platform because it is well suited to be IPSEN’s new collaborative and innovated digital platform to support open innovation supporting IPSEN’s drive discovery.

My second example relates to SOLIDWORKS, which also has applications on the 3DEXPERIENCE platform. One of its clients is the center of advance design, a product development consulting firm. They adopted SOLIDWORKS industrial design powered by the 3DEXPERIENCE platform on cutting the design time by almost 60%.

ENOVIA demonstrates very well to power our 3DEXPERIENCE platform to announce innovations through real time collaboration. And thanks to the 3DEXPERIENCE business platform on the critical business domains ENOVIA addresses such as product planning, global product development, IP classification and protections as well as quality and compliance.

ENOVIA has been progressively strengthening its market position with numerous key decisions on many competitive win backs. From our internal analysis, ENOVIA’s market momentum is clear with 75% win ratio on these over a EUR0.5 million and we estimate that of a tool of 100 large account wins, 40% are competitive displacements.

ERICSSON announced jointly with us today that our 3DEXPERIENCE platform has been selected to enable to digital transformation of ERICSSON’s business processes. Specifically, ERICSSON will replace its legacy backbone on connected IT applications with our business operation excellence industry solution experience based on the 3DEXPERIENCE platform for a true end to end digitalization of each innovation business on operations processes. This improved performance and efficiency will help ERICSSON accelerate the delivery of powerful consumer expanses to the immerging network society and connected people industries and society.

As part of its vision to enable this network society, ERICSSON understands that the seamless integration of IT, telecom, hardware and software is necessary to facilitate smart connected software on service driven experiences.

In summary, we are very pleased that ERICSSON had selected Dassault Systemes 3DEXPERIENCE platform after a thorough review of the competitive landscape to drive its business transformation and support its market leadership.

Now let me update you on our diversification industries more broadly. During the first quarter, they represented 31% of the total software revenue. In addition to High-Tech, we are continuing to gain momentum in marine and offshore, thanks to our 3DEXPERINCE platform on industry solution experiences and we are also benefiting from our modern portfolio capabilities with acquisitions such as Quintiq for example.

We have had a long standing presence in certain segments of marine and offshore but with the 3DEXPERIENCE platform on Version 6 architecture; we have significantly strengthened our product offer. Looking at our activity in this sector, the first quarter was and also a period of strength with software up sharply in marine and offshore. Our wins includes naval defense where our software is helping foster technology innovation on improved collaboration between governments and builders.

In the commercial market, our software is instrumental in reducing cost while improving quality and managing the complex network of regulations.

DCNS, a world leader in naval defense and headquartered in France was a strategic win for us. They have selected our 3DEXPERIENCE platform, on three marine and offshore industry solutions to bring new era in the design, engineering, and construction on lifecycle services of naval defense solutions.

Key to our selection was the ability of the platform on our industry solutions to manage the integration of the multiple complex systems on the high level of complexity involved in multidiscipline collaboration on this scale. For other given the regular complexity in marine and offshore, we are pleased to enter into a strategic partnership with Bureau Veritas, a leading global company in the domain of testing inspection on certification services. Its marine and offshore division will be leading the difficult transformation of the entire group using our 3DEXPERIENCE platform on linking to Bureau Veritas’ internal Veritas tools will save time and money for its clients while improving accuracy on trace ability.

More broadly, certification is becoming a necessary on a collaborative process in an increased number of industries. Our 3DEXPERIENCE platform enables companies to move from document based approach to an experience based certification process. Our corporation with Bureau Veritas aims to amp our businesses with this competitive differentiation factor.

My final example demonstrates how the expansion of our offer with Quintiq for example, complement is very well our diversification objectives. In Europe, it provides a logistics link to all major international container shipping lines enabling them to reach ports on regions beyond their access where feeders marine assets are used to complete the final transport leg. Its consumers, its customers need flexibility and agility as operating conditions can change very quickly. With Quintiq’s help any feeder is able to be responsive to clients while also optimizing its own network capacity utilization.

With that summary, let me pass the call now to Thibault.

Thibault de Tersant

Thank you, Bernard, and good afternoon and good morning to you all. My comments today are based upon our non-IFRS financial results. In addition, revenue growth rates as stated in constant currencies.

Before going into detailed revenue of the first quarter, let me share some key highlights with you. We delivered at the high end of our revenue range. New licenses revenue in the first quarter effect the return to its historical within the year. Our long term focus on building and strengthening our recurring software revenue was clearly visible with recurring software driving the quarter’s growth.

And our ongoing efforts to improve our pricing performance where I evident with underlying operating margin improvement of 60 basis points well aligned with our full year goal.

Earnings per share growth reflected our top line performance as well as benefiting from a lower effective tax rate in the quarter on that sort of certain tax reserves.

Finally, we had strong cash flow generation impart reflecting our efforts to improving our working capital management.

Turning now to the quarter in detail, as anticipated, software revenue growth was driven by our recurring software revenue which increased 8% in constant currencies to EUR456 million. We saw very good recurring revenue performance in our three regions and really in most of our geographies.

Growth in recurring revenue reflected both strong renewal activity as well as new maintenance revenues coming from the level of new licenses activity in 2015. Recurring software revenue represented 74% of total software revenue in the first quarter. New licenses revenue decreased 3% in constant currencies on a high comparison base including both EUR11million of over performance in the year ago quarter and as I mentioned in my opening comments, effective return closer to its historical waiting in our yearly new licenses revenue activity.

The two brands grew with the strongest new business activity in the first quarter where ENOVIA as Bernard highlighted and CATIA. CATIA had double digits new licenses revenue growth and its strong performance in Asia where it benefited from large account activity in Japan and sharply higher results in China. CATIA’s total software growth of 5% reflected high percentage of recurring software revenue.

Steady growth software revenue increased 8% in constant currencies driven by a share increase in recurring software revenue. New licenses activity was lower in the first quarter on a very high comparison base.

As software showed a decrease in software revenue of 2% with a key factor being the absence of larger transaction in comparison to the year ago quarter.

Services and other revenue increased 7% to about EUR80 million. We saw growth in both cost services related to 3DEXPERIENCE activity increasing about 3% and also in our newer brands and product lines.

The services gross margin was 3.5% with some higher third party expenses and lower level of utilization as we start the year.

Turning now to our operating performance, our operating margin increased to 26.2% from 25.8% in the year ago quarter. The underlying operating margin progression was 60 basis points and we had about 30 basis points of negative currency impact.

Non-IFRS EPS totaled EUR0.51 and included EUR0.05 related to reversals of tax reserves. Normalizing our tax rate, non-IFRS EPS increased 8% in the quarter.

Turing to our cash flow, it was a very strong quarter with cash flow from operations increasing 17% to EUR309 million, led a strong improvement in working capital. In particular, we benefited from DSOs which run over by 7%.

Unearned revenue totaled EUR887 million and represented a year-over-year increase of 10% excluding currency effect.

Turning now to our financial objectives, as we outlined in this morning’s earnings press release, we are leaving them unchanged. For 2016 despite absorbing additional currency headwinds, looking first to revenue, we are conforming our revenue growth objective of 6% to 7% in constant currencies for 2016. Without current assumptions unchanged for the U.S. dollar and Japanese Yen, we are leaving our reported revenue range unchanged at EUR2.985 billion to EUR3.50 billion thus absorbing headwinds from other currencies.

We suspect to recurring software revenue of site line particularly and we are trends somewhat better than our expected since February. With respect to our pipeline of new business, it is very consistent with our earlier view. We are also confirming our non-IFRS operating margin of about 31%.

As the first quarter illustrated, we are targeting and relying organic margin improvement of about 50 basis point but our assuming currency headwind will hide a good portion of the progress. Our 2016 non-IFRS EPS objective is about EUR2.40 representing growth of about 7%. Excluding the currency headwinds, I just mentioned, this EPS target represents growth of about 11%.

And why we benefited from a lower effective tax rate in the first quarter for the full year, the tax rate is just half percentage point lower at 32.5% than what we had estimated in February for our guidance which was tax rate of 33%.

Just a few words on the second quarter, where our revenue growth outlook is 5% to 6% in constant currencies. We are anticipating a return to positive growth on new licenses revenue and a good evolution also of the recurring software revenue.

For services, we expect to them to be relatively flat in constant currencies consistent with our strategy of relaying upon system integrator more and more.

Our operating marginal outlook is 29% to 30% so relatively stable compared to the second quarter of 2015. EPS growth range was between flat and 4% growth is below revenues and stable margins, so the currency headwinds are clearly visible on the order of 4 points to 5 points of growth.

We suspect major currencies; we are assuming a U.S. dollar exchange rate of $1.15 per euro for the 2016 second quarter and $1.14 per euro for the year. For the Japanese Yen, our second quarter assumption is 130 yen per euro just slightly less for the year at 129.2 yen per euro. We are also affected by other currencies as we continue to expand our business in new geographies with about 10% of total revenues outside of major currencies.

For incidence, the British pound now represents about 4% of our revenues, above 3% of our revenues and when heading the Chinese Yuan and Indian rupee this gets a slightly above 10% of our total revenues.

To conclude, I believe our results during the first quarter and outlook for 2016 represent a steady performance and more importantly a good foundation for our growth dynamic going forward.

With that let me turn the call back to Bernard.

Bernard Charlès

So in summary, I believe our financial results on business progress demonstrate the unique position as with the 3DEXPERIENCE platform. During 2016, our goal is to capitalize on the traction we are building with the 3DEXPERIENCE platform on industry solutions; we further investments in the recession development to advance our solutions.

In [indiscernible] as we build our references, we are leaving companies around the globe, we are increasing our sales capacity in selective industries where our momentum is gaining strength on where we are now ready to take the message to more companies and prospects.

Finally, we respect to our shareholders, we deliver the strong 2015. And as a result, the Board of Director is proposing a 9% increase in the dividend per share for the fiscal year 2015.

Thibault and I would like to thank you for the questions earlier today on the webcast and we are happy to answer any further questions on this conference call right now. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question comes from Jay Vleeschhouwer of Griffin Securities. Please ask your question.

Jay Vleeschhouwer

Thank you. Good afternoon, Bernard and Thibault. Couple of financial questions for Thibault first and then couple of strategy questions for Bernard. Thibault, in the first quarter the other PLN number, I just had a difficult in year-over-year comparison but about software then we at least had modeled. Could you more specific as to the components of other PLN L performance for example, could you as you have sometimes in the past on, so more specifically on BIOVIA and so forth?

And the second part of the financial question is regarding SOLIDWORKS, in the second quarter the year-over-year comparison for new business won’t be nearly as difficult for SOLIDWORKS as it was in the first quarter, we do expect therefore that SOLIDWORKS had new business, could we assume year-over-year growth in the second quarter?

Thibault de Tersant

Good morning, Jay. So in fact in the other software, you find the combination of brands you know as SIMULIA being the largest. And it so happens that SIMULIA had a couple of large transactions. The normal model for SIMULIA is of course to be in subscription. But in some countries, subscription is no popular and so we are also doing license fees. And it was the case actually in the first quarter of last year particularly a large transaction in Korea. So for that reason, the SIMULIA growth was very muted in this first quarter where we didn’t have it all this large transactions we simply had our normal dynamic of growing subscription revenues.

You find BIOVIA also which had a decent quarter, but GEOVIA was impacted by the continued crisis enrollment on prices but because more acute in last summer and is certainly hampering investments particularly at the beginning of the year in 2016.

And Quintiq which had a decent quarter as well, you know so it’s the - the combination of this with a very high count in the first quarter of last year which explains that performance in first quarter which by the way we expect to be changed in the other quarters of the year where certainly other software should experience growth.

SOLIDWORKS, you are right. Second quarter was also good last year for SOLIDWORKS. We are certainly going to continue to see a good dynamic in recurring revenue but we expect to renew with a positive license growth for SOLIDWORKS in the second quarter.

Jay Vleeschhouwer

Okay, thank you for that. So Bernard, you spoke of course about 3DEXPERIENCE and the evolution from classical PLN, and last week at the Dassault Customer Conference, there were the whole conference of course where a number of interesting presentations on that subject and one thing you are doing particular like to ask about is the conjunction of EXALEAD with ENOVIA and how you are increasingly position it highlighting EXALEAD as part of your business process strategy similar to like to its SOLIDWORKS with NETVIBES for example. So could you talk about that a little bit more in terms of how you are looking to elaborate your component those two products and perhaps induce some longer terms growth for ENOVIA?

And then the second strategy question for you is in your annual report in 2015 and as you get in 2014, you showed user expansion in your core industries as your primary growth among several growth, where do you think this year and next you would have the most likely or most opportunities to increase users pursue into that goal?

Bernard Charlès

Well, thank you Jay for participating to the customer event last week. Clearly what we see with that driven collaborative innovation is the possibility to exploit EXALEAD for many, many new type of usage not only to index on facility search which is whether basic while useful, but to do for example PML analytics. We have developed a wide sweet of great application for PML analytics for clients such as Jaguar-Land Rover. So for example in complete terms, they can track cost evolution on plan on track cost of suppliers real time as they create new product portfolio.

So we are putting a lot of attention to create EXALEAD based applications not to sell the toolkit but to provide the end value and those are example side of PLM analytics is - but which are by the way real time is about that similarity as people create parts and modules take on a real time evaluate which is called one part and they evaluate real time or they could better use existing digital asset of the company. So there is a broad collection of new applications leveraging the EXALEAD technology.

The most important thing for us is to make sure that this stay as a connected part, integrated part of the 3DEXPERIENCE platform but we call the East Croydon of the compass where it can do data signs basically. And it’s using many of the situation like for example tracking composite quality in systems, doing predictive analysis for reliability of complex engines or tracking fleet of real time date for airplane engines to really do predictive maintenance, so very broad set of applications going on right now with our clients.

Regarding to your remark about NETVIBES on SOLIDWORKS, in fact NETVIBES is going to be more and more used to do analytics in marketing and sales more than on the technical side. We are building what we call agency regent where we have many agencies doing marketing content for big clients that we have on where they want to do long signal analysis about quality trends as we see in the wide customer satisfaction and many other things. Also not to forget that NETVIBES can now can do dashboard of things, which means that we got certification from Google Nest that we can feed in any Google Nest device inside NETVIBES to create experiences whereby an object we feed information in certain conditions whether win whatever there then take some action you know there is kind of capabilities on the web having been certified by Google Nest. Those are experiences which are consumer oriented from where - from which we are learning where we want to create Internet of Experience not Internet of Things but Internet of Experience.

Not quality to the dynamic last part of your question where we expect to fuel the growth. Clearly I think we shared with you this morning on today in fact that the 3DEXPERIENCE platform is becoming a business platform that powers applications, which means that it’s an operating system for us, which is far beyond PDM and PLM. All future CATIA on future application from system based on this operating system because its zero file integrates big data analytics and it integrates stimulation in a consistent way. So I think this is very unique and that’s in think why we see the 33% growth in the first quarter and we believe that this is a major transformation for many industries because it connects things that we are connected before.

Jay Vleeschhouwer

Okay, thanks very much.

Bernard Charlès

Welcome.

Operator

Thank you. Your next question comes from the line of Nicolas David of Oddo Securities. Please ask your question.

Nicolas David

Yes, good afternoon, gentlemen. Thank you taking my questions. Actually I have two questions, first one CATIA and CATIA grew 5% despite double digit license sales meaning that maybe to experience some weakness in recurring revenue. Could you please give us some insight on what happened there mainly due to subscription weakness or this expenses slowdown in maintenance also and what should we expect from the quarter and next quarter even H2?

And my second question is about in fact back unloading for license sales and that it means that you see a longer sales cycles that you are working on larger and more complex project due to the experience or is it more on Microbiota? Thank you.

Bernard Charlès

Yes, Nicolas. So CATIA have explained is in fact enjoying a good dynamic and this had include since particularly since last summer in terms of new business, new licenses sales. The recurring is really where it should be in terms of maintenance subscriptions renewals you know because we have a renewal rate at 98% which is very good. On the rentals of CATIA, we continue to expand in SME but we have been facing two events you know one is the reduction of users in aerospace. And this has been impacting the growth of the rentals. And has been explaining the fact on the whole the CATIA recurring revenue is not exactly yet at the level it should arithmetically. So this headwind is going to stop you know then their transitions also part of it you know still has an impact on this first quarter and will be much reduced in the coming quarters and for viable space.

We certainly expect that this situation is going to change to what acceleration while new plane project are going to be launched later this year. But there is nothing in common you know in the CATIA total revenue growth.

And the back unloaded aspect is really the fact that it’s a combination of the higher mix of 3DEXPERIENCE, so customers are preparing the adoption of it you know and they need to work on a processes and this project are in fact projects that touch many aspects of customer processes. And not you know at this stage you know you are fully with 3DEXPERIENCE supporting entire processes for customers. So there is a time to prepare for that.

So on one side; it gives us visibility of our future revenue. On the other side, it tends to stable the fourth quarter for customers to be fully ready beginning of the following year. And that story you kwon what we have seen and develop last year and even most for this year.

Nicolas David

Thank you, Thibault. Just a quick follow-up on the rental revenue, is it more realistic to focus still a declining edge to in aerospace given the trend that Airbus and Boeing and even for 2018 because we do not see a lot of new project there, what do you have in your ambitions there and as then they need forecast something there?

Bernard Charlès

It’s always good to be prudent. Having said that we see potential for growth in aerospace. There are actually new planes to be launched and also new adoption of solutions for manufacturing soon and for systems. So there is actually a good mix of rhythms to see a rebound in aerospace. You cannot - it’s not easy to be very precise on which is going to be the exact quarter of it you know but I would expect before year end.

Nicolas David

Okay, thank you very much.

Operator

Thank you. You next question comes from the line of Laurent Daure of Kepler. Please ask your question.

Laurent Daure

Yes, thank you. Good afternoon, gentlemen. I have three questions. The first is to come back on the nice voice you have on the maintenance in the first quarter of 8%, given that seems at leases were soft in aerospace. I was just wondering what was a diver, the move six with higher prices was also making sure there is exceptional revenue on maintenance this quarter?

And the second point is on your full year access estimates given that you seem to be more optimistic on a growth rate of maintenance and apparently you are changing your view on the licenses, why have you kept your target unchanged?

And my final question is on solid walks, I remember what in previous quarters, you were relatively cautious regarding into the cloud and the relationship is evolved and from what I got this morning it seems that you are becoming much more aggressive that, so if you could elaborate a bit that will be useful? Thank you.

Bernard Charlès

Good afternoon, Laurent. The maintenance is doing very well, yes. Renewal rates have improved including for SOLIDWORKS. And that’s high and there is nothing unique, nothing very exceptional in our maintenance revenues in first quarter.

We have actually although it’s not visible. We have actually increased the activity in our guidance for the full year. The reported revenues as you have noticed, we have kept them unchanged in spite of the weakening of few currencies. And thank you for the opportunity to clarify that a bit, because I think it’s important to note that we have now more than two points of revenue growth in currency headwinds, 2.4% to be precise. And this has worsened since February when we release our first guidance by about between 10 and 15 million you know because of some further weakening of few currencies.

And so we are balancing this out with better recurring revenue that you have noticed. So the reported revenue is unchanged but the activity behind is slightly is strengthened not enough to change to growth rate you know but in reality that it was strengthened slightly. So we have included the better performance in recurring unit.

Laurent Daure

To be sure I understood while basically before your 6 to 7 I was more excite when 7 to - when 7 nice more like 6 went to 7.2, what it means?

Bernard Charlès

It is exactly what I mean, yes, it’s not visible in it, but it’s real. And for SOLIDWORKS maybe Bernard, you want to comment on what we are going to do on the cloud but for sure we are with being saying that we would promote the cloud and not only to SOLIDWORKS but across the board, but that it would not affect much of revenue growth because this traction is more complement, is going to cannibalize our normal business in licenses.

Thibault de Tersant

Yeah, we announced early this year that we have very clear plans to exploit to cloud for SOLIDWORKS, now basically three main direction the collaborative platform using the cloud for SOLIDWORKS users. It is new type, new category and we presented them this morning and I just talked about them in my review this today about new type of application like industrial design which are cloud based application complementing beautifully the SOLIDWORKS desktop environment. And we will continue to expand those things because they provides very easy access of sophisticated application for user who want to simplicity of using the product. And the deserve direction is what we announced early this year also at SOLIDWORKS also public information on new category called SOLIDWORKS x-design where basically it’s about doing designs for browser and zero download online any time. And we are starting better in this summer. In fact we started already with a small group of users. And this is really to provide full mobility on any time four factors from mobile phones to tablets to any operating systems because we are OS independent with that approach.

So I think customers are excited with that and they now know that there is a long term plan to touch all categories which by the way is not done by any of the other players in the industry.

Laurent Daure

Actually if I may have a quick add-on very last one. I mean you have not been announcing M&A for now a number of quarters. I was wondering what is a main headwind that works against you and M&A that makes this more difficult to close it prices that have gone out in recent quarters Siemens being - as we saw with other or anything else.

Bernard Charlès

I think we have a launch by applying for many years now and we have executing well if you take a period of five years, it does slowdown for reasons which are - it’s not one reason, it’s related to the maturity of certain of the discussions that we are having, but it’s clear today that we have - we continue to high level of attention to do moves which are relevant from technology which are very complementary to what we have. And with talents on where we can bring truly a value following to see solutions to the reference of what we - what you just made in basically in your question, we are really think that the priorities, we can see this in the same way as some of the players in the industry because clearly the world is changing and doing of the more of the past might not be necessary what should be done.

Many products are becoming connected Mechatronics products. And this is what we call system approach on multi-scale system and that’s the biggest focus for the company in stimulation especially. So no, there is no slowdown - there is a slowdown from external visibility but there is no slowdown from the level of attention and preparation for the future.

Laurent Daure

Thank you so much.

Operator

Thank you. The next question comes from the line of Monika Garg of Pacific Crest Securities. Please ask your question.

Monika Garg

Hi, thanks so much. You know first of all your comment regarding you know via that 40% are the competitive displacements, could you talk about which are products you displaces and which are these end markets?

Bernard Charlès

Well, they basically as we explain to try to make this simple. In the last two years, we have created with the 3DEXPERIENCE platform but totally new environment whereby ENOVIA goes far beyond PDM PLM functions. It’s a portfolio of business applications, portfolio management, supply management many of this based on one common platform called 3DEXPERIENCE platform.

Customer see that as the next generational solutions they need and that’s why the win ratio on the justification from them to change their legacy period which was many of the installations are very old, 20 years old or more on hugely gets the customization. This is triggering event for them to say the time has come to change. And this is very visible in the number of wins we add in the last three years where we displace in 40% of the case, we displaced existing legacy on that among which are our complete environment.

So that’s new and I think we explain it in quite carefully. And I believe that this trend is sustainable because it want to mandate the customers, what’s to massively reduce the level of customization on industry solutions bring us cuts solution you know out of the box solutions which they want to - for their business. So the dynamic is I think a very good one.

Monika Garg

Thank you. Then -

Thibault de Tersant

Starting the presentation if I may add, there are few examples and if you look at the top of the chart, you will see displacements of Teamcenter, in the center displacements of windshield and in the bottom displacement of ACP and agile.

Monika Garg

Thank you, that’s helpful. Then you now I think it was asked before, just wanted to dealt a little bit deeper, your revenue is slightly more back half rated, do you think it has any risk to the guidance?

Bernard Charlès

I think we - well I’ll let Thibault address that. About the pipeline, let me give you a view on and I am basically repeating what Thibault said this morning at the presentation here. We have good pipeline visibility and also the cycle in which the customer decisions have done, it’s not done on the three months, but when a customer is planning to deploy, this deployment is organized. So we think that we have a level of predictability which is very good and that’s why we are - we restated this morning that we are confident with the full year objectives and we don’t think we have increased any risk on that standpoint and that’s basically Thibault stated anything but that’s basically what we said and what we think.

Thibault de Tersant

The comfort level comes affect that when we look at the project, the opportunities we have in the pipe in Q4, they are very dated from the standpoint that customers quite often have started to prepare for those. And quite often their own product plan depends on going live with the solution in Q4. So it’s not speculation you know, these are new projects. Now of course I would prefer to see them in Q2 than in Q4 you know if you ask me but that’s the way it is done, all customers want to be ready for calendar year to change their policies and go to a new level of business.

Monika Garg

Thanks and then last one from me. You have good growth in China, America, Europe, but China’s growth is like you know read GDP news all over it concerns on world GDP growth, so how do you see the demand in different geographies in going forward? Thank you.

Bernard Charlès

I am understanding your question specifically for China. Clearly in China first of all the government initiative for manufacturing 2025 is a very serious one. And if you observe in more detail, you would notice that the programs which are engage whether it’s aerospace and defense, whether it’s mobility, transportation mobility are going far beyond producing for an international orient cars, they are building their own product portfolio. Same in shipbuilding where there is a significant transformation of the shipbuilding sector in China.

So it creates significant opportunities on - and we have very large installations. So I think the China industry is transforming itself in a very serious way. And we are seeing the same in construction on AC by the way for energy. We announced very bit deals last year in China, if you recall in the energy sector hydro, nuclear we announced, on of course these deals initial engagement that as we deploy are going to expand. So that’s why we see sustainable dynamic in China.

Monika Garg

Thank you so much.

Bernard Charlès

Welcome.

Operator

Thank you. Our next question comes from the line of Michael Briest of UBS. Please ask your questions.

Michael Briest

Thanks. Good afternoon. I noticed in the slide on the market share which obviously shows growth for the - in your industries, the automotive has dip to couple percent to 30 and you also mentioned of that Thibault, is there any issues within automotive we should know about obviously you have highlighted aerospace and the headwinds there?

Bernard Charlès

The dynamic in automotive is very positive, extremely positive and we have announced many, many, many big moves in the last 18 months that are accelerating. So by the way despite the recurring revenue on offering license on aerospace was on the design side. On the manufacturing side in aerospace we are growing most of the aerospace companies are now adoption our manufacturing execution system because they have to produce such a backlog of airplanes that they are putting a lot of attention on the production side versus the design side. So that’s a phenomenon.

So the question Thibault was addressing in aerospace was relative to CATIA on aerospace and more specifically CATIA recurring in aerospace, because as you know some last customers are on annual licensing, but doesn’t mean that this sector is slowing on. In the automotive I think it’s on all fronts and I think we are gaining significant market share in both sector. So not to confuse our technical answers design or manufacturing versus the trend in the sector. And matter of fact they will insist to tell you that all the newcomers in the Silicon Valley are all based on Dassault Systeme software. There was one that made a mistake a year ago and they have turn it back to us just in the last.

So not only the existing players are positive but the new players are all saw the future Tesla many others are adopting our platform.

Michael Briest

Can I just try and get a bit more of flavor for the 3DEXPERIENCE customers. I am not sure how many of them are well proportion, some net new names to you given that chart on competitive displacements and how many are upgrades from the five? And also can you give us a feel for what proportion of your other PLM revenues are tied up with 3DEXPERIENCE sales now so you know you mentioned EXALEAD and NETVIBES those are part of the platform, how much of that is now being sold with the bundles and how much is coming from the standalone sales?

Bernard Charlès

Any of - on the first half of the question I let Thibault take the second part. And mainly there are wins even if we have the customer logo on design, many of the wins in the new are new wins for us because we are replacing some singles which was not us and that’s very broad. So even though the logo might be the same, the scope of what we do is much bigger and that’s why I think you even looked in the presentation that we have posted in our website, so you can look at it. And most of them are significant expansion on not replacing of preview software that we would have installed before.

That’s what the first part and for the second part I think the scope of 3DEXPERIENCE is very wider but Thibault if you have any remarks?

Thibault de Tersant

Well, we highlighted expanse 30% of our new licenses in the first quarter. I think your question is what is as part of this 30% fully integrated and what is not integrated.

Michael Briest

Yeah, how much is coming from things other than CATIA and ENOVIA?

Thibault de Tersant

Okay, I don’t have that figure in my mind.

Michael Briest

Is it meeting so low, do you think it’s meeting so low.

Thibault de Tersant

Not meeting so low, there are share that is meaningful that where you have the contribution of NETVIBES of EXALEAD for SIMULIA for a part and DELMIA for a part as well. So yes, it is meaningful. It’s a good quarter of the revenue probably but I would have to check on that because I am not sure I remember it well, but it’s not just CATIA and ENOVIA for sure you know other brands are contributing. And some of them are both integrated and also separately you know NETVIBES and EXALEAD are very clearly part of the ERICSSON’s platform but they can continue also to be sold independently of it.

Michael Briest

Okay. And just finally on the subscription side, you mentioned this morning the plans to introduce subscription pricing for the SOLIDWORKS portfolio, I mean your peers have gone down that had quite a bit P&L impact understandable, you got 2019 ambitions which are very clear and you are doing a good job of achieving them. Are you concerned in any way that change in consumption behavior for the software that might follow this could have an effect on those midterm goals?

Bernard Charlès

I really don’t believe so. I think that subscription is going to fulfill requirements and needs that we don’t fulfill to there with perpetual licenses and I am not expecting because remember if was thinking about SOLIDWORKS, 100% of the SOLIDWORKS licenses are sold by our good partner and they also need to have a decent cash flow. So they are going to continue to offer perpetual licenses for that reason and also because our customers in this market when they don’t have just a temporary requirement differ perpetual licenses because by doing so they know that what even happens you know to the economic environment et cetera they can continue to use the product.

The fact that they would have to pay subscription to continue to use the product is very adverse to a vast majority of these customers. Large customers can accept it, you know with - the core of our market is more mid and small customers who are really to it except when they have a need for a period of time and this is what we are not satisfying so well as a requirement today and this is the fix that we want to place with the offering subscription for SOLIDWORKS. So no, I really don’t believe it’s going to jeopardize our revenue going forward.

Michael Briest

Alright, that’s great. Thank you.

Thibault de Tersant

We are playing for the upside. With that I think we have got the last question. Thank you very much for participating to this call. And I know that some of you have been at the presentation this morning. And I want to remind everyone that on June 10th we will have the Capital Market Day at our campus in France, so you are welcome of course. And I wish you good day. And next quarter I’ll see there.

Operator

Thank you very much and many thanks to our speakers today. That does conclude our conference. Thank you all for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!