Dassault Systemes SA Q2 2008 Earnings Call

Dassault Systemes S.A. (DASTY)

Q2 FY08 Earnings Call

July 31, 2008, 9:00 AM ET

Executives

Valerie Agathon - Head of IR

Bernard Charles - President and CEO

Thibault de Tersant - Senior EVP and CFO

Analysts

Rajesh Bala - Credit Suisse

Jay Vleeschhouwer - Merrill Lynch

Stefan Slowinski - Société Générale

Presentation

Operator

Thank you for standing by and welcome to the Dassault Systemes Q2 2008 results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I will now like to turn the conference over to the first speaker today, Valerie Agathon. Please go ahead madam.

Valerie Agathon - Head of Investor Relations

Thank you for joining us for a review of our 2008 second quarter financial performance and a discussion of our business trends. On the conference call are Bernard Charles, President and Chief Executive Officer and Thibault de Tersant, Senior EVP and CFO.

Our financial results are prepared in accordance with U.S. GAAP. In addition, we believe it is helpful to provide you with supplemental non-GAAP financial information. On this call, we will discuss our revenue, operating income, operating margin and EPS on a non-GAAP basis before deferred revenue write-downs, amortization of acquired intangibles, stock-based compensation expenses and other operating income and expense, net.

For reconciliations of the differences between these figures and our U.S. GAAP figures, please see the reconciliation tables included in our earnings press release, which has been posted on our website at www.3ds.com. Some of the comments we will make on this call, either as part of the prepared remarks or in response to questions, will contain forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.

Information about the principal factors that could cause actual results to differ materially from forward-looking statements can be found in today's earnings press release and in Item 3 of our 2007 20-F.

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

Bernard Charles - President and Chief Executive Officer

Thank you, Valerie. We had an excellent second quarter, coming in above our objectives. And looking at the first half of the year, we have made very significant progress. These results reflect the contribution of our solutions to product competitiveness and innovation for our customers.

Our financial performance demonstrates a very good dynamic in software, validated by both our new licenses revenue growth as well as our recurring revenue growth. In total, software revenue increased 15% during the second quarter. That would represent the year-over-year increase of about 26% in U.S. dollars. Certainly, our growth compares very favorably to a number of software companies, both in Europe and in the U.S.

Turning to our performance by major brands, CATIA software revenue increased 20% in constant currencies on growth in a number of industries, well supported by its leading position with automotive and aerospace companies. CATIA results this quarter confirm the acceleration in revenue growth started in the 2007 third quarter, thanks to the transformation of our PLM Value channel.

CATIA wins include Arup in construction, highlighting CATIA growth in new industries, and TENPAKU·R Corporation in automotive, illustrating CATIA growth in new domains such as styling. SIMULIA software growth was in the mid-teens on a constant currency basis in the second quarter. Its performance reflected broad demand across verticals and strong growth among its installed customer base. SIMULIA new wins included Cambric Corporation, in business services, GN Resound in life sciences and Lenovo in high tech.

Our ENOVIA portfolio addresses customer requirements across a broad range of industries. This is clearly evidenced by the new business activity, including Nokia Siemens Networks in high tech, OKG in energy, Pacific Brands in apparel, Carbon Motors in automotive and Parker Hannifin in aerospace. And we are pleased to announce that HAITEC has selected ENOVIA.

During the second quarter ENOVIA software revenue increased 11% in constant currencies. ENOVIA end-user revenue was about $470 million for the first half and should exceed $1 billion in end-user revenues for the full year 2008.

SolidWorks had a good quarter, leading to Mainstream 3D software revenue growth of 13% in constant currencies. In U.S. dollars, it would have been 22%. Unit growth was 9% accompanied by a stable ASP. SolidWorks continues to see strong growth in maintenance revenue demonstrating a high level of customer satisfaction. Additionally, it saw very strong sales of its analysis and product data management software offerings for the mainstream market. SolidWorks wins in the quarter included BANSS and Douglas Machine in special machinery and Intertechne in energy.

While we will not have an in-depth channel review this quarter, I would like to make some quick points. I believe our financial results certainly reflect our continued focus on execution, particularly in the sales channels initiatives we have underway. Additionally, we benefited from a good growth in capacity in all our sales channels. We continue to focus on working closely together with our partners, improving our sales coverage and providing high value to our customers.

In particular, our PLM Business Transformation channel delivered a strong performance this quarter, thanks to IBM PLM sales force creating a very strong dynamic in all types of industries.

So, let me turn the call over to Thibault now for his financial review.

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

Thank you, Bernard. Before going into a financial review of the quarter, let me begin with a brief review of our GAAP and non-GAAP reconciliation figures. For the 2008 second quarter, GAAP and non-GAAP revenue are identical and we have had no deferred revenue write-downs. Operating income, operating margin and earnings per share are before amortization expenses for acquired intangibles of 10.4 million euros, stock-based compensation expense of 4.7 million euros and 2.1 million of other operating income and expense, primarily consisting of income and expense amounts in connection with the relocation of our corporate headquarters, and restructuring expenses as we look to introduce greater efficiencies into the company.

We will be publishing our 2008 first half report under IFRS in early August and have included in today's earnings press release reconciliations of GAAP and IFRS financial data as well as non-GAAP and adjusted IFRS data. These tables can be found on page 13 of our release. In particular, I would like to point out that under IFRS, we recognized a 17 million euro gain on sale of real estate on an office building we own in Suresnes this quarter, but under U.S. GAAP we will recognize it in the fourth quarter. From a non-GAAP and adjusted IFRS perspective there is no difference.

Now let's turn to the second quarter. This was a very rewarding quarter from a number of aspects. First, our financial results came in above our objectives. Total revenue came in at 326 million euros, exceeding the high end of our objective range of 315 to 320 million euros. Software revenue was the driver of our growth increasing 15% in constant currencies. Our operating margin came in at 25.1%, above our target of 24%. And EPS was up 10% to $0.46, at the high end of our range of $0.44 to $0.46. In fact, without the quick rise in the yen at quarter-end, which impacted the translation of receivables at June 30, we would have exceeded our EPS range.

Our results also included very good improvement in net operating cash flow. Net operating cash flow was up sharply in the 2008 second quarter to 106 million euros compared to 69 million euros in the year-ago period on a nice improvement in working capital.

At the end of June our cash and short-term investments totaled 740 million euros and net of long-term debt amounted to 540 million euros. We are returning cash to shareholders in two ways. One, with a 5% increase in the 2007 fiscal year annual cash dividend, aggregating 54 million euros, which we paid in June; and two, through share repurchases.

In today's press release, we announced plans to repurchase up to 2 million shares during the second half of 2008 depending on market conditions. As you recall, we repurchased over 960,000 shares during the first quarter of 2008.

Looking at growth by region, both Europe and Asia had similar rates of growth in the first quarter. In Europe, revenue increased 11%, reflecting a good dynamic in Germany, strong demand in Eastern Europe and Russia as well as a good performance in France with large accounts.

Revenue increased 9% in constant currencies in Asia, similar to the first quarter and reflected a particularly good dynamic with CATIA and improvement for SolidWorks offset in part from lower services. I would also remind you that we had a strong year-ago comparison with 23% increase in revenue after one year before a 49% increase.

Revenue growth was strongest in the Americas, with revenue up 17% in constant currencies. ENOVIA, SIMULIA and DELMIA had a very good level of activity, well supported by CATIA and SolidWorks. By customer type, we did well in the Americas with both large and SMB companies.

Now, looking at the details of software growth, we benefited from accelerating new licenses revenue growth which increased 12% in constant currencies. Key drivers in the quarter included CATIA, SolidWorks and ENOVIA. And recurring software revenue, comprised of periodic fees and maintenance, grew 18% in constant currencies on growth in our installed base and double-digit growth in simulation with high leasing activity. Recurring revenue represented 64% of our total software revenue in the quarter.

Excluding currency effects, PLM software revenue increased 16%. And Mainstream 3D software revenue increased 13% in constant currencies. Services and Other Revenue Review Services results were in line with our expectations. Our 2008 services trends reflect the perimeter effect of winding down historical channel management activities formerly rendered to IBM.

During the second quarter, services and other revenue decreased 2% in constant currencies. Our specialized, PLM consulting services made progress during the quarter with some very interesting new consulting engagements. From a margin perspective, we had a very visible improvement from the first quarter thanks to our consulting activities. I would remind you that a services margin comparison to the year-ago period reflected a much higher mix of CMP fees and therefore is not so meaningful to measure our progress.

Turning to operating expenses, research and development headcount was up about 7%, which includes personnel in R&D and cost of software as well. And R&D expenses were also up about 7% excluding currency, so thanks to research tax credits we were able to contain this increase.

In total, operating expenses increased 10% excluding currency on headcount growth of 8%.

Within operating expenses on a GAAP basis, we have added a new line item, 'Other operating income and expense, net'. This line item is comprised principally of income and expenses related to our corporate headquarters relocation as well as other generally non-recurring restructuring expenses. For the full year, we estimate about 17 million euros of additional income and about 16 million of expense related to our headquarters' relocation.

The second group of non-recurring expenses is related to an initiative we began last year to reduce infrastructure costs through the co-location of DS teams; the mutualization of IT; emphasizing shared services across HR, Finance and Legal; and reduction of legal entities. In this regard, we recently announced plans to consolidate an R&D facility to increase efficiency in R&D.

We are confirming and reconfirming our 2008 financial objectives for software revenue growth of about 12 to 13% in constant currencies; expansion of our operating margin, leading to an objective of about 27% to 27.5%, and EPS of about 2.10 to 2.17 euros. These objectives are based upon the business opportunities we see as well as the visibility provided by our financial model, and despite the macroeconomic backdrop.

In July we completed the spin-off of DSF, our PLM sales division dedicated primarily to small and medium businesses in France, Belgium and Luxembourg. We also completed the acquisition of Engineous Software which is now part of our SIMULIA brand. We estimate the second half impact of the DSF spin-off to be 11 million euros, while the addition of Engineous has a positive impact of around 4 to 5 million euros.

So, we are updating our full year revenue range to take into account the estimated net 6 to 7 million euros lower revenue effect of these transactions, with the new mid-point of our range now at 1.325 billion euros, from 1.332 billion euros and an overall range of 1.32 to 1.33 billion euros.

Based upon our outlook and currency assumptions, we are targeting a non- GAAP revenue objective of about 305 to 315 million euros and a non-GAAP EPS objective of about $0.41 to $0.44 for the 2008 third quarter.

With respect to underlying exchange rate assumptions, for the third quarter we are assuming a $1.60 per euro exchange rate and a Japanese yen at 160 yen per euro. While the yen has been volatile recently, the average exchange rate for the second quarter was 163 so we are maintaining our assumption of 160 yen per euro and will evaluate it further next quarter.

For the full year, we are assuming a U.S. dollar to euro exchange rate of $1.57 and have moved up the Japanese yen exchange rate to 160 yen per euro from 159.

Just three housekeeping items. First, regarding CATIA's second half growth rate, the second quarter was the last period of perimeter effect from the ICEM acquisition. In addition, the revenue impact from the DSF spin-off is both a software and services adjustment. In the case of software, most of the DSF software revenue resides within CATIA. And we began to see the acceleration in CATIA software revenue since the 2007 third quarter, benefiting from the changes in our PLM Value channel.

Secondly, we now give CATIA software revenue and have decided to stop giving unit information as we have found it is not a key indicator of overall performance for CATIA.

Third, we would like to align our end of year budgeting for 2009 and financial objective setting. In order to do this, we plan to wait and give our initial 2009 objectives at the time of our fourth quarter release in February 2009.

As you read in this morning's press release, our Board of Directors approved the voluntary delisting from NASDAQ. The delisting procedure will start in October 2008. From a reporting perspective, we will continue reporting and publishing in U.S. GAAP for the third and fourth quarters of this year. Commencing with 2009, we will solely report and communicate in IFRS. To assist with this transition, we are planning to conduct a conference call with interested participants on both the sell-side and buy-side in early December or thereabouts to walk through the changes and to provide you with detailed reconciliations and excel files.

Now let me turn the call back to Bernard.

Bernard Charles - President and Chief Executive Officer

Thank you, Thibault. I highlighted our results by brand at the outset of the call, but I would like to spend some additional time on SIMULIA this quarter. It continues to deliver robust growth with mid-teens revenue growth in constant currencies in the second quarter and for the first half of 2008. This growth comes from SIMULIA's strong traction across a broad range of industries. In fact, our simulation software is used by virtually all of the industries we focus on.

On top on excellent growth, SIMULIA has a very resilient business model. Over 90% of its software revenue is recurring in nature. In addition to its expertise in Unified FEA and multi-physics, SIMULIA is progressing in simulation lifecycle management and has several customer pilots during 2008. As you all know, SLM is based upon ENOVIA V6. In connection with our SLM efforts we acquired Engineous Software on July 21st for a cash purchase price of $40 million. This company has about 90 employees and over 300 customers from diverse industries. And we have a number of customers in common, including Boeing, GM, Nissan, Procter & Gamble, Caterpillar, Canon, Rolls-Royce, United Technologies, General Electric, Samsung and Toyota.

We were attracted by Engineous proven technologies and two compelling products: iSIGHT-FD to use simulation to optimize product design by finding the best set of variables for a product, and FIPER to automate simulation processes. Our objective with the acquisition is to accelerate the availability of simulation process automation, optimization and decision support within SIMULIA SLM and to bring strong portfolio connectors to third-party simulation applications. The Engineous people are very delighted to join DS.

We had an excellent dynamic in software with our leading brands, with new wins and additional business in many of our verticals, including automotive, aerospace, high tech, energy, apparel and life sciences among others.

In the Automotive, investment cycles continue to remain solid in spite of a difficult environment. PLM is seen as a driver to invent new ways of designing cars while monitoring R&D costs very closely. We are seeing investments in our solutions by both OEMs and Tier1 suppliers across all geographies, including the U.S. For example, we have new activity with Ford, Visteon and Johnson Controls in the Americas; with Volvo Cars, Valeo and Avtovaz in Europe; and with Honda and Hyundai Motor in Asia Pacific.

And in our discussions with automotive customers, V6 is being very well received as the solution to enable global collaborative innovation and IP management.

In the aerospace industry, there are a number of new airplane programs and this dynamic is driving growth. We are seeing investments by both OEMs and suppliers in all geographic regions. For instance, in the Americas, we have new activities with Bombardier, Sikorsky and Parker Hannifin; in Europe with Airbus, Safran and Agusta Westland, and in Asia Pacific with AVIC, Aviation of China.

Parker Hannifin has selected ENOVIA MatrixOne and CATIA to have a single PLM and single CAD across seven aerospace divisions. We had first replaced the different CAD systems in place at Parker Hannifin and now they have just selected ENOVIA MatrixOne for the integration of the rest of the business processes. From a collaboration perspective, several aerospace OEMs are starting to invest in ENOVIA V6 with MatrixOne inside to improve their business processes.

We are also seeing good traction in the Life Sciences market, in particular with ENOVIA and SIMULIA. We are pleased to announce that Abbott is expanding its ENOVIA implementation to enhance the management of product development and regulatory compliance. Abbott is a broad-based health care company headquartered in Chicago, serving customers in more than 130 countries, with an employee base of more than 68,000.

GN ReSound is a world leading specialized in hearing healthcare producer, headquartered in Denmark. Its products include hearing aids. It has chosen SIMULIA to improve its product quality and performance.

In high tech, Nokia Siemens Networks, one of the world's largest network communications company, is working with ENOVIA MatrixOne to optimize product development. The initial investment is for more than 5,000 users.

And, Lenovo, a world-leading IT and personal computing company, chose SIMULIA to evaluate the performance and reliability of its electronic products at its award-winning 'Innovation Design Center'.

Turning from high tech to apparel, Under Armour, a leading U.S. company in performance apparel is using ENOVIA MatrixOne. I would like to share a comment from under Armour's CIO, which demonstrates the strategic importance of our solutions to customers. Jody Giles said “ENOVIA MatrixOne is one of our most strategic applications because it helps ensure that we design and develop the right product on schedule for the market.”

Pacific Brands, a leading apparel company headquartered in Australia, with 9,000 employees in 216 locations across eight countries has elected ENOVIA MatrixOne to help it drive apparel development from concept [ph] to customers.

From providing solutions for business processes in apparel, we are also providing them for the energy industry. ENOVIA SmarTeam was selected by OKG, owner of four nuclear plants in Sweden, to improve the management of information regarding its facility and equipment as well as its compliance with safety regulations.

Arup, a leading consulting firm providing world-class engineering services, is using CATIA software in conjunction with the Gehry Technologies' Digital Project software platform to develop some of the most innovative architecture including the 2008 Beijing Olympics stadium. And mind you that this Gehry Technologies' Digital Project is a joint venture with our friend Gary In those new industries, we are winning against our closest competitors.

Turning now to V6, at the end of May 2008, we introduced our new V6 release and in the second half, we will be announcing its general availability in all channels including the IBM PLM channel. Since its introduction, we can confirm strong customer interest for V6. Initial customers selecting V6 include Schuler and Nikon. We also see strong interest from IBM. In a July 29th press release, IBM said it is deepening its commitment to sell and support DS PLM software offerings with the new V6 platform. In the same press release, Johnson Controls highlighted positive feedbacks after evaluating V6.

What we are seeing is that three key strengths of our V6 technology, collaboration which is native and extremely powerful because it is truly online, much greater ease of design and its tight integration and openness are important attributes to potential customers.

To conclude, DS made very good progress during the first half of 2008. Looking to the full year, we will continue to pursue our business and financial initiatives. While the macro-economic environment backdrop is certainly mixed, the strength of our results across regions and brands underscores the strategic importance of our software and core services offerings for our customers. With that in mind, this is where we will keep our focus.

At this point Thibault and I will stop to take your questions. So please operator, can you turn on the process of questions. Hello?

Valerie Agathon - Head of Investor Relations

Operator?

Question and Answer

Operator

We'll now begin the question-and-answer session. [Operator Instructions]. Your first question comes from Rajesh Bala of Credit Suisse. Please ask your question.

Rajesh Bala - Credit Suisse

Hi, I just have one fundamental question. The H1 organic growth rate in constant currencies is 15%, that's what your full year guidance probably implies near 4.5 - 5 percentage point deceleration in H2. Is there any particular reason for this or is it just general consequence?

I have one other question on SolidWorks as well. You have said that except currency, the ASPs are down 1%. You probably mentioned that this is largely due to the mixed effect with the reducing proportion in Japan. I just want to know, whether it's just Japan or is that a mixed effect from emerging markets as well? And are you facing any particular pricing pressure in emerging markets, particularly from Autodesk? Thank you.

Bernard Charles - President and Chief Executive Officer

Thank you for the questions. Thibault, do you want to take any growth question on H1?

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

Yes. Actually in H1 we have two quarters with the perimeter effect coming from the ICEM acquisition. So once this is taken into account as well as the DSF spin-off and the Engineous acquisition, the core [ph] goal we are planning for in second half, is just one point below the first half, which is the usual 60 [ph] we take in giving a guidance, not more than that.

Rajesh Bala - Credit Suisse

Thank you.

Bernard Charles - President and Chief Executive Officer

Regarding the second question about the Cellulose Acetate, Thibault, I'm coming on that, I will maybe coming under pricing pressure.

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

While ASP was relatively stable for Cellulose, you know 1% decrease in constant currencies, is really not a lot, I may have said so.

Rajesh Bala - Credit Suisse

Yeah.

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

We have not seen the positive impact yet coming from Japan, which we continue to expect. We will see it coming in the second half. And in the emerging markets, in fact in general, we don't see much pricing pressure on the Cellulose front and in each region; the price per se is remaining relatively stable for Cellulose.

Operator

Your next question comes from Jay Vleeschhouwer of Merrill Lynch. Please ask your question.

Jay Vleeschhouwer - Merrill Lynch

Thanks, good afternoon Bernard, Thibault and Valerie. The first question has to do with the relative growth rates within your software revenue. In other words, your periodic license and maintenance revenue, the recurring fees is growing substantially more quickly than new licenses, and perhaps you could explain the difference. Is that a function of expansion activity, within existing accounts or is it a function of differences in how you've arranged capacity additions within the channel and that's reflecting itself in someway and these differences of growth rates within software. And then I have two follow up questions.

Bernard Charles - President and Chief Executive Officer

Thibault you want to; this is a traditional question. So if you want you can may give the traditional answer.

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

Well first of all I would note that our new license revenue is in fact accelerating in growth. 12% is certainly much better than what we were able to do one year ago in second quarter, and we have seen this acceleration since alternate transformation for the value channel. It's starting to pay off, which is ready since the third quarter of last year.

The reason why recurring revenue is growing slightly or faster than the new license revenue, or at least I should say, the reason why the recurring revenue is growing nicely, is first and primarily, a function of the growth we have in the installed base. With a number of licensees we add every year, this represents about the growth rate you see in recurring revenue actually.

We are having a good performance on the SIMULIA side, which is completely recurring, and this is also effect that helps grow the recurring revenue as we see.

Jay Vleeschhouwer - Merrill Lynch

Okay. With respect to SolidWorks, you did see growth year-over-year, however the absolute number of units was down, slightly anyway, from the first quarter which I can't ever recall having seen sequentially from Q1 to Q2. Admittedly Pro/ENGINEER declined more quickly, sequentially in June from March, but SolidWorks I now recall it ever declined from March to June. So perhaps you could comment on that?

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

Well it is true that 9% growth in unit for SolidWorks is a little bit shy of what we believe is going to be the growth for the full year for new licenses on the SolidWorks side. I think that what I would like to highlight though is that its liquidity underlying with unit growth in the second quarter.

Because it is the growth that is made with even the higher proportion of new wins, new customer wins on one side and on the other side with a higher proportion of COSMOS and PDMWorks products, which explains that the revenue growth for SolidWorks is 13%.

Out of curiosity, key aspect of the professional channel is to be able to expand its capacity to the portfolio where the SolidWorks channel can both do upside on the existing huge installed base as well as acquire new customers.

Jay Vleeschhouwer - Merrill Lynch

Okay just a couple more if I may, when we look at the services number it declined year-over-year as it was supposed to do. However, again a sequential observation, the number increased in revenue from Q1 substantially, sort of more than we would have assumed and looking back it was the largest such sequential increase for services in nearly a decade and I'm wondering if there were some unusual events in the quarter with respect to engagement or anything of that kind that would have resulted in, perhaps an unsustainable services number in Q2.

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

Actually Jay I think the expansion is high in the fact that our first quarter service performance was not outstanding. I should say in that manner. If you look at the year-for-year growth, where actually there is a decrease of 2% but excluding the channel management fees we had actually a very understandable growth in services, which was in line -- which was in fact a little bit less than the software revenue growth we have, so nothing exceptional.

Jay Vleeschhouwer - Merrill Lynch

Thanks. So in other words you think that the services run rate should stay at about this levels if or perhaps even improve?

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

Yes I do, I believe the performance in second quarter should not be an exceptional in terms of growth rate.

Jay Vleeschhouwer - Merrill Lynch

Okay. And maybe just start wrapping up Bernard as you were thinking about V6 adoption more optimistic than the way you characterized at the analyst meeting last month, and last month you talked about that it would necessarily take some time for customers to evaluate and potentially migrate, you referred to V6 as having to be "non-threatening" particularly to existing customers but now you spoken of some early pilots and the like, are you more optimistic with respect to the progress or as your revenue impact expectation about the same?

Bernard Charles - President and Chief Executive Officer

Well there wasn't any new impact expectations about the same. I continued to be highly optimistic about V6 and I think many competitors are very scared about it because of the significant break through, what I have noticed is that the old customers are really, really all of them are confirming that this is the right way to go for them. The question is not about replacing V5 only, the question is about confirming once again, the way they want to adopt the PLM processes, because I think what will happen with V6 is as profound as the entire market migrating to digital business processes, but now it's about business process integration.

So I have been optimistic in the past and I am optimistic now and I think I am even more now. The only element here is that, we have to do it not to replace V5, we have to do it to expand V5 and I think the numerous evaluation going on in the non-Dassault Systemes customer side is growing, which is a very good sign about people wants to take the legacy environment and go to the next stage

Jay Vleeschhouwer - Merrill Lynch

And lastly on IBM what is your general expectation of the total revenue contribution to you, versus let's say the '06 contribution that you disclosed in your 20-F. And were there any additional accounts large or small that you assumed responsibility for in the most recent quarter? I know you did Ford in Q1 of course, but anything of any consequence since then?

Bernard Charles - President and Chief Executive Officer

First of all, I think hope everyone has and I hope, Jay, you have seen the significant amount from the IBM did, I think yesterday or the day say before yesterday about investment in Dassault Systemes' PLM software. This is significant and it shows that what was considered as a risk factor is becoming now an opportunity factor. We have replaced the -- refrained our valiant [ph] as you know specifically with the channel and IBM is investing significantly. We expect double-digit growth. Thanks to IBM in large account in 2008 as compared to 2007, to tell you the truth I am very impressed with the new developed leadership, commitment, investment and long-term plan, as we have broadened the portfolio and as it has been visible as IBM has gone through the process of announcing the entire portfolio as we agreed. So I think IBM contribution will continue to be double-digit on our growth contribution.

Jay Vleeschhouwer - Merrill Lynch

Thank you very much.

Operator

The next question comes from Stefan Slowinski from Société Générale.

Stefan Slowinski - Société Générale

Yes, good afternoon. I have a question regarding the delisting from the NASDAQ. I heard the comments this morning about the lack of trading volumes on the NASDAQ and you also mentioned potential 1 million euro cost savings, which probably isn't too significant when you look at the size of the business. But isn't there a marketing effect, if you will, of having the NASDAQ listing, you have a significant amount of customers in U.S., significant amount of partners, employees and also from the comparable standpoint for investors and analysts to see the U.S. GAAP numbers compared to some of your U.S. peers. Doesn't that have a value as well and maybe you can just explain I guess the strategic rationale for dropping the NASDAQ listing?

Bernard Charles - President and Chief Executive Officer

I think this is the right question. This is the very right question. This is about, Stefan, is about the visibility. In fact that very question that, on that very topic, that motivated us in 12 years ago in 1996 to really produce Dassault Systemes. At that time, it was regular more punctual in Paris on the NASDAQ, that was the very aspect of visibility. But in the last 12 years when you look at it, things have changed. First of all, I will ask -- for example, first of all the globalization of those trading platform is really real now and you will notice that Euronext in nicer, Euronext. That's much more global.

The second thing on the volume aspect is when we do our road show and meet with the large investor or even small investors, Thibault and I, noticed that most of them actually do the trading on Euronext. First of all, they can easily do that. Second for very big firm, they are always the famous international line of investment that they have to follow anyway. They have certain policies and they prefer to use these between core domestic market to really to execute those tradings.

So, we asked them simply when we were going through the road shows and we asked for what would be their perception and we asked large customers if this was a concern on our partners, and no one really mentioned that it would be a concern at all. I mean, when you look at markets in Asia now, people know how to trade in Asia too. I mean this world is global. So, we have done this sensitive analysis completely indifferently of all the other technical aspects that, of course, you can imagine, Thibault and his team has done. And we came to the conclusion that it would not reduce at all the visibility. And we should also keep in mind that large U.S. groups now are adopting the IFRS.

SolidWorks, which is another key factor, IBM has announced that we'll do it if it's not done already. Going through the IFRS approach, you basically build a set of comparable which will be much more global. And we have announced that we will be doing that 1/1/09. So, all in all, from an operational point, that's not the big issue, because first of all we have… we can still use the stock option plan and we have all the LCI mechanism to do long-term incentive plan.

And this has been put in place even before that decision. So, there is no impact for our employees. So, all in all, beside of the pure technical aspect given, we think that time has come to leverage the fact that this really a global platform, and we don't believe it will reduce by any means the visibility or capacity for partners, customers to compare things.

Stefan Slowinski - Société Générale

Okay. Thank you very much. And just a follow-up question for Thibault on the cash flow, which was once again very strong in the first half of the year, cash flow from operations, 194 million euros at a 130% of the adjusted operating income. I am just wondering if there was any special circumstances that drove that or if we can -- if we should expect to continue to see this type of strong cash generation come through?

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

No, there was really no particular events to explain it. And it's right I think to look at the cash flow performance, looking at the first half total. And I think the -- I did not note anything exceptional to explain the valuation compared to last year, which is an increase slightly higher than your GAAP [ph] net income as you have seen.

Stefan Slowinski - Société Générale

Okay. Thank you very much.

Bernard Charles - President and Chief Executive Officer

Thank you, Stefan.

Operator

(Operator Instructions)

Bernard Charles - President and Chief Executive Officer

Okay. I think that there is no more question. We have -- this morning, we initiated a new process with the webcast on the connection of the analyst presentation between London and Paris. And I think it was quite successful.

So, I thank you all for all of you to participating this afternoon. And of course, we will continue to be very open to address any of the special topics you want to address afterwards. Thank you very much, and have a good day.

Operator

This concludes our conference for today. Thank you for participating. You may all disconnect.

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