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Executives

François Bordonado – VP, IR

Bernard Charles – President and CEO

Thibault de Tersant – Senior EVP and CFO

Analysts

Joseph Borrie – Exam DMD

Jay Vleeschhouwer – Griffin Securities

Michael Voice – UBS

John King – Barclays

Dassault Systemes S.A. (OTCPK:DASTY) Q3 2012 Earnings Call October 25, 2012 9:00 AM ET

Operator

Welcome to Dassault Systemes 2012 Third Quarter Financial Results Call. (Operator Instructions).

I must advice you that this conference is being recorded today. I will now like to hand the conference over to your speaker today, François Bordonado, Vice President Investor Relation. Please go ahead.

François Bordonado

Thank you very much. Good morning or good afternoon, and thank you for joining [inaudible] and people [inaudible] for our 2012 third quarter conference call. We have our webcast presentation in London earlier today and have placed the presentation on our website.

Two brief reminders, first, Dassault Systemes’ financial results are prepared in accordance with IRFS. We have provided supplemental non–IFRS financial information which explain in the IFRS and non–IFRS reconciliation tables into during our press release. And second, 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 our 2011 document de reference and 2012 actual report.

Let me turn the call over to Bernard Charles.

Bernard Charles

Thank you, [inaudible]. Thank you for joining us on this call. As always, we thank you for your interest in Dassault Systeme. 2012 represents an important juncture. The beginning of a new decade with 3DEXPERIENCE driving much of what we are doing as a company.

People asked me if this is a major transformation. Like Product Lifecycle Management when we introduce it in1999, I believe 3DEXPERIENCE will represent a major inflection point for our industry. Our vision is successful innovation, harmonizing, product nature on life. With the addition of Gemcom International under the new brand GEOVIA, we are firmly touching nature. 2012 is well, the launch of our industry solution experiences strategy.

We have two principle goals. First, to bring more value to customers by targeting very precisely the key priorities and we want to do this by offering a murky brand approach where we have done all the work to combine the appropriate capabilities and technologies together. By doing so, we simplify deployments on interim as then achieve our faster [inaudible] on our investment on their better experience.

This year, we are unveiling a number of industry solutions, transportation mobility, consumer package goods on retail and architecture engineering and constructions on other that we are honing out.

Turning to our research, we reported a 16% increase in non–IFRS earnings per share and 15% year–to–date. While we are clearly seeing sign of the macro–economy slowing in our owned business, we also see good interest from companies in key areas as I will discuss very shortly.

So we are upgrading our guidance for the fourth quarter on the full year interim. If Thibault and I are correct, we will cross the EUR2 billion revenue milestone this year. Thanks to the work of our 10,000 employees and colleagues and our already loved and fast–growing network of partners around the globe, a very unique asset to Dassault Systemes. So it has taken us six years to double our revenue. Let’s see how much time it takes us to reach the next double.

Turning out to a business issue, I would like to share some example of what we are doing with customers. These examples illustrate high end [ph] continued interest in investing to drive innovation, extend our global efficiency and on a projects of varying types, providing quick return on investment, a problem payback has been the risks some of uncertainty of the micro–environment.

My first customer example for – is from Russia. In fact, I just returned from our 3DEXPERINCE forum in Moscow where more than 700 customers across seven industries from Russia and CIS were present. This year, Alexei Rakhmanov, deputy minister of Industry and Trade was there and spoke about the importance of innovation in manufacturing conformation.

So we are pleased that Autobag [ph] has selected CATIA to help accelerate its conformation by maybe multiple call [ph] protection programs, at the same time on by improving its car design on engineering processes with CATIA’s difficult mocap [ph] capabilities. They’re high tech [ph].

Digatron has selected CATIA and ENOVIA v6 to increase its global efficiency by reducing the cycle time for design on manufacturing, very difficult issue, given its role as one of the largest provider of design and manufacturing services to the world’s leading I–Tech companies.

In the retail industry, Fossil, a well–know American clothing and accessory retailer is using ENOVIA V6 to drive innovation on global efficiency.

On a mobile phone, Samsung, is using SIMULIA to simulate finger usage on its phone to better understand – they are going to mix an interaction of human device interaction. And this illustrates very clearly what we are saying with the experience.

Coming back to Russia, let me share a final customer [inaudible] involving three of our brands, and yet, leading Russian nuclear plant and construction company has selected DELMIA, CATIA and ENOVIA V6 to reduce plant construction, type and cost and improve quality and safety.

The third quarter was also the evolution of SolidWorks 2013. The buzz on this latest release is that the one of SolidWorks bests, delivering faster model creation, great performance and enhanced collaboration. Congratulation to the team. I’m confident that this will soon reach its next milestone, 2 million commercial on the [inaudible] users.

As were discussed on one of the sweet elements of our purpose is nature, to be able to model and simulate the planet by mastering geophysics. We are beginning in mining with Gemcom. I have my first opportunity to attend mine expo in Las Vegas with Rick Moignard and several executives from GEOVIA in September. This is a world largest mining trade show. During the event, we met with over 100 companies and just in full using Dassault Systeme on unveiling our plans to provide end–to–end solution from first analysis to delivery to the end customers.

In junction with this event, we introduce new capabilities for GEOVIA’s five key mining application, exploration, evaluation, planning, optimization and mine planning management. This new release is already at some of CATIA’s visualization technology already embedded in them and we anticipate quickly leveraging our modeling and simulation technology as well as ENOVIA’s capabilities in project management, asset management, compliance and collaboration with Gemcom’s technology to bring further value to mining to the mining industry.

Moving to life. We’d achieved in many ways in design accumulation of medical devices with power software and in molecule simulation, one of the projects we are involved in is with Brown University in Providence, Rhode Island where SIMULIA is a quart [ph]. We [inaudible] model, the potential impact of the brain from physical interaction in order to determine the possibility of TBI, traumatic brain injury and then assess how by use types of support safety equipment could [inaudible] injuries.

As I mentioned early this year, we unveiled our industry solution experience strategy and since that time we have been introducing a number of solutions. Our Smart, Safe and Connected industry solution of transportation and mobility is a mighty brand solution including CATIA, SIMULIA, EXALEAD, NETVIBES, ENOVIA and 3DSWYM. Our perfect shelf of consumer package goods, it is combined together 3DVIA, ENOVIA and 3DSWYM. In architecture engineering and construction, EC, our optimize plant construction solutions enable on time on projects comes to the mighty brand solution of 3DVIA, DELMIA on construction planning and ENOVIA.

And there are more industry solutions experience to come. This offers at companies, take full value from our brand in a very easy manner as we do all the work for them to bring together a powerful solution but one that is easy to deploy and use with visible and [inaudible] in implementation time and expense. Importantly, they enable companies to bring together product, process and end–consumer experiences.

Let me turn the call to Thibault.

Thibault de Tersant

Thank you Bernard. Good afternoon and good morning to all of you. My comments today are based upon our non–IFRS financial results. First, in these tables, you can find the reconciliation of our non–IFRS to IFRS data.

In addition, revenue growth for [inaudible] in constant currencies. All in all, we had started the quarter with a good evolution of revenue, earnings and operating margin. Revenue increased 10% in constant currencies. Non–IFRS earnings per share increased 16% and our non–IFRS operating margin extended 60 business points. And the growth in EPS is higher at 200 business points increase. Effective tax rates as well as higher taxes more broadly in different categories of our expenses.

Excluding currency effect, revenue result in the third quarter where the high–end of our guidance illustrating our [inaudible] but realistic as a slant of the quarter. As a reminder, our third quarter results include the acquisition of Gemcom and [inaudible] this year of [inaudible] one of our business partner operations.

Excluding these changes of the scope, software revenue increase about 8% in constant currency. Similar to last quarter, the new business dynamic isn’t deducted the growth of our new licenses revenue as well as rental revenue growth. We are investing in our businesses and then keep [inaudible] result and development, marketing and industry solutions among the key areas.

The average headcount increase about 6% compared to last year. At the same time, we have been able to extend our operating margin showing the continued progress we are making in our business operations.

Turning to our cash flow and balance sheet, we had a strong increase in net operating cash flow of 23% year–to–date and we are seeing an improvement in our receivables management as demonstrated by our DSO track.

Now, let me share some details. In the third quarter, new licenses revenue increase 10% in constant currencies with double digit growth in both the America and Asia. Rental revenue also had a good dynamic, increase in 14% with several of our brands contributing to this growth.

On the year–to–date basis, new licenses revenue was up 12% with a good level of contributions from whole continents [ph] led by Asia. Rental revenue was higher by about 15% for the first nine months of the year. As we had been anticipating, softening of the macro environment was evident to this quarter and showed that first with SolidWorks, so early indicator.

Overall, SolidWorks reports [ph] a total revenue growth of 9%. However, new sales [ph] license were a much lower at 2% growth in the quarter versus 13% in the first–half. The change in activity was visible across our geographic reporting regions. While volume was down, pricing was relatively stable lower by about 1% also in constant currency year–to–date.

We have had a very good evolution of recurring software revenue this year, up 10% in the third quarter and 9% year–to–date. And this performance was relatively consistent across our three regions. Maintenance growth had been huge by a good level of increase in new licenses revenue. In addition, we continue to see stable maintenance renewal rates which remained pretty high on a historical basis. And as I indicated, our rental revenue growth was also quite healthy.

Turning to regional review, Asia continued its trajectory of good performance with its revenues increasing 16% in the quarter and 13% year–to–date. Asia is benefiting from both a more dynamic Japan compared to 2011 and growth across several countries led by China. In addition, we did see a better quarter in India after late Q2.

Just as a reminder, the largest portion of Gemcom’s revenue originates in Asia. Looking at higher growth countries, [inaudible] the growth was 20% in the third quarter. Again, all my comments on revenue growth are in constant currencies.

In the Americas, we are on a better trend but at a sustainable improvement here can take some times, so I want see based at the results, at India and even from a quarter to another of some [inaudible] effect.

Software revenue was at 15% in the quarter with services, bringing to total revenue growth rate to 13%. A number of brands contributed to the growth. Year–to–date, revenue in the Americas is higher by 7%.

As you know, Europe has had strong growth for several years and for a number of quarters. Looking at the growth in the quarter of 3%. In fact, it reflects of the strong Europe [ph] operation. But we also saw some softness in different regional markets, most notably, Southern Europe.

Russia had a good quarter. Year–to–date, Europe is up to 10%, so very good results at any given the well–known issues European governments are [inaudible].

Turning to service and other revenue, it is up 9% for both third quarter and year–to–date. On services, I would like to bounce out that we are seeing an improvement in our services margin. Looking at the year–to–date progression, there is a positive shift of about 13 points from a negative growth margin last year to about 4% year–to–date.

Turning to our operating expenses, the increases are principally tracking the growth in employees and year–to–date also higher marketing investments. We added over 430 people with the Gemcom acquisition.

Looking briefly at our cash flow and balance sheets statements, net operating cash flow is at 23% year–to–date to EUR469 million, so a very healthy increase coming from net income and working capital with a very positive evolution of our non–cash given items.

DSOs came in at 64 days, a nice metric as we continued to work on improving our receivable collections. Annual revenue total of EUR2.5 million representing an increase of 10% year–to–date and probably between 8 and 9 excluding the small currency effect. Quarter–to–quarter variations, inflicted [ph] the normal seasonality and also the fact that there was a stiff increase in a number of revenues in former quarters.

And our change [ph] in cash during the quarter reflected the completion of the Gemcom acquisition with a total of cash expended of about EUR218 million.

Now, let me had a few minutes on our 2012 financial objective. As we indicated in our earnings press release, we are overriding [ph] our full year guidance to effect the third quarter over performance and also currency fluctuation as well as an improved view of our fourth quarter [inaudible] with respect to new licenses revenue. We are leaving and change [ph] our prior currency [inaudible] great assumptions for Q4.

On the revenue perspective, we are increasing our expected revenue growth rate to a range of 9% to 10% in constant currencies and this fluctuate to 9% former. For earnings per share, we are increasing the growth range to 13% to 15%. And with respect to our operating margin, we are now targeting 31.4% which will represent an operating margin growth of about 100 basis points compared to 2011.

This figures, as our reminder, are all non–IFRS. We have provided [inaudible] of quarterly presentation, but essentially, we are moving the midpoints of our 2012 revenue range by EUR25 million of which EUR15 million are coming from currency and EUR10 million from activities and split evenly between Q3 and Q4. So for the full year, this leads to a revenue range of EUR2.30 billion.

As we mentioned last quarter, Gemcom’s contribution to revenue this year reflected to be about EUR35 million on the non–IFRS basis. We have done a preliminary acquisition review and have estimated deferred revenue write–downs of about EUR10 million of 2012 associated with the Gemcom [inaudible] with EUR5.5 million recorded in Q3 and about a similar level in Q4. The preliminary analysis is subject to a final confirmation in the third quarter and fourth quarter.

With respect to earnings, we are increasing the midpoint of the range by EUR0.08 with essentially EUR0.07 from activities. We estimates about EUR0.03 from currencies which we already accept but higher tax rate and shared count. I would assume the shared count of about 125.5 million or 125.8 million shares.

So for the fourth quarter, we are estimating revenue growth of 6% to 8% in constant currencies. And here, let me stop and say that the services revenue was expected to decrease, so the increase in software revenue in fourth quarter is, in fact, estimated as 8% to 10% increase. So the high–end of our guidance of software revenue is quite similar to the third quarter performance now. And we’re also targeting an operating margin of 34% to 35% and earnings per share of about EUR0.95 to EUR1 representing a growth between 9% and 13%.

From [inaudible] respective, our fourth quarter assumes a US Dollar exchange rate of $130 per euro and 110 yen per euro. For the full year, these figures are $1.29 per euro and 104 yen per euro.

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

Bernard Charles

Thank you, Thibault. During 2012, we have been carefully investing in our businesses, having people in reserve from the black pond [ph], marketing and industry solutions among TRS [ph]. In fact, [inaudible] number, we crossed the 10,000 employees milestone.

We have an enormous talent–focus on helping drive our purpose of sustainable innovation, harmonizing product, nature and life. And distance extends to our last network of partners which we are continuing to grow in 2012 and 2013. We were pleased to work or focus on innovation, recognized by Forbes Magazine where we rarely speak for it among the top one and the most innovative companies, among software companies, we were harangued forth.

As we discussed 2012, is the launch of our industry solution experiences. While we are just at the beginning, we believe our focus on addressing our customers’ most critical processes and doing so by combining together the appropriate functionalities and technologies of our different brands. We bring them significant value in simplification, enterprise integration and return on investment. One is an interest around 3DEXPERIENCE is visible on drawing.

We do think that our advisable market of opportunities is sizable. And we are working to turn it from strategy to reality. And we believe our industry solution experience will be an integral, an important part of our progress. And finally, in very short–term, we believe that the system is well–positioned to deliver a very good financial [inaudible] 2012.

With that, I would be happy with Thibault to take any questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Once again, let’s start and [inaudible] the question. Your first question comes from the line of Joseph Borrie [ph] from Exam DMD [ph]. Please ask your question.

Joseph Borrie – Exam DMD

Hi, good afternoon. Thank you very much for taking my questions. I’ll ask two, the first one is just thinking about you in solution [ph] rollout plan, could you remind us where you are in terms of how many you’ve already rolled out and how many other packages you’re planning in the next year and also when [inaudible] rolled out will conceive?

And the second question is related to a comment I think you made earlier with regards to consistent integrators like IBM, [inaudible] becoming more interested in these industry solutions presumably because they involve mobilization of larger number of consultants. Could you maybe add some color on their commitments to these initiatives maybe in terms of resources, consultants and marketing budget, I don’t know? And how many, as I [inaudible] with you, aim to have in the future? Thank you.

Bernard Charles

Thank you, Joseph. Regarding the industry solution experience, first of all, I would like to remind me [ph], they want – that we do target 12 industry sectors such as Andy [ph], I’ll speak on the [inaudible] consultation and mobility which includes, of course, cars, but also trucks et cetera, i–Tech, life science et cetera. So those are the type of industries we focused on.

The industry approach is to look at what those industries value the most, combined the total solutions together. And we want the solutions to be as comprehensive as possible covering as much as possible of the entire industry lifecycle, which means of initial concept to consumer delivery or customer delivery depending if it’s a B to B or B to C companies, CPGs [ph], maybe pleased serving the retailers or retailers serve the consumers.

So the goal is to limit the number of industry solutions we have. We might have a 4, 5 per 8 [inaudible] sectors, 5, 6. So we have today about 12 in plan and we probably will have about 20, 25 by year–end 2013. When the customer buys an industry solution experience, he doesn’t need to deploy everything.

They can start from anywhere. For example, [inaudible] that we announce this today. They are stopping from the construction site; one good thing that they would be starting from the engineering site. They do start from the construction site in their case and they will deploy step by step to all new project from their front end. So that’s in short the process. It’s very–it simplifies things.

On, I think for the training question that I was asked this morning what we do is our sales force are being trained based on the opportunity of the coverage. Remember we are three channels, direct sales force, value solution with our partners, on–volume solution, namely the former SolidWorks Network who is now in at selling much more than SolidWorks.

On [inaudible] the first adoption that has been the fastest is for our value solution partners because they like the simplicity, the package, on the speed that which they can learn and deploy. So we are training the business partners first. When it comes to our direct sales force this is based on which sector do they serve. Not all of our business serve the 12 [ph] industries, in fact, none of them served of the 12 [ph] industries. So you can have collection of partners for EMD, collection of partners for iTech [ph] and those are so well targeted training programs.

And for our direct sales force to make it sure, we do it on demand based on the opportunities which means that if the direct sales team, the client exec is really having an opportunity for [inaudible] solution, the team will be trained on the job with additional support. Related to system integrators we have great relationship with IBM [inaudible].

It varies from countries to countries. We are also establishing great relationship with Accenture, with Capgemini. We have a great project with Capgemini, for example, Capgemini with Airbus is – we have a very successful project. We have [inaudible] with Saffron [ph] which is, those are WingsFree [ph] you know, so I’m not disclosing it, [inaudible] here.

So it’s by country, by industry and based on your capacity on the will that each of those big partners. In India, IBM is probably the most innovative and focused partner for system integration. Same thing here, we put a few top specialists with them and we help them establish the practices. Too early to publish the KPIs, meaning, full time equivalent resources and so on but I think it would be a good topic to discuss in 2000 something.

Joseph Borrie – Exam DMD

Okay. Very well, thank you very much.

Thibault de Tersant

Thank you.

Operator

Your next question comes from the line of Jay Vleeschhouwer from Griffin Securities, please ask your question.

Jay Vleeschhouwer – Griffin Securities

Thank you. Good Morning. Bernard, I’d like to ask you about your industry solutions in the following way. Is there some meaningful revenue metric or contribution to revenue that you can now speak of? In other words, some of your competitors speak about measuring the revenues they get from suites as integrated solutions. Is there some similar kind of contribution metric that you have or might talk about in the future vis–a–vis the industry solutions? Then a couple of follow ups?

Bernard Charles

For the time being we have decided to publish with the current metrics that you know PLM, non–PLM, SolidWorks, [inaudible]. On changing that, we want to continue to provide metrics [ph] which are simple. So Thibault and I are thinking about what we will do whether it’s 2013 or 2014 to really evolve progressively with a set of metrics [ph].

We don’t plan to add new complexity. For the time being, we don’t plan to put KPIs for industry solutions. They will be revealed in the way we project results, because very often our analysts wants to have a stable model and understand what is going on. We will discuss that and we will look at this also in perspective of the industry evolutions.

So it’s a question of brand, it’s a question industry solution, and it’s a question of market positioning because very often people are not only looking at our intrinsic performance but they want to compare us with others. So for the time being know there is no new KPI and we don’t plan to publish that.

Jay Vleeschhouwer – Griffin Securities

Okay. With respect to services and as an earlier question about your work with the – the integrator partners, let me ask you a question this way. It would appear that in your principal PLM brand, in other words, ENOVIA, approximately a third of the total brand revenues would seem to come from services, the balance, of course from software. And that proportion is much higher than the percentage of services within the CAD business or simulation business. Could you foresee a material reduction over the next year or two from that roughly ⅓ level to something substantially smaller within the PLM brand, such that, that alone would give you some better margin in PLM?

Bernard Charlès

Thibault?

Thibault de Tersant

First of all, when we publish the, by brand, [inaudible] ENOVIA, the PLM, SolidWorks, this is software revenue, because we channeled a few years ago because it was becoming too complex to allocate the service revenue to brands. Due to the fact that most of the services engagements are, in fact, the multibrand. So just to be clear, on the indicators that we publish.

I think the challenge for us in services going forward is certainly to rely upon integrators more and more it’s certainly our strategy and what we are going to do. Having said that, when I look at the potential of services with experience, it’s a very large potential and we addressed at the beginning of this cycle. So I don’t believe that in proportion of our total revenue, services are going to decrease because we have to continue to support this integrators and the very significant business ahead. So we are today at 9% of total revenue in services and, frankly, I doubt that we can go lower than that.

Jay Vleeschhouwer – Griffin Securities

Okay. And just a couple of more if I may. Thibault, let me repeat a question I’ve asked you on occasion previously, which is, could you comment on the performance in and perhaps your expectations for the DP channel on the one hand versus the value channel on the other.

Thibault de Tersant

These are two very good channels. So in a few words, what we see today is a very good dynamic at increasing the number of valves in the VS channel. There is real increase in capacity in this channel which is based on VAR [ph] acquisition and also organic growth. So based on that, the prospect in both rates are probably the best for the VS channel. You know, because of this capacity increase and because of the under–penetration of SMB with what we do.

Jay Vleeschhouwer – Griffin Securities

Okay.

Thibault de Tersant

So there is a lot to do here.

Jay Vleeschhouwer – Griffin Securities

All right, and then just two last things, you mentioned that SolidWorks is a leading indicator for the business and we saw that in the volumes in the quarter. To what extent given that, are you beginning to think about contingency planning with respect to managing costs if only within SolidWorks itself or perhaps more broadly if this leading indication of market conditions continues. And then, lastly, with respect to your addressable markets, I’d like to ask you specifically about life sciences. You gave an interesting example, Bernard, of the application of [inaudible] to life science and modeling, molecular modeling. Could you speak perhaps more broadly about the investments in life science, perhaps the applicability of something like data management or ENOVIA to that kind of vertical market?

Bernard Charlès

First of all, we continue to invest significantly on SolidWorks. As you may notice, we are expanding the application portfolio around SolidWorks with electrical, for example, we expanded with PDMWorks; it works extremely well by the way. And also, CosmosWorks [ph] for analysis. So we will continue to expand.

What we believe is the reason of kind of between quote, "softening of SolidWorks" in the third quarter is the fact that we are ramping up the training of our re–sellers so they learn how to sell more than the spot SolidWorks design tool. And they are learning, they are getting there but it takes a few months or maybe a few quarters for them to be able to elevate capacity.

And probably, this has been both a reason of very great satisfaction for them to see that they have more to sell and also – and they are happy today with our business model. I want to say that our reseller network for SolidWorks is a healthy, happy network of reseller and so they seem more [inaudible] to sell if there are more.

And what we need to do is scale this reseller network too so they can expand. It’s not–this is the reason why we renamed the SolidWorks Network our Volume Channel Network [ph] because it’s not the only SolidWorks [inaudible]. So in the future we plan to continue to expand that. Related to [inaudible] used market, highly flat–mounted steel, multi–physics is needed. We need to continue to expand our investments in a multi–physics simulation expand the portfolio.

We are very, very – having successful result with what we call Scientific Life Cycle Management which means ENOVIA platform on applications with similar applications. And we are expanding this portfolio; that’s in short [ph]. So the future of SolidWorks as a brand is a great future [inaudible] and we continue to invest.

François Bordonado

We are moving now to the next question, Michael?

Operator

Yeah, next question comes from Michael Voice [ph] from UBS. Please ask your question.

Michael Voice – UBS

Yeah, great thanks. Just in services again, it looked to be a pretty strong performance when you take into account the sale of Transcat at the start of the period. I mean, revenues were up 9% and I guess Transcat was about EUR4 million. So can you say what drove and also in Q4 do you expect the performance to be as strong? And then also on the guidance for Q4, what are you expecting for SolidWorks [inaudible] was a bit disappointing, are you expecting that bounce back at all?

Bernard Charlès

Thibault?

Thibault de Tersant

Yes. So, yeah, the services performance for Q3, you’re right was a good performance, especially considering the spin up of Transcat. For Q4, we are not planning on the same kind of performance. Actually, in our guidance right now what is built is a slight decrease in services revenue compared to what was a strong, a relatively strong Q4 actually last year, which is why I was commenting on our [inaudible] growth in Q4 saying that it’s higher, it’s on the high end of the guidance, it’s about 10% growth in software.

So services will not be as strong in Q4 and this is really because we are [inaudible] system integrator strategy and working on the market. For SolidWorks, it’s a little bit early to say exactly, but for sure we are acting in order to deliver our better growth for SolidWorks in Q4. I heard the comment, you know, that SolidWorks is an advance indicator for activity.

In fact, I don’t think we said that. What we said is that there is a link, more linkage between the SolidWorks activity and the economic environment but we have many areas of our activity which has a growth dynamic which is less link to the economy environment than SolidWorks, right, so I don’t want to say that the SolidWorks results are linked to [inaudible] the rest of the [inaudible] results.

Michael Voice – UBS

Oh, great, and then, Bernard, maybe you could talk a little bit about the acquisition priorities in 2013, the size and sort of the specific location or capability.

Bernard Charlès

Well, thank you. This is, of course, an interesting question. Thibault has asked me always to say I wish I could tell you. Now, I’m going to do little bit more creative because you–without being too much creative. I’m looking at Thibault here.

Now, I think first of all what I would like to say as a practicum [ph] I think [inaudible] almost we have done, we are never motivated to, between quote, "buy revenue". We target technology on great deals which fit very well to build this solution experience journey that we are building now. And I think it’s working. It’s working very well and we want to do more.

We have a clear a purpose, harmonized products, nature, and life. I don’t think any of [inaudible] this ambition just adding from–to existing of past problem and I think we are addressing future challenges that really concern many of the industries on under society at large.

I don’t think that anyone would have expected us to buy someone in mining doing [inaudible] assimilation [ph] of mining just 12 months ago. But if you look really carefully, harmonize products, nature, and life, you have good indication about where we want to go because this what we are going to do, create virtual universe that can help harmonized products, nature, and life, and that’s what we do and what we are going to do more and more.

We continue to be very cautious [inaudible] as people said, but also very innovative to do moves that are challenging the game basically because I think all the industries we serve even the most traditional one are looking for industry solution experience which help them look at what they do, execute on what they do in a completely different way and we are demonstrating that now. So more to come I think in this area.

François Bordonado

We’ll take the final question.

Operator

Your next question comes from the line of John King from Barclays. Please ask your question.

John King – Barclays

Oh, hi thanks for taking the question. Just a couple if I can. Just firstly, on the cost [inaudible] actually and in relation to some of the macroeconomic weakness that you say [inaudible] statement, have you met any changes to your investment plans either in R&D or sales and marketing or do you think that they’re in the right place?

And then the second one which is the [inaudible], I think in the prepared remarks you mentioned that licensed [ph] growth was around 10% and, yeah, I think the software growth is only 5%. So I’m just wondering if there’s anything – any one–off in the rental and maintenance which would have taken that down a bit. Thanks.

Bernard Charles

Thank you, Thibault? You want to get that one?

Thibault de Tersant

Yeah, on the cost base I think, you know, that if you look at where we are right now I believe we are where we wanted to be so there is–as you can notice a slight inflection in the rate of increase of our expenses and this has been done on purpose but at the same time we continue to invest carefully in new industries, in R&D and channel management. And we are very careful with G&A and some other areas and services.

To [inaudible] growth rate is actually the installed base is significant pocket [ph] year, so there is no change in the renewal rate of maintenance but the maintenance revenue pocket [ph] year cannot grow double digit in an easy manner due to its size. And it’s something that we believe can change when we go to version 6 by the way but what you can see in Q3 to be very specific is that there is a new license revenue pocket [ph] year which is double digit and there is a very arithmetic increase in the criteria [ph] maintenance with renewal rate of maintenance agreement pocket [ph] year at 98% which is quite good.

Bernard Charles

It’s called a snowball effect.

François Bordonado

With that, we have no other questions. Operator?

Operator

There are no other questions, please continue.

François Bordonado

Excellent, we have no other question. Bernard?

Bernard Charles

Okay. So thank you very much all of you for connecting and thank you for the participant this morning from your interest in Dassault Systèmes. We can stay connected. Please don’t hesitate to send us your question or call us. Have a great day on a great end of the year. [Inaudible], I’ll talk to you early next year.

Operator

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

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