Dassault Systèmes SE (DSY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 Dassault Systèmes earnings presentation. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to your guest speaker today, François-José Bordonado. Please go ahead, sir.

Thank you, Maria. Thank you for joining us on our third quarter earnings conference call with Bernard Charlès, Vice Chairman and CEO; and Pascal Daloz, Chief Operating Officer and CFO. Dassault Systèmes results are prepared in accordance with IFRS. Most of the financial figures discussed on this conference call are on a non-IFRS basis with revenue growth rate in constant currencies, unless otherwise noted. Some of our comments on this call contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and the Risk Factors section of our 2019 Document d'enregistrement universel, our regulatory annual report. All earnings material are available on our website. And these prepared remarks will be available shortly after this call. I would like now to introduce Bernard Charlès.

Thank you, François-José. Thank you for joining, and good morning or good afternoon to all of you. We hope everyone is keeping well. The pandemic continues to present challenges for people and for companies, of course, with a second wave now affecting a number of countries. I think our results again highlight our resiliency, especially thanks to our recurring software revenue and operational management. At the same time, our presentation today will display we bring significant value to the 3 sectors of the economy we serve. Our key metrics for the quarter came in largely aligned with our expectation. The total revenue was up 22% in third quarter and represented 91% of total revenue. License activity saw an improvement over the second quarter. At the same time, our assessment is that recovery in spending conviction by clients will take longer in general with decision-making visibility very different across industries and industry subsegments. Thanks to our saving program as well as, by the way, diversity and diversification, we are able to offset this slower recovery. The resiliency of our financial model was evident with recurring revenue up 4% on an organic basis for both the third quarter and the 9-month period. Including Medidata, software revenue grew 32%, well in line with our guidance. Year-to-date, recurring revenue represented 83% of the total revenue. Demonstrating our operational management, both our operating margin and earnings per share came in at or above the high end of our guidance. Looking at the year, we are confirming our EPS objective for 2020 with growth at about 3% to 5% in constant currencies, aligning well to the financial framework that Pascal introduced in April as the pandemic spread across the world. Our work with clients on industry sector -- sectors demonstrate the direction of our investments in our industry solutions aligned with our strategy that is in 3 words: human-centric innovation for passion, for customers as well as for citizens with the 3DEXPERIENCE platform as 1 single platform to bring together all aspects of the business. The life sciences and health industries are mobilizing to accelerate research and innovation, and the pandemic is activating the shift to virtual. It has shown how much digital technology in health can provide concrete answers for the continuity of clinical trials. In Life Science & Healthcare, we bring significant scientific assets with our Medidata, BIOVIA, ScienceCloud as well as SIMULIA brands. We are benefiting from our competitive strength and increasing relevance as a strategic partner to the life science industry. Today, I want to share briefly 3 examples of our work with these brands and industry solutions. Janssen, a pharmaceutical company within Johnson & Johnson, signed a multiyear extension with Medidata to use its next-generation, unified platform for clinical development. This is a significant contract in size, reinforcing the long-term relationship between the 2 companies. In the Americas, world-class researchers at Incyte focused on transforming the treatment of cancer on inflammatory and autoimmune conditions are using our ONE Lab industry solution experience with BIOVIA, enabling faster innovation by connecting research and development and manufacturing teams to simplify technology transfer and optimize biologic processes. Abbott, a third example, is expanding its use of SIMULIA to drive increased virtual testing, replacing bench testing, which is more difficult to do at the time of COVID-19 and far more expensive. Historically, simulation has not played a large -- as a large role in life science as we have seen in other sectors like automotive and aerospace or space at large. SIMULIA's capabilities enable it to simulate the human body, medical and surgical equipment as well as its use. Finally, in addition to our scientific brands, our coverage of pharmaceutical and medical devices companies benefits from our mainstream market with SOLIDWORKS, ENOVIA and DELMIA brands as well. Moving to Infrastructure & City. Let me share some updates. In France, SNCF, which is basically the railway infrastructure in France, has selected the 3DEXPERIENCE of rolling stock especially, selected the 3DEXPERIENCE platform on the cloud as part of its digital transformation program. The role is to use big data information from trains in operation to implement predictive maintenance and increase quality of service. This will allow it to rethink its management of rolling stock and increase its reliability by detecting warning signals on malfunctions, thanks to the data collected through our operations. While we are at the early stage of our long-term objective for this sector, our solutions appear well adopted. With a number of industry start-ups adopting our 3DEXPERIENCE industry solutions on the cloud, we can become the game changers in construction, infrastructure and cities. These companies include branch, large-scale 3D printing, cloud organic architecture, ecological and inspired by nature. Turning to our manufacturing sector, a core sector, of course, for us. We are seeing stable to growing year-on-year software performance in industrial equipment and tech, home and lifestyle and consumer packaged goods and retail. Thanks to our broad market reach within Transportation & Mobility as well Aerospace & Defense and Space, we have continued strong investment by pure-play electrical vehicle companies and a good dynamic in space. High Tech, beginning with the STMicroelectronic announcement, has adopted the 3DEXPERIENCE platform on semiconductor industry solution experience. ST's strategic focus is on smart mobility, power and energy and Internet of Things with the 5G technology. ST's objective is to improve its flexibility and respond faster to these dynamic markets. This new engagement will involve a broad scope of users across multi sites around the globe. This represents a significant expansion of the scope of our relationship with them and also demonstrating our capacity to be a catalyst for transformation. As we recall, last quarter, we announced that Ericsson had begun its rollout of the 3DEXPERIENCE platform as part of its 5G efforts. In the consumer markets, Centric PLM continues to expand its leadership. For example, we are very pleased that JD.com, China's top 1 online retailer and worldwide 20th largest retailer with annual net revenues close to USD 79 billion last year, is adopting Centric PLM in one of its private-label brands to cut time to market, reduce cost and drive collaboration. With the increase in e-commerce activities as a result of, of course, the current pandemic, companies need to be able to improve the linkage between product introduction planning and e-commerce in order to speed up introduction of new products to consumers, helping to reduce cycle time. Moving to Aerospace & Defense. In the Americas, we are working with Ball Aerospace, a subsidiary of Ball Corporation, a manufacturer of spacecraft, components and instruments for national defense, civil space and commercial space applications. They have selected the 3DEXPERIENCE platform as their digital engineering collaborative solution. While the commercial sector of aerospace is under significant pressure, our breadth enables us to capture opportunities across other areas of the industry from space to aero EVs. Moving from industry sector, let me illustrate how our investments are reorienting our business to improve the human experience as patients and as consumers. Medidata through its effort is helping the industry to reimagine the future of clinical trials. Earlier this month, myMedidata LIVE became available to gave -- to give researchers and patient a way to engage in remote visits within the platform off-site -- patient platform off-site and patient-facing technology that are already using on the study. Medidata is also further extending the patient-centric orientation with a recent small acquisition to enable better execution of remote patient studies. Today, about 10% of the clinical trials are using devices to capture real-time information from patients while they are at home, simplifying their life. These devices take multiple forms, including sensors, specific equipments of mobile phones, of course. All this data needs to be collected and recorded in a consistent manner that the software created by MC10, the name of the company, is able to do, thanks to its ability to capture data from any type of device. Our own HomeByMe brand targets professionals as well as individuals which wish to redesign their interior. Aurelie Tshiama, an influencer in the field of interior architecture, gives online courses for the use of HomeByMe and thus contributes to increase the notoriety of the number of users on the brand whose promise is, "You are going to love designing your own." Moving to 3DEXPERIENCE on the cloud. Just as we are advancing with game-changing start-ups in the infrastructure and city sector, our platform is for many of the visionary brands across virtually all of manufacturing industries. We continue to make improvements to make buying and using 3DEXPERIENCE on the cloud as simple as the click of the finger to have access to very powerful software. In the mainstream innovation market served by SOLIDWORKS, we are extending the reach of the 3DEXPERIENCE platform with the 3DEXPERIENCE WORKS family of solutions that was announced a year ago. This portfolio represents the most comprehensive cloud-based portfolio offering on this market. Deepcell, for example, a non-invasive genetic testing company, is using SOLIDWORKS and extending now to ENOVIAworks on the cloud. Our upcoming virtual event, Science in the Age of Experience on Medidata's Next Global, underscore the deep scientific orientation of the company. A few words on sustainability. We are convinced that Dassault Systèmes can be a tremendous lever of sustainable innovation to meet contemporary challenges. We are reducing our footprint with an ambition CO2 emission reduction target, extending our handprint, which offers an outsized leverage compared to the footprint in a ratio of 1:10,000 as revealed by Harvard study through sustainable offers for all industries we address, and we have joined the Ellen MacArthur Foundation to build a circular economy. With all that now, let me hand over to -- the call to Pascal, who is going to give you more insights on the numbers.

Thank you, Bernard. Thank you for joining us today, and I hope you and your family are well. I would like to begin my comments with a quick overview of our financial performance. First, total revenue was EUR 1.03 billion in Q3. Revenue increased 17% in constant currency. Software revenue came in at the middle of our range while services revenue came in below our estimates with the largest proportion confirming the volatility we are -- we were seeing in services activity. We continue to manage well our cost reduction efforts while investing in the key resources for the future. We capture approximately EUR 80 million of savings in Q3 and EUR 100 million for the 9 months. We are above our full year target of EUR 170 million as we made adjustment in Q3 to align with the market and customer decisions. On an organic basis, operating expenses decreased 3% in Q3. Thanks to this performance, our operating margin came in at 28.2%, about 170 basis points above the high end of our guidance range. For the first 9 months, the operating margin was 28.1%. Q3 EPS was $0.80 with a negative $0.02 currency impact. EPS grew 3% as reported and 8% in constant currency. We were at the high end of our guidance range of $0.75 to $0.80. Zooming in our revenue by type. First, overall, the software revenue result, aligned with our planning, increased 22% in the third quarter and 17% year-to-date. On an organic basis, software revenue was flat in Q3 compared to a decrease of 3% for the first 9 months. Licenses and other software revenue came in at the higher end of our planning range, decreasing 11%. Notable improvement came from ENOVIA, CATIA and SOLIDWORKS. Subscription and support. Our recurring software revenue grew 32% in total and represented 82% of the total software in the third quarter. We saw a solid performance for renewals both regionally and across most of our brand applications. Our subscription performance benefited by the addition of Medidata with a double-digit subscription growth on a comparable basis. On an organic basis, recurring software revenue increased 4% for both Q3 and year-to-date. Services revenue decreased 15% in Q3 compared to our expectation for flat to growth of 10%. As we have highlighted, services activity has been volatile as company adjust decisions based on most the current information they may be seeing. Changes in customer spending plans were small in a month, but taken together, this adjustment added up. A portion of the services variance relates to our decisions in the quarter to continue with some strategic clients activities in order to maintain the multiyear project time line, keeping our staff in place and absorbing some of these costs. Moving to a regional software review, let me share perspective on the impact of the pandemic in Q3 compared to Q2. Beginning first with Asia, software revenue growth improved to 10% in Q3 from 3% in Q2. The best-performing geo were China, Korea, Asia Pacific South. And overall, the license revenue decreased high single digit in Q3 compared to the decrease of 21% in Q2, led by a strong recovery in China. Support revenue growth was very solid in Asia, except for India. China account for many of the larger transactions in Asia during Q3, spanning Transportation & Mobility, High Tech, Aerospace & Defense and Marine & Offshore. For China, Q3 displayed greater depth of all 3 of our customers' engagement models, seeing solid growth compared to Q2 where direct sales led. Turning now to Europe. It has a much better performance in Q3 compared to Q2. Europe software revenue increased 10% in the third quarter compared to a decrease of 4% in Q2. Similarly, on an organic basis, it returned to growth, up 2%. Relative to our planning and in the view of the pandemic, our 5 geos performed well. The best-performing geo were France, Southern and -- North and South Europe. We had a good dynamic with 3DEXPERIENCE with top deals in High Tech, Transportation & Mobility, Aerospace & Defense. Life Sciences deals with Medidata were also among the largest transaction of the quarter in Europe. In the Americas, software revenue increased 46% in Q3 in total with a strong contribution from Medidata. Similar to the second quarter, North America had the most deals in the top 20. On an organic basis, however, its software revenue decreased 2%. Moving to a view of our software revenue by product lines. We saw a quarter-to-quarter improvement overall across all the 3 product lines. Specifically, Industrial Innovation software revenue decreased 2% in Q3. ENOVIA had a strong quarter with the overall software growth of 4% and a double-digit licenses software growth. Mainstream Innovation displayed a strong improvement compared to Q2 with the software revenue growing 9% underneath this 10% growth for SOLIDWORKS. Driving this revenue performance was growth in recurring revenue as well as much improved license software performance. This improvement were visible in a number of geo around the globe. In Life Sciences, Medidata total revenue was up 13% in the quarter on a comparable basis with a solid operating margin performance and an improved cash flow from operations. The third quarter was an active one with a number of multiyear renewals signed with its largest customers beyond their par value. Some of them, based upon their estimated start dates, will begin to benefit us in 2021 and thereafter. It's also a quarter with a strong new customers acquisitions. Its customer base has grown 16% year-over-year driven by patient cloud as well the rave on cloud. Zooming in a comparison of our revenue and operating margin results, let me share several takeaways. First, on the revenue side, we came in at EUR 170 billion, EUR 40 billion below the midpoint of our estimate range with a higher-than-expected currency headwinds of EUR 14 million and a lower services revenue of EUR 23 million adding to the EUR 37 million of the EUR 14 million gap. Software accounts for EUR 3 million. On the operating margin, we made up for this with our core operations delivering 160 basis points higher contributions along with about 40 basis points above plan from recent acquisitions. Currency had a 10% basis point negative impact. And as a result, we reported a non-IFRS operating margin of 28.2% compared to the midpoint target of 26.2%. Third, on an organic basis, our operating margin was stable year-on-year despite the volatility in services activity. These achievements reflects our ability to adjust quickly in a quarter through the changing circumstances and, at the same time, continue to invest and to support our customers. Our operating cash flow for the first 9 months was EUR 1 billion, level with a year ago period. Contract liability totaled for EUR 1.40 billion, up about 5% in constant currency and perimeters. DSOs remained stable on a constant perimeter basis. Our cash continued to grow, now EUR 2.5 billion at the end of September from EUR 1.45 billion at December of 2019. This translates to a EUR 561 million improvement in our net financial position year-to-date. Moving to our outlook. This is relatively straightforward discussions. There are 3 takeaways. First, we are confirming our 2020 non-IFRS EPS range of EUR 3.70 to EUR 3.75 we shared in July, thanks to the resiliency of our strong software revenue and the saving programs we have put in place. Currency is a negative factor by $0.03, which we counter with an equal improvement from operations. Second, we are adjusting our revenue growth range by 1 percentage point to 11% to 12% from 12% to 13% in constant currency. We reflected a lower U.S. dollar in the fourth quarter perspective from $1.15 to $1.18, hence, a negative impact of about EUR 15 million on our non-IFRS revenue. Services non-IFRS revenue should be lower in 2020 by minus 9% and minus 8% to reflect services volatility. This represents a EUR 16 million impact. For software revenue, we continue -- we confirm our recurring revenue growth perspective for 2020 of about 26% to 27%. For licenses, we see a similar trend in Q4 as in Q3. And on a reported basis, this translates to a revenue range of about EUR 4.44 billion EUR 4.50 billion -- to EUR 4.565 billion for 2020. Third, we increased our savings plan during Q3, expanded it from EUR 170 million to EUR 140 million. To be clear, we continue to maintain our targeted level of investment in research and development, and we will be doing hiring in Q4 preparing 2021. We have outlined in our press release and presentation our guidance framework for Q4 and 2020. Wrapping up, let me say that we look forward to speaking with many of you at our virtual Capital Markets Day scheduled next month on November 17, and we will be beginning at 2:00 p.m. Paris time. I think that's it for me. Bernard and I would like now to take and maybe answer your questions.

[Operator Instructions] The first question from the line of Neil Steer from Redburn.

Sorry, I just got a couple of quick questions, if I may, Bernard and Pascal. Firstly, on the services revenue, you obviously spoke earlier on today about reallocating some of the resources to work with your strategic partners. Can you give us a sense of how many individuals or headcount were involved in that? It looks as though if we were to assume, for example, that the Medidata services were not significantly part of that, it looks as though the underlying services revenue were something in the range of sort of 35%, 40%. And is that the correct calculation? Can you roughly quantify the headcount involved?

Neil, Pascal speaking. Again, we have almost 300 people on the bench right now over the more than 2,000 people we have. So clearly, not all of them are allocated to the -- to support the strategic partners, but at least more than half of them.

Okay. And just a couple of other quick ones. The gross margin in software or products overall, just above 90%, was the lowest cycle I remember for some while. Can you comment on the pricing dynamic as you've gone through the third quarter? And any perhaps discounting that you may have decided to do? And then the final question is on the other items in the P&L, which I presume is sort of a collection of exceptional items, EUR 17 million in Q3, now just below EUR 50 million for the year-to-date. Can you just give us a rough breakdown of what those expenditures were for, including any restructuring, and where you think that line item may be for the full year?

Okay. Related to the gross margin, I mean there is no conditions with this [ consolidation ]. I can testify that on the contrary, when it's the tough time, we try to keep the price at the level it should be. The reason maybe you perceive the gross margin being probably slightly below is because the percentage of the revenue coming from the cloud is higher, and it's specifically due to Medidata. That's probably the reason why you have this perception. Related to the second question, not sure if I understand, Neil, what is behind the question you have.

So I'm just trying to get a feel for an understanding of what proportion of those charges were sort of restructuring-related and where possibly whether that's it for the year or whether those actions will increase or continue as we go into the fourth quarter.

So right now, we did not restructure. I mean that's a commitment we took at the beginning of the year that we will keep all the workforce we have for one single reason because this is difficult to hire people in our industry, and we want to have the muscle when the market will be back. So clearly, we do -- you should not anticipate some restructuring costs. The only thing to do, if you look at the impairment...

Okay. [indiscernible]

Yes. There is maybe 1 thing. I will explain.

[ In non-ASR. ]

I will explain. So yes, you're right. I mean it's not a restructuring. In fact, as part of the condition we are giving for the people to be retried, we offer the option for them to leave earlier. It's few years before. And as you may know, it's something which is important for us because we have to -- I mean ensure the transition from one generation to another one. So that's the reason why we have put the system in place, and it's a system we have specifically for France. So that's not a big deal. You could consider that you will still have some impact next year, probably on a limited basis because the vast majority of the program was considering being this year, and maybe we will have other candidates being digital for next year.

The next question is coming from the line of Jay Vleeschhouwer from Griffin Securities.

Bernard, Pascal and François, a few questions, as always. Pascal, let me start with you. Over the summer when we spoke, you agreed with the expectation that in 2021, 3DX would represent the majority of new PLM license revenue as you've always defined it. Is that still your expectation? And as that percentage increases and crosses the majority -- into the majority, what are the implications, if any, for margins and/or services utilization as a result of that transition? Then obviously, there's some more questions.

Okay. So let's go one by one. If you take the direct sales force, the direct revenue we do, it's already the case on the vast majority of the license growth is coming from the 3DEXPERIENCE platform. And it has been the case almost for the last 18 months. Where you have some discrepancy, to a certain extent, is for the indirect sales channel, whereby for SOLIDWORKS is just starting with a new generation of SOLIDWORKS and the PowerBy approach, which comes to connect the large towers install base with 3DEXPERIENCE platform. And you could expect this trend to accelerate in 2021 and obviously, in 2020. And for the second indirect channel, the one selling the processes, we are already -- if I remember, it's a little bit less than 1/3 of the new license just coming from the 3DEXPERIENCE platform. And the reason is because this channel is addressing the supply chain, and you still have a large V5 install base. And we are again coming with the PowerBy approach, which is a way to smooth the transition to the next generation of CATIA as well.

Okay. For you, Bernard or Pascal, let's talk about the platform in the SOLIDWORKS space, which, you've said more than once, is the highest priority or executable for the SOLIDWORKS business. The question is, what is your ambition for how large a business that might be? Right now, you're generating, if my math is right, over EUR 500 million a year in recurring revenue just for the core CAD business on a base of -- that's rapidly approaching 600,000 active seats. So assuming some kind of reasonable attach rate, I mean could you expect that the eventual platform revenues in the SOLIDWORKS space might be similar to the current base of recurring revenue just for the core CAD business?

The -- it's clear that -- first of all, the 3DEXPERIENCE platform that is connected with the -- for SOLIDWORKS users and SOLIDWORKS community, there is -- is cloud only. Only specific very large customers having multiple other Dassault Systèmes solutions might be on-premise or shortly on what we call edge cloud, which is the cloud. Most of the market with SOLIDWORKS is going to be cloud-based 3DEXPERIENCE, number one. In that context, we expect, over time, every user of SOLIDWORKS to use what we call the collaborative environment called 3D stream on the cloud. It's [ 37.5 ] per user per month for a collaborative integrated environment. It's very competitive, and we don't see any obstacles for this to become the replacement of so many unsecured tools that they might be using those days, like Dropbox and others, providing an environment where the collaborative environment is fully integrated. So that's clearly the plan. Not the dream, it's the plan. The -- and we see this happening to a point where even where there is AutoCAD there, we have customers now. So we have customers who are also sometime using AutoCAD while managing the AutoCAD data with 3DEXPERIENCE platform. We have plug-ins for that. So the second aspect is the expansion with new roles, not new capabilities, new roles, new meter, if you will. We have seen a high interest with SIMULIAworks with ENOVIAworks that was referred in our presentation this morning work for SOLIDWORKS desktop users. And also, as you know, we have a full new range of portfolio, which are [ red ] portfolio is the 3DEXPERIENCE WORKS is the experience of SOLIDWORKS, namely 3D Creator, 3D shape and others, which are really native to the platform, which means web-based, mobile-based, providing a comprehensive environment for all this powerful community of desktop SOLIDWORKS users. So I think we've built a quite elegant growth path for the vibrant SOLIDWORKS desktop user community. And I will also -- last with a remark -- conclude with a remark, which is the following: a number of start-ups in the experience labs on -- in the new start-ups in new categories of companies are also adopting natively the 3DEXPERIENCE. So we see this as becoming mainstream. And it's not at all the downsizing of large-scale customer. The 3DEXPERIENCE platform on the cloud with mobile provide a very affordable, efficient environment for collaboration with data awareness and semantic one is basically to be short. So it's core. It's very core to the idea of SOLIDWORKS. It's sort of high year-on-year. SOLIDWORKS now is building all the future product portfolio natively on the 3DEXPERIENCE platform itself.

A couple of last questions. Late in the quarter, this is a life sciences question, BIOVIA had a virtual conference, which was pretty interesting. And there were references, for example, to the adoption of 3DX in life sciences and even the application of general design to pharma development. So that was interesting. The question is, can you update us on the coordination internally within DS among BIOVIA, Medidata, SIMULIA and DELMIA, that's something you spoke of last year here in New York at the meeting? And then perhaps my final question on cloud, you spoke this morning in the morning webcast about how DS would be reprofiling or the profile of DS would change. In the context of cloud or cloud infrastructure, how large or much larger do you think your infrastructure might be over the next number of years? So today, the DS verticalized cloud infrastructure is X. Where would you be 2, 3, 4 years from now in terms of multiple of X for your infrastructure?

Well, first of all, the 3DEXPERIENCE is architected for cloud first on mobile and then made available on-premise of what we call cloud on the edge dedicated to customers. That's the case for everything we do. The 3DEXPERIENCE platform is not a PDM platform. It's a collaborative platform that integrates community conversation, 3D ways to understand and navigate things. It's very complementary to the old way of doing PDM processes. It's really the base for everything we do. So all the BIOVIA platform solution or the DELMIA platform, Apriso and all, are going to be native 3DEXPERIENCE or on the edge connected, what we call PowerBy. When it comes to Medidata, it's a data platform at first. It's not a modeling platform. So we are connecting the data platform of Medidata with the modeling platform and simulation platform of 3DEXPERIENCE. And we think this is relatively easy to do. And finally, because of cybersecurity, we believe we will not -- we will continue to have a cloud environment, which is going to be absolutely verticalized for the application we offer for the solutions, process and roles we offer. I don't believe cybersecurity will be solved with horizontal platform. So in our world, for what we do, which is mission-critical for so many companies, it's going to be a full vertical integration using our own infrastructure or in the current situation, for the time being, Amazon as a complementary environment. But we would have also edge cloud, which means cloud managed by us and run inside customers' environment for security reason, but we will not delegate the administration of the SLA. It will be provided directly to customers because the nature of customers we have acquired that. And I don't think many of them will never be solving the cybersecurity without this kind of approach, which we think is very differentiating.

Next question is coming from the line of Jason Celino from KeyBanc Capital Markets.

Bernard, when you mentioned the SIMULIAworks and ENOVIAworks for the desktop SOLIDWORKS users, it seems like you're getting some good interest here. What were those type of customers using before on the simulation and maybe the PLM side? Or what type of customers are you targeting for these?

Well, thank you very much for this question. I think it's a very good question to understand the dynamic. Basically, today, it's not easy for SOLIDWORKS desktop customer -- user, sorry, or customer, but user to really integrate all simulation-specific, desktop-based environment. So what we have decided with the team is that everything related to simulation to collaboration to project management, ENOVIAworks, SIMULIAworks for simulation, will be cloud-based only. So the way it works is you subscribe to a 3DEXPERIENCE environment. You buy online a role for simulation. And when you want to simulate SOLIDWORKS' design data, you just upload the data and run the simulation. So it's not the opposite. It's you upload, run, get the result and keep going. And that's the way we're going. So more and more, we see desktop users using online SaaS service to do things in an easy way that are otherwise quite complex for them to do. They need to have interfaces. They need to do configuration management. They usually don't know how to do it. And file is not easy for that. So all the SOLIDWORKS base of desktop customer are going to be offered SaaS-based, native 3DEXPERIENCE services that can consume and swallow design-based SOLIDWORKS desktop to do all those things: collaboration, project management, simulation.

Great. One more from me. The comment at the beginning and -- no one has discussed on the call earlier this morning, the comment of a slower-than-expected recovery, I think -- at least maybe not returning to normal for the end of Q4. But relative to the Q4 software guidance, what products or geographies are you seeing at this more moderated pace?

Pascal, do you...

Okay. So I was convinced that I almost answered the question this morning, but I will do it again. So if you look at the trends against in Asia, almost in -- at least, for sure in China, in the Asia Pacific South and, to a certain extent, Korea, we see the recovery. And I mean in China, we are almost -- we expect to be at the end of the year almost where we used to be before the crisis. That's not true for India, clearly, where they are still in lockdown, and we will suffer until the end of the year. In Europe, Europe is split in 2 different pieces. The south part is really improving significantly the situation. We suffered a lot in Italy and Spain as well as France, by the way, in Q2. Q3 has been much better. The north of Europe, we were less impacted in Q2. And to a certain extent, the performance is okay for Q3 compared to the situations. And we are a little bit -- I mean the softness is coming from Germany. And specifically because in the Transportation & Mobility, the supply chain has been very impacted by the drop of the volume. This is really where the containment is coming. Russia is going well, by the way, in Europe. And Americas is almost like Asia. LatAm is really suffering, and we do not expect to have a recovery in Q4. And Americas, the U.S. has been almost in, the same position that Europe in Q2. So the vast majority of the states were in lockdown. And we opened -- we hope to see the site reopening in many states starting Q4. So that's probably where we have some hopes compared to Q3.

Next question is coming from the line of Stefan Slowinski from Exane BNP Paribas.

Yes. Just a follow-up. I guess, firstly, on that question, Pascal, just around the macro environment and that shift that you saw in the services strategy that took place during the quarter. I'm just kind of wondering, what kind of happened during the quarter? Because at the end of July, you guided for services to be up to 10% and then it ended being down 15%. And it sounds like a lot of that was a proactive change in your approach to the market. That must have been in reaction to something that changed in the demand environment. So was it just a question of you kind of got into August and maybe early September, and things just weren't improving as much as you expected? And then as we look to Q4, obviously, you've maintained a cautious view on Q4 and aren't really seeing a significant improvement. But you're saying that this kind of new flexible approach towards services won't extend beyond December. So does that mean you have some visibility in terms of spending starting in January from some of your large customers and that's what gives you some of that confidence that, that won't extend beyond the end of the year? I'm just trying to get an understanding of the cadence of what you've seen in terms of those demand trends. And then as a second question to Bernard, just to complement what you were saying earlier, I was just wondering if you could give us any update on the progress in DELMIAWORKS. What are you seeing successful? What types of customers? And how do you see the competitive environment for that product more specifically?

Thank you. Pascal?

Okay. So the -- in fact, you have two questions related to the services. Why, between what we say in August and what we are presenting today we have a difference, is because in between Bernard and I, we took the decision to support some strategic project we have. We have people on the bench. I think it's much better for them to be allocated to the customer. It's a valuable resources. Many of our customers are suffering right now. And I think it would have been a mistake not to do it. One because, on one hand, we are reinforcing the customer relationship with them. We are loyal to them. And two, because the services person, the best is for them to continue to work and to deliver what they are supposed to do. I mean this is the way they keep their knowledge and their skills. So I think conscientiously, we took the decisions to do it also because we know how to absorb these costs without having the revenue in front of. The idea we have and probably the reason you are questioning the timing is because in August, usually, we start to think about 2021. We are not waiting December to think about it. And at that time, we say, okay, what are -- what will be the growth drivers for 2021? And it became very obvious that the long-term partnership we have with those customers deploying massively the 3DEXPERIENCE platform will be one of the lever for 2021. And we wanted to preserve this. That's the reason of the timing. Nothing changed in term of really the economic environment. And the last point which I commented this morning maybe is the new signing. It's -- we have to wait the end of the quarter to understand the consequences on new timing and especially for the short projects, the one we do usually in the months, at least in a quarter. And we see some decrease here. That's probably the only point where we -- was not fully anticipated at that time. Now do we expect to continue to have the same strategy in 2021? No. And why we have a different view is because we have seen the license. Even if we are not back to the normal, but the situation improved significantly. And the revenue is interestingly linked to the license growth, at least for the services. So if you correlate the 2, we are at 29% -- we are minus 21% organic growth for Q3, which was almost the organic growth we had -- decrease we had in H1 for the license. So we have roughly, usually, 1 or 2 quarter lag time between the 2. That's the reason why, Stefan, we are moving along those lines for 2021.

Related to the DELMIAWORKS, first of all, I think we continue to be convinced that it was the right move. We have seen -- we better understand how the categories of companies where the SOLIDWORKS, DELMIAWORKS association brings significant value. And we are focusing on these things, especially in plastic. Every company is doing modeling -- design modeling in production of plastic equipment. And there are a lot of those midsized and high/midsized companies. So we have seen good results. I don't have in mind, Pascal, about the results for Q3, specifically...

For DELMIAWORKS, plus 6%.

Plus 6%, which for a sector of the economy, which are those small, midsized companies, be suffering in many, many areas of the world. We thought that, well, it's not double digit, but it's not bad. It's an increase of 6%. And we are increasing the quality of engagement with the team so they can target the right customers and provide quickly the value. So I still think very positively about the fact that this is bringing quite interesting ERP functionalities on EMS -- sorry, MES functionality to those size of companies, which is why we cannot afford existing expensive systems.

Next question is coming -- sorry, there's no more question at the moment. [Operator Instructions]

Okay. So maybe we...

We have no more questions.

No more question?

No more.

No more. Okay. No more. Thank you very much all of you. I know that the explanation this morning on the calls were very, very well attended and the presentation. Thank you. We are always there for you to open with high level of integrity to the concerns or questions you have. We are committed for long-term, stable, resilient businesses. This is what we do. And I think our customers love it. So that's the way we are going to continue. Thank you very much and have a good day.