Dassault Systèmes SE (DSY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to today's Dassault Systèmes 2021 Q3 Earnings Investors Call. [Operator Instructions] I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your first speaker, François-José Bordonado. Please go ahead, sir.

Thank you, Valerie. Thank you for joining us on our third quarter 2021 earnings conference call with Bernard Charles, Vice Chairman and CEO; and Pascal Daloz, Chief Operating Officer and CFO. May I remind you that Dassault Systèmes results are prepared in accordance with IFRS, that most of the financial figures discussed on this conference call are on a non-IFRS basis with revenue growth rates in constant currencies, unless otherwise noted. And that 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 2020 Universal Registration Document. All earnings materials are available on our website, and these prepared remarks will be available shortly after this call. I would now like to introduce Bernard Charles.

Good morning and good afternoon. It's a pleasure to be with you all today. And as you may notice, we are pleased with our third quarter results. Our team executed well, leveraging continued positive business momentum across geographies and industries. Earnings per share rose 40% in constant currency, thanks to robust revenue growth and high profitability. Total revenue increased 12% organically, with licenses and other revenue up 24%, well above our guidance. This is reflecting double-digit growth in our core industrial market on Life Sciences. We also benefited from continued acceleration of 3DEXPERIENCE on cloud adoption. Year-to-date, 3DEXPERIENCE software revenue grew 18% with licenses and other revenue up 36%, and cloud revenue increased 24%. We raised our full year guidance, capturing the incremental earnings upside from the third quarter. Pascal will discuss our financial performance in more detail. And now I'd like to share some perspective on our strategy and progress in the business environment. Each quarter we connect our achievement to our purpose, harmonized product, nature and life. Our strategic ambition is to become the world's #1 partner for re-inventing a sustainable economy. Virtual technology was indeed born for sustainability. It was first used in industry for virtual prototyping in some way for doing things right first time while saving materials and resources, capitalizing knowledge as well as know-how on improving environmental handprints. The greatest power of the virtual world lies on unleashing imagination, in enabling people to imagine differently and growing, therefore, our handprint. Sustainability is all about life cycle. We invented product life cycle management. It's about connecting the dots, offering a multi-scale, multi-discipline, holistic and inclusive approach to innovation is what we do with virtual platform, providing an inspiration for our new sustainable offerings. The 3DEXPERIENCE platform on science-based virtual twin experience are unparalleled catalysts to rationalize our eco-bill to harmonize product, nature and life, and ultimately reinvent a more sustainable economy. IFWE experience the virtual twin, we can harmonize this. And this is a very core of Dassault Systèmes. Let's illustrate the use of 3DEXPERIENCE cloud in manufacturing sector. You have noticed maybe today that we referred to low adoption of our platform and embracing the move to sustainable mobility with the announcement of the transformation called Renaulution. It's really a profound strategy on a business model transformation. It will shift from a car company working with tech to a tech company working with cars, adding revenue streams from services, data and energy and becoming a leader in the energy transition. Renault, therefore, chosen to partner with Dassault Systèmes for this important initiative. The company will employ 3DEXPERIENCE on the cloud to drive the Renaulution Virtual Twins. Virtualization of both its consumer experiences as well as the enterprise, connecting all stakeholders in its value network to enable inclusive innovation in the connect of the circular economy. This will ensure the group's sustainable profitability and maintains its path to achieve its Zero CO2 footprint commitment in Europe by 2040. By doing so, Renault is positioning itself to thrive in the new economy. The world has shift from a product economy to an experienced economy, one that values the usage over the product. The experience economy is not just about user experience, it's about the overall balance and impact of any service we provide to society. This means seeing industry as a value creation process for people, whether you are a citizen, a consumer or passion. With this in mind, we are pleased to announce a partnership with Bloom to bring social data intelligence, data on the human experience across industries, to our clients. They need it to better improve their solution. Bloom is the first artificial intelligence company dedicated to qualitative, predictive and strategic analytics of social networks. Dassault Systèmes will incorporate Bloom's proprietary social inference technology and real-world evidence into our 3DEXPERIENCE platform to afford clients and understanding of consumers, patient and citizen experiences on the ability to anticipate major technological and sociological trends. Our 3DEXPERIENCE platform connects people's lives in all dimensions. Bloom's strategic social insight will enable human-centric experience, truly game changer for our clients. We look forward to working with our new partners at Bloom. Turning now to Life Sciences. As you know, we are already a global leader. Life Sciences is transforming rapidly, putting patients at the center of the approach with precision medicine, generative therapeutics, decentralized clinical trial and synthetic control arms. Our technologies are unmatched in accelerating these key trends, which improve passion outcomes. Earlier this month, our Medidata NEXT conference drew a record number of participants. We see significant technological advances with our Medidata Rave platform that have the ability to create multi-dimension views of passion, incorporating data from sensors, wearables, electronic medical records and other sources. This represents the next step in the evolution of our clinical trial data is captured and monitored. So we continue to deliver game-changing innovation in the sector. During NEXT 2021, we featured a number of successful partnership, including Amgen, Boston Scientific, Labcorp, Moderna and Medicenna. We encourage you to visit our website to hear their amazing stories. Now let's turn our attention to some of the Life Sciences partnership we established during the third quarter. RHO is a privately held contract research organization, we call them CROs, with 35-year track record as a trusted partner to leading drug development companies. RHO has a selected Medidata's decentralized clinical trial technology to attract and win more sponsor bids, reduce study build time and cost, and streamline real-time visibility into patient data and quality. The promise of decentralized clinical trial to deliver better patient experience, democratize access and accelerate drug development have established them as the new standard in research. Medidata is changing the game as the first company to offer decentralizing capabilities for both patient participation and study quality. Another example in medical device, we are working with company enabling patient-centric approach. MGI Tech is a China-based leading manufacturer of genome sequencing instruments and other products supporting precision medicine. MGI has chosen to leverage our license to cure for medical device solutions on our 3DEXPERIENCE platform. This is an end-to-end solution to integrate a full framework and optimize quality, regulatory requirement and patient experience, therefore, reducing cost and time to market. By progressing from things to life, the core part of our strategy and mission to really realize the harmonization we aim at doing. We believe we are entering truly in an industry renaissance for Life Sciences. Together we have significant opportunity to impact patients and drive meaningful change for health care. Coming back to the manufacturing industry. We need to think beyond optimization to usages and reconsider their portfolio of products and services, including raw materials as well as engineering in context of waste reduction and circular economy. Therefore, new design is essential, and we believe this will transform the entire industry. A few examples related to optimization of logistic planning and scheduling. BMW, a longtime partner of Dassault Systèmes, is taking a holistic view of sustainability. Recently, at the International Mobility show in Munich, BMW focused on the circular economy with its rethink, reduce, reuse, recycle approach. The company announced its goal to rapidly put in place the most sustainable supply chain in the whole of the automotive industry. To achieve this, BMW is using our DELMIA Quintiq virtual environment. It synchronizes demand from vehicle plants for components and increases productivity, while reducing inventory and cost. This enables BMW to address materials procurement, supply chains and social responsibility to benefit the global community as a whole as well as its employees. Another example is Hexcel, a global leader in advanced composite technology that supports customers in the commercial aerospace, space and defense, and industrial markets to make products using lighter, yet stronger materials. Lighter means less fuel is required, resulting in less impact on the global environment. The company's products also reduced noise pollution and help produce clean and renewable energy. Hexcel has also selected DELMIA Quintiq technology to a platform for sales and operation planning and master production scheduling to support its effort to deliver advanced sustainable materials. In Infrastructure & Cities, we are disrupting the market. Airbus has been a valued partner for over 20 years. We are very pleased to announce a truly game-changing endeavor that will help solve global challenges and improve life on earth. Using its own space imagery, Airbus will employ Dassault Systèmes virtual twin experience, powered by our 3DEXPERIENCE platform to create a virtual twin of the Earth. Airbus plan to use 3DEXPERIENCE to provide space imagery in the context of the Space Data Marketplace, a project funded by a consortium, including Dassault Systèmes. Creating a virtual twin of the earth will benefit the space economy as it seeks to grow with sustainability at the forefront, including manufacturing space. It will also have positive sustainability use cases across other sectors and industries, including fighting, of course, deforestation, land use and planning, security -- securing the food supply and measuring climate impact. We look forward to hearing more from Airbus about this exciting initiative in the future, of course. In the new space arena, companies are revolutionizing the market with sustainable experience such as reusable launches. A lot of them are already great customers. Expanded lifespan satellites on even life on other planets. Our technology are changing and opening new possibilities from that perspective. A good example is in Interstellar Lab. This Franco-American company building BioPods that support sustainable living on Earth and in space by generating on recycling food, water and air. Interstellar Lab is leveraging our solution, Reinvent The Sky on our 3DEXPERIENCE platform, which is used with the virtual twins to simulate, test and optimize the performance of its BioPod's domes and biological systems. We are at the cusp of new era in global space with a $450 billion economy with significant implication for citizen and consumers. We look forward to enabling disruptive companies with virtual twin experiences and critical technology to enable and accelerate concept to certification. For additional proof points on the imperative for sustainability, a recent financial time survey involving 300 executives found that 36% of executives are considering how to start integrating sustainability into product development. Technology departments have made sustainable innovation, a priority in 68% of cases. In our earnings presentation, we featured several examples of our clients, including Bouygues, Deutsche Lichtmiete, Metsä Board and Torres are using our technology to walk the talk when it comes to sustainability. In summary, the stories I've shared with you today demonstrate the many ways in which our clients are reimagining all aspects of business in the context of sustainability and the circular economy. There are also the global commitment of the Paris Agreement to be considered. According to COP26, 70% of the world's economy has committed to reaching net zero emission. More than 80% of the countries have updated their NDCs and all G7 countries have announced NDCs target to achieve net zero emission by 2050. Our strategic objective is to become a critical partner to the world, enabling countries and citizens to achieve this commitment and reinvent a sustainable economy through extending our handprint and positive impact. Clearly, virtual universes, powered by the 3DEXPERIENCE platform are the tool, not only for our clients, but for all stakeholders to enable, to design, test, imagine radically new materials products, manufacturing process for tomorrow's sustainable economy. To be able to do so at the fastest possible speed. While in addition, we experienced the change and embed significantly into everything we do. We shared with you last quarter the importance of Science Based Target initiatives, SBTi. Approved our ambitious greenhouse gas emission targets, thus reducing our footprint. So we need to work the talk also for our own company. At Dassault Systèmes, sustainability goes with innovation and is at the core of what we do with the 3DEXPERIENCE platform and industry solution. I think together we can make the difference with our clients from that standpoint. And now Pascal, you have the floor to kind of run the numbers.

Thank you, Bernard. Hi, everyone, and I hope you are doing well, and thank you for joining us today. Turning to our financial performance, we delivered strong third quarter results, thanks to a broad-based growth across the geo product lines and the industry. Let's start with the top line, the year-over-year comparisons. First, total revenue grew organically 12% to EUR 1.160 billion, gear to the top of our 10% to 13% range. Software grew 11%. Driven by licenses and other revenue, which grew by 24% to EUR 208.3 million, well above the guidance. Subscription and support revenue increased 8%, driven by the high double-digit subscription growth, reflecting strong Medidata and 3DEXPERIENCE sales. Recurring revenue represents today 80% of the total software revenue. Services revenue was up 19%, driven by the large 3DEXPERIENCE projects, and we achieved services gross margin of 20%, substantially better than last year, thanks to the efforts we made in 2020 to preserve the margin in the phase of the pandemic. And at the same time, preserving also the deployment of our largest customers. From a profitability standpoint, we delivered significant outperformance in operating margin and earnings per share. This was driven by revenue at the high end of guidance, strong operational execution and the continuation of the pandemic-related expense and headcount tailwind we discussed last quarter. Our operating margin expanded 560 basis points to 33.8% versus the midpoint of our guidance of 29.15%, an overall performance of 465 basis points. EPS grew 40% in constant currency as reported to EUR 0.22 compared to our guidance of 13% to 19%. Head count. This quarter, we saw strong hiring activity, up more than 2x compared to Q1, resulting in a 2% overall headcount increase driven by research and development, up 4%. I think we have the track record recording of delivering transformation innovation and in the context of the mission-driven culture. While attrition remained elevated, we are confident in our ability to attract and retain top talent in the mid- to long term, and this is a top priority for Q4, but also for the beginning of next year. Turning now to the software revenue by geography. The Americas grew 12% during the third quarter, benefiting from strong performance in Life Sciences and Healthcare, but also aerospace and consumer packaged goods. On a year-to-date basis, the Americas represented 38% of the total software revenue. Europe increased by 9%, led by Northern Europe and France. Germany rebounded during the quarter, specifically driven by the auto supply chain. And on a year-to-year basis, Europe represents 36% of the revenue. Asia rose 13% with India and Japan rebounding during the quarter. China grew 8% on the back of a strong year-over-year comparisons. And year-to-date, Asia represents 26% of the revenue. Now let's zoom on the product line performance. Industrial innovation software revenue rose 8% to EUR 555.3 million. SIMULIA and DELMIA performed extremely well, thanks in part to the large client wins we did recently, but also this quarter. CATIA license revenue was up double digits, while ENOVIA experienced a strong subscription growth. In Life Sciences software, revenue totaled to EUR 226.5 million, an increase of 19%. Medidata continued to experience strong momentum across its different product portfolio, including Medidata Rave, Medidata Acorn AI and Medidata patient cloud as well as across end markets, including the pharmaceutical and biotech company, the contract research organizations, and also the medical device company, where we signed a new enterprise platform deal with 1 of the top 10 med-device companies. We also saw a high double-digit growth in the attach rate, and this is extremely important, because it's a way to leverage the large installed base we have been able to build over the time. In summary, the Life Sciences industry is transforming rapidly, adopting decentralized trials and AI-based analytics, using Medidata's unique data science capability as it was shown and demonstrated a testimonial during the NEXT conference this month. In Mainstream Innovation, software revenue rose 13% to EUR 262.9 million. So broad-based demand drove SOLIDWORKS software revenue growth of 12%. And on the back, if you remember, on the relatively stronger comparisons, as the recovery started in Q3 last year. So we continue to see a good adoption of our 3DEXPERIENCE WORKS family cloud-based solutions during the quarter. Zooming on Centric PLM, they executed extremely well again this quarter, reaching the milestone of 500 clients, more than 2,000 brands, and this is driving a high double-digit increase in software revenue, I should say, close to the triple-digit. Adding some color on industry. During this quarter, we saw a very positive and growth-based dynamics in the key industry. And the vast majority of our high-end markets grew double digits, including core manufacturing industries such as Transportation & Mobility, Aerospace & Defense and Industrial Equipment, just to highlight a few. Now let's turn to our key growth strategy, 3DEXPERIENCE and Cloud, and how we are progressing relatively to the objective we lay out during our 2020 Capital Market Day. Year-to-date, 3DEXPERIENCE software revenue grew 18% with license and other revenue up 36% to now account for 28% of the total software revenue, which is an increase of 3 points relative to last year. The strong value proposal of our 3DEXPERIENCE has been the key factors in driving the client wins. Cloud, the year-to-date cloud software revenue is now representing 20% of the total software revenue, plus one point compared to last year, and increased by 24%, driven by continued strength in Life Sciences, but also in 3DEXPERIENCE cloud. We are focused on supporting customers as they adopt the new business model, and they are coming to us in order to accelerate innovation cycles, speed up execution and drive business transformation, all centered on improving value and experience for users and customers. Our strategy for the cloud is to enhance this transformation through cloud-native applications, cloud extension to existing on-premise investment and the 3DEXPERIENCE platform with an open ecosystem. As Bernard pointed out, the Renault partnership and the momentum in the mainstream market, we see a clear proof point of our cloud strategy to enable this transformation of businesses and consumers in our core market. Turning now to cash flow and balance sheet items. The year-to-date cash flow from operation rose 24.5% relatively to last year to EUR 1.250 billion, which is almost equivalent of what we did last year for the full year. Our net financial debt position on end of September decreased by EUR 850 million, and now it represents debt net to EUR 1.200 billion and putting us on pace to reach our delivery goal well ahead of schedule almost a year before. Now zooming in our 2021 financial objectives. We are raising our fiscal year 2021 revenue growth objective range from EUR 4.745 billion to EUR 4.790 billion to EUR 4.800 billion to EUR 4.825 billion, representing an increase of 10% to 11% in constant currency. We are also raising our EPS objective range from EUR 0.99 (sic) [ EUR 0.89 ] to EUR 0.91 to EUR 0.94 to EUR 0.95 or a growth of 25% to 27%. We expect operating margin in a range of 34% to 34.1% versus 32.7% to 33.1% previously. We expect the expense and headcount tailwind we have experienced this year to dissipate in the coming quarter. As we have started to resume travel, increase sales and marketing spend and accelerate the net gain in hiring in the key areas across the globe. Our updated guidance captures the incremental earnings upside from the third quarter and increased revenue visibility while expenses remain unchanged. You will find more details about our full year objectives as well as the fourth quarter guidance in our earnings press release and presentations. In conclusion, I think we are encouraged to see the vast majority of our end markets growing in double digits this quarter, particularly on our core manufacturing industries. It was also great to see certain countries like India, hard hit by the pandemic stage on a comeback this quarter. Two, the client imperatives of virtual twin experience inclusiveness by way of platformization and the cloud as well as sustainability are accelerating. We view this as a secular driver for the next decade. Three, our strategy is really to enable these imperatives and our 3DEXPERIENCE platform, powering virtual twin experience, is a competitive advantage as it connects IDs, people and data on a common architecture and a common framework. Our commitment to drive clients, our strategy is real, and we thank them for their continued trust this quarter. Lastly, we hope to resume in-person meetings with the investment community in the coming months, and we look forward to seeing you very soon. So I think Bernard and I would like now to take and answer your questions.

[Operator Instructions] And your first question comes from the line of Jay Vleeschhouwer with Griffin Securities.

Pascal, since you spoke about headcount and hiring, why don't we start with that subject. When we look at your jobs data, there's some interesting trends in terms of where you're setting priorities. At the product level, for example, there has been a significant increase. It would seem in positions having to do with DELMIA, and perhaps you could talk about that. Also, it looks as though your sales openings are now well above where they were pre-pandemic. Not surprisingly, you have a lot of positions related to cloud. And then lastly, within Medidata, there seems to be substantially more momentum in terms of sales hiring than R&D hiring within Medidata. So perhaps, you could talk about some of those internal priorities, vis-a-vis hiring and then a few other questions.

Okay, Jay. So as usual, you have scrutinized our website. But I will make -- I will give some highlights because we are keeping good points. So you are right. I mean we see a lot of demand for the -- on the manufacturing side. And as you may know, it's a domain expertise by itself, but it has to be crossed also with industry expertise. So this is one of the competitive advantage we have. And especially North America, where we are seeing a lot of momentum and we have a lot of open positions in this domain. Related to the sales opening positions, again, that's also true, especially North America, but also in Asia. Why so? Because again, we are diversifying the domain. We are diversifying the industry we serve. We are also -- you know you have -- I'm sure you noticed signing larger contract, and we need also to reinforce some of the existing sales teams we have. And that's also the reason why we are opening significantly sales position right now. Medidata, I think there are few things we should say. First of all, Medidata invested a lot in research and development in the past. And if you remember, before the acquisition, I mean it was mainly [ handy ] machine, I should say. Now we are rebalancing. Why so? Because on one hand, on research and development, we are leveraging the rest of Dassault Systèmes, especially the capacity we have in India, which is a tremendous advantage to complement the core development teams we have with Medidata in New York and also in London. And also because the goal for the sales team of Medidata right now, it's not anymore to promote only the Medidata solutions, but all the solution of Dassault Systèmes dedicated for Life Sciences. And we need to reinforce to mix different type of profile, also to be probably more transformational and probably less transactional, which is a different setup. And that's the reason why you have a significant request or offers to join the Medidata on the sell side. But good catch from Jay.

Okay. With regard to cloud, when we break down those percentages into revenue, there's also an interesting trend there where it looks as though for the year-to-date, including the quarter, about half of your year-over-year increase in cloud revenue was from products other than Medidata. So Medidata half -- maybe slightly more than half will be revenue increase in cloud, but then everything else. So maybe if you could talk about those other components of non-Medidata cloudy revenue growth? And then secondarily, when we began the year, DS expected that 3DX would account for the majority of your new license revenue as you define it. You're about 36% year-to-date. So it would seem you're not necessarily going to hit that objective of the majority of your license revenue coming from 3DX. And so perhaps, you could talk about that and perhaps, you would look at 2022 as perhaps the year in which it becomes the majority.

Let's start with the second part of the question. And if, Bernard, wants to say a few words about the cloud, you're more than welcome. So on the 3DEXPERIENCE platform, you missed one point, which is important, Jay. My goal -- our goal is to have the vast majority of the license coming from direct sales to be 3DEXPERIENCE base, but that's a different challenge for the indirect sales. Why so? Because you know that the vast majority of the SOLIDWORKS [ software ] are still promoting the SOLIDWORKS desktop solutions and it took time. Now we have the solutions. They have been enabled. We have changed also the incentive for them to make -- to be probably much more incentivized on 3DEXPERIENCE platform related applications and only the traditional SOLIDWORKS desktop. And in countries like China, when we hire a lot of new partner recently, we are already there. I mean just China by itself, they signed more than 200 new customers this quarter on the cloud with a new generation of SOLIDWORKS being web-based. So that's the first part of the answer. The second one is also related to the second indirect channels we have, called process engagement. They are reselling the vast majority of the PLM solutions, and they are tackling specifically the supply chain of the auto and aerospace sector. And for them, you still have programs running with V5, and you still need to continue -- they still need to have some additional V5 license. That's the reason why the balance is not 100%. But if I look -- if I step back a little bit and I look at what was the percentage of the mix before the pandemic, we were -- the V5 was still representing 60% and now it's the opposite. V5 represent less than 30 -- between 33%, 34%, and the rest is 3DEXPERIENCE platform. So I think we are really walking the talk, and we are sticking to the plan, which is exactly the one you just described, but it's not 100% today, you are right. The Cloud -- you want me to -- and you could come back if you have additional question related to 3DEXPERIENCE platform. But the cloud, I think it's a very good point, which is half of the growth is coming from product solution, which is outside of the Medidata scope, which is a proof that it's not the only one driving the growth. So what are those product lines we are talking about. The first one is Centric PLM, which is overly cloud-based. And the vast majority of the customers, they like to have a cloud-based solutions. The second one is really all the new industries such as construction, consumer goods, consumer packaged goods are the ones having almost no legacy solutions, and they start day one with cloud solutions. And third, you also have all the newcomers like all the EV guys, all the guys developing the new signed objects. They are also starting day 1 with all the cloud solution we have. And last but not least, Renault is a good example. Renault is really -- we renewed the contract with them for the next 5 years. And at the end of the 5 years, 100% of the 3DEXPERIENCE users will be on the cloud. So it's a lot of people, and we are talking about more than 20,000 people. So my point is, we are again -- we are sticking to the plan. The plan is to have 1/3 of the revenue in 2025 coming from the cloud solution, and I think we are right on the path to make it happen.

Okay. And lastly, if I may, on SOLIDWORKS. My calculation, looking at the results for the quarter is that new SOLIDWORKS commercial licenses were about 17,000, up a few percent year-over-year, but down from Q2. And we reported those 12% growth for SOLIDWORKS. So I'm wondering if perhaps you saw either an ARPU increase score CAD seats and/or significant growth in other non-CAD parts of the business to get to that 12% total growth.

The ARPU is growing, and you know it's mainly coming from the fact that we have different solutions, but vast majority of the customers are selecting the most complete configuration of the software. So this is point number one. And point number two, I think related to the number of license, it's a little bit higher. So it's a little bit more than the numbers you computed.

And your next question comes from the line of Neil Steer of Redburn.

Jay just asked a couple of my questions, but just one other. Over the course of the last few quarters when you've referenced recruitment in [ Dassault ], North America seems to come up quite a lot as an area where you would have liked to have done more, but you haven't been able, both on the sales side and on the technical side. And I'm just wondering, is there some sort of a structural challenge that you're facing, specifically within the North American market on recruitment?

No, no, I don't think so, Neil. There are a few things you need to consider. You remember one thing, the vast majority of the people we have on the sales side in North America are coming from IBM, right? And the rest is coming specifically from the acquisition we did a long time ago, the MatrixOne. This is the core. Why I'm saying that? Because the guy coming from IBM are -- for some of them close to be retired, and we are progressively replacing them by a different profile either in terms of generation, but also in terms of set of skills because we are diversifying also in new domain, and we want to have the full coverage. That's the reason why maybe you see more request in North America than in the Rest of the World. The second thing is, if you look at North America, the direct sales represent 50% of the revenue, which is not the case in the other geo. We are much more balanced between the different channels. So due to that, also you have -- we are oversized, if you want the request for the salespeople in this region of the world. Last but not least, we have some attrition. This is true, but I think it's not at a point where it's a real issue. I think the real issue maybe we have, we are probably taking too much time to hire people, and that's the topic on which I'm working with Eric Weber, the Geo MD of these regions because we need to accelerate and to be able to onboard the newcomers much more rapidly. And lastly, Neil, I think we did something great. We partner with University, and we have a program in place to hire fresh graduates coming from the university. And we have developed for them a journey, whereby after 2 to 3 years, they are becoming salespeople in some domain where it's difficult to find the skills. So that's also another initiative we launched.

Okay. A slightly unfair question, but one of your competitors, or your largest competitor [ Siemens ] the last year or so have made a great thing about their expansion and their growth in EDA, which they see as sort of the fastest growth area of the market. How do you sort of see that challenge yourself? Do you think you need to have more capabilities with EDA and be able to match the market growth opportunity that they're highlighting there?

I don't think so. I think it's a different -- we are not a point solution. We are focusing on global platformization of the industry.

Neil, there are few things. For the EDA market, we prefer to partner. There are multiple reasons for that. One is, you look at the semiconductor industry, it's heavily concentrated, right? And the value we bring is not the design tool, it's the IP management capabilities, which is really our core differentiation. And I think if you look at the top 30 semiconductors company, we are by far the leaders.

The industries are considering EDA as a small piece of a more comprehensive issue, which is the system view of the installations. And the system view for us is the priority, being able to have a full holistic multi-scale system approach, and this is where we see the future of the core business for integration of electronics, software and mechanical system. For example, whether you are in medtech or in smart new products, morbidities, whatever you name them, this is where the real challenge for our customers are. And therefore, the platform for system integration, configuration on life cycle management is significantly important to them. And this is an arbitration we did to make sure we focus on the right priorities for other clients.

Your next question comes from the line of Jason Celino of KeyBanc Capital.

So I think you mentioned a couple of large deal wins for SIMULIA and ENOVIA this quarter, but my question is about general large deal activity. I'm curious, how is it tracking in terms of sales cycles pipeline? Is it improving about the same? And then how do you feel about Q4 when we typically see more of these large deal type deals?

The good point. We see the return of the large deal in the pipeline definitively Renault is a good example. We announced GLR early this year. So clearly, we are seeing those margins coming again. Now for Q4, we have some, but I will say, you noticed that we have been able to deliver higher than the guidance, especially on new license almost every quarter since the beginning of the year. So I think we are already seeing some part of it. However, for, I would say, next year, we have an interesting one. We have clearly reengaged with many of our large customers and also new one on the longer reasons. Before the pandemic -- I mean the first 6 months of the pandemic, the view was almost only 6 months. People that were looking for very tactical solutions, having short return over investment, now the conversation is much more oriented towards the transformation, as Bernard said in his introduction, the challenges related to sustainability, to the experience economy is such that they have to take decision and take radical decisions to -- in terms of investments. And in many of them, we are one of their top priorities. So I would say, the situation is improving compared to where it used to be a year ago, definitively.

Okay. Excellent. No, that's quite helpful. And then maybe one more, if I can. When we think about the strong growth that we're seeing in Medidata, could you characterize as just broader industry tailwinds versus share gains or wallet share gains.

It's both, in fact. If you look at in terms of new customers, we did a gain almost 20%, 22% more customers this year. So we are close to 2,000. At the time of the acquisition, it was around 1,200. So it's a significant. And as you may know, the Life Sciences sector, especially the pharma sector is relatively concentrated. So that's point number one. Point number two, and it's really -- I mean the growth is coming from the mid-market. Medidata has a significant footprint already in the large enterprises. The mid market was not properly covered, and I think the fact that we are together with them have accelerated the diversification in the mid-market outside of North America. The second thing is the CRO. As you know, the CROs is also a channel for Medidata. And especially in Asia, we are accelerating also through mixed channel and Q3 has been outstanding from this standpoint. The performance coming from the CRO is extremely high. That's for the, I would say, the coverage. Now inside the installed base, the attach rate for all the new model is significantly increasing as well. So that's also the good news. Not only Rave, the core product is growing extremely well, but all the model like CTMS, RTMS are extremely -- I mean having an extremely positive momentum. And last but not least, the 2 other new product line, if you want, which are Medidata Patient Cloud and Medidata Acorn AI are expanding and growing extremely rapidly because they are unique on the market. If you look at all the competitor we have, none of them are the equivalent. So if you do the combination of those factors, it's really a broad-based growth, and we cannot say that only, I would say, Patient Cloud is growing. It's really across all the different axis of the strategy.

Your next question comes from the line of Stefan Slowinski of Exane BNP Paribas.

Pascal, just one quick one for you. You mentioned this morning about the maintenance revenue growth rates kind of reaccelerating in Q4. And I just wanted to double check that kind of recurring revenue component ex-Medidata, which has slowed this year. I think we talked before about that reaccelerating next year back to around 8%. And just wanted to see if that was still on the cards and in line with that discussion around the maintenance rates reaccelerating to sort of 4% to 5%? So that's the first question. And then the second question maybe for Bernard. Just following up on the comments around platform and supply chain, and you highlighted the Renault relationship. And I think they're also testing or using a new Google supply chain digital twin tool. Just wondering if that's something that you're integrating with. And also how you're working with or integrating with other supply chain solutions, IoT platforms or analytics platforms? So maybe anything along the line of partnerships with other software vendors or technology vendors that are helping you deliver these new supply chain future solutions to your customers would be really interesting.

Okay. So the recurring revenue is representing 80% of the total software. And you remember, you have 2 components. You have the subscriptions and the maintenance and support. The subscription represents a little bit more than 1/3 now. And as I was telling you, it grew at 20% in Q3. And there is no reason, the trend will not continue for Q4, right? The maintenance and support represent a little bit less than 2/3. And I was mentioning, we reached the lowest point, which is 3%, because the growth is coming specifically from the new license you sold almost a year before. And just because we started to see the new license growth back Q4 last year, this will reaccelerate in the line of what I just described this morning, which is around 4% to 5% rapidly, I would say. Depending the mix next year, the maintenance could accelerate definitively. There is no -- but just because we see more and more subscriptions coming from the non-Medidata products, I should say, specifically ENOVIA and also the 3DEXPERIENCE platform. I think what cares for me now is really the growth for the recurring revenue because at the end, this is what is about. And as you know, I committed to deliver 9% organic growth. That's what is in the plan for the long-term plan. And I will not be able to achieve this organic growth. If at the end I'm not delivering at least 8% growth for the recurring part, right? So if you do the math, you will see, you will find your way.

Related to supply chain, of course, the -- first of all, I think there is a big move to -- for all industries to reevaluate their supply chain. Who is doing? What? For which value? I think the supply chain is going to move to a value chain ultimately. And we do have, in the case that you mentioned in your question about Renault, the full scope of product cost, value, supply chain integration, data science and data analytics to improve it, but there are many, many things. There are -- the basic data collection needs to be done. You mentioned IoT. In the case of MOM, Manufacturing Operations Management and manufacturing institution system, we -- you have the basic system in the shop floor that do data collection, and then we collect those data and put them in context of the virtual twin of operation of the manufacturing plant. This is where the value is, because this is how you can transform and improve your processes or your flow across the world. So really, it's a core aspect of what we do with the platform. We also -- this is what I call Experience as a Service, by the way. On -- yes, to your question about do we connect with other web services? Absolutely, yes. And in fact, it facilitates the speed at which we can exploit and provide value to customers from that standpoint. Everyone should keep in mind that when you have the vertical twin of the product on the processes and the life cycle of it. At the end, the convergence is on our platform, not anywhere else. You can do a nice data lake, but if you don't know to what you should compare your data, you don't -- you can conclude on arbitrate and that's the value. There's a difference between basically digitalization and virtualization. That's exactly what we do with Renault and many others.

Your next question comes from the line of Johannes Schaller of Deutsche Bank.

Which will be our last question.

Yes, congratulations on the good quarter. As I wanted to come back to a comment from the last conference call, I think when you said maybe the right range to think about margins for next year kind of around 32%, maybe 31.5%. It sounds to me like some of your higher rig efforts are accelerating and maybe becoming a bit more expensive. I think you mentioned salary increases, for example, in markets like India on the call this morning. In that kind of framework, does that margin number still make sense to you? Or is your OpEx may be increasing a bit more into next year? And then also, given your cloud business seems to accelerate quite a lot and the dynamics you discussed around maintenance, how should we think about mix having an impact on the margin as we go into next year?

Okay. So let's start with the second part of the question, the cloud. For us, the margin is an equivalent wherever it's a cloud or on-premise. That's very important for you to understand because there is no dilution of the margin, the more we are selling to the cloud. And one of -- and you know the reason is because we have our own infrastructure, and we control the efficiency of this infrastructure. So the margin is for us, it's not for the provider, I should say. That's point number one. Point number two, what I say, I say last time you should count that a point to a point and half will be the decrease -- the order of magnitude of the decrease of the operating margin. So today, the full year will be at 34% EBIT margin. So targeting 32.5% seem reasonable. And the reason is, there are a few things. One of them is the one you just described, but that's not the only one. It's also the fact that we want to have the people back on the road. We want again to reenergize the marketing and especially, the physical events. Does not mean everything will be physical. We will continue to do the digital things, but reconnecting with customers, with partners is becoming very important. And I do not want to miss the opportunity and the window to make it happen. So that's the reason why I think it's our best interest. We want to continue to fulfill the growth to deteriorate a little bit the operating margin next year because we need it.

Thank you very much for participating to this call. And I noticed that many of you could even attend this morning call where we had a very rich broad set of questions. So you know the record will be available, so you can take best advantage of it. And of course, we continue to be -- to stay close to you to address any of your concerns and also receive good ideas from your side to do better. With that, thank you very much and talk to you in February at least. And have a good day.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for participating, and you may now disconnect.