Dassault Systèmes SE (DSY) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Dassault Systèmes 2024 First Quarter Earnings Presentation Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Beatrix Martinez. Please go ahead.

Thank you, Nadia. Good afternoon, everyone, or good morning. This is Beatrix Martinez, Dassault Systèmes VP Head of Investor Relations. From the company, we have Pascal Daloz, CEO; and Rouven Bergmann, CFO. Thank you for joining our first quarter 2024 earnings conference call with Pascal Daloz, Chief Executive Officer; and Rouven Bergmann, Chief Financial Officer, here in London. At the end of the presentation, we will take questions from participants. And Dassault Systèmes results are prepared in accordance with IFRS. Most of the financial figures in this conference call are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise stated. For an understanding of the differences between the IFRS and the non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and the Risk Factors section in our 2023 Document d'enregistrement universel published on March 18, 2024. I will now hand it over to Pascal.

Thank you, Beatrix. Good morning, good afternoon, everyone. Thank you for joining us today. It's, as you say, Beatrix, always a pleasure to be with you here in London. Let's start first with the first quarter results. So software revenue rose by 7%, driven by the 3DEXPERIENCE, up 29%. I think we delivered an operating margin of 31.1%, slightly outperforming our profitability objectives. And thanks to the disciplined cost management. Our EPS was strong, up 12% at constant currency. In the first quarter, our 3DEXPERIENCE business delivered strong results with a significant number of top industry leader in manufacturing now on board to our platform. And they benefit from mid-science-driven approach, the integrated capabilities and obviously, the cloud flexibility. Looking ahead, we have a strong 3DEXPERIENCE pipeline, and Rouven will come back on this. In Life Sciences, we are devoted to replicating our success in other industries, providing an end-to-end platform. And this transformation lays the foundation for sustainable new source of growth. On the short term, we anticipate MEDIDATA return to growth in the second half of 2024. Therefore, supported by the 3DEXPERIENCE businesses and the good momentum and the MEDIDATA outlook, we confirm our guidance for the full year. Now let me say a few words about the vision and the strategy. As you may know, while we are rooted in the presence, we also want to make a positive impact on the world. And shaping the Generative Economy is the next step in our journey. The Generative Economy goes beyond extending the virtual twins to living organisms. It's about learning from life to adopt a net-positive way of living. And usually the way I summarizing it is by giving back to the planet and the society more than what we take for the manufacturing, for the trading or for the usage of the product or services. To do this, you need a more holistic view of the entire life cycle and the impacts are becoming extremely critical. So for example, if you take mobilities, it involved environment with passenger vehicles, buildings, air qualities, and we need to create the virtual twin of all the different systems, if you want. It's exactly the same in the Life Sciences. If you want to focus on the cancer treatments, it's as a result of the organic process. So to support this transformation, we combine multiple virtual twins experience together into what we call universes. The universes is really a way to unify the virtual and the real at the same time. During the last quarter, if you remember, we showcased a concrete example of an early adoption of the universes. The company was Biogen, a leading American biotech company, specializing in neurological disease, and if you remember what I told you, they were collecting the virtual twin of the patient brains and the spinal column with the drug virtual twin in order to determine the best and the optimal way to do the drug injections. And I think this is a good illustration of what the universe can do to transition from in vivo to in silico testing. Now this holistic approach is made possible through our 3DEXPERIENCE data science platform. And why it's a data science platform because it's enabling the clients to connect the data from experience on one hand and the model from science on the other hand. And with the 3DEXPERIENCE data science platform, our clients are already achieving impressive results. Just a few examples on this. If you take Aerospace & Defense, we have many clients improving the [ reliability ] and the availability of the critical assets. If you take the consumer industry, many of them are tracking the churn, finding a way to reduce it and at the same time, increase the cross-selling and the upselling opportunity. And more and more, many people are also doing the price management with these capabilities. In Transportation & Mobility, most of our customers are using the generative AI in 3DEXPERIENCE data science platform as a way to manage the supply chain in a flexible way, especially to navigate across the [ fleet creation ] in the raw material, energy and component prices. It's also a way for them to do significant savings in raw material procurement, and it's also a way for them to optimize the product performance, whatever it's the weight and balance or durability and costs. In the Consumer Packaged Goods, the key topic is the product [ formulations ] to comply with sustainability regulation, while ensuring the best possible consumer experience. In this case, the data science capability of the platform is extremely useful. Just a few examples to illustrate that it's just the beginning and we firmly believe that our generative AI engines will increasingly empower the customers to nurture the circularity of the platform. I mean the capabilities the platform is offering and more importantly, to elevate the data into valuable knowledge and know-how. Now let's return to the business trend we observed in the first quarter. Starting with the Manufacturing Industry. We have already highlighted the excellent performance of our 3DEXPERIENCE platform and the progress in terms of adoption within our installed base. Looking ahead, I think we have a strong pipeline in Transportation & Mobility, Aerospace & Defense, and we also are more and more gaining tractions in Consumer Goods and Consumer Packaged Goods. So this is positioning us to secure major contracts within the industry leader in 2024. Now turning to Life Sciences. The sector is currently pivoting towards 3 things: patient-centricity, technology transfer from the labs to the bioreactors and the utilization of the generative AI to faster and foster the innovations. And I think MEDIDATA offers the most comprehensive platform to design, launch and conduct advanced clinical trial. Why so? Because in a unique way, it connects all the stakeholders, whatever is the pharmaceutical companies, the hospital, the patient from home, and this is simplifying the collaborations between all of them. This connectivity is really crucial as the data source diversify underscoring the importance of the differentiation. In the Infrastructure & Cities sector, the decarbonization is also crucial, contributing to 1/3 of the global emissions. And the sustainability topic is really driving commitments to tripling nuclear capacity shifting to clean energy and innovating for efficiency. And among these challenges, is reviving nuclear construction at scale and shortening the time between nuclear construction and commissioning. Now let's have a look on the wins of this quarter, the most emblematic one. I will characterize this quarter by the quarter where we have a lot of win back. And one of them, which is an interesting one, is Volvo cars. As you may know, there are using CATIA for a long time, but they were using other systems in conjunction with CATIA. And this quarter, Volvo has adopted and took the decision to adopt the 3DEXPERIENCE platform under a multiyear agreement to transforming their engineering processes. And this is a significant milestone in our partnership because this will imply that the 1,500 users from CATIA V5 will migrate to CATIA 3DEXPERIENCE platform. It means also that we will transition from a multiple standard one solution to a unique and scalable platform. And this also means that this -- they will change the way they work to facilitate the real-time collaboration and reduce the time to market, especially by -- through the integration of the hardware and the software, which is becoming the key road blocker in this industry. And the savings are not measuring anymore in hours or weeks, we are talking about months. So it's really a major milestone. Additionally, Volvo car will also use our life cycle management capabilities to reduce the carbon footprint per car by 40% from 2018 to 2025. So I think it's just the beginning of the Volvo car journey with the 3DEXPERIENCE platform, promising also further opportunity to expand into new domains such as system of systems, ModSims or data science, [ not ] speaking about the manufacturing. Now let's review the customer testimony in Life Sciences sector. In this quarter, we have [ placed ] Viva at TFS. And TFS is a leading global contract research organizations, headquartered in Sweden. And they have selected the MEDIDATA Rave solutions because it provides a single platform to connect against all the stakeholders, the investigators from the pharma companies, the practitioners from the hospital and the patient from home. And this is a unique capability on the market as the MEDIDATA platform will give them the ability to integrate and streamline their data management and trial management operation at the same time. In addition, they are using MEDIDATA AI as a way to accelerate the clinical trial time lines by enhancing the study enrollment and the feasibility, especially having the ability to select wisely the different sites, they will enroll to make the clinical trial. In conclusion, I think MEDIDATA will play a pivotal role in supporting TFS to accelerate the delivery of the new treatment to the market. Now let's move to Infrastructure & Cities. Sizewell C, a well-known company in Britian, because they are the one providing the -- I mean they -- I mean planning to provide the electricity for more than 6 million households in U.K., has selected the 3DEXPERIENCE platform to increase the nuclear capacity to enable the nuclear constructions and more importantly to reduce the time to operations. This will ensure, in fact, a smooth delivery operation and maintenance of the future facilities. This is the first step of their project with us with the potential to increase our footprint from more than 200 users right now to more than 1,000 in the coming months along with a transitioning to the Cloud. So it's really an interesting case. And this is, I think, also a clear win underscoring the role of the decarbonization as a driving force for this sector to adopt our solutions. In conclusion, before handing over to Rouven, let me do a quick wrap up. First, I think we've had a solid start of the year and our 3DEXPERIENCE platform delivered strong results, and more importantly, we have a strong pipeline going forward. Two, in Life Sciences, the sector is pivoting. And I think we are uniquely positioned to address those changes. And more importantly, we anticipate MEDIDATA return to growth in the second half of the year. Simultaneously, I think we are laying out the foundation for our future growth by leveraging the 3DEXPERIENCE platform, enabling clients to connect data from experience on one hand and do generative AI with the model from science on the other hand. And this will definitively nurture the ability to elevate the data into valuable knowledge and know-how, which is the purpose of Dassault Systemes. Now I think it's time to focus on Q1 performance and the outlook for Q2 2024 and the rest of the year. Rouven, you have the floor.

Thank you, Pascal, and good morning, and good afternoon to you, listening to our call now. As you heard, we are entering into the year with a solid start as we remain focused on the fundamentals of our business model. The combination of subscription revenue and upfront license revenue together grew 9%, while the operating margin was up 50 basis points to 31.1% and EPS grew 12%. We know coming into this year and into the first quarter of the year that MEDIDATA would weigh on our subscription growth. In this context, subscription revenue is up 10%, excluding MEDIDATA subscription revenue is strong, up 22%, driven by good growth in 3DEXPERIENCE. The share of recurring revenue remains high at 84%. The upfront license revenue in the first quarter was good, up by 7%, driven in part by the strong performance in our business in Asia and slightly stronger demand for CapEx investments supporting our customers' business model preferences. Adding to the fundamentals, we generated EUR 671 million in operating cash flow. While this is below last year's level, cash flow conversion remains healthy at 1.44x of non-IFRS operating income. This trend reflects the progressive shift of subscription as we see a more ratable cash generation going forward throughout this year. Now let's review briefly how we performed relative to our objectives in Q1 2024. Total revenue was at EUR 1.5 billion and in line with our objectives, just slightly below the midpoint. The lower software and service revenue were partially offset by currency. Operating margin was at 31.1% above the high end of the objectives, driven by disciplined expense management. Importantly, we continue to invest to support our strategic initiatives with a net headcount growth of around 1,200 over the last 12 months. This sets a strong basis for continued growth as well as margin improvement in the future. As mentioned earlier, EPS at EUR 0.30 is reflecting good operating performance and strong financial income in Q1. So to summarize the financials. In the context of the MEDIDATA transformation, we delivered solid financials in the first quarter. Lower contribution in subscription revenue was offset by stronger upfront license. Clearly, 2024 is a back-end loaded year, like 2023, underpinned by continued momentum in 3DEXPERIENCE and return to growth for MEDIDATA. Profitability is strong as a result of effective cost control, but we continue to make focused investments to shape our strategic growth drivers of 3DEXPERIENCE and Cloud in support of our full year and midterm objectives. Now let's move to our growth drivers of 3DEXPERIENCE and Cloud. 3DEXPERIENCE revenue rose 29% in Q1 at constant currency, driven -- driving the share of 3DEXPERIENCE to 36% of addressable software revenue. In this quarter, 3/4 of the growth related to 3DEXPERIENCE is driven by deals larger than 2 million, highlighting strong value potential and the momentum in our customer base. In Q1, we had several key customers expanding the 3DEXPERIENCE platform use, such as Volvo, Honda, Dana, Damen Shipyards, B. Brown as well as EDF. Cloud revenue grew 6% in Q1 due to the anticipated slower MEDIDATA growth contribution. Ex-MEDIDATA, Cloud revenue was up around 50%, driven by the continued growth momentum in 3DEXPERIENCE Cloud. The Cloud is now representing 24% of our Q1 software revenue. Key customers expanding 3DEXPERIENCE Cloud use in the quarter were Renault, Dassault Aviation, Bouygues Construction, Schindler, Honda and Sanofi, besides many others. We are confident that we will further capitalize on the momentum of our growth drivers and continue to grow our market share in 2024. Now let me highlight to you the performance across geos and product lines. Americas was up 5%, which was in part due to the lower anticipated contribution from MEDIDATA this quarter. Excluding MEDIDATA, the Americas is up 9%, driven by strong momentum in Home & Lifestyle, Aerospace & Defense and a very durable growth in Transportation & Mobility. Europe was up 7% with strong double-digit growth in North and West regions. We saw a well-diversified growth profile across multiple industries, such as Transportation & Mobility, Energy & Materials, Construction, and again, Home & Lifestyle. Asia had a rebound in Q1, which was led by strong growth in China, up 17%, driving the strong license performance in the quarter. Also Japan, India and Korea delivered high single-digit software revenue growth. From a product line standpoint, we saw continued good momentum in Industrial Innovation with growth of 9%. CATIA and ENOVIA were up high single digit, while DELMIA Networks were up double digit in software revenue. Subscription revenue already represents more than 2x the license revenue in Industrial Innovation, and it grew this quarter by 20%. Life Sciences software revenue was minus 2% overall, with MEDIDATA at minus 3% versus a strong comparison base in Q1. On the other hand, BIOVIA had a good quarter, delivering high single-digit growth in software revenue, driven by strong renewals and expansions with major customers, such as Regeneron, Gilead and Takeda. Now let me provide you with an update on the market trends in clinical trials and our progress since the beginning of the year. First, on a trailing 12 months basis, we see market growth trends normalizing. In fact, since the beginning of the year, over the last 3 months, study starts are stabilizing to be slightly up, and this compares to a minus 10% decline at this time last year. Second, in this improving market environment, our growth bookings in Q1 support our plan to return to growth in H2. In fact, our study based bookings are back to growth, driven by an increase in the partner consumption. In addition, we have started to see increasing activity in the midsized pharma market, which has always been a catalyst of our growth. And lastly, and important to highlight, you're competing well with win rates up across all segments, driving market share gains in Phase III trials. To summarize, our market share dynamics are positive, adding about 2 points versus last year. Mainstream Innovation is up 10%, driven by excellent performance of CENTRIC PLM. In this quarter, we won Abercrombie & Fitch, our largest deal in fashion and apparel business. This plus strong renewals delivered excellent performance. For SOLIDWORKS, we are clearly transitioning to a subscription model at scale. Subscription revenue is growing over 60%, offsetting the decline in license, and we expect this trend to continue and further accelerate towards a higher share of subscription revenue, driving sustainable growth. As a key contributor to our growth, CENTRIC PLM continues on its strong growth trajectory, signing new large enterprise deals quarter-over-quarter, adding new logos to our growing list of brands. In addition, we are successfully renewing with existing customers, expanding the share of wallet and many other -- as we demonstrated with many customers this quarter. So the momentum, as you can see, is broad-based. CENTRIC delivers an integrated platform from concept to customer, leveraging generative AI as a competitive differentiator. This is truly a new category of PLM, building a path to billion-dollar-plus business. Now let me turn to cash flow and balance sheet IFRS items. Cash and cash equivalents totaled EUR 4.096 billion compared with EUR 3.568 billion at the end of 2023, which reflects an increase of EUR 528 million. At the end of the quarter, our net cash position totaled EUR 1.103 billion, an increase of EUR 526 million versus a net cash of EUR 578 million on December 31, 2023. This clearly highlights a disciplined and efficient capital allocation. Now let's look at what is driving our cash position at the end of the first quarter. We generated EUR 671 million operating cash flow. For the quarter, it was EUR 783 million last year. Cash flow from operations was mainly impacted by a lower decrease in trade accounts receivables this quarter versus last year. And this can be explained by 2 main effects: first, an impact of over EUR 65 million of receivables, which shifted to April as customers push payment dates to after the bank holidays at the end of the quarter, almost all of them have been collected so far. Secondly, receivables are trending above last year's level due to the progressive adoption of our subscription model, in which invoicing is spread over the contract term and creates a new pattern in which cash collected -- in which the cash is collected when compared to the upfront license model. In 2024, given the dynamics highlighted above, Q1 represents about 38% to 40% of the expected full year operating cash flow. In previous years, Q1 averaged about 45% of the full year operating cash flow. As such, we expect a positive catch up effect already in Q2. And for any additional information, you will find the operating cash flow reconciliation in our presentation published this morning. And to sum up, operating cash flow was mainly used for the repurchase of treasury shares of EUR 131 million, investments in CapEx of EUR 57 million and repayment of lease liabilities of EUR 24 million. Lastly, the total FX impact is about EUR 33 million versus December 31 last year. Now let's move over to our objectives for 2024. Most important, we confirm our full year objectives. Total revenue growth of 8% to 10%, operating margin at 32.5% to 32.8% and EPS at EUR 1.29 to EUR 1.31. Our pipeline supports our growth objectives and is broad-based across multiple levels with a back-end loaded shape. We have good visibility and the continued momentum of 3DEXPERIENCE growth contribution, including sizable transactions. MEDIDATA is on track to return to growth in H2 based on the stabilizing market environment of clinical trial starts and continued good execution as evidenced in win rates and market share gains. As mentioned, SOLIDWORKS is progressing well, transitioning to the subscription as planned. So as mentioned, we reaffirm our full year objective, which also includes a double-digit growth in recurring revenue in the range of 10% to 11%. We expect upfront license to be in the range of 2% to 5% growth and services revenue is expected in the range at 8% to 9%. Now to update your models, I would like to share some additional information related to Q2. We expect total revenue and software revenue cost of 7% to 9% each, with upfront license revenue between minus 1% to plus 7%, recurring revenue up 9% and subscription up between 15% to 16%. Services is expected to grow 6% to 7%. Our profitability is expected to continue to expand with operating margin up 50 basis point. At the midpoint, reflecting a reported range of 31.3% to 31.5%. EPS is expected to be in the range of EUR 0.30 to EUR 0.31, up 10% to 12%. Now let me conclude. We had a solid start to the year. Our core business is performing well and is expected to accelerate throughout the year. 2024 is a back-end loaded year, which is underpinned by continued momentum in 3DEXPERIENCE. For MEDIDATA, we see progress towards recovery in the second half, supported by the stabilization of the clinical trial market and good execution in terms of bookings growth and win rates. As such, we are confirming our full year outlook and look forward to updating you throughout the year. We have several investor roadshows planned over the upcoming weeks, including in the United States, end of May, and we look forward to meeting with you in person. With this, I would like to return back to the operator. Pascal and I will be happy to take your questions.

[Operator Instructions] We're going to take our first question. And it comes from the line of Jay Vleeschhouwer from Griffin Securities.

Rouven, let me start with you and then Pascal, I'll finish with you with a couple of product and market questions. So Rouven, with regard to the price increases you're planning to implement in July, there's some interesting changes that you have in mind, for instance, for many of your major markets, such as the U.S. and others, the planned increase this July is smaller than the 2022 and 2023 increases. A couple of countries are about the same, such as the U.K. and Japan, you're planning to put in a price increase where you haven't had before, so I know there's a lot of moving parts there, but maybe you could talk about your thinking with regard to the dynamics of price increases for this year? And then secondly, for you, before I turn to Pascal, you noted the large increase in headcount for the quarter. Is that something that you intend to maintain for the balance of the year? One thing we see in your open jobs data is a pretty interesting uptrend in your sales openings, for instance. And maybe you could talk about that dynamic as well?

Jay, thank you for your questions. On price increases, I think you are very well informed first. Secondly, I would say that when you step back over the last 2 years, we have made a few larger adjustments compared to the periods before. And I think it's also important that we give our customers in the market some time to absorb that. We are starting slightly lower increases in 2024. But I think what's really important is we will be able to monetize the value of our solutions because we are bringing a lot of new innovation to our customers, which really helps us in our value up process and in the step-up that we can generate, not only at the time of renewals, but when we swap from CATIA to 3DEXPERIENCE, for example. So yes, while there is a lever on the price increase and again, I think my first message is we need some time to absorb the 2 larger increases we did in the 2 previous years. Plus now coming into the market with a lot of new innovation. That allows us -- give us an additional lever of value up. This, in combination, I think, is how we are positioning ourselves in 2024. And then based on where we are in the adoption, we will have the ability to further adjust pricing.

Okay. And then on the headcount question, please.

And on the headcount, I can take that, too. As I mentioned, we have been -- I would say we have been setting a careful plan in place for the headcount course over the last 12 months. And we've been executing that. We have seen that the attrition rates have come down in the major markets. So we had to adjust our funnel in terms of the hiring ramp. We hired 1,200 people, as you heard through the last -- over the last 12 months, investing in our growth areas. [indiscernible] a larger share of the hiring and investments has also gone to CENTRIC to further expand the operation as CENTRIC is now going through a cycle of renewals, which requires to expand the organization for this next step, of course. So that has been the strategy. Other than that, we have hired pretty much evenly across the world. And we've been able to get from this strategy also a nice lever in terms of mix shift that we are implementing year-over-year as our -- as we hire new graduates from universities. It also helps us to have more leverage on our overall expense growth and that gives us additional flexibility to continue to invest.

Okay. Pascal, for you, a couple of things. First, in automotive, and then we'll finish as always on SOLIDWORKS. So in automotive, the Volvo comment was interesting, but I'd like to ask you about U.S. automotive. Perhaps you could comment on your scope or trajectory of work at both Ford and GM, and then I'll conclude with the SOLIDWORKS question.

Okay, Jay. So first of all, as you may know, Ford, we have -- we became, in fact, the general platform and the general engineering environment for the EV car, and we are progressively deploying on all of them. But in parallel, there is a reverse back effect, where now for this considering that the new engineering processes will be driven also by this approach, and they try to evaluate if they can deploy it on the existing turbo engine program. So still in discussion. But good progress has been made in the last few months on this front. Related to GM, as you may know, at GM, we are used specifically on simulation and also manufacturing traditionally, not too much on the engineering part, neither the PDM parts. However, the battery business is changing the game because we have one of the most advanced solution in the market for the battery design and also for the battery productions. And just because GM has some willingness to develop their own systems and their own battery, this is opening widely the door for our solutions. So this is what I can say related to the 2 key customers you just mentioned.

Okay. And then to conclude on SOLIDWORKS. Some interesting dynamics going on there or pending. Our understanding is that you are going to be implementing a variety of new packaging and configurations and therefore, pricing for SOLIDWORKS. Perhaps you could talk about that. Is that baked into your guidance, for example? And we understand that in terms of go-to-market strategy, there was a particular emphasis on continuing to grow your large seat count customers, those with many dozens of seats as opposed to your corporate average of just 3 or 4 for SOLIDWORKS. And maybe perhaps you could talk about that sales objective as well within SOLIDWORKS.

Yes. If we step back a little bit, as you know, Jay, the key decision for us is how we connect the large SOLIDWORKS installed base we have to the 3DEXPERIENCE platform. Why so? Because there is no way we can leverage the AI capability we have if we do not have the data within the system. So that's the reason why in this new packaging, that's ultimately what we are pushing this [ idea ] to have all the desktop being connected to the 3DEXPERIENCE platform, whatever. And this is the main driving thinking process, if you want, behind the new packaging. Related to the go-to-market, I think no, I would not conclude that we are focusing more on the large, I would say, accounts, if you want, for SOLIDWORKS than the one being, having 1 or 2 seats. I think we have subsegment the markets to be -- because we cannot use the same approach for the one having, as you say, 1 or 2 seats or the one having more than 100, if not 1,000 seats, and sometimes they also have a PLM system deploys. So that's the reason why we have made some adjustment on the go-to-market in order to come with different approach and different solutions, especially when we are talking about the data migrations. So this is, I would say, the way we have structured the go-to-market to just being in line with the new packaging coming. And my last comment, I think we see really the good momentum in the subscription for SOLIDWORKS at the point where it's largely offsetting the growth -- the decrease, sorry, on the license part. And just to give you some statistics because I know you like the statistics. Today, the subscriptions is representing more than 1/3 of the new bookings. It was, if I remember well, Rouven, it was a little bit more than 10% a year ago. So it's a significant change compared to where we used to be. And this acceleration is relatively consistent with also the fact that now it's time also to attach to 3DEXPERIENCE platform with it.

[Operator Instructions] The question comes from line of Derric Marcon from Bernstein.

The first one on MEDIDATA, and both are for Rouven, sorry, Pascal. On MEDIDATA, Rouven, you said that you expect for full year now stability of software revenue. And 3 months ago, you were potentially expecting 0% to 5% or low to mid-single digits. What has changed compared to the initial ambition? That's my first question. And the second question more positive angle. Your subscription revenue in Q1 are below what you guided for 4 percentage points. And you say that it's partly explained by MEDIDATA weakness. But at the same time, for the full year, you did not change your full year guidance on subscription growth, sorry. So can you explain the moving parts here, why one was below, and why for full year, you remain confident that you will get all the deals under subscription terms that you are expecting initially?

Thank you, Derric, for giving me the opportunity to clarify the 2 points, and feel free to ask another question if you want for sure. So on the MEDIDATA part, yes, for the year, we expect to be in the second half back to growth. And when we look at the aggregate of the year, we will be flat. And stepping back coming into the year, maybe we had a slightly more positive outlook. When we reflect on Q1, the Q1 results were at the low end of our initial plan and that's where we made a slight adjustment. But I think more importantly, when we look at the health of the business in terms of its bookings and the market, we actually have positive news to share because of our growth bookings on the study based bookings, also the consumption with partners is growing mid-single digit for the first time since a number of quarters. That will translate to revenue, and we'll see that in the second half of the year. As I mentioned earlier today, we are focused on building our backlog calls for the second half of the year and next year to be at a run rate coming to 2025 to reach 10% of cost. That's where we are focused right now on. We also see good momentum in our pipeline for the midsized pharma, which is an important element of our cost dynamic because in this market segment, there is much more activity as with large pharma companies, where you have renewal cycles that are in 5-year terms. So this is addressing your first point. So it's 2 parts. Yes, Q1 was slightly lower, which actually leads me to your second question on MEDIDATA contribution, but also we are really focused on driving growth in the back half and for next year, for which we are seeing the bookings performing better than what we saw last year, and that's what we expected. So in a way we are on track. So for subscription, you're right, we are below our objectives in the first quarter, in part because MEDIDATA came in lower, but also because we had a few deals that we recognize as upfront license, and they fell short on the subscription side. Now what gives us confidence for the year to accelerate is that we have a back-end loaded year with strong 3DEXPERIENCE subscription deals in our pipeline. And we have that visibility coming into the year, but sometimes the timing can change. So we now see that pipeline maturing and the structure of that pipeline maturing in Q2 and H2. So that's really what is driving, it is the 2 parts, the lower contribution of MEDIDATA in Q1. We see the growth in H2, which will support the subscription growth, plus the softer start in subscription in Q1 due to the structure of our pipeline. And that will improve with the structure of the pipeline in Q2 and the second half. And the last point I'd say from, Derric, I think an important part for you also to understand is that the run rate in subscription growth, ex MEDIDATA is progressing extremely nice. 29% growth at the end of Q1 over the last 4 quarters. And that is 2 points up versus the exit of Q4, so for fiscal 2023, ex MEDIDATA. So we are building our subscription growth and run rate as we said we would, and we expect that to continue to build over the next quarters. And that -- we will be extremely focused on that because that is the engine, of course, for the future.

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

This morning, on the prior call, you talked about your pipeline having about 15% of it coming from these win-backs. Just curious how incremental this is, like maybe how much of your pipeline this time last year was from win backs? And then what do you think is enabling you to win these customers back?

If I look at the comparison of the size of the pipelines year-over-year, it's more than a 10% increase anyway. And if I look at the win rates, we are in the same order of magnitude than last year, if not, in certain segments, reinforcing it. So but what is relatively, I mean, something which is to be noticed is exactly what I told this morning is, in fact, we have significant win back. And the win back are definitively creating the incremental piece, not only for this year, but more importantly for the next coming years. Because as you may know, as far as we start to do the win back, the platform is becoming the cornerstone, and this is usually the ramp-up for expansion within the company. So that's the reason why those key projects we have being win backs are so important to nurture the growth not too much for 2024, but for 2025 and 2026.

Okay. Excellent. And then M&A, it seems like there's been a noticeable uptick in activity across broader industrial software. Maybe can you give us an update on your appetite for acquisitions?

Well, the appetite is still there. I mean, as I was saying this morning, we have a process, and we have a pipeline, and we have target being well identified. Recently, the multiple, which has been used for the recent transaction, are relatively high. This is the reason why we were not rushing because at the end, we still want to create value with it. But it's part of the plan. I mean, when Rouven communicated last year the plan for 2028 calling for doubling the EPS I think a fraction of it was EUR 0.20, was part of the M&A, the inorganic activities and is still the plan, and we're still working on it.

[Operator Instructions] Dear speaker, there are no further questions at this time. I would now like to hand the conference over to the management team for any closing remarks.

So I would like to take the opportunity to thanks all of you for participating to this call. And I think Rouven and Beatrix will be on the road in the coming days, if not weeks, so they will have a chance to meet with all of you. In meantime, I wish you a good day. And hopefully, you are appreciating our solid start for the year and the confidence we have for the rest of the year. So see you next quarter. Have a good day.

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