Dassault Systèmes SE (DSY) Earnings Call Transcript & Summary

Hello, and welcome to today's Dassault Systèmes First Quarter 2025 Earnings Call hosted by Bernard Charles, Executive Chairman; Pascal Daloz, Chief Executive Officer; and Rouven Bergmann, Chief Financial Officer. [Operator Instructions] And now, it is my pleasure to introduce Mr. Pascal Daloz, Chief Executive Officer. Please go ahead, sir.

Actually, I will start. I'm Beatrix Martinez, VP, Investor Relations, and thank you for joining our first quarter 2025 earnings conference call with -- so today, Pascal Daloz, Chief Executive Officer; and Rouven Bergmann, Chief Financial Officer. Dassault Systèmes results are prepared in accordance with IFRS. The financial figures discussed on this conference call are on a non-IFRS basis with revenue growth rates on a constant currency basis, unless otherwise noted. Some of the 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 on our 2024 universal registration documents. All earnings materials are available on our website, and these prepared remarks will be available shortly after this call. I would now like to hand over to Pascal Daloz.

Thank you, Beatrix, and good morning or good afternoon, everyone. Thank you again for joining us today. It's always a pleasure to do this call also from London because we have the pleasure to see some of you in person this morning. So let's start with some comments related to Q1 earnings announcements. I think we have had a strong start to the year with subscription and 3DEXPERIENCE revenues driving our EPS to the high end of expectations. And here are a few key highlights. Software growth plus 5%, driven by subscription revenue of 14% and EXPERIENCE revenue 17%. And before handing it over to Rouven for more detail on our financial and guidance for Q2 and for the full year 2025, I really would like to emphasize 3 key points. The first one is in today's volatile environment with tariffs affecting many sectors, I think we are well positioned to help our customers to navigate uncertainty. Second one is in Feb this year, we introduced the next generation of our customers' virtual universes, and we call it the 3D UNIV+RSES. I think company eager to integrate AI often struggle without a unified platform to do it. And this is where 3DEXPERIENCE comes in transforming 3DEXPERIENCE into a next-generation platform for knowledge and know-how and position it as a global IP management platform. My third comment is we are actively investing in 3D UNIV+RSES and I will discuss this further, including our acquisition of ContentServ and our strategic investment in Click Therapeutics. Now let's take at a closer look at the sector trends and the key wins. Starting with manufacturing. We saw a strong resilience across the manufacturing industry in Q1. Transportation & Mobility performed well in China, Japan and North America, where we are achieving double-digit growth. We are expanding with key Chinese players, including BYD, but also Xiaomi and XPENG, and we continue also to tackle the new entrance in the EV market. More broadly, I think the manufacturers in this industry everywhere are reassessing the strategy due to the tariff pressures. And I think we are well positioned to help them to add up quickly and to optimize their supply and demand chains. Aerospace and Defense, we maintain a solid momentum supported by the rising demands and continued investment in key programs in the commercial, but also in the Defense and Space. High Tech, we saw continued momentum driven by the broader options of electromagnetic simulations for the consumer electronics, but also the energy-efficient infrastructure for the cloud data center. And this quarter, specifically, we renewed our contract with Google because they're massively using our software to optimize their data centers around the world. In Life Sciences, I think we are seeing a big shift, a shift from the research and development and clinical trial towards the manufacturing and supply, and it's a trend, which is further accelerated by the tariff. The demand for the end-to-end platform that connect research and development and manufacturing is also rising as a consequence. And it's extremely visible in some of the large engagement we have right now with Sanofi or Amgen where we see an expansion of the 3DEXPERIENCE platform across the entire value chains, reflecting these evolutions. We also saw an expansion of MEDIDATA with some key players such as Regeneron and also new clients, such as Merck KGaA. In the infrastructures and city sectors, the demands for sovereign infrastructure is rapidly increasing, and we are accelerating our expansion. Why the energy transition and particularly the nuclear remain a core focus for us. Sovereignty today extends beyond the energy to include defense, security but also the digital infrastructure, especially building AI capability through the high-performance data centers with national borders. Now, let's look at some key wins this quarter. In transportation and mobility, we have entered a strategic partnership with XPENG, one of the fastest-growing EV manufacturers, driving the future of the smart mobility. XPENG is really shaping -- reshaping the EV landscape with innovative electrical vehicles and autonomous driving technologies, but they are also expanding their reach, their international reach at the same time. They're -- XPENG G6, for example, which compete directly with premium EVs, offer really high performance and rapid charging. 10% to 80% in just less than 20 minutes and a suite of premium features such as the advanced autonomous driving systems and all of this at a competitive price. This partnership leverages 3DEXPERIENCE to drive innovation, accelerate the time to market. I think it's setting a new benchmark in the smart mobility. I think it's a strong signal because even the sector is challenged by tariffs and all the disruptions, you can see that the innovators, the leaders, they are choosing us to accelerate and to scale at the same time. In Life Sciences, Merck KGaA has selected MEDIDATA and its new standard for clinical development. This is both a new logo because we never had an enterprise agreement with this company, but it's also a competitive displacement from one of our competitors. I think, Merck aim to streamline its clinical trial and increased speed and that's the reason why they have chosen us to make that possible. And at the same time, they want to reinsource also the clinical trials. They were subcontracting to the CROs. So that's also the reason why they are looking for productivity into this space. And I think the MEDIDATA platform offers the end-to-end capabilities for managing the full clinical cycle. Importantly, I think now we -- thanks to clinical data studio, we provide a seamless access to integrated data from all the sources, not only the EDC without compromising the data quality. And they are also benefiting from our deep domain expertise, particularly in the oncology, thanks to what we call the preconfigured templates. So in this competitive space, I think this win is underscoring our ability not only to defend our positions, but also to expand it. Now let's shift to the sovereign infrastructure. Today, technology called superiority is really a critical -- is really critical to national security, and we see more and more start-ups, which are playing a pivotal role in reshaping this landscape. This quarter, we signed with Rafael, an Indian defense start-up developing cutting-edge autonomous roles with an in-house design and also manufacturing capabilities. Their goal is to achieve speed and sovereignty by leveraging the breakthrough technologies such as 3D printing, precision grade electronics and to become self-sufficient in the production. Rafael selected the 3DEXPERIENCE platform to scale sickly, cutting the development cycle from years to months and enabling the full autonomy in manufacturing, which is extremely critical. And I think with this approach, we are enabling the next wave of defense innovation. Now let's talk about the Generation 7. Back in February this year, during our full year results, you remember, we introduced the 3D UNIV+RSES, our Generation 7 of virtual universe for our customers. Keep in mind that for more than 40 years, we have been building the virtual work for the real life with 1 constant promise, creating a scientifically accurate representation of the world. And 3D UNIV+RSES marked a fundamental shift, integrating modeling and simulations powered by AI and special computing at the same time in 1 single immersive environment. And speaking about immersive environment, I am thrilled to announce our partnership with Apple to bring these visions to life. 3D UNIV+RSES powered by 3DEXPERIENCE platform is now natively integrated with Apple Vision Pro. So I don't know if we have the video. So for the one who had the chance to attend this morning, we had a nice video. You will hardly have my comments. But anyway, what you can do you can immerse yourself in a life-size experience, navigating with your eyes, your hands and voice and bringing your entire team along no matter where they are. So for us, it's a way to have the virtual twin of the 3DEXPERIENCE platform, now interacting seamlessly with the physical world, all with a scientific accuracy. And this is creating a radical difference way to innovate a true game changer for creativity, productivity, learning, customer experiences, design review, interview also with some practitioners, and I think this -- the possibilities are really limitless. Speaking about investments in March, we also acquired ContentServ leaders in the AI product information management, what we call PIM. PIM is really the solutions centralizing all the product data move from the specification, the description, the images, the marketing materials, all in 1 place. But they combine it also with what we call the product experience management, which is another system, which is basically gathering all these marketing data, but specializing it for one -- for each channel you use to reach the customer. And this is extremely helpful to get the customer feedbacks before basically you launched the productions, but also to drive the personalization and the conversions. This company is based in Germany, with 200 employees and 1,600 clients across many industries, but more specifically, consumer goods, retail and electronics. And I think this is a perfect fit for our strategy because when we integrate ContentServ with Centric, we ensure that from the moment the product is developed, it's enriched, optimized and ready to be converted for commercialization. And this is really helping our customers to shorten time to market to boost the sell-through and to personalize it at scale. This quarter, we also reinforced our commitment to the patient journey in Life Sciences. We made a strategic investment in Click Therapeutics, a leader in prescription digital therapeutics and software-enhanced drug therapies. They recently received an FDA approval for the first digital treatment for episodic migraine. This partnership really extend the MEDIDATA patient engagement beyond the clinical trials. I think we are maintaining the continuous connections with patients throughout the commercialization and beyond. And I think it's really a critical step towards integrating the patient journey starting from the research and development to the real world care. I think this is positioning us as the key players in this evolving health care ecosystem. Now in conclusion, I think we have a tremendous long-term opportunity ahead. While the market and the markets are volatile, the need for our solution has never been greater and recognized by our customers. At the 3D UNIV+RSES, it is really an ideal environment to harness artificial intelligence, and we are committed to make it trustable for our customers, enabling them to deploy AI at scale in an operational way, while at the same time, we are safeguarding their intellectual property. So our duration is clear: to be the trusted partner who help customers stay ahead, while we continuously strengthen our barrier to entry, and this commitment will really guide us as we move forward. I think it's time to hand over to Rouven for the financial details.

Thank you, Pascal, and thank you to everyone for joining today's earnings call. As you heard from Pascal, our Q1 results were good and in line with our expectations, driven by strong subscription growth across the key areas in the manufacturing industries. Also, operational efficiency was good as we reached the upper end of our EPS guidance and saw excellent growth in operating cash flow increasing by 21%. Now let me go through the financials in a bit more detail. Total revenue was up 4% with software revenue growth at 5%, driven by good subscription growth, up 14%. As you can see, the momentum continues to build. When excluding MEDIDATA, subscription growth was up 21% year-over-year over the last 12 months. This was due to renewals and a baseline effect from large deals signed in previous quarters. Recurring revenue grew 7% and now reflects 86% of software revenue. Service revenue were negative in the quarter mainly due to some timing effects related to start of new projects, which we expect to normalize in the year. Operating margin came in at 30.9%, and our EPS was $0.32. Now with that, let's review on how our growth drivers performed in the first quarter. While 2024 set the motion in a series of competitive wins and the expansion of 3DEXPERIENCE across industries, domains and geographies, now in 2025, we expect continued momentum in the adoption of 3DEXPERIENCE driven by AI and cloud. In Q1, 3DEXPERIENCE grew 17% and now makes up almost 40% of eligible software revenue, up 3 points versus Q1 2024. While cloud revenue for the group was 7% in the quarter. We saw strong momentum in the adoption of 3DEXPERIENCE Cloud, up 41%. And over the last 12 months, 3DEXPERIENCE Cloud revenue is growing to EUR 270 million. This confirms the very positive dynamics as our clients across the manufacturing industries embrace the potential of our platform and AI. Cloud now represents 25% of our Q1 '25 software revenues. Now let's review briefly how we performed relative to our objectives in the first quarter. Total revenue came in at EUR 1.573 billion or EUR 5 million above the midpoint, benefiting from a positive currency effect. Operating margin was 30.9%, and about 10 basis points, slightly below the midpoint. Selective investments in business growth were balanced by continued disciplined expense management. EPS at EUR 0.32 was at the high end of the range, thanks to a solid operating performance, good financial income and slightly positive currency impact. Now let me turn the focus on our geos and product lines. Europe was marginally up in Q1 on tough comps. We saw good performance in aerospace, which was offset by lower growth in -- or negative growth in T&M. Home & Lifestyle and high-tech industries had a solid quarter in Europe as well. In the Americas, revenue was up 7% in Q1, which was led by broad-based strength across the manufacturing industries, most notably in Aerospace & Defense, also T&M and High Tech. Following 3DEXPERIENCE World in the U.S., we saw a strong engagement with our customers firming up their road maps to adopt 3DEXPERIENCE and accelerate the use of AI in Generation 7. In Asia, performance was solid, with the first quarter growth led by double-digit in India, while EpiSouth and Korea were up high single digits. The China performance was resilient while it was impacted by high comps when compared to last year Q1. Now, let's go through our product line performance. Industrial Innovation software revenue grew 8% in Q1. AI and cloud act as catalysts for the adoption of 3DEXPERIENCE. This is driven by the demand for next-generation use cases to operate in an increasingly competitive and complex world. Looking at the brands. CATIA and DELMIA were up high single digits, while NETVIBES, ENOVIA and 3DEXCITE were all up double digits. Life Sciences was flat in the quarter. 2024 was a year of transformation to reposition MEDIDATA in our Life Science strategy. The strategy was validated by good Q4 renewals with several top 10 pharmas, including several win backs and platform expansion with our most strategic accounts. Now in Q1, we had a mixed picture. On 1 side, a continued positive trend in the mid-market across U.S. and Europe. In the large enterprise segment, we won Merck KGaA as a new customer, as you just heard from Pascal. And on the flip side, CRO partners continued to adapt to a more cautionary environment of clinical trial starts with booking levels remaining low and revenue contribution decreasing. This impacted our growth of MEDIDATA by about 1 to 2 points. Important to highlight, despite these volume headwinds, we expanded our market share by over 1 point in clinical trials, driven by large share gains in Phase III and Phase II. Now I would like to make 1 additional remark regarding the business dynamics for Large Pharma. We see this -- the growth dynamics of this segment more and more driven by the innovation and transformation from the lab to manufacturing. And here, we are strategically positioned to cover the entire value chain, leveraging the strength of our 3DEXPERIENCE platform in this industry as evidenced by our partnerships with Sanofi and Amgen. For mainstream innovation, we grew 2% in the quarter after a strong performance in 2024. SOLIDWORKS was up low single digits. We saw solid bookings and good subscription growth, which confirms the shift in the business model and the momentum of 3DEXPERIENCE adoption. However, we noted in the last weeks of March, a more muted quarter end uptick, which we believe reflects some caution regarding -- in purchasing behavior in a changing and more uncertain market environment. CENTRIC was down on timing differences of renewals after an exceptional year of growth in 2024, and we expect good performance for the remainder of the year. As you heard earlier from Pascal, we successfully completed the ContentServ acquisition in the first quarter. This positions CENTRIC as a business platform for consumer-centric industries. ContentServ adds a real-time feedback loop into the market to adapt product design, pricing and sourcing strategies, leveraging AI. Now let me turn to the cash flow and balance sheet items. Cash and cash equivalents totaled EUR 4,243 million at the end of Q1 2025 compared to EUR 3,953 million at the end of 2024, an increase of EUR 290 million. At the end of Q1 2025, our net cash position totaled EUR 1,788 million, which represents an increase of EUR 329 million versus a net cash position of EUR 1,459 million on December 31 last year. Now let's look at what is driving our cash position at the end of the first quarter. We generated EUR 813 million operating cash flow in the first quarter, which is an increase of 21% versus Q1, 2024. These are excellent results, and they were driven by working capital improvements by positive working capital development as it accounts for decreased receivables, trade accounts receivables, with DSO down by 10 days versus Q4, and they also reflect good cash collection following strong Q4 business activities. The cash conversion was 90% from non-IFRS operating income, highlighting strong performance over the last 12 months. This reflects good collection trends across both ongoing multiyear partnerships as well as recent signings. And we expect the cash conversion to be in line with our prior projections in the mid-80% range. To sum up, operating cash flow was mainly used for acquisitions and investments totaling EUR 287 million. This includes the acquisition of ContentServ of EUR 191 million and EUR 56 million for investments in CapEx. We also repurchased treasury shares of EUR 80 million in the quarter and repaid short-term debt of EUR 59 million. Now let me turn to our fiscal 2025 outlook. So when entering 2025, our approach was to provide a risk-adjusted financial outlook for the year. Since then, the introduction of new tariffs has created a more volatile market environment in some of our end markets. While the pipeline remains resilient, it could be impacted by delays in decision-making. Overall, our visibility for now remains in line with the midpoint of guidance, and therefore, we keep it unchanged. As such, our full year targets of 6% to 8% growth in revenue, and 7% to 10% growth in EPS remained the same. As it relates to the margin, we decided to provide some headroom to make focused investments in Gen7. Now is the right time. The year-on-year margin improvement is now 50 to 70 basis points, was at 70 to 100 basis points previously. We are a long-term company and a reliable, trusted partner to our customer. This is what our customers value the most. In this constantly changing global environment, we see the 3DEXPERIENCE platform in combination with Gen7 as a strategic choice for our clients to be future-ready as outlined by Pascal. Now for Q2, let me provide some additional insights, which will help you to update your models. Like in Q1, we are guiding to a wider than usual range in the second quarter of 3% to 7% top line growth. This takes into account market uncertainty and caution on the timing of deal closing based on current information. To complete the picture, subscription growth is anticipated in the range of 10% to 15% and upfront license revenue between minus 6% to plus 1%. For services, we expect 3% to 7% growth with good bookings from prior periods converting to revenue. In terms of profitability, we expect the operating margin to be in the range of 29.8% to 29.9% and the fully diluted EPS at EUR 0.30 to EUR 0.31, up 1% to 5% year-over-year ex-FX. In conclusion, our conversation so far with our customers across geos and industries support our growth ambition. However, the recent tariff announcements have increased uncertainty in the macro environment and the situation will most likely remain dynamic for a while. As previously stated, 3DEXPERIENCE Cloud and AI continue to be the primary growth driver. It has created a shift in the market dynamics as evidenced in several competitive wins. Clearly, customers who are advancing the adoption of 3DEXPERIENCE benefit more than others. The pace of the adoption will support either the upside scenario or potential downside as reflected in our 2025 revenue range. Thank you again for joining us this afternoon or this morning for you in the U.S. And now Pascal and I look forward to taking your questions.

[Operator Instructions] We will now take our first question from Jay Vleeschhouwer from Griffin Securities.

Two financial questions to start. First, I understand that the tariff uncertainty can depend on the time of day. But if it should turn out that the situation does become more stable or has limited proportionate effects in terms of the magnitude of the tariffs, how might you reconsider your new view on close rates in the pipeline? In other words, might you revert to a more positive view of closed rates, if that situation becomes more stable. Secondly, the price increases you're planning on July 1 are mostly slightly smaller than the July 2024 price increases. Perhaps you could talk about the thinking behind the planned prices. And more importantly, if you think of your business in P times Q terms, with relatively limited increase in P, what do you think will be the principal drivers to the Q or the unit volumes of your software business? And a couple of product questions.

Okay. Thank you for the questions. So for the tariff uncertainty, well, we can't look into the crystal ball. I think we are -- we've been very transparent to reflect a range of outcomes. We are looking at a larger range in Q2, where I think we are -- possibly we see the biggest swings possibly as everyone is adopting to this new world. For -- we have also -- our pipeline structurally, we have done detailed reviews of our pipeline by geo by segment by industry. And overall, the pipeline structure remains pretty stable. There are several deals that we have risk adjusted and accounted for already in our Q2 outlook. This is all reflected in the outlook. So for now, I think we are prepared for Q2. In -- we are in the middle of Q2, the first month is almost over. And so we feel that -- we are -- with this well prepared and the EUR 60 million range, which is slightly larger than usual, does take this into consideration. . For the second half of the year, our pipeline is very solid. Of course, any -- we always have the situation that sometimes moments of crisis are creating an urgency to take decisions. So in one way, we can also see that this could really have a beneficial effect on some decision cycles that need to be accelerated. Some of our larger deals in the pipeline are related oriented more towards Defense & Aerospace sector, which are also dependent on government funding. We are fairly certain about those deals to occur. The timing could vary from quarter-to-quarter as we have experienced previously as well. But clearly, it's a topic that's high on the agenda and urgent. So, I think, overall, structurally, we are -- that's also why we didn't make any changes. 6% to 8% is a reasonable assumption for 2025, with what I said in my prepared remarks, with the possibility of an upside scenario, but also being protected on a downside scenario really depending on the speed of adoption of 3DEXPERIENCE. And also, I think the market evolution we see in clinical trials and life sciences. So but that's factored into our guidance. To your second question on the price increases, you're right, we have -- July is typical time frame where price increases come into effect. The P-times-Q formula is a good way to look at the possible business uplift we see, but I think there's an important factor that cannot be underrepresented, which is the multiplier effect from the platform. For example, when we look at our mainstream market with SOLIDWORKS, and I'm sure it will be one of your next questions, so I'm going ahead here. We saw good growth in SOLIDWORKS, which was 3.5% in Q1. We were on a trajectory to be around 5% to 6% up and until the last 2 weeks of the quarter when we realized that there is some cautiousness in purchasing decisions, which I think, were very concentrated. And the reason why I can say that because looking into April right now, we see bookings actually coming back in a very healthy way. So that cost us about 2 points of growth in SOLIDWORKS in the last 2 weeks of the quarter where we typically observe an uptick, which didn't occur to the extent it normally does. But what I -- where I want to go from here is that the growth on CRE, including SOLIDWORKS 3DEXPERIENCE was mid-single-digit growth. So it was almost double the growth of SOLIDWORKS. So the platform effect is something that's really important when we think about P-times-Q as well. It's not just a simple price times quantity. It's actually price times in baseline that is expanding with the platform that allows us to price across multiple domains. Beyond just a role when you take the Q as a role, which is an additional factor that supports our model. But nevertheless, the price increases are more moderate, as you rightfully say, in 2025, also factoring in some of the volatility in the market that we see right now, which I think is something we need to be also responsible in the way our customers are expecting that from us.

Okay. Thank you for the CRE detail. So maybe as a follow-up to that, what did you see in the quarter? Or how are you thinking for the rest of the year about CSC and CPE. And you had some positive comments about transportation and mobility. When we think about 2024 in that segment, it appears to have been slightly down based on the data in the annual report. Would you expect '25 transportation and mobility to perhaps recover for the year and grow from '24?

For T&M, T&M was very strong in 2024, just to be clear. It was a very good year in T&M. Now starting in the first quarter, we were flat in T&M overall. However, we saw good growth in North America as well as in Asia. Not only it was, to be more precise, Japan and China. While we had negative growth in Europe for T&M. So what we are planning for is the scenario that we will see a shift in growth contribution in 2025 where we expect Asia to take a larger share, where we believe that probably in Europe, we are under pressure a little bit. Even though some of the deals that we signed in 2024 will impact growth in 2025, and that's still to come. It's not yet factored in Q1. And then I think in North America, there's a lot of dynamics that are coming into play, related to Ford GM, for example, but also Tesla, where I think we have more upside than downside.

Okay. Lastly, in your description of Industrial Innovation segment results, the 1 product that is obviously missing from the discussion is SIMULIA. And you've had some growth issues and market share issues with SIMULIA for some time now. And especially in light of the consolidation that we've seen elsewhere in simulation, Siemens has done Synopsys still has complete answers. How are you thinking about the strategy or growth potential for SIMULIA, which, again, is larger than ENOVIA and considerably important product for you, but the growth hasn't been, perhaps, which you've wanted.

Yes. So just maybe start with the numbers, SIMULIA growth was small muted in Q1, but that was mainly due to baseline effect from last year. We have a good pipeline for SIMULIA and certainly in Q2. So I think we are competing very well also with the new players. In the auto sector, for example, we are performing -- we're really taking market share. And you're right, this market is right now due to the pending acquisitions that are in place with some of the major competitors. There is choices that our customers need to make. I think we are very well positioned for that and to take a higher market share. We are investing into SIMULIA. It's -- you're right, it's an important brand and the growth trajectory for 2025 is in the mid- to high single digits.

We'll now take our next question from Jason Celino from KeyBanc Capital Markets.

Perfect. Maybe my first 1 on the morning call, you mentioned that most of the large deals in your pipeline on the defense and space. Any color on how big this business is for Dassault today? And maybe do these deals skew to maybe more specific region? Is it the Americas? Is it Europe? Just curious there.

Well, so the defense business for us, I think we disclosed that Beatrix, do we, around 5 yes, 5% to 6% yes for the defense.

Defense.

It's not for the aerospace.

Not for the aerospace.

The aerospace is exceeding 12. Go ahead.

Again, just a clarification on is it like the deals you're speaking about or the opportunities? Is it limited to Europe because I know there's a focus on defense in Europe. So I was curious if that's where you're seeing most of the opportunities?

No, it's really broad-based. It includes the United States. It includes Europe, for sure, but it also includes parts of Asia.

Okay. Interesting. And then maybe just one on SOLIDWORKS. I think you've been very transparent about some of the trends you saw in the last couple of weeks of March. But the slowdown that you saw, was it more specific to the Americas? Or was it more broad-based than you saw it kind of in Europe as well? I'm just trying to think about the impact is obviously the pause per se is only for a period of time. So just curious what you kind of saw at the end of March.

It was really broad-based across all the major geos, the major solid work geos, including Europe, U.S., Japan to highlight maybe the 3 biggest ones.

We can now move to our next question from Derric Marcon from Bernstein.

Two, if I may. The first 1 on your pipeline. Can you give us or share with us some granularity about the structure of your pipeline. 3 months ago, you said that transportation and mobility was 30% of the total, so less than a year ago. What's the situation 3 months later? And can you also quantify, you said that you got these large deals insights in Defense & Space. So as you rightly said, around just 5% of your total revenue based on 2024 numbers. But would this large deal change the weighting of this industry if you sign these big deals. And any color about the other large deals in maybe other vertical would be helpful. And my second question is about the ramp-up of the large deal you signed over the last 18 months. So you said that it should had 1.5 percentage points to your growth rate in 2025 versus 2024. But I understand this morning -- I understand this morning that the phasing of the ramp-up is not linear across the year. So would you be able to quantify the phasing between H1 and H2. Is it 0 in H1 and 3% in H2 to obtain the 1.5% over the year on average? Or it's different from that.

Rouven, I take the first 2 and let the last one.

Okay, thanks Pascal.

So on the pipeline, I mean, the pipeline doesn't change in 1 given quarter. So the structure of the pipeline is the same than what we just told you in Feb, right? Remember, for the vast majority of what we do, the average sales cycle is anyway for the large deals exceeding 12 months. So no -- it's relatively well balanced between the different industry and we have less exposure to the auto sector compared to what we used to have a year ago. Now, the question related to the defense, I mean, you are smart to ask me if it will change the percentage, right? To give you, nevertheless, an order of magnitude. Yes, it's probably a point. With this, you have an idea about the size of what we are talking about, right? And the ramp-up, good luck.

Derric, there's no such thing that linear brands. There can be several factors that impact and create step-ups. Some of them are committed. Some of them are in negotiation. When we, for example, look at the Airbus large partnership that we signed in Q4 and the subsequent event in Q1. That was something that was not committed as part of the Q4 transaction, and so we were able to contract that in Q1. That just is an example of some variability in this. So we always need to take that into account. But nevertheless, the real -- the large transactions we have signed over the last 2 years, they have ramps that are contributing in 2025, but also in 2026. I'm not sure -- I don't know where you have the number from of 1.5 points of gross contribution year-over-year, hesitating to confirm that because I don't think that I've ever given that, but Derric, there is definitely a positive effect. It's an estimate from you. Well, I don't want to confirm that, but clearly, you are in the right point that the growth in subscription revenue gives us more visibility into the next quarter and the next year. And those subscription contracts, they are recurring and they give us an opportunity to do what we call value up to expand and grow with our clients. And for example, the large deal with the German OEM that we signed in Q4 did not contribute yet to the Q1 number. It's going to come in later in 2025. That's just 1 example of validating your assumption, Derric.

Very clear. Can I add a follow-up. When we look to the term license, capital license revenue stream, so the EUR 1 billion ballpark per year. Would you be able to quantify the percentage of that revenue coming from upfront recognition of revenue on multiyear hybrid contract, just to have a rough idea of the volatility that it could create from 1 year to another.

Yes. But that's difficult, Derric, because contract types, they are changing. As you see, we are converting 1 more of our traditional contracts to subscriptions. If they become multiyear subscription, that could be an upfront component. If they are multiyear cloud, everything is ratable. So that's a very dynamic set of numbers. I think what's very important is 86% of our software revenue is recurring. More than 50% of the recurring revenue comes from subscription, and it's growing 14%. This gives us the visibility and the direction that we are on. And more and more of our clients are moving to cloud. So I think that's another element to confirm that trend.

Well, so you should move to annual recurring revenue metric or dealing metrics on your side?

Let's discuss this, Derric. I made some comments this morning about the evolution of the reporting anyway because, again, I'm making this testament again this afternoon, splitting the different components between the license, their subscription, the maintenance and support was, I think, useful when we were transitioning from the pure license model to subscription. Now, the vast majority of the growth is anyway coming subscriptions. So I think there is no need anymore. We will continue for 2025, but for 2026, we will probably redesign the way we do the reporting because at the end, even if it's in the license line, as you say, Rouven, it's an upfront component of the subscription. So there is a point to communicate along this way. So it's another comment I want to make, but this goes also with your suggestion, which is to communicate also on other indicator.

Pascal, if you remove the line and you add another one, it's okay for me.

Thank you. Derric.

And we'll stop here. Thank you for joining the call and we would like to remind you that we will have our Capital Market Day on June 6 in Paris. Thank you.

Thank you. Goodbye.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.