Dassault Systèmes SE (OTC:DASTY) Q2 2025 Earnings Call Transcript

Dassault Systèmes SE (OTC:DASTY) Q2 2025 Earnings Call Transcript July 24, 2025

Dassault Systèmes SE beats earnings expectations. Reported EPS is $0.353, expectations were $0.35.

Operator: Hello, and welcome to Dassault Systemes 2025 Q2 and Half Year Earnings Presentation. My name is George. I’ll be your coordinator for today’s event. Please note that this conference is being recorded. [Operator Instructions] I’d like to hand the call over to your host today, Ms. Beatrix Martinez to begin today’s conference. Please go ahead, ma’am.

Beatrix Martinez: Thank you, George, and thank you for joining our second quarter and first half 2025 earnings conference call with Pascal Daloz, Chief Executive Officer; and Rouven Bergmann, Chief Financial Officer. Dassault Systemes 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 of 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.

Pascal Daloz: Thank you, Beatrix. Good morning for our friends from the U.S. or good afternoon for the others. Always a great moment to be with you at this time of the year to walk through our second quarter and first half results. So let’s get right into it. We had a solid Q2, well aligned with the revenue growth pickup compared to Q1, driven by a strong performance in both subscriptions and 3DEXPERIENCE. Some quick highlights. Total and software revenue grew 6%. Subscription revenue was up 10%, 3DEXPERIENC grew 20% and EPS came in at EUR 0.30. Given this solid performance, I think we are keeping our full year 2025 guidance unchanged, meaning revenue growth between 6% to 8% and EPS growth between 7% to 10% ex FX. Before I hand it over to Rouven for the financial deep dive and outlook, I want to quickly call out 3 big takeaways for the quarter.

First, more than ever, our customers are facing more complexity, whether it’s scaling up, driving innovations, managing costs or rebalancing activities from one country to another one due to the tariff and how our platform is increasingly at the center of how they are navigating change. Second, we are seeing resilience in transportation and mobility and a strong momentum in fast-growing areas such as space, defense, energy and AI-driven cloud infrastructure. This kind of diversification makes us stronger and opens new doors for the future. Third, AI is already creating a new growth path. This quarter alone, we saw real traction in 2 areas. The first one, the regulatory compliance and the second one, the software-defined productions. We will come back on these 2 topics.

The point is we are not just talking about AI, we are making a difference, and this is the reality. So let’s, with that, zoom on what’s happening across the different sectors we serve. Starting with manufacturing. The first half of the year confirmed the resilience of Transportation & Mobility and Industrial Equipment. Mid-single-digit growth in Transportation & Mobility was led by France, Germany and Japan as well as the expansion with the battery manufacturers, specifically in China and India, we are helping them to scale up their Gigafactory faster. We are also seeing those manufacturers rethinking their global strategy with tariff in play. And that’s a space where we are really well positioned, helping them to move faster, to make better decisions across the supply and demand.

Speaking about aerospace and defense, we had a strong start, too, up 15% year-to-date, with a great momentum coming out of the Paris Air Show, which happened a few weeks ago. The pressure is on multiple fronts, but to ramp up the production to move to the next-gen aircraft, diminishing the CO2 emission and developing a strong new space model almost everywhere in the world. And we are right there helping them to make it happen. High-Tech is also growing steadily with a high double digit for the semester, thanks to the work in multiple areas such as the electromagnetic simulation for consumer electronics, the productivity solution for the semi manufacturing and more sustainable infrastructure for the cloud data center. If we zoom on Life Science, Life Sciences is still feeling the effect of the market contraction in clinical trial, but we are seeing a big shift.

Investment is moving from research and development and clinical into manufacturing and supply, partially due to the global trade pressures. And that’s really play our strengths. There is a rising demand for platform that connect the research and development directly to the manufacturing, what we call connecting the lab to the fab. And our PLM portfolio is growing nicely as a result, up to the mid-teens for the first half. In infrastructure, there is a clear trend towards the sovereignty infrastructure all over the world, and we are leaning into that opportunity. The energy transition, especially nuclear is still a top priority for us, but the sovereignty now goes far beyond energy. It includes defense, cybersecurity and more recently, the AI capabilities through the national data centers.

And we are really accelerating our expansion in those segments of the industry. Now let’s look at some key wins for the quarter. And let me give you some concrete example of what I just described. We recently signed a strategic partnership with Thales Alenia Space, a joint venture between Thales and Leonardo. And they are right at the center of Europe’s effort to build sovereign space capability. Why this is an important point? Because we discovered with the war in Ukraine that we had dependency in Europe on non-European satellite systems such as Starlink for critical communications. And now Europe is moving fast to fill this gap. And to do this, we have to build our own low orbit constellations for the defense and the government use. So Thales Alenia Space is scaling big time.

They used to produce a few dozen satellites, and now they are producing 100 per year. So to do so, they have chosen the 3DEXPERIENCE to help them to do it not only for the design, for the simulations and the validations, but also to operate the complex space simulation at speed. I think this is really a strong vote of confidence in us in how we can help Europe or the European player to build its technology independence. Moving in Life Sciences. As I mentioned earlier, our PLM portfolio is a strong growth driver. And here is another good story coming from Asia Pacific. Nihon Kohden, maybe you know this company, they are the leader in cardiovascular diagnostic systems. They selected a few years ago the 3DEXPERIENCE over Siemens to drive more specifically the product development.

They are now expanding into manufacturing with a clear focus on quality by design. That means better traceability, better quality and a full compliance and everything with only one platform. Now let’s shift to infrastructure. I think for the ones following us, you know that we are a challenger in this space, but we are building the leadership on some of the most complex high-value systems, the nuclear plants, the rail, infrastructure and more recently, as I was mentioning, the data centers. This is a big space, a USD 650 billion market, growing at 15% annually. But this is not without challenges. The biggest one, as you know, is the AI boom is driving massive infrastructure demand, but the energy cost is such that we cannot afford it the way it is right now.

Just give me — just to give you an example, to support AI at scale in the U.S., only in the U.S., it will require nearly 100 new nuclear plants and almost none are being built today. So this is the reason why we are coming into these discussions because with our system approach, we are helping the different stakeholders, hyperscalers, colocation providers and more and more enterprises to design a more sustainable infrastructure to run it much more efficiently by reducing the emissions, the energy use and also the water consumption for the cooling. And I think we are extremely well positioned to lead in this critical growth area. Now let’s talk about AI, and specifically the regulatory compliance. This is quickly becoming one of the biggest bottlenecks in highly regulated industry.

And with what is happening around the world with the deglobalization, it’s even worse. But for us, if we see the positive side, it’s a USD 100 billion opportunity, almost doubling every 5 years. Do you know, if I’m just taking some concrete example, that for an aircraft certification, it can take 3 to 5 years and involve more than 100,000 requirements to be fit and to be fulfilled, only for one certification authority. It’s almost the same in the pharma. If you — the pharma submissions, the drug submissions can be over more than 100,000 pages — and each delay, each day you have a delay, it costs more than $1 million. And I think the industry who has pushed this at the maximum of the extreme in the banking industry, you have these constant updates.

And just last year, it’s $14 billion in fines just only in the U.S. So with the AI-powered virtual twin, I think we are turning this compliance into strategic advantages by transforming all the massive documents you have, the millions of pages you have to read and to understand and to do the interpretations into a dynamic knowledge and automatically verify the design. So it’s really compliant by design. So what used to take months now takes minutes. What used to slow down now is helping you to move faster and I think the compliance is going from a first center to a competitive edge, and we are building the solutions to make it possible. You know that we have already launched our first AI roles and our virtual companions, but more will come soon.

Now lastly, let me touch on one recent acquisition. In Q2, we acquired ASCON QUBE technology, its start-up in the factory automation based in Germany, the nation of automation. They work with major players such as BMW and others, and their software is now part of the DELMIA brand, making our manufacturing offer even stronger. What do they do? You know they serve the factory automation, and it’s a large market dominated by hardware players. And in fact, it’s almost 90% of the EUR 13 billion market. The flip side of this, to program those hardware, those PLCs, you need an army of professional services to do it. This is going to change with AI. And we believe the software will drive 2/3 of the value in the coming years. I think with the rise of what we call the software-defined products, we are seeing more and more in the industry the need to have what we call the software-defined production systems, flexible, cost effective and fully traceable.

And I think we are building that future with our virtual twin of production system. To close things out, there are a few comments I want to make. First, we are operating in a world of growing complexity, and this is exactly where we had value. We add value for all the industry on these specific things. Whatever the complexity is coming from the geopolitics, from the innovations, from the breakthrough technology, which are changing the games. I mean, we know how to handle this complexity and to make it manageable. Our 3DEXPERIENCE platform really help our customers to move faster, work smarter with the others and adapt with confidence. And I think over the time, we have created deep and long-term value for our customers. And it’s at the end, just — we are just getting started.

So thank you for your participation and your consideration. And now over to you, Rouven, for more on our financial and guidance.

Rouven Bergmann: Thanks, Pascal, and welcome to our call from my side. Thank you for joining us. Q2 was a solid quarter. As you heard, it was well aligned with our objectives. And what I’m particularly pleased about is the very resilient performance across our manufacturing industries, mainly driven by the outstanding results driven by our brands, SIMULIA, ENOVIA and CATIA. And regarding the operational efficiency, we continue to focus our investments on capturing long-term value while protecting the earnings per share. As you just heard, in this quarter, we acquired ASCON, an innovative start-up with a mission to make software-defined manufacturing industrial scale ready. We see the world of software-defined products and software-defined manufacturing coming together.

It’s an exciting moment for us and positions us in a very strategic market with AI and manufacturing automation. Now let me take now the time to review our performance of Q2 and the first 6 months. In Q2, the total revenue and software revenue were both up 6%, excluding FX, and it was driven by subscription revenue growing at a rate of 10%. The engine of growth remains the very positive momentum in 3DEXPERIENCE, up 20% in the quarter. We had a good quarter in upfront license revenue, which was up 5% due to strong growth in China and multiyear subscription contracts. The operating margin was 29.3%. It was impacted by 50 basis points of negative currency headwinds when compared to last year. Additionally, when excluding the dilutive impact from acquisitions, the operating margin was up 10 basis points.

EPS was EUR 0.30, up 4%, excluding currency year-over-year. Looking at the first 6 months, total revenue was EUR 3.96 billion, up 5%. The service revenue was lower in H1. However, we expect Q2 improvements to continue into H2 in line with our full year objectives. Now to conclude this part, I want to highlight the progress in the shift of our business model and the lifetime value reflected in our recurring revenue base, which we see growing at 7%, driven by subscription revenue up a strong 13% year-to-date. The recurring revenue now represents 83% of software revenue, and this is what provides increasing visibility as our client base continuously expands the trusted long-term relationships. Now turning to our growth drivers. In Q2, we saw very good 3DEXPERIENCE revenue, up 20%.

And as a result, the share of software revenue is now representing 41%, up 5 points. New 3DEXPERIENCE deals in the quarter show a healthy distribution across many industries such as high-tech, auto, aero and defense. This highlights the growth potential of 3DEXPERIENCE and cloud and comes at an increasingly critical time for our customers who need to transform their business model, leveraging Gen AI. Cloud revenue grew 6% in the quarter and 7% year-to-date. 3DEXPERIENCE cloud — in 3DEXPERIENCE cloud, we saw a 26% growth in H1, driven by strong customer adoption of our cloud solutions. And we are encouraged by the early adopters testing our AI use cases. Now let me briefly review the Q2 results versus our objectives for the quarter. Total revenue came in at EUR 1.523 billion in the quarter, which was EUR 12 million higher than the midpoint of our guidance in constant currency.

However, the currencies did move more than what we expected in the quarter, resulting in a negative headwind of EUR 38 million. Operating margin was 29.3%. It was below the guidance midpoint, mainly due to a negative currency effect of 30 basis points. Operating income in Q2 was up 5%, excluding currency, with an OpEx growth of 6%. Now looking into H2, we expect to maintain a similar expense run rate as we will make focused investments to support our growth. EPS was EUR 0.30 within the guidance range, thanks to a solid operating performance and a slightly better financial income, while the tax rate at 18% was in line with our projections for the quarter. Now let’s focus on our geos and product lines. Europe was up 10% in Q2, and it was led by the strong performance in France and in Southern Europe.

We saw good growth across multiple end markets such as auto and aerospace and defense as well as High Tech. Subscriptions provided a very strong tailwind in the quarter. The Americas rose 2% in Q2 with good performance in Industrial Equipment and High Tech, which was both up double digit, and it was also very resilient growth in Aerospace and Defense over the first 6 months. Asia was up 6% in the quarter, and it was led by strong double-digit growth in China. It was driven by high-tech industrial equipment and a solid performance in the transportation and mobility market. Meanwhile, India and Korea showed resilient performance, up mid-single digits in the first 6 months. Now let’s go through the performance by product line. Industrial Innovation software revenue had a very good quarter, growing 9%.

As mentioned, it was led by the strong growth in our brands, SIMULIA, CATIA and ENOVIA. For Life Sciences, the growth was flat in the second quarter with MEDIDATA continuing to be impacted by a weaker CRO segment. While the Enterprise segment was performing well at the mid-single-digit growth, the mid- market was resilient despite lower clinical trial volumes. Conversely, we see an increasing momentum when it comes to the shift from lab to manufacturing and supply. As Pascal mentioned, when combining the revenue driven by our 3DEXPERIENCE solutions in the life sciences industry, we see growth in the mid-teens at a revenue run rate of EUR 200 million plus. And again, this quarter, we had several wins such as Amgen, Vertex, Corcept and Nihon Kohden in MedTech, where we are winning with the 3DEXPERIENCE platform.

Now an additional comment on MEDIDATA. We’re confident on our momentum with large pharma as evidenced by the good renewals over the last quarters and also our pipeline that’s building ahead. With regards to the clinical trial market, the volumes have stabilized; however, the market has continued to shift towards smaller trials and a lower share of Phase III. At the same time, MEDIDATA maintained market share globally. And with Rave Lite, we are more competitive in price-sensitive domains and regions. Reflecting this on our outlook, we expect modest growth for MEDIDATA in H2. Moving on to mainstream innovation. Growth for the segment was moderate. SOLIDWORKS was up mid-single digits with volumes acceleration and the shift to subscription being well underway.

Centric had a softer quarter than expected in Q2 due to some timing effects of renewals. Overall, we see Centric very well positioned and expect renewed growth in H2, supported by the tailwinds of renewals with some very concrete upsell potential and a good pipeline. Centric’s compelling AI-infused PLM portfolio, including pricing inventory and now boosted by Centric product experience management helps fashion and retail customers optimize designs, the production and distribution of collections in real time. It is a top priority when operating in a constantly changing market dynamic. Now turning on to cash flow and balance sheet items. Cash and cash equivalents totaled EUR 4.84 billion as of Q2 compared to EUR 3.953 billion at the end of 2024.

This is an increase of EUR 131 million. And reported on a euro basis, cash and cash equivalents were negatively impacted by the weakening of the U.S. dollar to euro over the period. And this is EUR 274 million, an impact of EUR 274 million as of H1. At the end of the quarter, our net cash position totaled EUR 1.506 billion, an increase of almost EUR 50 million versus the net cash of EUR 1.459 billion as of December 31, 2024. Now let’s look at what drove our cash position at the end of the first half. We generated EUR 1.147 billion in operating cash flow for the first 6 months, which is up 2% year-over-year. While we had a seasonally strong Q1 cash generation driven by strong collections on contracts signed in Q4 and improvements in operating working capital, Q2 was mainly impacted by the timing of billings and some payments and a negative currency translation impact.

Now net of currency, operating cash flow year-to-date would have been up 4% year-to-date. For the first 6 months, cash conversion from non-IFRS operating income was 1.23x, similar to last year. Now any additional information you will find in the operating cash flow reconciliation in our presentation that we published earlier today. To sum up, operating cash flow in H1 was mainly used for investments, EUR 332 million, of which EUR 240 million was dedicated to acquisitions and with the remainder in CapEx of EUR 95 million to support our business and cloud growth. We paid EUR 343 million in dividends and made a net repurchase of treasury shares of EUR 84 million year-to-date. Now what to expect for the full year? We now expect the operating cash flow to be flat for the year.

However, I want to highlight that this is only a timing effect. The main reason for this change is that in the current volatile business context, it was important to us to secure long-term customer contracts in H1. And that includes payment terms with collections early next year. The bottom line is we have a timing impact, as mentioned, on the operating cash flow in 2025. However, we are securing the long-term value of our customer relationships and fully recover the cash from those receivables early 2026. The other element impacting the year-on-year operating cash flow growth is related to nonrecurring tax payments and social charges, which will mainly materialize in Q3. This includes the impact of the rate increase on social charges for share-based compensation and the exceptional contribution [indiscernible] in France.

This was already factored in our previous estimates. The DSOs already improved by 14 days versus the beginning of the year, and we are continuing with this effort in the second half. Now looking to our financial objectives for ’25. We — as you heard, we maintain our ’25 guidance range for both the total and software revenue to grow 6% to 8%, excluding currency and EPS to grow 7% to 10%, excluding currency impact. That means recurring revenue will be 7% to 8%. And within that, subscription growth is in the range of 13% to 15%. As some of you have already reflected in your models, we also adjusted our FX assumptions, our currency assumptions to reflect recent currency movements, particularly in the U.S. dollar. This impacts our revenue and EPS in absolute terms.

Thus, we are now expecting to report total revenue for ’25 in the range of EUR 6.410 billion to EUR 6.510 billion. Likewise, there’s an impact on our operating profit margin, which we expect to be in the range of 32.2% to 32.4%. At the EPS level, we now guide for full year 2025 an EPS of EUR 1.32 to EUR 1.35, with the currency effect causing EUR 0.04 of an impact. Now I want to highlight that the growth in constant currency remains unchanged. Briefly for Q3, let me provide a bit more insight to help you refine your models. We expect Q3 revenue growth in the range of 5% to 8%, with software revenue growing 5% to 9% and the subscriptions up 10% to 15%. Operating margin is expected in the range of 29.7% to 29.9% and EPS growth is in the range of 5% to 9%, excluding currency, to achieve a range of $0.29 to $0.30 EPS for the quarter.

Now in conclusion, as I reflect on the full year, you already saw our revenue growth accelerating from 4% in Q1 to 6% in Q2, and that was despite the volatile global environment and the tariff uncertainties. So you can see that the momentum is building, and we expect H2 to continue in a positive direction. At the low end of our guidance, and this reflects 2 points of acceleration from H1 to H2 and the building blocks to achieve this 2 points of growth acceleration are broad-based, and they are supported by our pipeline, including the momentum of 3DEXPERIENCE, specifically in the industrial innovation market, but not only. And also it’s supported by the gradual improvement that’s expected with SOLIDWORKS and also with Life Sciences. As well on top, we have the return to double-digit growth that we expect from Centric in H2.

So to conclude, finally, we continue to — I want to highlight, we will continue to invest right for innovation, customers and shareholder value. Everything we do is guided by a single principle, creating long-term value and sustainable value for our clients, our shareholders and our diverse industries that we serve. And now Pascal and I are looking forward to taking your questions.

Q&A Session

Operator: [Operator Instructions] Our first question today is coming from Mr. Jay Vleeschhouwer of Griffin Securities.

Jay Vleeschhouwer: Let me start with a number of questions on 3D UNIV+RSES, let’s call it UR for short, which was highlighted, of course, at the meeting last month. You gave a specific revenue objective for several years from now for that brand. Are you also able to be specific about the internal investments or spending specifically pertaining to UR? I mean, are you able to separate out what you’re spending for that versus everything else that you’re doing? And perhaps you could talk about some of the initial roles and packages and deliverables to that brand objective? And then an additional question about that.

Pascal Daloz: Okay. Jay, I will maybe start and Rouven, feel free to add. So on the investment side, the topic, Jay, is much more how to rebalance the R&D capacity along the different technology we are using. To make a long story a short one, it’s how you are basically redeploying some modeling, simulations and AI capability to be relatively well balanced between those 3 domains, which are the foundation for the next generation of virtual twin. And you remember, the universe is really when you connect all those virtual twin together. That’s — so clearly, we continue to invest. But the biggest lever we have is really how to redeploy some of the existing capacity we have. From a portfolio standpoint, we started to release, if you remember, 2 different nature of things.

One is what we call the virtual companion. And the virtual companion is very simple to understand. As you may know, all of our software are packaged in roles, processes and solutions. So the virtual companion is the AI extension of the existing role portfolio. For all the role we have within our portfolio, we will have a collection of virtual companions attached to it with the idea that the virtual companion is doing 2 things: one, basically automating certain tasks. And the other one, expanding the capability of certain role by encompassing a knowledge, which is normally not fully mastered by the current person having the roles. And the compliancy I was referring to is a good example of this. The second nature of what we do is the generative experience.

Here is when — if you want, the virtual twin is automatically created. It’s not a question only to have a set of companions is when you have companions almost working together without having human being part of it and generating the end results. So — and you are aware that we have this initiative called Virtual Twin as a Service. We made several times the presentations what it means. And this is typically a category of generative experiences we are releasing on the market right now. And the second example I was referring to in my presentation, in my comments earlier, which is moving from the software-defined production systems. This is exactly what I mean. It’s how you can automatically generate the code, which will be embarked into the new generation of [ PLC ] without having an army of people to do it, will be automatically generated by the algorithms.

So this is the 2 nature of the things we are delivering. Now if you look at — we release — I do not have the exact number, but it’s in order of magnitude or more than 20 companions already. And we have around 10 generative experiences already in the market. And we are continuously on — not on every quarter, but because it’s an agile development. So we are releasing almost every 6 weeks the portfolio. And I do expect that in probably 18 months to have more virtual companion than we have growth within our portfolio and to have more generative experience, and we have processes in our portfolio. Long answer, Jay, but I think with this, you have a clear understanding of what we do.

Jay Vleeschhouwer: Okay. So perhaps one more on that subject, and then I’ll switch to something else. So is there anything in your experience over the last 3 years since you introduced 3DEXPERIENCE Works that is indicative of or lesson for how the progression of 3D UR might go? And the reason I ask that is 3 years ago, DS was quite optimistic on the adoption of 3DEXPERIENCE Works. You thought it would be one of the principal leaders of your cloud revenue growth and didn’t quite work out so far that way. So is there anything in that experience in terms of the product, the pricing, the channel that might be indicative for you of how this new brand might progress over the next number of years?

Pascal Daloz: So there are 2 angles to answer to your questions. One is, as you say, the simplification of the portfolio. We did it — and I’m sure you are aware that we oversimplify. We came back to the recipe, which you know, which is Standard, Premium and Pro. And by doing — by having those configurations, we are basically enriching the different configuration with more capabilities within each. So I think the portfolio is done. The topic which is a little bit more tricky is the following. As you know, with the Works family, we are not only addressing the CAD market, but we also are addressing the life cycle. We are addressing the simulation, and we are also addressing the manufacturing part. And also with DELMIA Works, the ERP part.

The lesson learned over the last 2 to 3 years, we need to have specialized partner. The Works family has already integrated all those products in one single platform, which is giving for the customer the benefit to have by design and integration, which is done. And by design, new capabilities we can do. For example, we can do the order-to-build systems. We can design to target. We can basically have the different processes being collected. But to do the go-to-market, you need a higher specialization of the resellers. And this is the missing piece. You know relatively well the CRE, the SOLIDWORKS resellers network. Many of them are extremely skilled on the CAT side, but only little of them have a deep expertise on the different domain I just mentioned.

So we need to complement this network by either having specialists or having a different way to give the accreditations in order to promote the things.

Jay Vleeschhouwer: Okay. So just — it sounds like, therefore, the 3D UR will be pretty dependent more on CSE and CPE than CRE — last one…

Pascal Daloz: No, no. I think it’s a different category of partners. Let me give you an example. The DELMIA Works is really a fantastic product. But only — I don’t know, we have less than 10 resellers capable to promote what an ERP is to this installed base. So we have to hire some specialists, the ERP specialists, having, by the way, the services practice in order to do the proper configuration for this kind of product line. So this is what I mean.

Jay Vleeschhouwer: Okay. Two last questions perhaps. For Rouven, within the context of your expense and headcount growth for the year, in Q2, there was an interesting shift where sales was a higher percentage of your total openings than was the case in Q1. So maybe talk about how you’re thinking about your sales capacity or sales investments. And to ask a final question, our preliminary calculation is that SOLIDWORKS new unit volume was up around 9% or so to over 22,000, so certainly quite a bit better than Q1. Do you think, however, that you’ll be able to, for the year, achieve the high single-digit quota that you gave to the channel earlier this year for SOLIDWORKS or given the Q1 shortfall that it might be difficult to make that up?

Rouven Bergmann: No, I think I’ll start with the second question, Jay. Q2 was a good quarter for SOLIDWORKS in terms of unit expansion and growth, quite an acceleration compared to the first quarter. So we are on the right trajectory. Specifically, the growth was driven in North America. So I think from a geo perspective, also, we are well balanced. North America was a little bit of a headwind in the last years. And I think we see this now behind us. So we are confident about the target that we set for the SOLIDWORKS volume growth. Related to the partners — related to the headcount, it’s an interesting observation that you’re making. Some of the — of course, the job postings are also related to — are twofold, right? They’re either growth or replacements.

So it can also be that from time to time, there’s more replacements than growth. So overall, our investment policy has not shifted. We have done investments over the last 2 years in sales at a higher rate than into other areas. And we are not planning to follow that trend and rather slow it down a little bit. So for that perspective, I think there’s not much to read into this, what you observed as a trend. It’s more a reflection of a combination of growth plus replacements that you can then see in the total hiring, but it’s not a reflection of the net growth.

Jay Vleeschhouwer: Understood.

Rouven Bergmann: I would add maybe one point, Jay. If you include, for example, Centric, this is clearly where we have invested a lot in sales because here, we are building a sales force for a dedicated market and it’s very large market, a very, very large market. You know we are opening new industries with retail. There’s a large market to cover. And we have gone through a renewal cycle, which also has been a new experience for this company because so far, it’s been hunting. Now we are doing hunting and farming together.

Operator: [Operator Instructions] We will now move to Balajee Tirupati of Citi.

Balajee Tirupati: Two questions from my side. Firstly, I wanted to understand the change in share count in the quarter as well as increase in share-based comp view. Firstly, on share count, considering employee shareholding plan and the amount of buyback, what has led to the EUR 8 million decline here? And secondly, on stock-based comp, which is now more than 5% of revenue in 2025. I understand pulls and pushes around employee shareholding plan, also increase in social charges and change in share price. Still, could you advise how should we think about stock comp beyond 2025?

Rouven Bergmann: Yes. Thank you for the questions. So maybe I’ll start with the second one. So in the share-based compensation, there are a few effects in 2025 that are — that you won’t see repeated in 2026. So one, for example, is the employee share-based plan, which we do every 2 years, and that accounted for 1/3 of the increase year-to-date. The second effect is that we have, which is elevating the share-based compensation is related to the social charges that we have to expense related to share-based compensation, which are differently computed in France than in the rest of the world, specifically in the U.S. because social charges are not capped in France. So the rate you pay on social charges has increased from — the rate you pay on share-based compensation for social charges has increased from 20% to 30%.

And that has been a significant increase when you do the year-over-year comparison. Now part of that will, of course, be recurring because that rate is not going to be temporary. That rate will continue, which will make the share-based compensation or the share- based programs more costly. But there was a catch-up effect as well that we had to reflect in the second quarter. But these are the 2 main effects that are driving the increase in share-based compensation year-over-year. And I expect in 2026, this to come down for one part because we won’t have a share-based plan for the employees next year. It will be the year after in 2027. And also in terms of the vesting of plans, in 2026, we have less plans vesting than we have in 2025, which is a factor.

So — but overall, I think our policy on share-based compensation in terms of the volume and number of LTIs issued is very consistent. And the real variable element is the social charges on share-based compensation.

Balajee Tirupati: Understood…

Rouven Bergmann: Please?

Balajee Tirupati: No, I was just repeating the question on increase in — or decrease in rather share outstanding in the quarter despite a share-based plan and limited buyback.

Rouven Bergmann: Yes. We have — we are — as you know, we are performing share buybacks to offset the dilution from share-based compensation. We also advanced some share buybacks related together the employee plan, which we completely take off the market when it’s issued. And so that has an impact in the quarter. It’s a small one, and it will neutralize over the year. But it’s really related to share-based compensation. It’s not anything else.

Balajee Tirupati: No, understood. So the question was more that I see there is on your cash flow, there are charges around buyback as well as charges around issue of new shares, which is broadly comparable. Still the number of shares outstanding in the quarter went down by EUR 8 million. So is there an impact which is more on account of timing during the quarter and will reverse in coming quarters?

Rouven Bergmann: Yes.

Balajee Tirupati: Okay. Maybe if I ask another question here with your permission. How are you seeing your clients who have signed contracts with you ramping on implementing the software? I ask as growth in your services business has been moderate, and we are also seeing in general system integrators citing more measured client behavior. And given your revenue and subscription contracts ramp with implementation, does that create some sort of headwind on software revenues?

Rouven Bergmann: No. I think it’s a right observation that our service revenue was a bit muted in the first half, but the order book is very healthy. We expect an acceleration in H2. And we have won some significant contracts over the last 9 months, which we are ramping up. And at the same point in time, our portfolio is shifting now to AI. And also, we have to manage that at a global level, U.S. versus Europe versus Asia. That’s another factor. But maybe, Pascal, you have a bit.

Pascal Daloz: Maybe I should complement a little bit. At the beginning of the 3DEXPERIENCE when we introduced 3DEXPERIENCE in the market, we were doing most of the services as a prime for our customers. Now after more than a decade, the vast majority is flowing through the [ CSI. ] So this is the reason why also, as you can say, using the license as a proxy to anticipate the revenue coming from the services could be a little bit tricky. Now what is the reason why we are doing this? It’s because we want to have the global capacity to be able to deploy worldwide and to have also this capacity to be spread across multiple partners, not to have dependency only on one of them. So this is the reason why you have this a little bit disconnection between the 2.

But as Rouven say, we expect anyway to have some recovery also at the end of the year because we have also some project ramp-up and also commissioning of some certain deliverables because we are less and less time and materials, and we are more and more deliverables driven, which is also a way for us to ensure that we have the right gross margin on the services activity, which is, again, for us, it has always been clear that the main point, and this is the way we are managing the services is on the gross margin. It’s not on the revenue side.

Operator: The next question today will be coming from Mr. Jason Celino, calling from KeyBanc Capital Markets.

Jason Vincent Celino: Maybe just one clarifying point. I think on the morning call, you talked about some deal slippage in the second half. It sounds like most of it was dominated in the U.S., but curious if there’s further color on like what sectors that might have been seen in.

Rouven Bergmann: Well, I think — thanks for the opportunity to clarify. From us, we didn’t talk too much about slippage. We said we are — we secured some major deals in the first 6 months, multiyear contracts that we closed in H1. Of course, in our pipeline, we have the deals that can shift between quarters. But I think when I look where we are for the first half of the year, we’re on track to achieve our guidance. We secured that through larger transactions that we closed across several sectors, but also the volume of deals was healthy. And for H2, yes, there are certain — there are deals that maybe we could have had — that moved a little bit into the second half, but that is the nature of things. That’s not a concern at all.

And it was offset with other deals we signed in the first half. So it’s the nature of being able to pull in and then let things maybe mature a little bit before you close at the right time. So I think we have mastered that for — so far for the year and the trajectory is in place.

Pascal Daloz: But Rouven, I made this comment during the Q&A when I was seeing that the volume of deals slipping from one quarter to another one, whatever it’s in terms of number of transactions and volume of transaction was increasing, right, compared to what we used to see in the past. And I was also mentioning, you’re right that some of this is coming from some large deals we have in the U.S. because U.S. is really the geo where we have not only a large potential for large deals, but also more dependence, I would say, to fulfill the growth with the large deals. Answering to your question, this volatility is clearly coming from the auto and the aerospace. And why so? Because what Mr. Trump is doing to have Americas being back in the manufacturing space.

This is good for the nations, but for many American companies, it’s a nightmare because they source most of the systems or the subsystems from abroad. And for them, they are — when they import the systems or the parts, it’s like considering by — they are exposed to the same tariffs than any kind of company. So this is the reason why, yes, you’re right, we have a little bit volatility we can see. But it’s not at an order of magnitude, which is crazy. It’s I was making this comment this morning. Usually, we have between USD 25 million to USD 30 million shifting from one quarter to another one. And here it’s 2x to give you an order of magnitude what we are talking about.

Jason Vincent Celino: Okay. Excellent. No, that’s very helpful. And then I think it was also mentioned that you have about 2.5x coverage for your pipeline for Q4. Curious how this compares with other Q4s or other periods. It’s just in software, we hear coverage ratios sometimes higher than this. But obviously, you know best if 2.5 is consistent with your trends.

Pascal Daloz: In average, because it’s basically 2.5x across all the product line we have, across all the industry and across all the geos. But to give you a comparison, it’s a good number. It’s really a good number. Usually, we are much more close to 2, 2.1, 2.2. So 2.5, it’s really a good one. There are certain product line or certain geo we know that we need much more 3x because due to the volatility and so on. But in average, it’s a good one. And more importantly, I made this comment this morning, is relatively well distributed across many industries and many geos. So we do not have too much dependency on 1 or 2 geo or 1 or 2 industries.

Operator: Last question is coming from Mr. Frederic Boulan, Bank of America.

Frederic Emile Alfred Boulan: Two questions, please. First of all, on AI, if you can spend a bit more time on your commercial model, what kind of upside per seat do you expect versus your existing offering? I mean, I think you said this morning, it’s still a bit in flux as a debate. And one concern on the industry is risk to seat-based pricing with more efficient AI agents. Is it a risk you see on your customer base? And then a different question on MEDIDATA, still no progress on growth in Q2. It would be good to have an update on market conditions, competition, traction of the new offering you launched end of last year, beginning of this year? And anything you can share in terms of growth trajectory into next year?

Pascal Daloz: I will give the first initial answer to the first one. So I made this comment this morning that AI is part of many engagements. And the most important thing for us is to prove the value. That’s clearly the key topic for us. Why so? Because AI is not an incremental improvement of what we do. It’s a radical shift. It’s a disruption. So what I have developed internally is what I call the moonshot value, whereby we are not against looking for 20% or 15%, 20% improvement. We are looking by a factor of improvement. There are certain domains where the improvement is such that we can almost automatize 90%. It’s not true everywhere, but there are certain domains where — and it’s a minimum of 2x. So why I’m making these comments because you know the large company we are serving.

So if you are telling them they can do 2x more with what they have or they can do the equivalent with what they have with 2x less, we are talking about really, really big number. And before to jump too much to the conclusions on the pricing, it’s extremely important to establish this value across the different parties and the people to recognize that not only it’s possible, durable, but what we’re going to get at the end. And that’s the reason why I do not want to rush to conclude on certain things without having this established, if you want this abacus first. Then after you have the topic of the virtual companion, which is probably easier because as you say, we are pricing role. Role is a price per seat or price per — sorry, it’s a price per name user, not per seat anymore, name user.

And what we want is a virtual companion to be usage-based, which is — and it’s a good combination because on one hand, you have almost a fixed price per user and the virtual companion is giving you the ability to upsell related to the usage. But for the generative experience, what I was referring first, which is really the big gains or big savings we can do or the new possible we can do, this we cannot basically miss the point. And that’s the reason why I really want to take the time to establish properly the value equation. We maybe not completely answer to your questions. But — and I was making this comment this morning that if you look at all the people, I’m not talking about the one providing the infrastructure for the AI, the NVIDIA of the world or data centers and so on.

They are the one for the time being, making money. But all the others, the one who have developed the services on top of it, the online services, none of them are really earning money because, again, it’s a difficult discussion between technology providers and the customer. And we need to socialize. We need to establish the common view before to discuss what should be the take we should have, the fair share should get to us. That’s where we are.

Rouven Bergmann: Maybe a few comments on MEDIDATA? So I’ll finish up on a few comments on MEDIDATA. Yes, MEDIDATA is flat year-to- date. I think there is different dynamics in the MEDIDATA business to see, one which is heavily dependent on clinical trial starts, which is the CROs, which are — we know we are — we have — we saw a continued decline in the first 6 months. And then there is a large pharma business where it’s much more strategic and broad-based and less dependent on the volume. It’s more of the ability to transform how clinical trials are designed and then executed. So we have right now — we’re seeing right now growth in the large enterprise part, which is offsetting the decline on the volume part we have with the CROs. And I think what’s important to see is that the nature of conversations is evolving fast.

On the large pharma side, I think we’re building a nice pipeline. And I’m confident on the outlook. It’s more difficult at this point in time still to assess the CRO part because it’s volume dependent. But also here, the conversations are shifting. And we have evidence for that. So I think while it’s disappointing to see the CRO growth for the first semester, we are expecting moderate growth in the second half and that should also include some level of stabilization on the CRO side. The last point I would like to make is, as you heard from us this afternoon and also this morning, our focus is clearly to expand our strategy to the enterprise level of Life Sciences. And for that, we see very positive traction. We have the complementary portfolio.

We have a strong — very strong customer base. And I think this will be an important part and source of growth for us in the future.

Pascal Daloz: Maybe before to conclude, I want to make one specific comment. This morning, we had a lot of discussion related to the cash flow and the impact on certain deals where we will collect the revenue early next year. Again, this money will be collected. It’s not lost. Rouven was giving to you an order of magnitude. And I just want to do the simple math for you. Let’s assume that it’s close to EUR 100 million because at the end, that’s the order of magnitude we are talking about. At the end, the impact — the financial impact for us, it’s only a loss of interest rate on the cash we could have collected for maximum of 9 months. So at the current interest rate at 3.5%, it means around EUR 2.5 million. That’s at the end, the losses.

Why we do this? Because if we want to push certain transaction to be closed in the current timing, we have to do otherwise the discount. And the discount to give you an order of magnitude, in this case, it will be much more close to 20%. So on one hand, you are comparing EUR 2.6 million and again, it’s a missed opportunity to have financial impact with a 20% discount, which will be perpetual. I think from a value creation standpoint, I do not understand why you are blaming us for this. I think it’s a good management decision. And I hope all the investors and all the analysts participating to this call will make the proper education to the people to understand that this is the right thing to do in the current time frame. So having said that, again, for the closing, I think Q2 is another solid quarter in terms of execution and progress towards our strategic goals.

I think we — not only we delivered strong financial results, but we continue to invest in innovation, and we remain focused on delivering the long-term value for our shareholders, customers and employees. Looking ahead, I think Rouven and Beatrix, you will be participating to several investor events in the coming weeks. And we are looking forward to the opportunity to meet, if not all of you, but many of you in person in the coming weeks. In the meantime, have a good summer break and see you no later than October. Thank you.

Operator: Thank you much, sir. Ladies and gentlemen, that will conclude today’s presentation. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.