Good day and thank you for standing by. Welcome to the Dassault Systèmes preliminary second quarter 2024 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Béatrix Martinez. Please go ahead. Thank you, Sandra. Good afternoon and good morning, ladies and gentlemen. Thank you for joining us for a review of our second quarter preliminary financial results. On the conference call are Pascal Daloz, CEO, and Rouven Bergmann, CFO. Dassault Systèmes results are prepared in accordance with IFRS. On this call, our discussion will be limited to non-IFRS financial information in order to make comparisons to our financial objectives, which are presented solely on a non-IFRS basis. All growth figures will be on a constant currency basis. These figures are before deferred revenue write-downs, amortization of acquired intangibles, share-based compensation expenses, and other operating income and expense, net and the related tax effects as applicable. In addition, some of the comments we will make on this call will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in today's press release and in our 2023 document reference, Universal Registration Document. We will begin with formal comments by Pascal and Rouven, and then we'll take your questions. Since the information we are sharing today is preliminary in nature, it is subject to completion of our closing work. We may not be in a position to respond to all your questions at this time, but we will do our best. Finally, we will return to our pre-earnings quiet period beginning this evening, and we'll provide no further comments until we release our comprehensive 2Q results and analysis on July 25th. I would like now to turn the call over to Pascal Daloz, Chief Executive Officer. Thank you, Béatrix. Good morning and good afternoon to everyone, and thank you for taking the time to join us on this call, to, as you say, to discuss the preliminary second quarter results. Let's get straight to the point. As you saw in our press release this morning, we missed our second quarter by EUR 30 million or 2%, as we experienced delay in customer signing in an increasing complex geopolitical environment. So first, I really want to apologize for that on behalf of the management team. In fact, at the end of the quarter, we saw several large transactions shift out of the quarter. While the Q2 pipeline permitted to deliver our initial guide and the need of our solution remains strong, we have observed cautiousness in the customer decision-making. However, I want to be clear, none of these deals were lost, and they remain active in our roadmap for the future quarters. So to give you a bit more color on this, there are a few things I want to share with you. First, these results reflect an increasingly scrutiny of large deals in major economies, including one mega deal that has shifted out of the quarter as the scope of the investment is evolving and still in discussion. In terms of industries, aerospace and defense were the most impacted in this quarter. And looking at the product lines, Medidata was in line with our objectives as well as SOLIDWORKS. From the perspective of the geos, we saw an increased volatility in the last weeks of the quarter across Europe as well as in the U.S., and we assume that this volatility in decision-making will continue, and as a result, we believe it is prudent to integrate this in our full year outlook. While we are disappointed, we stay extremely confident for the second half, and I remain personally committed to Dassault Systèmes' long-tracked record of delivering results in accordance to our guidance. With that, let me pass the floor to Rouven. Thank you, Pascal, and also good morning, good afternoon to all of you. Thank you for joining this call. First, I would like to start off by highlighting that these results are still preliminary, and as planned, we will update you with our full financial details during our scheduled earnings release on July 25th. With this preliminary Q2, total revenue is estimated at approximately EUR 1.495 billion, or growth of around 4% in constant currency, which compares to our objective of EUR 1.525 billion-EUR 1.555 billion. Preliminary Q2 EPS came in at 30 cents, which is in line with the objectives at 30 cents to 31 cents. The miss of approximately EUR 30 million in revenue below the guidance includes a positive currency effect of about EUR 10 million, so the impact of currency on, and the impact on currency on the EPS is very marginal. The revenue shortfall is mainly due to some large transactions that shifted at the very end of the quarter, primarily in aerospace and defense, as the macro environment became increasingly challenging, while we are operating in a complex geopolitical context. Consequently, we saw a lower revenue contribution from large deals in this quarter, particularly in North America and in Europe. At the same time, the number of mid-sized transactions at around EUR 500,000, was up by 8% in the quarter, which highlights overall healthy and active business activities. All postponed transactions remain active in our pipeline. However, given the unexpected delays and the back-end loaded profile of the year, we believe it is prudent to risk adjust our full year outlook, which now reflects 6%-8% total revenue growth and is supported by our pipeline. Now, let me switch to the bottom-line performance. Thanks to the disciplined expense management throughout the first 6 months of the year, plus a very healthy financial income and an improved tax rate, we were able to offset the lower revenue at the EPS level. For the year, we will continue to take measures that ensure the operational efficiency of the company. As a result, we now expect EPS in the range of 8%-11% year-on-year growth. Important to highlight, that these measures will not stop us from investing. We continue to invest in targeted areas to fully capitalize on the potential of our 3DEXPERIENCE platform, virtualizing industries across the three sectors of the economy. A brief word on the balance sheet items. We saw the anticipated catch up in operating cash flow in Q2 as a result of positive working capital improvements. As such, operating cash flow is in line with our projections for the first six months. Finally, I would like to apologize to our investors that this miss, for this miss, and assure you that we are on top of our operational priorities to deliver H2 objectives as outlined. In fact, we are confident about the growth opportunities presented in H2 from expansions with 3DEXPERIENCE and life sciences returning back to growth. Dassault Systèmes business model is very resilient, with a long runway of growth. This is pretty much what we think is important to share with you today. Before I open the call for a brief discussion, again, let me please remind you that our earnings call is confirmed on July 25th, 2024. This is as planned, where we will provide you with all the details of our financial presentation. With this, let's go ahead with the brief Q&A. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take the first question. It comes from the line of Jay Vleeschhouwer from Griffin Securities. Please go ahead. Thank you. Good afternoon. Three questions. Number one, in light of the more difficult environment, have you considered postponing or mitigating the price increases that you had planned to implement globally starting this month? Number two, how much of the $30 million shortfall is attributable to the mega deal that you mentioned? And then finally, number three, could you be more specific about some of the costs and expense actions you may take or have begun to take to limit the expense growth? Thank you. Okay, Jay, I will take maybe the first two, and Rouven, you can take the third question. Yes. So no, we do not intend to postpone the price increase. Why so? Because if you remember, our price increase are really aligned with the inflations, and usually we apply it with delays. So this has been informed. We inform our resellers, we inform the market almost six months ago about it, and there is no reasons to basically postpone it. One side comment I could make, believe me, it's a miss, but we did not compromise on the prices in order also to fill the gap. More than ever, we are committed on the value, and this is important to keep this discipline. The second topic, Jay, the mega deal, you're right to mention it. Only, the mega deal by itself could have offset the entire miss for H1. So this has definitively an impact, as you can imagine. Still convinced we will be able to close it. The question, is it in the H2 or early 2025? It's really something which is still open, and that's the reason why we do not want to take a risk by assuming a timeline which is not yet fully defined with the customers. Related to the costs and expense, maybe Rouven- Yeah. - could give some- Thank you. additional. Yeah. Thank you, Jay. In terms of the expense structure and the margin implication, you know, we have been cautious since the beginning of the year to be selective in the expense management and careful. The environment was already clear. Also, this has helped us to rebalance investments into areas where we want to double down. And this has been already in place since beginning of the year, and of course, now we will continue with this to ensure that we create the flexibility and room to make the necessary investments to support our strategic growth areas. We have the visibility for that reason. So, it's not something that is where we have to now launch a lot of new actions to contain costs. We will continue to be prudent in spend. This is our philosophy, and this will then also help us to protect the earnings per share, because it's always a combination of the operational efficiency of the financial income, and also maybe some leverage you have on tax provisions. So with this, I think we see even under the new guidance, you know, which, as you see, is risk adjusted, and the adjustment is in the neighborhood of EUR 120 million for revenue. We're able to offset with action on the expenses, with the operational efficiency, to the extent that we can protect the EPS without having to do massive cost cutting. If I may, just to clarify that last point, you said EUR 120 million risk revenue adjustment for the year- Yeah. so that implies EUR 90 million for the second half. Okay. Very good. Well, uh- All right. Thank you. Let me clarify that point quickly, yeah? So the EUR 30 million of the miss that I was referring to includes a EUR 10 million of FX impact, so it's actually ex-FX, it's EUR 40 million of a miss. I mentioned that in my prepared remarks, and that is to the low end. If we look at it to the midpoint, the miss to the midpoint for the first six months is around EUR 50, 50-ish million. And, so about 40% of the EUR 120 million is associated with the first six months, and 60% is associated with de-risking the H2 plan, revenue plan. So that's just to clarify how the EUR 120 million is reflected in our full year revenue phasing. Got it. Understood. Thank you both. Thank you. Thank you, Jay. Thank you. We will now take the next question, coming from the line of Laurent Daure from Kepler Cheuvreux. Please go ahead. Yes, thank you. Good afternoon, gentlemen. I have two questions on my side. The first is coming back to your new guidance. I was wondering how much de-risked it is. In other words, what have you done in terms of conversion rate? What other cautious assumptions have you taken in order to avoid warning again in the next two quarters? And my second question is on the Q2 miss, which happened, if I understand well, the last two or three weeks of the quarter. Was there any upfront deal, or was there a delay? I'm trying to assess why we had such an impressive impact with something that happened late in the quarter. Thank you. Thank you, Laurent. I'll start with your two questions. In terms of the risk profile of H2, you are familiar with the guidance. We had a back-end loaded year coming into 2024. So the risk profile of the 2024 as such was as such, right? That it was more back-end loaded, which is essentially the reason why, good part of the reason why we made the adjustment, is to reduce the back-end loaded profile, to adjust the back-end loaded profile of 2024. So I think we took care of this. We have also said that our H2 pipeline is stronger than H1. This remains to be the case. We have the reason why we are here, we saw a number of deals shifting into the second half or into the next quarters. And our cautious assumption for those shifted deals is that we expect to convert about 50% in the second half. I think we can do better than that, but that's the baseline assumption for now in the new guidance. And the last point is we expect, and we are confident, as you heard me saying, that Medidata will return to growth in H2, which also contributes to the growth of the second half of the year. Then in regards to the Q2 miss, whether it is license versus subscription, the situation was that in Q2, the large deals that shifted out of the quarter and that were important for us to close, to make the quarterly number, most of them were subscription deals. But on-premise subscription, you know, where you have still the license component, that you recognize in the quarter, even though it is recurring year-over-year for multi-year subscriptions, which impacted mostly the subscription line in the second quarter. So we'll see, when we'll discuss on the 25th, the P&L in more detail, we'll see some headwind on the subscription line, which again, we believe we'll be able to catch up some of it in the second half because of our pipeline in H2. Okay, great. Thank you. Thank you. Thank you. We will now take the next question, coming from the line of Nicolas David, from ODDO BHF. Please go ahead. Yes. Hi. Hi, Rouven. Hi, Pascal. Thank you for taking my question. I have two actually. Could you share how confident you are? And first, what kind of action are you taking on your sales force to improve the situation and to reduce volatility, if you think that is something you can do on your side? Or is it really something based on the market and geopolitical external factors? And how confident are you to seeing some deals already in Q3? And does it mean that maybe we could expect a Q3, which would not be so low compared to because of the comps which are quite tough. And second, the clarification regarding the free cash flow. I understand that, or the operating cash flow, I understand that you had a good Q2. Should we understand that even if you had to cut your guidance at top line and slightly at bottom line level, your cash flow guidance is intact for the year? Thank you. I will take the first one, maybe. So, Nicolas, the truth is, you know, many of these delay came at very late in the quarter, so we didn't have time to mitigate them by doing some pull forward from Q3 to Q2. So why I'm saying this, it's because the vast majority is not coming from a lack of quality of execution. We have some, usually from one quarter to another one, we have roughly something like 100 transactions, representing between 25 to 30 million, moving from one quarter to another one. This quarter it was abnormal. It was more than 3 x this number. So clearly, there is not too much we can do, if you want, from our sales force. The only things we are considering for certain deals is to put some specific incentive for the salespeople to do the closing for a given quarter. But usually, it's not related to the mega deals, it's really related to the mid-size deal, where a collection of them could make a difference. Now, coming back to Q3, you're right to remember that last year we had very good Q3. You remember we signed the JLR contract, and this was having a very positive impact. So I think in the guidance we are giving to you, and Rouven will give probably more detail at the end of the month. But, we didn't change our view, which is, again, we still believe almost 50% of the deal which has been delayed will be closed, whether it's Q3 and Q4, and we are still giving the flexibility for us to do it at the appropriate time. So that's, at this stage, what I can tell you. For the Q3 guidance, please wait only two weeks, and you will have the more guidance from us. Yeah. Maybe just to add or address your second question on the free cash flow, operating cash flow, free cash flow. Yes, Q2 was the anticipated effect. So we are on trend, even will be better than H1 last year for operating cash flow. So there, as I said, there can always be some moving parts on the working capital line. They're rebalancing in the second quarter, and then we will readjust for H2 under the new guidance. So you have to give me the time until July 25th to address this point, but as of now, I think that, and I see that given the way we can contain the operating performance of the company, offsetting the lower revenue with lower operating expenses, also down to the net income, we can offset most of it to protect the EPS with still, you know, 8%-11% growth. In the current guidance at the midpoint, we are between 9%-10% growth on EPS, if I translate the revenue midpoint to the EPS. We still expect, under these conditions, that the operating cash flow should be growing in the same range. That's not changed. We have the opportunity still, the potential to improve some working capital changes to make it better. But again, there can be timing effects, so I do not want to promise too much at this point, but I do not expect a big change to the operating cash flow based on the outlook that we provided today. That's clear. Thank you very much. Yeah. Thank you. We will now take the next question. From the line of Michael Briest from UBS, please go ahead. Yes, thanks. Good afternoon. Could you touch on, I mean, you it was clear that aerospace and defense was affected. Could you maybe say whether any other industries have shown similar signs of caution, or other parts of the world, particularly Asia? I think there's concerns around the Chinese economy. And then just to understand the sort of 40%-60% de-risking effort you described earlier, are you specifically increasing the risk attached to other large deals in the pipeline, or just taking a broad haircut? Are you actually worried about particular deals as you see them, or is it just a you know, generic provision, if you like? Yeah. Let me address the first question. So Michael, the vast majority was really related to aerospace on one hand, and defense on the other hand. And maybe I could add, certain big projects on the energy side also. Why so? Because they are subject to, to political decision. And as you know, with the elections in most of the countries in Europe, plus the coming election in, in the U.S., this is creating an uncertainty, and that's the reason why we saw some of the decisions we were expecting in Q2, not converting, in fact, right now. But again, I repeat myself, none of them are disappeared. The projects are real. They will be translated into the revenue. The question is much more the timing. Aside of this, we do not see other industry having the same patterns. Some of the mid-size deals in the auto sector, industrial equipment, have been shifted, postponed, but it's not a real pattern. Now, from a geo standpoint, as I was explaining, it's really the trend we have seen in North America, and in most of the European countries. It's not something we have seen in Asia. Asia, you will see, I think, the performance in Japan, in India, Korea, is really what we were expecting. In China, we still have some volatility, but the volatility is not new. It's coming from the state-owned company, where the decision is taken by the authorities, and usually you have some lag time because, you know, it's the decision process for the authorities is not something you can put in relation with high level of precision within a quarter, but within a semester. But besides this, I mean, there is no specific patterns in China. Yeah. To the second part, Michael, I think the de-risking is based on the experience of volatility and decision-making, and given that there was, it was anchored in aerospace and defense, as Pascal just explained, but it also included quite, you know, a larger number of bigger, larger transactions that were under more scrutiny in terms of evaluation, decision-making process. They just took longer. And in our philosophy of not compromising the value of transactions, we have limited ability to speed this up if we do not compromise the value and pricing. And under this context, you should understand the adjustment that we made. It's not specific to distinct transactions. Understood. Thank you. Thank you. Thank you very much. We will now take the next question from the line of Toby Ogg from JP Morgan. Please go ahead. Yes. Hi. Hi, good afternoon, and thanks for the questions. A couple from me as well. Just wanted to come back on the midterm, just on the midterm guidance, and specifically the 10% revenue growth CAGR. If we take the midpoint of your new guidance for 2024, it's obviously 7%. That implies a pretty steep ramp up in the growth from there, just to hit the 10%. Can you hear me? Hey, can you hear me? Uh, yes. Yeah. Can you- Um, so- I'm sorry, we were cut. Can you please repeat your questions? Because we had a problem- Yeah. with the line. Thank you. Yeah. No, no worries. No worries. So just on the, on the midterm guidance, specifically, specifically the 10%+ revenue CAGR, if we take the midpoint of your new guidance for 2024, which is 7%, that then implies a pretty steep ramp-up in growth from there, just to hit the 10%, and in theory, will require low teens revenue growth in some of the outer years to be consistent, if we're kind of, kind of tracking at 7%, now. Could you just help us with, with whether the 10% is still realistic? And if so, what gives you the confidence in that, in that acceleration? And then, just on, on the tax, Rouven, you mentioned protecting the EPS through operational efficiency, financial income, and leverage on tax provisions. Could you help us with what you're building into the midterm EPS target with respect to the tax rate, and whether that's changed? And then just last question on Medidata. You confirmed there, Rouven, a return to growth in the second half. Obviously, there's been discussion around the double-digit for 2025. How should we think about Medidata revenue growth for 2025 as a whole? Thank you. Hey, Toby. So you want guidance for 2025? I try to answer the question as best as I can, but please, understand that we are, we're not providing guidance for 2025 at this point. However, I understand your point. So with that in mind, you're right, the midpoint of the revised guidance is 7% for the full year, but it also includes 9% in H2, and it includes 10%-11% in Q4. So I'm giving you a lot of insight already in terms of how we are shaping the guidance here, after we provided the revised outlook. But the reason I'm doing that is to make you aware that, you know, the 10% is pretty much baked in our H2. The fact that we are behind is because we didn't deliver on the H1, as we planned to do, coming into the year, because some of the business delayed, as we discussed. That's the reason why we are here discussing this. So I think we are. Our commitment remains on the 10% growth. The growth levels are in place. We are going through some difficult time in the that we discussed, and we are experiencing geopolitically, but we are adjusting to that. Medidata is going to return to growth, and this brings me to your second question, or third question on the Medidata part. I think it's maybe better to connect this. The Medidata bookings performance is already back on a growth trajectory at levels we have seen, not over the last two years, in some parts of our business, in some parts of our business. In the volume-based business, we continue to win market share. We will discuss this in more detail on July 25. But what I'm saying with this is the Medidata business, even though we don't see the growth in H1, there are strong levers that we are pulling to bring the business back to growth in the second half. And then, of course, in 2025, as we continue to build backlog. So, there's a lot of things that we are, that are already in operation. New strategy that will be revealed during next. All of this will be geared towards accelerating our growth in the life sciences segment, which is part of our five-year, you know, financial plan, because life science is a key lever of this, and we are convinced and we are confident about this lever and the contribution of growth, even though we are at the beginning behind, because the numbers at, in, in 2024 are, they have to accelerate, and they will accelerate. On the tax rate, there's no change on the long-term tax rate for the five-year plan. The improvement we see in 2024 is more related to some discrete items that we are factoring in. And that's it. Maybe, Pascal, you have additional points on the... Nope? Nope. Good. That's great. Thanks a lot. Thanks, Toby. Thank you. We will now take the next question from the line of Gianmarco Conti from Deutsche Bank. Please go ahead. Yeah. Hi, thank you. Most of my questions were taken, but if I could just ask two. Maybe firstly, could you give any commentary on any M&A pipeline that you have in the midterm? My understanding is that to get to that, sort of like doubling your EPS, you have, you know, you have to get to some EUR 0.20-EUR 0.80 of additional EPS from M&A. Are you focusing now on looking to do that into next year, or is it firstly, you know, getting Medidata back on track? And second question is, if you could, you know, explain a little bit, what are your main growth levers for Medidata coming back to growth in H2? Do you have, like, product releases? Are you lowering your pricing, given this is above market rates? Sort of like any kind of indication of what can you pull to be able to, to have Medidata go back to growth, given it's partially to do with clinical trial starts going back up. Thank you. Okay, Gianmarco, you know, on the M&A, M&A has always been a catalyst for Dassault Systèmes. It's reflected in what we do. But it would be a mistake to do opportunistic M&A. That's not what we do. We have an active M&A pipeline. And the timing of M&A sometimes can be difficult to plan, but we are pursuing an active M&A pipeline and our focus on it, because it's a catalyst. It's been shaping the profile of the company, and it will continue to be in this plan and in the next plan. Regarding the growth levers, on Medidata, it's a few things. First of all, I want to start with the existing business. Then I think on what is to be expected, what's coming next in short and more long term. On the existing business, one of our strategies is to continue to gain market share in key segments of our business, which we have the evidence in phase III clinical trials. We are doing that. We're winning on average around 1-2 points of market share. Secondly, is to increase our renewal, our, the par value at, at, the time of renewal, when we, when we, renew with our enterprise customers, the contracts. And we have a track record of doing that. In fact, again, this quarter, we'll talk more about it during the July 25 release, but you can be rest assured we are renewing with our enterprise clients. And then with the Patient Cloud business, we are the leader with our Patient Cloud platform. We are expanding our relationships with our existing customers by adding Patient Cloud, which has significant uplift on the size of transactions. It's very differentiating, because customers who are on the data management platform for Rave, they are automatically on the platform for Patient Cloud. The front end is just a mobile front end for patients. So, what I'm saying is the barriers to expand with what we have are low for us and for us to further penetrate into areas where we can increase our share of wallet and grow. And with the partners that who carry a significant portion of the study-by-study business, so the volume business, we, we are focused, first of all, to defend our current space, but in addition to that, expand from where we are today into other areas of, in clinical development. For example, adding Patient Cloud, but also more holistic, data management and data, analytic solutions to improve the evidence, of clinical trials. And, and, you know, we work with top, the top ten partners of, in the world, who are, standardizing on our technology, so we're, we're clearly the market leader here. So this is what we do on the existing part. Now we are expanding our, strategy and our, the value that we create for our, for, for the pharma companies, but also for patients. And we will. This is an important focus for us to make clinical trials much easier and to conduct and with a lower risk profile and a higher success rate. This is all about is to have the right data at the right time, and to accelerate this evidence generation. This is where our strategy is, and that's where we see a lot of differentiation with our solution. And at Medidata NEXT, we will talk about that. So we have significant differentiation. We believe that the competition is reinventing what exists, while what is needed in order to reduce the risk of clinical trials is to invent what comes next, and that's what we are focused on. And maybe one comment related, because you mentioned if we have an intent to discount the prices, the answer is no. You know, we are sitting on value, and there is no intention on this. However, I think we want to probably penetrate a step further, the phase I and the phase II. Because as you may know, the core focus for Medidata is really the phase III, and for the phase I and the phase II, we need to come with an appropriate offer, which is slightly different from the phase III. So this is our intent: to reestablish the volumes, to partner with the study-by-study, the expansion through the Patient Cloud, and against more presence in phase I and phase II. Got it. Thank you. You're welcome. Thank you. Okay, and I guess we'll close the Q&A session now. Thank you for joining, and our next conversation will be on July the 25th for our full Q2 results. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.