Dassault Systèmes SE
Q3 2021 Earnings Call Transcript

Published: 29 Oct 2021

[Francois-Jose Bordonado:]

Thank you for joining us on our Third Quarter 2021 Earnings Conference Call, with Bernard Charlès, Vice Chairman and CEO; and Pascal Daloz, Chief Operating Officer and CFO. May I remind you that Dassault Systèmes’ results are prepared in accordance with IFRS that most of the financial figures discussed on this conference call are on a non-IFRS basis, with revenue growth rates in constant currencies unless otherwise noted. And that some of our comments on this call contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and the Risk Factors section of our 2020 Universal Registration Document. All earnings materials are available on our website and these prepared remarks will be available shortly after this call. I would now like to introduce Bernard Charlès.

[Bernard Charlès:]

Good morning and good afternoon. It is a pleasure to be with you all today. And as you may notice we are pleased with our third quarter results. Our team executed well, leveraging continued positive business momentum across geographies and industries. Earnings per share rose 40% in constant currencies, thanks to robust revenue growth and high profitability. Total revenue increased 12% organically, with licenses and other revenue up 24%, well above our guidance. This is reflecting double-digit growth in our core industrial end markets and life sciences. We also benefited from continued acceleration of 3DEXPERIENCE and cloud adoption. Year-to-Date, 3DEXPERIENCE software revenue grew 18%, with licenses and other revenue up 36% and cloud revenue increased 24%. We raised our full year guidance, capturing the incremental earnings upside from the third quarter. Pascal will discuss our financial performance in more detail. Now, I’d like to share some perspectives on our strategy, progress and the business environment. Each quarter we connect our achievement to our purpose; harmonizing product, nature and life. Our strategic ambition is to become the world’s number one partner for re-inventing a sustainable economy. Virtual technology was indeed born for sustainability. It was first used in industry for virtual prototyping, in some way for doing things right first time while saving materials and resources, capitalizing knowledge as well as know-how on improving environmental handprints. The greatest power of the virtual world lies on unleashing imagination, in enabling people to imagine differently and growing therefore our handprint. Sustainability is all about life cycle. We invented product life cycle management. It's about connecting the dots. Offering a multi-scale, multi-discipline, holistic and inclusive approach to innovation, is what we do with virtual platform providing an inspiration for new sustainable offerings. The 3DEXPERIENCE platform and science-based virtual twin experiences are unparalleled catalysts to rationalize our eco-bill, to harmonize product, nature and life, and ultimately reinvent a more sustainable economy. IFWE experience the virtual twin, we can harmonize this. This is the very core of Dassault Systèmes. Let's illustrate the use of 3DEXPERIENCE cloud in manufacturing sector. You have noticed maybe today that we referred to Renault adoption of our platform on embracing the move to sustainable mobility with the announcement of the transformation called Renaulution. It's really a profound strategy and business model transformation. It will shift from a car company working with tech to a tech company working with cars, adding revenue streams from services, data and energy, and becoming a leader in the energy transition. Renault has therefore chosen to partner with Dassault Systèmes for this important initiative. The company will employ 3DEXPERIENCE on the cloud to drive the RENAULUTION Virtual Twins, virtualization of both its consumer experiences as well as the enterprise, connecting all stakeholders in its value network, to enable inclusive innovation in the context of the circular economy. This will ensure the groups’ sustainable profitability and maintain its path to achieve its Zero CO2 footprint commitment, in Europe, by 2040. By doing so Renault is positioning itself to thrive in the new economy. The world has shifted from a product economy to an experience economy, one that values the usage over the product. The experience economy is not just about user experience. It is about the overall balance and impact of any service we provide to society. This means seeing industry as a value creation process for people whether you are citizen, a consumer or a patient. With this in mind, we are pleased to announce a partnership with Bloom to bring social data intelligence, data on the human experience, across industries, to our clients that needed to better improve their solution. Bloom is the first artificial intelligence company dedicated to qualitative, predictive and strategic analysis of social networks. Dassault Systèmes will incorporate Bloom's proprietary, social inference technology and real-world evidence, into our 3DEXPERIENCE platform to afford clients an understanding of consumer, patient and citizen experiences and the ability to anticipate major technological and sociological trends. Our 3DEXPERIENCE platform connects people’s lives in all dimensions and Bloom’s strategic social insights will enable human-centric experiences, truly game changer for our clients. We look forward to working with our new partners at Bloom. Turing now to Life Sciences, as you know, we are already a global leader. Life Sciences is transforming rapidly, putting patients at the center of the approach with precision medicine, generative therapeutics, decentralized clinical trials and synthetic control arms. Our technologies are unmatched in accelerating these key trends, which improve patient outcomes. Earlier this month, our MEDIDATA NEXT conference drew a record number of participants. We shared significant technological advancements with our MEDIDATA RAVE platform, that have the ability to create multi-dimensional views of patient, incorporating data from sensors, wearables, electronic medical records and other sources. This represents the next step in the evolution of how clinical trial data is captured and monitored. So, we continue to deliver game-changing innovation in the sector. During NEXT 2021, we featured a number of successful partnerships including Amgen, Boston Scientific, Labcorp, Moderna and Medicenna. We encourage you to visit our website to hear their amazing stories. Now, let’s turn our attention to some of the Life Sciences partnerships we have established during the third quarter. RHO is a privately held contract research organization, we call them CROs, with a 35-year track record as a trusted partner to leading drug development companies. RHO has selected MEDIDATA’s decentralized clinical trial technology to attract and win more sponsor bids, reduce study build time and costs, and streamline real-time visibility into patient data and quality. The promise of decentralized clinical trials to deliver better patient experiences, democratize access and accelerate drug development have established them as the new standard in research. MEDIDATA is changing the game as the first company to offer decentralizing capabilities for both patient participation and study quality. Another example in medical devices, we are working with a company enabling a patient centric approach. MGI Tech is a China-based, leading manufacturer of genome sequencing instruments and other products supporting precision medicine. MGI has chosen to leverage our License to Cure for Medical Devices solution on our 3DEXPERIENCE platform. This is an end-to-end solution to integrate a full frame on optimized quality, regulatory requirement and passion experience, therefore reducing cost on time to market. By progressing from things to life as a core part of our strategy and mission to really realize the amortization we aim at doing, we believe we are entering truly in an Industry Renaissance for life science. Together we have significant opportunity to impact passions and drive meaningful change for healthcare. Coming back to the manufacturing industry, we need to think beyond optimization to usages and reconsider the portfolio of product and services, including raw materials, as well as engineering in context of waste reduction on circular economy. Therefore, new design is essential. And we believe this will transform the entire industry. A few examples related to optimization of logistic planning and scheduling. BMW longtime partner of Dassault Systèmes is taking a holistic view of sustainability. Recently, at the International Mobility Show in Munich BMW, focused on the circular economy with its rethink, reduce, reuse, recycle approach. The company announced its goal to rapidly put in place the most sustainable supply chain in the whole of the automotive industry. To achieve this BMW is using our DELMIA Quintiq virtual environment. It synchronizes demand from vehicle plants for components and increases productivity while reducing inventory and cost. This enables BMW to address materials procurement, supply chains, and social responsibility to benefit the global community as a whole, as well as its employees. Another example is Excel, a global leader in advanced composite technology that supports customers in the commercial aerospace, space and defense and industrial markets to make products using lighter, yet stronger materials. Lighter means less fuel is required resulting in less impact on the global environment. The company's products also reduce noise pollution and help produce clean on renewable energy. Excel has also selected DELMIA Quintiq technology, truly a platform for sales on operation planning and master production scheduling, to support its effort to deliver advance, sustainable materials. In Infrastructure & Cities, we are disrupting the market. Airbus has been a valued partner for over 20 years. We are very pleased to announce a truly game-changing endeavor that will help solve global challenges and improve life on earth. Using its own space imagery, Airbus will employ Dassault Systèmes Virtual Twin Experience powered flights, our 3DEXPERIENCE platform, to create a virtual twin of the earth. Airbus plans to use 3DEXPERIENCE to provide space imagery in the context of the space data marketplace, a project founded by a consortium, including Dassault Systèmes. Creating a virtual twin of the earth will benefit the space economy as it seeks to grow with sustainability at the forefront, including manufacturing in space. It will also have positive sustainability use cases across other sectors on industries, including fighting of course, deforestation, land use and planning, security – securing the food supply and measuring climate impact. We look forward to hearing more from Airbus about this exciting initiative in the future, of course. In the new space area companies are revolutionizing the market with sustainable experience, such as reusable launchers and lot of them are already great customers, expanded lifespan satellites and even life on other planets. Our technology are changing on opening new possibilities from that perspective. A good example is in Interstellar Lab, this Franco-American company building BioPods that support sustainable living on earth, in space by generating on recycling food, water and air. Interstellar Lab is leveraging our solution, reinvent the sky on our 3DEXPERIENCE platform, which is used with the virtual twins to simulate test and optimize the performance of its BioPods, dooms and the biological systems. We are at the cusp of new era in global space with $450 billion economy with significant implication for citizen and consumers. We look forward to enabling disruptive companies with virtual twin experiences on critical technology to enable and accelerate concept to certification. For additional proof points on the imperative for sustainability, recent Financial Times survey involving 300 executives found that 36% of executives are considering how to start integrating sustainability into product development. Technology departments have made sustainable innovation a priority in 68% of cases. In our earning presentation, we feature several examples of our clients, including Bouygues, Deutsche Lichtmiete, Metsä Board, and Torres are using our technology to walk the talk when it comes to sustainability. In summary, the stories I've shared with you today demonstrate the many ways in which our clients are reimagining all aspect of business in the context of sustainability and circular economy. There are also the global commitment of the Paris Agreement to be considered. According to COP 26, 70% of the world's economy has committed to reaching net zero emission. More than 80% of the countries have updated their NDCs and all G7 countries have NDCs target to achieve net zero emission by 2050. Our strategic objective is to become a critical partner to the world, enabling countries and citizens to achieve this commitment and reinvent a sustainable economy through extending our on print and positive impact. Clearly, virtual universe is powered by 3DEXPERIENCE platform are the tool not only for our clients, but for old stakeholders to enable to design, test, imagine radically new materials, products, manufacturing process for tomorrow’s sustainable economy to be able to do so at the fastest possible speed. While in addition, we experience the change on embed significantly into everything we do, we shared with you last quarter importance of science-based targeting initiatives as BTI, approved our ambition, greenhouse gas emission targets just reducing our footprint. So, we need to walk the talk also for our own company. At Dassault Systèmes sustainability goes with innovation and is at the core of what we do with the 3DEXPERIENCE platform and industry solution. I think together we can make the difference with our clients from that standpoint. And now Pascal you have the floor and the numbers.

[Pascal Daloz:]

Thank you, Bernard. Hi everyone. And I hope you are doing well. And thank you for joining us today. Turning into our financial performance, we delivered strong third quarter results, thanks to a broad-based growth across the geo product lines and the industry. Let's start with the top line the year-over-year comparisons. First total revenue grew organic 12% to €1.160 billion, near to the top of our 10% to 13% range. Software grew 11% driven by licenses and other revenue, which grew by 24% to €208.3 billion, well above the guidance. Subscription and support revenue increased 8%, driven by the high double digit subscription growth, reflecting strong MEDIDATA and 3DEXPERIENCE safe. Recurring revenue represent today 80% of the total software revenue. Services revenue was up 19%, driven by the last 3DEXPERIENCE projects. And we achieved a services gross margin of 20% consistently better than last year. Thanks to the effort we made in 2020 to preserve the margin in the face on the pandemic and at the same time preserving also the deployment of our largest customers. From a profitability standpoint, we delivered significant outperformance in operating margin and earning per share. This was driven by revenue at the high-end of guidance, strong operational execution and the continuation of the pandemic related expense and headcount tailwinds we discussed last quarter. Our operating margin expanded 560 basis points to 33.8% versus the mid-point of our guidance of 29.15%, an over-performance of 465 basis point. EPS grew 40% in constant currencies and as reported to €0.22 compared to our guidance of 13% to 19%. Headcount, this quarter, we saw strong hiring activity, up more than two times compared to Q1, resulting in a 2% overall headcount increase driven by R&D, up 4%. I think we have a track record of delivering transformational innovation and in the context of a mission driven culture. While attrition remains elevated, we are confident in our ability to attract and retain top talent in the mid to long-term. This is a top priority for Q4 but also for the beginning of next year. Turning now to software revenue by geography. The Americas grew 12% during the third quarter, benefitting from strong performance in Life Sciences & Healthcare, aerospace, and consumer packaged goods. On a year-to-date basis, the Americas represented 38% of total software revenue. Europe increased 9% led by Northern Europe and France; Germany rebounded during the quarter, specifically driven by the auto supply chain. On a year-to-date basis, Europe represented 36% of revenue. Asia rose 13% with India and Japan rebounding during the quarter. China grew 8% on the back of strong year-over-year comparisons. At year-to-date, Asia represented 26% of revenue. Now let’s zoom on the product line performance. Industrial Innovation software revenue rose 8% to €555.3 million. SIMULIA and DELMIA performed extremely well and thanks in part to the larger client wins we did recently but also this quarter. CATIA license revenue was up double-digits while ENOVIA experienced strong subscription growth. In Life Sciences, software revenue totaled €226.5 million, an increase of 19%. MEDIDATA continued to experience strong momentum across its product portfolio including MEDIDATA Rave, MEDIDATA Acorn AI and MEDIDATA Patient Cloud, as well as across end markets including pharmaceutical and biotech companies, the contract research organizations and also the Medical Device Company, where we signed a new enterprise platform deal with one of the top 10 med device company. We also saw high, double-digit growth in attach rates and this is extremely important because it’s a way to leverage large install base, we have been to build over the time. In summary, the Life Sciences industry is transforming rapidly, adopting decentralized trials and AI based analytics using MEDIDATA’s unique data science capabilities as it was shown and demonstrated and testimonial during the NEXT conference this month. In Mainstream Innovation, software revenue rose 13% to €262.9 million. It’s broad based demand drove SOLIDWORKS software revenue growth of 12%, on the back if you remember on a relatively stronger comparisons, as the recovery started in Q3 last year. So we continued to see good adoption of our 3D EXPERIENCE WORKS family, cloud-based solutions during the quarter. Zooming on CENTRIC PLM, executed well, again this quarter, reaching the milestone of 500 clients, more than 2,000 brands and driving a high, double-digit increase in software revenue, I should say, close to the triple digit. Adding some color on industries. During this quarter, we saw very positive and broad based dynamics in key industries. The vast majority of our end markets grew double-digits, including car manufacturing industries such and transportation & mobility, aerospace & defense, and Industrial equipment, just to highlight a few. Now, let’s turn to our key growth strategies 3D EXPERIENCE and Cloud and how we’re progressing relatively to the objectives we laid out during our 2020 Capital Markets Day. Year-to-date 3D EXPERIENCE software revenue grew 18%, with Licenses & Other revenue up 36%. To now account for 28% of total software revenue, which is an increase of 3 points relative to last year. The strong value proposal of our 3D EXPERIENCE has been the key factors is driving client wins. Cloud, the year-to-date Cloud software revenue is now representing 20% of the total software revenue, plus one point compared to last year, and increased by 24%, driven by continued strength in Life Sciences and also 3D EXPERIENCE cloud. We are focused on supporting our customers as they adopt new business models. They are coming to us in order to accelerate innovation cycles, speed up execution and to drive business transformation, all centered on improving value and experiences for users and customers. Our strategy for the cloud is to enable this transformation through cloud native applications, cloud extensions to existing on premise investments and the 3D EXPERIENCE Platform with an open ecosystem. As evidenced by the Renault partnership and the momentum in the mainstream market, we see clear proof points of our cloud strategy to enable the transformation of businesses and consumers in core markets. Turning now to cash flow and balance sheet items. Year-to-date cash flow from operations rose 24.5% relatively to last year, to €1.250 billion, which is almost equivalent of what we need last year for the full year. Our net financial debt position at – end of September decreased by €850 million to and it represents debt net to $1.200 billion and putting us on pace to reach our deleveraging goal, whether ahead of schedule or mostly year before. Now zooming in our 2021 financial objectives. We are raising our fiscal year 2021 revenue growth objective range from €4.745 to €4.790 billion to €4.800 to €4.825 billion, representing an increase of 10% to 11%, in constant currencies. We are also raising our EPS objective range from €0.99 to €0.91 to €0.94 to €0.95, our growth of 25% to 27%. We expect operating margin in the range of 34.0% to 34.1% versus 32.7% to 33.1% previously. We expect the expense and headcount tailwinds we’ve experienced this year to dissipate in the coming quarters as we’ve started to resume travel, increase sales and marketing spend, and accelerate net gains in hiring in key areas across the globe. Our updated guidance captures the incremental earnings upside from the third quarter and increased revenue visibility while expenses remain unchanged. You will find more details about our full year objectives as well as our fourth quarter guidance in our earnings press release and presentation. In conclusion, I think we’re encouraged to see the vast majority of our end markets growing double digits this quarter, particularly or core manufacturing industries. It was also great to see certain countries like India, hard hit by the pandemic, stage a comeback this quarter. The client imperatives of virtual twin experiences, inclusiveness by way of platformization and the cloud, as well as sustainability are accelerating. We view these as secular drivers for the next decade. Three of our strategies, we need to enable these imperatives and our 3DEXPERIENCE platform, powering virtual twin experiences, is a competitive advantage as it connects ideas, people and data on a common architecture and a common framework Our commitment to drives clients, our strategy is real and we thank them for their continued trust this quarter. Lastly, we hope to resume in-person meetings with the investment community in the coming months. We look forward to seeing you soon. So I think Bernard and I would like now to take and answer your questions.

[Operator:]

And your first question comes from the line of Jay Vleeschhouwer from Griffin Securities. Please go ahead.

[Jay Vleeschhouwer:]

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

[Bernard Charlès:]

Okay, Jay, so as usual, you have scrutinized our website. But I will make, I will give some highlights because you are keeping good points. So you're right. I mean, we see a lot of a demand for the – on the manufacturing side. And as you may know, it's the domain expertise by itself, but it has to be crossed also with industry expertise. This is one of the competitive advantage we have, and especially North America, where we are seeing a lot of momentum and we have a lot of open positions in this domain. Relative to the sales opening positions again, that's also true, especially North America, but also in Asia, why so because against we are diversifying the domain, we are diversifying the industry we serve. We are also, you have I'm sure you notice signing, larger contract. And we need also to reinforce some of the existing sales teams we have. That's also the reason why, we are opening a significantly sales position right now. MEDIDATA, I think there are a few things we should we say. First of all, MEDIDATA invested a lot in research and development in the past. And if you remember before the acquisition, I mean, it was mainly an anti – machine, I should say. Now, we have a balancing why so because on one hand on research and development, we are leveraging the rest of the system, especially, the capacity we have in India, is a tremendous advantage to compare the core development teams we have with MEDIDATA, in New York and also in London. And also, because the goal for, the sales team of MEDIDATA right now, it's not anymore to promote only the MEDIDATA Solutions, but all the solution of that system dedicated for life sciences. And we need to reinforce, to mix different type of profile, also to be probably more transformational and probably less transactional, which is a different setup. And that's the reason why you have a significant request offers to join the MEDIDATA on the sell side. The good catch objects, okay.

[Jay Vleeschhouwer:]

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

[Pascal Daloz:]

Let's start with the second part of the question. And Bernard wants to take you about the cloud. You're more than welcome. So on the 3DEXPERIENCE platform; you miss one point, which is important. Jay my goal, our goal is to have the vast majority of the license coming from direct sales to be 3DEXPERIENCE base. But that's a different challenge for the indirect sales. Why so because you know that the vast majority of the SOLIDWORKS reseller, still promoting the SOLIDWORKS desktop solutions. And, it took times, now we have the solutions have been enabled, we have changed also the incentive of them to make to be probably much more incentivized on 3DEXPERIENCE platform related application than only the traditional the SOLIDWORKS desktop. And in countries like China, when we hire a lot of new partner recently, we are already there. I mean, just China by itself, the sign more than 200 new customers this quarter on the cloud with the new generation of SOLIDWORKS being web based. So that's the first part of the answer. The second one is also related to the second indirect channel, we have, called process engagement, there are retailing, the vast majority of the PLM Solutions, and they are tackling specifically, the supply chain of the auto and aerospace sector. And for them, you still have program running with V5, and you still need to continue, they still need to have some additional V5 license. That's the reason why, the balance is not 100%. But if I look, if I step back a little bit, and I look at what was the percentage of the mix before the pandemic. We were, the V5 was still representing 60% and now it's the opposite V5 represent less than between 33%, 34%. And the rest is 3DEXPERIENCE platform. So I think we are really looking both and we are sticking to the plan, which is exactly the one you just described. But it's not 100% today, you are right. The cloud…

[Jay Vleeschhouwer:]

Okay.

[Bernard Charlès:]

You want me to? Okay.

[Jay Vleeschhouwer:]

Yes, please. Yes.

[Bernard Charlès:]

And you could come back if you have additional question related to 3DEXPERIENCE platform. But the cloud, I think it's a very good point, which is half of the growth is coming from products solution, which is outside of the immediate scope, which is a proof that it's not the only one driving the works. So what are those pipelines we are talking about? The first one is centric PLM which is really cloud based. And the vast majority of the customers, they like to have the cloud based solutions. The second one is really old, all the new industry such as construction, consumer goods, consumer packaged goods, are the one having almost no legacy solutions, and the staffs they want with cloud solutions. And third you also have, also new comers, like the all the EV guys, or the guy developing the new sign objects. They are also starting day one with all the cloud solution we have. And last but not least REINO is a good example, REINO is really, we renewed the contract with them for the next five years. And at the end of the five years, 100% of the 3DEXPERIENCE users will be on the cloud. So it's a lot of people and we are talking about more than 20,000 people. So my point is we are against, we are sticking to the plan, the plan is to have a third of the revenue in 2025 coming from the cloud solution and I think we are rights on the path to make it happen.

[Jay Vleeschhouwer:]

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

[Bernard Charlès:]

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

[Jay Vleeschhouwer:]

Okay, very good. Thank you everyone.

[Operator:]

Thank you. And your next question comes from the line of Neil Steer of Redburn. Please go ahead and ask your question.

[Neil Steer:]

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

[Bernard Charlès:]

No, I don't think so. There are few things you need to consider, you remember one thing the vast majority of the people we have on the sell side in North America are coming from IBM's, and the rest is coming specifically from the acquisition we did long time ago the MatrixOne. This is the call. Why I'm saying that because the guy coming from IBM for some of them close to be retried, and we are progressively repeating them by a different profile, ISO in term of generation, but also in term of set of skills, because we are diversifying also in new domain and we want to have the full coverage. That's the reason why maybe you see more requests in North America than in the rest of the world. The second thing is, if you look at North America, the direct sales represent 50% of the revenue, which is not the case in the other geo. We are much more balanced between the different channels. So due to that, also you have – we are oversight if you want the requests for the salespeople in this region of the world. Last but not least we have some attrition this is true, but I think it's not at a point where it's a real issue. I think the real issue, maybe we have, we are probably taking too much time to hire people and that's the topic on which I'm working with , because we need to accelerate and to be able to involve the new commerce much more rapidly. And last but not lease…

[Neil Steer:]

Thank you.

[Bernard Charlès:]

Neil, I think we did something great. We partner with university and we have a program in place to hire fresh graduates coming from the university. And we have developed for them a journey whereby after two to three years, they are becoming a salespeople in some domain where it's difficult to find the skills. So that's also another initiative we launch.

[Neil Steer:]

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

[Bernard Charlès:]

I don't think so. I think it's a different that we are not a point solution. We are focusing on a global platformization of the industry. These – there are few things, for the EDM market we prefer to partner; there are multiple reasons for that. One, as you look at the semiconductor industry it's heavily concentrated, right? And the value we bring is not the design tool is the IP management capabilities, which is really our core differentiation. And I think if you look at the Top 30 semiconductors company, we are by far the leaders. The other – the industries are considering EDA as a small piece of a more comprehensive issue, which is the system view of their installations. The system view for us is the priority being able to have a full polycystic multi-scale system approach and this is where we see the future of the core business for integration of electronics software on mechanical system, for example, whether you are in MedTech or in smarter new products, morbidities, whatever you name them. This is where the real challenge for our customers are and therefore the platform for system integration configuration on life cycle management is significantly important to them. This is an arbitration we did, make sure we focus on the right priorities for all the clients.

[Neil Steer:]

That's great. Thanks for much.

[Operator:]

Thank you. Your next question comes from the line of Jason Celino of KeyBanc Capital. Please go ahead.

[Jason Celino:]

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

[Bernard Charlès:]

The good point, we see the return of the last deal in the pipeline, definitively is a great example. We announced GLR early this year. So earlier we are seeing those large incoming again. Now for Q4 we have some, but I would say you notice that we have been able to deliver higher than the guidance especially on the new license almost every quarter's since the beginning of the year. So I think you are already seeing some part of it. However for – I would say next year we have a interesting one. We have early reengage with many of our large customers and also new one on the longer reasons. Before the pandemic, I mean, the first six months of the pandemic, the view was almost only six months, people they were looking for very tactical solutions having short return of investment. Now, the conversation is much more oriented toward the transformations as down as , you know the challenges related to sustainability to the expense economy, such that they have to take decision and take radical decisions to in term of investments. And many of them, we are one of their top priorities. So I will say the situation is improving compared to what it used to be a year ago definitively.

[Jason Celino:]

Okay, excellent. No, that's quite helpful. And then maybe one more, if I can; when we think about this strong growth that we're seeing in metadata, could you characterize this broader industry tailwinds versus share gains or wallet share gain? Thank you.

[Bernard Charlès:]

It's both in fact. If you look at in term of new customers, gain almost a 20%, 22% of customers this year. So we are close to 2,000 at the time of the acquisition. It was around 1,200, so it's a significant and as you may know the life sciences sector, especially the pharma sector is relatively concentrated. So that's point of a one. Point number two and it's really, I mean, the growth is coming from the MEDIDATA. MEDIDATA has a significant footprint already in the large enterprises, but the mid-market was not properly cover, and I think the fact that we are together with them has accelerated diversification in the mid-market outside of North America. The second thing is a CRO. As you know the CRO is also a channel for mediator and especially in Asia, we are accelerating also sorts of channel and Q3 are being outstanding on this the standpoint. The performance coming from the CRO is extremely high, that's for the – I would say the coverage. Now inside the install base, the attach rate for all the new model is in – is it significantly increasing as well? So that's also the good news, not only rate the core product is going extremely well, but all the model like CTMS, FTMS extremely – I mean having extreme particular momentum. And last but not least, the two other new product line if you want, sharp MEDIDATA, patient cloud, and MEDIDATA economy, I expanding and growing extremely rapidly because they are unique on the market. If you look at all the competitor, we have none of them are the equivalent. So if you do the combination of those factors, it's really a broad based growth and we cannot say that only, I will say a patient cloud is growing is really across all the different axes and of the strategy.

[Jason Celino:]

Great. Thank you.

[Bernard Charlès:]

You're welcome, Jason. Next question?

[Operator:]

Thank you. Your next question comes from the line of Stefan Slowinski of Exane BNP Paribas. Please go ahead.

[Stefan Slowinski:]

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

[Pascal Daloz:]

Okay. So the recurring revenue is representing 80% of the total software, and you'll remember you have two components; you have the subscriptions and the maintenance and support. The subscription represents a little bit more than to sell now. And as I was telling you, it grew at 20% in Q3. And there is no reasons, the trend will not continue for Q4, right. The maintenance and support represent a little bit less than to sell. And I was mentioning, we reach the lowest point, which is 3% because the growth is coming specifically from the new license you sold almost the year before. And just because we started to see the new license grows back Q4 last year, this will reaccelerate it in the line of what I just described this morning, which is around 4% to 5% rapidly, I would say. Depending the mix next year, the maintenance could accelerate definitively. Yes, there is no – but just because we see more and more subscriptions coming from the non-MEDIDATA products, I should say, specifically ENOVIA and also the 3DEXPERIENCE platform. I think the – what cares for me now is it's really the growth for the recurring revenue, because at the end, this is what is about. And as you know, I committed to deliver 9% organic growth. That's what is in the plan for the long-term plan. And I will not be able to achieve this organic growth, if at the end, I'm not delivering at least 8% growth for the recurring part. Right. So if you do the math, you will see – you will find your way. Related to supply chain, of course the first of all, I think there is a big move to for all industries to reevaluate the supply chain who is doing what for which value. I think the supply chain is going to move to a value chain ultimately. And we do have in the case that you mentioned in your question about or no, the full scope of product cost, value, supply chain integration, data science, and data analytics to improve it. But there are many, many things. There are – the basic data collection needs to be done. You mentioned IoT, in the case of manufacturing operation, management manufacturing execution system, we do – you have the basic system in the shop floor that do data collection, and then we collect those data and put them in context of the virtual twin operation of the manufacturing plant. This is where the value is because this is how you can transform and improve your processes or your flow across the world. So really it's a core aspect of what we do with the platform. We – this is what I call experience as a service by the way. And yes to your question about, do we connect with other web services? Absolutely yes. And it, in fact, it's it facilitate the speed at which we can exploit and provide a value to customer from that standpoint. Everyone should keep in mind and when you have the virtual twin of the product on its – on the processes, on the life cycle of it, at the end, the convergence is on our platform, not anywhere else. You can do a nice data lake, but if you don't know to what you should compare your data, you don't, you can conclude on our betrayed and that's the value, there is a difference between basically digitalization on the authorization. That's exactly what we do with and many others.

[Stefan Slowinski:]

Okay. Thank you both.

[Operator:]

Thank you. Your next question comes from the line of Johannes Schaller of Deutsche Bank. Please go ahead.

[Bernard Charlès:]

Which will be our last question.

[Operator:]

Thank you very much, sir.

[Johannes Schaller:]

Sorry. Yes. Thank you very much for letting me on. And yes, congratulations on the good quarter.

[Bernard Charlès:]

Thank you.

[Johannes Schaller:]

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

[Pascal Daloz:]

Okay. So let's start with the second part of the question, the cloud, the – for us, the margin is equivalent, whatever it's a cloud or on premise.

[Johannes Schaller:]

That's important.

[Pascal Daloz:]

That's very important for you to understand, because there is no delusion of the margins, the more we are selling to the cloud. And one of, and the reason is because we have our own infrastructure and we control the efficiency of this infrastructure. So the margin is for us, it's not for the provider, I should say. That's point number one. Point number two, what I say, I say last time, you should count that a point to a point and us will be, the decrease, the order magnitude of the decrease of the operating margin. So today the full year will be at 34% mid margins. So, targeting $32.5 seems reasonable. And the reason is there are few things. One of them is the one you just described. But that's not the only one. It's also the fact that we want to have the people back on the road. We want against to reenergize the marketing and especially the physical events, does not mean everything will be physical. We will continue to do the digital things. But reconnecting with customers with partners is becoming are very important. And I do not want to miss the opportunity and the window to make it happen. So that's the reason why I think it's our best interest. If we want to continue to fulfill the growth to deteriorated a little bit the operating margin next year because we need it.

[Johannes Schaller:]

That's clear. Thank you very much.

[Pascal Daloz:]

You're welcome.

[Bernard Charlès:]

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