François-José Bordonado - Head of IR Bernard Charles - Vice Chairman and CEO Thibault de Tersant - Senior EVP and CFO

Jay Vleeschhouwer - Griffin Securities Michael Briest - UBS Monika Garg - Pacific Crest Securities

Good afternoon, ladies and gentlemen and thank you for standing by, and welcome to today’s Dassault Systemes 2016 Q3 Earnings Investor Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions]. I must advise you the conference is being recorded today on Tuesday, 25th October, 2016. I'd now like to hand the conference over to your first speaker today François-José Bordonado. Please go ahead. François-José Bordonado: Thank you Christy [ph]. Thank you for joining Bernard Charles, Vice Chairman of the Board of Directors and CEO and Thibault de Tersant, Senior EVP and CFO to discuss our 2016 third quarter and year-to-date financial performance. This conference call follows our webcasted presentation earlier today in London. For your information Dassault Systèmes’ financial results are prepared in accordance with IFRS. We have provided supplemental, non-IFRS financial information and reconciliation tables in our earnings press release. Some of the comments on this call will contain forward-looking statements that could differ materially from actual results. Please refer to today’s press release and to the Risk Factors section of our 2015 Document de reference. Revenue growth figures are in constant currencies, unless otherwise noted. I would now like to introduce Bernard Charles.

Thank you François-José. Thank you for joining us here and good morning and good afternoon, to all of you. To begin let me share with you my key takeaways on the quarter. First; we deliver a strong EPS up 9% in the quarter and 11% year-to-date. Our financial performance was solid overall in terms of software results, but we can do better in terms of new licenses revenue. Second; we’re seeing strong 3DEXPERIENCE momentum. 3DEXPERIENCE software revenue increased 40% in the third quarter, and 38% through the first nine months. So from a brand perspective ENOVIA continued to show a very good growth trajectory, most of its new phase [ph] are 3DEXPERIENCE. SOLIDWORKS improving trends was visible with excellent growth. It’s newest release SOLIDWORKS 2017 is now in general availability. CATIA also had a good quarter continuing to increase its market presence in target industries and countries. Fourth; in terms of industries we’re benefiting from greater breadth with our active quarter in our largest industry transportation and mobility and in a number of diversification industries. Fifth; we’re strengthening on expanding our addressable market in High Tech and other industries addressing IoT including for autonomous cars, smart homes, smart devices and smart cities. For instance with SIMULIA, extended multi-physics simulation capabilities with the CST acquisition in electromagnetic simulation, and with SOLIDWORKS focused on significant expansion of its market opportunity, with combined mechanical and electrical focus on its printed circuit board partnership. Finally, turning to the outlook for 2016 we see a year of solid revenue and earnings growth cash flow generation, new customer acquisition and market share gains. Turning to original review following a strong level of activities in Europe and the Americas in the second quarter with double digits new licenses revenue growth, we continue to have a number of opportunities but we’re affected by timing for some 3DEXPERIENCE transactions. In the Americas, we had a lower level of large deal activity while seeing good performance in both our indirect channels. And in Europe, France and Southern Europe where the best performers in the quarter. Year-to-date both the America and Europe grew software revenue 6% with a solid contribution from most of our largest deals. Asia was the strongest region in the third quarter with many of our product lines in double-digit software growth. In terms of country performance China had an outstanding quarter and South Korea delivered a good level of growth. Year-to-date China was the best performing [indiscernible] in Asia. Moving to a product line review let me begin with our largest brands. CATIA software revenue increased 7% in the third quarter led by strong growth in Asia most notably China and by industry especially Transportation and Mobility, High Tech and AEC. In terms of its coverage we continue to invest in bringing additional specialized capabilities and this is an important component of CATIA software revenue. ENOVIA delivered another strong quarter with new license revenue growth of 27% on a total software revenue of 9%. The growth came from multiple industries including T&M Transportation and Mobility, High Tech, CPG Consumer Packaged Goods and CG Consumer Goods as well as industrial equipment. With respect to other software result reflect high comparison based to last year as well as mix performance SIMULIA, QUINTIQ and EXALEAD at solid results. This quarter I would like to focus some of our time on SOLIDWORKS. The second largest product line at Dassault Systemes representing about 20% of our total revenues. From a financial perspective, so it was software revenue increased 14% in the quarter with double digits new license revenue growth in all three regions. The recurring software results were also excellent demonstrating the strong value SOLIDWORKS brings on the community it has established with over several 25,000 commercial users. Its ecosystem is even broader with over 3.1 million users including educational research, a strong reseller network and hundreds of software partners building applications to work with SOLIDWORKS as a platform. SOLIDWORKS 2017 which was launched earlier this month has been designed to enable users to drive innovation. The new release includes SOLIDWORKS PCB printing circuit board to seamlessly synchronize electronic and mechanical design. SOLIDWORKS model based definition to quickly and accurately communicate critical product information throughout downstream manufacturing operations. In addition, we will shortly be offering to SOLIDWORKS user the possibility to connect to the 3DEXPERIENCE platform to improve collaboration for those under subscription via 3D drive [ph]. Moving now to our 3DEXPERIENCE platform on industry solution experiences. They’re showing good traction and momentum from a new licenses perspective we’re seeing very good growth up 76% year-to-date and importantly these phase are representing an increasing percentage about 33% of our related sales. And total 3DEXPERIENCE software revenue is up 38% since the start of 2016. Companies in Transportation and Mobility, Industrial Equipment, High Tech, CPG retail, CG retail and AEC were among the wins this past quarter. Among existing 3DEXPERIENCE clients Renault now has 10,000 users running on it with our Target Zero Defect Industry Solution Experience. Renault has been able to lower cost on reduced risk associated with the new platform introduction. I would like to touch on a new initiative on win with 3DEXPERIENCE City as many of you may know we’re working with Singapore to develop Digital Twin experience of this city. We now have entered into a partnership with Cybernaut Investment Group to help advanced smart cities and Made in China 2025 initiatives. At the World City Summit in Singapore held last July, we showcased the value of 3DEXPERIENCE platform in terms of how you can take all types of IoT data merge with many other information related to a cities behaviour and make sense of it, equally important with the 3DEXPERIENCE platform you can model and run simulations to improve how a city operates and helps improve daily life experiences for its citizens and businesses. Turning now to an industry review, today I would like to focus my remarks on High Tech which is our largest vertical within our diversification industries. 2016 has been a very good year with High Tech new licenses software revenue at 36% for the quarter, 30% year-to-date. We have a long presence working with semiconductor companies virtually all of the leading players. Here our Silicon Thinking Industry Solution Experience helps drive unimproved development environment efficiency, cost management and decreased time to market through improved collaboration on data management. In addition to semiconductor companies, our clients include electronics product manufacturers, here we’re seeing good traction thanks to our smarter, faster, lighter industry solution experience which helps manage embedded systems and complexity of products, with both hardware and software as well as helping to reduce side on weight of all the components. In our webcast earlier today, we had video example of how we can help High Tech companies develop and deliver efficient and safe component to be embedded in smart wearable devices. Thanks to our unique ability to model both smart connected objects as well as the human body. In this example, the human arm is an extension of an antenna on a smart watch. So it’s clear how important it is to be able to model and understand the impact on humans to ensure that these products are safe and compliant. High Tech is at the core of a new world of hyper connectivity. Therefore connecting too many of the industries we address including smart cities, connected variable devices, medical and industrial equipment or intelligent retail and all industries interested in internet of experiences. SIMULIA is an important component of our product portfolio with SIMULIA the technology on market leader and structural analysis especially. We have now closed the acquisition of CST, the technology leader in High Frequency Electromagnetic Simulation, whose product portfolio is very relevant for high tech on all connected objects. With this acquisition we are significantly enhancing our multi-scale simulation. CST’s technology also covers all land scales from subatomic particles to full commercial craft. With that summary let me pass the call now to Thibault.

Thank you Bernard. To recap I think there were a number of financial highlights in the quarter and 2016 to-date. First 3DEXPERIENCE software revenue which increased 40% in the quarter and 38% year-to-date, second ENOVIA with strong new license revenue growth of 27% and 30% for the three and nine months respectively. The large majority of this is 3DEXPERIENCE sales. Third our two largest product lines performance with CATIA software up 7% and SOLIDWORKS up 14%. Four, multiple core and diversification industries performed well in the September quarter and fifth, our operating margin and EPS performance were we are both improving our operations while also investing product [ph] chipset. Thanks to our earnings upside in the third quarter, we are upgrading our earnings per share range for 2016. Now let’s look at our revenue results in more detail. Total revenue growth came in at 7% in constant currencies in line with our guidance of 6% to 8% growth. New licenses revenue totalled €162 million representing an increase of 6% in constant currencies. This was a solid performance particularly given third quarter seasonality but it did not fully capture the acceleration we were looking for. Where we came perhaps just €5 million short of our double-digit goals was in our 3DEXPERIENCE sales to large accounts. Our two indirect sales channel were well in line with our expectations while large account sales took more time, we’re bringing significant business value and the transactions typically involved multiple domain, so which is generally at a business strategy level but the discussions and sales process take place. Recurring software performance was well in line with our expectations increasing 8% to €486 million. Growth came both from maintenance subscription and rental subscription. On original basis, Asia had the strongest increase on the maintenance side coming in particular from China, but all regions turned in good performance. Recurring software revenue was 75% of our total software revenue in the third quarter and 73% year-to-date. Services also performed well with revenue at 6% to €88 million and with 3DEXPERIENCE engagements an important contributor. So I believe this is another indicator of attraction and momentum underway. Our operating margin and EPS came in ahead of our objectives, as we plan for 2017. We’re adding sales and R&D resources principally with a net increase of about 300 people just in third quarter. We’re hiring [indiscernible] the end of the quarter and therefore had less impact, but they should be in your fourth quarter perspective. I want to emphasize that we continue to focus on driving improvements in our business. Our operating margin was 32% in the third quarter compared to 31.2% in the year ago period. There was an underlying improvement in the operating margin of about 190 basis points. Currency had a slightly negative impact of about 10 basis points in Q3 in year-to-date. Non-IFRS EPS increased 9% in total or even 17% if we leave aside the tax one-offs this past quarter and the year ago period. Year-to-date non-IFRS EPS is up to double-digit. We had a good evolution of operating cash flow in the quarter but it does require a little explanation. Operating cash flow was €77 million compared to €113 million in the year 2015 third quarter. From a working capital perspective excluding the timing impact coming from two line items about €67 million related to tax downpayment of last year and €20 million related to accrued compensation operating cash flow increased at healthy level for Q3 and in turn also for the first nine months of the year. Annual revenue increased 7% excluding currency impact well tracking the recurring revenues for collection. Moving to our financial objectives, we have outlined them in our earnings strategy. Let me briefly review them beginning with the year. We are adding the acquisition of CST with €10 million revenue assumption and the full amount of the currency upside from third quarter €17 million. We then subtract about €2 million of estimated negative currency impact from the British Pound and then we’re narrowing the range as we always do, since we only have one quarter left in the year. The new revenue range is now €3.015 billion to €3.030 billion. At the low end, there is no change in activity assumption and at the midpoint there is a €5 million reduction. Our non-IFRS operating margin objective remains at about 31% with improvement captured in the year 2016 nine months period to reach this figure and as I mentioned at the beginning of my remarks, we are slightly upgrading our non-IFRS EPS to a range of €2.40 to €2.45 from the former objective of €2.40 excluding 2 percentage points of currency headwinds. The non-IFRS EPS objective implies a growth of 9% to 11%. As a reminder, CST has a highly recurring financial model so most of this €10 million should be in a recurring software revenue. For the fourth quarter, our revenue range objective is about €832 million to €847 million embedding new licenses revenue growth between 8% and 12% and accruing of revenue growth of about 7% to 8% in constant currencies. Our operating margin target range is about 33% to 35% with the midpoint of the range lower by just 50 basis points compared to fourth quarter of 2015 on increased investments and after excluding currency headwinds estimated at about 70 basis points. Our EPS range of about €0.69 to €0.74 embedded about 6 points of estimated currency headwinds. With that let me now turn the call back to Bernard.

I think it’s clear from our progress that we are seeing strong and growing interesting our 3DEXPERIENCE platform on industry solution experiences. Further the message of 3DEXPERIENCE is resonating with leaders in a wide variety of industries evident in the growth we’re seeing in our diversification industries. And also with many of our core industries customers like in industrial equipment in Germany or in transportation and mobility especially in Asia, UK or France for example. With our expanded capabilities in simulation combined with our other brands capabilities, we’re well positioned to help clients across industries interpret and act upon data and formation from smart connected products. We’re looking forward to reporting a strong fourth quarter well reflecting the opportunities we see in [indiscernible]. Thibault and I would now be happy to answer your questions and thank you again for your questions earlier today on our webcast.

[Operator Instructions] you do have a question from Jay Vleeschhouwer. Please ask your question.

Bernard let me start with you and longer term question on, the evolution as you’ve described it for ENOVIA that is to say, how it becomes increasingly what you called a platform for business process in addition to historical low in product development and engineering. My question is, how do you think about the long-term mix, the uses of ENOVIA that is to say between product development and the newer business processes and what do you think implications of that mixed revolution might be for the longer term sustainable growth of ENOVIA and perhaps the related services that you need to continue to provide to implement and deploy ENOVIA.

Good morning, Jay. Thank you for the question. Clearly you have understood that by now that ENOVIA was before the infrastructure for let’s say PDM and PLM type functionalities, now the 3DEXPERIENCE platform which is a broader platform is addressing that needs on the ENOVIA portfolio is becoming as you imply very well in your question Jay, a portfolio of business applications both for product development but also for many new business roles, so your question is very relevant. I cannot probably put enough quantify on it. It’s clear that the ENOVIA portfolio has evolved a lot to address product costing, product planning not only the collaborative aspects of things, supply optimization and many other functions which are not as you well said in your question, necessary to focus on the authority of the product development, but very often addressed by purchasing department or by compliancy department or quality department who are now and especially compliancy by the way is becoming very crucial especially in chemical, pharma and CPG sector because you need to track and prove about the safety of what you do. So clearly the trend is that on a longer term as your question implies. The roles if I may say so, the number of people who are going to use the ENOVIA portfolio outside traditional product development is going to pass and surpass the number of people, who are in the traditional engineering and production activities. It’s the case already for certain clients. I would name explicitly because they mention it at the Paris Auto Show, PSA for example through their massive recovery. They have been adopting and creating visibility of the platform across all activities of the group including the pilot of financial project allocation for programs. So this is the trend and of course it’s a significant growth factor that we see in the numbers this quarter year-to-date and more importantly it is changing the decision process of companies. And of course the EXALEAD dashboarding [ph] with Netvibes of those business analytics for businesses like tracking cost, tracking weight or tracking business KPIs become mission critical. So in short, yes the trend you describe in your question is happening, it’s happening now and it’s helping us really reach new clients, we would not have reached otherwise.

Thank you for that. In your prepared remarks or earlier you noted the momentum in the value solutions channel. At the Analyst Meeting in June you noted that from 2013 to 2015 you had an 8% average growth rate in the capacity of VS channel. My question is, at this point would you say you shift had focus or shift to productivity in the channel and perhaps the segmentation of the VS channel more so then continuing a rapid case of capacity revision.

Thibault will probably add few elements related to percentage you referred to Jay, but two remarks we have the challenge on the work both goes together, that we are focusing on with VS channels could be explaining a very simple way. Packaging proper value solutions for the existing market we serve and continuing to build up skilled knowledge on capacity for new industries, allow me to give few examples. Most of the wins we have in perfect package, the solutions goal [ph] industry solution called Perfect Package. Of course we have the prestigious differences at P&G and other huge companies. But there is an incredible of mid-sized companies which are doing packaging, labeling, marking, configuring and they’re selling their products in many countries. They must comply with the rules. So most of the future aside of the big names that we know will be VS and it’s clear that our partners of the past who are still great for the future don’t really address this market well and we’re seeing new partners joining us, who are doing this job perfectly well, that’s an example in package goods on retail. Another example is for a perfect shelf, while of course we’ve been selling the solution for example and refer to it to [indiscernible] a big company, but I would say a big retail company. I think we’re number two or three. In some way it’s still a small customer for us because many other things we’re doing for them. And still a partner being specialized in what we call consumer experience, consumer journey to optimize the shelf might be the best and most efficient way to reach them. Anyway, maybe too long explanation, but in short the new sector is demanding for a lot of new profiling of partners. We find them, they’re good and we need to simply model [ph] with the capacity to deploy our solutions because they know the sector not necessary how to deploy the solution. Those are the two directions for the value solution and why it’s so mission critical for us. Any comments Thibault on the numbers that Jay referred to?

No it was, the effect the intake in capacity that we were able to do and so it’s absolutely right that we’re focusing more now on productivity increases and by the way, [indiscernible] is going to play a role in that.

Okay, two final ones if I may. Bernard you highlighted the growth of your diversifications to where you said in particular High Tech and Electronics. My question there is, are you increasingly managing or investing in dedicated resources and organization and so forth and for those new markets in other words, do you have more and more of an orientation to let’s say speciality sales and service for those markets as compared with the rest of the company for traditional markets. And then, lastly in your investor presentation this morning you noted the momentum at Renault. Elsewhere in automotive you’ve also highlighted in the past another important car company JLR and I’m wondering if you could update us on what’s going on there and perhaps another automotive companies. Thank you.

Okay, so for the high tech sector. Of course the industry set up was done all that, which is the industry expertise which are global organization to support global sales. Then we see an increasing demand for profiles in this area, not only for the high tech sector by the way we’ve been serving for a long time, we specifically the microelectronics as you know we are, we are almost permissive [ph] with design second thinking solution. But there is a demand for high tech competencies in adjacent industries like T&M for autonomous cars, new entertainment systems, but it’s true across all industries. Energy also is demanding for high tech profiles as well as even CG, CPG is more on more of this effect of high tech integration on hybridiation [ph] of product. So yes there is a demand. We address it more from the hiring profile that we do when we hire new capacity. On the JLR, I don’t know if you’re referring to the announcement this morning about the fact that the Tata Group is going through new leadership program that the JLR program is going well. We add a few challenges related to the speed of scaling on transforming the knowledge for all the resources but from what they presented a few weeks ago things are going well and I think the company is doing is very well. We have mentioned Renault but we have many other big groups that we have not talked about who are really now in the implementation phase on planning of 3DEXPERIENCE on things to be shared at later date of course because some of them are our existing clients, that’s all what I can say about it, at this [indiscernible] time.

Understood thanks very much.

Your next question comes from the line of Michael Briest of UBS. Please ask your question.

Thibault, I had a couple of question from investors since coming back from this morning session around the Q4 guidance and whether you feel it’s sufficiently de-risked given the sort of challenges in closing some of the 3DEXPERIENCE deals. What sort of level of confidence do you have over the numbers now going into Q4? Thank you.

It’s been intense. Michael when we republished the guidance, certainly we do a very thorough review of the pipe and of the quarter before committing to it. So yes absolutely it’s not a guidance to please investor. It’s the guidance we believe and we’re going to deliver that we published.

And just a quick one on the cash flow. I couldn’t reconcile the numbers at the bottom of the cash flow statement with the balance sheet numbers. Is there an overdraft or something which would explain the difference for net cash or gross cash further?

No there shouldn’t be any. I’m happy to take that question separately if we need to dig into more details but there is - in my analysis, it does close.

Okay and then just finally on the acquisition pipeline we discussed that a little bit today, but what sort of side deals do you envisage in making in the next 12 months, 18 months and what is your appetite for larger acquisitions today?

12 months, 18 months is a long timeframe for what we expect and hope to be an environment with opportunities for us. But short-term the acquisitions that we could sign relatively is small in size.

Thank you.

Thank you. Your next question comes from the line of Monika Garg of Pacific Crest. Please ask your question.

First on the demand trends in different geographies you talked about strong strength in Asia, Americas, Europe was not as strong. Are you seeing any slowdowns in this market or was it in line with your expectations?

What was the question? Asia?

Americas and Europe not as strong as other market, are you seeing any slowdowns in these markets or was it in line with your expectations?

We got a few countries which were slightly below our expectations but in general it was in line. If you want more specifically about Europe, we have many countries actually in line like Germany, France, Italy and Spain and we were little bit shy in Northern Europe. In Americas, Latin America was quite weak actually in the third quarter, it was less the case at the beginning of the year, but third quarter was weak and Latin America in particular, but for sure the potential in Americas and in Europe overall are still there you know and there is no question that we’re planning on continuing to deliver a dynamic growth in both regions. If you remember growth was actually not bad at all in this regions last year and in the first half, where Asia was slightly weaker third quarter, Asia was much stronger and it’s a bit the nature of our different quarters, the strength is located in different regions.

All right, thanks. Then the question on the new license revenue. If I model 10%, 11% for Q4 growth year-over-year growth for new licence revenue would come from mid single-digit, there’s some benefit of currency in Q3 to, so maybe can you talk about why the license growth is kind of mid single-digit and lower than initial expectations.

So just to clarify in Q4, the guidance that we have released calls for 8% to 12% new license growth and this is excluding currency impact. So I think that’s a good sign you know of the dynamism we can see going forward in new licenses.

Got it. I was kind of just adding the four quarters and looking at 2016 year-over-year from 2015.

Yes, 2016 for sure and as we have said, the first half was weaker. Actually we are managing something which is relatively delicate and complex in 2016, which is a switch from a version to another. Formally, we have Version 5 and we’re still selling it of course but the attention of the market is now switching to Version 6 in 3DEXPERIENCE and the sale cycle is longer for 3DEXPERIENCE and so the results in new license terms depend on the proportion of 3DEXPERIENCE in the buys [ph] and the transactions that we are doing and for sure customers are now. And 3DEXPERIENCE is resonating very well with our customers and so they’re focusing their attention on it, even as a faster pace than what we anticipated at the beginning of the year.

Got it, thanks. Then you know with the CST acquisition now rolled into Dassault, may be can you talk about how is the simulation market doing and what is the growth expectations?

Yes, of course simulation and remains dynamic interesting market. As a market, as a whole simulation is expected to grow at 6%, 7%. We believe that electromagnetic simulation has the potential to grow at a faster pace than the overall simulation market and in addition I would say, we are gaining market share in simulation in our traditional market, which is actually finite element analysis with SIMULIA and where we are growing at a faster pace than the market.

Just a last one, would you be interested in any other vertical like semiconductors for you know semiconducting design tools.

We’ve been looking at this sector for 20 years now, we do a lot in this area in the following domains; configuration of IP which are loaded on this chips, we have partnership for of course for board design with different software suppliers and then we do the system integration for what we call overall system integration like automotive high tech in aerospace, high tech in marine and offshore in every single industries. Of course, we have to look at exactly the future of this sector and it’s not obvious that its double-digit growing sector, it has not [indiscernible] case in the past. So any decision in these areas we’ll have to integrate priorities and we cannot say anything more at this point in time, there are many, many things we need to address for the 12 industries on 69 segments we address and we have to go for, what we believe is, are the highest value long-term.

Thank you so much.

No further question on the line sir please continue.

So thank you very much all of you for participating to this call on this morning to the webcast and we of course stay available to address any further question in the next coming day. Thank you for following us. Have a great day.

Thank you. That does conclude this conference for today. Thank you all for participating, you may all disconnect.