François-José Bordonado - IR Thibault de Tersant - Senior EVP, CFO Pascal Daloz - EVP Brands and Corporate Development

Susan Anthony - Mirabaud Securities Jay Vleeschhouwer - Griffin Securities Monika Garg - Pacific Crest Securities Michael Briest - UBS Investment Bank

Thank you for standing by, and welcome to the Dassault Systemes Second Quarter 2016 Financial Results Call. At this time, all participants are in a listen-only mode. A short overview will be given followed by a question-and-answer session [Operator Instructions]. I must advise that this conference is being recorded today. I'd now like to hand the conference over to your speaker today François-José Bordonado. Please go ahead. François-José Bordonado: Thank you very much. Thank you for joining Thibault de Tersant, Senior EVP and CFO, and Pascal Daloz, EVP Brands and Corporate Development, to discuss our 2016 second quarter and first half financial performance. This conference call follows our webcasted presentation earlier today in Paris. 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 Thibault de Tersant.

Thank you for joining us here and good morning and good afternoon. I would like to welcome Pascal Daloz and thank him for participating to the call today in place of Bernard Charles, who is on a business trip but he couldn’t move. Let’s begin. Looking at our financial results for the second quarter they were very well aligned with our guidance, coming in at the high end. We were pleased with the performance from an EPS perspective growing 12% excluding currency effects. We demonstrated our ongoing focus on underlying operating margin performance. We also had strong recurring software revenue growth. But while new licenses revenue growth was solid at 6% excluding currency effects and in line with guidance, it is not exactly where we want to be. However, I don’t have far to look to see the type of new licenses revenue growth we can generate and I see it ahead in the second half of 2016. In that regard there was progress in a number of areas in the second quarter that illustrate where we are going. Let’s begin with 3DEXPERIENCE where our momentum is clearly evident. We are continuing to put up key strategic wins with our 3DEXPERIENCE platform and industry solution experiences across a number of industries including Transportation & Mobility, Aerospace & Defense, Industrial Equipment, High Tech, Energy, Process & Utilities, Marine & Offshore and more. And from a client perspective we are working with global leaders and also start-ups and small companies who are benefiting from 3DEXPERIENCE. Second, our Diversification Industries delivered strong results in the second quarter and first half. It is clear that we are building momentum in the different industries. We will share with you today our progress in Energy, Process and Utilities and overall diversification results. Third, ENOVIA has been a key contributor to the growth of 3DEXPERIENCE sales and our industry diversification. ENOVIA’s portfolio is addressing both product development and business processes. It is clear that it has a strong momentum in the marketplace against competitors with a 75% win ratio on deals which are over half a million euros. Fourth, we are seeing strengthening in the Professional channel with SOLIDWORKS delivering strong recurring software revenue and improved new licenses revenue growth. Looking to the future, we also strengthened our offer for clients with two acquisitions. As part of our global industrial operations we completed the acquisition of Ortems for manufacturing scheduling, a very critical area for companies. And this morning we announced the extension of our multi-physics capabilities with the signing of a definitive agreement to acquire CST, the technology leader in electro-magnetic simulation. Finally, we are reconfirming our 2016 financial objectives. From an activity perspective, the year is unfolding as we anticipated with a first half led by recurring software revenue and the second half evidencing a very strong acceleration in new licenses revenue, with 3DEXPERIENCE, industry diversification and improving performance of SOLIDWORKS as I have highlighted. We anticipate new licenses revenue to increase double-digits in constant currencies in the second half of this year. Turning now to our second quarter, we delivered total revenue growth at the high end of our constant currency range. We saw a rebound in software revenue growth on improving new licenses revenue growth and strong recurring software results. In total software revenue significantly strengthened up 7% in the second quarter. Operating performance was also in line with our objectives. Our second quarter operating margin of 30.4% expanded 100 basis points compared to the year-ago quarter. Finally, EPS is on a nice trajectory of double-digits growth excluding currency impacts, up 12% in the second quarter. Turning now to d regional review, two of our three regions delivered double-digits new licenses revenue growth, the Americas and Europe. In the Americas, we benefited from large deal activity and growth at SOLIDWORKS. In Europe several geos were key to the strong new licenses revenue growth including Northern and Southern Europe as well as France and again direct sales did very well. In Asia, while we did have a strong base of comparison we see the macroenvironment in South Korea and importantly the link with China affecting business investments as we outlined last quarter. In AP South renewed weakness in mining and related industries is hurting results and in India, I think the results reflect a combination of macro as well as the need to improve our execution and an ongoing volatility in India from one quarter to another. In total software revenues increased 4% in Asia. Let me now turn the call now to Pascal Daloz to begin with a brand review as he leads this area at Dassault Systemes.

Thank you, Thibault. Hello to all. It is my pleasure to join the call today and it was great to meet with some of you during our Capital Markets Day in Paris last month and earlier today in Paris. Turning now to the product line review, a number of our brands had double-digit in term of software in the second quarter, including ENOVIA, SOLIDWORKS, SIMULIA, DELMIA and EXALEAD. Beginning with CATIA, its software revenue increased 1% in the second quarter. Recurring software was very much in line with plan and new licenses activity reflected the timing of investments by clients in transportation and mobility. ENOVIA has now posted four quarters of double-digit new licenses revenue growth. Combined with recurring revenue performance, total ENOVIA software revenue increased 13% in the second quarter. SOLIDWORKS software revenue increased 13% in constant currencies, mainly due to the strong growth in recurring software revenue on the improvement we had in maintenance renewals last year and growth in new licenses revenue. In addition to growth with existing clients, SOLIDWORKS is seeing increased competitive wins from other 3D players, where companies are moving over to our products. Our software increase by 10% in constant currencies on strong growth of SIMULIA, DELMIA, QUINTIQ and EXALEAD. BIOVIA was in line with our expectations. GEOVIA was lower on difficult mining industry conditions. Moving to our 3DEXPERIENCE platform and industry solutions experiences, we are seeing good traction and momentum. But I like data and the data tells the story. Our 3DEXPERIENCE new licenses revenue is up 68% in constant currencies in the first half of 2016. And its contribution to the new licenses revenue mix is increasing to 33% for the First Half of this year up from 20% in the year 2015 First Half. In aerospace, BAE Systems is an example of recent customer adoption of our 3DEXPERIENCE platform to transform how aircraft are designed and developed through improved collaboration leading to better decisions and more timely decision-making by getting the right information to the right people and using the model-based engineering solution. Safran Transmission Systems, a key supplier to the aerospace industry, has deployed 3DEXPERIENCE and has indicated that they are achieving productivity gains on the order of 30% using our ‘Co-Design to Target’ industry solution with the 3DEXPERIENCE platform as their central source of information and dashboard in monitoring. One of the key drivers of the 3DEXPERIENCE growth has been ENOVIA. Its traction has been increasing over the last four quarters as I mentioned, leading to new license revenue growth of 34% in the second quarter and a similar level for the First Half, up 32% - both figures in constant currencies. ENOVIA has been progressively strengthening its market position by numerous of key decisions and many competitive win-backs. To help you understand what ENOVIA covers there are six primary domains: strategic customer relationships, supplier relationships, product planning, global product development, IP classification & security, as well as Quality & Compliance. Based upon our strategy, our goals are to expand the product development and business users in our core industries as well as in our diversification industries, think of merchandising, formula management, packaging, reaching different business managers who are key to the successful product development and customer experience. Two customer examples include Samsung Electronics in the semiconductor space, adopting our Silicon Thinking industry solution experience to drive an improved development environment, efficient cost management and decreased time-to-market through improved collaboration and data management. Chevron developing additives that go into fuel and lubricants, is using our Perfect Product industry solution embedding ENOVIA’s formula management software. Key business goals are to improve the overall development process, thereby increasing productivity through reduce time, reduced costs and increasing product innovation. As Thibault highlighted diversification is a dynamic growth driver for Dassault Systemes. Diversification Industries represented 31% of first half 2016 software revenue led by growth in Energy, Process & Utilities, High Tech and Marine & Offshore. Last quarter Bernard reviewed the Marine & Offshore dynamics with you, let me spend some time today on Energy, Process & Utilities. We have a good dynamic in Power, where we are working with companies ranging from renewable energy, to hydroelectric dams and to nuclear plants where we are helping customers bring new innovation and increased safety at the same time. Among our customer is NIAEP in Russia where we are covering the full nuclear plant lifecycle. In the nuclear energy industry commissioning is a critical part of new nuclear plants coming on much faster and it is equally important at the end in de-commissioning of the nuclear plants. As we are doing in other industries, we are partnering with key experts, such as Assystem which was announced at the recent World Nuclear Exhibition. And we are diversifying in Process with Metals & Minerals as well as with Oil & Gas. The momentum is visible in our financial results where EP&U software revenue was up 15% in constant currencies in the second quarter. Let me move quickly to review two acquisitions. In June we acquired Ortems, a terrific company focused on a very important area of manufacturing execution management, production planning and scheduling. Ortems is helping world leaders adapt on the fly to the changes occurring each and every day. This acquisition strengthens what we do in MES with Apriso as Ortems is used to manage the scheduling. For instance, Airbus is using Apriso and Ortems together. And of course, Ortems well complements what we are doing with Quintiq. Moving to simulation, this morning we announced plans to acquire CST, Computer Simulation Technology, a privately-held company headquartered in Germany. We have known them for a long time and in fact we formalized a partnership in May of last year. And since then we have been working closely together on joint marketing and joint sales calls in addition to mapping out product strategies. CST is essential for accelerating development of electronics and electrical systems, from early concept stages through final validation. It provides a full electromagnetic simulation portfolio, including low frequency for electrical motors, for example through high frequency for electronics and antennas. Importantly, it is both the technology and market leader in high frequency electromagnetic simulation in plain English this means autonomous cars, smartphones, smart homes, wearable electronics. Their technology also covers all length scales, from subatomic particles to full commercial aircraft. Clearly, CST complements very well our multi-scale and multi-physics technology. And combined with the 3DEXPERIENCE platform, it provides a complete virtual product experience for the co-designs of next generation devices. Some quick facts on CST’s financial and the transactions, its revenues were about €47 million, with about 65% of its software revenue recurring. We expect it to be immediately accretive to non-IFRS earnings. The purchase price in cash will be approximately €220 million and subject to closing conditions we anticipate completing this acquisitions in September. We look forward to warmly welcoming them at that time and continuing our partnership activities in the interim. In summary, together with our 3DEXPERIENCE platform and industry solution experiences we well cover SMART AND CONNECTED EXPERIENCES, spanning Smart Design, Smart Mobility, Smart Cities and Homes and Smart Energy. As IoT and smart objects become more pervasive in all the sector of the economy and require new levels of safety and certification processes we are well placed to be an integral partner to company across a number of key industries in both our core and diversification verticals. Altogether the acquisition fits very well with our mission of the harmonization of product, nature and life where in a world of more and more connected objects all around us, we can help our clients ensure that health and wellness are protected. With that summary, let me pass the call back to Thibault.

Thank you, Pascal. Let me quickly go through some key points of our financial review since I covered some major points upfront. First, the key take away for software is the return to new licenses revenue growth which increased 6% in the second quarter. While this was in line with our plans, I believe we can do much better and this is our plan for the second half of the year with very good growth of new licenses revenue. Second, recurring software it is performing very well and represented 71% of total software in Q2 and 72% for the first half. We saw an excellent performance all around the world and in most industries in terms of maintenance subscription performance. Third, our focus in core services is on expanding our partnerships with system integrators in order to grow our potential services capacity. In some of our new businesses services is a key portion of the business and here we had mixed results, particularly with 3DEXCITE. Services represented 11% of our total revenue, decreasing 3% in the second quarter, but are higher by 2% in the first half. While we are increasing our overall operating performance, doing so in services requires being able to improve our resource allocation management working with system integrators, having sufficient capacity in emerging countries and managing resources and expertise among all of our brands. Turning now to our operating performance, it was very good in the second quarter with our operating margin increasing 100 basis points. Currency had a net negative impact of about 20 basis points on our second quarter operating margin. Just a reminder for the full year our underlying operating margin growth target is about 50 basis points excluding currency impacts, as we planned our investments to be back-end weighted and this aligned with our revenue growth. In the second quarter non-IFRS earnings per share increased 12% excluding negative currency headwinds of 4 percentage points thanks to our revenue and operating performance. Our earnings results and balance sheet management translated into very solid growth in cash flow during the first half of this year increasing 8% to 449 million. Unearned revenue totaled €933 million, an increase of 12% excluding currency impacts. Turning now to our outlook, as we outlined in this morning’s earnings press release, we are reconfirming our 2016 financial objectives. To be clear we are reiterating the level of activity we saw in February when we set our guidance for 2016. While it is true that during the second quarter our reported revenue benefited by about 10 million from currency compared to the guidance, this will be used up, so to speak, by higher currency assumptions headwinds in the second half of the year in our updated guidance. Let’s go through it. First, we are reconfirming our non-IFRS revenue growth objective of 6% to 7% in constant currencies. On a reported basis, we are bringing up the low end to €2.990 billion and retaining the high end of €3.015 billion. So the mid-point of this range moves up by 3 million euros to €3.003 billion, based on the addition of Ortems. For your information, currency has an estimated negative impact on reported revenues above two percentage points. Importantly, while the Japanese yen has moved in a favorable direction, we of course hedge a portion of our revenues, so of the estimated 13% of our revenues denominated in the Japanese yen, approximately 6 of the 13 are not hedged. For your further information, the 7% of our yen-denominated revenues that are hedged is, are hedged at an average rate of about 100.6 yen per euro for 2016 compared to an average rate of 134.6 yen per euro in 2015. On the other hand, the British pound has weakened significantly with our non-hedged portion representing about 4% of our revenues. We have provided a very detailed bridge on the different currencies and total foreign exchange impact in our second quarter presentation which is on our website. Second, we are reconfirming our operating margin of about 31% for 2016. Third, we are retaining our earnings per diluted share growth target of about 7% or €2.40 per share. With currency it is difficult to be precise but what we do know is that if rates remain at our assumptions we have EPS currency headwinds of about 4 percentage points on our growth rate. Fourth, this guidance range embeds double-digits new licenses revenue growth for the second half in line with our expectations and confirming what we have said since the start of the year. Looking to the third quarter our guidance is as follows; a non-IFRS total revenue growth objective of 6% to 8% or about €715 million €725 million, a non-IFRS operating margin of about 30% to 30.5% and non-IFRS EPS of about €0.54 to €0.57. Excluding two tax related benefits in the third quarter of 2015, our EPS growth rate excluding the negative currency headwinds would be between 8% and 14% in terms of growth. We estimate a consolidated effective tax rate of about 2 percentage points lower this year compared to last year. Finally, we will include CST in our 2016 financial objectives after the completion of the acquisition, and hopefully when we release third quarter earnings results. To conclude, we are looking forward to delivering a strong second half, leading to a good year of growth and progress. We are also investing in our technology, in our sales and in our brands which will animate our future results as we move into 2017 and beyond. We continue to focus on improving our execution and business processes. For sure the strong second half will require very good collaboration and back-office support to ensure that transactions are completed on a timely basis. Finally, it is gratifying to see the traction, power and success of our 3DEXPERIENCE platform and industry solution experiences. Our goal remains to accelerate this success and replication, with clients of all sizes. With that, Pascal and I are happy to answer any questions you have and we would like to thank everyone for the questions earlier today on our webcast.

Thank you [Operator Instructions]. Your first question today comes from the line of Susan Anthony. Please ask your question.

Yes, good afternoon. Susan Anthony, Mirabaud Securities. Three questions if I may. This morning, you mentioned Brexit and said that you've seen some UK deals being push on hold, but since you feel that they might shut closed during the rest of the year. Can you give any indication of how material those deals were? I'm guessing they were quite small in the overall scheme of things. And then you also talked about possibly Brexit having more than medium term impact. Can you kind of elaborate on what you are thinking when you said that. That's my first question. My second question would be wondering if there were any particular surprises for you during the quarter, whether positive or negative. And thirdly, can you talk a little bit about what happened in Japan. I know you mentioned some other Asian markets, but maybe you could discuss development please?

Thank you for the question. So, yes we had a couple of the transactions put on hold. It's not a lot actually considering the event and these customers for this that we wanted to have the outcome of the referendum and the reasoning was in fact in order to handle international projects, they wanted to be sure that they could continue to get the visas for the people having to travel. That was fully the reason. And when you see this season, you also see that now that the event is delayed. It's very likely that this transactions will happen, what we deliver structure of a nature has been in a vision and updation do not get of product and so our customers really continue to be lien to invest in this technology I am convinced. There's two transactions worth mentioning above €1 million each. I was mentioning a mix on impact, but I was also mentioning that this would could possibly be a macro impact with the extent to which this could affect the system and is not very clear because what is much more important for Dassault Systemes is our product cycle. And as we see 3DEXPERIENCE ramping up, I think that up, I think that yes, of course we cannot be completely immune from the macro environment but these thus create a trend which historically would report stronger than macro trends. So I don’t want to be in the impression I am starting to have question early or six months about 2017 or 2018 it's not that we deliver historically in our five year plan and in 2019 objectives, I am not saying anything to the contrary of that, and I was simply referring to the fact that it might due of the [Brexit] has an influence appearing to be more in that co-influence of other than an immediate influence on the British market.

Okay.

But some time would be in the economist here so I'm not exactly in my normal position, please bear with me. You mentioned surprises during the quarter. We always are surprised here and there and we trying to make I would mention that we had very good surprises in the high-tech industry and in the offshore industry as well as on the positive side what we do for smart cities is also probably even broader and better than what else has we are thinking when we look at it in the eyes of mayors and people in charge of smart cities. Maybe Pascal, you want to add something on this front. But for me I think it believe that our prospects of serving cities have greatly improved during the quarter based on what we were able to present. In fact we attended last week the World City Summit and it was a major event because it was organized in Singapore and as you may know Singapore is the flagship project for the entire cities because they are by far most advance. And the fact that they have selected the 3DEXPERIENCE platform to basically control and manage the entire city is opening a new opportunity for us especially in China, because as you may know Singapore is the laboratory for the future Chinese big city and in fact we are seeing more and more tractions into this space. And the point is obviously interesting for the city or opportunity per se, but this is also having the consequences on the industry reserve. Let me give an example, all the car maker are developing autonomous car, but at some point of time then we realize that they need the a virtual model of the city where this car will be used because you have to design the car in the context of the city and this is becoming very, very critical. And so clearly this big city projects is having -- in fact having double impacts. The opportunity per se but also on all the other industries having connected objects and those objects needs to basically interact with the context of the city per se.

And to finish on your question on surprises, we had two further good surprises, the improvement of SOLIDWORKS performance and for us that’s a good indicator and the performance of the maintenance subscription renewals which was also pretty good. On the negative surprises I would mention Asia, we were expecting the soft Asia, it was visible in our pipe at the beginning of the year. But I would say that in a couple of countries it was slightly weaker than anticipated. But in Japan it was not, it was essentially unplanned and what we see in Japan is certainly an appetite to invest in all domain, and multiple very interesting wins with customers starting in diversification industry. Historically, we were very much centered on our core industries in Japan and this is changing now is very interesting new transactions. So I am actually quite positive on our prospects in Japan.

Thank you. Your next question comes from the line of Jay Vleeschhouwer. Please ask the question.

Thank you, good afternoon Thibault and François. Thibault, let me start with you, and mostly ask you to clarify some of the things you spoke of last month at the Analyst Meeting in your comments on your growth scenario for the next several years. I think the inorganic growth expectations, you spoke of assuming the acquisition of about €150 million a year for the next several years, which in itself is unusual and that you were specific that way. But I am wondering if perhaps it would be feasible or even desirable for you to just to one [Technical Difficulty] say $0.5 billion transaction once instead of multiple smaller transactions and perhaps you might find more relevant strategic property that way than looking for multiple smaller things. And then for Pascal on the CTS acquisition I would concur that you needed to have more direct exposure to the electronics design world. But is this the extent of your involvement or exposure to electronics, or to electromagnetic, you think you need to broaden your exposure in the, let's say, non-mechanical or electronic side of engineering?

Thank you for the questions. My gut tells me that both are connected in your mind, I am starting to know first 30 years, since 1 PM. How should I say, we have a lot to do frankly if we really want to implement our strategy. You have noted how broad it is. And so to complement it in order to accelerate it to acquisitions makes perfect sense, where I am specific with the figure is because I believe that the best way for us to reach our goal is to essentially improve our organic growth by 5 points per year in average two acquisitions. However, I also demonstrated that we don’t need them to reach our goal of doubling it yet. So, I don’t feel compelled to do that, which is very good. You’re right. We are doing relatively modest inside the acquisitions, and we like them because they come and complement our product portfolio in a nice manner. But we are not excluding larger transactions. It's just a question of trending the right fit from a culture and strategy standpoint. And generally the acquisitions we are interested in are not companies which are for saving. So, they need to be convinced and this can take time to, from a timing perspective, is very hard to be precise, which is why I am precise on an average figure that I believe would make sense for us. But I don’t want to be precise on the timing of them and when exactly they can give you light. And I am showing I am and not able to be involve specific.

To answer to specifically to your question, I mean for sure and the electronics market at last has been it's a bigger interest for us if you still remember the way we decided to penetrate the domain was first days on the lifecycle, so the first point the first priority for us was really to have 3DEXPERIENCE platform and also ENOVIA being widely use to manage the lifecycle into this industry. And I think we succeeded because with the silicon thinking solution, I think it's widely use in the semiconductor by the way that's in all the variants so point number one. Point number two, we also took the decisions to come with new capabilities, which is the system level definitions and simulations. And this is the reason why we have put a lot of from phases to have some well abated solutions to do the requirements, the functional and the logical definitions of the products. And we didn’t pay too much attentions except by partnering on the physical definitions of the electronics part. And you notice but in a recent activities we are partnering with company we among the partnership with Altium early this year and to combine Altium product suites we factor these IoT markets as specifically and finally with the CST clearly the domain, we really wants to address is a multi physics domain because the most interesting part was CST is first that repositioning high end and high frequency, which is as the IoT for older market but also our capability to put the leads with all the physics like structure, like suites, like a thermal they can put for the in transfer. So, when you think about it lifecycle system level definition and stimulations multi physics and some specific points on PCB more on more we are these domain by surrounding if it is the traditional in the market.

Okay. My second question again referring back to what was spoken of last month is I think it was Bernard or maybe Bruno who mentioned the expectation that your indirect business would begin to grow more quickly than your BT business and I wasn't sure if that was referring to DS only or DS for SOLIDWORKS. But if that's your expectation, is that largely a function of relatively easy comparisons because BT has grown so much or is there something more organic or structural going on that would lead to now relatively faster growth in your indirect business?

Right now what we see is a better growth better growth from our direct sales. It especially through last year's what we see this year and then no more in a product cycle because when you do with the [ENOVIA’s] stop by setting it to last companies before their ecosystems has to be embedded. So, we are clear very much in this mood where our direct sales are delivering the best growth. Now, if you look long term, it is also tool that we have left to our indirect channel, a larger market sales and one we have taken or we are trying to cover with our direct sales I should say. So theoretically the indirect channels have a boarder territory we have play and should therefore in the longer run deliver a better growth. So that’s truly the reason, but we are not there yet.

Okay. My final question again for you, Thibault, is to do with the long-term evolution of your license mix which is to say recurring revenue especially. Again in one of your slides you spoke of growing the proportion of your recurring revenue by about 50 basis points a year, which would get you to about let's say 75% recurring by 2019. And we've had this ongoing dialog about that proportion and that implied number from last month is less than what you spoke of as a target at the 2014 meeting. On the other hand, you also spoke about growing or making available your term licenses, pay per use, and generally seeing very rapid growth in your cloud users on the same slide in fact. So, I know that's a lot of moving parts. But how are you thinking about the growth of recurring from current model, new forms of licensing, and perhaps explain a little bit more all the dynamics that you spoke of in your revenue acceleration chart?

In the current model, I continue to see a better growth of our new licenses revenue than of recurring revenue. I did a chart for the capital market today, simply through try to communicate something which is very arithmetic meaning that when you sustain a double digit growth of new licenses you have a progressive acceleration of the recurring revenue. And the acceleration of the recurring revenue in our case that is coming from the dynamic of new license revenue is essentially 50 basis points in terms of growth rate per year, on the recurring. So, not enough to completely change the balance of course so in the current scheme of things the proportion of recurring is not going to give it much, but they have two factors that should accelerate actually the recurring going forward, one factor is multi-physics because the license mix is much more rental for multi-physics and really believe in that potential in multi-physics and of course the last one is cloud where arguably in our domain the market is not yet fully ready, but we are seeing a significant impact from companies who would not install our software on premise. And this is driving growth there. But some acceleration further would be needed in order to reach the 75% of recurring by 2019. It's not yet a completely sure prediction if I may.

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

Hi, thanks for taking my question. Yes, first on the CATIA, the growth is flattish and much lower than rest of the products. Could you maybe elaborate on that?

Yes, of course. There is no phase whatsoever on the lower growth of CATIA. Actually the growth of CATIA has been very healthy growing backlog. And I know that people have been skeptical for long time about that. So, if this does have the reason for, I would say, it's more a growth on the CATIA side is a combination of Asia where as you know we are seeing a softer dynamics in first half for multiple reasons, and Asia is very important for CATIA because it's a region where they started equipment in CRM with CATIA. And the second sector is also somewhat softer environment in transportation mobility and in a few countries also in industrial equipment in the first half. But frankly when you look at the number of growth drivers we have with CATIA in terms of diversification and more particularly in terms of going to the embedded systems and smart products in general, I really believe the growth drivers are there to reaccelerate growth for CATIA, it's part of our expectation for the second half actually. Pascal, maybe you want to add something on…

No, I would…

Your favorite burns…

I would compare not what just see Thibault. We definitely have significant growth drivers for CATIA. You were mentioning the system definitions, modeling and definitions for all the smart products for all the embedded systems. It's something where, I mean it's almost untouched has an opportunistic market for us. And especially in the car industries where we have the room to significantly increase our presence. The second thing is all these new additive manufacturing technologies inside car impacting significantly the design. Most of you are seeing the inside from the manufacturing that grow but the truth is this is changing the nature of the design. And that’s what we put so much time and acceleration capability in CATIA that we are creating a significant gap compared to that is efficient and be strong because when you design, you automatically, you are bringing some real time topology optimizations and it's something which is against the growth having you for CATIA. And if you refer to the recent communication we did we signed a contract with that this on this topic. Last but not least as we said all the diversification is also triggering the growth of CATIA. And in the core I would say the core of mechanical industry I want to draw your attention something which is very important. The migration from v4 to v5, for sure CATIA was the first one to migrate and ENOVIA followed us after. Here with the 3DEXPERIENCE it's the opposite. The customers are first migrating to CATIA and then they might or migrate to CATIA physics. And there is a profound reason for that. Because in the call we can provide industry a letter of customer that they left in addition to all the feature we have develop as far as the CATIA we know products from highly specialized function. And the 3DEXPERIENCE that come is capable to connect the legacy system. So answering that because having a good momentum with 3DEXPERIENCE platform I mean the growth of Q2 was 100% and is now the indicator of the growth for CATIA because as soon as they have adopted the 3DEXPERIENCE platform it become very hurdle for them that CATIA V6 and all the growth sort of application we have is becoming directly a must. So for those reason we are pretty confident on the capability for CATIA to continue to expense.

Thanks for detailed answer. While you were answering the last questions on the cloud that some customers will not buy on prem, could you maybe talk about which of your products are completely cloud ready and if there are any products which you are still looking to move to cloud offerings?

Achievable with compliment but when you look at the solution portfolio, right now two-third of them are already available in the cloud. So, basically we almost have the equivalent function available on the cloud point number one. Point number two, the cloud is relatively well used by all the companies being project based. And the two key people are all the architect and consultant companies. Because when they have a project, they can massively move it and when the project dominating then it is a adjust it's also true for the designer fit although same story basically we have the number of I will say not niche, but complement segments where we are not capable to touch with traditional on premise solution we are addressing now and it's really a suitable business meant for them.

Then just last one on the currency. Thibault, if I look into your presentation on slide 44, for Q3 and full year 2016 euro to dollar conversion rate you are assuming $1.15 for Q3 and $1.13 for 2016. But dollar has depreciated quite a bit if you look right now in the market so won't that provide a good tailwind both for Q3 and the second half 2016?

Well, it's still versatile so yes there is something issued right now compared to the assumed rate into guidance at 1.15. But frankly the dollar can go back 1.15 in couple of days. So it's a call to take if you want.

Thank you. And your next question comes from the line of Michael Briest. Please ask the question.

Just a couple of follow up from me. I think you mentioned SOLIDWORKS licenses grew, but can you give any sort of context on that? Obviously you've called out some of the other businesses, but how significant was it relative to the overall license growth of 6%? And then just in terms of subscription, you've talked about introducing that for SOLIDWORKS at the back-end of the year, where are you in firming up those plans?

Yes Michael, the -- for the quarter SOLIDWORKD licenses grew by 7%. But there was an acceleration towards the end of the quarter, so it is becoming in our view a pretty positive indicator compare to first quarter. And this acceleration is also happening in North America, so it's a -- we see it in a positive manner. Let's put it in that way. And yes we are introducing subscription with our next release, so potentially in earlier November.

And in terms of the price point, can you say anything about how it's equivalent to what's out?

So, the price point for subscription is going to be good old and usual formula where payback is over three year term.

Okay. And then…

We also introducing by the way EBITDA for our broader based ex-design solution which is SOLIDWORKS on browser in the same timeframe. And it will only be available on the cloud subscription.

Okay. Then I was just going to ask you on the comments this morning about licenses being stronger in Q4. You had a good finish last year, license growth was 11% year-on-year, I think CATIA was up 13%, ENOVIA at 24%. Obviously those comparatives don't daunt you in anyway, I guess I'm looking for reassurance there.

We are well aware of the strength of Q4 last year and the computation we do is not truly a percentage compare to last year, it's an analyst of the pipe and with a success rate and very precise analysis because we have strengthen a lot actually the visibility of all the pipe. And how we classify opportunities and like them by likelihood of closer. So again it's always tracks to have a backend loaded year. But it's the guidance we believe in. We have all the data to support it.

And then just two quick ones from me, the 11 million of exceptional and 6 million of finance exceptional, can you say what they relate to given that we haven’t had any acquisitions for long time?

Actually we are -- spoke about the need to modify some profile and also the systems to adjust to second integrator. And so what we decided is to implement a plan for early retirement. And so what you see in third quarter is in fact the first charge that we take because we have actually announced the plan, so we don’t have yet the first results coming from it, so we’ll see how many people decide to take it up. But we are doing it and there is a thought associated with the early retirement that we have decided to offer.

Could it be much more in the later quarters, or is that the charge?

No, it's going to be slight over one year, and certainly not more in future quarters. We’re deciding that.

And then just finally, I mean, on the currency the 15 million impact year-to-date in H1, the guidance is 15 for Q3, but it's 60 for the year. I am just trying to work out why it’d be 30 million in Q4 when that is dollar, yen even pound, euro didn’t really move much between Q3 and Q4 last year?

You succeeded to lose me in your comment Michael.

So the currency headwind for the year is, 2%, but for Q3, there's about a €15 million. On H1, it was €16 million so for Q4, that's going to be €30 million, because that's what 2% of the full-year revenue is.

Frankly I don’t have the exact absolute value of currency impact by quarter in mind. I know the computation is right and I am happy to take you through it…

I mean Q4 guidance is 827-842, which is 3% to 5% growth year-on-year. Just given what you've guided for Q3 and the full year, and it's just…

Okay, let me try that for you. I know very understanding, but let me -- so, in Q4 on top line we have a 3.5 pointing tax coming from currency. Which means 7 million so you are not far and so this is what is coming from the difference with our average rates in Q4 2015.

But it was $1.11 in Q3 last year and $1.10, it was ¥136 and ¥133, and the pound wasn't too different. Don't worry, I'm sure we can just clarify offline.

Yes, I mean what we do is when we do the definitive we duly based on 15 different currencies, so what can I say I can take you through the 2015 currencies loan book. But I will assure we with the precise competition and.

Thank you.

Thank you. There are no further questions at this time [Operator Instructions].

Okay, thank you very much for attending this call and as always if you have a follow-up questions, we'll be happy with Francois-Jose, Michele, and Beatrix to answer them. And otherwise, I wish you good vacation if you can have some rest and we will reconvene for third quarter earnings release. Have a good day.

That does conclude our conference for today. Thank you all for participating. You may now disconnect.