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Dassault Systemes SE (OTC:DASTY)
Q2 2020 Earnings Call
Jul. 23, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen and thank you for standing by, and welcome to the Dassault Systemes Q2 and H1 2020 Earnings Call. [Operator Instructions] Now, I would like to hand the conference over to your speaker today, Francois Bordonado. Please go ahead sir.

Francois-Jose Bordonado -- Vice President of Investor Relations

Thank you, Andre. Thank you for joining us on our second quarter earnings conference call, with Bernard Charles, Vice Chairman and CEO; and Pascal Daloz, Chief Operating Officer and Chief Financial Officer. Dassault Systemes' results are prepared in accordance with IFRS. 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.

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 2019 Document [Foreign Speech]. 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 Charles.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

Thank you, Francois-Jose. We hope all of you are well, first and for those of you in the North hemisphere that you will enjoy some vacation time with friends and family this summer. To begin, let me share some key points on the quarter on first half. We delivered the second quarter financial performance well aligned with our guidance and consistent with the framework we outlined in April. Total revenue was up 10% in Q2 and 14% for the first half.

Our results underscore the resiliency of our financial model, with a high base of recurring software revenue and strong operating profitability. The recurring software grew 30% in Q2 as well as in H1, first half of 2020 benefiting from a good performance for Medidata and solid renewals on organic basis. As the cloud continues to grow over time and as our clients choose subscription model, recurring software revenue will continue to increase as a percentage of software mix at 83% in the first half.

All three key metrics, recurring software, operating margin and earnings per share, came at the high end of our guidance range. We're benefiting from a well-structured saving plans on Q2 fiscal, helping mitigate approximately half of the economic impact of the global pandemic, while enabling investment for the future. In research and development, we continue to strengthen our industry and domain leadership and to support closely our customers. Research and development staffing increased 5.5% on organic basis.

We are also continuing to make investments. This morning, we announced the acquisition of Proxem, a beautiful start-up to expand our 3DEXPERIENCE collaborative data science capabilities. Looking at the year, the financial framework we shared with you last quarter at the objective of maintaining a 2020 earnings per share stable with 2019, thanks to three critical factors, recurring software resiliency, a continued strong level of operating profitability and our savings plan.

Today, we are confirming and upgrading our EPS objective for 2020, with growth at about 1% to 3%. Just talking about the purpose, each quarter, we keep coming back to it. The virtual world improves and extends the real world. Creating virtual twins and experiencing virtual twins enables to explore and imagine sustainable innovation. With our new equity revealed earlier this year, experiences are human. When you move from social to human, it becomes very clear that innovations are made by people, for people. And if all of us think in this fashion, we can really change the world. The pandemic is reminding all of us that in a very harsh manner, we are all connected, we need to think about each other, our environment, our health, our world, we are all human.

This theme that we launched in February and to open the new horizon for Dassault Systemes is really about extending 3DEXPERIENCE from Things to Life. Linked together, we also launched the theme, The Only Progress is Human and believe me, it was before to reveal of the pandemic in some way, a global initiative to increase awareness of today's societal and environmental challenges and to inspire people to use the virtual world to imagine sustainable innovation for a better future. Remember, what we do is at the core of the innovation process.

During a two-year period, we are engaging with the public through 10 Acts to focus on some of the most pressing long-term issues humanity faces with respect to health, cities, energy, water and those of area. At the same time, the business continuity is important. The global health emergency has underscored the power of the 3DEXPERIENCE platform to run our business from anywhere and to engage digitally with our customers as well as our partners. The platform on the cloud is providing digital continuity for us, including sales partners and for our client's interaction. While a number of our sites have seen a return of the workforce following phased in processes, our number one priority remains safety first for people.

Let me comment briefly strategic trends in key sectors. Turning and looking at our markets from three strategic economy, the pandemic has revealed deep vulnerabilities in manufacturing industries, life sciences and healthcare, and infrastructure and cities. In discussion with our clients, they believe that the health crisis will have a lasting impact on how they do business and on the changing needs of their end customers or consumers in some cases. We're committed to help them make this crisis an opportunity. A number of topics emerged in our discussion with them and materialized in beautiful collection of wins this quarter.

Let me share some illustrations of that. In Life Sciences, Moderna and Medidata are collaborating on Moderna's mRNA-1273 trials including its upcoming phase 3 trial, the largest COVID-19 trial in the world of this kind to date, involving about 30,000 patients. The trial leverages our common perspective to push forward a passion-centric approach incorporating directly data from patients and not receiving it from sites such as hospitals.

The Medidata and Moderna team are moving forward with the speed and urgency necessitated by the global pandemic, using the world's most innovative and scalable cloud platform for clinical development, the Medidata platform. Working with BIOVIA brand, Galapagos, a clinical-stage biotechnology company, has adopted our One Lab industry solution to improve collaboration as well as efficiency and to reduce regulatory compliance risk with a comprehensive digital trail.

Moving to the world of communication under 5G technology, Ericsson is providing with a progressive companywide rollout of the 3DEXPERIENCE platform. Key values are strong collaboration across the research and development and manufacturing workflows, thanks to the 3DEXPERIENCE platform managing all the requirements driving the product definition. This marks the next step of a long-term partnership, which targets to the quick and efficient delivery of innovative 5G solutions with ultra-connectivity enabling connected objects and driving change worldwide in healthcare, energy, transportation, city, home life and infrastructure at large.

In E-Mobility, a well-known company now being visible, Nikola, a US-based pioneer in electric heavy-duty SUVs and trucks, has adopted the 3DEXPERIENCE platform and several industry solutions to roll out an R&D platform to support the rapid global expansion and to design and launch new model faster. So we're also pleased as a side now to see the success of Tesla of course, a long-lasting 3DEXPERIENCE client.

GDC Technics, an A&D supplier in Europe, see significant business benefits in time, in cost and in efficiency from improved collaboration with the 3DEXPERIENCE platform and its associated industry solutions. 3DEXPERIENCE will become the new backbone for engineering, manufacturing and service for strategic programs at Airbus Defence and Space. They're deploying the 3DEXPERIENCE platform, especially for the MALE RPAS, a drone program, ensuring end-to-end continuity from design to shop floor and operations.

Key business values include improving affordability, time-to-market and maintainability of these next-generation highly complex products. More broadly, we're seeing increased investments in defense program as well as space among a number of companies across the world. Governments are providing stimulus to the aerospace industry in this unprecedented period. In June, the French Government passed the measure with EUR17 billion in investment and loans to Air France, Airbus and other smaller companies in their supply chain.

Moving to infrastructure and cities, this morning, we had just a joint announced with Bouygues Construction, a world leader in construction, reinforcing our partnership with the objective of recreating a new construction industry. In this second phase of the partnership, we will focus together on developing a residential product line with 3DEXPERIENCE platform on the cloud for modular construction.

A few quick comments on collaborative data intelligence because we are a player there. We continue to invest in expanding our collaborative data intelligence. We're pleased to welcome Proxem, a specialist in AI-powered semantic processing software and services that transform text data in actionable content and insights. With Proxem, we will deliver new collaborative data science experiences on the 3DEXPERIENCE platform to enable industry to leverage data patrimony, which is becoming bigger and bigger of course. The combination of AI with modeling and simulation will drive new learning methods and the capitalization of knowledge and know-how.

With that, let me turn the call over to Pascal. He has a few things to tell you.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Hello to everyone. We hope you and your family are well. I would like to start my comments with a quick overview of our financial performances. First, total revenue was EUR1,070 million, increasing 10% in constant currency in Q2. Revenues came in at the high -- at the midpoint of our guidance, sorry, with software at the high end and services below. For H1, total revenue increased 14%.

Operationally, we are well managing our cost reduction efforts. And during the second quarter, operating expenses decreased 5% on an organic basis. Our operating margin came in at the high end of our guidance range at 26.7% in Q2. And for the first half, we are at 28%. EPS was EUR0.80 compared to our guidance range of EUR0.72 to EUR0.77, with EUR0.02 benefit from currency, so we also are at the high end of guidance.

Zooming in our revenue by type. Software revenue was well aligned with our planning, both recurring software and licenses revenue. In total, software revenue increased 12% in Q2 and 15% in H1. On an organic basis, it was lower by 7% in the second quarter and 4% for H1 due to the impact of many lockdowns on a new business activity. Subscription and support, our recurring software revenue represented 82% of total software in second quarter. And recurring software revenue grew 30% in total on a good performance for renewal across virtually all of our geos and double-digit growth for Medidata. On an organic basis, recurring software increased 4% in Q2 and 5% for H1.

Zooming on licenses and other software, it came at the low end of our planning range decreasing 32%. We do expect this to be the weakest quarter of the year with a slow ramp, albeit much better in total for H2 compared to Q2. With respect to services, the COVID-19 pandemic has created a significant headwind with revenue decreasing 5% in Q2. On an organic basis, we saw a decline of 22% in Q2.

Moving to a regional software revenue, let me share perspective on the impact of the pandemic in Q2 compared to Q1. Beginning first with Asia, software revenues slowed from 7% in Q1 to 3% in Q2. On an organic basis, Q1 was lower by 1% and 4% in Q2. Licenses revenue decreased in a similar manner compared to Q1, about 20% versus Q2 at 21%. Asia Pacific sales performed well, and both China and Japan were much more resilient this quarter. It was a tough quarter for India as one would expect. Support revenue growth was very solid in Asia, except for India.

Zooming in on China, our direct sales had the best performance continuing to show pick-up in activity following what we saw at the end of Q1. Wins in the second quarter, including high tech, marine and offshore, transportation and mobility. And among our clients is NIO, a high-end smart electric vehicle's OEM. They have adopted the 3DEXPERIENCE platform in connection with rolling out an R&D platform to support rapid global expansion and to design and launch new model faster.

In Europe, the health crisis had big impact in Q2 in terms of slowing customer decisions. In combination with a high Q2 2019 comparisons, Europe software revenue decreased 4% in Q2 from growth of 2% in Q1. Our traction in life sciences continue with Migal, a research and development center based in Israel and selecting our Designed to Cure Industry Solution with BIOVIA in connection with research they're doing to fast-track development of the COVID-19 vaccine.

In the Americas, overall software grew 43% in Q2 and 44% in H1. Licenses and Aerospace & Defense were key contributors. North America had the most deals in the top of 20, spread across a number of industries. A good example could be DOT Foods, largest food services redistribution company in United States. They're expanding their use of DELMIA Quintiq to increase warehouse efficiency. This is another example displaying the wide diversity of industry and company where DELMIA Quintiq's technology brings significant value.

Moving to a view of our software revenue by product lines. Industrial innovation software revenue decreased 9% in Q2 and 5% in the first half. Support revenue was very solid, but this growth was more than offset by the sharp decline in license revenues. In addition, you may recall that both CATIA and ENOVIA had very good Q2s last year, so this adds to the swing.

In Life Sciences, Medidata total revenue was up double-digit in Q2 and for H1 as well on a comparable basis. During Q2, Medidata achieved record new bookings, up over 20%, accelerating better growth, driven by on one hand, patient cloud and on the other hand, by the data analytics offers. We could also notice a substantial operating margin improvement at the same time. Importantly, Medidata is well positioned to achieve its growth objective for the full year. And with the global health pandemic has been a headwind to the single study clinical trial, the strong new booking is a tailwind for the full year.

Moving to the Mainstream Innovation, it showed good resiliency, with a strong growth in recurring software. In Q2, we also saw growth for Centric PLM and for DELMIAWORKS. And software revenue for Mainstream Innovation decreased 2% in Q2 and were stable for H1.

Zooming in on our profitability, our non-IFRS operating margin of 26.7% came in just ahead of the high end of our objective range of 25% to 26.5%. The two principal factors were, first, a stronger performance in our core business bringing about 120 basis points; secondly, Medidata coming in ahead of the plan adding about 20 basis points; and 10 basis points from the currency compared to our guidance rates. The offset to this was our recent acquisition of Centric PLM and IQMS coming in 50% [Phonetic] basis points below plan combined.

Let me remind you our savings plan, targeting about EUR170 million and offsetting about half of the revenue reduction we had to estimate in Q1 from the COVID-19 compared to our initial 2020 guidance in February. About half of the targeted savings relates to the selective hiring as we're just doing in research and development in particular with the staffing increased 5.5% on an organic basis and on the other half to discretionary expense. At the end of H1, we're well aligned with our target with more than half of the saving being achieved.

Our operating cash flow for H1 reached EUR894 million, a strong level overall and just 4% below H1 year 2019. We benefited from Medidata's improved cash generation and better collections on the one side. Offsetting this factor is part of -- was some of the extended payment terms to help our clients as well as our resellers. Contract liability totaled for EUR1,160 million and were up about 3% in constant currency and perimeter. DSOs remained stable on a constant perimeter basis.

Zooming for a minute on our cash position, it increased 23% in H1, and we're now back to pre-Medidata levels with cash and cash equivalents of EUR2,410 million. Combined with debt of EUR4,610 million, our net financial position improved EUR460 million to a negative EUR2,210 million at June 30.

Moving to our financial objectives, as we outlined last quarter, our key objective is our commitment to achieve a stable non-IFRS earnings per share for 2020 in comparison to 2019 in the midst of the global pandemic. Based upon our results of the first half and assessment for the second half, we confirm our objective now targeting a non-IFRS EPS of EUR3.70 to EUR3.75. This estimated effective tax rate remains unchanged at about 25.2% and our exchange rate assumption for the USD and Japanese yen remain unchanged for Q3 and Q4 in spite of euro/dollar volatility we have seen in the last few days.

On the revenue side, we're following closely the financial framework we laid out last quarter and summarized in today's earning press release. First, we're maintaining our revenue growth range at plus 12% to plus 13% in constant currency. We're increasing the reported revenue range at the midpoint by EUR15 million to EUR4,540 million with some puts and takes. First, plus EUR20 million for currencies, plus EUR20 million for software and minus EUR30 million for the services. For software, we're increasing the range to 14% to 15% from 13% to 14% with recurring revenue expectation unchanged for the full year.

On a sequential quarterly basis, we would expect a progressive lowering of our organic support revenue growth as we saw in 2009 [Phonetic]. Based upon our updated perspectives, we're improving our outlook for licenses software revenue evolution. And looking at our updated pipeline for the year, we do see a willingness on the part of clients to resume investments and we're not generally seeing large deals with the pipeline made of smaller deals.

The sales process in terms of maturity seems well advanced giving us greater conviction for Q3 and also Q4. For services, we removed about EUR20 million from H2 outlook. This implies that a little less than 10% of our services staff is on the bench due to the postponement of activities by clients beyond 2020. We have observed a willingness on the part of clients to resume investment, and we have decided to keep these resources.

We now estimate a services revenue trajectory ranging from a decrease of 2% to growth of 1% for 2020, compared to a growth of 5% to 7% estimated earlier this year. Operating margin, we're refining our non-IFRS operating margin target to about 29.3% to 29.4% for the full year 2020. For EPS, we are adding 3 points at the high end and tightening the range to EUR0.05 from EUR0.07, bringing us to EUR3.70 to EUR3.75.

To summarize, while our business is not immune to the COVID-19 crisis, I think our financial results demonstrated the resiliency of our business model. Moreover, our strong level of profitability and financial strength enable us to continue to invest in our strategic priorities to create value for our customers and to position us for the growth reacceleration exiting this global health crisis.

Bernard and I would like now to take and answer your questions.

Francois-Jose Bordonado -- Vice President of Investor Relations

Andrey, can you start the Q&A session?

Questions and Answers:

Operator

Thank you. [Operator Instructions] We are now taking our first question from the line of Andrew DeGasperi from Berenberg. Please ask your question.

Andrew DeGasperi -- Berenberg -- Analyst

Thanks. Good morning. I just had two quick ones for you. First of all in terms of the SMBs. I know you mentioned that churn will likely pick up in the second half. I know you foresee some bankruptcy emerging September in Europe specifically. Can you tell us if you've seen as of today any delayed payments from these small and medium business. And then, secondly, I know you said that Medidata bookings were up 20%. Can you maybe give us overall bookings from a constant currency business? Thanks.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Okay. So Bernard will probably answer these two questions.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

Please feel free to add [Indecipherable]. Of course, so related to the churn of the SMB, you're right, we raised the guidance when we made the framework last quarter. And we raised from 10% to 12% the churn. Actually, we have observed in Q2, a 9% churn, so which is a good sign because it's usually the historic level we have seen. Nevertheless, we decided to keep the guidance the way it has been designed because we do expect to see some bankruptcy in Q3, at least more than what we've seen in Q2. So we keep the 12% churn for the SMB market compared to the 9% we are seeing right now.

Related to Medidata, yes there are few things we can say. The first, the new booking has been extremely good this quarter for Q2. It's almost the size of Q3 new booking quarter, so that's a good sign. And the new booking is up more than 20%. We're also seeing an acceleration of the backlog growth and there are few things you should take into consideration. First the way we monitor this growth along two different axes. The first one is what we call the 12 months backlog at par, assuming that we will renew the existing customer without increasing the bill. And the backlog is growing at 13% at par, which is exactly in line with our plan.

And then, you have the renewal and we're also monitoring the renewals and over the last 12 months in average, the renewal growth has exceeded 20%. So the combination of the two, give us certain level of confidence to deliver the H2 for Medidata, aligned with the plan and give us also some good perspective for 2021. Last but not least to answer to your questions, we have roughly 95% coverage of H2 for Medidata. So the remaining piece we have to fill with incremental booking is I think achievable.

Andrew DeGasperi -- Berenberg -- Analyst

That's very helpful. Thank you.

Francois-Jose Bordonado -- Vice President of Investor Relations

Next question, please.

Operator

Yes. Next question comes from the line of Jay Vleeschhouwer from Griffin Securities. Please ask your question.

Jay Vleeschhouwer -- Griffin Securities -- Analyst

Thank you. Hello Bernard, Pascal and Francois. Few questions, starting with SOLIDWORKS. Looking back at Q2, Pascal how would you say the year-over-year decline in new SOLIDWORKS licenses compared with the 11% decline in Q1? Assume it might have been a larger decline, but perhaps you can clarify that? And then looking forward, what are you thinking in terms of the adoption of 3DX WORKS which has been released to the channel? And I know that SOLIDWORKS has a program in place to try to activate or reactivate what is a substantial dormant base of customers not on maintenance. Your non-maintenance paying base is larger than the active bases with your peers. What are you doing programmatically to convert more of that back onto maintenance? And then some other questions besides SOLIDWORKS. Thank you.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

So Bernard, I will take the first one and maybe you answer the second one. So for Q2 the performance for SOLIDWORKS you've seen its minus 3% total software revenue. And if you split between the new license and recurring part, the recurring part is growing at 6% and if you do the math, you will discover that the new license are decreasing by a little bit less than 20%.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

Regarding the adoption of the 3DEXPERIENCE WORKS, as you know the entire now SOLIDWORKS associated portfolio is moving from functionalities to roles on process coverage. An example of that is what we're doing with DELMIA WORKS connected with SOLIDWORKS or SIMULIA WORKS, which by the way are showing very interesting success dynamic. So that program is well understood by partners and clients. We are just at the beginning as you said, which was announced during the SOLIDWORKS doing 3DEXPERIENCE world early this year and now it's just being released.

So we're very confident that number one it's well received by the client, who have seen it. Second, the 3DEXPERIENCE platform helps to expand the functionalities of SOLIDWORKS desktop. And also open the possibilities of SOLIDWORKS through a browser. So this is now -- can be provisioned, this is just with a click and buy process which is quite interesting. So we're at the beginning of this program but there is no doubt that the power by the cloud 3DEXPERIENCE cloud infrastructure should be a good lever for future growth, which by the way is also kind of answer to your third question related to the subscription.

SOLIDWORKS is providing very high degree of satisfaction to users, very high. I mean the user community is powerful. Very vivid and very active. And I think the fact that, it was demonstrated with MySOLIDWORKS. I mean they share a lot of information. This is being powered by 3DEXPERIENCE. So we believe that progressively, just a virtue of being connected will by -- as a result create a subscription revenue flow at least related to the -- what we call the collaborative process that should be very interesting value for the SOLIDWORKS base.

We don't want SOLIDWORKS users to be isolated. MySOLIDWORKS was the first step, 3DEXPERIENCE WORKS is the second one with capabilities both on new growth as well as marketplace that I think is quite promising. It's also a way to make sure that our partner sees the value up with our clients. So that's basically how the three topics are connected.

Jay Vleeschhouwer -- Griffin Securities -- Analyst

Okay. Secondly in your remarks earlier Pascal, I think you used the phrase resume investments when speaking of certain customers. Could you relate that view to the manufacturing and supply chain business specifically? There seems to be a good deal of let's say ferment in that part of the engineering software market, where number of your peers are paying a good deal of more attention to that class of software, enterprise software companies as well Microsoft highlighting it for example at their conference this week. So over the years, DELMIA and Quintiq have grown, but has been a fairly lumpy business as you know. So what could change that lumpiness and make this look much more like an ongoing retooling or reinvest this cycle, specifically for DS in that area?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Before to answer to your question. I want to correct one thing. The Quintiq business is right on plan compared to the acquisition plan we developed at that time. So -- and the reason is, as you clearly express, believe it or not this market is not well served, right now. There is this strong belief that the ERP players are serving extremely well in this market. But that's not true. What they do is they do inventory management. Managing end-to-end supply chain process is much more complex. But because you need to have virtual twin of the supply chain to make it happen and that's one of the unique differentiators we have with Quintiq, because not only we have the optimization engine others have, but it's in conjunction with the virtual twin of the supply chain. So we can do multi-scale optimization. The others usually, they're struggling to do.

So coming back to your questions, yes, you're right. This domain is extremely important for many customers right now because they're looking for short return over investment. And optimizing the supply chain is one of the easiest ways to reduce your cost of operations. Believe it or not, when you buy your product between a third to sometimes more than two-third of the products, costs are coming from the logistics. So if you know how to reduce significantly the logistic cost, frankly speaking, you're doing a lot of savings and with the new technology coming like 3D printing, it's a way to redesign and reshape complexes in supply chain and that's what is happening right now. So to come back to your questions. We are seeing a lot of traction in manufacturing industry coming from the integration of the supply chain management with manufacturing operation managements.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

Related to the win rate in MES sector which is then DELMIA, not DELMIA Quintiq, but DELMIA-Apriso and also DELMIA WORKS. We have a high -- a very high win rate in MES. I mean DELMIA-Apriso is becoming [Indecipherable] in several industries and we've replaced those MES of competitors like Siemens or SAP quickly, and is working and the track record is there. Whether you talk about AMD, Tier 1 Automotive or many other sectors like industry and machines, I think it's a wrong perception. The DELMIA portfolio is progressing very well.

Jay Vleeschhouwer -- Griffin Securities -- Analyst

And lastly on Medidata, is it possible that the strong bookings the 20% or so, which is above the revenue CAGR that you talked about for that business could in fact translate into an even faster revenue CAGR for Medidata for some time. And if that were to occur, would there be faster margin leverage in Medidata than you've spoken of previously such as at your presentation at the Life Sciences Day back in November.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

So I will -- to answer to your question, I will start with the second part of the questions, because as you remember we outlined the plan for the profitability of Medidata a year and half ago. We'll say we will win 2 points EBIT margin every year for the next five years. So, where are we? In Q2, we're 20% operating margin with Medidata, which is well aligned with the plan. In fact, we're slightly ahead. And the reason it's obviously coming from the good momentum. But also you know and I should thank the [Indecipherable] and Glen for what they did. They have put the discipline financially speaking without compromising the momentum and the top line, which is a very good thing.

So now coming back to your point, I think, let's assume we have an acceleration of the growth for Medidata. It's in our interest anyway to continue to invest. So I will follow the plan. We have defined because we need to reinforce our ability and capability to tackle this market, and I think from a pure sales coverage and also from a research and development standpoint, we're far from being the full capacity. So I will not try to overachieve compared to the plan I just outlined.

Jay Vleeschhouwer -- Griffin Securities -- Analyst

Thank you very much.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

You're welcome Jay.

Francois-Jose Bordonado -- Vice President of Investor Relations

Next question please.

Operator

Yes, we're taking next question from the line of Jason Celino from KeyBanc Capital. Please ask your question.

Jason Celino -- KeyBanc Capital -- Analyst

Hello. Thanks for taking my question. Building on Jay's previous question. You mentioned customers willingness to make to resume some of these investments. Was there a particular month or a period when you saw this begin?

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

In fact it depends from 1Q to another one. Let's start with Americas and especially, United States. We saw a good start for the quarter because many people they were anticipating the lockdown and we signed some sizable transactions I would say the first month and it was little bit more difficult at the end of the quarter. In Asia, especially China and Japan, I mean, China we had good recovery the last few weeks of the Q1 and we're basically moving along the same trend.

Japan, we saw some decision moving forward in Q2. In Europe, I will say that's not -- it was not happening in Q2. Many decisions have been stuck, because people they were still building their plan and we start to see now people having not only a plan but having a timeline in mind to be much more selective on the investment they want to secure and continue. So I do expect Q3 to be better for Europe at large.

Jason Celino -- KeyBanc Capital -- Analyst

Okay. And if you look at your 3Q range for new license growth of minus 18 to minus 8. It's quite wide. Can you maybe talk about what it would take to get to the high end of the range and maybe what would happen to get to the low end of the range?

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

So the way we did it, first we're looking the pipeline. And if I compare the pipeline now versus last year, we're roughly between 85% to 87% of the pipeline depending the country and depending [Indecipherable]. However, the level of maturity of the pipe compared to last year is much better, and the way we measure it, we have what we call stage-gate. We're looking all the different opportunity we have in the pipeline and depending where they are at which stage, we have a level of maturity being formalized and quantified. So if I compare the Q3 pipeline compared to last year, even if it's smaller pipe but the level of maturity is 10 points higher. And the last piece, we have less dependency on last transactions. The last transaction has been sliced on smaller opportunities and we do expect the conversion rate to be at least equivalent to what we see in Q2. So if you put some freedom, some range on the three indicators I gave to you, basically you come with the high end or the low end of the range.

Jason Celino -- KeyBanc Capital -- Analyst

Okay, no that was quite helpful. Thank you.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

We'll take one last question.

Operator

Yes, we're taking our last question from the line of Michael Briest from UBS. Please ask your question.

Michael Briest -- UBS -- Analyst

Thanks. Good afternoon. I think I was last this morning. So my lucky day.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

You love us Mike.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

You closed the call this morning and you are going to close the call this afternoon.

Michael Briest -- UBS -- Analyst

I've got a couple of them, I think that's for Pascal. So just in terms of the services business. Obviously the Q1 and Q2 you've given the organic numbers. Coming out of the Medidata had a little over EUR20 million in services this quarter and out EUR14 million last. So it looks like Medidata subscription revenues are flat sequentially. Would you sort of agree with that analysis or the numbers at all?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

No, Michael. First, I never gave the services number for Medidata.

Michael Briest -- UBS -- Analyst

No you've given the organic number and the currency numbers.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Yes, but the organic. Yes, you're right. You can make basically the assumption that you need to have the base compared to last year. So you'll have enough time to recompute, but nevertheless, just to help you, the growth for the services is in line with the rest for Medidata. So when I say it's a double-digit growth, it mean it's a double-digit growth for most.

Michael Briest -- UBS -- Analyst

Okay. I mean so for the last year, you are adding in Medidata, I mean it was quoted in Q2, so we got the numbers for that. It did have $35 million of services in Q2 last year. So I should probably [Indecipherable].

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Michael, who said we're defining the services the same way?

Michael Briest -- UBS -- Analyst

What would have changed?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

I mean, we have different policy. That's the reason why maybe it's not fully comparable with the numbers you have. That's probably the reason why you have time to recompute the number. But I can ensure to you that the services business from Medidata is growing along the same way than the software.

Michael Briest -- UBS -- Analyst

Okay. And then just another one on services. I think you said that you've got 10% at the workforce on the bench. The margin performance looks very good. If again just taking the revenues they were down I think it was 11 million sequentially?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Being on the bench, does not mean they have a utilization rates at zero. It means they're not fully loaded that's the reason. Maybe my expression was too extreme.

Michael Briest -- UBS -- Analyst

I mean so revenues were down EUR11 million quarter-on-quarter and costs were down EUR12 million. I know you also talked about subcontractors. So can you give a sense of how much of that EUR12 million [Indecipherable] was just letting go off the subcontractors?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

For the subcontractor we're reducing by almost 50%.

Michael Briest -- UBS -- Analyst

And that would be the majority of the EUR12 million reduction costs?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Yes. Not the majority but you're covering definitively two-third.

Michael Briest -- UBS -- Analyst

Okay. And then for the rest of the year margins and services would be similar to Q2's level. Do you think?

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

I hope so.

Michael Briest -- UBS -- Analyst

Okay.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

You know that's a very fine -- I mean, it's very fine to manage the margin on services, that's the reason why -- and if you look at the range, we gave for the top line for the services in Q3 between zero to 10% growth, the range is pretty large to a certain extent and this could have impact on the margin obviously. So that's the reason why I'm taking some cautiousness at the way I'm answering to your questions, because the visibility on the short-term is not at the level we want. But I do expect any way to contain and to try to protect the margin as much as we can the same way we did for Q2.

Michael Briest -- UBS -- Analyst

Understood. All right, thanks very much and have a good summer.

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Thank you. You too.

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

Thank you. With that, thank you very much for all of you for joining this afternoon and of course as you know, we can take your calls after this one and continue to add the proper action. So you can understand how the business is going. We're going to revisit this summer to make sure that we do a good second half as we commited to you. Thank you again and have a great summer -- and take care.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Francois-Jose Bordonado -- Vice President of Investor Relations

Bernard Charles -- Vice Chairman of the Board & Chief Executive Officer

Pascal Daloz -- Chief Operating Officer & Chief Financial Officer

Andrew DeGasperi -- Berenberg -- Analyst

Jay Vleeschhouwer -- Griffin Securities -- Analyst

Jason Celino -- KeyBanc Capital -- Analyst

Michael Briest -- UBS -- Analyst

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