Nemetschek Se Unsp/Adr

The conference is now being recorded. Good afternoon, ladies and gentlemen, and welcome to the Publication Q1 Financial Statement of Nemechek SE. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Stefanie Zimmermann.

Thank you, operator. Hello everyone and a big welcome. Thanks for joining our earnings call today to discuss the results for the first quarter 2024 with us. With me today are our CEO Yves Padrin and our CFO Louise Wilberström. Today's conference call is being recorded. A replay of the call will be available at our website after the call. Additionally, you will find the report, the presentation and the press release on our investor relations website as well. But now let's get started. So I would like to turn over to our CEO Yves. Go ahead.

Thank you, Stephanie. Welcome everyone to our first earnings call related to the financial year 2024. After the substantial amount of detail we provided on our subscription strategy and our strategic focus areas in the course of our full year reporting last month, we have now returned to our usual short but informative slide deck. or Chief Financial Officer, Louis Overstrom, and I will therefore give you a brief presentation of the highlights of the first quarter of 2024 so that we have sufficient time to address any questions you may have during the Q&A session. To begin on page number three, I will summarize our Q1 as a successful start of the year with double-digit currency adjusted growth and combined with a high profitability. Main growth driver was once again the recurring part of our business, in particular, the very strong increase in our subscription and SaaS revenue, which is also reflected in all our major KPIs where we reach new record levels across the board. Looking at the underlying demand situation in Q1, we had the expected continuation of the trends we already saw over the last 12 to 18 months. an ongoing challenging demand environment in our European design markets, as well as a continued resilient customer demand in the US. If we look at one of our main strategic priorities, our journey to a subscription and SaaS-centric business model, we continue to execute as planned and the different transition of our brands in the build and design segments are progressing very successfully. Our segments also developed in line with our internal plans. While media showed the expected re-acceleration in growth, the growth in the managed segment continued to stay at a good level. Despite the mentioned ongoing challenging environment, also our design segment had a very strong start of the year. The design segment benefited slightly from small pull-forward effects in connection with the announced price increases for perpetual licenses by one of our design brands. Therefore, together with the introduction of new features, which are cloud-based, this price increase of perpetual license makes the subscription offerings of our design brands once again commercially more attractive for our customers. With the consequently forecasted acceleration in subscription SaaS sales and its short-term accounting-related dampening effects on growth, we therefore expect that Q1 likely marked the upper bound of the growth range for design in 2024. Our build segment continued to see a very resilient demand, especially in the US, and is fully on track to achieve its targeted mid-teens growth for the full year 2024. We have now already migrated more than 65% of Bluebeam's business to subscription SaaS models. The highly successful transition of Bluebeam is therefore progressing according to plan. The planned low double-digit growth in Q1 is consequently forecasted to more than triple towards the end of the year in Q4. What is massive acceleration in growth, we do not expect any kind of additional recovery in market demand or any other special effects. It is rather the result of the pure mechanics of Bluebeam's ongoing subscription transition combined with a substantially easier comparison base, which no longer include license sales for the first time in Q4. Therefore, thanks to our successful start of the year, We are well on track to achieve all of our financial targets for the fiscal year 2024. The continued progress in our different strategic focus areas combined with our already very resilient business model today provide us a strong foundation to achieve an above market growth and shareholder returns in the mid to long term by capitalizing on our leading position in our structurally growing industries. So in short, we are well underway to deliver on all of our goals. Let's move to page number four. As we already presented last month, one of our strategic focus areas is the ongoing internationalization of our business as part of our go-to-market strategy. Our goal is not only to further increase our resilience, for instance, by further reducing the dependency on the open market, but to also benefit even stronger from the higher expected growth in regions, such as North America and Asia Pacific, and in particular in India. The Indian construction market has an extremely low degree of digitalization and is the third largest construction industry in the world. There are tremendous growth opportunities in India for us, strong urbanization trends, favorable demographics, high growth rates, etc. This is why we are proud to announce that we successfully launched Nemetschek India by opening a go-to-market office with a dedicated local sales team in Mumbai. It will be our second location in the country following our Shared Services Development and Research Center in Hyderabad. India is also the first country where our solution will be sold by our direct sales force under the name and check group umbrella and not via buy one of our individual brands standalone. We will therefore offer the different products and packages ranging from our design brands such as Allplan, Graphisoft, Vectorworks, Risa, Solibri to Bluebeam and also Dtwin, all in the form of subscription only by the way. jointly under the Nemechek Group brand. We are convinced that by increasing our presence in India, we will be better able to participate in the enormous growth potential of the Indian construction market in the coming years and decades. Let's move on to page number five. During the first quarter of the year, we also announced two major partnerships. one with Autodesk and another one with Hexagon. As you probably know, especially in the construction industry, one of the major pain points is the fact that the different participants involved in a project still work in their separate data silos instead of sharing the data in a continuous workflow. The result is that approximately 90% of all construction projects are delayed and or over budget. In addition, roughly 20% of the material used during the construction process are wasted. As you know, that is the reason why Nemetschek has been a strong driver of Open BIM, interoperability and open industry standards from the beginning. It's part of our Nemetschek Group's DNA and the reason why we have pushed the industry to enable seamless collaboration along the entire building life cycles for decades. With the announced two partnerships, we have now made the next step on this journey. First, we have agreed with Nemetschek to improve our open collaboration efficiencies for the ACO and media industries. The agreement will enhance the existing interoperability between the solution of the Nemetschek Group and Autodesk and improve the fluent exchange on information success across the products of both companies. Our goal is to ensure that all, as well as Autodesk customers, no longer have to deal with inefficient workflows due to data loss or file incompatibilities. The agreements will therefore enable Nemetschek Group and our brands and Autodesk to improve existing data exchanges, for example, via open APIs and open new data-centric workflows that span discipline and industries. In addition, we also announced a strategic partnership with Hexagon and its Geosystems division with the goal of to accelerate the adoption of digital twins in the operational phase. We are both convinced that digital twins are key in transforming the industry and overcoming the challenges that building owners and operators are facing today. With our new horizontal, open and cloud-based digital twin platform DTwin, as well as Hexagon's end-to-end reality capture solutions, we will help customers to efficiently manage their facilities and optimize building operations based on real-time information. We believe that this is not only an important milestone for us, but more importantly for customers and the industry. I will now hand over to Louise, who will dive deeper into the most important aspects of our first quarter financial results.

Thank you, Yves, and a warm welcome to our first quarter 2024 earnings call from my side as well. Yves has already touched on some of the most important strategic initiatives from our first quarter, and I would therefore now like to focus on the most important financial results of Q1 as well as its underlying drivers. Looking at our double-digit operational revenue growth combined with the continued high profitability, I fully agree with Yves' assessment that we had a strong first quarter of the year 2024. On page seven, we show a summary on how our successful start to the year translated into our most important KPIs. Our Q1 revenue increased by 9.4% on a reported basis and even by 10.3% on an FX adjusted basis to 223.9 million euros, driven by a strong development across all of our segments. In line with our key strategic priorities, the transition to a subscription and SaaS-centric business model, the main contributor to this growth, was once again the recurring part of our business, which is represented by our annual recurring revenue KPI. In Q1, the ARR growth reached 24.5% and amounted to almost 744 million euros. This continued strong increase in ARR is an important indicator for the group's revenue and cash flow growth potential in the coming 12 months. Well, looking at the different components of this ARR growth, it becomes very clear and in line with our plans that our subscription and SaaS revenues was the main driver with a plus of 66.5% on a reported basis. Similar to the top line development, the EBITDA in Q1 also increased markedly by 11.9% to 68.3 million euros. The corresponding EBITDA margin of 30.5% represents a margin expansion of 70 basis points year over year, despite the ongoing investments into the future growth of our business, as well as the ongoing transition to a subscription and SaaS-centric business model and you all are well aware about its associated short-term accounting burden on our profitability. The key reasons for this sustained high level of profitability are our operating leverage, the focus on our cost base, as well as the continuous improvement in internal efficiency thanks to our business enablement initiatives. The net income for the quarter grew over proportionally by 17.4% to 42.5 million euros, leading to earnings per share of 37 euro cents. Overall, I therefore believe that our Q1 results once again prove that our strategy of a phase transition of a business model to a subscription and SaaS model is working extremely well. It does not only give us substantially more control over the entire transition process, and thus significantly, of course, reducing the associated risk, but it also makes the migration more easily digestible for our customers and shareholders, which is, of course, utterly important. On page eight, you will find the developments of our four segments during the first three months of 2024. In short, all our segments developed in line with our internal planning. However, before we go into the details of each segment, let me just very briefly highlight some accounting-related adjustments we have made at the start of the year. As a result of a strategic reclassification, we have moved the digital twin business unit from the managed to the design segment. As you have probably already noticed, we have therefore also slightly restated our segmental results accordingly. But now, coming to the performance of our different segments in the first quarter of 2024. Starting on the left side, as usual, the design segment had a strong start to the year with a currency adjusted growth of 9.3% to €116 million. The main growth driver was the revenue from our subscriptions and SaaS models, which increased by around 65%. The EBITDA grew by 18.8% to 35.5 million euros, which corresponds to a high EBITDA margin of 30.7%. And as is already mentioned at the beginning, the design segment also benefited slightly from pull-forward effects in connection with the announced price increases at the end of Q1 for perpetual licenses by one of our brands. With these price increases, we continue with our planned acceleration to a fully subscription and SaaS-centric business model in the design segment as well. With the resulting forecasted higher share of subscriptions and SaaS sales in the coming quarters, and its associated short-term accounting-related negative impact on growth, We therefore expect that Q1 likely marked one of the strongest quarters for the design segment in terms of year-to-year growth in 2024 and in line with our planning. In our build segment, the transition of Bluebeam continues to progress very successfully and in line with our internal planning, with a currency-adjusted growth of 10% and an EBITDA margin of 31.1%. Furthermore, Based on both the continued resilient customer demand, especially in North America, as well as the ongoing buildup of Bluebeam subscription and SaaS revenue base in the coming quarters, in combination with a comparison based in Q4 that does not include licensees for the first time, as is said, we continue to forecast that the revenue growth of the build segment will more than triple in the last quarter. As expected, this is an effect of our accounting and the business model behind it. So this massive acceleration growth, we do not rely on any improvement in the underlying market growth or any other special effects to come. It is solely a function, as I said, of the transition mechanics and the continued strong buildup of Bluebeam subscription and SaaS revenue base, which is, as you know, in this kind of model, already very well earned already in the figures so consequently we are therefore fully on track to achieve the segments targeted mid-teens growth for the full 2024. the media segment recorded a strong re-acceleration in the underlying currency adjusted growth from 3.8 percent in q4 to 10.9 percent in the first quarter of the year and as expected the last quarter of 2023 therefore marked the low point in terms of growth for the segment while the media and entertainment market is still partially impacted by the negative effects of the long-lasting strikes in the film and TV industry in Hollywood that we saw last year. The media segment's profitability continued to stay high at and above a group average level at 37.4%. And last but not least, in our smaller segment Manage, we recorded a growth of 9.9% and therefore in line with our forecasts. One of the key growth drivers of our European centric business that we have in this segment was the high demand for our AI powered energy management solutions. The improvement in the margin is partially explained by the strategic reorganization of the digital twin business unit, as I explained before. Nevertheless, the margin of 6.6% in this segment is still impacted by the continued investments into this segment's progress portfolio, as well as the future growth opportunities, and therefore still nowhere near the profitability levels we forecast for the mid- and long-term growth for this segment. On slide nine, comprehensively summarizes the financial results of one of our key strategic priorities, which is also a regular topic in these earnings calls. our transition to a subscription and SaaS-centric business. You can see here on the right side of this slide why we are so pleased with this development in Q1. In line with prior quarters, the recurring part of our business was once again the main contributor to the growth in the first quarter of the year. We have previously addressed the Q1 development of our most important transition KPIs, so the ARR growth of 25%, as well as the subscription and SaaS revenue growth of more than 60%. And consequently, the more volatile perpetual license part of our business continued to decline strongly by 37.5%, perfectly in line with our plans in Q1. We are therefore proud to report that by the end of the first quarter, the share of recurring revenues reached 83%, a new record high, and an increase of 10 percentage points year over year. As a result, we are well on track to achieve our target of a recurring share of around 85% for the financial year 2024. The left-hand side of the slide also provides a longer-term picture on the development of our recurring revenues. While we started with a recurring revenue base of just around €86 million in 2020, as you can see here on the slide, we more than doubled these more resilient and better planable revenues within the last four years. And also looking at the chart, it is also becoming very clear what has been driving this strong increase in recurring revenues. Our systematic and highly successful and continuous transition to a subscription and SaaS-centric business model, which led to a more than five-fold increase in our subscription and SaaS revenue base. The corresponding subscription and SaaS revenue CAGR even reached a remarkable 52%. I believe that the chart therefore impressively shows the tremendous progress we have already made here in the recent years and which we are determined to continue going forward. As usual, you will find a more comprehensive overview of our income statement along with the most important cash flow and balance sheet KPIs on page 10. To conclude this financial review of the first quarter, I would therefore like to highlight a few developments below the revenue and EBITDA level. Therefore, if we break down our cost base and look at its underlying drivers, you will see that we have once again managed to limit the increase in the key OPEX components to a very reasonable pace. For example, if you take a closer look at the largest component of our total cost base, being our personnel cost, you will see that it grew by only moderately 6.1% in the first quarter, despite our continued hiring of top talents in selected focus areas and innovation that we need for our future growth, such as artificial intelligence or digital twins. These important investments in the future growth of our company are offset by continuing improvements in efficiency, and effectiveness thanks to our various operational excellence initiatives. Going further down the P&L, you will notice that the over-proportional growth in our earnings per share of 17.4% is partly attributable to a year-over-year decline in depreciation and amortization changes in the first quarter. Now, looking at our cash flow statement. The seasonally very high cash conversion, so operating cash flow in relation to EBITDA, of 124%, along with a strong fee cash flow generation in Q1, underpin the high quality of our earnings. Also going forward, we continue to be very confident in our cash generating capability, especially in the light of the ongoing transition of our business model to subscription and SaaS offerings. Lastly, thanks to the strong earnings and cash flow development in the first quarter, we were once again able to improve the already superb quality of our balance sheet even further. Our net cash position grew to 340 million euros. This is an increase of 79.5% or more than 150 million euros compared to the previous year. And this while our equity ratio also improved by more than 220 basis points year over year. In addition, I'm now very happy to announce that Nemetschek has recently replaced its existing bilateral credit lines with a new syndicated loan facility. Following a very strong interest from both long-standing house banks as well as our international banking partners, the syndicated loan facility has a volume of 500 million euros. In combination with our already extremely strong balance sheet, This does not only provide us with a high degree of safety during, should it be there, the uncertain economic times, it also gives us a substantial firepower of north of a billion for potential value acquisitions and venture investments in the coming months and quarters. So furthermore, the favorable transaction parameters, as well as the very broad support from leading an international financial institution, is a strong proof of their high confidence in the operational and financial strength, as well as the long-term growth prospects of the Nemechi Group. And with that, I'll hand it back to you, Ed.

Thank you very much, Louise, for this comprehensive overview of our financial results. As we come to the end of our presentation on page number 12, I would like to turn to our outlook for the current fiscal year 2024. We see that the pressure to digitalize the construction industry is steadily increasing, especially in the current challenging market environment. In addition to a consistent focus on the transition to citizen and SaaS, we are systematically driving forward all the strategic topics in order to make the best possible use of the huge growth opportunities in our markets. Thanks to the new technologies, such as digital twin, artificial intelligence, and cloud solution, as well as our intensified go-to-market approach, we possess strong growth drivers for the future. Based on these strong fundamentals of our business, as well as a good start of the year, we fully confirm our guidance for 2024. We therefore continue to expect an attractive growth at a high profitability in 2024 even despite the still challenging market environment and the ongoing transition of our business model to subscription and SaaS models and its accounting-related dampening effects on our revenue and earnings. That means that from today's perspective, the Executive Board expects a revenue growth at constant currency of 10% to 11% and an EBITDA margin forecast to be in the range of 30% to 31%. The ARR growth is expected to be around 25%. As a result, the share of recurring revenue is expected to reach around 85% by the end of the year. Furthermore, our ambition for 2025 is unchanged. Following the successful transition of the majority of our business to subscription SaaS models by 2025, we expect well above the market, a further acceleration of growth to a range at least in the mid-teens. And with that said, I would like to thank you for your attention and we are now ready to take your questions. Operator, please back to you.

Thank you very much. Dear ladies and gentlemen, if you are dialed in in the conference call and have a question for our speakers, please press 9 followed by the star key on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you may press nine star again to cancel your question. So one minute for the first question, please. Oh, I see there are a couple incoming. So the first question comes from Sven Merkt of Barclays. Please go ahead.

Great. Good afternoon. Thank you for taking my questions. Maybe first, you were very clear on the build segment and the acceleration there in Q4 to over 30%. I was wondering if you could comment as well around the growth outlook for 2025. I mean, it's probably fair to assume that it should stay around the 30% mark for Q1 to Q3 in 2025. But how should we think in addition to that? about the price increases that you have filled in for the customers that move from maintenance to subscription. Should that further boost the growth there, or is it maybe just because of more difficult comps, it should stay around at 30%? So if you could comment there on the puts and takes, maybe that would be great.

Yeah, no, thanks, Sven. So as you stated, clearly on the build segment for 2024, you know, we are planning to have similar type of growth in Q1, maybe slightly higher a little bit in Q2 and Q3. But then again, at least we are planning to triple the growth of Q1 in Q4 for the build segment in 2024. If you look at 2025 overall, the build segment, which is a combination of the two brands, Nevaris and Bluebeam, we are assuming I mean, in the north of the mid-teens growth for division, this is including all the effect that we have from the move from SaaS to subscription, the automatic 10% price increase, etc. All of that is embedded. So, you know, it's in the north of the mid-teens for the overall division in terms of revenue growth for 2025.

Okay, that's clear. And just maybe on the maintenance migration for this division for the rest of the year. So you said 65 is now subscription and SaaS, so about 35 is maintenance. And the plan is still that this should go to 10% gradually? And is it fair to assume that this should go gradually to this level during the year?

Yeah, over time, so clearly the level of recurring again will increase, so we're expecting, as stated before, 85% of our total revenue should be recurring by the end of this year. We should be close or above to the 90% already in 2020 and by the end of 2025. Majority of the revenue by the end of 2025 should be a subscription. And then, yes, the remaining piece is going to be a combination of perpetual license, a little bit of professional services that we still have, you know, especially in the operate and manage business with Spacewell and CREM. But also we have a little bit of training fees and revenue, which are more related to services. And a very small portion is when we resell a little bit of hardware when you look at Spacewell business. Okay, thank you. But overall, the perpetual license services and hardware should represent less than 10% of our overall revenue starting from the 2026 or let's say by the end of 2025.

Yeah, and maybe just to add to that, I suppose that's clear, but just to add to why do we also keep some perpetual licenses? Well, it's not really our strategic focus any longer. There are always some kind of clients, governments, clients, et cetera, where it's not possible. So that will really be an exception, and that's why, as if alluded to, it will be below, or I should say 10% or below.

Okay. Sorry, I maybe misunderstood your first answer. Can I just maybe follow up on that? So you said 30% growth. Is that for Build or just Bluebeam? And what would be the reason why it would be accelerated to only at least... Mid-teens.

So it's north of the mid-teens, the growth for the Build division.

For 2025?

Correct.

And why would... But it would come down there from 30% in Q4.

Now, I think what you have to look at, I mean, we're talking about Bluebeam is the one size where you have this really strong restoration in the Bluebeam growth. And that will, of course, continue in 2025. But you always have to look at the comparables as we do a full transition for Bluebeam. There's, of course, also throughout the year 2024, you still have comparable quarters for 2025. driver 2025 you still have comparable quarters to 2024 this year where we still have had a certain part of of uh perpetual licenses etc where the transition was ongoing so it's more to say the recurring revenue would have a very very strong growth but if you look at the of the comparable side you would still sort of say have that throughout 2025 until you are then completely done we are done with the subscription transition 2024 q4 this year But then, of course, you would have the comparables next year. So that's the reason for Bluebeam. And then, of course, you don't only have Bluebeam in the bill division. Okay. Thank you. But you should continue to expect a high growth, so to say, on the quarter-on-quarter growth for Bluebeam. But if you always have to take the comparables, of course, into account. Of course. Thank you.

Perfect. Thank you very much. So we're coming to the next question. The next question comes from George Webb of Morgan Stanley. Please go ahead.

Hi, and afternoon, Eve and Louise. I've got two questions I want to come on to, please. But firstly, if I just could just go back on the question, Sven, just so we can be super clear on this. Just when we think about 2025 again for build, again, unless I'm misunderstanding it, you're saying at least mid-teens growth for build in 2025. I mean, the group guide is at least mid-teens. So, you know, should we interpret that as that's the absolute lower bound, but in reality, it's probably going to be? You know, if you look at consensus there in the market, you're certainly well into at least the 20% range for build. And, you know, to get to mid-teens on the group level certainly feels like you can't, you know, I don't think anyone out there is expecting design, management media to be growing necessarily as a group in the mid-teens next year. So can we just, just before my other couple of questions, can we just go back and clarify once more in terms of build growth in 25 and how we square that against the group guide?

Well, it will be north of the mid-twins, which is between 15% and 20% for the bill division.

Okay, that's clear. Thank you. So then the two questions I had. First, just on the design segment, Q1 this year, over 9% constant currency growth feels like a really strong performance against the tough base comparison from Q1 last year. You're still calling out the muted demand backdrop. It didn't feel like there was a lot of narrative in the results and the release. around that degree of strength. So I wonder if you can flesh out a little bit around where you saw that strength coming from. And then my second question is back on D-twin. I recall we talked about this at the four-year results last month, and you highlighted some of the partnerships that would be coming down the pipe. I guess the hexagon one's helpful to understand how you can grab that real-world data into a model. Where I'm still a little bit less clear is on the go-to-market strategy, particularly given a digital twin is not necessarily going to be a budget line for a customer. Is this about direct marketing to building owners and operators, or are there smarter ways you can build an efficient go-to-market with what you have to offer? Thank you. Sure.

So first of all, George, regarding the design performance in Q1. So we had some strong performance, mainly due to the fact that on the perpetual license front, we had one brand, so Graphisoft, which made, again, a price increase on April 1. And therefore, there has been some small pull-forward effect like we had also last year in Q1. So the demand is still OK. But we do not see the current environment in design to be stronger or weaker than last year or previous quarter. So it is the same type of agitation that we see in the market, especially in Europe on the design front with architecture firms and engineering firms. Nevertheless, it's not weaker. So that means that we are still growing, despite the fact that the construction industry in Europe is struggling. So here you should expect that Q2, Q3 and Q4 for design in 2024 should be slightly lower growth than what we had in Q1, because we will not have any more strong effect.

And I think we should add to that as well, that's very much driven by the accelerated subscription transition in the design segments.

Yes.

So it's important also to look at that. While we do not see, we don't expect to see a weaker market in the remainder of the year either. We don't expect improvement, but we don't expect a weaker market. And as I've alluded to, there's of course still a lot of, there's still demand because there's so much in this industry that needs to be digitized. So it's as they have unchanged parameters in the remainder of the year, but also in the remainder of the year, we have stronger effects, of course, also of our stronger acceleration towards the subscription and SaaS transition also in the design segment.

And as you can see clearly now, Vectorworks is almost fully a subscription. There is only one market which is still perpetually licensed, which is Japan. but for any new or existing customers now globally, including in Europe, the only option that you have as a Vectorware customer is subscription. We see that Alplan, they have around 80% of their new seats for existing or new customers are subscription, and only 20% of the new seats are perpetual license. And then Graphisoft is also doing a big push not award a subscription and they also announced at the beginning of this month the fact that they will stop the sale of the subscription by in January 2025 for any new customers and by January 1st, 2026 for any customers, so new and existing. So DLT's acceleration of subscription now in design is highly positive but of course has some accounting effect on our revenue growth. And then to answer your question on DTWIN and the go-to-market side. So clearly DTWIN or main customer target group are people who are owning or maintaining complex buildings or any type of buildings. And for that, we are having mainly a direct approach for the time being because we are really testing now our solution, which is in field trial with a few customers, which are either type of industrial buildings or airports or large residential buildings or large commercial buildings, healthcare, et cetera, et cetera. And we are doing that direct. So that's really a high-touch direct type of selling. And then once we have that really proven, especially our value proposition, which is really around predictable maintenance and energy efficiency use cases, we are also talking to a few partners to see how the go-to-market can be done via some channels and indirectly. But for the time being, majority of the business for eTwin will be done direct and then indirectly. And then of course, with our partnership with Hexagon, we are also looking at co-selling together to some of the Hexagon customer base or to the Nemetschek customer base, both the Hexagon geosystem solution for reality capture together. with a D-twin software solution from them at Check Group.

Perfect, thank you.

Thanks a lot. The next question comes from Florian Traisch of Kepler-Chevreux.

Great, thank you very much for taking my questions. I have two, one again around design. So all your statements putting together, it will have some impact, probably less severe than at Bluebeam or the build segment. But can you actually kind of give us a kind of quantification how much you believe the impact will be in the coming quarters, i.e. it will remain a growth segment. So it's unlikely to see design going to a no growth segment in coming quarters. And the second part is around India. So my question is a bit around what is your USP you can bring to that new market for you? So relative to the past, I would say most of your growth was really driven by an acquisition first to really buy an established client base. and then build from here. So the move into India is really kind of different in a way. It is obviously focused on organic first. So is it a hint that maybe here also some M&A transactions are needed to build that franchise?

Thank you. Danke, Florian. So on the design front, no, we do not expect a decline or no growth. We will have growth. I mean, clearly, also for 2024, the growth might not be as strong as in Q1, but it would be a slight decreased growth versus Q1. So it's not going to be a massive decline of growth for design in Q2, Q3, and Q4. And even when you look at 2025 and 2026, we still see a nice growth coming from design, despite the fact that we are moving much more aggressively to subscriptions. So clearly, a mid-single-digit growth, at least, uh should be there so really at least mid single digit growth even when we will be and and frankly it should be higher than mid single digits you know or expectation of course it's all depending on you know how how fast this move to subscription will go because for the moment we see that in a very positive way customers moving more aggressively to subscription and perpetual license but you know uh mid single digit growth for the next few quarters should be really the minimum at least and we strongly believe that it should be higher than that so indian market well yes it's an organic play for the moment if there are opportunities for mna in this market of course we will look at it and we are scouting that very carefully but clearly just for a pure organic play it's a tremendous fantastic growth opportunity for us. I mean, and for everybody in the ACO software industry, I mean, it's the third largest construction market now, uh, in the world. I mean, one of the biggest economy also, I mean, uh, high growth, urbanization, uh, demographics growing very nicely and, uh, uh, or target audience are, are clearly the same than the rest of the world. So if you look at the design and planning side here, architecture firms, engineering firms. There is a huge long tail of small, medium business there. Of course, there are also some large potential customers. In construction, we see also a huge opportunity there, and of course, in operating management. So for our brands in particular, Graphisoft, Vectorworks, Allplan, but also if you look at structural analytics and engineering with Reza, and of course Solibri with the BIM quality insurance class detection software, we see huge opportunities for all these brands in India. And even if there are some customers who already have a software, I mean, most of them, they are mainly using, you know, a 2D type of software, or like AutoCAD type of customer base, or SketchUp type of customer base. So here, really huge opportunity to tackle the first level of BIM or minimum, helping all these customers to move to 3D altering tool, 3D modeling type of software. And then for Bluebeam, I mean, here, the potential is enormous. I mean, of course, we will look at a different pricing for the Indian market. You know, we will not be able to market exactly at the same price and in western markets so there will be a dedicated pricing but also dedicated packaging so we will package more uh some of our brands uh which will be branded uh you know name and check type of packages but everything will be uh under subscription and we are also thinking to have kind of more basic type of package with some features which are maybe a little bit downgraded versus what we have in the western markets to also justify our more aggressive pricing for the Indian market.

Maybe just to underline that, I mean, that's also the breadth we did build up in the last years over our positions. We can now play with that in, say, order to create the right kind of bundles really for that market. And we have really the different, as you just alluded to, we really have this multiple combinations that we can really place in that market and market like that. And we see a huge strength in that to win in the Indian market.

And the person that we hired is accustomed to really start from scratch businesses for larger organizations. So he has done that for Techline and Frimble, coming from zero business in India and growing it very nicely. And therefore, he knows very well the industry. And we hire now already a strong team with a lot of people coming from the ACO industry. So we are really enthusiastic about the opportunity over the mid to long term in India. Of course, it's going to take time, like any new territories and new markets, but clearly there is room, huge room for growth, especially as it is not completely a green field, but it is more brown field maybe than green, but still a huge opportunity for us.

Great, thank you very much.

Thank you. Next question comes from Martin Jungfleisch of BNP Paribas.

Hi, good afternoon. Thanks for taking my questions. I have two, please. The first one is on the Autodesk partnership that you announced a few weeks ago. So first of all, given that Autodesk in the US still has the majority of the market and it was traditionally difficult move out of the um the out of this environment for clients would this agreement potentially help you in gaining share with larger customer groups in the us and of course what are your general expectations uh from this partnership and then the second question is on the build margins um they were down for the basis points in here in um in q1 where growth was actually up So just wondering what has driven this margin decline. Was there anything specific and would you expect this kind of trend to continue? Thank you.

Thanks, Partin. So regarding the Autodesk partnership, this is a long overdue thing for the market. Clearly, interoperability is a must. As you know, the market is highly fragmented with different solutions. And the two large players are the Nemetschek Group and Autodesk on the BIM world for the building construction industry. And here, our goal is really to ensure that the Nemetschek Group products, but also the Nemetschek Group customers, as well as Autodesk customers, no longer have to deal with inefficient workflows due to data losses or file incompatibilities. And the agreements that we have now in place enable us and Autodesk to improve existing data exchange, for example, via open APIs, but also open new data centric workflows that span disciplines and industries. Now saying that thanks to that, we are going to really ease the market share of Autodesk in the US region. Yeah, that's a little bit, no, I don't think so. But clearly, it is going to help us and, of course, our customers to be more flexible. And also, I mean, frankly, because of that, there is a refrain of market share loss for both parties because then as it is more interoperable, you are not forced really to move completely your user base to a Revit Autodesk platform or to move to an ARCHICAD, GRAPHISOFT completely so because everything now is much more interoperable so of course it is helping the Nemetschek group to enter into larger accounts because now these largest accounts they don't need necessarily to do a full transition from Autodesk Revit to an Nemetschek brand they can use in parallel the Nemetschek solution and for their legacy users still Autodesk. So somehow it is helping us, yes, but I would not say that, you know, thanks to that we are going to eat significantly the market share of Autodesk in the US. On the building margin.

Yeah, on the building margin or the build segment margin, There are different reasons for that, but I think, in general, the strongest reason for it is really volume driven, right, and subscription transition driven. And while we go through, as you know, while we go through this strong transition to subscription, we have, so to say, have a little bit of laggards in the in the revenue effects that come through and then of course we still continue to invest into our in this huge growth that we have in the blue segment so that's why we see throughout the year you have this kind of gap until say the revenue catches up in a way. So you have, of course, in the previous years, you had the higher share still of the perpetual licenses, different pricing, a different way to have the cost and the license revenues in one quarter. So it's really a staging issue driven by the subscription revenue. So it's not a fundamental change in the earnings and the quality of earnings. On the contrary, we do still invest, but we have also not invested over proportionally into it. But we continue to do that while transitioning into the into the subscription move, and I think that's extremely important. So you should see this come out with the transition that we stated before. Of course, that towards Q4, we have, as I say, sweated out this transition completely, and then you should see coming back to normalized levels. So it's a combination of continuing to invest, and then, of course, just volume subscription-driven basis as we go through the year. Great. Thank you. So, of course, I hope that was clear, but just to make it really clear, that's where it will go up. It will come back over the year, of course, to the normal level you will expect. So that's just a facing issue in the subscription.

Good to hear. Thank you.

Thank you. The next question comes from Nae So Naing of Berenberg. Please go ahead.

Hi, good afternoon. Thank you for the questions. I've got two as well, please. One on the Graphisoft subscription transition plans. You know, obviously it's not a full-fledged one like you're currently undertaking in the Bluebeam brand, but from the sounds of it, it's quite close to it. You know, you'll no longer be selling perpetual license beyond 2025. So I was wondering, within the Graphisoft brand alone, What sort of near-term technical headwinds that we should expect once the brand is only available on subscription, please? And also what sort of impact that will drop down to the bottom line profitability as well in that brand?

Again, for Graphisoft, so first of all, it's not like they are starting from scratch. They already have a portion of the revenue which is in subscription. And they are substantially smaller than Bluebeam. And their transition really will accelerate massively starting from January 2025. Because by the end of 2024, everybody will still be able to buy a perpetual license. By January 1st, 2025, new customers will only be able to buy a subscription. And by January 2026, new and existing customers will only be able to buy a subscription. So that's why the transition of Graphisoft is phased. Uh, you know, if you look at Vectorworks, you know, they also phased it, uh, in 2023, it was their direct market. So North America, UK and the Pacific, and now starting from 2024, they are moving to subscription globally, excluding, uh, Japan. So Vectorworks will come out of the transition by the end of 2025 and 2026. And that will partially, uh, definitely compensate the lower, uh, graphs of growth. for the overall division. So that's why the impact at design level and definitely at group level is going to be much better digestible than the Bluebeam transition when you look at his move to subscription in design and especially at Graphisoft. So Graphisoft should be in the high single low double-digit growth, even despite the fact that they are going to move to subscription in 2025 and 2026. A quick follow-up on that, if I may.

Can I ask how much of revenue from GraphiSort comes from subscription model today, please?

It's a little bit below 30%.

Okay. Thank you. That's really helpful. And the second question is on maybe one for Louise here. You pointed to the personal cost growth, you know, that's quite limited at around 6% year-on-year. Again, top line is growing at low double-digit. Sorry, yeah, low double-digit. Given the reinvestments and the technology initiatives that you're pursuing and the expansion to India, from the sound of it, it looks like it will be more initially, in initial years, it will come at a lower profitability level than the group average profit levels. So I was wondering, firstly, how should we think about that personal cost going forward? And then secondly, margin expansion potential beyond 2024?

So maybe to come to that first, the personnel cost, I mean, as we have been doing also throughout this year already, you can see it in the numbers. We will continue to do like that. We still have strong room for improvement in our operational excellence initiatives as we are harmonizing processes, systems, structures, et cetera, as we grow. And that's why we will continue the structure that we have been doing now in the last one and a half years as well to really use that headroom that we free up through synergies really to reinvest into our growth. And that will also be the driver of the personnel cost side. Of course, as we grow, we will also add further competencies, stronger competencies that we need in areas, et cetera, but we will be able to balance that by partially by the synergies we will render. And to the second one, I come back to my fireside chat that I had together with you a couple of months ago, where I say that we should, I think we have excellent growth opportunities and the value creation in the membership group and the growth side is really fantastic. And that's why we should not sacrifice that growth potential by margin optimization. However, I've said it before, and I will be happy to underline that again, you should still continue to expect strong margins from the Nemesha Group. So there should be a three in front of the margin. Now you can say, okay, we'll be then rather 35 or we'll go up to 40%, whatever. I don't say that we couldn't do it. With volume, we could, but we would always reinvest, so to say, that overshooting part into our growth if we see that the return is there. What I'm trying to say is be really clear on that, that you will... You will expect and you should expect strong margins from our side, but we will not sacrifice our growth potential by optimizing the margin where the potential would clearly be there. But we will also not go down. You should not expect a strong dip in the margins, right? Of course, continuous improvement in the margin as well, but not, so to say, at the cost of our growth, because that's really where the value generation is to be had.

That's very, very clear. Thank you very much.

Thank you. Thank you. The next question comes from Michael Breast of UBS.

Yes, thanks. Good afternoon. Just a couple of ones from me. Thinking about the sort of cadence of growth this year, you've had a good Q1. Given what you're saying about build for Q4, that's clearly going to be a strong quarter. Certainly the low end of the guidance would then imply sort of a deceleration in Q2 and Q3 probably. Is that something that is still possible? or what will be driving that? And then I've got a question on currency.

I mean, clearly, if you look at the build segment, we do not see any deceleration versus Q1 and Q2 and Q3. And again, it is just mechanical that Q4 will be at least triple the growth of Q1 for build. And then in design, as I stated, I mean, Q1 design is probably the highest growth that we will have for the year. Again, thanks to the special price and the price increase. So we have still a lower growth in design in Q2 and Q3 and Q4 versus Q1, which is mainly coming from the lower the acceleration of subscription in design.

And I think what we should say on build, just to be very clear there, we have a very high share of recurring in the build segment right now. So it's quite predictable. It's what I said before, in this kind of model, it's very predictable at some point of time. And that's why it's continuously improving towards Q3. And then we have this strong acceleration in Q4.

So, I mean, thinking about the 10% to 11%, would you be disappointed with 10% given where you've come out at the end of Q1?

Well, I think it's still between 10% and 11%. So, I mean, 85% of our revenue is recurring and built, so it's highly predictable now. And so it's really depending... I think how much the acceleration of subscription will be in design, which is going to move us more to the 10 or to the 11%.

Understood. And then, Louise, just on currencies, can you explain what's happened in design? Because you've got a currency headwind, which looks like it's knocked off 600K of revenues, but 3 million of costs. What sort of currency moves cause that?

Sorry, I didn't get that acoustically.

On the constant currency, I think there's a headwind in design of 60 basis points to revenues, but a tailwind to margins of eight percentage points. It looks like costs have gone down by about 3 million because of currency movements and revenues have gone down 600k, which is unusual.

Okay, now I got it. Okay, so it's a deviation. Okay, I didn't get that. So it's very much, without going too much into details there, there is nothing operational behind that really. That's driven by a Hungarian foreign effect that we have in our Microsoft accounts, and that's more a translation of Euro-related accounts there. So it has nothing to do really with our operational performance.

So we shouldn't expect it to continue, or will it just be volatile?

No, you shouldn't expect that to continue, no.

OK, thank you.

Not this kind of difference. We always have, of course, we have Hungarian functional currency in Graphisoft in general, right? So that's something that will continue. But this effect that we had in Q1, that's nothing that you should expect it to continue.

Okay, thank you very much. The next question comes from Deep Shikha Agarwal of Goldman Sachs.

Hi, thanks for taking my question. This is more around like going back to that comment around build being somewhere between 15% to 20% in FY25. And if we look at the guide that is the target that is there for at least mid-teens, that applies double-digit growth, roughly like close to low double-digit growth and design in FY25. Is that the right way to look at it? And then again, thinking more about the normalized growth in these two segments of design and build over the medium term, will it be like the design will move to low double digits over the medium term beyond FY25, and build will accelerate from that 15% to 20% beyond FY25? Is that the right way to look at it, or is there something more nuanced we should be mindful of? And then I have a follow-up.

Again, there is nothing new. I mean, absolutely nothing new. We are not expecting any big, huge changes versus, you know, how we were planning. We are going to have, you know, a strong growth in build. You know, it is again, at least in the north of the meeting. So, you know, it is in the, you know, between 15 and 20, which, which could be more close to 20 than 15, or even potentially higher than 10, 20%. Uh, but, uh, design is not expecting to be in the low single digit. It's not, I mean, again, I mean, even if we are now moving faster, the move to subscription is done in a phased approach. We are not going to have the deep effect that we used to have. with Bluebeam because first of all, you know, the start of subscription already is there for some time and design. We are doing it in a gradual way. Some brands already move completely to subscription like Vectorworks, etc. I mean, we have already Alplan, all their new, I mean, 80% of the new seats of Alplan are already subscription, etc., etc., etc. That's why, as I stated, even Graphisoft, which is going to do a much stronger push to subscription on Alplan in terms of communication, let's say, beginning of 2025, we are expecting Graphisoft to still grow in the high single digits or even low double digits in 2025 and 2026.

And that at the same time when Vectorworks are coming out from the subscription moves, where we have the positive boost in the other direction. And that's to say, you go through the truss, so to say, and then you have the positives that we see in gluobium. And that will, of course, also then help because it comes from the design side on vector works when the other one goes in more or less to more of the truss, you have the stronger push up. So that is really not. not a question mark of, it's more a question mark of timing instead to say how we balance that, but that has not changed at all. And the plans are perfectly in line with what we said and also with the mid-teens, at least mid-teens in 2025.

No, my question, just to clarify, I meant like for design, will it be like a high single digit to low double digit will be the new normal growth for design?

No, I think it's going to be between the mid-single and high single. You know, the normal.

But throughout the transition, if you ask the normalized growth after the substantial transition, that is something else. But yeah, OK. So there's no reason why that should be below double digits.

Yeah, it should be in the double digit plus.

Yeah, absolutely. Okay, exactly. Which is what we see before as well. That hasn't changed. So it's really, we have to go through the subscription transition and they will see this accounting-related effect. And after that, we move back to the double-digit growth.

Yeah, absolutely.

Okay, got it. And just to follow up, you talked about you're looking at M&A opportunities in India as well. And there has been an increased focus this year, and that is also to do with you have a good war chest in terms of the net cash. So any updates on how the pipeline is evolving in terms of M&A and what are the focus areas that you're looking at?

It's still the same. We are really scouting the overall portfolio and all the segments. So first of all, in construction, we are looking from design, planning, build and construct up to operate and manage. We are looking at making M&A just to acquire technology, so small companies. or to complement what we are offering clearly in build and construct. This is where we see the potential biggest opportunity to complement Bluebeam portfolio, to go more adjacent or to complement what Bluebeam can offer for general contractor and construction companies, but also in general, even in media and entertainment and visualization software.

aspect we are also scouting the market okay thank you thanks thanks so much thanks a lot also from my side and the last question for now is from victor cheng bank of america please go ahead hi thanks uh hi evelyn louise thanks for taking my question um couple if i may

I think you've covered it quite extensively throughout the call on the design kind of growth outlook for this year and maybe in our two years as well. But maybe can you give us some more color on how we think the profile, growth profile is throughout this transition? Obviously, you know, among the big brands, OutPlan, GraviSoft, Vectorworks, they all have varying degrees, but kind of quite set out plan on how the subscription transition can be done. So Are we kind of at a trough in terms of the growth and expect it to be flat or accelerate going forward? How should we think about margins as well? Clearly, it has a very different profile compared to when Bluebeam started doing that transition. And I have a follow-up question.

Sure. I mean, on the design side, I stated in term of move to subscription different brands are in different stages and therefore we are doing that in a segmented way and this is why you know the impact for the overall design performance yes there will be and there is a small impact in term of revenue and ebda margin but it's a slight impact you know not the same as we used to have for for bluebeam and the build organization so that's why You know, we are again planning for the next few quarters, even in 25 and 26 to have a revenue growth, which is going to be between mid to high single digit for the overall design division. And we do not expect at all to be below the mid single digit for design revenue growth for the next few quarters while we are in the move to subscription. and the ebda margin you should not expect also a huge impact on the ebda margin while we are doing this subscription there has been and there is of course an impact right now ongoing and which will continue but again you know vectorworks will go out from subscription and will be better while graphisoft will be still in the middle of their move to subscription so one brand is compensating the other performance from another brand.

And I think you can see it, Victor, if you look at it, you can see it already now. We are already in the transition in the design segment. And you can see it already in the last quarters and you can see it in this quarter as well. You can recall where we were at Q1 with Bluebeam last year, right? So there you really have the dip and then you're back quicker. Here we really have the stage approach. That's why you will never see such a strong impact. in the financials. Of course, in each and single brand, it will, as you alluded to, will be done differently, but as we stage it differently, and we also have a longer path to come there, that it's more digestible and it will not show as strongly in the numbers.

Thank you. Very clear. And just to be absolutely clear, actually, on this front, Does that include digital twin solutions? Obviously, you have now reset them into the design segment. And as digital twin ramps up, that helps the design growth as well.

Is that baked into your... No, there is no... I mean, the contribution is super low. I mean, it's very, very low contribution.

I mean, in the mid-term, right? But now we're talking in the mid-longer term, we expect it to have a contribution, but not so that we will, that will blend the effects that we are seeing now. That we have already said, it's a huge market. We have a lot of potential in this market, but it will take time to really ramp up the use there.

Very clear. And maybe one last one is on the M&A front, obviously you've just commented on it. I think, you know, last quarter as well, you said you're planning to be a bit more aggressive on this forefront. So how are we looking in terms of the pipeline? And you talked about different segments you're looking into, but thinking about media as well, Sora or some of the equivalent gen AI solutions are kind of clearly ramping up quite quickly. Are you looking to add maybe more AI capabilities through, well, inorganically as well?

Yeah, we are looking at everything. So on the AI front, we did quite a lot the last 24 months in venture investments. So it's more for us to invest in startups on the generative design, generative AI front, ML side. Of course, we are also looking at it on the M&A front, which would be, you know, smaller ticket, more to acquire technology. And this is what we are currently looking at also. But of course, you know... We have to be very careful because a lot of these new generative design and generative AI startups, they may have sometimes good solutions, sometimes not. And of course, it is highly margin-dilutive because they are all losing a lot of money most of the time. But yes, we are looking seriously at all these fronts.

Very clear. Thank you.

Thank you. And with that, I would like to conclude the Q&A session since there are no more questions in the queue. And so I hand back over to the host.

Perfect. Thank you, everyone, for attending. We are looking forward to catching up with you next quarter. If you have any follow-up questions, so please do not hesitate to contact Patrick or myself. So let's conclude the call for today. Thanks again for joining.

Thank you.

Thank you.