Nemetschek Se Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the earnings call, half-year financial report of Nemetschek 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 Stefanie Zimmermann.

Thank you, operator, and hello, everyone, and a big welcome. Thanks for joining our earnings call today to discuss the results for the second quarter in the first half of 2024 with us. With me today are our CEO Yves Padrin and our CFO Louise Oeberstern. 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.

Thank you, Stephanie. Welcome everyone to our H1 2024 earnings call. You have probably all seen our pre-release last Wednesday with the main headlines of our Q2 2024 results, our fully confirmed organic guidance for 2024, as well as our expanded outlook following the completion of the Blue Canvas acquisition. As usual, I've prepared a short and informative presentation containing additional information with regards to our second quarter, as well as first half year results that our CFO, Louise Oeferström, and I will talk you through briefly. But we have enough time to address any questions you may have in the end. To begin with, Let me summarize the key messages for the second quarter as well as the entire first half of 2024 on page number two. We are delighted to announce that we were able to officially close the acquisition of GoCanvas on July 1st and welcome all GoCanvas employees. This transaction, which marks the largest acquisition in MNCHEC more than 60 years history, is progressing in line with our plans. We continue to see big potential in the acquisition of GoCanvas and believe it will create substantial value for our customers and our shareholders. Looking at the operational performance, I will summarize our second quarter as a continuation of the successful start of the year we had in Q1 with an ongoing high growth of almost 10%. Main growth driver was once again the recurring part of our business, in particular, the very strong increase of around plus 83% in our subscription and SaaS revenues. It is also reflected in all our major KPIs where we reach new record levels across the board. While our reported profitability was only at last year's level, it was heavily impacted by one-off costs in connection with our M&A activities. If we exclude these non-operational one-off costs would have recorded a substantial margin expansion year over year. Despite the continued challenging environment and our ongoing subscription transition, design segment had a strong second quarter. In addition, the segment benefited slightly from pull-forward effects in connection with the announced price increase for perpetual license by one of our design brands. Together, With the introduction of new features, price increase makes the subscription offering of our design brands once again commercially more attractive for customers. With the consequently forecasted acceleration in subscription sales and its short-term accounting-related dampening effects on growth, together with a substantially tougher comparison base, expect that the growth in Q3 will likely be below the levels we had seen in the first half of the year for the design segment. Build segments continue to see a very resilient demand, especially in the US. Highly successful subscription transition of Bluebeam is progressing as planned, and we continue to be very confident that the 10% growth that we achieve in H1 will consequently more than triple toward the end of the year in Q4. With our H1 results, we are therefore exactly where we wanted to be after the first six months of the year. Also, looking at our journey to a subscription and SaaS-centric business model, we have made substantial progress in the first six months of 2024. As mentioned, not only in case of Bluebeam, but also with our various brands in the design segment. Based on our successful start of the year, the expected acceleration in growth in the second half, as well as the continued progress on our strategic initiatives, we are well on track to once again reach all of our goals for the first fiscal year and therefore fully reiterate our organic outlook for 2024. In addition, we also expand our outlook during the acquisition of GoCanvas. More details on that later in our presentation. On page number four, you can see an overview of the corresponding figures, the Q2 development that we just discussed. Our annual recurring revenue, driven by a very strong growth of around 83% in subscription and SaaS revenue, remained at a high level with an ARR growth of over 26%. The continued strong increase in ARR is an important indicator for the group revenue and cash flow growth potential in the coming 12 months. Our revenue, as already discussed, increased on a reported as well as ethics-adjusted basis by plus 9.7% to €228 million. Our EBITDA in the second quarter increased by 9.5% to €61.4 million, which corresponds to an EBITDA margin of 27%, at the same level as last year. However, please let me highlight here again that our profitability in the second quarter was impacted not only by our subscription and SaaS transition, but also by M&A-related one-off expenses in the mid-single-digit million-euro range. If we adjust for these extraordinary non-operating M&A costs, EBDA margin would have expanded significantly by more than 240 basis points, 29.4% in QT, which is in line with our internal expectation. The net income for the quarter, also driven by lower amortization charges and a strongly improved financial results, grew over proportionally by 27.7% to 40.5 million euros, resulting in earnings per share of 36 cents. Before we go deeper now into our financial results of Q2 as well as the first half of the year, I would like to use this opportunity to also give you an overview on page number five of the various strategic highlights in the first six months of the year in each of our five defined strategic focus areas. Starting with our clear number one priority, our journey to a subscription and SaaS-centric business model. After we have already accelerated our approach with the transition of Bluebeam, we now have also accelerated the subscription transition of our design segment. The results of this strategy are evident when you look at our figures. Recurring parts of our revenues, and in particular our subscription and SaaS offering, are the clear growth driver of our business. The over-proportional growth translates into an ever-increasing share of our recurring revenue of no more than 85%. We'll talk more about that topic in a few minutes. As we consistently highlighted over the last years, the fact that we did not make any large-scale acquisitions in recent years was by no means a sign that value-accretive M&A was no longer on top of our agenda. We are therefore excited that with GoCanvas, we were able to acquire the leading provider of SaaS solutions for the paperless collection, porting and integration of field data in construction and other adjacent verticals. GoCanvas is a perfect complement in terms of technology, customer base, and geographic presence to our existing portfolio of solutions in the build segment, and therefore also provides us with access to the rapidly growing market for field workers in construction and other adjacent industries. Combining Bluebeam with its massive base of office workers with GoCanvas customers in the field will create a truly unique ecosystem for the construction industry. Resulting synergy potential by addressing the already large and diversified customer base of GoCanvas with our solution in the build segment, and more importantly, addressing the millions of users of Bluebeam, the solutions from Go Canvas. As you know, innovation and technological leadership have always been an integral part of our company's DNA. This is why, of course, the field of artificial intelligence also plays a major role in our R&D activities. As part of our strategy to become a leader in the field of artificial intelligence in the SEO and media industries, we launched the Mecheck Group AI Innovation Hub. The main focus of our AI Hub is to drive and streamline AI initiatives across the brand portfolio with partners, alliances, and customers. In this context, we are convinced that ethics, trust, and sustainability are essential dimensions to develop and deploy AI responsibly. And while we have already introduced various new features, such as the AI Visualizer, new features in ArchiCAD, Alplan, and Vectorworks, or 3D drawings, part of Bluebeam Cloud, or also in our Dtwin platform, and also SpaceWell Energy, we'll continue to add additional AI features to our solution in the future. So stay tuned. The go-to-market side, our strategic focus in the ongoing internationalization of our business, our goal is not only to further increase our resilience, for instance, by further reducing the dependency on the European market, to also benefit even more the higher expected growth in regions such as North America and Asia Pacific. In particular, India. As well as the Indian construction market with its extremely low degree of digitalization, strong urbanization trends, favorable demographics, and high growth rates offer a tremendous growth opportunity in our view. India will become next year the third largest construction market in the world and is already the top five global economy. This is why we opened a new go-to-market office in Mumbai. This is our second location the country following our Shared Service Development and Research Excellence Center in Hyderabad. We are convinced that by increasing our presence in India, we are better able to participate in the enormous growth potential of the Indian construction market in the coming years and decades. And last, but certainly not least, the area of business enablement. We continue to make progress on the harmonization as well as the ongoing buildup of our organization, which is important to ensure that we will be able to make the most of our tremendous growth opportunities going forward as well. A key initiative in his area is therefore our continuous effort to further enhance operational excellence. And with that said, I will hand it over to you, Louise.

Well, thank you, Yves, and a warm welcome to our H1 2024 earnings call from my side as well. I would like to start with an overview of the key financial highlights of the first six months of the year on page seven. And as Yves already stated, I think it's really fair to say that we had a very successful first half of the year, the strong and profitable growth. This is especially true considering our ongoing transition to a subscription and SaaS-centric business model and, as you all know, the associated short-term accounting-driven burden of this on our financial results. with our accumulated revenue for the period from January to June, which grew by 9.6% on a reported basis and even by 10% on a currency-adjusted basis to 451.6 million euros. In line with our strategy, the main contributor, as you heard, to our growth was once again the recurring part of our business, which is represented by our annual recurring revenue KPI, ARR, That increased by 26.5% to almost 800 million euros. This strong increase in ARR clearly shows the sustained good growth outlook for our revenues in the coming 12 months, and of course, giving us strong cash generation, also strong cash outlook on that. So despite the still challenging environment, especially in the European construction industry, As one would expect, the key driver of this strong increase in ARR was our subscription and SaaS revenue, which reported an impressive growth of 74.9% to 230.9 million euros in the first half of the year. Our reported EBITDA increased by 10.8% to 129.7 million euros, which corresponds to a margin of 28.7%. However, let's also emphasize here that if we adjust the first half of the year margin for the M&A-related one-off costs in the mid-single-digit million euro amount, the underlying operational margin would be 130 basis points higher, and therefore, with 30% already within our guidance range of 30% to 31% that we have given for the full year. On the right-hand side of this slide, you can also see a continued high cash generation with a strong cash conversion of 109%, as well as this superb quality of our balance sheet at the end of the first half of the year. We continue on page eight. We are showing the developments of our four segments during the first half of 2024. Let us start on the left side with our design segment. recorded a strong and resilient development in the first six months of the year, despite an unchanged environment in the European design markets. And as a result, the revenue increased by 9.5% on a reported basis and even 10.1% on a currency adjusted basis to 228 million euros. The main growth driver here was the subscription and staff part of the design business, which In line with our transition strategy for the segment, as you just heard from Ib, recorded an extraordinarily high growth of 77%. And as already mentioned, the growth in the second quarter was additionally helped by a smaller pull-forward effect due to a price increase for perpetual licenses in one of our biggest design brands. In combination with our ongoing accelerated subscription SaaS transition and a substantially higher comparison base last year in 2023, therefore expect that the growth for design in the third quarter will be below the levels we have seen in the first half of the year. This is fully in line with our plans. The segments EVGA grew clearly over proportionally by 22.6%. corresponding to a margin expansion of almost 300 basis points to 27.3%. Part of this increase is related to the extraordinary cost effects we had in the previous year that some of you might remember. It's also showing our continuous improvement in our operating leverage. So as I said, The performance of our built segment continued to reflect that our largest brand within the group, Bluebeam, continues to progress successfully in its subscription and sales transition. Still, thanks to the continued good customer demand, especially in the important US market, the revenue grew by 9.9% on a reported basis and by 10% on a currency-adjusted basis to 142.2 million euros in the first half of 2024. Given this resilient market outlook and combined with the ongoing very successful transition and a comparison base in Q4, if you look at last year's figures, where this comparison base is really for the first time like for like, as we have almost no perpetual licenses, included for the first time, we continue to be very confident in our forecast that the current level of growth for the build segment will more than triple towards the end of the year in Q4. For the segment profitability, it declined year-on-year to 32.6%. However, also here, as said already, adjusted for M&A-related one-off costs, we would have seen a margin expansion also in the build segment year-over-year. media segment the market continued to be softer especially in the u.s market nevertheless without reported as well as currency adjusted growth of 17.7 and 8.5 respectively were once again able to outperform the overall market despite the current softness that we can see in the market, we continue to see the segment's attractive growth potential in the mid to long term based on the strong growth fundamental drivers in this segment. In addition, the media segment's profitability of 32.9% continued to be above the group average also in the first half of the year. And last but not least, our smallest segment, Manage, reported the lowest growth within the group in the first half with an increase of 3.4%. However, the segment's growth in the second quarter was negatively impacted by a discontinuation of a low margin advisory service unit that we disposed of. Despite the continued investment into the segment's product portfolio, as well as future growth opportunities, the margin expanded markedly to 7.4% from just 0.2% last year. Nevertheless, The segments growth as we see today as well as the margin is not where on the profitability level where we forecasted for the mid and long term. We now come to what is arguably the most important but certainly the most impressive slide of the entire presentation today on page nine. The slide comprehensively summarizes the financial results of one of our key strategic priorities. our highly successful transition to a subscription and SaaS-centric business model. If we start on the right-hand side, you can see why we are once again so pleased with our performance in the second quarter. We've already discussed the Q2 development of one of our most important transition KPIs, the ARR, annual recurring revenue, And as a reminder, according to our definition, the ARR includes all of our different recurring revenue streams. So that would be subscription and SaaS, but also the maintenance contracts. That means that if we stripped out the maintenance part, the underlying subscription and SaaS ARR growth of more than 80% would have been even substantially higher. As expected, With the termination of perpetual licenses safe for existing customers at Lubin, as well as the ongoing transitions of several design brands, our license revenue fell steeply by 50% and absolutely in line with our plan. As you can see on the left-hand side of this slide, this high growth translates into a substantial increase of the share of our recurring revenues by 10 percentage points year over year to now 85%. This represents a new record high for the Nemetschek Group after the first six months of the year. In addition, we are very proud to report that our subscription and sales revenues account for the majority of our revenues now, for the first time with a share of 51%. On the left-hand side of this slide, you can also see the longer-term picture regarding the development of our recurring revenues. And as you can see, while we started with a recurring revenue base of just 175 million euros in the first half of 2020, we now more than doubled these more resilient and better planable revenues within the last four years. Looking at the chart, it is also becoming very clear what has been driving this strong increase in recurring revenues. And that is a systematic and successful transition to a subscription and stock-centric business model, which led to an almost falls increase in our subscription and SaaS revenue base. The corresponding subscription and SaaS revenue CABR reached an impressive 55%. Well, let's conclude our review today of the results for the first half of 2024 with a more comprehensive overview of our key P&L and cash flow items on page 10. If we break down our cost base and look at its underlying drivers, you will see that we have continued to limit the increase in the key OPEX components also in the second quarter at a very reasonable pace. If we look very briefly on the other operating expenses, you can see that they grow a bit over-proportionally if you look at the percentage growth, and that is, of course, impacted by the M&A, one-off non-operational M&A costs as we already mentioned. But also if we look further, take a closer look at the by far largest component of our overall cost base, being our personnel costs, you will see that after an already moderate growth of 6.1% in the first quarter, the second quarter increased just by 1.5%. This is partially due to the extraordinary effects that we had in personal expenses in the previous year. But, and some of you can recall that, but it's also showing very strongly our continued healthy operating leverage and our various operational excellence initiatives that enables us to grow very strongly in terms of profitability for the group, but also keep the operating leverage at a very good limit. We have already discussed the development of the EBTA and the adjusted EBTA in detail, so I would therefore like to instead highlight some of the developments below the EBTA level. Therefore, going further down the P&L, you will notice the over-proportional growth in our earnings per share of 22.3%. This development is partially attributable to a year-over-year decline in our ommatization charges, which is perfectly in line with our planning for the historical amortization that is now running off, as well as the strongly improved financial results, especially in the second quarter. And the main reason for this development is a substantial positive effect in the other financial income line that comes from hedging activities in connection with the GoCanvas acquisition. So looking at our cash flow development, the high cash conversion, along with our strong free cash flow generation in the first half, underpin the high quality of our earnings. The free cash flow increase of 18% helps in improvement in working capital, as well as a slight reduction in capex. And lastly, thanks to the very strong earnings and cash flow development in the first half of 2024, we were once again able to improve our already extremely solid balance sheet. Our net cash position at the end of the first half grew to 307 million, which represents an increase of 82%, while our equity ratio also improved by more than 150 basis points year over year. And given the natural and expected increase in debt that would be shown in the third quarter as a result of the GoCanvas acquisition, we still maintain a very solid balance sheet. And in addition, thanks to our aforementioned good operating performance as well as our continued very strong cash flow generation capability we will be able to very quickly deliver and return to our usual balance sheet metrics also after the effect of the financing of the full canvas transition and with that i hand it back to you thank you louise as we come to the end of our presentation on page number 12 i would like to turn to our organic guidance

for the current fiscal year 2024, as well as the expanded outlook following the acquisition of GoCanvas. We have discussed before with our H1 results, we are fully in line with our internal plans. We have laid a very good foundation to once again achieve all of our targets for this fiscal year. Based on the strong fundamentals, as well as our very resilient operational business model, we fully confirm our organic guidance for 2024 after the first half of the year. Therefore, continue to expect an attractive growth at a high profitability in 2024 as well. So 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. In particular, the Executive Board expects a revenue growth at constant currencies of 10 to 11%. In addition, the ABDM margin is forecasted to be in the range of 40 to 31%. 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. In addition, Based on the consolidation of GoCanvas as of July 1st, the Executive Board expects an additional positive effect on the forecasted revenue growth of around 3 percentage points for the financial year 2024. EPDA margin in 2024 is expected to be deleted by around 100 basis points due to the GoCanvas profitability, which is still below the Nemechek Group's average. ARR growth is expected to increase from around 25% to more than 30% in 2024, while the share of recurring revenue is expected to continue to increase to around 85%. Please let me highlight here that these figures do not yet reflect the full potential of the GoCanvas acquisition. Both. Revenue, as well as the ABTA contribution of GoCanvas, are reduced by a high single-digit million euro amount in the second half of the year due to the IFRS-related purchase price allocation. The true potential of GoCanvas and the combination of Bluebeam's office and GoCanvas' field worker communities become even more credible and clearly visible in the coming years. In this context, however, I would like to emphasize that, in addition to our standard remarks, the guidance is based on the assumption that there are no material changes in the global macroeconomics or industry-specific conditions. It is also based on the assumption that the effects of the acquisition of the 2024 financial year are subject to the assumption that important key figures, including the calculation of the PPA charges for Gokandas, will not be finalized until later in the year. To conclude and summarize the presentation, the first six months of the year 2024, I think it's fair to say that financial results along with our fully confirmed organic guidance shows that we are once again delivering on our promises and goals. And that is not only true for operational development. And Nemetschek continues to be one of the very few companies that is able to show an attractive top line growth and profitability while transitioning in business model to subscription and SaaS. Also, the progress of our different key strategic initiatives, which prepares an Nemetschek group for its next phases of growth. And with that said, I would like to thank you for your attention, and we are now ready to take your questions. So, operator, please back to you.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 followed by the star key on your telephone keypad now. If you wish to cancel or withdraw your question, please press 9 followed by the star key again. And the first question is coming from Sven Merck from Barclays.

Great. Good afternoon. Thank you for taking my questions. I have a few, but maybe we can go to them one by one. So first, I wanted to ask you what revenue you expect to consolidate this year from GoCanvas. Because given that the business generated 62 million in AR last year and with just some growth, I calculate it's probably more 4 percentage point. But did you take a revenue haircut? Is that the high single digit million amount or higher? you know, the million headwind you referred to.

Should we start with the answer of that instantly? Yes, you're right. So while we see the growth, and especially in line with what you just said, we have this high mid-single-digit revenue haircut due to the IFRS 3 merger accounted related effect. So that is what is slowing that down. Of course, we are consolidating from 1st of July, so we are consolidating half of the revenues for this year, and then you have the revenue haircut that we have there. in the revenue haircut you will see to just say in until approximately well within 12 months so you see it in this year and you will also see it in the first half of next year and then that has been sweated out which is in line with IFRS regulations okay thank you that's clear and is it fair to say that you have not factored in any revenue synergies into this guidance yet

And yeah, could you give us a bit an idea what level of revenue soon as you expect in the current year on possibly also next year and overall what this would imply to revenue growth next year and your 2025 revenue guidance?

Yes, so given, as we also alluded to in the signing call back then, so we see one of the rationales really, of course, there's a very, very impressive company, GoCanvas, that we have just acquired with a very strong growth standalone and also in a very, very interesting growing segment. We also see considerable revenue synergies together with Dubin and also our other brands in the BIM segment. So that we see over time. There's not a major impact. There's non-impact more or less in the first half of the year. Of course, we will have some minor effects, but that's nothing that will move the needle in 2024. And the revenues will then come starting 2025. But as we also outlined, The revenues will come over time and there's also different pockets of revenue synergies that we will see together. And some of those also includes product integration, etc. That would, of course, take a bit longer time. So you should expect to see the synergies to say starting for 2025, but then also in the years thereafter.

Okay, that's helpful. Thank you.

But in general, so to say, I think that's just to give you a flavor of how we plan that and all kind of guidance, et cetera, out of that. We will then give you more flesh on the bones in the 2025 guidance.

Perfect. Thanks.

And the next question comes from Knut Waller from Baader Bank.

Yeah, hello. Thanks for taking my questions. Also, a couple of How long do you think it will take that CoCanvas will be at group levels in terms of margins? And is there, also from your perspective, despite the high growth, that the company enjoys potential to achieve margins above group average? That's the first question. The second question regarding your midterm ambition. I didn't find an update here. Is it fair to assume that at least mid-teens growth ambition should be rather at the higher teens level going forward, including Go Canvas? And just from a short-term perspective, and this would be the last question, with you indicating that design growth should slow in Q3 below what we have seen in H1. Should we expect Q3 to be below the 10% to 11% organic growth guidance, or are you confident that built acceleration of growth could offset the weaker design growth? Thank you.

Thanks, Knut. Let me start with your last question regarding the design growth. To make it clear, yes, design, as you know, is accelerating its move to subscription. Now, obviously, the impact will be a bit bigger in a few quarters, especially when Graphisoft, for example, is going to stop completely the sale of perpetual license for new customers starting from January 1st, 2025. you know, we are doing that in a segmented way, remember. So Vectorworks is now fully subscription since the beginning of this year. The only market where they still sell perpetual license is in Japan, but rest of the world is fully subscription for Vectorworks. Even Alplan, when you look at Alplan, even if Alplan didn't announce yet really, you know, the end of perpetual sales entirely, around 80% of the new seats sold on Alplan are subscription and only around 20% are perpetual license. So clearly, the fact that we are selling less perpetual license over time now is going to have an accounting effect on the revenue. If you look especially at Q3, three things. Number one, so the fact that yes, it's the transition to subscription which is impacting the revenue. There is these small kind of pull-forward effects from Q3 to Q2, mainly coming from one of our design brands. Remember, Graphisoft, they made a price increase of perpetual license on April 1st, but then they did it for their biggest market, which is DACHT, so Germany, Austria, and Switzerland, and also some other markets on July 1st. So they increased by around 10% their perpetual license price on July 1st. Then they also announced, as I just said, that they will stop selling perpetual licenses on January 1st to new customers. You can imagine that a lot of people then bought, especially in this dark region and in other markets, a lot of perpetual licenses in Q2. That means that we will probably have less perpetual licenses in Q3 now for such brands. Then number three, The last factor is the fact that in Q3 last year, in 2023, Alplan had a big spike of perpetual license, especially in September. Why? Because it was an announcement that Alplan would stop selling standalone perpetual license excluding the attachment of maintenance of SSA. It was kind of a last time buy of the possibility to buy a perpetual license only without mandatory SSA attached. So that's why we had big, so we have a big comparison year over year on Alplan. Three effects. should have a slight impact we have to see now in Q3 on our design growth. And of course, all will depend on our success in subscription. So if we are even more successful on subscription than we expected in design in Q3, well, the revenue impact would be bigger than when anticipated. At the end, for the mid-long term, it would be good news.

And maybe if you just want to underline, because I think you also asked if that is to say impacting our 10 to 11% guidance for the full year for the group. No, that's the way we have planned it, which Yves just alluded to, that is in our plans and that was also the basis of the guidance. So that's why we do not see any dependency on that to say from that on our guidance for 2024.

Clearly, if you look at Q3, I mean, on the design segment, you know, we're expecting something lower. operate and manage slightly better, of course, because we had this impact from the disposal of these advisory services. Then media should be better also in Q3. We already saw July, which had some more positive movement, especially in the U.S. markets, where this is where the biggest issue is in the media segment. Then build should be in Q3 more or less the same level than Q2, but then, as you said, Knut, clearly Q4 is where automatically, pure accounting-wise, Build is going to more than triple their performance than what they had in one singular quarter in 2024.

Yeah, so maybe coming back to your first question, Knut, if I got it correctly, I think you said first you started with the question when we expect the group level when GoCanvas to be at the group level and also if GoCanvas will have a potential to be over time over the group average so I think first we have to everything that goes into the what we would really show in our results is of course impacted by the final PPA effects and also the revenue headcount the head haircuts that will last into the first half of 2025. So that's what we are going to finalize during the remainder of this year. And after that, we can also, as we said, with the 2025 guidance, we can be a little bit more specific on that as well. But that's an accounting-related effect. In general, if you look at Kukanva standalone, they have a very, very strong growth development and also strong margin development. So they are already to say on the pace they are right now, they're really moving towards the group average that we have in the group as well. And I also see that in this segment, it's a very attractive segment, just likely with our built segment as well. Yes, it has the potential in general in this segment with over-proportionally, so the over-group average that we can see right now. However, and I think that is really what you should also take into, just as we have it for the other areas as well. We'll continue to invest into this growth because this is the time or some, depending on how you see it, that is very, very interesting to us. We will continue to, we will not sacrifice our growth by optimizing margin, but you know as well by now, so we will also not sacrifice the group margin in order to enable that growth. So whilst there are potentials, we will make sure that we leverage the balance between the growth and the margin in a way to create the highest value. And we think that that's coming from the growth.

I think that your last question, I mean, the second question was around the ambition for next year in 2025. Well, I mean, we're continuing to say that organically we are at least in the meeting growth, no change here. And then with GoCanvas, you know, we will give you more flavor once we have a bit more details, especially on the PPA. which is going to have an effect, as Louis said, also next year, especially in the first half.

Great, thank you and understood. And just one final clarification on the tripling of the build segment's growth in Q4. That's in an organic perspective, excluding locandas, I assume. And if I understand your comments regarding Q3 correctly and also what you say about Q4 and build potential there, Is it then fair to assume that Q3 overall, while not standing against your full year guidance, should be rather below the 10% to 11% growth target, or do you expect it to be within? Thank you.

I mean, clearly, if you look at Q4 for the build segment, when I say that it's going to triple in Q4, it's excluding for Canvas, yes. Now, if you look at Q3, we might be potentially more in the high single-digit than double-digit growth, correct.

Great. Thank you for your answers and help.

Thank you very much. And the next question comes from Martin Jungfleisch from BNP Paribas.

Hi, everyone. Thanks for taking my question. Two, please. The first one is a follow-up on the GoCampus acquisition of the synergies. In terms of users, you mentioned that Bluebeam has more than 3 million users, but how many are addressable for the GoCanvas cross-sell, given that not all are paying and also you have some regional differences? Would that be more than half, so 1.5 million roughly? And then the second question is on the build segment. Build's revenues were up 10% quarter-on-quarter, which implies that Bluebeam still has CTO user growth of more than 20%. Is that correct or was Nevaris particularly strong in the second quarter?

Thank you. Yeah. So clearly when you look at the Bluebeam users, you're right. So it's around 3 million users, but a lot of them are non-paying users. You know, they're used to buy a perpetual license and no more maintenance. So we have clearly around half of them which are paid users. uh most of them i mean a big part now a majority of them as you know a move to subscription and by the end of this year we should be around 90 percent should be on subscription so obviously as you also know when we are moving them from ssa from maintenance to subscription you know they are going to to have this special price where it's so different between the price of SSA maintenance and subscription. And then they have this 10% yearly increase. Now, to say who is the addressable market, I mean, of course, it is ongoing exercise. There are already Bluebeam users who are using GoCanvas. There are Bluebeam users, especially if you look at architecture firms, et cetera, which are not, you know, necessary potential GoCanvas customer base. So this is currently ongoing exercise that the teams are doing. Just started the training of first of all GoCanvas people to learn about Bluebeam and then now also for some of the Bluebeam team to also more about the GoCanvas portfolio. And we are also now looking at the overall the overall synergy that we can do also on the product side and also trying to see over time now how we can probably do a white label of GoCanvas for Bluebeam and doing more workflow integration between GoCanvas and Bluebeam solution. If you look at the performance of the second question of the build segment, I mean, clearly, yes, there has been some good growth, as we said, for Bluebeam, but Nevaris was not as expected. Clearly, this is where Nevaris had some issues in Q2, which is clearly linked by some delays from some customers. And as you may know, Nevaris, they are providing ERP for construction company in Germany. And as you know, unfortunately, the German market is suffering a lot from a huge slowdown in construction. So they have also a big business in Austria, but it's the same in Austria. Clearly it's Nevaris which is dragging build growth a bit down in Q2.

And I think we should always also bear in mind that especially when you go through the 2024 financial year for Bluebeam, you always have to bear in mind that you have the comparables issue because in the previous year, in 2023, Bluebeam still had considerably higher perpetual licenses up until Q4. There's always also the comparable basis. That's, of course, what's balancing out that. as Yves just alluded to, despite that effect that is, of course, balancing it down, we have very strong growth in our new user growth. So that's the assumption that you can take.

That's great. Thank you very much.

Thank you very much. And the next question comes from Florian Treisch from Kepler Chevrolet.

Yes. Thank you very much for taking my questions. I have three, actually. One is a quick follow-up to your comment around, as mentioned, let's say the fast shift in the design segments towards subscription, and what you mentioned around new business in Alpan, for example, 80% of seats are now subscription-based. So is there a timeline, or can you kind of accelerate the timeline to be, let's say, more aggressive than you were expecting to be in a way, I don't know, stopping every license date at the beginning of 25 to really bring that subscription to an earlier end? The second question is around the build segment. So if I look at quarter-on-quarter revenue growth, and if I add back the mid-single-digit Euro amount to the EBITDA level, as I would assume it's 100% allocated to build, you grow EBITDA in absolute terms faster than the revenue terms. So is there any specific reason why the margin was really popping up very nicely, so on my calculation, back to 40% plus? And last but not least, you're reporting the regional print with H1 number. So APEC has seen a nice growth acceleration compared to 25, so up 10% in H1 versus flat in 23. Is there any specific driver for that? Is it already impacted by India, or is it too early to assume that India can have an impact? Thank you.

So let me take your first question on the design side. I mean, clearly we made an acceleration of subscription, as you know, for design over the last 18 months, and we are going to accelerate that. You know, if you look at brand by brand, they have smaller brands who are maybe less advanced, but others who are fully there already in subscription. If you take Reza, for example, they are already fully subscription. Solibri, They are mainly now also subscription, especially since they launched a new cloud and SaaS platform. Then when you look at our three largest brands, as I said, Graphisoft is going to stop selling perpetual license to existing customers on January 1st, 2025. But existing customers will still have the opportunity to buy a perpetual license until January 1st, 2026. And then, as I said, Vectorworks is already fully subscription, including Japan, which we come later. And then, Alplan, I mean, they are currently analyzing and see what could be a more aggressive move. But again, you know, 80% is already subscription. So, you know, we are already now planning to do some much more aggressive shift to subscription design with this new announcement that we just made, especially with Graphisoft the last few weeks. So this is big news. And we are expecting, you know, the design division by the end of 25 or, you know, sometimes early 2026 to be around 90% recurring revenue and around 50% of the total revenue of the design segment is planning to be subscription.

Should I take your second question versus the benchmarking? You're right, Florian, if you take out the M&E cost, Bluem actually did show a nice margin expansion. The full amount of M&A cost is not completely built, but the majority is built. So if we take that out, we would actually have seen a nice margin expansion also in the first half. And that's a little bit due to the economies of scale. So due to the revenue growth that you see there as well, and also the timing of the investment. We are investing heavily also into the build segment in order to accommodate that growth in the following years. But that's only been the timing on, let's say, the build-up effects of that. i think what you can conclude is that if you take out the one-off expenses related to build they are still managing to strengthen their margin but also going forward we will use the part of that of course in our already uh planned uh investments that we also see that we are also included in our guidance the third question uh we are not really clear that if i got that correctly maybe you can repeat that please

Yes, sure. It was around the performance in APEC. So first of all, if I look at your report, it was up 10% in H1. I think it was just flat in 23, ignoring FX for a second. So clearly, let's call it acceleration. Is it India? Is it a general better business in APEC? And what to expect here?

So, as you know, India is a big focus for us. Now, saying that India made already a significant revenue impact in the last few weeks and months, no. We are just at the beginning. So, it is not coming from India, but it's coming from the fact that overall, if you look at APAC, we saw nicer growth, especially than in Europe, with the end market. And we have a nice business, especially in Australia, in New Zealand. Japan is a very strong market for us, especially when you look at Graphisoft and Vectorworks, frankly even Maxon. I mean, very good performance there in Japan. Singapore, we were small and we are starting to have a little bit more momentum also in Singapore. I also personally spent some time there and we also received the local authorities and people from the government from Singapore here in our headquarters in Munich. in Q2 to try to build a stronger partnership in Singapore. So clearly APAC is a strong focus for us. We can see the growth because the market is better and also because we have a stronger focus than in the past. But again, I think it will take time of course to see the real effect. of our investment, especially in India. As you know, you have to be patient there. You have to be resilient. You need to invest, especially also on education. And that's why we were in India the last few weeks for the inauguration of the office, but also to meet local government bodies and ministers there. And we also did some strong partnerships with new partnership with education and academia there. So, for example, we signed a partnership with JJ University, which is the most prestigious and oldest architecture, art and design university in India, based in Mumbai, where we have now opened an AEC Center of Excellence, which is JJ Nemechek AEC Center of Excellence, with around a few dozens of computers and free licenses of our different products from Alplan, Nemetschek, but also Graphisoft, Vectorworks, Bluebeam, Solibri, etc. And we just did the same this week with another very large university in India and more to come. So, of course, all of that will have effects over time because, as you know, also in our business, it's not... only have the best product on the planet and then the strongest marketing but you also need to make sure that people going out from school they know about your product if not you're not going to be successful so that's why we are going to invest significantly on education in the indian market great thank you very much and the next question comes from nicholas david from auto bhf

Yes, thank you for taking my question. I have two, actually. The first one is coming back on the Q3 trend. So just to clarify, when you say high single-digit growth for Q3, it's organic, right, excluding GoCanvas contribution? Just maybe a question on that, because then I have two questions about it, maybe, which will derive from that.

Yes, it is excluding GoCanvas, of course. Yes, purely organic. Okay.

Okay, so it looks like when you look at your comparison basis in Q3, not at the design segment, but also at build segment with some pull-forward license deals in Q3-23, it looks like a pretty strong performance because, I mean, looking at the comps, notably for design, I would have expected design to be growing maybe mid-single-digit in Q3, and it looks like you will be doing better. Is it because you are factoring some also this year pull-forward performance deals not that be on the Graphisoft side as you are going to stop seeing licenses in January? Is it why it's not going to be so soft? That's my question.

So, I mean, clearly, I mean, 2024 is benefiting a lot of last time buy of perpetual license mainly coming from Graphisoft. Obviously, this is why we have also some push On the revenue side, thanks to perpetual license. Now, the fact is that, as I said, H1 was heavy on perpetual license. And there will be still some perpetual license in H2, but less, much less than in H1. Because also we make this price increase in H1, especially on our Chicago. So if you look at what we said before regarding the Q3 performance on the revenue side, organically, excluding GoCanvas, when we say, okay, we should grow around a high single digit, it is for the group, not only for design. So design might be a little bit more impacted, again, because of the three factors I said before. First of all, if we are better in terms of subscription, it will have... a bigger impact. Second, we have this small pull forward from Q3 to Q2, as I said, due to the price increase. And third, we have this very high comparable for Alplan, where they had a very big spike of perpetual license last September. So you're right, design may have a lower growth in Q3 than definitely in H1. But overall, we should be still as a group in the high single digits. All right. Then the big growth, the very big growth will come in Q4, coming from the build division.

Yes, definitely. That's clear. And my second question is regarding the dilution at the BDA margin level going from coming from GoCanvas. Could you give us a clarification? Again, it's a split between what's more the underlying margin deletion coming from GoCanvas and what is linked to exceptional cost. And maybe could you give us a guidance for exceptional cost? We stay at 5 million or mid-single-digit number, or do you expect more exceptional cost in H2? And what do you see in terms of exceptional cost in 2025? Thank you.

So, in general, if you look at the margin on GoCanvas, as I think we have not guided for that, as we said as well, you can see that there will be slightly dilution, and the dilution comes from that GoCanvas has not yet reached a group average. They are very well profitable, but they have not yet reached a group average of the Nemetri Group that is quite high on the margin side, and that's due to that they are in their growth phase. So the impact you can see that you will see is the dilution of the 800 basis points that we have indicated that's due to that. And it's also due to the fact, as we alluded to before, that we have this deferred revenue haircut that we need to do under our press. And that's, of course, stripping down to the EBITDA as well. so that's the that's the two main effect of course we will also uh going forward in h2 we don't have a huge amount of any other cost of course going forward as we alluded to as we want to have synergy costs and etc integration we will also invest into that but but that we will we will take together with you then in 2025 but in general to say in h2 you shouldn't expect any larger larger amounts for that all right just to be sure about that i mean the 100 bps

include the M&A cost deletion, or is it outside?

No, no. That is purely the effect of a good canvas as such.

All right, clear, that's clear. Thank you very much.

And the next question is coming from Naing Naiso from Barenburg.

Thank you for squeezing me in. In the interest of time, I'll just limit to one question. The question I have is on 2025, please. Considering some of the substitution transition headwinds that we might have in the design segment in 2025 with the current demand environment in managed media, if I were to assume those three segments on average grow at high single digits in 2025 to achieve growth in mid-teens next year, I would need over 22% year-on-year growth in Build, which by then shouldn't have much technical growth contributions related to the Bluebeam transition. So I just want to firstly check if that line of thinking is correct. And if it is correct, it would be great to hear from you. What would be the building blocks behind that over 20% or so growth in build, please?

It is correct. So clearly, I mean, the build segment is planning to grow, you know, with, you know, 20% plus potentially. I mean, this is the area. And that's mainly coming from Bluebeam. I mean, the driver is user growth, simple as that. Of course, the subscription impact, the pure accounting impact of subscription and all the deferred revenue that we have. And user growth, user growth in the U.S., but then also all the internationalization push that we are currently doing the last few months and to come to really have Bluebeam also much more present in Europe and in APAC and not only in North America. really a blue beam performance and accountability topic due to the subscription effect.

Thank you. And would you be able to quantify how much the accounting contribution would be towards that 20 plus growth in 2025?

No, I think it's not the accounting. I mean, you know how it is with the deferred revenues. If you have deferred revenues in a subscription model, so while you are building up, you have a very strong subscription growth at the beginning. Of course, you build up and then you start to recognize that revenue over time. And of course, we continue to grow very, very strongly, as we said, in the new subscriptions, but you have a proportionally higher effect at the beginning of that deferred revenue that we are now starting to before really to see a strong effect off. So that's the normal accounting treatment of subscription and SaaS revenue models.

Right, got it. So it's related to customers.

Yeah, sorry, maybe just to be clear on that. So for the organic bills, We do not expect any news with the accounting-related effect in 2025, because then our subscription move has been finalized. Where we expect the accounting-related effect is in their Canvas, but that's an additional guidance, as we said, as well. So the organic growth for Build is more than if there is an effect that is still, as I said, the normal revenue recognition out of the growth that we have now seen in our subscription. And the second thing is, of course, you have a link So you always have to see the comparable quarter in 2024, how much of perpetual revenue did we, as I say, perpetual, we don't have any longer, but how strong was the growth, of course, of the revenue in built segments. So there's no other accounting related effects in 2025 in the organic case.

Right. Okay. Just to clarify here, so the normal accounting related to deferred revenue on subscription contractors will be related to the ones that would have signed this year. that the revenue recognition will ramp up because of the timing.

Which is a natural, right? Because when you start with subscription at the beginning, you, of course, have more and more deferred revenues that would more and more, so to say, being recognized over time. And that's, of course, added on by the growth that we have. But as you had a stronger proportional growth at the beginning, you cannot recognize so much at the beginning of that. You have a stronger effect also in the next year. So that is coming. But that's continuing as long as we are growing. So that's nothing unusual then.

This is normal subscription growth. The beauty of subscription model.

Exactly.

Right. Got it. Understood. Thank you both.

And the next question comes from Victor Chang from Bank of America.

Hi. Thanks for taking my questions, too, if I may. First of all, on design, you give a lot of color by brand, how the subscription transition is. But if we take a step back and think about the segment as a whole, what percent currently is subscription and maybe similar to what you have done with Bluebeam, how do we think about where the trough is in terms of slower growth? And for the revenues that have moved to subscription, what is the pricing power in there as people that have moved to subscription? Can you still do price increases similar to what you have done with licenses? And then Secondly, relating to Go Campus, is it correct for me to think that by H2 25 onwards that there'll be kind of no haircut on revenue, so we should expect at least maybe four or even five percentage point of contribution to group revenues?

First of all, on the design segment, currently we are in the mid-20s in terms of subscription revenue in design, so we still have a big way to go. But we know we are at the beginning, and of course, the fact that we have some of the large brands doing this big push, I think it will take a couple of years, probably by let's say beginning of 2027 to have a good, a stronger percentage. But again, as I said, we are planning to be around 50% subscription by the end of next year or early 2026 for design in terms of subscription revenue. And design is planning to be around 88, 90% recurring revenue already by the end of of 2025. Regarding the price impact, I mean, as the price increase, we're mainly on perpetual license. I mean, yes, there is no huge price increase contribution here in the overall revenue performance. Once we move to subscription, yes, I mean, of course, there will be still a price power over time, but it has to be linked, of course, what type of packages and new features we will going to offer. So that's why it's all about the packaging and the bundling and the new feature sets that we're going to offer for these different design products and different design packages. It's not going to be a light for light, just price increase. That's not what we're going to do. Maybe partially with some brands, but majority will be more packages linked to price adjustment. Especially when you look at AI features that we are planning to launch more and more in the coming years with generative design features.

Maybe I should just confirm the GoCanvas. Yes, Victor, you're right. There will be no haircut effects in the second half. of 2025, and that's due to the GoCanvas contracts are 12 months. So that's also the effect, of course, that we have to revalue at the beginning, and that then takes until the contract goes out. And for the new contracts, of course, there's no effect. So starting H2 2025, there are no further effects out of that. And while we haven't guided on 2025 yet and on GoCanvas, that's something we will do, but I mean, I think you could still say that you're not completely off in your thinking here. Of course, it would be better than what we now gave guided for the remainder of this year as we have this effect and that will go off next year. So that's the right line of thought and let us then guide as soon as we can then for 2025.

Very clear. Thank you.

And the next question comes from George Webb from MS.

Hi, Eve and Louise. A couple of questions on media from my side. So if we're running more mid-single-digit percent organically at the moment, kind of curious to see where you see growth returning to beyond the current weaker demand environment. And I'm kind of really thinking about the fact that obviously media had its own subscription transition before would have elevated some of those historical growth rates so you know in short do you think media can get back to a double digit or even low teams growth rate when you look out a little bit further um and then on the on the second quarter margins immediate 28 that sounds like a pretty significant dip year over year um and only one office in there or were you planning for you we planning cost growth for a higher rate of revenue growth than you actually saw thank you so on your first question regarding media uh clearly

If you look at the maximum media performance, I mean, the slowness is really coming from the U.S. market in general. If we look in China, but it's mainly U.S., rest of the world's performance are as planned. So they're good. Now, are we planning to be again in the mid-teens growth? Not for the moment. I think we should assume... high single-digit growth for the full year of 2024, and then probably similar or potentially slightly at the beginning of the double-digit growth if we look at 2025, but that will also depend on how the market is performing. Here, the impact is mainly coming from the fact that, as you may know, content production spending decreased significantly, especially if we compare to 2022 figures, there has been a decrease mainly in the US market of minus over 20% decrease in content production spending, which of course has an impact overall in the industry. In addition to the fact that there were all these Hollywood strikes last year, but really the content production spending is having an effect on the overall industry.

So let me then take your question on the margin for media. So I think that's a little bit related also to what Yves just said, that we were clearly outperforming the margin, even with this slightly softer results than we had in the past for media. So I think our story, our product portfolio, and also given that we have already gone through the subscription transition for this, so we have a suite of products. We sell a subscription very successfully. That is something that gives us really a very good position in the market so that we manage to outperform the market and that we are continuing to invest in. So we're investing into new feature in our products, et cetera, for the media segment, because you can see that in the current figures as well, that is quite successful. So that is also impacting the margin, according to plan. There are some one-offs in the media in the Q2 as well, but to say we are also, I think the message that you should take away here is really that we continue to invest into this segment because we see that our position in the market gives us really the right to grow above the market, even if the market is a bit softer.

Okay, thank you.

And the last question comes from Agarwal Devshika from Goldman Sachs.

Hi. Thanks for taking my question. I'll just keep it quick. The first one is basically macro. A lot of your peers are kind of talking about, like, a lot of they're seeing slowdown in overall construction market. So, like, what exactly is driving your resilience? And, like, what is making it different that, you know, the macro is not, You're not seeing any change, and how do you think about macro going maybe even six months down the line? Then in terms of when we think about a design segment, you talked about the accelerated transition. So when we think about a more normalized revenue model, when it will be more subscription, should we assume that design will eventually go to somewhere close to lower single-digit growth once that transition is complete? And the third one is a more quick clarification on that 100-bit dilution. So the 100-bis dilution does not include even the mid-single-digit M&A cost that was there in the second quarter.

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Yes.

Yeah. So just basically three questions. One was on macro as in, as compared to peers, like they were, who have been highlighting soft macro environment and construction. What is like, you know, how are you seeing macro for you? Even like maybe a quarter down the line. The second one is more. And the second one is like, if you look at the design segment, once the subscription transition is complete, how are you thinking about the normalized growth will it be more closer to like low double digit growth versus the high single digit that we are seeing and the third one is a more clarification on the 100 bus dilution on the fy24 ebitda that does not either the clarification is basically that does not include the mid single digit mna cost that was incurred in the second quarter right

Yeah, so let me start with the macro one. So if you look, yes, at the construction industry, as we all know and as already discussed in this course, there has been a lot of impact for the construction industry, especially if you look at the building and residential markets overall. But this is good news also somehow for digitalization. because clearly business as usual is not an option for a lot of players in the construction industry. 90% of the projects are late or over budget, 20% of the material used in a construction project are wasted, 40% of the global CO2 emission is coming from the construction industry and not only from design and planning but of course a lot also on operate and manage and last but not least there is a huge lack of manpower in the construction industry. I mean the latest figures I've seen is there's an estimation of 7 million people missing in the construction industry as skilled workers, etc., also, of course, mainly in the field. So if you add all these challenges, and then if you look at the margin of a construction project, which is often in the low single digits, I mean, clearly business as usual is not an option anymore, and they need to find ways to really streamline their workflow, to use more software solutions to deliver on time, on budget, to really also have software solutions to design greener buildings that are already in the design phase, to make sure that thanks to the authoring tools that they are using from us and others, They are able to manage properly the quantities of material used during the construction project and to really work on use cases around energy efficiency, etc., etc., etc. Despite the fact that, yes, the construction industry is facing a lot of challenges, the ACO software industry, so it's not only Nemetschek, but if you look at the market growth, the market is still growing. I mean, and this is what you can see, you know, if you look at data from different market analysts, etc., Obviously, if you look at design and planning, especially in Europe, here there has been still a slowdown because, I mean, a lot of our customers are architecture firms. Architecture firms in Europe are a lot of small and medium businesses, and a lot of them are also linked to the residential market and the building market. And, of course, they are impacted by the fact that residential market, I mean, is not growing so much the last two years. Nevertheless, even in Europe, there has been a lot of renovation work going on, etc. So there is still some type of growth. Now, are we expecting huge changes in the coming quarters? No. Are we planning currently that 2025 will be weaker or better than 2024? No. So our assumption is that there is no changes in the current macro dynamics in the coming quarters. Also in 2025, especially when we mention or at least meeting growth for the organic piece of our revenue growth in 2025. If you look at the design segments, normal growth after subscription, it's going to be in the high single digits instead of being in the mid single digits, which is what we are planning to have now. Obviously, if the market and the macro economy is also doing better, we may see maybe low double digits instead of high teens.

yeah and i think it difficult your last question was again the clarification regarding the impacts of go canvas the margin and the margin effects out of that and that is including to say the lower profitability that go canvas has currently stand alone below the limit group average and it's also impacted by the ppa effects that we that we are currently estimating and and i think everybody should understand that these are estimations because we haven't concluded the ppa and of course the deferred revenue calculation info which is being done until the remainder of the year i hope that answered your question so perhaps back to the operator

Thank you very much. I think she just followed the line, but there are no further questions left. Thank you.

So if there are no further questions, I would say then we conclude our call today. Thanks everyone for attending. We are looking forward to catching up with you soon. If there are any follow-up questions, so please do not hesitate to contact Patrick or myself. We are available all day long and also tomorrow, of course. Thank you very much for joining here. Have a nice afternoon. Thank you and goodbye.

Thank you, everyone. Bye-bye.

Thank you. Goodbye.