Nemetschek Se Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the Nemetschek SE earnings call for the half-year financial report. At this time, all participants have been placed on listen-only mode. The floor will be open for questions following the presentation. Let me now turn you over to Stefanie Zimmermann.

Thank you, and hello, everyone, and a big welcome. Thanks for joining our earnings call today to discuss results for the second quarter and the first half of it. With me today are our CEO Yves Patrine and our CFO Louise Oeferström. 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 quarterly report, the presentation and press release on our investor relations website as well. But now let's get started. So I would like to turn over our CEO Yves.

Thank you, Stephanie. Welcome, everyone, to our Q2 NH1 2025 earnings call. You have probably all seen our pre-release last Thursday with the main headlines of our Q2 results and our increased revenue guidance for the financial year 2025. Therefore, I have prepared a short slide deck containing additional information that our Chief Financial Officer, Louise Overstrom, and I would like to briefly walk you through so that we have sufficient time for your questions afterwards. To begin with, on page number three, please find some highlights of the most important aspects of the second quarter, as well as the first half of 2025. Looking at our operational performance, I will summarize our second quarter as a continuation of the very successful start of the year we had in Q1, with an ongoing very high currency adjusted revenue growth of plus 30.5%. Main contributor, these very strong developments were our two largest segments, design and build. On the one side, I'm pleased to report that the super strong development seen at the beginning of the year in the build segment continued in the second quarter with very high organic and inorganic growth. There's been very strong overperformance in build in Q2 initially at Bluebeam. Similarly important, and despite the continued challenging environment, particularly the German-speaking markets, the design segment had another very good quarter. In addition to a strong underlying development, the segment's performance also benefited from a strong momentum in the subscription transition, including a stronger than anticipated demand for multi-year contracts. These contracts were strategically leveraged to accelerate the design segment transition to a subscription and SaaS-centric business model. As a result, we are very pleased to report that the share of recurring revenues increased to a new record high of 93% at the end of the second quarter. Together, the strong start to the year in Q1 We had a very successful first half of the year 2025. Main growth driver was once again the recurring part of our business, in particular the very strong increase in our subscription and SaaS revenues, which is also reflected in all of our major KPIs where we reach new record levels across the board. While the underlying profitability stayed on a continued high level, the reported group EBITDA margin reflects an extraordinary non-operating effect in the low teens million euro range this resulted in the unexpected insolvency of the service and payment provider which impacted our design and media segments during the first half and which therefore has nothing to do with our underlying strong operational development foundation of this strong operational performance is this continued progress we have made across our key strategic focus areas whether that's It is in products, innovation, AI, or the ongoing transition to subscription and SaaS. Investments are not only paying off already today, they are also making sure the Nemetsha Group is fully prepared for the next phase of growth. And lastly, as a result of the strong development in the first six months, we have raised our outlook for currency adjusted revenue growth in 2025, from the previously communicated range of 17% to 19% to now plus 20% to plus 22%. As usual, on page number four, an overview of our key Q2 KPIs. In line with our key strategic priority, transition to a subscription and SaaS-centric business model or annual recurring revenue, which includes the contribution for our Go Canvas acquisition, recorded a reported increase of plus 35.1% and plus 38.7% on an ethics-adjusted basis. However, if we script out the M&A contributions, the ARR growth remained at a high level at plus 29.4% at a constant currency basis. This continued strong increase in ARR is an important indicator for the group's revenue and cash performance flow growth potential in the coming months and quarters. And to this very strong growth in our recurring revenue base, reported revenue in Q2 increased significantly, plus 27.4% on the reported as well as plus 30.5% on an ethics-adjusted basis to 290 million euros. Organic revenue in QT substantially increased by plus 18.9% on a reported basis. If we adjust for the ethics headwind, mainly steamed from the weaker US dollar, our organic revenue increased by plus 21.6%. ABDA for the quarter increased clearly over proportionally by plus 44% to 88.5 million euros. This despite the negative effect from GoCanvas, ongoing investment into the future growth of our business, as well as a negative non-operating effect from the PSP provider. Corresponding EBITDA margin reached 30.5%. If we adjust for the extraordinary non-operating effect due to the insolvency of the service and payment provider, EBITDA margin will have reached even 31.5%. at but not least, or earnings per share for the quarter increased under proportionally by plus 25%, reflecting the effect from the GoCanvas acquisition, such as higher PPA adjustment and financing costs, as well as a negative effect due to the insolvency of a payment and service provider. Before Louise will deeper into our Q2 financial results as well as the first half of the year, I would like to use this opportunity to also give you an overview of the various strategic highlights in the first six months of the year in each of our five defined strategic focus areas on page number five. Starting on the left side, artificial intelligence plays a pivotal role for us. not only in optimizing our internal processes, but also in advancing our product development to deliver even greater value for customers. In doing so, it is essential to us that all AI activities are grounded in ethical and trustworthy principles that puts the human, our customers, our users, our fans at the center. Over the past quarters, we have already introduced several truly value-adding AI features into our product portfolio, such as the AI Visualizer. But we are especially proud of the launch of our new groundbreaking agentic Nemetschek AI Assistant, one of the first of its kind in our ADCO industry. With Nemetschek AI Assistant, we are building a strategic platform that fundamentally changes how users interact with our products and lays the foundation for a new generation of agent-based solutions. The assistance supports three core objectives. Driving innovation, enabling a new user experience powered by conversional AI, for example, and connecting tools and brands through intelligent data interpretation. Initial use cases, just product knowledge support and design compliance assistance, are already live. The next step will introduce active agents, automate workflows, provide smart recommendations, and offer fully customizable AI experience for users. So stay tuned. Our ambitious AI roadmap further strengthens our strategic partnership with Google Cloud. positioning Nemechek as an AI-first industry leader and creating a strong platform for continued market expansion. As you all know, one of the absolute priorities remains transcending both of the resilience and long-term growth potential by steadily increasing the share of recurring revenues. In particular, through our transition to a subscription and SaaS-centric business model. I'm very pleased to say that this transition is progressing extremely well. We are seeing very strong momentum across the group, especially in the design segments where the pace of the shift has accelerated significantly. As a result, we reach a new record share of recurring revenue for the group, a direct result of the dynamic growth in our subscription and SaaS business. Over the past six months, we have continued to bring our go-to-market approach to a new level, especially by expanding our international presence. Our goal is twofold. First, to make our business more resilient by reducing our dependency on the European market. And second, to unlock new growth opportunities for the Nemetschek Group in high potential regions. This is why we're focusing on fast-growing markets like India and now Saudi Arabia, where we officially launched operation in May, the opening of Nemetschek Saudi Arabia in Riyadh. The Saudi construction sector is booming, with over $1 trillion in megaprojects as part of the Vision 2030 initiative. By expanding in India and the Middle East, we want to be part of this enormous growth, not just in the coming years, but the next decades. Our cloud platform and infrastructure are another cornerstone of our corporate strategy. Here, we are targeting a comprehensive ecosystem by eliminating information silos and by enabling end-to-end workflows. This also helps us to better meet ever increasing demand for connected cloud features. As you know, M&A has always been an integral part of Nemechek's DNA and a key driver of our long-term success story. We have a strong track report of highly successful and value-accretive acquisitions. The most recent example is GoCanvas, largest acquisition in the Nemechek Group's history. I'm very pleased to report that the integration is progressing as planned and GoCanvas is delivering in line with our vicious growth targets. Strong performance gives us the confidence and the capacity to continue pursuing value-accretive acquisitions. It may include smaller bolt-on deals like Manufacton, whose AI and data-driven solutions enhance off-site construction and prefabrication. And we are also prepared We pursue larger opportunities comparable to GoKansas or potentially even higher, and also smaller ones that focus on AI, for example. In parallel, we are also pursuing a dedicated venture investment strategy. Over the past year, we have made several minority investments in highly innovative AI-driven startups that align perfectly with our long-term AI and technology strategies. A good example is a recent investment in Handoff, a startup whose platform used artificial intelligence to automate administrative processes for construction companies. Last but not least, in the area of business enablement, we work on a further harmonization across Nemetsche Group. This includes continuous effort to further enhance our operational excellence in order to ensure that we will be able to continue to make the most of tremendous growth opportunities.

And with that, I'll hand it over to... Thank you, Yves, and a warm welcome to our earnings call for the second quarter as well as the first six months of the financial year 2025 from my side as well. Well, as Yves has already touched on some of our key financial figures, I would now go a little deeper and have a deeper look in a bit more detail at the results and at the underlying drivers behind most important financial aspects of our Q2 and the first half year 2025 results. Just like Ip, I see the first half of the financial year 2025 as a strong confirmation that Nemitu Group is on the right path. Very high and highly profitable growth, as well as good and consistent progress in all of our strategic focus areas. page number seven you can see a summary of the results of our strong progress in the first half of 2025. starting with the reported revenue which unlike previous year includes the contribution from go canvas the period from january to june grew by 26.8 to 572.8 million euros adjusted for the fx headwind that impacted us, especially in the second quarter, due to the weaker US dollar, we grew 27.8%. Even when excluding the contribution from GoCanvas in the first half, we achieved strong organic growth of 18.8% or even 19.5% on an IFEX adjusted basis. As expected, and fully in line with and confirming the good progress of the execution of our strategic roadmap, the main growth driver was once again the recurring part of our business. This is reflected in our annual recurring revenue, ARR, which increased by 31.5% to nearly 1.1 billion euros. The key contributor to this dynamic, very strong development, was our subscription and SaaS revenues, which grew by an impressive 74.8% and reaching 403.6 million euros. Our reported EBTA increased by 30.4% to 169.1 million euros, corresponding to a reported EBTA margin of 29.5%. On an organic basis, so excluding the dilutive effects from glucanolase on the EBTA margin, the EBTA margin reached 30.1%. But let me emphasize here again our message in Q1, that when we adjust the extraordinary non-operating effect due to the unexpected insolvency of a payment and service provider, the underlying profitability would have been at a very attractive high level of 31.5%. On the right-hand side of this slide, you can also see continued high cash generation. with a strong cash conversion of 118%, as well as the very high quality of our balance sheet, despite natural and intended year-over-year increase in debt as a result of the GoCanvas acquisition. On page eight, let's have a look at the development of our four segments during the first half of 2025. Let us start from the left side with our design segment, which continues a strong growth trajectory in the second quarter as well. For the first six months of the year, revenues accumulated to €260.1 million, a plus of 14.1% year-on-year. Growth in this segment was particularly driven by subscription and SaaS revenues. We recorded an exceptional growth of more than 100% following the successful launch of the subscription transition at our Graphisoft brand at the start of this year, and this is a testament to our strong progress in the transition to a subscription-based business model, also in our largest segment design. This strong growth also reflects a stronger than anticipated demand for multi-year contracts, which are being strategically leveraged to accelerate the segment's transition to a subscription-based business model. Reported EBTA margin confirmed prior year level at 27.2%, despite the associated short-term accounting-related dampening effects on profitability of the subscription transition on the EBTA margin, and despite extraordinary non-operating effects from the insolvency of a service and payment provider in the first quarter, as I just mentioned, when adjusting for this extraordinary effect, the underlying EBTA margin for the segment would be approximately 150 basis points higher, and therefore an underlying margin improvement year on year. Let us continue to the build segment and here you can well see the outstanding momentum from the start of the year that also continued unchanged the build segment in the second quarter. Growth was supported by unchanged very strong customer demand on top of the lasting tailwind from the successful completion of the Bluebeam subscription transition at the end of 2024. On an organic basis, revenues in the first half grew by a very strong 35.6%. When including the contribution from GoCanvas, the overall growth reached 229.2 million euros. That's an impressive plus of 61.2%, 63% at constant currency. The reported EBTA margin came in at an impressive 34.6%. And this is despite the dilutive effect of the GoCanvas margin and our continued investments to support the future growth of this highly dynamic segment. Excluding the GoCanvas impact, the organic EBTA for the segment, the EBTA margin in this segment reached a very high 37.1%. Are smaller segments managed? which accounts for less than 5% of the group's revenue, saw a slight increase of 1% in the first half of 2025. The segment's growth continued to be partially negatively impacted by discontinuation of a low-margin advisory service unit in the second quarter of 2024. And despite the ongoing investments into the segment's business expansion, as well as future strong growth opportunities, the EBITDA margin expanded from 180 expanded by 190 basis points to 9.3%. And last but not least, our media segment continued to be affected in the second quarter by the unexpected insolvency of a payment and service provider earlier in the year and impacting by a low single digit million euro amount. While the market environment remains stable and our maximum brand delivered a good underlying performance, the segment's reported revenue therefore increased only moderately to 2.1% to 59.5 million euros. The extraordinary non-operating effect also weighted on profitability, reducing the reported EBITDA margin to 28.1%. However, when adjusting for this special one-off effect, revenue growth in the first six months would have been in the highest single-digit percentage range, with the EBITDA margin at the prior year level. And this, again, confirms that Maxon continues to outperform the broader market on an underlying basis also in the first half of 2025. As Eve outlined at the beginning of this call, the ongoing international expansion of our business remains one of our key strategic priorities. Item 9 clearly shows that we have successfully continued to strengthen and to expand our international presence in the first six months of 2025 as well. Looking at the regional revenue development, our business outside of Europe, which includes the Americas region at 46% year-on-year growth and Asia-Pacific region at 37%, were the main growth drivers over the last six months. In the Americas region, the important US market continued to benefit from a continued, very good demand environment, in particular for our Bluebeam brand, which continued to be our main growth driver in the region. Additionally, our growth in the region was further supported by the Gocanvas acquisition in July 2024. We currently only have 10% of our growth revenues in Asia Pacific, and that remains the key focus region for our future expansion. H1 2025, this region continued to enjoy ongoing very good market conditions and offers a huge potential in the mid to long term in Southeast Asia and India in particular, and is supported by a recently installed new go to market offices in the region. It's still at a strong absolute euro level. The relative share of Europe of our total revenues has steadily declined over the recent years, now accounts for 46% of our group revenue. We continue to navigate the particularly challenging German-speaking markets in the design segment, but while we only recorded a flattish development in our domestic market Germany, growth in Europe outside of Germany was very promising and significantly stronger at 18% year-on-year. This growth was supported by a strong performance in our build segment in Europe, particularly benefiting from the good progress of our regional expansion of Bluebeam. As you can see, we are starting to capitalize well on the success of our internationalization strategy and on the continued diversification of our global footprint. As we move forward, we remain focused on capturing new growth opportunities and simultaneously strengthening our leading positions in our key markets. Now turn to what is one of my favorite slides in our entire presentation on page number 10. And this is showcasing our highly successful transition to a subscription and SaaS-centric business model, which in turn, as you know, is one of our key strategic priorities for the group. No, it's not one of the key strategic priorities for the group, it's these key strategic priorities for the group. The Nemity Group is quite unique in that we are not transitioning our entire portfolio to a subscription and SaaS-centric model all at once with a one-size-fits-all approach. Instead, we're taking it in a structured and stepwise approach to ensure full success and value creation, both for our customers and for the Nemity Group. One of the advantages of our brand setup is clearly that it allows us to migrate in a phased approach helping to ensure that we can offer our customers an even higher value with the new model and at the same time mitigate risks in making the short-term accounting-related effects on revenue and profitability on our performance easier digestible. So looking at the left-hand side of this chart, you can clearly see that the speed and the scale of our progress in building up our recurring revenue base through our mode to subscription and sales models Since H1 2021, we have seen an almost seven-fold increase in subscription and sales revenues, representing an impressive CAGR of over 60%. As a result, the recurring revenues now represent 92% of our total revenue base, a new record high for the Nemetri Group. And as you can see on the right-hand side, This exceptional development continued also in the second quarter with an ARR growth of 35.1% and a subscription and SaaS growth of 57.3% on a reported basis. At the same time, and fully in line with the strategy, the license revenues declined by 44% year-over-year in Q2, reflecting the continued shift from perpetual licenses to subscription models. And as expected, this more volatile and less predictable revenue stream now accounts for only 5% of our total growth revenues. As usual, and to conclude our review of the first half of 2025, we provide a more detailed overview of key P&L and cash flow items on page 11. We've already covered the impact of our strong underlying performance, the GoCanvas acquisition, and the insolvency of a payment and service provider on headline figures like revenue and EBITDA margin, Looking further down the P&L, these effects are also visible in the development of our different OPEX categories. Starting with the personnel cost, the largest component of our cost base, as you know, we saw a reported year-over-year increase of 24.3% in H1 2025. This is clearly above our normal run rate. However, When excluding the impact of the more than 300 GoCanvas employees who we were happy to welcome to the group on July 1st, 2024, the organic increase was already significantly lower in the mid-teens. Additionally, The personnel cost in the first months of 2025 also included and one of the effects of a revaluation of stock appreciation rights, which is part of the total compensation packages for key senior leaders of the Nemetschik Group. The underlying run rate therefore well reflects the strong operational leverage we see in light of our strong revenue growth. It's reflecting both our strong focus on operational excellence and our continued investment strategic and operational resources and structures even stronger in the build segment where we deliver exceptional growth in the first half of the year and continue to see substantial opportunities ahead in addition the extraordinary non-operating effect from the insolvency of a service and payment provider explains the 29 increase in other operating expenses and will therefore also normalize during the course of the year, as we have now seen an end to this effect. These items, combined with higher amortization and interest charges year on year, only due to the GoCanvas acquisition, led to a more modest non-adjusted EPS increase of 15.2% in the first half of the year. Our free cash flow generation was again very strong, despite several extraordinary effects in the Q2 cash flow, Let us go through a few, such as the US tax prepayment that we had in Q2 this year that has shifted year over year. The second quarter was in the first quarter last year. We had personnel bonus payments where the effective pay was now in Q2, but partially had that in Q1 in the previous year. and the impact of the multi-year contracts in the design segments, where we see in the short term a higher positive impact on EBITDA due to revenue recognition and on our cash flow due to the yearly payment structure of the multi-year contracts. Nevertheless, and in sum, the free cash flow before M&A reached nearly 194 million euros in H1, a plus of 42.7% and clearly underpinning our high quality of earnings. Finally, and thanks to our very strong operating performance, Emmerich maintains a strong balance sheet with an equity ratio of 42.2% and a net debt to EBITDA ratio below one time. This gives us the flexibility to both continue to deliver quickly and to retain significant financial headroom future M&A and continued investment in innovative startups. And with that, I'll hand it back to you.

Thank you, Louise, for that detailed overview of our financial results. So to wrap up our presentation, let's turn to page number 13 and take a look at our updated outlook for the financial year 2025. To summarize today's presentation, we had a highly successful first half of 2025. driven by strong development in our design and build segments, fueled by the very strong growth in recurring revenues across both segments. Investments we are making, along with the continued progress in our strategic focus areas in go-to markets, internationalization, and AI, are paying off, and we'll position the Nemechek Group to fully capitalize on the tremendous growth opportunities in our end market for years to come. Based on the strong fundamentals of our business, as well as a very good start to the year, therefore increase our revenue guidance for the financial year 2025. In particular, that means that from today's perspective, the Executive Board expects a currency-adjusted revenue growth for the Nemesha Group, so including GoCanvas, in a range between plus 20% and plus 22% for the year 2025, versus 17% to 19% previously. includes an M&A-related revenue contribution from the acquisition of GoCanvas of around 450 basis points. The EBITDA margin, including the dilution effect from GoCanvas, is still expected to be around 31%, reflecting, among other things, extraordinary non-operating effects on the unexpected insolvency of a service payment provider. Based on our strong fundamentals, we expect to continue our growth path with a very attractive, strong growth at a high profitability level in 2025 as well. Thus, despite this year's high comparison base, the ongoing subscription sales transition of our business model, as well as the continued challenging market conditions. 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. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to withdraw your question, press 3 and star on your telephone keypad. So and the first question comes from Alice Jennings Barclays. Please go ahead with your question.

Hi, good afternoon. Thank you for taking my questions. I just had a couple on the multi-year deals in design. So I understand that that was a strategic move to support the move to a subscription model, but I'd be interested to know how you think about the use of these deals going forward. So especially considering the complexity that can arise on the accounting side with revenue mismatches and a little bit more volatility. Do you expect to see the proportion of revenues coming from these deals to increase in future? Or do you kind of see Q2 as a bit more of an extraordinary effect? And then I guess thinking a bit more short term on the multi-year deals, can we expect higher growth from these multi-year deals in the rest of this year? And how much of a headwind will that be to growth in 2026?

All right. Thank you for your question. So if you look at the three years contracts, these are only in two brands. So Graphisoft mainly and a little bit of Alplan. And it's really, really a way to push and accelerate the move to subscription for existing customers who are currently on maintenance, so SSA. So our goal is to decrease the level of three-year contracts over time. And again, we are just doing that as a specific campaign and timed sometimes either in time, per region, et cetera, et cetera. If you look, for example, at the Q2 design performance, yes, we have been at 18.5% growth on the revenue ethics adjusted, as Louise just described. And without these multi-year contracts, which would be in low teams. Now, if you look at H1, instead of 14.5% ethics adjusted, which is our current revenue growth in design for H1, would be excluding any three-year contract around 10%. And clearly in Q3 and H2, there will be a reducing speed of the three-year contracts. And therefore, if you look at the overall full year 2025, we should be in low teens, around 10% revenue growth. Obviously, in Q4, we had a very, very high comparison. So design growth would be much lower in Q4 2025 than in Q3 2025. And overall, H2 revenue growth for design will be also lower than in H1 2025 due to the fact that there will be lower three-year contracts. Therefore, going forward, the goal is really to make sure that we are continuing to decrease the level of shares of these three-year contracts. And again, it's really mainly at Graphisoft, slightly lower, much lower sorry, at Alplan. But it will be still there until we complete completely or move to subscription in this brand.

Okay, thank you. Just a quick clarification. On the full year, you said low teams or around 10%. Is that excluding or including the multi-year deals?

that's excluding the multi-year deals perfect cool thank you very much and the next question comes from george webb morgan stanley please go ahead with your question yeah hi afternoon um congrats on the on the good first half um couple of questions please firstly just on the margin you're not guiding us to drop through the better top line into the margin. Is that because the initial, you know, around 31% target was stretching at the start of the year, or is there any conservatism around that as we think through the back half? And then secondly, just on the guidance raise, specifically around GoCanvas, at the start of the year, you were talking to that 350 basis points of impact inorganically. If I look at the first half, it looks like it was maybe slightly higher, maybe 370 basis points in constant currency terms. I think you also said that GoCanvas was delivering in line with your growth ambitions. I'm just guessing that through the rest of this year, GoCanvas is inorganic from Q3 onwards. So curious, where's that raised inorganic expectation to 450 basis points coming from? Is there anything to do with how you may be treating the deferred revenue haircut phasing out in the second half? Thank you.

Thanks a lot, George. So first of all, on GoCanvas, It is true that we were probably a little more conservative on the pace of the synergy when we need our business plan for 2025 with GoCanvas and Bluebeam. Clearly, we had very good underlying strong performance, especially as we say that we had large Bluebeam resellers committed now also to sell GoCanvas, which was you know, much better than our earlier expectation. And also, you know, the level of synergy, we can also see some nice boom effect on the Bluebeam side, thanks to TSGO Canvas acquisition. So we see also the synergy level in the Bluebeam numbers. And the PPA impact was low and clearly in the single digit level. And overall, that's why we are somehow increasing now this impact of GoCanvas for the full year to 450 base point instead of the 350, which we previously guided. So clearly, overall, we are very, very pleased with GoCanvas. It is slightly better, again, than we anticipated. We were probably likely more conservative. but we're strongly on plan now. And, you know, it is as we expected also for 2026. For the moment, when we look at the current performance of the business, we are very pleased and as planned.

Yeah, maybe let me take your first question in general on the margin, if I'm studying correctly. So the to say the operating leverage, if we were conservative at that at the beginning, I would say that's not the reason. So we do see a very, very strong operating leverage coming from the stronger revenue growth coming down. But as you also saw, we have some extraordinary effects from this. insolvency of the payment and service provided that we foresee a bit in our guidance for the full year but we also had a little bit more effect than we could foresee in the first half of the year and we have concluded that effect now with the first half of the year so we will not continue in the second half then we also had as i mentioned we also had some one-offs in the first quarter in the second quarter first half uh like the revaluation of our source program uh which is the compensation one-off as well but it's better to hit that quarter and and you should also see that q2 is normally our weakest contract evta margin wise due to the investments etc and and that was you could see slightly more positive and Otherwise, we see the strong operation leverage, as I said, but we continue to invest heavily and strongly in our business. And that goes in line with what we have said. We will never sacrifice the revenue potential that we have at the expense, so to say, by only optimizing the margin. So we're not optimizing margin at the expense of our revenue growth. And this is what you can see. So we continue to invest strongly. And as I mentioned as well, especially in our build segment, where we see a very, very strong and very positive contribution, we have, of course, also there invested into further structures. As we see, this is a long-term development. And also, of course, you have some variable pieces linked to that, like programs and sales commissions, et cetera, due to the higher performance. So to conclude on that, George, you can really see that we see the very, very strong operating leverage and strong investment into further revenue growth. And then a few one-offs in the first half here that, of course, subdued that a little bit in the absolute number.

That's great. Thank you. Can I just double check then? Is the inorganic for GoCanvas, that was entirely in the first half. There's nothing further inorganic for the second half for GoCanvas?

Yes, starting from July 1st, it's all organic now. Great. Makes sense. Thank you.

The next question is from Balaji to your party, Citi. Please go ahead with your question.

Hi. Thank you. Thanks for letting me on. Two questions from my side, if I may. Firstly, could you kindly update on where the design segment is in terms of subscription transition? As in for subscription, as in design segment subscription formed, what percentage of revenues And within the segment, while Graphisoft is particularly accelerated on path of subscription, could you also share for both Graphisoft and Olplon where we are? And then I have a follow-up question.

What's your last point of the question, sorry?

Can you please repeat? So I was asking that. within design segment for both Graphisoft and Allplan where they are in their respective subscription journey? If you can also share any color on that.

So clearly, if you look at the overall design division, so we are in good progress on the move to subscription. Brands like Risa are fully on subscription, so it's a smaller brand. If you look at Vectorworks, which is our third largest brand since the beginning of last year, since January 1st, 2024, we have close to everything is now on subscription for new seats. Only Japan is still selling a little bit of Trepidator license. And Graphisoft, since the beginning of this year, they are only selling subscription for new customers and only some existing customers are also buying perpetual license. The thing is that reality is that we don't have, you know, our expectation when we did the business plan on the level of perpetual license, reality is much lower. We are selling less perpetual license that we anticipated, which is no good. Definitely we don't move to subscription. But overall, if you look at our subscription revenue, we are now, for the design division, we are on the way to be at almost half of the revenue on subscription. So we are on a good way to reach that quite soon. Really, thanks to the acceleration of the move to existing customer, now moving also to subscription from Graphisoft, but also Alplan, Vectorworks will only start the move of subscription for existing maintenance customer by the end of Q3 this year. And it is clearly unplanned.

If you just say Graphisoft is a little bit ahead of, just to your question, Graphisoft is a little bit ahead of Alplan, so to say, in the total share that has been converted. And so to say, all in all, so to say, approximately a third of the SSA units will have been converted for Graphisoft and Alplan in 2025. But as Yves said, for the division as such, we're at approximately 50% share of revenue stemming from subscription.

Yeah. We should be at 50% by the end of the year with one third of the existing customers of Graphisoft and Alplan who should have moved to subscription. We still have two thirds to go.

Very clear and useful. Maybe if I can ask a question on AI, could you share the feedback that you have received on the introduced AI features? How are you looking to monetize AI and agents? And would you be able to characterize if your overall pricing model is also going to evolve to better capital exchange of value?

For the moment, when we launched these AI features is also to test these AI features. It's also who put these AI features in a package which is obviously only available via subscription, also pushing customers to buy subscription instead of perpetual license. Also, it is a way to help on the migration from maintenance to subscription, saying that some of these AI features will not be available in an upgrade package of SSA and maintenance you need really now to move to subscription to get, for example, these AI visualizer at Vectorworks, Alplan or Graphisoft. If you look at some new upcoming AI features, also at Bluebeam and other design brands, et cetera, clearly the idea is to put these AI features in higher tier package, which will help also to increase of average revenue per user. Now, obviously in the future, We are planning to have really wow effect AI agents or AI features, which are going to really show very, very high ROI to our customers. We also plan potentially to have a dedicated package just for this AI feature that we will price separately. But for the moment, most of the AI features that we are launching now short term are part of existing package, either to help us in the transition on the move to subscription and SaaS or potentially increase our average revenue per user slightly by having these features only available in higher tier packages. And again, only in the future when we have really ROI-based AI, which could come, of course, for a lot of internal development that we are doing and all our R&D effort at the moment around that. especially around agentic AI and with our AI assistant, but it could also come potentially from a partnership or who knows, maybe M&A of an AI or a startup, for example.

Thanks a lot. I appreciate it.

The next question is from Nicholas David, Adobe HS. Please go ahead with your question.

Yes, good afternoon, Yves and Louise. Thank you for taking my question. I have two. My first question relates to the build segment. And notably, you mentioned a very strong performance from Bluebeam. Could you help us understand what drove this very strong performance? Is it more volume-based and based on the very strong underlying demand? Or it's also on the ASP side that you have some positive surprises here? And also in the build segment, coming back on GoCanvas, I mean, It's a bit difficult to be sure about the number, but could you comment? It looks like the growth was probably above 50, if not above 60%. I understand that there are some elements about revenue cut and so on, but it looks like the growth is super strong. What should we expect in H2 for Canvas, and would it be accretive to build growth in H2? So that would be my first question. And second question is, I think if you mentioned to the press lately that you were looking at M&A targets with a potential firepower of up to 2.5 billion. Does it mean that you have something tangible in mind already? And what could be the timing? Thank you.

So, first of all, if you look at the build segment, I mean, the growth driver is volumes. I mean, the blue beam is really, I can say now, not becoming. Blue beam is a verb. in North America, especially in the US, in the construction industry, in collaboration to exchange PDF files. It became a verb. Now, our goal is to make sure we are able also to do that globally, internationally, and first of all, to start that in Europe. And I must say that, yes, in Europe, we are very strong in the Nordics, good in UK, And we are seeing the last quarters, already end of last year, very strong success, but especially in H1, extremely good success in France, but also in Germany, which is very good news. In addition, we can see that there are also ongoing growth now coming in our high growth region, especially if you look at India and Saudi Arabia, we see nice potential growth of Bluebeam. So Bluebeam growth is purely volume-based. There is no price increase, no price adjustments. It is a pure volume play. If you look at GoCanvas now, the growth of GoCanvas is good, but again, it is as planned. We were slightly maybe a little bit conservative in our business planning because we were not sure that all the synergy that we are planning to have will come true. And in fact, they came, and they came really very well, especially, as I said, coming from these large Bluebeam resellers committed now also to sell GoCanvas. Because remember, GoCanvas was only a direct go-to-market model. They didn't sell really indirectly via our channel partners. The growth on GoCanvas in H2, we are planning to continue to have a high growth of around 20% on a standalone basis for GoCanvas. And there is an end of revenue haircut, of course, now starting from July 1st, which will also help with GoCanvas H2 growth all in all as planned and very good. On the M&A targets, well, I think maybe sometimes some journalists are, you know, I would not say change, but the discussion I had was what is our potential M&A power and what we could potentially have as investment in total maximum if we want to add all the potential M&A. So in fact, as you know, we can leverage up to 2.5% maybe potentially for some peak three times. And then yes, we have currently an up to 10% approved capital increase, but which we are not planning at all to do. So of course, if you take the 10% capital increase and that is two and a half to three times leverage, if you add all of that together, yes, you may arrive something close to potentially in the future, the numbers that you have seen in the press. But we are not planning to do at all any capital increase. It's not in the short-term plan. Of course, if there is something coming very strategic and big enough and we may use it, we are not planning to do any capital increases, to make it very clear. And the current targets that we have are the usual ones that we have for some times, which are definitely how to complement our product offerings, especially around AI, and this is why we made his acquisition beginning of this year with Manufacton on the FMA off-site construction AI software. It was also beginning of the year, end of last year, with Synapse and SaaS solutions for cloud detection software. And yes, we are, as you know, also still ongoing doing investment in startups and AI ventures. Maybe in some cases, some of these AI ventures will come potentially in the future as a potential M&A target, but we are also looking at other AI startup or scale-up targets for M&A. And it's mainly buy versus make in some areas, especially when we look at our overall AI roadmaps. We see that potentially we could do some acquisition instead of doing some things internally where you know then some startups have already proven that they can monetize such features and so we are also quicker in terms of time to market because at the end of the day in our agent situation at the moment it's all about speed also and yes we are also looking at larger potential acquisition, potentially as big as GoCanvas or even bigger also to complement offerings. And clearly, if you look at the segments that we are particularly looking, it's clearly in the build and in the design segments where we see opportunities. Of course, we are looking overall also in operator, manager, and media. We are looking at the overall four segments we are playing in. But clearly, I would say that build and design are where we see majority of the opportunities at the moment.

Thank you. Thank you very much for the clarification. That was very helpful.

And the next question comes from Florian Preisch, Kepler-Schreve. Please go ahead with the question.

good afternoon everybody uh my question is on i mean you're probably faced by that dilemma now a bit strong goes today but we want to have confidence that this um very good growth can continue going into 26 without asking for precise guidance now but can you maybe give us let's say your key drivers for a strong continued momentum into 2026 i mean you mentioned for example blue beam no significant price increases can this be something which you will put in place in the next year. And I realize looking through your quarter reporting that the German business is actually down year by year. Not everything is booming. It's a good German home country not following the trend. Is that something where you expect clear improvements in the coming quarters? I mean, you're talking a lot about these German stimulus packages and so on. Thank you.

Thank you very much. So, and clearly Germany, yes, it is appointing for some time now. H1 revenue growth in Germany at a group level is flat. If you look at Q2, we're slightly positive versus slightly negative in Q1. And then in H2, hopefully, yes, we will see slight growth. But next year, clearly, we have no confidence that Germany will clearly see some much stronger growth. So yes, we expect slight growth in the coming quarters and potentially, yes, potentially in the second half of 2026, we may see some interesting move, especially in infrastructure investment with a new government in Germany. So that's our wish, of course, but we are very careful how we look at that. The good news. As you know, we have now 93% of our revenue in Q2 is recurring. We have clearly way over 70% of our revenue now as a group on subscription. If you look at Bluebeam, purely revenue-based, I mean, a lot is already in the revenue. And most of the next month of sales is translated in revenue, really, full-year revenue in 2026. The beauty is that we see in terms of sales, extremely good growth and better than expected in 2025, stronger growth in build segments, especially in Bluebeam that we anticipated, which would translate in very good growth in revenue in 2026. That's why we're still very confident that we see very strong internationalization of Bluebeam, nice Bluebeam volumes will be still there. And then if you look at design, of course, we have still the subscription transition effect impact. Of course, as we say, we only are planning migrate one-third of our existing SSA maintenance customers to subscription this year. So we still have two-thirds to go in the coming years. That's why, for the moment, we're not going to give you a guidance for 2026 today, but I can tell you that for the coming years, we are still planning, as of today, to have average mid-teens organic revenue growth in the coming years, and we are very confident for that. So, again, the guidance for 2026, as you know, is planned for March.

Great. Thank you very much, Yves.

And the next question is from Michael Priest, UBS. Please go ahead with your question.

Yes, good afternoon. Congratulations from my side as well. Just a couple of questions. Obviously, currency was a headwind in the quarter. I know you guide at constant currency, but can you give a sense for the second half, if rates stay as they are, how much of a headwind you'll see in the half or the year, both at revenues and profit level? And then, Louise, on the sort of multi-year contracts, in order to track their impact, should we be looking at the long-term deferred income or contract liabilities as an indicator? I ask because sequentially there wasn't really any growth. And is that a sign that the new ones you're signing are sort of lapping with ones that were issued last year and are dropping out? And then just finally on the US, I mean, the construction market is now turning negative. So your performance is is all the more creditable. Can you talk a bit about the US market and any indicators from customers that are more cautious?

Let me jump on your last question. Thank you. Clearly, we do not see any deceleration in the US market. I mean, clearly, it became really a structural aspect, especially with Bluebeam. But GoCanvas is running very nicely. All our brands, by the way, are growing very, very nicely. I mean, you saw a very strong growth in America in the first half. Of course, some of it is also inorganic vehicle canvas, but frankly, I mean, very, very strong growth. So, yes, it's true that end of Q1, there were some questions and potential risk of... much more turbulence with some of our customers, with much more delays, et cetera, in some decisions. Clearly, when you see the level of speed where Bluebeam especially is growing, also with existing large accounts, we do not see any deceleration at all. No. And it became really a structural, as a network, a networking impact. So now we have more and more SMB also in construction in the US, which are moving to Bluebeam. We had already a majority of our customers were SMB, but here it's more and more, and that's why your web store selling Bluebeam is really growing And we have a very good partner of a revenue coming from the web at Bluebeam, which is reflecting the structural driver, the networking effect of Bluebeam and the fact that Bluebeam is now a verb in the construction industry for collaboration.

Yeah, and let me then go over to your question on the multi-year contracts impact, where you would look for that. So you can see the effect of multi-year contracts more in the contract assets that you can find on the non-financial long-term assets. So that's the better indicator to look at there. As they are not prepaid before, you know, we have the annual payment to the three-year contract. That's where you don't have the long-term deferred revenue on that one. So that would be the one to look for. And then as your question to the US dollar, well, we have a significant part of our revenues and also our cost in US dollars. So we have quite of a natural hedge, so to say, on the EVGA from it. But as a rule of thumb, you can take one cent of difference in the US dollar rate to euro would have an approximately four and a half million euro impact on the top line, of course, either direction. And that is something that you can apply to the numbers.

Great, thank you.

And the next question is from Knut Waller, Barabank. Please go ahead with your question.

Yeah, thank you for taking my questions, two, one for Yves and one for Louise. Firstly, you mentioned, Yves, that you're focusing more on larger accounts. Can you give us some color given likely longer sales cycles on larger accounts than for a traditional customer base when we should expect a tailwind from this initiative. And then secondly, a similar question to Michael. On the short-term deferred revenue momentum, we saw quite a sharp decline of nine percentage points quarter over quarter from 35 to 26. Well, I understand that currency has been more pronounced and probably plays a role here. What have been here the other drivers of this deceleration? I mean, 26 is still healthy, but still nine percentage points is quite a drop in a quarterly perspective. Thank you.

Knut, can you maybe repeat that question? We have something in the line here shortly, so we couldn't hear your question. Can you repeat the question again, please?

Sorry. The second one. The second one?

No, the second.

Second question. Okay.

Second question.

Short-term default revenue momentum decelerated by nine percentage points quarter over quarter. And I understand that the currency headwind has been more pronounced in the second quarter than in the first, probably plays a role here. But what were the other drivers of this deceleration?

Thanks, Knud. So if you look at larger accounts, the good news is that you can see the impact right now in our figures. Because remember, all larger all the large construction companies in the U.S. are Bluebeam customers, but also here, very large, multidisciplinary, large engineering firms in Europe, et cetera. So we are using these large Bluebeam customers to also upsell other products from the Nemetsche Group. And we are also now, with some of these large customers, especially the very, very big one, doing enterprise license agreements, First, we're doing it at Bluebeam level to increase the number of seats, and sometimes we're increasing very significantly the number of seats with some of these accounts. And then from there, we are moving also to a Nemetschek group level enterprise license agreement. So clearly, we see very nice momentum in this direction. It is already reflected in our H1 performance, clearly, especially in Q2, where we had some very, very strong success there.

So you are right, Knut, on the deferred revenue. Of course, yes, in Q2, we had a more adverse effect on the US dollar. So this is a strong impact what you have there. you also have some effects of the absolute, so to say, the buildup of the deferred revenues that build up by revenue, so to say, by Bluebeam at the light of their subscription move is always relatively higher. And of course, as they continue to build the relative growth isn't as high, right? So the FX is the stronger effect, so to say, that is impacting the declines, as you were mentioning. And in general, in relative terms, we see that as a more stable effect as we have moved through subscription. We have a large double-digit amount in euros, so to say, due to the FX effect in the second quarter.

Great. Thank you both very much.

and the last question is from joe george jp morgan please go ahead with your question yeah hi guys thanks very much for taking my question i just have two please um firstly are you doing anything specifically to reduce the proportion of multi-year deals within the design revenue mix and i guess what gives you the confidence that this will happen through h2 Because the option to purchase these three-year plans still appears available on the web portals of Allplan and Graphisoft. And we've had a few quarters now of these deals contributing quite meaningfully to growth. So will you just stop selling these at some point? Or how do you plan to reduce these within the mix in the near term? And then secondly, Louise, thank you for the color on the headwinds to free cash flow generation through Q2. I just wanted to clarify one point on the multi-year deals. Is the lower cash conversion here purely because of the timing issue related to the revenue recognition and the cash collection? Or have you offered any cash collection incentives or rebates to customers or anything similar in order to sign them up to these longer deals? Thank you.

Thanks, Joe. So clearly on the multi-year contract, as it is driven a lot also via some resellers, we are able also to change some of the contracts with the reseller to also change the incentivization in terms of setting a three-year contract. So that the incentive is more on one year or also, of course, on the new seats, which is even more important. And this is ongoing discussion with some of the resellers. Also, some aspect in some region, decision has been made also to reduce the number of resellers who are able to sell three-year contracts. So overall, that's also helping on the overall volume expectation of three years. These are the current actions. that Graphisoft and also Alplan are planning to do, or already started to do, end of Q2 for H2 and also beyond.

Yeah, and Jo, let me take the question on the free cash flow. So you're right in the assumption that it's coming from the EBITDA side, so it's driven by the revenue accounting, so how much we account for upfront, and we also accrue dealer commissions. over time over the contract, but there are no incentives in the cash collection. We have yearly payments and we have not done any incentive and we don't intend to do any incentive on that side either. It's purely due to the accounting effect and of course combined with the accrual of the dealer commissions.

Okay, great. Thanks very much.

If there are no further questions from the audience, I would like to hand back for the closing remarks.

Thank you and thanks 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 us. Then let's conclude our call today. Thanks again for joining. Bye bye.

Thank you very much, everyone. Have a great day.

Thank you, everyone.

Bye bye.

Bye bye.

The recording has been stopped.