Nemetschek SE (NEM) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customer's request this conference will be recorded. [Operator Instructions] I now hand you over to Stefanie Zimmermann, who will lead you through this conference. Please go ahead.

Thank you, operator. Hello, everyone, and a big welcome. Thanks for joining our earnings call today to discuss the results for the second quarter 2022 results. With me today are our CEO, Yves Padrines; and our CFOO, Axel Kaufmann. 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 record, presentation and the press release on our Investor Relations website as well. But now let's get started. I would like to turn over to Yves. Go ahead, Yves.

Thank you, Stefanie, and welcome, everyone, to our Q2 and H1 2022 earnings call. So we have prepared our usual brief and informative slide deck that our CFO, Axel Kaufmann and I would like to briefly walk you through so that we have enough time for your questions afterwards. As usual, we start with a short overview of last quarter financial highlights in this case, Q2 on Page #3. After an outstanding start to the year, we continued with our strong double-digit and profitable growth in the second quarter. Customers along the entire life cycle of buildings rely on our innovative and collaborative solution as well as our expertise to support them in their digitalization strategy. With an increase of nearly 23%, we reached a new quarterly high in revenue with EUR 204 million, in line with the last quarters, we again enjoyed a substantial FX tailwind mainly coming from the strong U.S. dollar. The main growth driver continued to be the recurring part of our business, in particular, on subscription and SaaS offerings with a plus 56% and still 48% on a currency adjusted basis in Q2. Our subscription and SaaS revenue reached a new high of EUR 47 million. As announced previously, following the COVID lockdown in Q1, we were finally able to ramp up our travel and trade fair activities again. However, despite these increased investments, we were able to maintain our EBITDA margin at a very high level of 33.6%. Our substantial growth, combined with a high efficiency culminate in earnings per share of EUR 0.40, a significant year-over-year increase of 40%. And we see, let's look at the summary of our key financial highlights for the first 6 months of the year on Slide #4. It shows a very similar picture, strong currency adjusted growth of almost 17%, mainly driven by our recurring revenues and combined with our overall proportional earnings growth at record high margins. Along with a substantial tailwind, we were able to achieve revenue of EUR 396 million, a year-over-year increase of 22% in H1. Within the recurring revenue category, our subscription and SaaS business again accounted for the majority of the growth, and Axel will talk you through the details here shortly. Last but not least, we have also further improved the quality of our balance sheet once again. Therefore, our strong operational results, along with our extremely solid balance sheet provide us with a substantial financial firepower. And issued value generating M&A and venture investment opportunities rise up in the coming months and quarters. On Page 5, I would like to share an overview of the various strategic highlights in the first half of the year 2022 in each of our 3 strategic focus area. So first, innovation and technological leadership, which have always been a core part of the Nemetschek Group's DNA. We continue to solidify our position as an innovative leader on various fronts. For example, with the introduction of our new Bluebeam Cloud offering, which we already announced that we were planning to launch this month in July. That is done. By now, we already have many different cloud features and solutions across our portfolio. For example, in the Design segment, BeamPlus with Allplan or Solibri or Beam Cloud with ArchiCAD in our Build segments with dRofus also and 123 on site from Nevaris and in the Management segment with Spacewell and DEXMA. Apart from our AI initiatives, we continue to drive our digital twin strategy, where we stand from open and data first approach. In the Media segment, we were one of the founding members of the Metaverse Standard Forum so you may have seen that in the press, but the Metaverse Standards Forum has been funded by us, but alongside all the global players such as Adobe, Epic Games, Meta, Microsoft and NVIDIA and our common goal here is to help build an open Metaverse. Second, an update on our venture investment and M&A strategy. After the 3 minority investments in young and highly innovative company we already did, we invested in SymTerra. So this startup is based in the U.K., and they offer a site communication platform that facilitates communication, collaboration and visibility across the supply chain in construction. Our clear objective is to continue and even further accelerate this approach in the future. In parallel, we were also successful in the traditional M&A field with Maxon acquisition of Pixologic, important part of our strategy, and we talked about that in our last quarter with introduction of ZBrush in the Maxon One solution. As well as a strengthening of our Design segment with DC-Software, which is a pure technology acquisition, which expands our competence in foundation engineering. Last but not least, our efforts in the field of operational excellence. Apart from the continuous progress we made in H1 on various harmonization and integration initiatives across the Group, we also set up the Engineering Alliance Europe, where our brands SCIA, FRILO and the newly acquired DC-Software combined their forces. In addition, we often talk about the close relationship we have with our customers. These are integral parts of Nemetschek's success and one of our main strengths. Due to the global COVID-19 pandemic, we had to pivot our approach to a more virtual one over the last 2 years, last -- all of us. However, no matter how well organized and executed such virtual events or meetings are, they are not a substitute to a real physical meeting where you can sit down with your customers, do demos and talk to them face-to-face. Therefore, we were very happy and we are very happy that we were finally able to participate again in person an industry first. such as leading events we had in the U.S., in U.K., in France and Germany. And in addition, we also had several brands events with a lot of people again coming back in person on site to visit our companies or brands and see the different demos and innovations. We are convinced that only a combination of both virtual events as well as in-person meetings will help us keep the close relationship with our current customers and simultaneously attract new ones. And with that, I will now hand over to Axel, who will go deeper into important aspects of our financial results.

Thank you very much, Yves. And a warm welcome to our second quarter earnings call, also from my side. On this Page #6, you'll find the development of our 4 segments during the first 6 months of the year. Starting on the left side, in our largest segment, Design, where we address architects, engineers as well as structural engineers, as Yves was saying, we were able to achieve a slight acceleration in growth in the second quarter over the first quarter. For the entire first half of the year, we achieved a reported increase of 11.5% and a currency adjusted plus of 8.4%. What is especially important and we're proud of, we were able to expand our already high level of profitability, once again by another 80 basis points. And we're very pleased to see that the very strong growth in our subscription and SaaS revenues of nearly 60%, a clearly confirmation that the segment's hybrid strategy to offer both subscription and licenses to its customers is working very well. In the Build segment, which mainly targets construction companies in the U.S., parts of Asia in the German-speaking countries in Europe, our brand Bluebeam was once again the main growth driver, supported by its increased focus on small and medium businesses, a new web store as well as its successful internationalization strategy. For the segment, this translated to a significant growth of 33.5% on a reported basis and still almost 25% at constant currencies, while the profitability stayed on a record level. We're happy to also announce and confirm, as Yves was saying that Bluebeam's long-awaited subscription transition has begun at the beginning of the third quarter, in line with our plans. Yves will provide an update and more details regarding the transition start later. Then our Media segment had a stellar first half of the year in terms of growth, 60% year-over-year, along with a massive margin expansion of 850 basis points to over 43%. Similar to the past quarters, we're now harvesting the fruits of Maxon's fundamental transformation over the last years to having become one of the leading players in the 3D animation industry. This move was further accelerated by the acquisition of Pixologic and its award-winning product, ZBrush, which once again, an improvement of our flagship product, Maxon. In the Managed segment, last not least, which accounts only for 6% of Group revenues, we saw a continuous cost investment behavior for some of our customers. While we're not satisfied with the operational performance of this segment, we were still and are convinced on the strategic rationale. We're working hard to improve the situation, and we continue to strongly believe that the promising long-term growth potential for this segment on, for example, smart building and energy solutions and contributing to initiatives such as the mentioned digital twin remain unchanged. Coming to one of the most anticipated overviews of our presentation, we prepared it on Page #6 -- 7. Yves already briefly touched on the development of our recurring revenues as one of our main growth drivers, previously. Taking a closer look now at the different components of our recurring revenue growth, it becomes clear that our segment tailored subscription strategy is particularly successful with a growth of almost 60% in the first half of this year. Furthermore, drilling a little bit deeper into the historic development of our recurring revenue category, you see that we were able to almost triple our share of subscription and SaaS revenues from coming 8% in 2019 to 23% as of today. Along with our maintenance contracts, if we add them, we were able to once again gradually increase our recurring share to a new record high of 63%. With the beginning of the subscription transition in our biggest brand, Bluebeam now, the development of the recurring part of the business will become even more important in the future. This is also why we will start to report the de facto industry standard subscription KPI, ARR with our third quarter reporting in October. And as usual, we provide an overview of our most important P&L balance sheet and cash flow positions on this Page #8. We already addressed our most important KPIs, which is revenue and EBITDA, we detailed previously, because we're now going further down the P&L, and you'll notice that our EBIT and earnings per share increased over proportionately during the first 6 months of the year. This was mainly a function of 2 factors: first, only a moderate increase in depreciation and amortization charges, including PPA as well as second, a better tax management, which led to a tax rate of just 19.2% in the first 6 months of the year. Our strong earnings growth and the increased internal efficiency are reflected throughout the entire income statement, which cumulates to a 42% increase at the earnings per share level. In addition, our high free cash flow of EUR 106 million underpins the high quality of our earnings. Last but not least, we once again improved the healthiness of our balance sheet, represented in important metrics such as the equity ratio, which increased to a record level of 53%, as well as our net cash position of EUR 70 million. And with that, let me hand back to Yves.

Thank you, Axel. So before we come to the end of our presentation with the outlook for the financial year 2022, let me give you a short update regarding the subscription transition of our brand Bluebeam. In short, even though we are only a few weeks into the transition, everything is developing as planned, and the customer feedback is positive. Slide 10 gives a detailed overview of our strategy as well as our road map for the rollout of subscription as Bluebeam in Q3. We have 2 major priorities going into the transition. Firstly, our goal is to ensure that the customer experience during the transition is as positive as possible for the small and midsized business up to the largest multinational enterprise accounts. For this purpose, we have designed a detailed phase global launch, which was kicked off in July with introduction of our subscription offerings to our largest directly managed accounts. In the middle of the quarter, we will then go to a step further and address all directly managed existing customers followed by the indirect route to market. Lastly, at the end of the quarter, so end of Q3, we have a global launch across all Bluebeam websites and web stores. In addition, and that is in contrast to some of our competition, we are adding value to our subscription offering by including aspects of the new Bluebeam Cloud to a flagship desktop product Bluebeam review in the different product tiers. And secondly, we also want to make the subscription transition for you, our shareholders as digestible as possible. That's why our multilevel subscription strategy is not only based on the phasing of the Bluebeam transition, but we also carefully choreograph which brands will transition when, across our Group portfolio. The initial feedback from our customers fully confirm our strategy so far. They love the high degree of flexibility due to the new cloud and data-centric model and are planning to roll out our solution through the remainder of the year. Also, the first discussions with our retailers are very promising and confirm that we should proceed with our plan. We will provide additional information and updates in the coming quarterly reportings that you can track the progress of the transition. And now as we come to the end of our presentation, I would like to turn to our 2022 outlook on Page 11. We fully confirm our guidance for the financial year 2022. In particular, this means that from today's perspective, we expect a revenue growth at constant currencies in the range of 12% to 14% and a target of EBITDA margin between 32% and 33%. So why do we continue to be confident we will reach our full-year targets. Please allow me to highlight only the most important points. First of all, our strong operational performance in the first 2 quarters of the year show that there is continued high demand for innovative software solution and that all of our underlying secular growth driver in both our industries, such as a low degree of digitalization and the ever-increasing demand of digital content are fully intact. Secondly, our various optimization initiatives, investments in the highly innovative start-up as well as product development show that it is Nemetschek Group ambition to not just participate in these markets, but to continue to be a market leader and to shape the industry. Lastly, our business has become much more resilient and better plannable over the last years with a rising share of recurring revenues. These trends will even accelerate with the new -- in the new few quarters and years with the start of Bluebeam subscription transition. We, therefore, continue to be optimistic and expect an attractive growth along with a high profitability in 2022. And with that said, I would like to thank you for your attention, and we are now happy to take your questions. So Operator, please, back to you.

[Operator Instructions] The first question is from George Webb of Morgan Stanley.

I've got a couple of questions to kick off with. The first is on growth in the Design segment in Q2. If I recall back, at the end of Q1, the expectation was that growth would accelerate over the coming quarters of that lower 8% constant currency ebb. And you talked about clearly better exit rates in March versus the rest of Q1. And now looking at Q2, that acceleration has come through, but it was only kind of 90 basis points, which feels a little bit light. So wondering if you can talk through what you saw in Design as you move through Q2 and how demand there is evolving? And then when you look through the rest of the year with the onset and macro, are you still expecting Design to pick up from here? And then secondly, just on costs. The cost base growth seems to be coming through now and headcount growth has started to pick up from low levels. If there is to be a tougher macro, more maybe as we enter 2023, how do you view the leanness of your cost base? Is there investment in hiring you're going to need to do regardless of whether there is overall demand patterns that start to slow? Or would you be willing to slow cost growth again if a weaker demand pattern did emerge?

And I will take your first questions. So growth on the Design division for Q2. So clearly, as we mentioned, we've seen some acceleration, and you acknowledge that, of growth in Q2 versus Q1. And I think here, there has been a higher-than-expected growth in subscription and SaaS than what we expected, which is good. Good in terms of where we want to go and the fact that our strategy to accelerate our subscription revenue, but obviously, it has had an impact on the pure revenue side this acceleration and higher-than-expected growth in subscription and SaaS in our Design segment. Then, of course, there are been weakness in pockets of growth in some European countries, clearly, due to the probably Ukrainian Russian war and some other macro elements. And this has been really in some small pockets, especially if you look at Finland, for example, or some countries adjacent to Russia. As you know, Russia, we are not doing any business since we announced it earlier this year, like most of the Western companies in any industries. So of course, it had also some impact. And -- but in general, some of the large markets in Europe, we are still seeing some good growth with a large market in Europe. It's just in some pockets that it's a little bit weaker than expected. And still very nice growth, especially in the U.S. and also internationally outside Europe on the Design segment.

Yes. Just to add on what Yves was saying, George. Thank you very much for the second part of the question regarding cost. We look at the income statement, you're right. Most of that really was driven by intent, as you were saying. So we were planning to increase staff, certainly at a slightly higher wage inflation, partially as well given the also footprint of the resources that we would have in the U.S. market, for example. But we're also investing in new developing topics, initiatives and then also functions just to prepare the company for further growth. I think it wasn't at a level where we consider it unhealthy or not under control, think of travel and trade fair activities going towards customers. And again, this is something we do by intent, and we consider this good for the business mid-and long-term, certainly, and helps us to reach out to existing customers and also to win new customers. Last not least, if you think about the margin and overall, we did have some base effect also in the second quarter of last year. Just think about the Media division, which in this first quarter was boosted by a very strong license sale in China. So overall, to your question, yes, of course, the company is -- has been shown and proven, I think, to very carefully and conservatively manage the costs overall. Looking at the income statement, the several sources where this is coming from, such as personnel, infrastructure costs or DNA from CapEx. And yes, we are prepared to carefully monitor and potentially pivot our plans here because those are all things that we have well under control.

The next question is from Sven Merkt of Barclays.

Maybe first on Bluebeam's performance, it was clearly again, very strong. And I was just wondering to what extent was this simply driven by still very strong demand? And to what extent has maybe customer brought orders forward ahead of the cloud transitions. And then maybe secondly, given the pace the approach you're taking in moving Bluebeam to SaaS, could you maybe quantify the impact on Group growth for Q3, Q4 and maybe also next year?

Thank you, Sven. So clearly, Bluebeam we had a high record of new users and new customers this quarter. This is definitely not coming because of the move to subscription. It is really -- we see this high demand and it is very good performance. So here, very, very strong momentum. I think, if you look at Bluebeam's subscription or transition, clearly, as described, we started now earlier this month, this transition, especially with a large customer. And as explained, we are doing that in a phased approach until the end of the quarter. And therefore, the real impact on the revenue on Bluebeam because of this transition will only come in Q4 and beyond.

Yes. Yes, absolutely Sven, also Axel here. I think just to confirm, I mean, as usual, you know us for not really giving guidance on just a single quarter and the tendency is exactly like Yves was outlining.

Maybe as a follow-up, given that the margins are clearly normalizing with the return of travel and event costs. To what extent have these events given your boost to growth in the quarter that might have offset some of the emerging macro weakness.

Well, tough question.

[indiscernible] the question is that if tradeshows helped on short-term sales.

If we have seen that already in the numbers.

Well, I think trade shows, it's not necessarily where you book deals when you visit customers. So it's not this type of trade shows. So it's not like it's really trade shows to really present the road maps, the innovation, do demos. Of course, this will influence seriously decision on sell. Of course, some deals were closed in tradeshows. I'm not saying that none were -- were not closed, but it's not like you're in a B2C trade fair, very different, obviously, in B2B. And so I would not say it is because of trade shows that we had a strong quarter. But that's going to help us for the future, obviously.

The next question is from Nay Naing of Berenberg.

I've got 2 questions, if I may, starting with the one on Bluebeam transition. Just wanted to clarify something about what you mentioned with regards to the cloud capabilities that are offered as part of the subscription transition. Does it -- do you operate as part of the overall transition move to subscription? Or these cloud capabilities are offered at an additional cost? And secondly, if you are able to share are there any incentive programs for the existing customers to switch to subscription?

Yes. So clearly, Bluebeam Cloud is part of our subscription strategy. So you can only have Bluebeam Cloud with a subscription package. But in Bluebeam Cloud, you have different type of features. So -- and there will be different subscription packaging in Bluebeam. So you will have a basic package, a core package and if you want, like the premium complete package. And already in the basic package, there will be Bluebeam cloud collaboration, for example, which is the new basic, if you want, cloud collaboration features for web and mobile. But then if you move to core, there will be additional cloud features such as workflow management, geo-local national insights and more things. And then, of course, when you move to the complete even more complete type of feature set. So you add new cloud solutions. But the message is that as soon as you move to subscription, you de facto get the basic Bluebeam Cloud collaboration features for web and mobile.

And then on the second question, if you are able to share any incentive program that you have in place or will implement going forward for existing customers would be helpful.

Nay, can you repeat -- I'm sorry, that wasn't getting across…

I was asking if there are any incentive programs that you have implemented to date or will implement going forward for the existing customers to encourage them to move on to -- to the subscription model.

Yes, there are many, many programs such as discounts, for example, to have them to move to subscriptions, et cetera. So yes, this is ongoing.

And you wouldn’t be able to share a broad range of the discount level that you're offering, would you?

No.

The next question is from Knut Woller of Baader Bank.

Three questions. The first one, a quick follow-up regarding the headcount. I mean, in H1, despite the pickup in Q2, it was still well below revenue growth. So what kind of exit rate should we expect for headcount in 2022? Then secondly, on the cash flow, it ended a bit weaker than I would have expected in the second quarter. Is that reflecting a strong quarter end business? That's the second question. And then lastly, on M&A. If you alluded on that already from a qualitative perspective, -- here a couple of questions. First, do you see already now also in the private sector that we expected purchase price expectations are coming down? And then secondly, what kind of acquisitions you're looking for? Is it something like an add-on functionality like in the past, rather smaller acquisitions? Or should we also expect that you're looking for acquisitions like Bluebeam, which have been a bit larger and more transformational for the business than the smaller ones.

Yes. Thank you, Knut. If we understood you correctly, so your question is on the headcount and then where we have been in first quarter and then second quarter, accelerating a little bit hiring. And then what's the outlook I mean I think going back to what George asked in the first question, we -- we have our own plans currently, which we will not disclose in this call. But of course, we'll be doing everything to just monitor the environment and carefully also manage costs. So I don't think it would be prudent to give an exit or hiring net-net amount here for head count. Similar to the, I think, quarter-end question, if I understood you correctly, in terms of also the cost levels and the margins and the impact how the business was going throughout the second quarter, I think what Yves mentioned is very important that acceleration, especially in the Design segment for subscription, the portion in the business there. That wasn't a particular thing of just 1 month within the quarter. That was really a red line throughout the entire quarter. And that has impacted probably the quarter in average to a similar degree. Would we have not had done that, you're currently looking at a double-digit growth in the Design segment there as well. Again, strategically important and positive for us to note that the subscription share was driven up.

And then on the M&A topic. So clearly, this is still and remaining the biggest part of the DNA also of the growth of the company in addition to organic growth. So -- and when you look at the private sector, well, yes, we can see that valuation are somehow coming down, obviously, not everywhere. Some company people are still having a very high expectation. But of course, it is lower than in the past, which means that it's becoming more and more interesting for us and other strategic buyer to enter the M&A market more aggressively for the next few quarters. And the type of company that we are looking at, again are very different and also our strategy and what we are looking at are either to complement our solution, so the add-on aspect. But also, we could also potentially look at adjacent type of business, which could be a little bit bigger type of businesses. So we are looking at different sizes. And -- but also what is important is that in our year investment strategy is purely also from an innovation point of view, the venture aspect is very key to invest in start-ups, and this is also something you will see us accelerating in the coming quarters.

Just to add on the cash flow -- yes.

Sorry, was it -- thanks Axel.

Yes.

I want to go there, not forgotten, don't worry. Sorry. So cash flow, your question on why this turned out to be a bit lower for the second quarter as well as in the first half. Main reason for this really are some prepayments we had to make in regards to the U.S. tax and some changes in the legislation and really legal changes in the U.S. tax laws there, which is no problem in such a way that they will reverse in the coming years. So it's kind of a prepayment, we would have stretched them otherwise over the next year. So that's in for the moment and will rather help us then going forward. That's the main reason for the slightly lower cash flow in terms of cash conversion. But again, also paying out some bonuses there, for example, in the first half, that all came together. So a couple of things. But main reason was the tax element.

The next question is from Andreas Wolf of Warburg Research.

Congratulations on the quarter. A question regarding H2. It seems like your guidance, which you have maintained has some buffer for H2, apart from the macro headwind that is obviously out there. Is there anything else that we should consider? Obviously, the Bluebeam transition subscription will be more obvious or we will surface in Q4. Anything apart from that that we should be aware of? And then the second question is on the rise in interest rates. So this might slow down construction activity. Would you expect slower construction activity to also influence your business? Or what's your view on the development and the indirect effects for your business? And then the third question would be on hiring. Obviously, some tech companies in the Silicon Valley have announced to hire, a slower pace or even lay off people? Does this help you to hire staff? Or is the profile different from what you need for Nemetschek.

Thank you, Andreas. So first of all, on H2. Now clearly, the main aspect of why we confirm our current guidance. And we strongly believe in your current guidance. So I'm highly optimistic about our current guidance, is clearly the Bluebeam subscription, which will have some impact in Q3, but the main impact obviously will come in Q4 and beyond. So then economical headwinds, we'll see. Of course, nobody can be completely immune from a strong economical downturn. But we strongly believe we can be much more resilient than others. And this is why coming to your second question, raise of interest rates or even to interest rates impact on the construction industry. Again, look, the construction industry has 3 main challenges. The first one is that 90% of projects are over time and over budget. The second is that 40% of the CO2 emission globally is coming from the construction industry. And the third challenge is the fact that between 10% to 20% even now of material used in a construction projects are wasted, which obviously is a huge problem with all the material shortage that you have currently and also all the material cost increase. So because of these 3 main challenges, there is a need for the construction industry to accelerate digitalization, which, as you know, is still very, very low. They need to accelerate digitalization to be on time, to save costs. If you look at construction company, the margin average is on a project is 5%. So incidentally, they are not able to continue to manage probably their costs and with all the price increase, et cetera, on the materials, which, by the way, we have seen being a little bit more stabilized. It is material price increase recently in some markets. Still, they need to do something and digitalization. So really streamlining the workflow, working better on collaboration is helping them to face all these challenges. But then also, they need technology to really see on the energy savings, CO2 emission aspect. This is also thanks to the utilization, why they can manage better all of that. And when I say they, it's in the overall value chain and in the overall building life cycle, all the players from Build to Construct up to Operate and Manage are focusing on that. And when you look at what happened during the pandemic, COVID-19, I mean, clearly, we have seen an acceleration of 3 years of digitalization in the construction industry, which means that even if there is a strong economical downturn, I strongly believe -- we strongly believe that we will still see some nice growth of digitalization and software because. Again, as an example, I'm an architect. Well, if I do one house or 10 house in the month, I will still need my 3D modeling software coming from Nemetschek. It's not -- our business is not depending on their revenue and on the number of their projects. So there will be still demand, and some of this company will probably even have more time to think about their digitalization strategy. And then on the hiring side, well, the good news, and there are multiple factors, I think, for which is that, yes, Q1 was more difficult than anticipated to hire, like everybody in our software industry, but like frankly, in any industry, hiring has been difficult, still difficult. But Q2, it's true that we have seen better momentum. We hired quite a lot of people, and we had a nice net increase of employees in the first half. And it's true that 2 factors. You have some of the big guys who are a little bit decelerating the hiring process, good news because we are hiring more or less same type of profile when you're looking for a software developer. And the other good news is that on the start-up side, some people -- well, there have been, as you know, a lot of -- and there will still be some cost cutting in the venture and start-up aspect. And therefore, some people are a little bit more prudent and they may prefer to go in a more mature business than jumping in a start-up mode. I don't know if these are the 2 main reasons why we are able to hire better. I think we also build on our plan and the strategy, combining effort between all our brands and being more active and aggressive on our recruitment strategy and to really attract people, which is one of the #1 priority within the Group. But so far, this is working and we are seeing some positive results so that we are able to hire again in a positive way.

The next question is from Martin Jungfleisch of BNP Paribas.

Just 2 questions from my side, please. The first one is on the performance in Germany. Yes, revenues, they were only up by 7% in the first half, and I think organically probably a bit less. What has driven this? And has this slowdown mainly occurred in the second quarter? And would you expect a further weakening in the second half of this year there? Or have you already seen some stabilization. The second question is on Bluebeam, the subscription transition. Can you comment a bit on pricing of the subscription offer compared to your current license offering. So essentially, what on average on a 3-year basis, you would expect from a new subscription customer compared to the existing license offering.

So on your second question, so on the first quarter, and then a little bit more of 7% after, yes it's a stable development. And then on Germany, so yes, so your question was -- I mean, we see still strong demand in the German market. I think we have seen some of our brands having very, very nice big double-digit growth, some of our large brands. One or a couple of orders had more difficulties than expected, which is not due to the economical aspect or macro or the product, but which was more internal issues that we need to fix, and we are fixing them. So Germany, frankly, in terms of market, we see still a high demand, still positive about it, also on the Design segment, still nice growth coming up also this quarter. Could you please repeat your question regarding Bluebeam, we had the -- some bad connection, yes.

Yes, of course. So yes, just on the transition on the pricing, if you can comment it, on an average on a 3-year basis, you would expect from a new subscription customer compared to the existing license offering, if there's an indirect price increase?

Yes. I think as we mentioned, I think, last quarter, so we are planning to have breakeven in 2.5, 3 years, something like that, depending on which packet they use.

The next question is from Victor Cheng of Bank of America.

Just 2 if I may. And first of all, on Design, given the segment's higher license mix, should we expect growth to be slower in H2 given the macro backdrop? Or is that also why you see higher subscription transition as customers look to soften the upfront cost? So how should we think about extra growth in Design? And then secondly, on Media segment, understandably, there has been some one-off proof over the effects in China in Q1. And I remember last quarter, you mentioned full year is definitely below 50% growth. Just wanted to double check whether that is in constant currencies? And is that still your expectation of below 50% growth given Q2 is still very strong.

Yes. So regarding Design in H2, I mean, we do not see any downside coming. So still a strong momentum. We still see nice opportunities. When you look at the pipeline, when you look at even the last few weeks of the quarter, so very positive. Now why they are moving more to subscription, I think there are different reasons. Some of what did customers -- first of all, some of our brands in Design are pushing a strategy, which is to influence more subscription. So there was really a push in terms of marketing, in terms of pricing wise. So we have really the strategy overall, as you know, to migrate and really to accelerate the move to subscription revenue. And then yes, of course, there are some customers, where because potentially of the economical downturn, it's easier for them financially to go with a subscription model than a perpetual license. To answer your second question on Maxon, so on Media. So as you know, yes, beginning of the year, there has been an acceleration of perpetual license sale because we announced in China that we will stop perpetual and move to subscription. Now China in Q2 was not as great as expected because, as you may also know, in China, due to COVID-19, there has been some lockdown of some cities such as Shanghai and others. But overall, if you look at Maxon, I think there will be still, especially on the pure ARR front, very good growth and very good momentum. And if you look then at the second half, it's clearly above the 30% in constant currency.

The next question is from Chandra Sriraman of Stifel.

Just a couple of questions from my side. Just firstly, on the pace of Bluebeam transition, I just want to clarify that by the second half of next year, all your customers will be on subscriptions. New customers are already being asked to move to subscriptions now and by the second half of next year, even existing customers will move. And just a follow-up on the same thing. Would you see this -- the current macro environment as a catalyst to accelerate other solutions to subscriptions as well? Or are you going to let customers decide the pace of this?

Clearly, first on Bluebeam, you're right. I mean we are planning now by the end of Q3 to have its full launch for all or the type of customers from the large one to the smaller one from the direct one to the indirect one. Therefore, as we say, we will give kind of 12 months to some of our large customer, in particular, to still have a chance to buy perpetual. But that means that it's more by the end of Q3 next year that they will have -- they will need to -- they will not have choice anymore. So that it's going to be only subscription by the beginning of Q4, if you want or sometime in Q3 for some of them and for sure in Q4 next year. So that they will have no choice and subscription will be somehow mandatory. Talking about some other brands, we are currently looking at the phasing of some other brands with the move to subscription with some acceleration of subscription with some brands. We will clearly not say that, okay, we will mandate subscription because it's also the strategy of some of our brands, in particular in Design to still keep a hybrid model with perpetual license and also subscription. But in some cases, we may want to accelerate that, and this is something that we are currently evaluating very seriously.

The next question is from Mohammed Moawalla of Goldman Sachs.

I had 2 questions. Firstly, you mentioned pockets of weakness around sort of Eastern Europe and parts of Germany. To what extent is your guidance derisked, particularly at the lower end for any further deterioration of macro in the second half? Do you think you can still hit the lower end of that if some of those Western markets start to deteriorate? And then secondly, the Bluebeam transition has been sort of pushed, I guess, now for several quarters. Are we at the kind of point of no return now in Q4 that there's no further delay? And you're going to go kind of full tilt with the transition with your customers? And then on -- similarly on Design, I guess, can you help us understand relative cyclicality of the Design segment perhaps this time around versus prior cycles, where obviously, we've seen much deeper cyclicality. I know there's the whole digitization and some of the structural drivers. But is there something in the portfolio in terms of different price points, which would make it perhaps less cyclical in the past?

Sure. Now first of all, to answer your question on Bluebeam, there is no delay from what we discussed earlier this year. So we always say that we will launch and move to subscription in Q3, which is what we have done. We started the migration early July. It's on track. There is absolutely no delay here. We are doing it in a phased approach within Q3, by the end of Q3, the full thing. So there is definitely no delay compared to the plan that we indicated earlier this year and what I communicated and we discussed in our last earnings call. Then if you look at Europe and the different pockets, as I said, Germany is strong, as a macro, as an economy for us in terms of the business that we are seeing, we see strong momentum. The pipeline is here. We have some nice growth. It's true that there are some markets, which are smaller, okay, smaller markets, smaller countries, therefore, smaller revenue potential also anyway or planned for us in Eastern Europe, which are more impacted. Are they going to be more impacted in H2 than in H1, Maybe, maybe not. But I don't think that's going to be a needle mover in one way or another -- anyway with our current guidance. So we are quite secure, I think, with a -- and strong with the current guidance that we are announcing. So then on the Design side, I mean the fact that we are moving more to a recurring model, which means that we are more, we have much more visibility and are able to forecast in a much better way than in the past. So it is clearly a less cyclic business than it used to be, thanks to these recurring aspect of the business and the move to subscription.

So you feel that the lower end of your guidance for 2022 would capture any further sort of macro risk…

Definitely, definitely. We are highly confident in our current guidance, very highly confident. Now of course, if there is a strong economical downturn, nobody can be immune. But so far, with what we know and the current potential smaller risk that we could see in H2, we are very strong, highly strong with our guidance.

As there are no further questions, I hand back to the speakers.

So thank you all for listening. And if you have follow-up questions, so Patrick and myself are always available. Just give us a call. And otherwise, let's talk next quarter. So happy to get your questions in after the first quarter. Thank you very much again for listening, and have a lovely day.

Thank you, everyone. Thank you. Have a nice day.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.