Nemetschek SE (NEM) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customer's request, the conference will be recorded. [Operator Instructions] May I now hand over to Stefanie Zimmermann, Vice President of Investor Relations, 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 fiscal year 2022 and the outlook with us. I'm very pleased that in addition to our CEO, Yves Padrines; our new CFO, Louise Ofverstrom is also on the call. 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 presentation in our annual report, the press release, but also our CSR report and the remuneration report on our Investor Relations website as well. In addition to the figures and the strategic highlights in 2022, we will give you an update on our subscription and SaaS road map and, of course, on our outlook for 2023 and our growth ambition for the future. But now let's get started. So I'd like to hand over to our CEO, Yves. Go ahead, Yves.

Thank you, Stefanie. Welcome, everyone, to our full year 2022 earnings call. And I'm also delighted to have our new CFO, Louise Ofverstrom with me today. She joined the Nemecek Group at the beginning of this year, and I'm very happy to have her on board and part of the Nemetschek Group. With our vast experience, expertise and competencies in the areas of finance and operational excellence, is a great addition to our Executive Board. Now coming to our presentation. As usual, we have prepared a slide deck that we would like to briefly walk you through so that Louise and I have enough time to your question afterwards. As you can see, we have a few topics today that we would like to talk about. After a short recap of the financial year 2022, we will look at the good progress we have already made in our migration to a subscription and SaaS centric business model and give an update on the recently launched Bluebeam [ foundation ]. Last but not least, we will also talk about our financial outlook for the current fiscal year 2023 as well as our ambition for the years 2024 and 2025. To begin with, let me summarize the past fiscal year 2022 in a few key messages on Page #3. I believe we can be proud of our performance over the course of the last year. We have once again delivered record results, even with more hesitation in design markets in Europe due to the higher interest rate as well as restore against Ukraine and despite also the part of the subscription and SaaS migration of our largest brand, Bluebeam. This thanks to the strong foundation of the Nemetschek Group, with a huge market opportunities in our two end markets, so in AECO as well as media Entertainment, we both enjoy a parity of structural growth drivers we are well positioned to further growth and continued value generation for our shareholders. Our transition to subscription and SaaS model will only further increase our visibility, results resilience, and profitability even further. And I believe it's fair to say that we are only very few companies that we are able to show attractive top line growth combined with the high profitability while transitioning their business to a subscription SaaS-centric business model. If we look a bit further into the future, you will see with our ambitions for 2024 and 2025, while we are doing these entire subscription and SaaS transition, we are confident that we will be able to deliver very strong and above market growth rates in the mid- to long term. And with that, let us take a look at the review of the past fiscal year 2022. On Page #4, you can see an overview of our five strategic focus areas. In line with our strategy, we accelerated our transition to subscription and SaaS-centric business model. As you know, mid last year, we successfully started the migration of Bluebeam, the launch of our Bluebeam cloud solutions. We also made progress in other segments, for example, by now having a year subscription plan for each of our design brands or by migrating the last [indiscernible] market, which is China in media beginning of last year. As a result, we were, once again, able to substantially increase the share of subscription and SaaS revenues, We will talk about it in more detail in few minutes. Over the last year, we also improved our go-to-market strategy by upgrading our e-commerce presence, for example, such as -- or brand [indiscernible] or in case of Maxon, whereby now the majority of the revenue is generated via the web store. Our ongoing internalization [ efforts resulted ] in an increased share of revenue that was generated outside of Germany with 79% in 2022 versus 76% in 2021. Going forward, our goal is to further reduce the dependency on the European market by continuing to focus on the higher growth regions, North America and Asia Pacific. Innovation and technological leadership have always been a core part of the Nemetschek Group DNA. In 2022, we solidified our position as an innovative leader, once again, on various fronts. For example, in the field of DIGITAL TWIN or with the continued improvement of our best-in-class flagship products, Maxon One, in our Media segment. Apart from the normal numerous updates and upgrades, new features and product improvements we published every year across our portfolio, we also launched new and innovative cloud offering, such as Bluebeam Cloud or SOLIBRI inside end of last year. Another way to be at the part of the latest technological developments and trends in our industry is via our venture investment strategy. Over the last year, we made minority investments in a series of young and highly innovative companies from Europe and in the U.S., such as MAXON which is focusing on Digital Twins for property development, SymTerra, a U.K.-based startup that developed a construction site communication platform or end of last year, KEWAZO, which is a robotic solution that enables automation and digitalization of off-site material flows. These companies will help us to further increase our innovative strength and to cover important future topics. However, we were also successful in the traditional M&A field. Media further strengthens its position by acquiring Pixologic a leading provider of 3D sculpting and painting software with its product, ZBrush, which perfectly complements Maxon existing product portfolio. Lastly, we continue to harmonize our structure and to reduce complexity in order to increase our operational excellence and lay the foundation for our future growth. And with that, I would like to hand over to our new CFO, Louise Ofverstrom, who will introduce herself and will talk you through our 2022 financial highlights.

Thank you very much, Yves, and a warm welcome to all of you to our full fiscal year 2022 earnings call from my side as well. As we said, this is my first earnings call for the Nemetschek Group. That takes very great to introduce myself. I've been working with strategic climate transformation for german multinationals different aspects in different [indiscernible], my whole working life and I'm now very glad to have joined this great company with an invested cost and a very exciting future. And I'm really, really looking forward to continue this interesting journey together with Nemetschek, And one of the reasons I chose to join in this group is that so to say that all megatrends and the fundamentals are really being in favor of Nemecek fantastic growth journey. So my priority is and will be to enable a strong basis to capture this growth and also to enable the termination of our business model, but also to remain financially flexible in order to make that happen in a faster manner. But with that, Now let us come to the financial review of the fiscal year 2022. Let me begin with a short overview of the last quarter of 2022 on Page 6. I would like to start with our recently introduced ARR KPI. Since we believe that this is the best indicator of our underlying business performance as well as our future growth, especially during our transformation to subscription and SaaS business model. The ARR grew again over proportionately and continue to be on a high level with 27% to EUR 582 million. And as we expected subscription and SaaS revenue were, once, again the main growth driver with a cap of 47%. Our reported revenue in Q4 2022 increased by 8% year-over-year, and we should be mindful here that this quarter was also impacted by Bluebeam confirmation to SaaS core subscription . And we continue to benefit also from FX tailwind of 410 basis points during the quarter. The EBITDA in Q4 was impacted by different factors. First and foremost, we were, of course, missing the full profit contribution of one of the most profitable banks [indiscernible]. As I just said, due to the deferred character of the subscription and SaaS revenue And we definitely started the subscription transition at the end of Q3. This was, of course, missing in contribution. In addition, we continue to invest in key resources such [ MGE ] Here, we see opportunity of slightly less competition during Q4 because we know that the labor market growth is impacted there. So we continue to hire where we saw an opportunity to gain the lease of that we need for growth. Our earnings per share decreased accordingly in Q4. However, I think it's really worth highlighting here that if we exclude the PPA charges, our earnings per share would have been flat on a year-over-year basis. So with that, on the next page, Page 7, will show a summary of our key financials indicated and highlighted for the full fiscal year 2022. I will not read them all out to you, but to summarize 2022, I think it's really fair to say that the Nemetschek group had another very successful year despite an increasingly challenging market environment, and we were successful, thanks to our high share of recurring revenues as well as a very impact structural long-term growth drivers in our end markets. Our revenues increased by almost 18% to EUR 802 million, and this was helped especially by the strong performances of our Build and Media segment, which grew by 24% and 49%, respectively. We will look here for the full year, enjoyed a substantial FX tailwind, mainly stemming from the strong U.S. dollar, 560 basis points recorded. The main contributor to our sizable growth was, once again, the recurring part of our business, which reached almost EUR 533 million. That's an increase of 28% and was mainly driven by a subscription growth of 55%. Both figures marked a new record for Nemetschek on a yearly basis, and they both underlines the consistent strategy execution. In line with our high top line growth, our earnings showed a very redevelopment as well with an EBITDA of EUR 257 million for the year. That's an increase of 16% year-on-year and corresponds to margin of 32%. Last but not least, this strong operational development, combined with our very solid balance sheet, enables us to propose an attractive dividend per share of EUR 0.45, a year-over-year increase of a near 16%, and that's the tenth consecutive increase in the road. So to go further on Page 8, you will see the development of all four segments for the fiscal year 2022. Starting on the left, the Design segment recorded an increase in revenues of almost 10%, [indiscernible] on a currency-neutral basis. An additional dimension here that the slowdown that we saw in Q4 to only 4.7% year-on-year was a cost from the slightly hesitant and cautious customer behavior and for long sale cycles in Europe also impacted by a challenging comparison date [indiscernible] for was almost twice the time in Q3. So the two effects that we need to consider this. We are very pleased to notice though that our subscription in SaaS revenue in the design segment as well, continued a strong growth trajectory with 51% year-on-year for the full year. While this continues to have a short-term negative effect on growth, you know the deferred character of the revenue, it is, of course, positive for the segment's future growth and margin prospects and in line with our strategy. Going further to the Build segment, once again, in 2022 for this segment was one of the main growth drivers of the Limited Group with an increase in revenues of 24% (sic) [ 24.1% ]. This development is particularly impressive, I think, It is Nemetschek largest contributor Bluebeam already started its transition to a subscription and SaaS model [ as elevation ] at the end of the third quarter 2022. So although the profitability decreased somewhat due to the missing revenue [ deferred tariff of revenues ] because of the transition, the EBITDA margin stayed on a comparably high level. Our Media segment, once again, [ had an excellent year ] in terms of growth, 49% year-on-year as well as the profitability with a record margin of 43.8%, and apart from the strong organic growth behind this, the segment also benefited from the acquisition of Pixologic. So as you can see, we're continuing to benefit of Maxon fundamental transformation over the last year and an excellent market position in the media industry. And with this recent addition of Pixologic as well as the continued improvement of the Maxon One flagship product, we are very preparing these segments for the next above-group average growth space that we will also see in the coming years. And last but not least, in our [ smaller ] segments MANAGE with salty effects due to the global COVID pandemic 2022. That was also partly in by continued somewhat cautious investment behavior of some customer group. While we are certainly not satisfied with the current performance of this segment, we are simountesly in the process of reshaping the MANAGE segment in order to set for high possibility in the future. For example, we have also brought a new management and reshaping due to that. And in additional we also created a new digital [indiscernible] business unit in order to take maximum advantage of the enormous growth potential that we see in this segment in the future. Let's move on to Page 9. As you all know, one of our main strategic priorities, I was mentioning already, and is also always a very important point in our journey to work the subscription and SaaS-centric business model. It is a key strategic priority. And as you can see on the right side, we are once again very successful in our efforts and reported an overproportionate growth across all KPIs for the recurring business during 2022. Starting with one of our most important KPIs going forward, I mentioned it, the annual recurring revenue, ARR, that we introduced during Q3 2022. We can see that the ARR clearly grew over proportionately with 22% of our currency adjusted basis and 27% on a reported basis. This is a very strong indicator for us that the continued high growth potential of our business in the next time, the next 12 months will continue. A reminder, according to our [ reconnection ], ARR includes all of our different recurring revenue streams with subscription and staff as well as making these contracts in this KPI. That means that if we would strip out the maintenance contract, the ARR growth in 2022 would have been substantially higher. This can also be seen when we look at the development for our subscription and SaaS revenue in Q4 as well as for the entire year 2022, which grew by 47% and 55%, respectively. So this is almost, again, double the peak of our overall recurring revenue. So as we expected, with the stop of the license sales for new customers Bluebeam as well as the ever-increasing share of our customers that our subscription offering the client segment our license revenue sales steeping in Q4, but almost 30% as expected. On the left-hand side, you can see the result of the high growth in our recurring part of our business, which translates to increase of the share of subscription and SaaS revenues are more than 600 basis points year-over-year to now 25%. The total share of our recurring revenue subscription and SaaS that is along with our maintenance contracts, now upon 2/3 of our total revenues. That's a new record for the Nemetschek. With the successfully started transition of Bluebeam that is our biggest brand, the share of recurring revenues will continue to substantially increase in the coming quarters and year. If you go head to Page 10. We have also provided a more comprehensive overview of our most important operational results. I have already addressed our most important KPIs, revenue growth, ARR and EBITDA. So when we take a closer look, you see that as one also would expect, for example, people are on great confidence of the company, and therefore, personnel costs account for a large part of our cost base. We had around 15% of increase in the personnel cost base, which we content a main driver of the [indiscernible] cost base in 2022. And this is due to decelerated hiring in the first 9 months of the year, but we also do in order to the growth that we see ahead, but it's all the result of the much higher rates that we have been rewarding for our existing staff in order to keep up the top talent in the group. I want to use this section also to highlight that in the light of the uncertain global macro economic [indiscernible] that we do see out there, we have already adjusted our hiring pace accordingly, and we -- and always ensure that our OpEx base will increase at the [indiscernible] rate in 2023 and beyond. So if we go there quickly the P&L, you noticed that our earnings per share increased somewhat on proportionate to 2022 as well. This proportional growth is mainly a function of two factors. First, only a moderately increase in depreciation charges; and the second, we had a lower tax rate compared to last year. I would also like to draw your attention shortly to some of the numbers that we haven't touched on so far during the call. So for example, the free cash flow that is also important CPI to us. We reported free cash flow excluding M&A shows a decline of 5.9% versus last year. You can ask itself why. This is mainly a function of the onetime tax prepayments we saw in the U.S. and Australia. So if you would adjust for this export we will consider increasing our free cash flow that as well in line with our EBITDA growth. And that should also show and misunderstand the very high quality of our earnings. Last but not least, we also, once again, improve the quality of our balance sheet and represented an important figures such as the equity ratio you can see it so now at almost 58% as well as the net cash position of around EUR 125 million. So therefore, with strong underlying earnings and cash flow development and now with our extremely solid balance sheet provides not only with a degree of safety going forward during this time. But simultaneously, it enables us to effectively should value-generating M&A targets and let investment opportunities emerge in the upcoming months and quarter. I think that is all till date. And with that, I'll hand it back to you.

Thank you, Louise. I would like now to give you an update on our subscription SaaS transition or move to a more recurring and resilient business model is a key strategic priority for me as well as the entire leadership team of Nemetschek. Starting with a bigger picture on Slide 12. As you all know, Nemetschek grew quite unique in a way that we do not transition our entire portfolio to a subscription-centric model all at one. One of the advantages of all this centralized setup is that we can migrate our portfolio in a phased approach. This does not only give us more control over the this entire transition process are significantly reducing the associated risk. It also makes the migration more easily digestible for shareholders. Furthermore, it allows us to have a tailored subscription strategy for each of our segments. Consequently, each of our four segments is at a different stage. While the integration of our Media segment is almost completed, the Build segment just started its condition with the launch of Bluebeam Cloud in Q3 last year. You can see how the different strategies translate into the development of the revenue split of the entire Nemetschek Group on the right-hand side. In short, you will see a big improvement in the composition of our revenue base in the next 3 years, as you can see in the chart, the vast majority of our revenue will not only be recurring, but also subscription and SaaS base by 2025. This will not only make our business better plannable and more resilient, it will also substantially increase our cross and cost-selling opportunities. However, more detail about our ambitions for the coming year will follow later. But first, as we promised, we want to keep you updated on the progress of the [indiscernible] most prominent because definitely most important subscription and SaaS transition within the group, the Bluebeam transition. So moving to Page #13. As Bluebeam is our largest brand within the group, is the first, and I will argue also the only time during COVID transition that we see a material impact at group level due to the transition of a single brand. In short, we are happy to report that moving transitions when exactly according to our plan in the first 2 quarters. By the end of 2022, we converted roughly 10% of Bluebeam customers. And as of today, this number is even closer to 20%. This progress and good progress gives us a great deal of confidence that we will be able to achieve our goal of retreating more than 90% of Bluebeam customers to the new subscription package by the end of 2024. The current pace of migration should even accelerate in the coming quarters due to various plan initiatives and also the end of the option of buying licenses for existing customers. The customer feedback also continues to very encouraging and seems that our customers will see the additional value of the Bluebeam Cloud features. Indeed, our core and complete packages, which is our mid- and high-tier premium packages account for the majority of the new subscription sales. If we look at our existing customer base, we observe a similar behavior. The majority of additional fees are purchased in the form of subscription. Going forward, we will further intensify our efforts to migrate our existing cost program. So to summarize, the current state of Bluebeam transition, everything is going according to our internal planning, and we continue to be very confident that the transition will be a success. Before we come to our guidance for the current fiscal year 2023 as well as our midterm ambition, please allow me to first highlight the different building blocks that give us confidence to achieve our guidance, once again, not only in 2023, but also in the coming years. So starting on Page 15. First of all, let me, once again, highlight the massive market opportunity that still lays ahead of us in the coming years and even decades in both our markets, the AECO as well as Media & Entertainment. Taken together, these two markets represent a combined TAM of more than EUR 50 billion. And the beauty of this market is that they are constantly growing by more than 10% each year, driven by various long-term structural growth drivers such as, obviously, a very low degree of digitalization green building as well as the regulation in the AECO industry or the ever increasing demand for digital content creation and 3D animation or gaming in the media and entertainment space. Structural growth drivers are not just still intact. They are becoming increasingly important in the current environment and in the future. That is why we are confident that potential short-term pickup, for example, in the global construction market, will not affect our ability to grow in the mid- to long term. With the next slide, the recent discussion about the potential downturn of a global economy as well as a multiple crisis and geopolitical tensions over the last year have shown that it is more important than ever to have a well-diversified business model. While Nemetschek will not be immune in the case of a global recession, I would still like to use this opportunity to highlight how well diversified and thus resilient our business has become over the last years. Starting with the chart at the top, in the COVID year, 2020, we have already shown that our AECO segments are affected by deteriorating market conditions at different points in time. This helps us to better manage a potential downturn across our portfolio. In addition, you see that we have become substantially less dependent on a single customer group or segments. In this case design, which today accounts for only 49% of our total revenue versus 66% of our total revenue in 2017. And lastly, with a higher share of our major segment, we have increased exposure to our industry with a completely independent business cycle versus the construction industry. The increased share of Build and Media, along with our successful internationalization strategy also resulted in a better diversified geographic exposure. We are less dependent on a single country or region, which was also one of the reasons that helped us to achieve our strong growth in 2022, even despite softer design market growth in Germany and Europe. In this call, we have already discussed the perhaps most important development in recent years, the strong increase in the share of our recurring revenues. Along with our high customer retention rate, this revenue provides a more stable and better plannable revenue stream even during more challenging economic conditions. So now coming to the end of the presentation on Page #17. After our successful year 2022, we will continue to lay the important foundation for the future dynamic growth of the Nemetschek Group in 2023. We will remain focused on innovation leadership, our sales strength, our customer proximity as well as targeted investments in startups and also in innovative companies with M&A. Based on our strong fundamentals, we expect an attractive growth at the high profitability in '23 as well. So even despite easier accelerated subscription SaaS condition of our business model. In particular, that means that from today's perspective, the Executive Board expects an ARR growth of more than 25% in 2023. As a result, the share of recurring revenue is expected to exceed 75% at the end of this year. In addition, the revenue growth at constant currencies is expected to be in the range of 4% to 6% and the EBITDA margin will be in the range of 28% to 30%. For 2024, we already expect our growth to return to double-digit percentage range, while the EBITDA margin will be at a level of more than 30%. Due to the significantly over-proportional increase in subscription and SaaS revenue, we expect that the recurring part of our business will represent over 85% of Nemetschek total revenue. Following the successful transition of the majority of our business to subscription SaaS model by 2025, we expect a further acceleration of growth to a range that is at least in the mid-teens, so significantly above the market. I believe that with our ambitious short and midterm goals, we provide a clear picture for investors to look beyond the current transition and to see the final results, a stronger, more dynamic and resilient Nemetschek Group than ever before. And with that, I would like to thank you for your patience, and we are now happy to take your questions. So operator, please, back to you.

[Operator Instructions] And the first question comes from Sven Merkt from Barclays.

First, on the comment that you expect to grow significantly ahead of the market in 2025. Is this primarily due to the mechanical tailwind of the transition? Or do you also expect to gain more market share? And maybe more generally, can you comment if and where you see the scope to take market share? Is it perhaps some weaker competitors or higher-priced solutions? And then secondly, on the 2023 margin guidance, it looks like the incremental investments compared to Q4 are very limited. And therefore, the question, if you have a very high confidence on the top line acceleration over the coming 2 years, why have you decided to constrain cost growth this year so much?

Sven, thanks for your question. So first of all, regarding the growth in 2025. So in our forecasting exercise and in the guidance that we are giving now for ambition for 2024 and 2025, we are not expecting that suddenly the market will change dramatically and that there will be huge growth or further accelerated growth of the market. So we are expecting the market to be at ease with no big difference as we are today. So clearly, for 2025, the growth part is coming through the fact -- of course, the big effect of the fact that majority of our business have been transformed and transitioned to subscription. So clearly, the subscription effect is one of the major part of the nice growth in 2025. Obviously, we have some very good also organic growth coming from the market growth in general. So -- and here, we are not expecting to suddenly gain or win and again, a lot of market share from competition in these numbers. We are not expecting that certainly one of our large competitors would collapse and that we are going to eat their cakes massively. It's just the fact that the cake is going to grow so much that there is room for us and other players as we grow. And we believe that we will, as always, be above market growth and saturation of the growth is definitely coming mainly from the subscription model.

Let me take the second question regarding the -- how much we invest and how much we are costing in '23. We do set for growth that you can see in our guidance as well. I think it's fair to say that it's a volatile environment right now. And as always, we will steer our cost and our investments to set in line with our revenue growth and our strategic priorities. So it's not that we're investing that, it is that we are steering that in the direction of how we see that the markets are going. So it should not be seen as a [ dichotomy ] from that perspective.

Okay. Great. And one follow-up question. The construction market will likely look quite different in the coming years, just given that we now are in a higher rate environment. Are there any initiatives you consider to maybe slightly differently position the group, your investments or product focus, maybe to focus a bit more on the public sector or any new features that maybe can help your customers to reduce costs?

Definitely, I think the construction market is changing and it will definitely change over the next few years. Definitely, if you take, first of all, the design and planning phase, there will, of course, be a lot of changes. There will be new technologies. We are going to disrupt also more some of the architecture firms with generative AI, et cetera, that we are talking more and more and looking on the innovation front. Clearly, also, we see that the build segment will continue to grow proportionally much bigger and higher than design and planning. So that's why I think the total share of design and planning in 3 years from now of the source of revenue of Nemetschek will probably be a little bit smaller than what it is today. And therefore, on the construction side, we see some innovation and additional features that we could offer, especially to a million of the Bluebeam users, and that's the overall strategy that we have with the launch of Bluebeam Cloud and also with the move to subscription for the Bluebeam customer base. And last but not least, as already stated in previous earnings calls that we had in 2022, operating managed sale is also quite an important element where we see that there are more and more opportunities and that owners and people managing buildings are going to influence more and more the decision on which type of software are used in the overall building life cycle. And in addition to that, I've also mentioned in one of our early call in 2022, and we are going to give you more news around that in the next few months, especially when we launch the solution is about our new initiative around digital twin, which is the open cloud data and asset-driven digital twin solution, which is going to be an open cloud platform, targeting first complex buildings in the operator managed space, but which could be also kind of a glue in the central data lake for our overall products and brands for the overall building life cycle. I'm sorry, then maybe also to add on your point on the areas in which industry, especially in the building and [ development ] clearly. In Europe, we see that there will be more and more activities in renovation than new building. That doesn't mean that new buildings will disappear. But of course, the renovation part, we see a big increase on the renovation side, mainly due to the energy crisis and the fact that everybody is looking for more energy efficiency solutions, et cetera, et cetera.

We are now going over to our next question. Our next question comes from Knut Woller from Baader Bank.

A couple of questions from my side. Reading through -- just listening to your comments, even Louise, I just grasped that you're focusing now also more from -- on e-commerce, on solution selling, but also operational excellence. So I perceive that a bit as a change of delivery models or strengthening of new delivery models and also looking on margins internally. So can you just give us some more color here on the expected tailwind you're expecting for margins looking through the transition? How should we think about here Nemetschek's growth profile and especially the margin profile going forward? Then secondly, on the Design segment, you have cited the difficult market environment in Europe, the slowing growth. How should we think about design in 2023? And also, I know you're not guiding per quarter, but you're running against tough comps, particularly in H1. So looking at your growth guidance and margin guidance, how should we think about H1 shaping up?

So thank you very much, Knut, for your questions. So first of all, on the first part, we do not see any material impact on the margin. So yes, of course, when you move to more direct business and webstore, especially as I said with Maxon or Solibri and a big part also of Bluebeam revenue, not majority, but nice part of Bluebeam revenue is also via webstore. Yes, it's helping, but we are obviously reinvesting and there is a scale effect with the balance because we are investing in new initiatives, in technologies, again, around digital twin, around AI, machine learning, et cetera, et cetera. So where we are saving, we are definitely reinvesting on the [ innovation ] side. So there will be no material impact on the margin. And on the second part of your question related to design. So we are not expecting that there will be fundamental changes short term in the design market in Europe. So that's why our guidance is unfortunately linked to the trend that we started to have mid of last year, which had a little bit of rollercoaster because then remember, some months were more negative. So then some -- we saw some nice growth again in design, but then absolutely in November or October in Q4, it was not as good as expected, but then very, very good in December. We expect Q1 to be more or less a little bit better, but not much more better than Q4 for the design side, and we're expecting more or less a little bit the same for the second quarter. Where we see -- so that's why in general, 2023 in general, not only for design, but in general, it's really quite back-end loaded in Q3 and Q4. And Q1, we'll see some negative impact coming from Media also. Because Media, as you recall, had a very, very strong Q1 last year, mainly due to the last time buy of perpetual license in China. So we had a very strong Q1. We had very strong growth. And of course, there was also then the acquisition of Pixologic, but the big material change is due to the perpetual license last time in China for Maxon. And therefore, Q1 of this year for Media will be like more in the mid-single-digit growth. Of course, that's just a onetime effect. In Q2, Q3, Q4, we are expecting again some very nice strong double-digit growth for Media, but Q1 will have an impact. And overall, you will see that we are expecting that also the EBITDA margin level of Q1 will not be as good as what we are currently guiding for the full year. But that will have only an impact for Q1 and will be recovered in Q2, Q3 and Q4. So Q1 expectation on the margin and EBITDA margin should be lower than our current guidance. But -- and also on the top line, there will be an impact due to Maxon.

That's very clear. Just one quick follow-up. I understand you're investing now in e-commerce and all that. But just looking through the investment phase and you cited here the scale effects. If you're successful in ramping up e-commerce, it will save you some cost over time, particularly if this part of the business scales. Is it fair to assume or to see that as an additional margin tailwind midterm compared to the previous delivery model of Nemetschek?

Absolutely. I think mid to long term, it will have a positive impact. Probably -- I mean, again, the next 2 years will be a big transition year, especially with the move to subscription, which doesn't have only an impact, as you know, on top line, but also on EBITDA. But I think onwards after 2025, definitely this will have a positive -- even more positive effect. But don't forget, we are going to invest. We want to innovate. We will launch new initiatives also to potentially disrupt ourselves but also disrupt the market because especially with the growth of -- and the acceleration of new technology, especially around generative AI, there will be a lot of disruption within the next 5 to 10 years, not only in the construction industry, but in general, in all industries. And we have to be on top of that, and therefore, we need to invest.

We are now going over to our next question. Our next question comes from Nay Soe Naing from Berenberg.

I've got two, if I may. If I could start with the -- so clearly, you're expecting a lot of your midterm growth to come from subscription. Could you explain to me the growth from subscription will come from your existing subscription customer base, of course, after Bluebeam transition is completed? Or will it come from further transitioning of your license and maintenance customers onto the subscription model? And if it is the latter, so the growth from the transition, then should we expect some more growth headwinds in the license revenue and consequently as a result on the margin progression?

So clearly, on the midterm side, if you look at the growth, as I said, this is mainly coming from growth on subscription. On the subscription side, we have here planning to have majority of our overall revenue being subscription. It is true that for Bluebeam, here, there is a strong strategy to move and migrate our maintenance SSA customers to subscription. The plan is there and will be implemented. And I think by 2025, it is why we believe that we will have such high potential of growth. Now for the other brands, we are expecting license revenue to be very low. I mean, by 2025, I think this will be clearly below 10% or total revenue for perpetual license. So we're not expecting additional growth coming from perpetual license, definitely not. So the growth of subscription will come, first of all, from the migration of existing customers; and second, obviously, from the growth of additional fees and additional users, especially on the Bluebeam side, we believe that will be continuing strong growth. But of course, in general, all our brands will grow because the market is growing and the digitalization is low in all segments.

That's very helpful. And just one more question from me, again, on the midterm growth outlook. Clearly, you've given a very strong and confident growth outlook well received by the market as well. Just want to -- it would be great to understand from you what gives you the confidence on this very robust midterm growth outlook?

Well, the confidence is just mathematic on the subscription model bank. And even with not that the role in terms of peak, which we believe will be still there. I mean the structural growth drivers of our industry are completely intact for the next few years. So it is just mathematically that with the current structural growth that we have, which is intact, but the fact that we are changing completely our pricing and business model, not compared to perpetual license and subscription, a de facto mathematically, we see such very nice growth coming in the near future.

We'll go now over to the next question. And the next question comes from Victor Cheng from Bank of America.

Two, if I may. First of all, thinking about '23 growth, how much of that is coming from pricing? And then in '24 and '25, also how much of the pricing upside is baked in? And then in the Design segment, looking at Q4, were there any pull forward effects coming from Vectorworks. And can we talk a bit about the dynamics there with the slower growth? Is it due to higher churn as well as fewer new wins?

Sure. So clearly, if you look at 2023, there are some parts of our growth is definitely coming also from price increase because we almost didn't do too much price increase in 2022. So there will be some portion of the growth will come from the price increase in most of our brands, not all, but majority of the growth is definitely coming from volume and more users and more seats. Then if you look at the Design segment in Q4, definitely see 2 double effects there. First of all, as we stated, the economical environment in Europe made the fact that, yes, there is some slowdown. And as you know, majority of our revenue in design is in Europe, and there have been some pockets in Europe, which have been more impacted than others. But in addition to that and due to the fact that there is some uncertainty in the market, customers also wanted to go more towards subscription model than perpetual license even with our design brands, which is -- was a little bit new for some of our design brands because that happened without some of the design brand not pushing super strongly on it. It really came from the market and from the customers. The good news is that our churn rate is still super low. I mean, we are in design super-sticky products. We are talking about less than 5% churn. So definitely, there is no churn effect. It is mainly due to, one, more subscription than expected in the design brand. And second, I mean that obviously as most of the business in design is in Europe, the economical situation here. And then there will be no big effect of pull forward earning to Vectorworks.

Very clear. Just want to see if you have any comments on '24, '25 outlook, any contribution from pricing in those years as well?

It's minimal, marginal. It is mainly a growth coming from volume.

And we are now going over to our next question. And the next question comes from Florian Treisch from Kepler Cheuvreux.

I have some questions around Bluebeam. So the first question is around what are your assumptions on the subscription penetration for '23, '24? So now we are at above 10%. You're targeting the 90% plus at the end of '24. Is it more like a linear development or really a '23 heavy development. The simple idea behind it is, when do you expect that subscriber growth and compensate [ off to top shift ] as a kind of a negative to it? And then lastly, maybe if you can share some insights when it comes to the actual Bluebeam growth, i.e., measured in number of subscribers, i.e., to get a better feeling about underlying dynamics of Bluebeam? Is it still, what, about 10%, 20% growing business?

Yes. So clearly, on the Bluebeam side, we are expecting to finalize the migration or to be almost there by the end of 2024. As you know, existing customer, they had up to 1-year option to still buy a perpetual license, which means that clearly, by the, let's say, in Q3 of this year and Q4, there's no more perpetual license business at all within Bluebeam. So -- then I think on Bluebeam side, we see, again, growth coming more towards the end -- the second half of 2024. So it's going to be flattish revenue growth in 2023. We will start seeing small growth in the first half of '24. And then again, nice growth coming in '20 -- the second half of 2024 and of course, very nice growth, strong double digits in '25. And clearly, it is not only coming through the subscription effect, but also due to the fact that we have some very nice growth on the user side. So you should expect the same level more or less of the user growth percentage that we had in the last 2 years to continue also in '24 and '25, for different reasons. First of all, one reason is that even in the U.S. market and North America, there is still plenty huge room for growth. But second, remember that only 20% of the total Bluebeam revenue is outside North America. So we have huge potential of growth in terms of new users in Europe, in the Middle East, in Asia, in Pacific, et cetera. And then when we look again also on the average subscription price annually for Bluebeam, as we said, they are really going subscribers to the core and complete package, which is our mid- and premium-tier package, not necessarily only to the low basic package. And that's why the average annual subscription price represents around 50% to 55% of the perpetual license, which is, as I said in the previous call, very good compared to some of other brands where average annual subscription represents more 30% to 35% of the perpetual license.

And we're going over to our next question. And the next question comes from Deepshikha Agarwal from Goldman Sachs.

So first, I have 3 just -- I'll be quick with them. So first one, on the at least mid-teens revenue growth for FY '25. We just wanted to know what assumptions are you making on macro as it like -- are you expecting it to improve? Or are you expecting it to broadly stay unchanged from where we see it? And like also we wanted to know in that, do you still have media, the media segment growing more like 20% plus? The second question is basically on the transition. Given the conversion to subscription will be more gradual in design over 24 and 25. Is it fair to assume a lower double-digit to mid-teens decline in overall group licenses in those years? Are we thinking in the right direction? Or are we missing something? And the third one is a more sort of a housekeeping question. CapEx as a percentage of sales tracked higher in 2022 at 2.4% versus 1.5% that we saw in 2020 and '21. Should we expect it to go down back to those 1% to 1.5% levels? And also on cash taxes, it was higher.

Sorry, can you just repeat this question?

Which -- all the questions?

No, the third one.

Third one, first one is basically CapEx as a percentage of sales for 2022 was around 2.4% versus closer to 1.5% that we saw in 2020 and '21. Should we expect that -- should we expect the CapEx as a percentage of sales to go down more closer to 1%, 1.5% in 2023 onwards? And then on cash taxes, what we saw in FY '22, it was higher than that in the P&L. How should we think about cash taxes going forward versus the P&L taxes 2023 onwards?

Okay. So first of all, regarding the growth in 2025, so the mid-teens that we are planning to be significantly above market growth. We are not expecting the macro economy to completely change in its growth. So we are expecting a similar situation today. Just to confirm also on the Media side, for Media expectation to be also in the mid-teen growth. Then your question regarding the transition of -- to subscription, especially in design. So on the design side, we are planning to have also a majority of our revenue by 2025 to the description. Of course, there will be still work after 2025 to convert also some of the SSI customers to subscription, and there we will be still able to see continue the transition. And we will still propose perpetual license even in 2025, especially for large brands such as Graphisoft and Allplan, but we believe that the total, again, perpetual license revenue will represent even in design probably around 10% of the total revenue of design by 2025 or after that. So yes, you're correct that with the current macroeconomics and also the move to subscription, the design growth, we are expecting to be in the high -- mid-high single digits for the next few years.

Yes. So maybe let me take the third question then. So first is -- to the first part of the question, CapEx in terms of sales. Yes, what we saw there was increase in 2022 and we expect that to come down to normalized levels again in 2023. And to the second question, as cash taxes. There is -- there was a higher effect in 2022. There would still be an effect that the cash taxes in 2023 will be higher than [indiscernible] due to certain -- we have that, but we expect the gap to be smaller than we had in 2022.

We are now going over to our next question. Next question comes from Chandramouli Sriraman from Stifel.

So just a couple of clarifications from me. So based on your comments on the push towards subscriptions, I mean, your illustrative chart there, I see a significant acceleration in subscription while Q4, the first quarter of this big move, at least, in my estimate was a bit slower than expected. So just wondering if there's some kind of timing-related impact of subscription revenue recognition there. Second question on subscription. I just wanted to double check. Is there any kind of difference in terms of the quality of revenues with respect to margins when it comes to subscriptions versus maintenance. Are they at comparable margin levels?

So clearly, on the margin side, as I stated, in one of the previous calls, but we do not see any big impacts on the margin side due to subscription. Remember, a lot of these products are desktop solutions, in particular, in design. So we are moving to just a pricing model change and not necessarily a full technology change. Yes, there will be -- of course, when we move to subscription, we want to add new features, which are cloud-based, but it's a hybrid solution. So officially -- let's take the example of Graphisoft. So Graphisoft as you may have seen this week, they launched a new package, which is the combination, that is a [indiscernible] model of ArchiCAD plus BIMcloud. And ArchiCAD is mainly desktop, but then BIMcloud is purely collaboration features, et cetera, which are purely cell-based. So obviously, we have additional cost of sales from the public cloud vendor due to being cloud feature, but that's a very small part of the overall solution. And then you're right that when we talk about Bluebeam, as we are going to migrate to completely Bluebeam review the desktop solution over time to account solution, yes, it will have some impact on the margin, but it's not going to be huge because we are not talking about a very big complex code of software like, for example, a 3D modeling being solutions for ArchiCAD or Allplan. So no major impact on the margin. There will be some, but not a major one, small.

And I think the second question was also regarding to if there was a slower progress towards the subscription [indiscernible] then we have operating plan, I think it is absolutely in line with our plans. And as said before, it's progressing really well and they're satisfied with us.

[Operator Instructions] Going over to the next question. The next question comes from Andreas Wolf from Warburg Research.

Congratulations on a successful year. Two quick questions. The first one is on a stronger focus on e-commerce. How are you going to make sure that the users get acquainted with the software? And how are you going to deal with training that new users might need? And then regarding your growth ambitions in the Americas, do you basically plan to take market share from competitors and shift users from competing software products to yours? And if yes, could you also elaborate on how you are going to make sure that the stickiness that is also valid for competing software will be overcome?

Sure. So first of all, on the webstore and e-commerce side, obviously, this is our way to sell for, let's say, more simple solution than the complex one. So we continue and a big part of our strategy and which is also in the DNA of a lot of our brands of the Nemetschek Group is to really work very closely with our resellers and channel partners. That's really one of the strong pillar and force and strength of Nemetschek and most of our brands, which is to have a very strong channel partner ecosystem with very strong resellers. And of course, we will help them also on their e-commerce journey. And they are also the ones who are helping us on the training side, et cetera, et cetera. Now obviously, as we are moving to a more subscription-based and SaaS platform, we are also investing more and more on customer success. And with customer success, one of the objective that we have is, of course, first of all, adoption to make sure that users are using our products. And for adoption, you need to make sure that they are well trained, that they really understand what are the very nice features that you can have with the product that they use them, they enjoy them. And of course, also that they renew and also when the customers buying is good enough and big enough also that we have opportunities to upsell or cross-sell solution, thanks to these strong customer [ success ]. Then regarding North America or Americas, in general. So with our plan, again, the market is so big. So we are not betting on eating the market share of competition. Of course, that will not refrain us to try and push for it. But our assumption currently in the guidance that we are giving is definitely that we continue the nice growth that we have by surrounding sometimes the competition and not keeping them out necessary, but also to also strengthen our products and the stickiness of our products. So that's why, for example, with Bluebeam and the move to Bluebeam cloud, it is very important that we add on a frequent basis additional features to make Bluebeam customers more sticky, et cetera, et cetera. But also to upsell and cross-sell some solutions of our customer base in the U.S., like, for example, Solibri to the Bluebeam customer base, et cetera. So the underlying market continues to grow, and we do need to make sure that we still have the customers to grow.

[Operator Instructions] I have no further questions in the queue. I'll hand the call back to the speakers for the closing remarks. Just one question just popped in. Let me just get it up on stage. And the next question comes from Martin Jungfleisch from BNP Paribas.

I thought I was in the queue already. Just a couple of questions, please. The first one on the outlook. If you look at current construction backlogs, they are still very strong today, but new building permits have been weakening for some time. And in terms of license or subscription demand, how exposed would you say you are towards new build? And how do you benefit from a strong current construction order backlog in terms of demand in design and build and if you have a difference between those segments maybe, and that's the first question. And the second one is a follow-up on the outlook and subscription headwinds in design. Can you share if you assume top line headwinds from subscriptions for 2023 design will be higher compared to 2022 also as maybe some more cash concerned customers up for subscriptions?

So regarding the outlook, first of all, I think on the -- yes, there are definitely different trends depending on which statements and which part of the life cycle you are. I said the backlog in the construction industry is still full for the next few months. But we see clearly, especially in Europe, some slowdown [ in updation in ] the design and planning side especially with SME customers in the architecture and engineering side. And that we reported to clearly continue. Now I said also in terms of new buildings versus renovation, there are more and more renovation projects coming, especially in Europe, due to recent [indiscernible] , et cetera. And new build is there, but of course, more delays on a really new deal when you look at the number of new permits, et cetera. That's something which is general quite globally. And on the operating managed phase, again, we see the growth now coming mainly due to 2 factors. First of all, the fact that post-COVID aspects where hybrid workforce management is quite complex for companies. So they need software to manage the hybrid workforce. And second, a lot of companies also need to make sure that they save the money on the energy level. So that's why anything which is linked to energy management software like[indiscernible] for example, is -- has a very, very strong momentum at the moment especially in Europe. And [indiscernible] is clearly also growing for us more and more. And of course, infrastructure because when you look at with potential replacement market, infrastructure market also grows.

Maybe if I can add one follow-up. Just on the M&A side, Autodesk is today mentioned that if rates continue to rise, it will open more opportunity for M&As. Is it also a view that you would share? And if so, in what area would you be most interested?

So on our side, still the same. So we are really scouting the overall building life cycle but also in Media, but with a stronger focus in the AECO side. And it is either to buy some technology. We know the buy versus make scenario or also to accelerate some innovation. It is also linked to complementing our offering and our feature sets that we can address to our existing customer base. Or it is to go more internationally to address the markets where we see that there will be more growth coming up in the near future. And also, it is potentially to go more adjacent to where we are to also increase our chance.

There are no further questions in the queue at the moment. [Operator Instructions] Okay. This time around, we really don't have any more questions in the queue. So I will hand now over back to the speakers for the closing remarks.

Yes. Thanks, everyone, for attending. And definitely, we will look forward to catching up with you in next quarter. If you have any follow-up questions, so please don't hesitate to contact Patrick or myself. So we are happy to answer your question after this call and also tomorrow or next week, whenever a question arises. Thank you very much for attending. Have a lovely day. And yes, talk to you soon.

Thank you very much, everyone.

Thank you so much.

This concludes our conference for today. You may now disconnect.