Nemetschek SE (NEM) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the Nemetschek Group Earnings Call for the financial year 2023. At this time, the floor will be open for questions following the presentation. Let me now turn the floor over to your host, Stefanie Zimmermann, Head of Investor Relations.

Thank you, operator, and hello, everyone, and a big welcome. Thanks for joining our Earnings Call today to discuss the results for the financial year 2023 and the outlook for the current year results. With me today are our CEO, Yves Padrines, and our CFO, Louise Ofverstrom. Today's conference call is being recorded. A replay of the call will be available at our website after the call. Additionally, you'll find a report, the presentation, the press release and our new CSR report on our Investor Relations website as well. But now let's get started. So I would like to turn over to our CEO, Yves.

Thank you, Stefanie. Welcome, everyone, to our Financial Year 2023 Earnings Call. As usual, we have prepared a short and informative presentation on the highlights of the Financial Year 2023 that our CFO, Louise Ofverstrom and I will briefly walk you through so that we have enough time to address any questions you may have during the Q&A sessions. As you can see on Slide #2, we have a few topics today that we would like to talk about. We will start with a short review of the 2023 financials as well as strategic highlights before we take a look at the considerable progress we have already made in our transition to a subscription and SaaS-centric business model. After that, I will hand over to Louise, who will dive deeper into important aspects of our financial results. And last but not least, we will also talk about our financial outlook for the current fiscal year 2024 as well as our strong ambition for the year 2025. 2023 was a very special year for us. The Nemetschek Group celebrated its 60th anniversary. In 1963, Professor Georg Nemetschek, found the Ingenieurbüro für das Bauwesen in Munich, the start of an impressive success story that continues today as we will see on the floor lowering slides. The former engineering office has developed over the last 6 decades into one of the world's leading software companies for the digital transformation of the AEC/O and media industries. The continuous pursuit of innovation leadership, the clear focus on customer proximity and customer value as well as an early understanding of the potential of new technologies for the benefit of our customers is where and are the most important components for the Nemetschek Group's success story. As you will see on the next Slide #4, we are happy and proud to continue this success story with a continued profitable growth in the Fifth Financial year 2023 as well. Slide #4. When we translate what I just said about our past fiscal year into hard measurable KPIs, you will see that we achieved or even exceeded our financial goals for the last year. Starting at the top with the revenue growth. We are very pleased that with revenue of EUR 852 million and currency adjusted growth of plus 8%, we ended up at the upper end of our previously raised guidance range of 6% to 8%. This is a strong testimony to the resilience of our business model given the still challenging macroeconomic environment as well as the ongoing transition of our business model to subscription and SaaS offerings. Main growth driver was once again our recurring revenue, and in particular, the demand for our subscription and SaaS solutions, which is captured in our annual recurring revenue KPI, which grew by 26.7% on an FX-adjusted basis. Despite the accounting related negative short-term effects on our revenue and earnings due to the subscription and SaaS transition, we were able to maintain our high level of profitability and achieved an EBITDA margin of 30.3%, which was even slightly above our forecast range of 28% to 30%. The success of our strategy also becomes evident by looking at the development of our recurring revenues. In line with our guidance, the share of recurring revenue as a percentage of total revenues strongly increased by 10 percentage points year-over-year to 76.6%. On Page #5, you can see an overview of the various strategic highlights in 2023 in each of the defined strategic focus areas. Starting with innovation and technology leadership, which has always been an integral part of our company's DNA. This is not only the reason why we were once again able to win some of the most important innovation award in our industry in 2023, but also the reason why our brands continued to drive development of new products and solutions in areas such as Digital Twins and Cloud solutions. The result of this effort is, for example, our Digital Twin Platform called dTwin, which we just launched at the end of last year and which represents an innovation and a major step forward for the entire AEC/O industry. And of course, the field of artificial intelligence always plays a major role in our R&D activities. One of our group-wide goals is to be a leader in the field of Artificial Intelligence in the AEC/O and media industries. AI is, therefore, a focus of our group R&D activities. In addition, we are also committed to an ethical, trustworthy and sustainable approach to artificial intelligence for the build environment and media and 3D animation. While we are working on a number of different initiatives internally to increase our own productivity, but of course, also to further improve our solution to help our customers to be more efficient, and we have already introduced new features in 2023, such as the AI visualizer from Graphisoft. Bluebeam launched beginning of this year new Artificial Intelligence features as well and also Vectorworks. We will continue to add additional AI features to our solution in the future, so stay tuned. Another way to be at the pulse of the latest technological developments and trends in our industries is via on venture investments. Over the last year, we made minority investments in a series of young and highly innovative companies such as Briq, Preoptima, SmartPM, Live Costs or Stylib and many others, which will help us to further increase our innovation, strength and to cover important future topics like artificial intelligence and generative design. In the area of business enablement, we worked on a further harmonization across the Nemetschek Group. This includes the continuous effort to further enhance our operational excellence in order to ensure that we will be able to continue to make the most of our tremendous growth opportunities. Over the last year, we also improved our go-to-market strategy by upgrading our e-commerce presence and web stores across the group and by strengthening our internationalization and cross-selling activities. And as you know, our customer base is majority SMBs, especially in the Design segment. We, therefore, have increased our focus on larger customer segments. We are convinced that we have the best products in the market, of course, and we want to make it easier for customers, especially the larger multinational and multidisciplinary ones to do business with us, for example, by offering the solution on the Nemetschek Group out of one hand. Going forward, our goal is also to further increase our resilience, for instance, by further reducing the dependency on the European market. In order to achieve this goal, we continue to focus on higher growth regions, such as North America, but also Asia Pacific. We have, for instance, driven forward the preparations for the launch of Nemetschek India. By entering the Indian market, we want to participate in the enormous growth potential of the Indian construction industry in the coming years and decades. The most important way to further strengthen our resilience is, however, by continuing to increase the share of our recurring revenue, in particular, by transitioning to a subscription and SaaS-centric business model. I already mentioned the new record heights that we achieved in [indiscernible] 2023. But as we promised, we want to keep you updated on the progress of our main top strategic priority in detail. You will therefore find a comprehensive overview of the current status of our journey to our recurring business model on Slide #7. Given its strategic importance for the Nemetschek Group, please allow me to briefly explain the reason for this important initiative again. We are convinced that the move to a subscription and SaaS model has many benefits for us, of course, but also if done correctly for our customers, which is paramount in our customer-first mentality here at the Nemetschek Group. Our customers are more flexible and no longer have the high upfront investment is especially attractive for many customers during the economically challenging times. At the same time, they also benefit from a higher speed of innovation and improved services. In addition, we also see major benefits for our group. Apart from the previously mentioned increased resilience and predictability of our revenue streams, we can address completely new customer groups, expand the customer lifetime value and tap into new and cross-selling opportunities. As you all know, the Nemetschek Group is quite unique in a way that we do not transition all at once our entire portfolio to a subscription SaaS-centric model. We are migrating our portfolio in a phased approach. This does not only give us substantially more control over the entire transition process has significantly reducing the associated risk. It also makes the migration more easily digestible for our shareholders. Furthermore, it allows us to have a tailored subscription strategy for each of our 4 segments. Consequently, each of our segments are in a different stage. While the migration of our Media segment is basically completed with a recurring share of more than 90%, the Build segment substantially accelerated its move to subscription and SaaS with a highly successful transition of our group-wide biggest brand, Bluebeam. The transition of Bluebeam continues to progress as planned. We have now migrated roughly 50% of Bluebeam business, and we continue to expect that we will reach a level of around 90% by the end of this year. The recurring revenue part of the segment was therefore already at more than 75% at the end of 2023. We have a comparably high recurring level in our design segment. However, the share of subscription is still significantly lower than in the Build segment as we [indiscernible] our dual offering strategy for our 2 largest design brands. That being said, here, we have also accelerated our transition in 2023. Multiple brands have started or are already in different stages of their move to subscription and SaaS offerings, most prominently our brand Vectorworks. In the managed segment, the vast majority of the more than 60% in recurring revenue is already subscription and SaaS related today. However, compared to the other segments, manage as a structurally higher share of services and a small portion of hardware revenues. On the right-hand side of the slide, you will see the end results if we combine the progress that we have already made in each of our 4 segments. The share of recurring revenues at the group level increased dramatically in the last years and stood at almost 77% at the end of 2023. More details now on this topic in a few minutes from our CFO, Louise Ofverstrom. And with that, I will hand it over to you, Louise.

Thank you, Yves, and a warm welcome to our Full Year 2023 Earnings Call from my side as well. If has already touched on important strategic topics and progress for the past financial year, but I would now like to take a closer look together with you at our strong financial results for 2023 and the underlying drivers thereof. As usual, we will begin with a short overview of the last quarter of Page 9. In sum, I think it's fair to say that we had a very good end of the year with a strong growth and at a continued high profitability. Despite the unchanged difficult demand environment in our AEC market, particularly in the European design markets, we were able to achieve continued strong revenue growth of 8.2% to EUR 220 million. Adjusted for the significant FX headwind of 270 basis points that we faced in the last 3 months of the year, the increase at constant currencies even amounted to 10.9%. Well, the main contributor to our strong growth was once again the recurring part of our business, which is represented by our annual recurring revenue KPI or showed ARR. That increased by 26.7% on a currency-adjusted basis to almost EUR 719 million. This impressive development in ARR is an important indicator for our group's revenue and cash flow growth potential in the coming 12 months. The over proportional EBITDA growth of 24% to EUR 69.2 million is a function of the high growth, a healthy operating leverage as well as our continued focus on both efficiency and effectiveness in our cost base. The corresponding margin of 31.5% remained on a high level. This is especially true considering our continued investments into our future growth as well as our ongoing position to a subscription and SaaS-centric business model and the associated short-term accounting burden on our financial results out of that. Looking at the bottom line, our net income and correspondingly, our earnings per share for the quarter increased by 38.6% to $0.41. If we now look at our results for the full year on Page 10. The picture is very similar to Q4, strong, highly profitable growth, driven in particularly by the recurring part of our business. 2023 was therefore another very successful year for the Nemetschek Group despite a challenging environment and the ongoing transition to subscription and SaaS. Thanks to our resilient business model and the intact structural long-term growth drivers in our end markets. So I believe it's really fair to say that Nemetschek continues to one of the very few companies, if not perhaps the only one that is able to show an attractive top line growth, combined with a high profitability while transitioning to a subscription in SaaS-centric business model. Yves has already touched on the key revenue and profitability figures for the year. So I would therefore like to focus on the right-hand side of this slide, which shows that we have also improved the quality of our already very solid balance sheet even further throughout 2023. The most important KPIs I want to mention here are equity ratio, which improved by 390 basis points year-over-year, as well as our net cash position, which reached a new all-time high of more than EUR 260 million. Therefore, our extremely solid balance sheet, in combination with the strong underlying earnings and cash development provides us not only with a high degree of safety going forward but simultaneously enables us to act flexibly, should value-generating M&A targets and venture opportunities emerge in the coming months and quarters. In addition, I think we should say that this also enables us to let our shareholders apart from the very strong share price development we have seen participate appropriately in the company's success. We, therefore, continue our attractive and sustainable dividend policy also for the financial year 2023 with a proposed dividend of EUR 0.48 per share. And this corresponds to a year-over-year increase of approximately 7% and marks the 11th consecutive increase. On Page 11, you will now find the development of our 4 segments during the fiscal year 2023. Let's start from the left with our largest segment design, we achieved a strong revenue growth of 9.7% on a currency-adjusted basis, despite a continued difficult market environment and at the segments accelerated move to subscription driven, for example, as mentioned by the start of the transition of our third biggest design brand, Vectorworks. Consequently, the subscription and SaaS revenues of the Design segment grew clearly over-proportionally by 46%, and the EBITDA margin reached 28.4%. Going forward, and as expected, the performance of our Build segment reflects that our largest brand within the Nemetschek Group, Bluebeam was going through the midst of its move to a subscription and SaaS model in 2023. Nevertheless, the slight top line growth with a plus of 4.8% on a currency adjusted basis as well as under these circumstances, continued high profitability of 35% show the resilient customer demand, especially in the US as well as our high internal operational efficiency, especially in the fourth quarter, with Bluebeam coming out of the transition trough and helped by a substantially lower comparison base, the segment recorded a strong FX adjusted growth of 16%. Going forward to the Media segment, we felt the negative effects here of the long-lasting strikes in the film and TV industry in Hollywood that thankfully ended in 2023, but where we could still see some lagging effects in Q4. And for the full year, however, the currency adjusted revenues grew by 8.6%, while the underlying subscription revenue increased by more than 20%. So in addition, the segment's profitability of 38.7% continued to be clearly above group average. So the last but not least on this page, our smaller segment managed reported revenues of EUR 59 million, a growth of 9.8% at constant currencies. Our continued investments into our digital twin business unit as well as into future growth opportunities to position this segment optimally for long-term growth, thanks to several megatrends such as screen buildings and energy efficiency weighted on the segment's profitability in 2023. We now come to what is arguably the most important slide in our entire presentation on Page 12. So it comprehensively summarizes the financial results of one of our key strategic priorities, our highly successful transition to a subscription and SaaS-centric business model. As you can see here on this page, on the left-hand side, we are proud to report that by the end of 2023, the share of recurring revenues reached 77%. This is a new record high and an increase of almost 11 percentage points year-over-year. This development was mainly driven by a strong expansion in the share of subscription and SaaS revenues, which almost doubled over the last 2 years and now accounts for 35% of our total revenues. But looking at the right hand of the slide, you can see the corresponding growth of each of these types of revenues in the last quarter. One important operational KPI during the transition is the annual recurring revenues, and that continued to grow over proportionately to EUR 719 million, a plus of 26.7% on a currency adjusted basis. And as you probably already know, our ARR definition includes all types of recurring revenues, so also the maintenance contracts. That means if we were to strip out the maintenance part, the underlying subscription and SaaS growth, in ARR would have been even substantially higher to be precise, the subscription and SaaS part of our business increased in line with our strategy by an impressive 61% on reported and 66% on a currency adjusted basis in Q4. So as expected, with the termination of the license sales for existing customers at Bluebeam as well as the ongoing transitions of several of our design brands, our license revenue fell steeply by 37%. This is, however, absolutely in line with our plans. As a result, this more volatile revenue category now accounted for only 19% at the end of 2023. I therefore believe that with our increase in recurring revenue, the continuous expansion of our global presence and our constant focus on operational excellence, we have made great progress in 2023 towards an even more robust and resilient business model, and we are well shaped for the future. To conclude our financial review for the financial year 2023. We provide a more comprehensive overview of our most important P&L items on Page 13. As you can see here, and we have already addressed our most important KPIs, revenue growth, ARR and EBITDA in detail. However, looking closer at the development of our biggest cost components, you will see that we ensure that our OpEx base increase at a very reasonable rate while going through the transition. For example, if we take a closer look at the largest component with a share of more than 42% of our overall cost base being the personnel cost, you will see that they have increased only by 7% year-on-year. Given the strong wage inflation we are seeing in many industries, we managed to keep the increase at a moderate level while continuing to hire in selected areas and without any kind of large-scale layoffs you have seen across many players in the software industry. So looking at our cash flow generation over the last 12 months, you'll notice that despite a flattish earnings development, we still managed to grow our free cash flow substantially by more than 30% year-on-year. This increase was driven by a reduction in CapEx that came from an extraordinary high level last year, but also a strong improvement in working capital due to an increase in our recurring revenues. This, once again, does not only underpin the high quality of our earnings but also shows one of the many benefits of our transition to our subscription and SaaS-centric business model. And with that, I hand it back over to you, Yves.

Thank you very much, Louise. Now as we are already coming to the end of our presentation, I would like to turn to our outlook for the current fiscal year 2024 as well as our ambitions for the following year 2025 on Page #15. As we have demonstrated on the previous slides, we have already made great progress in laying the foundation for the company's next phase of growth. Already today, our business model is characterized by a strong resilience. This resilience is based on the high proportion of our recurring revenue and a strong global diversification. Combined with the tremendous growth opportunities in the global AEC/O industry, which is only at the beginning of a long-term transformation towards a more efficient, environmentally friendly and resource-saving way of building, we look very confident into the future. Therefore, based on these strong fundamentals, we expect an attractive growth at a high profitability in 2024 also. So even despite the still challenging market and [indiscernible] and the ongoing transition of our business model to subscription and shaft models and its accounting-related dampening effect on the revenue and earnings. In particular, that means that from today's perspective, the Executive Board expects a revenue growth at constant currency of 10% to 11%. This is in line with our ambition, which we published 1 year ago and even despite the substantially higher growth and, therefore, also comparison base that we achieved in 2023. In addition, the EBITDA margin is forecasted to be in the range of 30% to 31%. The ARR growth is expected to be around 25%. As a result, the share of recurring revenues is expected to reach around 85% by the end of the year. Furthermore, our ambition for 2025 is unchanged. Following the successful transition of the majority of our business to subscription and SaaS models by 2025, we expect a further acceleration of growth to [indiscernible] at least in the mid-teens, so significantly above the market growth. In summary, I therefore strongly believe that we are very well positioned to enter the next growth phase of our company and continue the more than 60 years success story of the Nemetschek Group in the coming years and decades. 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]. And the first question coming from Nay Soe Naing from Berenberg.

I was wondering if you could share with us some details around your Digital Twin or dTwin initiatives, really quite excited about the initiative, you can see the whole industry increasingly talking us more about the technology as well. If you could share some details around where you are in terms of the product development road map, in which area you'll be looking to invest going forward, both organically and inorganically. And then what could be potential growth and TAM opportunities should this technology be for the customers or Nemetschek and what time scale that you're looking at before the opportunity translates into impact on the financials?

So first of all, as you know, Digital Twin is not new for many other industries, especially when you look at manufacturing and aviation, which has been there for a long time. But clearly, in construction, it is fairly new, let's say. And it really depends how you define Digital Twin. Our dTwin solution is really a open data-centric digital platform building. So it's really taking any type of data that you may have on the building. So the historical data from the design planning construction phase in combination with existing live, real-time data that you can take with IoT and real-time sensors. And then you lay all and you overlay all these data to make a Digital Twin of this building. And these data again could be pictures, 360-degree videos, it could be the specification of the windows or whatever materials. It could be the BIM model, if available. It could be a CO2 emission in a room or the temperature, et cetera. And here, the targeted customer base are really the owners, people operating, managing mainly complex buildings, such as hospital, clinics, airports, large universities, data centers, et cetera. And the use cases are really focusing on, first of all, predictable maintenance and of course, energy efficiency. And the product has been launched in terms of ready to be used, let's say, end of last year. It's called dTwin. And it's currently in trials with a handful of customers in the different areas that we just talked about. So in transportation buildings, in clinics, hospitals, et cetera. And we are really testing the products to really make it better and fine-tune the solution and then, of course, fine-tune the pricing model that we have. But clearly, the pricing model is linked to the size of the building. So it's a pricing per square meter per year, if you want. And today, we're not expecting big revenue coming from it this year. That's still at the beginning. But starting from 2025, we expect to start generating revenue.

And the next question is coming from Nicolas David from ODDO BHF.

I have 2 from my side. The first one is regarding the guidance, the rent is a bit narrower than usually, one point where historically you were guiding with a 2 point range. Could you explain what is the philosophy behind that? And are you comfortable in steering the company with such a narrow guidance range? And the second question is looking at the ARR guidance for 2024, pretty solid with a growth which is close to the 2023 number. What is driving this growth? What would you be doing this growth momentum in 2024? Or should we expect an acceleration of the move of the 2 remaining big design brands to subscription? Or should we expect a material recovery of media? Happy to get some more clarity on that.

Sure. Thank you, Nicolas. So first of all, regarding the guidance. So as you know, we were already a year ago expecting to grow at the 10% plus for 2024. We ended 2023 in a much better way than we expected. As you know, we are planning to grow between 4% to 6% of revenue in 2023, and we ended up at 8%. So clearly, we have also bigger comparison now versus 2023 than what we were planning a year ago. Nevertheless, we strongly believe still, and I can tell you that after the first 2 months, it is going as planned, that we have a strong belief that we can reach at least to 10%. Now why is it only 1% range? So first of all, as you know, we have no more visibility on our revenue as a big portion of our revenue is now recurring. Now saying that it's going to be above 11% significantly would be quite aggressive and very risky with the visibility that we have so far in the business. You should also understand that how not subscription business is constructed in our planning and in reality is the fact that on the pure revenue side, it is now quite back-loaded at the end of the year in terms of revenue growth. So of course, therefore, the bookings and the sales invoices are there to give us the comfort that we are going to be there and so far, so good. But that's why we have this narrow 1 point between 10% and 11% of revenue growth expectation for 2024. To answer your second question on the ARR 2024, which is around 25% growth. Yes, you're right, Nicolas, the acceleration of subscription in design is going to be quite important in 2024 and definitely significantly even more in 2025. Why? It's because we can already see, for example, if we take one of our 2 largest brands without going in too much detail, but all plan, if you look at their new seeds sales, 80% is subscription and only 20% is perpetual license as an example. Furthermore, Graphisoft is also coming up now soon with a much more aggressive plan to push subscription and SaaS and there will be more details to be communicated to the market within the next weeks on this topic. To answer your question then, is Maxon recovering yes. So clearly, when we look at Q4, this was really a bit deep for Maxon. And here, Maxon, we can already see in the first 2 months of the quarter that we are back to better growth, not like it used to be a couple of years ago or 18 months ago, but much better than in Q4 and last but not least, obviously, our largest brands, Bluebeam will, of course, also drive growth in 2024 because remember, they were still selling perpetual license up to the end of Q3 last year. So that's why we had a big September of Bluebeam with end of sale of perpetual license. So clearly, the ARR growth is really driven by Bluebeam and design and a small piece from Maxon.

Next question is coming from Florian Treisch from Kepler Cheuvreux.

I have 2 as well. The first is on Bluebeam. So looking at the mid-teens growth acceleration happening in Q4, assuming that this will continue looking into 2024. Can you give us, let's say, some underlying insights? So assuming that the sub shift will remain a headwind also in '24, it really looks at the underlying growth is clearly above 20% in Bluebeam. So is it really, let's say, still driven by lower tier penetration in the US? Or do you really see much more momentum coming also outside of the year? So my intention is really to get an impression, let's say, how sustainable the Bluebeam growth can be from a mid-term approach. The second is, looking into your Asian business, you mentioned the opening of the India office. If we just take the 23% number as a starting point, it was down year-over-year. So can you add some light or shed some light, is that a structural issue, some onetime effects? So how do you want to position Nemetschek in Asia? And what will be the key, let's say, growth product or categories to better or to return to better growth again in Asia?

Sure. Thanks, Florian. So first of all, regarding Bluebeam, clearly, there is a huge strong momentum still. So we are very comfortable and strongly believe in these mid-teens and growth for the Build segment. Clearly, we still have around 80% of Bluebeam revenue in the US, but the US is still growing. So it's not like the growth is coming mainly internationally. The North American market, despite the fact that 95% of the largest construction companies in the US are using Bluebeam. But first of all, they are still growing, even the large companies, but then we have this huge long tail of SMB in AEC/O and also a Bluebeam, which is growing very nicely. Interestingly, you have also even other type of industries, which are a little bit more adjacent to us using Bluebeam, if you look at oil and gas, but also if you look at the defense industry, the US government, et cetera. I mean a lot of people who are dealing with complex PDF files really enjoy using Bluebeam collaboration tool to really use that to do the markups on their PDFs, et cetera. And now we are also adding new features such as scheduling and estimating in the coming months and quarters. And as you may have heard, we also just launched new AI features on Bluebeam beginning of this year, which are going to be rolled out now in the next few months. So clearly, we are very confident mid- to long term on the booming growth. And the demand is there. It's just amazing. I was beginning of this year at our channel upon summit, where we have all our biggest Bluebeam channel partners, which, by the way, most of the time are also the Autodesk biggest channel partners, and they are very impressed, very impressed with the strong demand from their customers to use Bluebeam. I mean, again, we have over 3 million users of Bluebeam. And it's really starting to become a verb in the construction industry in the US. And I was also in Dubai a few weeks ago at this McKinsey Event called The Global Infrastructure Initiative where you have the top 180 largest construction companies, CXOs and CEOs there and talking to some of the CEOs, not all of them, you name check but clearly, all of them new Bluebeam, and they were saying that their employees are clearly saying, "Well, if I don't have my Bluebeam license, I'm going to quit." So much the productivity level is increased when people are using Bluebeam. So it's really very sticky, sticky product even if it's a simple one.

And maybe, if we wanted to just maybe also add to that, we still also see the transition, and I think that also speaks for the brand itself and all the possibilities that Yves was alluding to, that we still see the trend that we have seen throughout the whole transformation that the uptake on the high-tier packages with more functionality is really, really well perceived. So that is clearly over proportionately taken up by our customers, and that shows very much that the industry is still looking very much for further functionality that Bluebeam can deliver. So we really see that there's a really strong to a substantial growth here going forward.

Regarding Asia. So Asia was growing for us in terms of constant currency aspect. Now the total share of Asia was slightly reduced, mainly also due to some FX impact and in particular, also a little bit in Japan.

Yes. And I think what we should say that we are -- if the property of our revenues right now, Asia is still subscale for us. So that's still the smallest segment and the huge -- so many countries, as you know, in Asia, now we really want to focus that strongly and also with entry in the Indian market. And I think that's why small differences year-over-year there is not to say it's really not telling a strong story. I think the story is that there is a geography we really want to focus on. So we should see more growth going forward there.

And to add to your point on India, Florian, so yes, we are launching now Nemetschek India as a go-to-market office in Mumbai, we have already in Nemetschek India, as you know, on more shared services and engineering center for the rest of the group. But here, it's really the first time that we have a Nemetschek office on the go-to-market side, which is representing our overall AEC/O portfolio. And we will go after customers directly with this go-to-market sales and marketing team, but also we will build a strong channel reseller partner program and also education program via the Nemetschek India team.

The next question is coming from Martin Jungfleisch from BNP Paribas.

I have 2, please. First one is on media entertainment and the impact of AI. Just want to see what is your view of these text image and text vehicles such as [ Sora ] impacting demand for brands like Maxon is something that could cannibalize sales at some point? Or would it be more complementary for your Maxon users? And the second question is on deferred revenues, which were up significantly and have boosted free cash flow. How should we think about the development this year? Should it be a free cash flow tailwind again given the subscription transition continues?

So on the Media & Entertainment side, clearly, of course, AI is not new, but clearly, generative AI in durative design is impacting and will impact the overall industry. And not only, by the way, for the media industry, but also the construction architecture industry, and overall, the many other history. I mean, clearly, I strongly believe that AI will be a much bigger revolution for all industries than what the Internet has been some time ago. And therefore, we are taking that more than seriously for quite some time now, and we are investing more and more on AI innovations internally and things that you have seen also on the AEC/O front, with the AI visualizer and Bluebeam AI functionality, et cetera, but also by investing and partnering with also some start-ups and third-party companies on the AI front, plus also partnering with universities such as what, for example, we are doing with [indiscernible] in Munich with our AI chair. Now on the Maxon side, we clearly see AI as an opportunity also to really help our creative artist customer to be productive. But clearly, remember that all customers at Maxon are artists. And as artists, clearly, solution like [ Sora ], for example, is not really going to completely replace what these artists are doing. But some solutions similar to what they are doing is going to help them to be more productive. And clearly, we also see that professional AI is not going to be free. Professional AI, people will have to pay for it. And our customer base at Maxon are professional people, professional artists who will pay for professional AI features and not just free functionalities.

Let me take the second question then, Martin, on the deferred revenues and the conversion into free cash flow. And you're right, that's the trend that you should continue to expect throughout 2024 as well, continued high conversion of our earnings into cash flows. So that's the same trend that you should expect.

The next question is coming from George Webb, Morgan Stanley.

I've got 3 questions, please. Firstly, is there anything we should be thinking around seasonality for this year? And could you also talk to what you've seen in Q1 trading so far? Secondly, back on dTwin, post those trials, can you talk to how you're thinking about structuring and scaling the go-to-market and whether you think you need to partner around that? And then lastly, just on your cash position. It sounds like it's still being more earmarked for potential M&A or investments. Could you talk to your M&A pipeline at present and in addition, if there's any larger deals in that pipeline?

I'll take your 2 last questions. And so first of all, on dTwin, definitely, we are providing a product a software, so we're not going to provide services and integration around it. So for dTwin most of our customer base, as I said, would be complex buildings, owners, people managing these complex buildings, but of course, existing buildings, also not only new buildings. And for these existing buildings, we clearly may need some ecosystem around us, which we are currently building on, like scan-to-beam functionality so that you have people scanning existing buildings and making a bimodal out of it, doing some integration work, et cetera, because we are clearly providing the software, the tool to make the Digital Twin to make all analytical element. And look, if you are a little bit patient in the next coming weeks, days, we are going to announce further some strong partnership with a third party around that. So that's for dTwin. For M&A, well, clearly, we are going to be much more aggressive on the M&A front, especially within the next 18 months. We are looking at a different type of size. Of course, the traditional size of the Nemetschek group is looking, EUR 10 million, EUR 20 million to EUR 50 million of ARR, but potentially even higher than that and even up to 100 or a little bit more than that. So the scouting is in all segments. Of course, in build and construct, we see some very nice potentials to complement our offerings but also on the design side and visualization in software in general, and in the operate and managed side, clearly to see how we can complement also our offerings, but also regionally to be more international because we are very much European focused on operate and manage. And last but not least, on the media and entertainment front, we also see some potential opportunities. So clearly, in our overall segments, we see some nice opportunities, and we are going to be much more aggressive than what we were the last few years on the M&A front for the next 18 months.

And let me then take the first question first on the seasonality. We expect in fiscal year 2024. In general, it's this a pattern where the more back end loaded fourth quarter or second half year. And there are different reasons for that. A, we are a growing business. That should say always the case when we have a growing business. The second thing is also the accounting treatment of these revenues and say where they're going to be recognized. And the third thing is, of course, also that we have effects in the comparable, especially from the Bluebeam transition that is also coming in. So that's why it's also to say, technically back loaded. So say both growing business, which is that the business is growing. So we're backed loaded from growth towards the second half. Second thing is say, accounting effects when we recognize the revenue. And the third thing is really the comparable, we'd say, the Bluebeam coming back. So that's also what you should expect and the reason for that and as to the year-to-date trading so far, we can see that we are trading in line with our plans for this year and also in line with the guidance we have given. So nothing changed and also nothing that we see is changing in the markets really versus what we saw when we were doing the guidance.

That's helpful. And maybe just one touching on your point around M&A. I mean I guess the one hand is being aggressive. Well, on the other hand, it's making sure you're still somewhat disciplined around valuation and the price you're paying. And I guess the whole space around AEC/O and software still feels like it's relatively richly priced in private markets, maybe that's pared back a bit. What are you seeing around valuations? And how flexible you willing to be around those if you see the opportunity is big enough?

Clearly, you're right. AEC/O software for good assets, valuation are not small and not low. And therefore, we are very careful also on such valuation. But for a good strategic fit targets, we are ready to pay premium as long as we have strong synergies. And with our strong 7 million user base that we can have not only a product synergy but also a strong go-to-market synergy with some of these potential acquisitions. So we are comfortable with the potential premium that we may have to look at if needed.

The next question.

As long as the synergy are there, of course.

The next question is coming from Michael Briest from UBS.

Just in terms of pricing, could you maybe talk about how that impacted growth last year and you expect for '24? And then in terms of the recurring, it looks like support is now smaller than subscription SaaS revenues. As you look to '24, the chart on Slide 7 does show a big step-up on recurring. Can you talk about the dynamics between support? And is this a big year for renewals or something that's going to cause that to continue to decline and support subscription growth? And then finally, just on the cloud platform. Could you talk about where you are on the developments in the same way you talked about Digital Twin and having beta customers?

So on the pricing side, clearly, last year, the price effect increase impact was really in the low single digits. And it will be the same in 2024. So clearly in the low single digits. So the growth is really driven by new seats and new logos or additional seats. On the recurring side, if you look at support, so SSA, we have ongoing activities with some brands where we are really migrating our support and maintenance customers to subscription. So for example, if you take Bluebeam, which is a very strong SSA customer base. What we are offering them is for the same price as subscription, for the same price of support, they can move to subscription, the very basic subscription package, which is review. And then they will have a 10% price increase every year until they reach the target lease price of subscription. Then we have other brands such as our plan, who are also starting now proactively to push some of their support customer base to subscription. That's why you have also a peak in subscription and a decrease on the SSA numbers. On the cloud platform, well, clearly, the start of this Nemetschek Cloud platform is really with the dTwin platform. Because with our Digital Twin platform, what we needed to work on is to start to have a glue, which is a data integration glue between our different brands, which is still ongoing work. And you will hear from us in the next quarter more in details around this journey, but it's still work in progress.

The next question now is coming from Sven Merkt from Barclays.

Given what you just said about Bluebeam, I just wanted to clarify what you said earlier. You said that you expect essentially by year-end that 90% of Bluebeam has transition to subscription. So is my understanding correct that this also includes the maintenance base? And then secondly, just a question on investments and headcount growth, which has been slightly down in 2023. But now, of course, the guidance implies an acceleration in investment. Can you comment on your hiring targets for the year and what level of wage inflation you expect?

Sure. You're right, the 90% Bluebeam subscription includes maintenance. So that we are going to migrate significantly for SSA customers to subscription by the end of this fiscal year at Bluebeam. Correct.

And maybe I'll take the second question. So with the investment in the head count. I think in general, to say that, yes, we went down a little bit in 2023. I think we alluded to it before. We continue to hire in strategic positions for new competence, for new areas, et cetera. But we also have, as we have been seeing, we work very strongly with our operational efficiency in the group. As we are also harmonizing quite a few things, especially on the business enablement side, the G&A side, et cetera. So of course, we release headroom there also in terms of competence that we can spread differently. And that's why we have, I think, a very good position to utilize our structures and our resources while we go forward by increased operational excellence and efficiency, we do not have to hire for that to say, although we are growing. But we are still, as I say, selectively hiring where we need this rather new competence. So it's a combination of the 2, working with the effectiveness and efficiency in the operational teams, but then also hiring for new. That's why we will have a very low increase in headcount also throughout 2024. And then we have the wage increases and also there it's really country by country where we have our people as well. So it's a bit difficult to give a global answer to that, but you should not expect a big impact of it to say, lower single digit.

Next question from Victor Cheng, Bank of America.

Perfect. Thanks for 3, if I may. Thank you for explaining about the impact of Generative AI on Maxon. But I just want to double tack on that. Talk about artist, still using their artists and they still use these advanced products. But when I think about [indiscernible] surely, it will help them improve the efficiency. And when you think about the number of seats going forward, is there a risk that a number of artists required and as such, the number of seats the growth is going to come down? How should we think about the medium-term impact on Maxon? And then secondly, I just wanted to check on Bluebeam, you said 50% currently and 90% by year-end. I believe that's the number of users. So if we think about currently our revenue, what percentage of revenue with Bluebeam is subscription already? And lastly, just a clarification on pricing. You mentioned last year has been low single digits and same expected this year. But when I think about Bluebeam customers as well, where they get 10% price increases, are you including that when you talk about pricing in low single digits?

So on the AI generative design front with Maxon. So clearly, again, we are talking about professional artists, as I said before. So it is very different than doing small things here and there on some videos and video rendering, et cetera, like [ Sora ] and others. So it's creativity. And here, yes, there will be an impact for sure. But we do not believe that this impact short term will be important for Maxon. And we do not see it, and this is not what we are hearing also from the market so far. On pure Maxon, when we look at 3D animation software, for example, and really people using that to create arts and to create things which are used in game development or movies such as Avatar or Star Wars or big Hollywood movies, et cetera. So mid long term, I cannot answer this question. And of course, we have to be very careful and cautious, and that's why we need also to progress and transform our business and embrace much more generative design and generative AI in our Maxon product portfolio, mid- and long term, which we are currently working on internally, but also looking at partnerships and also looking at venture investment and potentially the M&A on this front. Regarding the pricing elements, again, it's really low single digits. So even if, for example, last year, we had a 10% increase on perpetual license for Graphisoft. On Archicad, it was only the perpetual license business. It was only starting from April anyway than it was not from April everywhere globally. It was in some pocket region first, et cetera. And that was just for one brand. So overall, if you mix everything, that's why it is really in the low single-digit impact this price increase last year. And again, we assume the same for 2024.

And Victor, to your question regarding Bluebeam. So you understood you correctly. So as we said, approximately 90% by the end of this year and approximately 50% now. And the revenue share is approximately the same in the same ballpark as the user, maybe even a tad more, but it's in the same range.

Next question is coming from Andreas Wolf, Warburg Research.

I have one left. It's regarding India. To what extent do you have to adapt your product offering to the local regulatory framework? I assume it differs a lot from the Central European. And then maybe you could also share if you will meet other competitors in India versus the markets where you are already in.

So clearly, in India, the good news is that we have already some presence, very, very small presence, but our products, most of them are already localized for the Indian market. So for example, if you take Archicad from Graphisoft, they already have presence in India, if you take some products from Allplan that are already in India. And if you take Bluebeam, for example, they are also in India. [indiscernible], and [ Sora ] also, by the way. And so the level of localization needed in terms of work is either in existence because already done or very small. Now what we need to do is more to work on the packaging, on the pricing, which will have to be different in India versus other markets, which is what we are currently working on. India, the beautiful thing is that the level of construction investments is huge. I mean, talking to a German company, it's even bigger than Germany. And the level of digitalization is ultra-low. I mean we all prove that the level of digitalization in construction is low. But clearly, in India, it's much lower than any other big markets. So yes, competition is already present, especially if we look at our largest US competitor, they already have a good presence. But as the level of penetration of digitalization is very low, we still have a huge opportunity to come. It's not too late. And to really participate in this nice growth of AEC/O software business in India. So we are very excited about the long-term opportunity that the Indian market will bring us.

Next question is coming from Simon Keller, HAIB.

I have 2. First, what do you expect to be the currency impact in percentage points on sales growth in '24? And secondly, why did you change the way you phrased the '25 growth ambition in the past? You wrote at least mid-teens now it says in the mid-teens. Could you clarify this, please?

So just on the 2025, maybe I was not clear enough before in the presentation, but it's clearly at least in the mid-teens and significantly above the market growth. So there is no change versus our previous guidance for 2025. So it is still at least in the mid-teens. I hope to clarify.

Maybe to make a pause because it's an important to underline that now I come then to take over with the FX effect. I mean we cannot foresee the FX effect, just to see as nobody can. But in our plans for this year, we haven't planned a huge difference, especially, I mean, we are very driven by the U.S. dollar to Euro, and we see approximately the same level as it was in 2023 on average. So that's why we do not calculate with any bigger movements there. But as said, it's not really our job to know that. But this is what we have taken into our plans.

Next question is coming from Deepshikha Agarwal from Goldman Sachs.

So the first one, I think you mentioned about the subscription transition being a little bit more than what it was like last year. So can you just please in the Design segment, so can you just tell if there is a difference in terms of how you're thinking about this transition? So up until now, the sense that we had was at least like 10% of the business would stay on licenses. Has anything changed over 2023 on that? And the second one is, I know Louise talked about how you would be managing cost, and it will be a mix of both hiring and driving efficiency, which I think is also to do with business enablement. So how should we think about the medium-term margin trajectory, especially from '25? Like I know there's no target that has been mentioned. But how should we think about that balance between reinvesting into the business and the operating leverage given the growth will accelerate to mid-teens versus the double-digit growth that we have in the target that we have for 2024?

So if you look at the design subscription strategy and what has changed. Well, what has changed is that clearly we want to be much more aggressive on this front. And that's why, for example, again, Vectorworks now since beginning of this year. The only option you have to buy Vectorworks is via subscription and the only country in the world which is still able to sell perpetual license for Vectorworks is Japan. Second, if you take Graphisoft and Allplan, they are much more aggressive in terms of making more attractive subscription. First of all, the feature set is much more attractive on subscription and perpetual license. So you have all access to the cloud features, et cetera, in subscription. And second, they are also making subscription commercially much more attractive than perpetual license. That's why, as I said before, Allplan, if you look at the new seeds sales of Allplan, 80% is in subscription and only 20%, even less is perpetual license, and this started already the trend in 2023 and until 80/20 split was already there for our plan in Q4, for example, and is continuing now in Q1.

So we just added that. So we haven't really changed that either. We have a strong transition and a focus on that this year. And of course, also as I alluded to before, we also have to say, transitioning SSA into subscription, et cetera. But in terms of numbers, we will still have with approximately 85% in recurring revenue as we have guidance, we will still have around the 10% in licenses. So no really change in that. And to your second question as to the operational efficiency and the cost, et cetera, and also the medium-term margin expectation. I think what's really important to understand is that we work and you're right, so we work very much with our business movement and our operational excellence because A, we needed in order to have a very stable basis to be able to capture all that growth that we see in our markets. But the second thing is, of course, by being more effective and efficient by combining, by harmonizing across the brands, et cetera, we do create headroom, right? And we want to use that for the investments into our growth because we think that, that is really where we can create the biggest and the best value going forward. And that's why we could probably also, if we look into 2025, we could probably optimize our margins much higher than we do in 2024, and we could also probably optimize a little bit more in 2024, but we will not sacrifice that margin. We will not sacrifice the growth for the margin optimization. And I think that's the message you should really take away. We will create enough headroom to finance our investments to make sure that we can capture that growth because that's really creating value. We will do so by operating excellence and really improving our cost base over the time. So it will be as sharp as you can expect it to be. But you should not see that as a very strong margin because we don't think that, that's the optimal way to go about the value creation. And that's why also 2025, I think we have said it before as well. We will definitely continue to expect very, very decent margin from our side and definitely not below what we are seeing now at [indiscernible] probably. But as said, we will invest that into the growth, and that's where you should see the value creation.

There are no further questions. I will hand back for the closing.

So thank you, all of you for listening and for your interest and the good questions. If you have follow-up questions, so please feel free to contact me or Patrick and here. So happy to continue the discussion with you. Thank you very much.

Thank you, everyone.

Thank you.