Dear ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. 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, and hello everybody and a big warm welcome. Thanks for joining our earnings call today to discuss the results for the 1st quarter of 2023 with us. With me today are our CEO, Yves Padrines, and our CFO, Louise Öfverström. Today's conference call is being recorded. A replay of the call will be available at our website after the call. Additionally, you will find the report, presentation and press release on our investor relations website as well. Now let's get started. I would like to turn over to our CEO, Yves. Go ahead, Yves.
Thank you, Stefanie Zimmermann, and welcome everyone to our 2023 first quarter earnings call. After the substantial amount of detail we provided on our subscription strategy and our midterm ambitions in the course of our full year reporting last month, we have now returned to our usual short but informative slide deck. Our Chief Financial Officer, Louise Öfverström, and I will give you a brief presentation on the highlights of the first quarter of 2023, so that we have enough time to address any questions you may have during the Q&A session. Let's go directly on Page 3. To begin with, I would like to summarize the first quarter 2023 in a few key messages.
Q1, as you have seen, has been a successful start to the year, which in turn provides us with a good foundation to achieve all of our financial targets for the full fiscal year, 2023. Our Q1 has been indeed stronger. If you look at in design, for example, we have seen slight stabilization in our underlying markets, especially in Europe, which was resulting with materially supported also by two different one-off effects that together strongly drove the growth in the design segment. Firstly, after a slower development of the design segment in Q4 last year, we saw catch-up effects, especially in the second half of Q1.
Secondly, combined with such catch-up effects, we saw a real run on our product in the design segment before an announced price increase with some brands which kicked only at beginning of this month in April. In summary, this led to a very strong start into the year for the design segment. This means that a small part of the demand that we initially expected in Q2 is a little bit already pulled forward to Q1, but in a very minimal level. We continue to execute exactly as planned in our journey to a subscription and SaaS centric business model. The design brand Vectorworks as well as Nemetschek engineering, so SCIA and FRILO have successfully started their subscription transition with Vectorworks, initially focusing on its direct markets, so North America, U.K. and Pacific.
Looking at Bluebeam, we are happy to report that Bluebeam transition continued as planned too. By the end of Q1, we have now migrated more than 20% of our Bluebeam customers. This progress gives us a great deal of confidence that we'll be able to achieve our goal of migrating more than 90% of Bluebeam customers to the new subscription packages by the end of 2024. It's very encouraging to see that the majority of customers continue to prefer our higher tier packages, so Core and Complete, which include more of the newly introduced Bluebeam Cloud features. Last but not least, we continue to be well-positioned to achieve our targeted above market growth and shareholder return in the mid to long term by capitalizing on our leading position in structurally growing industries.
In short, we are well underway to deliver our midterm 2024 and 2025 ambitions. Let's turn to Slide 4. We are very proud of the close relationship we have with our customers and partners in general. This is clearly an integral part of the Nemetschek Group DNA and also one of our main strengths. This close connection does not just happen by itself apart from hard work and a service-oriented mindset, it is also requiring a lot of meetings and talking to our customer on a regular basis, but also returning to live personal events like trade shows. As you know, due to the global COVID-19 pandemic situation, we had to somewhat pivot, like all industries and a lot of companies or approach to a more virtual one over the last years.
However, while I believe we did a great job with several high-profile virtual conferences and events, I'm convinced that a virtual event can never be as good and as substitute to real physical events and meetings. That's why we were very happy and are very happy that this year we were finally able to visit all the important trade fairs in our industry in person again. For example, NAB in Las Vegas, which we attended also last year with Maxon or BIM World in Paris. Clearly also the large show here in Germany, in Munich, BAU, the world-leading trade fair for architecture, materials and systems, which attracted all around 200,000 visitors this year.
Our increasing cooperation between our brands was represented with one large joint booth, where multiple Nemetschek brands were presented, and presented their product and solution together for the first time under the one Nemetschek Group umbrella. Ultimately, our vision is to transform the AEC industry away from silos and towards integrated workflows along the entire life cycle of buildings. I'm talking like a lot of my peers, on a very regular basis to a wide range of customers. It is interesting to hear that also in the last months, customers clearly still continue to really have this special relationship with our products. You know, they like them a lot. It's even for them, a love relationship.
It is a very sticky product for them as for majority of these customers and users, and as you know, we have over 7 million users for overall brand portfolio around the globe. It is their main tool to work on a daily basis. The overall building life cycle player sees a need to adopt more and more digitalization in order to survive in the mid to long term, as explained in several other calls with all the challenges that the construction industry has. There are clearly different sentiments in the market, but overall, the long-term structural growth drivers of digitalization in the construction are intact and are there and are the main reason for strong belief of a positive mid to long-term growth in this industry. On Page 5, we are showing a summary of our first quarter key financial figures.
Our Q1 revenue increased by 6.5% on a reported basis to EUR 204.6 million and by 5.5% on an FX-adjusted basis. The main contributor to this growth was once again the recurring part of our business, which is represented by our annual recurring revenue KPI, which increased by 23.5% to almost EUR 600 million. Looking at the different components of the ARR growth, it becomes clear that in line with our strategy, our subscription and SaaS revenue were the main drivers with a growth of more than 40%. As expected, our EBITDA in Q1 decreased to EUR 61 million, solely driven by the temporarily missing revenue contribution of our brands that are currently in their subscription and SaaS transition.
Looking at the group profitability, we are pleased to see in Q1 a continued high margin level of 29.8%. In conclusion, we are showing an attractive top-line growth combined with high pro-profitability, sorry, while transitioning our business to subscription and SaaS business model. I will now hand over to Louise.
Thank you so much, Yves. A very warm welcome to our Q1 earnings call from my side as well. Let's turn to Page 6, where you will see the development of our 4 segments during the first 3 months of the year. However, before we go into the details of the performance of each segment, let me shortly highlight some accounting-related structural adjustments that we have made in general starting this financial year. As you have possibly already noticed in the materials, we slightly restated our segmental results. The main purpose of this is to better reflect the underlying growth and the earnings potential coming after that of each of our 4 segments. What we have done? In particular, we have consolidated the intra segment that we have in revenues and allocated our headquarter and support function costs proportionately to each respective segment.
In addition, and as a result of our strategic Digital Twin initiative, we have also reallocated our Graphisoft brand from the build segment to our manage segment as a part of the newly formed Digital Twin business unit, as we have talked about before as well. With that, you should just know that to make sure that we have the like-to-like comparisons, of course, we have restated the comparison levels as well. Now coming to the performance of our different segments in the first quarter of 2023. Start from the left, and as Yves already mentioned, during the beginning of this call, the design segment had a very good start into the year and due to some effects that I will come into in detail as well, a slightly better than expected.
While we saw a slight stabilization in our European design market during the first quarter compared to the fourth quarter in 2022, the segment's operational development was also strongly supported by the catch-up effect, as Yves mentioned, as well as some high end of quarter perpetual license sales prior to the start of our previously announced price increases in Q2 in some of the design brands. The continued high EBITDA margin of 29%, despite the stated subscription and SaaS transition of several design brands, is therefore mainly a function of the high revenue and also that demonstrates the healthy operational leverage we do enjoy in our business. Moving on, as expected, the performance of our build segment reflects that our largest brand within the group, Bluebeam, is currently in the midst of the transformation to a subscription and SaaS model.
The Q4 therefore marks the second full consecutive quarter where we see the impact of our strategic transition. Nevertheless. The nearly stable top line development, only a minus of 1.5%, as well as the, and I would say under the given circumstances of this transition, continued high profitability show the resilient customer demands we still see in the U.S., as well as our high internal operational efficiency. Moving on to our Media Segment. The revenue in the Media Segment increased by 5% to EUR 26.8 million, and therefore absolutely in line with our forecast. The slower start to the year, as you can see here, had been expected as the comparison base in the first quarter of 2022, benefited also there from an inorganic growth contribution, but mainly from a strong possibly one-time effect due to the last-time sale of perpetual licenses in China.
You can recall that we have stated this also during the year 2022 figures that we were expecting this. Starting in Q2, the segment's growth is expected to return to its normal growth trajectory in the mid- to high- teens % range. As a consequence of this, the Q1 EBITDA margin of nearly 35.2% is of course, also expected to show a significant uplift normalization in the coming quarters for the Media segment. Last but not least, let's have a look at our smallest segment, Manage. Here we recorded a growth of 6.5%.
We continue the investment into our Digital Twin business unit, as well as also the ongoing reshaping of the Manage to position this segment optimally for the long-term growth opportunity due to the plentiful mega-trends such as green buildings, energy efficiency, Digital Twins that we see, that's why that continued to burden the segment's profitability a bit. Moving on to Slide 7. This shows the progress on one of our main strategic priorities, our transition to a subscription and SaaS-centric business model. As you can see on the left-hand side, we have made significant progress towards this goal during the Q1 2023. The share of recurring revenues expanded by 10 percentage points to 73%. This was mainly driven by a strong increase in the share of subscription and SaaS revenues. This now accounts for more than 30% of our total group revenues.
This, needless to say, those more figures, new high record highs for the Nemetschek Group. On the right-hand side of the slide, you can see why we are so pleased with this development. In line with our prior quarters, these more resilient and better plannable recurring revenues were once again the main contributor to our growth in the first quarter of the year. Consequently, our most important operational KPI moving forward is the annual recurring revenue or short ARR. This one also grew over proportionally to almost EUR 600 million.
Please allow me to highlight here that if we had stripped out the maintenance contracts that we have in this position as well, the ARR growth would have been even substantially higher, as can be seen by looking at the growth rate of our subscription and SaaS revenues, which were almost twice as high with more than 40% growth. Along with the ongoing progress of the subscription and SaaS transitions in all of our segments, we also expect a continued acceleration of our ARR growth in the second half of 2023. As planned, with the termination of the license base at Bluebeam and Maxon, as well as the ever-increasing share that our customers opt for the subscription offerings in this five segments as well, our license revenue in the group fell steeply in line with our plans by 25%.
As a result of this revenue category accounted for only 23% at the end of Q1. Moving on to Page 8, we provide a more comprehensive overview of our most important P&L items. We have already addressed revenue development in detail on the previous pages. However, going down further in the P&L position, you will notice that as we also highlighted and guided in our last earnings call, we have ensured that during this revenue growth through the first quarter, we have ensured that our OpEx base increased only at a reasonable rate. For example, if we take a closer look at the largest component of our overall cost base being the personnel costs, you will see that the personnel costs only increased moderately by 13.5% year-on-year.
Given the strong wage inflation that we are seeing in many industries currently, and even despite a significantly higher headcount, which grew by almost 10% year-on-year, we see that this has stayed on a moderate level. One plus item that you will probably notice here that grew slightly over proportionally in comparison to revenues, is the other Operating Expenses line that increased by more than 20%. This is driven in addition to a general inflation component by increased travel expenses versus Q1 in the first quarter in 2022 as well as trade fair related costs like the BAU in Munich, et cetera, that Yves referred to, and this is the major pieces in this as a part of the larger increase in this position and entirely business as usual, of course.
It therefore becomes very clear that the reported decline in EBITDA is almost entirely driven by the missing earnings contribution of one of our most profitable brands, Bluebeam, and that is due to the fact that they are affected by the accounting-related decline in revenue due to the subscription and SaaS transition. Looking shortly at our cash flow development, our strong cash conversion, the operating cash flow in relation to EBITDA of 123%, along with our strong free cash flow generation, once again underpins this very high quality of our earnings. Lastly, we once again improved the quality of our balance sheet. Our net cash position grew to EUR 189 million, while our equity ratio increased by more than 500 basis points year-over-year.
This does not only provide us with a high degree of safety during some uncertainties in economic times, it also gives us a substantial firepower for value accretive acquisitions in the coming months and quarters. I would say that's a pretty solid basis for the remainder of the year. With that, I'll hand it back to Yves.
Thank you, Louise. As we come to the end of our presentation on Page 10, I would like to turn to our outlook for the current fiscal year and our ambitions for 2024 and 2025. We are fully on track to a successful H1 for fiscal year 2023, before we expect an even stronger second half of the year. Therefore, based on the successful start of the year and the strong fundamentals of our business, we fully confirm our guidance for 2023 after this first quarter. In particular, that means that from today's perspective, the executive board continued to expect an ARR growth for more than 25% in 2023. As a result, the share of our recurring revenue is expected to exceed 75% at the end of the year.
The revenue growth at constant currencies is expected to be in the range of 4%-6%, and the EBITDA margin will be in the range of 28%-30%. We also confirm our long-term ambitions. For 2024, we already expect our growth to return to the double-digit percentage range, with 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 in 2024, the recurring part of our business will represent over 85% of our Nemetschek Group total revenues. Following the successful transition of the majority of our business to subscription and SaaS model by 2025, we expect a further acceleration of growth to a range that is at least in the mid-teen, significantly above the market.
With that, I would like to thank you for your attention, and we are now happy to take your questions. Operator, please back to you.
Thank you. If you have a question for our speakers, please dial star one one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find your question has been answered before it is your turn to speak, you can dial star one one again to cancel your question. One moment for the first question. Our first question comes from George Webb, from Morgan Stanley. Please go ahead.
Hi, Yves , Louise. Hope you're both well. A few questions on my end, please. Firstly, on design and the different effects you called out there, you only talked about a slight stabilization in the demand environment. Doesn't sound like a very material underlying strength thing. How much of that 12% constant currency growth rate in your minds came from four Q catch-up, and how much came from pull forwards from Q-two? Secondly, on the design price increases, can you just remind me what the scale of those increases are? Did you expect to see the extent of early buying that you did see towards the last part of Q-one? Lastly, just on the margin and build, Q-four margins were clearly weak from the transition.
Q-one was still well into the 30s% range despite a pretty similar constant currency growth rate. The Q-one margin was only really a 1 point lower than what you saw in Q-three last year before the transition had started. Sequentially, I'm guessing the Build and the Bluebeam cost base must have been quite materially lower in Q-one compared to Q-three and Q-four last year. Is that just normal cost-based seasonality? I guess when we think about the full year Build profitability, is there anything we should bear in mind in terms of the phasing? Thank you.
Thanks, George. first of all, your second question on the price increase. You know, the price increase is coming, which came early April, came from some of our large brands in design. There will be some other price increase, but not as material for the rest of the year. We are not expecting this type of behavior of customers who want to buy massively so much before any price increase for the rest of the year. To answer your first question, I think, yes, design had a good start. Now what we expect for design for Q-two is probably more a growth which is in the mid to high single digits growth on the design side. Regarding your last question on profitability and margin.
Can you please, repeat it? Because, I mean, the line was a bit bad on our side, so.
Yeah, of course. I guess when I look at the stack of the Build segment profitability in Q-three, Q-four, Q-one, we saw a very sharp impact lower on the build margin in Q-four. You were, you know, low 20% sort of margin range. Q-one, you were kind of in that low 30s range. It doesn't look that dissimilar to what you were delivering in Q-three before the transition had started. It kind of felt like the cost base, whether it's seasonality or something else, had stepped down from Q-three, Q-four into Q-one. I was just wondering if that's seasonality, is it some other effect? I guess when we think about Build for the full year, when should we think about the thrust from a margin perspective?
I would say that, in general, there's always a different cost structure that you have in Q4 to Q1, as you say. You have year-end bookings, et cetera, in Q4. There were some, To say nothing extraordinary, but there were some approvals made there, et cetera, in Q4 that was impacting Q4. That's not completely comparable. I think, Q1, it's more what you should be looking for, obviously, for the remainder and, to say the thrust that you were talking about, it, of course, also coming over the year. As we have highlighted as well, we think as they will be to the state, the peak somehow Q2 this year, then we'll continue in the transition.
You should expect, I mean, a little bit also what's booking in the Q1 and Q2 over the year, et cetera. The reason it's more the kind of year-end bookings you have in Q4 and Q1 is a more normal Q1, but impacted by the transition to subscription. Expect it to peak a little bit more in Q2, and then since we go over while we move forward on the transition. I hope that's helpful.
Yeah. Thank you.
We are going over to the next question. The next question comes from Sven Merkt from Barclays. Please go ahead.
Great. Good afternoon. Thank you for taking my question. Just first maybe I wanted to follow up on the revenue pull forward effect. Can you talk about the magnitude of that and how you exactly quantified that? Will this come all out of Q2 or maybe still impact H2? Secondly, you showed very strong cost control this quarter, the headcount even dropped slightly sequentially. OpEx has been now more or less flat over the last quarter. Therefore, the question, when do you expect to return to net hiring and sequential OpEx growth?
Hi, Sven, and thank you for your question. To start with your last question on the cost side, clearly, you know, we are very cautious on our costs, especially in these markets where there has been some hesitation, as you know, especially in the design segment in the second half of 2022. We are continuing to be very careful. We're still hiring. Of course, net, I mean, there has been some small decline in our total headcount.
Of course, we are taking measure all across the organization to make sure that on the cost side, we are very careful and that, you know, we really make sure that we work on optimization, and we are efficient as much as possible on how we move forward to really make sure that we have solid base to help the growth of the company. Regarding what has been pulled forward, I think again, it's a very small limited number of a very small number. In fact, I think the main effect was more the fact that a lot of the slowness that we have seen in Q4, a lot of customers who were supposed to buy more in Q4, with the delays, they bought more in Q1.
The pull forward has been very, very small. We are talking about a figure which is, you know, close to the EUR 1 million, in fact. Small.
Okay. Understood. Maybe, a question on the trade fairs. I mean, I think from the past, I remember that BAU quite often was quite supportive to growth. Had that a large impact this quarter? Or, would you say this was more, you will see the benefit more over the coming quarters?
Now, NAB, in fact, has been last week, so it's in Q2. But we are yet to talk about it because it has been so amazing event, with so many people, again, very crowded, as I said, over 200,000 visitors. We had a very massive presence because we had for the first time, really all our brands together under one booth instead of having different booths. It has been very successful in some parts. Now, are we going to see a lot of short-term positive effects on the, on the growth for that? Hopefully. But I cannot quantify it yet.
Okay. Very clear. Thank you.
Mainly lead generation, of course. Of course, we met a lot of new customers, but it's also a lot of existing customers, to presenting, the roadmap, the products. Of course, this type of event, as we have all the brands under one umbrella, it is also helping on the cross-selling piece because then you can say, "Oh, by the way, do you know this brand?" You know, like, Solibri can help you on the BIM check review, for example, if you talk to architects, et cetera, et cetera. So very positive in lead generation cross-brand, the cross-selling piece. So overall, we are very pleased with the feedback that we receive from the market, our customers, our partners, and also, analysts and, the media.
Great. Thank you for all the details.
We are now going over to our next question. Our next question comes from Nicolas David from ODDO BHF. Please go ahead.
Yes, thank you. Good afternoon, Yves and Louise. I have two questions from my side. The first one is I would like to discuss your performance in Q1 and your outlook, rather from a geography standpoint, notably with the focus on the U.S. Could you just give us some details about what has been the outperformance of the U.S. in Q1, if there was one, compared to rest of the group? What are you factoring regarding this market for the rest of the year? Do you think that it could remain very buoyant, or are you a bit more cautious given some macro indicator which can deteriorate right now? My second question is regarding the margin of the Design Segment in Q1, which is down.
Is it down only due to more marketing costs notably due to trade fairs and travels? Or do you have also other investment impacting the profitability, and how should we look at it for the next quarter, the margin of this business? Thank you.
Sure. Clearly, when you look at Q1 and how it is split between the regions, of course, revenue. Talking about revenue is a bit. Okay, it is what it is, but, you know, as in terms of sales, it's also interesting to see more, and in, which means the invoicing, sales. Clearly the U.S. market is still very strong, super strong, especially with Bluebeam. Now, of course, on the revenue side, if you look at Bluebeam, you know, again, it has been not a big growth because of the push to a subscription and SaaS. Overall, if you look at revenue, North America is a plus 9%. Besides the fact that Bluebeam is kind of in a flattish growth environment.
If you look at Europe, which is again, very strong on the design part, we had an okay growth. I think, if you look at Germany, it is not, you know, like it used to be over a year ago or two years ago. Clearly, there is still hesitation in the market, especially in the design phase. There are still some pockets in Europe which are much slower than what used to be in the past. Nevertheless, it has not been weaker than in Q3 or Q4. We have seen even some stabilization. Again, Q1 on design has been better than Q4.
We are not expecting suddenly for the rest of the year that design is going to come back to very strong, double-digit growth, especially because it's Europe, because we still see some hesitation. Nevertheless, again, talking to some customers in all these virtual but also more and more on a regular basis. Depending on what type of project they are working on, if you look at complex buildings, industry, infrastructure, of course, public sector, et cetera, here the demand is still very, very high. It's true that residential market, especially housing and new housing, there's been a significant decline, obviously, globally and in particular also in Europe. Again, our customers are working on a very different type of projects, and, therefore, the hit and the impact is not so big. There is still hesitation.
We can see it that, you know, it takes longer for customers to make some decisions on buying aspect. They do it, and this is what we have seen, you know. There have been a lot of delays in Q4, but finally in Q1, they woke up and they did it. Overall positive, but not extremely positive, short term for design.
Yeah.
On the margin side, yes, sorry, for design. Well, again, we have one of our brand Vectorworks who are moving fully to subscription for the direct markets, which are North America, U.K. and Pacific in the beginning of the year. Obviously this has an impact due to the subscription move for the overall design. Same also for SCIA and FRILO, which is under the Nemetschek engineering umbrella logo now.
Okay, that's helpful. I appreciate the comments regarding geography. That's very helpful. I agree, it really could be misleading to look at only at the top-line number growth. Maybe on the ARR number, do you share ARR growth by geography to maybe have a better perception of what is the performance of the U.S. and maybe about outlook of the U.S.?
No, we're not splitting that KPI by geography, no.
Okay, thank you very much.
We are now going over to our next question. Our next question comes from Nay Soe Naing from Berenberg. Please go ahead.
Hi, everyone. Thank you for taking my question and also, congrats on a very good start to the year. I've got two questions, if I may. Firstly, if I may dig a little bit deeper into the demand environment, especially in design. Did I hear correctly that you said you're not extremely positive on the short term, but you are expecting, you know, quite strong performance from H2, and this is maybe somewhat in contrast to what we're seeing in the leading economic indicators in the construction industry. I was wondering, you know, what is driving that disconnect between your demand outlook in the design versus what we're seeing in the underlying construction industry, please?
Secondly, second question as well, in the Bluebeam brand, you know, outside of the transition impact, could you share some details around the new user growth performance as well? You know, I remember a couple of quarters ago that you delayed transition because you were seeing very positive new user additions. Has that continued? How is it trending from that point? Thank you very much.
Sure. Maybe to start with your last question. On the Bluebeam side, clearly very positive new user growth. We still see strong demand, especially in North America. If you look at H2, well, the growth that we see is clearly compared to last year. Because, of course, Q4 of 2022 was not as big as the previous expectations. It will be an easier comparison base, especially in Q4 for H2. There will be a lot of renewal waves on the Bluebeam side for subscription by the end of the year. We will have all the positive effect of the subscription model that we start seeing more towards the end of 2023.
Therefore, we're not expecting that suddenly the demand from the customer side is going to explode in H2. It's more the fact that, you know, thanks to our move to subscription, we see some of the effects already in the second half of this year.
Understood. Thank you. Just lastly, would you also agree that there is some, somewhat of a disconnect between, you know, what's happening in underlying construction industry versus the demand of business activities for your software solutions?
Well, depending who you talk to in the construction industry, because the backlog of the construction industry is still very present, it's still full. I mean, talking to customer, again, at BAU here, BAU is mainly European, a lot of them were super busy. If you talk about multidisciplinary company, engineering company, architecture company, general contractors, et cetera, they seem to be all very busy. They seem to have a lot of work. They seem confident on the future. Again, it's mainly on the residential side, than here. Clearly, there is more hesitation and slow down, that's something we have seen already starting in April.
Clearly our underlying structural growth drivers, so the low degree of digitalization, the fact that regulation is still pushing for BIM adoption, et cetera, et cetera, that's still there. Of course, as I mentioned in previous calls, and that was also clearly testified by a lot of customer discussion, renovation, is especially in Europe. You have less new buildings, less new projects or new build, but you have more and more renovation projects since the second half of last year. It is increasing more and more. Now we have seen that with what we are hearing already for 2023, for energy efficiencies and, and other topics.
I think.
All of that, they need to use software. They see more and more the fact that they need to be more digitalized and the use of software is becoming more important to streamline the workflow between all the different players in the building life cycle. If they continue like they are, again, business as usual is not an option if they still want to be profitable.
Amazing. Thank you very much for all the additional color.
We're going over to the next question. Our next question comes from Knut Woller from Baader Bank. Please go ahead.
Yeah. Thank you. Two questions. The first one, looking at the Bluebeam transition. I think you added now roughly 10 percentage points of customer base that has been converted to subscriptions in Q1. How should we think about the future adoption of the subscription offering? Is it something to get to your 90% plus, that we stick to the 10 percentage point ratio by quarter? Or do you expect something like a more accelerating momentum now and then it's phasing off? The second question, more of a midterm question regarding the managed segment. Looking at the digital twin, it could be quite an interesting opportunity for Nemetschek coming in the next year.
When we think about the segments, which revenue potential do you see for the managed segment? On the timeline, when do you think this is really, time to harvest this opportunity? Thank you.
Thanks, Knut. First of all, on Bluebeam. Yes, increase by 10% of existing customer every quarter moving to subscription is currently a good expectation, and this is what we are planning. We are careful on the part that we are not expecting simply a bigger growth. We may have some nice surprise. We don't know that that's our current expectation, correct, so that we can reach the 90% by the end of 2024. On the manage and operate division, I think clearly Digital Twin is still under development. We will disclose more in the next few months and weeks about where we are. Be patient, this is going to come.
Telling you now exactly how much revenue we are going to expect and for when is too early.
Got it. Thank you, Yves. I stay tuned. Thanks.
Thank you.
We're going over to the next question. The next question comes from Deepshikha Agarwal from Goldman Sachs. Please go ahead.
Hi. Thanks for taking my question. I just have two questions. The first one is on design. Like the pricing increase is something that has been just talked about during these results. Just wanted to understand, how should we think about price increases more so in the context of the growth trajectory that we expect to see because of that. As in how much of the like the incremental growth will be coming from pricing and design over the course of the remainder of the year. Second of all, You're building slowly a good amount of net cash, and you talked about the firepower as well.
Any color on the kind of pipeline that you have in terms of acquisitions or other, you know, partnerships that you have in pipeline. Or and the environment around negotiations?
Sure. If you look at, the design part and, the price increase, again, as an average, it's more in the mid to high teens.
Single.
Single-digits, sorry. Single-digits growth. Again, it's depending. You have SSA sometimes, maintenance, which might be more in the double-digit side, but then some perpetual items or subscription price increase has been maybe more in the single-digits growth. But as an average, you know, more towards the upper end of a single-digit growth in term of pricing. Now, it doesn't have, you know, I would not say that this is the major clearly growth driver at all for the moment. I mean, clearly majority of the growth and what we are still expecting for the next part of the year is that the growth in Design will come mainly from new additional seats and new users. On the M&A front, well, we are still talking to different targets.
We are still scouting, you know, the market overall. It is true that we are looking at different parts of the life cycle, clearly in design, but also in the build area, in the operate and manage area, also even in media. Again, no change here, on our strategy. M&A is still a core part of our DNA, one of our key pillars, and something that we are looking at very, very seriously, more than even probably the last 2 years, because we see that as a strategic buyer versus some other potential buyer, we have a lot of advantages today with the current market conditions. Clearly, there will be some nice opportunities in the short to midterm.
Okay. Just one quick follow-up. Given, you know, there is M&A, is there like... I know, you have dividends as well, will there be any scope of, you know, anything on more on the front of capital returns as well?
No. No.
Thanks.
On the other hand, we're talking about M&A, but on venture investment, as you may have seen, especially for the last 12 months, we are increasingly investing more and more in venture, in startups, because we strongly believe that's also an excellent way for us to innovate, to disrupt ourselves, to disrupt potentially the market. You have seen that in Q1, we have done a multitude of startup investment, especially around AI, ML activities and technologies.
Okay. Thanks for taking my question.
We're going over to our next question. The next question comes from Victor Cheng from BofA. Please go ahead.
Hi. Thanks for taking my questions, and congrats on the solid quarter. A couple on pricing, just going back to pricing again. In design, is it mostly Allplan and Graphisoft that is doing price increases? When I look at Graphisoft, at least across a few regions, it seems like the price increase is more like, you know, higher than double digits in licenses and SSAs, and maybe a bit lower in subscription. Is that a way kind of to encourage users to move to subscription? What are you seeing in April in terms of, you know, buying patterns in these brands and Vectorworks? Are you seeing higher churn or not?
To come back on the price increase, especially if you look at Graphisoft or others. I mean, it's more like in the 12% on SSA around, but it really depends. It's really on average, you know, you need to look at depending on the region, on the market. On the subscription side, we are also in the high single digits growth around in the price increase. Clearly it depends on the region, depends on the brands. It's not a generic and general thing. It's more on average.
You can say that it's slightly higher on the base than in the subscription, as we noted. It's really a calculation of the different regions, different brands, different offerings that we have. It's just a dozen average to be taken on, but the direction is what you're saying.
How about the churn?
The churn on the Vectorworks.
No, we don't see any high churn. I mean, the churn is still very low, same level, still strong, very sticky product.
A very smooth transition as well.
Yeah.
We get feedback from the customer.
Yeah.
very well received.
Yeah. The Vectorworks transition is working very well. Very good user experience. I mean, you're welcome to go to the website and buy some license of Vectorworks if you want to test it. No, it's very good.
Yeah. Very clear. Maybe just one quick follow-up is, well, you mentioned that the overall price increases is around mid to high single digits in design. You also talked about the majority of growth coming from new users, in the next, you know, for the remainder of the year. Adding that together, doesn't that imply, you know, double-digit growth in design, which I guess that's not what you're guiding to. Maybe if you can help me understand some of the moving parts there.
Well, again, it is very phased, this price increase. It's not like, you know, we're doing all this price increase starting from January first. Again, one of the large brands is doing some of their price increase on April first, you know, as mentioned the name, just a few minutes ago. But other brands are doing their price increase in a different stages during the years or... yeah.
We also have the move to subscription also there in the design segment playing in as well. Since they have the higher growth expectation of the seats, we also have the move to subscription that is of course accounting wise the same happening this. The direction.
Yeah. Very clear. Thank you.
We're going over to the next question. The next question comes from Chandramouli Sriraman from Stifel.
Hi, thanks for taking my question. Most of my questions have been answered. Just a follow-up. I think you mentioned about renewals in Bluebeam kicking in in the second half of this year. Historically, cross-selling has not been a very powerful way to accelerate top line for Nemetschek. Are you here specifically talking about cross-selling or adding more seats to your Bluebeam business? Thanks.
Hi, yeah, Chandramouli. Clearly, the number of new seats is coming from different angle, of course, as a point for theirself. We see slowly more and more cross-selling piece. Of course, it's still very low, versus the potential that we can have over time. We see more and more momentum, with opportunities to cross-sell, especially some products, on the design side or et cetera. It is still slow and low, but there are a lot of opportunities. Long term, it offers great potential.
This is, for example, what Maxon has been able to do that properly with their premium, package where it's actually not cross-sell, but they put everything in one suite of products, which is something that we are currently thinking about, and working on for the AEC, customer base.
Got it. Thank you.
We're going over to our next question. The next question comes from Andreas Wolf from Warburg Research.
Hi, everyone. Thank you for taking my question. My question would be on clients who have purchased a license in the past on and paying maintenance right now. How are you dealing with those which do not want to move to subscriptions? Will there be an end of life for the existing licenses? The second is on dRofus. To what extent is the software already used for maintaining buildings? Obviously, in the world of a Digital Twin, this might play a bigger role. Thank you.
Thanks, Andreas. Regarding dRofus is mainly used at the beginning of a project. It is really a software data management software to make sure that, you know, all the requirements that you have as an owner of a building, mainly complex buildings, these data are not lost within the overall life cycle of the design, of the planning and the construction of the project. Yes, of course, some of the data are then used for the operate and manage phase. It is a part of our Digital Twin concept, but it is definitely not the full Digital Twin concept. dRofus full standalone is sold, as you know, since now a few years successfully, especially with complex buildings like airport, like clinics, et cetera.
Your first question was, around, yeah, how to convince customers to move them to subscription. Well, again, just a move to subscription model is not enough. You need to bring them more additional features to make sure that there is something in it for them to pay on a monthly basis or yearly basis that subscription. You know, with Bluebeam, we didn't launch Bluebeam subscription. We launched Bluebeam Cloud again, which was bringing additional features than the simple basic, let's say review, desktop solutions. Now, what are we doing with people who do not want to move to subscription? Well, it is really depending on the brand. Most of our brands, if people bought a perpetual license, they have a perpetual license, so they can still use the software for a long time.
Of course, they still will still need to pay the SSA, and if they don't pay the SSA, they will not be able to have, you know, all the updates and upgrades to be able to use properly their tools. In some cases, you know, we are also potentially putting some old versions, end of life. That's really depending on the brand, depending on the product within the brand, et cetera.
I think that we can also see that within Bluebeam that as Yves mentioned before, we see a higher uptake towards the Core and Complete, which it's even more the higher tier packages where we have added more. That is really coming on very well with the customers. That is really, it's something they really see as added value, and that's why we see a very supportive growth or take up there as well. It's definitely not too difficult to convince them.
Yeah. Again, you know, thanks to that, thanks to the fact that most of the Bluebeam customers are going after the mid and premium tier package. As we said, it's still the case for Q1. The average Bluebeam subscription price represents between 50%-55% of the perpetual license.
Thank you. We're going over to the next question. The next question comes from Martin Jungfleisch from BNP Paribas. Please go ahead.
Yes. Hi, good afternoon. Two questions, please. The first one is on Bluebeam. Could you comment on the take up of the maintenance to subscription offer in Bluebeam from your existing maintenance customers? Would this be immediately accretive or rather neutral to revenues? How would you expect the maintenance base to evolve over the next quarters in Bluebeam? The other question is on cost. Would you say that the around EUR 90 million in personal expense in Q1 is a good run rate for the next one or two quarters? Does that not include any wage inflation yet, which would rather come into in Q2 or Q3? Thank you.
Okay. Let me start with the cost side of it. There were some of the salary increases that we only took forward starting April as well. We will also see that spend trajectory going forward throughout the year. We didn't increase all the salaries throughout the group as of first January. I think also there it's important though to highlight that we have differences in different regions and subscription and SaaS structures that we have. To answer your questions there, yes, it's a big picture, big basis, but we didn't take all the salary increases starting first January, so we will see some starting only in the Q2. That's on the personnel cost side.
As Yves already said, we are focused on hiring et cetera. We continue to hire. We will continue to balance that as well over the year.
Yeah. Then on the Bluebeam side, if existing customers pay the same for maintenance, you say then subscription, is that your question?
Yeah, exactly. First of all, the tick up, so the maintenance to subscription. From the monetization, if that's immediately accretive to revenue or is it rather neutral if someone moves?
Again, it's really depending on the type of customer, the size of the customer. Of course, if it is an existing customer, at the beginning, you know, the price to upgrade to subscription the first time, it's more or less the same price. We are increasing then the price until it reached the list price. If existing customers are moving to subscription, that's kind of at a discount, but over the year, it will increase and to reach the list price.
Okay. Thank you.
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Thank you everyone.
Thank you very much.
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