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, Investor Relations, who will lead you through this conference. Please go ahead.
Thank you, operator. Hello, everyone, and a big welcome. Thanks for joining our earnings call today to discuss the results for the second quarter, 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, the presentation, and the press release on our investor relations website as well. Now let's get started. I would like to turn over to our CEO, Yves.
Thank you, Stefanie. Welcome everyone to our Q2 H1 2023 earnings call. As usual, we have prepared a short and informative presentation on the highlights of the first half of 2023, that our Chief Financial Officer, Louise Öfverström, and I will briefly walk you through so that we have enough time to address any questions you may have during the Q&A session. To begin with, let me summarize the key messages for the second quarter, as well as the first half of 2023 on page two. While Q2 clearly marks the low point in terms of revenue growth and profitability in the entire fiscal year 2023, the Q2 results were in line with our internal expectations and plans.
The main highlight is a continued high growth of our recurring business, and in particular, the subscription and SaaS revenues, which were once again the main growth drivers, even despite the continued difficult market environment we see in our European design markets. As expected, in line with our top line development, our profitability continued to be impacted by the accounting-related temporary impact from our transition to a subscription and SaaS-driven business model. Additionally, it was impacted in the second quarter by several expected one-offs. With our H1 results, we are where we wanted to be after the first six months of the year.
Based on our successful start of the year, the expected acceleration in growth in the second half, as well as the continued progress on our strategic initiative, we are currently on track to once again reach our goals for the fiscal year and therefore fully reiterate our fiscal year 23 outlook. Looking at our journey to a subscription and SaaS-centric business model, we have made substantial progress in the first six months of the year. In the case of Bluebeam, we are happy to report that Bluebeam transition continued as planned. By the end of Q2, we have now migrated over 35% of Bluebeam customers. This progress continues to give us a great deal of confidence that we will be able to achieve our goal of migrating more than 90% of Bluebeam customers to the new subscription package by 2025.
We also continue to see that the majority of Bluebeam customers continue to prefer our mid and higher tier packages, which include more of the newly introduced Bluebeam Cloud features. In addition, and in line with our phased approach, several brands in the design division, namely Vectorworks, SCIA, and Frilo, have also successfully started their transition. In the case of Vectorworks, as already mentioned, the brand is initially focusing on North America, U.K., and the Pacific region for this push to a subscription model. Last but not least, we continue to be well positioned to achieve our targeted above-market growth and shareholder returns in the mid to long term by capitalizing on our leading position in a structurally growing industry, our diversified portfolio, as well as our innovative solutions. To summarize, we are well underway to deliver on our midterm 2024 and 2025 ambitions.
On page four, you can see an overview of the corresponding figures to the Q2 development that we just discussed. Our annual recurring revenue, driven by a very strong increase in subscription and SaaS revenue by almost +47% at constant currency, remained at a high level with a growth of +22.4% and even +24.2% at constant currency. Our reported revenue, as already mentioned, was impacted by the temporary, rather accounting-driven effect to our subscription SaaS transition, as well as a continued hesitation in the European design market due to the current macroeconomic environment. Our revenue, therefore, increased by 3.3% on a currency-adjusted basis to EUR 204 million.
In addition, in line with our internal expectations, our EBITDA amounted to EUR 56.1 million, impacted, as mentioned, by the short-term transition with lower revenue related to our ongoing subscription transition, as well as expected one-offs in the 2Q. The corresponding Q2 EBITDA margin is at 27%, clearly the lowest margin level that we expect for the entire year. Consequently, our earnings per share is in the 2Q at EUR 0.28. Before we will dive deeper into our financial results of Q2, as well as the first half of the year, I would like to use this opportunity to also give you an overview on page five, of the various strategic highlights in the first six months of the year in each of our five defined strategic focus areas. Page five.
Our clear number one priority is our journey and our transition to a subscription and SaaS-centric business model. After having accelerated our approach last year with the start of growing transition, we now also have a clear subscription strategy for each of our design brands. The results of this strategy are evident when you look at our figures. The recurring part of our revenues, and in particular, our subscription SaaS offerings, are the clear growth driver of our business. This over proportional growth translates into an ever-increasing share of our recurring revenue, with now around 75%. We will talk more about that topic in a few minutes. Also, innovation and technological leadership have always been a core part of the Nemetschek Group DNA. In 2023, we solidified our position as an innovative leader once again on various fronts.
For example, in the field of digital twin, which we are currently developing, and with the continued improvement of our growing cloud solutions. Apart from the normal numeral upgrade and new cloud features that we develop across our brands, we, for example, launched the new and innovative Solibri Inside product, a quality checking solution, which is also integrated with Allplan, Archicad from Graphisoft and Vectorworks. Another R&D key focus area is of course, and very, very strategic and important for us, the field of artificial intelligence. We are taking a dual approach here. On the one hand, we are looking into how we can increase our internal efficiency with the help of AI. For example, in the areas of software development, services, customer support, but clearly overall in all our functions across the group.
On the other hand, we are of course, enhancing our products with external use case to bring AI features on our current product line. To achieve this, we have three main levers. Firstly, by focusing on our own R&D capabilities and resources on this important topic. Secondly, thanks to the foresight of the Nemetschek Innovation Foundation, we have a close relationship for the last two years with the Chair of Artificial Intelligence for the Build Environment at the Technical University of Munich, one of the leading universities here in Europe. Lastly, we are investing in highly innovative and potentially disruptive startups around AI, generative AI, and generative design. Over the last six months, we also improved our go-to-market strategy by strengthening things or instrumentalization and cross-selling activities across the group. As you know, our customer base is in majority, small and medium businesses, especially in the design segment.
We therefore have increased our focus also on the large customer segments, for example, also via joint and unified appearance of our brands at the major trade fairs in our industry, such as BAU in Munich or the Digital Construction Week in London. By offering the solution on the Nemetschek Group out of one brand, we do not only want to make it easier for our large customers to do business with, but also to help the entire AEC industry to move from silos to integrated workflows. In the area of business enablement, we worked on the future and further harmonization, as well as the continued buildup of our organization, which is important to ensure that we have a strong and solid base to be able to make the most of our tremendous growth opportunities going forward.
A key initiative in this area is therefore on continued effort to further enhance our operational excellence. As I already mentioned in the context of AI, another way to be at the pulse of the latest technological developments and trends in our industry is via our venture investment activity. That is why in the last six months alone, we made five investments in a number of young and highly innovative companies, such as Preoptima, decarbonization software, which is promoting more sustainability, ability in the construction industry. SmartPM, a cloud-based software for project analysis during the construction process, or KEWAZO, with its robotic solutions that enable automation and digitalization of on-site material flows. This company will help us to further increase our innovative strength and to cover important future topics.
With that, I would like to hand over to Louise, who will talk you through our financial highlights of the fiscal past year.
... Thank you, Yves, and a warm welcome to our Q2 earnings call also from my side. I would like to start with an overview of the key financial highlights of the first six months of the year, which you can see on page six. As is already highlighted in the beginning, our performance in the first half should be seen in the important journey to a subscription and SaaS-centric business model, and its temporary, rather accounting-driven impact on our financial results. Therefore, I think we all can see that we had a successful first month of the year, which was also fully in line with our internal forecast.
We continue to be one of the very few companies that is able to show an attractive top line growth, combined with only a limited impact on profitability, while transitioning the business model from a perpetual license to a recurring revenue-driven subscription and SaaS business model. Let us have a look at the numbers. I'm starting with the revenues in the first half, which grew by 4.1% on a reported and 4.2% on an FX adjusted basis to EUR 412 million, driven in particular by a strong performance in the first quarter. The main contributor to our growth in the first half of the year was once again, the recurring part of our business, which is represented by our annual recurring revenue KPI that increased by 22.4% and even 24.2% on an FX adjusted basis to EUR 638 million.
The continued strong increase in ARR shows a good growth outlook for our business for the next 12 months. Looking at the different components of the ARR growth, it becomes clear that in line with our strategy, our subscription and SaaS revenues were once again a key growth driver with a plus of almost 43% to EUR 132 million, and that is very satisfying to see as this forms the basis for our future continued strong value creation. Similarly, the top line development, the profitability in the first half year also reflects the impact from the changed revenue stream and recognition pattern for our subscription and SaaS offerings. The year-on-year decline in EBITDA of 15.4% and the corresponding EBITDA margin of 28.4%, are therefore mainly a function of the transition-driven lower revenue than the upfront perpetual license revenue in the past.
Our earnings in the second quarter were also impacted by expected one-offs, such as upfront investments in our strengthened joint appearance as a Nemetschek Group with all our strong brands. For example, first joint trade fair appearances of the group brand, which is also an important part of our go-to-market approach and also some extraordinary personnel expense. Last, but definitely not least, our extremely solid balance sheet as well as our strong cash conversion, operating cash flow in relation to EBITDA of 104%, provide us not only with a high degree of financial security, but also a substantial financial firing power, should value accretive M&A opportunities come up.
On page seven, you'll find developments of our four segments during the first half of 2023. Starting on the left side with our design segment. While Q1 and Q2 were affected in opposite directions by pull forward and catch-up effects, we are in sum with EUR 204 million, in line with our forecast after the first half of the year. This corresponds to a growth of 7.6%. This is despite the start of the business model transition of Frilo, SCIA, and especially Vectorworks, to our subscription model and the beginning of the year, as well as the ongoing hesitations and constraints in many European design markets. Consequently, we are pleased to report that also in the second quarter of the year, within the design segment, our subscription and SaaS business continued to grow substantially by almost 40% on a year-to-year basis.
The decline in profitability to 24.9% is almost entirely explained by the subscription SaaS transition, as well as the previously mentioned future enhancing planned one-off, of which the vast majority is attributable to the design segment. The performance of our build segment reflects that our largest brand within the group and within this segment, Bluebeam, is successfully in the midst of the transition to a subscription and SaaS-centric business model. Thanks to the continued good customer demand, especially in the important U.S. market, the revenue only declined by 3.1% in the first half of 2023. This is despite the Bluebeam transition. In addition, the segment's profitability, where we see an above group average margin of 36.3%, also stayed while transition impacted on a continued high level.
The revenue growth in our media segment showed year-on-year growth acceleration in the second quarter, as we had expected. Resulting in an increase of 8.2% for the first half of 2023. The underlying subscription revenue growth of the media brand, Maxon, even surpassed the 20% mark. As a reminder, the slower start to the year had been foreseen as the comparison base, which was the first quarter of 2022, benefited from inorganic growth contribution as well as from a strong positive one-time effect due to the last-time sale of perpetual license in China. As a result of the lower business model transformation-driven license sales, the EBITDA margin consequently contracted to 35.5%. Aided by a slight re-acceleration in growth in Q2, our smallest segment, Manage, recorded a growth of 8% at constant currency in the first half of 2023.
Continued investment into our digital twin business unit, as well as the ongoing reshaping of the Manage segment to position the segment optimally for the long-term growth opportunities at hand, thanks to several very favorable market trends, mega trends for the segment, such as green building, increased need for energy efficiency, or digital twins, continue to impact the segment's profitability in the short term. Today, we have already talked a lot about the transition-driven, rather accounting-related impact of one of our key strategic priorities on our short-term earnings. That is the transition to a subscription and SaaS-centric business model. Please allow me to briefly explain the reasons for this important strategic initiative again.
We are convinced that the move to a subscription and SaaS model has very many benefits for us, of course, also, and in particular, if it's done right, to our customer, which is paramount in our customer-first mentality here at Nemetschek. With our new model, our customers are more flexible and no longer have the high upfront investment. This is especially attractive from many customers during 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 value creation. We can address completely new customer groups, expand the customer lifetime values, enhance the customer satisfaction, tap into new cross and cross-selling opportunities.
All in all, we are convinced that this move towards a higher share of recurring revenues will not only increase the predictability of our revenue stream, but also enable us to accelerate our growth rate even further in the future, as indicated by our midterm ambitions. On slide eight, we provide an overview of the significant progress we have made in implementing these plans in the second quarter of 2023. As you can see on the left-hand side, we are proud to report that in Q2, the share of recurring revenues surpassed the 75% mark for the first time in the Nemetschek history, an increase of 10 percentage points year-over-year. This development was mainly driven by a strong expansion in the share of subscription and SaaS revenues, which now already account for 33% of our total revenue.
Looking at the right-hand side, we can see the corresponding growth of each of these types of revenues in the second quarter. Our most important operational KPI, the annual recurring revenue, or short ARR, continued to over proportionally grow to EUR 631 million. This represents a growth of 22.4%, a rate which is expected to accelerate even further in the second half of the year. As you know, our ARR definition includes all types of recurring revenues, so also our maintenance contracts. That means that if we strip out the maintenance part, the underlying subscription and SaaS ARR growth is even substantially higher. As expected, with the termination of the license date of Bluebeam, as well as several design brands, our license revenue fell steeply by 39%, which was in line with our plans.
As a result, this revenue category accounted for only 20% at the end of Q2. To conclude our overview of the financial results for the first half of 2023, we provide a more comprehensive overview of our key P&L and cash flow items on page nine. We have already addressed our revenue development and EBITDA margin in detail. Looking closer at the development of our biggest cost components, you'll notice that our other operating income and expenses line increased slightly over proportionally by 20%. This development was mainly driven by increased travel expenses versus first half of 2022, and also trade fair related costs, for example, for the BAU in Munich or the Digital Construction Week in London, as well as a general inflation component. Taken together, these items are responsible for a large part of the increase.
However, after an increase of more than 26% in the first quarter, the second quarter returned to be at a more moderate growth level of 15%. This is in line with our expectations, and we will ensure that this trend continues for the rest of the year by keeping a continuous close eye on our spending, combined with enhanced operational excellence. It therefore becomes clear once again that the reported decline in EBITDA is almost entirely driven by the transition-related lower earnings contribution of our brands, Bluebeam, Vectorworks, Solibri, and SCIA, which are affected by the rather accounting-related decline in revenues due to their successful transition to a subscription and SaaS-driven business model.
Looking at our cash flow development after the first quarters of the year, we see a strong increase of 17% year-on-year, helped also by slightly improved working capital as well as a slight reduction in CapEx. The free cash flow of almost EUR 116 million strongly underpins the high quality of our earnings. Last but not least, we once again improve the quality and the strength of our balance sheet. Our net cash position grew to EUR 168 million, while our equity ratios stay at a very high level of 57.5%. With that, I'll hand it back to you, Yves.
Thank you, Louise. As we come to the end of our presentation, I would like to turn to outlook of the current fiscal year, 2023, as well as our ambition for the following years, 2024 and 2025, on page number 11. As we mentioned before, with our H1 results, we are in line with our internal plan. We have laid a good foundation to achieve our targets for the fiscal year 2023. Therefore, based on the successful first half of the year, the expected stronger second half of the year in terms of revenue growth and profitability, as well as the strong fundamentals of our business, we confirm our guidance for 2023. In particular, that means that from today's perspective, the executive board continues to expect an ARR growth of more than 25%.
As a result, the share of recurring revenues is expected to continue to exceed 75% at the end of the year. In addition, the revenue growth at constant currency is expected to be in the range of 4%-6%. The EBITDA margin will be in the range of 28%-30%. We also fully confirm our long-term ambitions. For 2024, we already expect our growth to return double-digit percentage, while the EBITDA margin will again be at the level of over 30%. Due to the significantly over proportional increase in subscription and SaaS revenues, we expect that the recurring part of our business will represent, in 2024, around 85% of Nemetschek's total revenues.
In 2025, following the successful transition of the majority of our business to subscription and SaaS models, we expect a further step up in our growth to a range that is at least in the mid-teen, so significantly above the market. We believe that with our ambitious short and midterm goals, we provide a clear picture for investors to look beyond the current transition and to see tremendous long-term growth potential, driven by the strong fundamentals of our business in our end markets. With that, I would like to thank you for your attention. Louise and I 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's your turn to speak, you can dial star one one again to cancel your question. One moment, please, for the first question. Our first question today comes from George Webb, from Morgan Stanley. Please go ahead.
Afternoon, Yves and Louise. Three questions to kick off from mine, please. Firstly, can you just help size some of those one-off impacts that the design segment margin had in the quarter, and how we should think about that margin recovery through the rest of the year? In essence, how tight do you anticipate being on, on the cost base and design in the second half? Secondly, tied into design, with Viktor leaving as head of that division in the quarter, does anything strategically change with César at the helm, or are the division priorities the same? Lastly, if I, if I look at the build segment this quarter, revenue's down about EUR 3.3 million year-over-year. EBITDA was only down EUR 3.8 million, so it's a very little actual cost growth.
Despite the inflationary environment, you're still running at over 37% EBITDA margins. Can you help fill in a bit of detail around how I should think about the build segment operating cost picture and why that cost base hasn't been growing more? Thank you.
Thank you, George. First of all, on the one-off impacts, of course, it impacted our EBITDA. We believe that's going-- it is around EUR 2.5 million- EUR 3 million, mainly on the design side. Majority of it are coming from severance costs. Of course, without that one-off impact OpEx, we would be just slightly above the 28% EBITDA margin. Your second question regarding management change on the design side, César Flores Rodríguez is now also the Chief Divisional Officer of the design and planning division. Of course, we are reviewing the overall plan at the moment. There is no imminent big strategic change.
Our main focus here in design shorter is, again, our priority number one: to focus and accelerate or move to subscription and SaaS models, especially with what is currently going on with Vectorworks. who is currently doing that in their direct market in North America, U.K., and Pacific, and then starting next year, they will do it rest of the world, especially in continental Europe. Also Frilo and SCIA, which already started. Then we have our two largest brands, Graphisoft and Allplan, which of course already started move to subscription, but where we are planning some accelerations within the next few months. Again, Graphisoft and Allplan will always still offer perpetual license, but they are going to push much more aggressively subscription, to make subscription more attractive in term of feature set versus the perpetual pricing packages and products.
Also, they will make it more attractive commercially. That's clearly the main strategy that we are going to continue to accelerate on the design side. Regarding your third question, regarding the build division, I mean, clearly we are going to invest. We want to strongly drive innovation. We are planning to do some further development on building cloud and on move to a pure SaaS platform for building, which of course will be some investments. There is a need for investment on build, and therefore, you know, there should be some growth on the cost side also in the near future.
Understood. Thank you.
We're going over to our next question. Our next question comes from Sven Merkt from Barclays. Please go ahead, Mr. Merkt.
Yeah. Thank you. Good afternoon, thanks for taking my question. First, I was wondering if you can comment on the demand environment. Has there been at all any change over the last quarter? Importantly, how do you explain some of the regional trends? It sounds like Europe was weaker again than the U.S. If we look at more the macro picture and statistics, like the decline in building permits, both markets seem broadly, similarly impacted. Where do these regional differences come from? Then, secondly, I wanted to take a step back on, on the cost side. Think a bit about the cost growth into the second half for the, for the overall business. If we now just take the Q2 run rate, excluding the one-offs, how should we then think about incremental cost growth or take out in the second half? Thank you.
Regarding the environment and the demand. Again, since, you know, the second half of the last year, as mentioned, we see a lot of hesitation in Europe, especially in design and planning. This is still the same. As you remember, you know, we had lower demand, especially in Q4 2022. We had kind of a pent-up in Q1 on the design side. Clearly we came back again to, you know, what we saw in the second half of last year in terms of demand in design, especially in Europe. When you look at other markets, especially North America, we see that the demand is still there so far, also in the build segment.
We have some very nice growth of number of new subscribers for building, for example. Even on the design side, the demand is still there in North America. Despite the fact that, of course, the overall construction industry is suffering, we see that the number of permits has significantly declined. You know, we would have expected clearly also that North America design and planning would be a bit weaker. You know, when we talk, especially with large architecture firms in the U.S., most of them were anticipated more impact and slower growth for them this year, but we didn't appear yet. They still need to be quite, quite busy in North America, where clearly in Europe, there is much more hesitation.
Of course, overall, North America or Europe, the residential market is really decreasing significantly, especially housing and, and, and, and apartments, et cetera. Same for commercial, but overall, on the public sector, there is some very nice growth, especially in infrastructure or public sector in general. Then, as mentioned already last quarter, we see really very nice increase coming from renovation projects, especially everything related to be more efficient on the energy side with all the big cost increase on energy, especially here, here in Europe. That's for the envi- environment side. Then regarding the cost side-
Yeah, maybe, maybe I take the cost side, too. If you look at the run rate to say a little bit how we should be thinking going forward, the one-offs were clearly one-offs in the first half, nothing that we expect explicitly for the second half of the year. We will continue to invest into our business in the second half as well, as we also foresee a growing business in the second half. That's of course, having then also an effect on the cost side. I think we should not forget that there were cost increases, like the salary increases that only kicked off, kicked in, in Q2, in the first half year, and that will, of course, remain in the second half of the year as well.
Whilst we continue to invest, we are not planning any significant one-off. There's always a normal priority of it, but not, not to the extent that we saw in the first half year. Of course, with growing business, a slightly growing cost base, and of course, then also having some effects, like the personal cost, that increased only starting Q2. I hope that's helpful.
Yes, it's helpful. Thank you very much.
We're now taking our next question. The next question comes from Victor Cheng from Bank of America. Please go ahead, Mr. Cheng.
Thank you, thanks for taking my questions. Just two, if I may. Can you talk a bit about the growth in design and quantify the headwind from subscription migration, and the pull-forward effects? You know, on the brands that you see price increases, is there a kind of a, you know, people are more hesitant to get more licenses? Then secondly, obviously, you talk about, you know, AI initiatives, but if we think about the contribution of financial results, do we expect, you know, better margins with operational efficiency or, you know, higher revenue in terms of, you know, better pricing or AI incremental pricing on top, you know, in the long run?
If you look at design, again, I think, the growth there, is mainly driven in terms of bookings themselves, from a subscription. We have a big decline of perpetual license sales in design. Already last year, without us pushing too much with the design brand, as already mentioned, as it is mainly European-focused business for us, most of our customers, you know, they want to buy a subscription more than a perpetual license. If you look at what happened in H2, in H1, sorry, on the design side. Again, in Q1, we had to spend up demand coming from a lower Q4 2022, which was then coming only in Q1 2023.
We had low single-digit million EUR pull forward, you know, also coming from Q2 to Q1, because mainly of Graphisoft, who started their price increase in April 2023. If you look at, you know, what's coming up for design, obviously, there is some price increase effects, which will be more visible in the second half than in the first half. That's a contribution, clearly, also of the acceleration of the revenue growth. Then it's also the subscription element of our business in design, which is also going to have some positive effect already in the second half of this year. Yes, we are planning to add some AI plugins, especially around generative design in our product portfolio across different brands.
Overall, you know, there is an easier comparison of year-over-year growth, or H2 2022 was, let's say, not fantastic in term of growth for design and planning. We have now an easier comparison for the second half of 2023.
Okay, thank you.
Yes, also, Victor, we are also expecting better margin coming from the design side.
I guess is that kind of more long term with AI helping operational efficiency?
Yes, of course. AI, in general, is going to help us overall for our business to be much more efficient across all the functions, in software development, in finance, in all the functions that we have, and also using more and more AI on the marketing and sales side, but clearly going to help us on the cost side, like all software companies in general.
I think what, what's important, we're seeing from both, from both aspects, both on the product side, so to say, and, to say from a customer product offering, to enhance the product offering going forward, but of course, also enhancing our operational efficiency on the, on the internal side. We do see that we have potential on both sides.
Got it. Thank you.
This is not fully translated yet, in our outlook for, the second half of this year, so we're not expecting, you know, huge cost efficiency coming from that, already this year. That's more a midterm impact.
Very clear.
We're moving to the next question. Our next question comes from the line of Knut Woller from Baader Bank. Please go ahead, sir.
Yeah, thank you. Also a couple of questions from my side. Firstly, on the build margin, I think you touched it already a bit, but still trying to get some more granularity here. Should we expect roughly looking at H1 margins that we should shoot for this margin also in the second half, roughly? Or do you still expect margin pressure due to the near-term investments you mentioned, Yves? On the growth acceleration, the confidence for that, if I understood you correctly, it's mainly based on design, given easier comps, and I would assume also on the media and entertainment segment. Can you just give us some more color here?
Lastly, on the digital twin, I think it's quite an interesting topic, probably not in your targets, midterm targets embedded yet. So can you give us here some ideas, looking a bit longer down the road, what that could mean for your business? Thank you.
Sure. Thanks, Knut. First of all, on the build margin, we're not expecting decrease or growth significantly. It will be more or less the same level for the second half of this year on the build segment. In term of growth acceleration in H2. We talked about design. Yes, media, of course, because we had a weak Q1 due to the perpetual license business that we still had in Q1 of last year related to China. Build also, especially in Q4, we are expecting to see by the end of the year on the build side, to see some, some growth coming really from this sub-subscription magic, let's say, which are going to have strong effect.
Remind, remind that, you know, it will be then really 12 months of a subscription for a lot of customers. Of course, it will be also the time for renewal, so a very important quarter and also a way to see, you know, how efficient we will be in term of retention, which I assume will be still good. But clearly, the build segment is going to also influence this growth in H2. If you look at digital twin, this is still work in progress. We have not launched this solution yet commercially. We are planning to do it sometime this year, by the end of 2023. Again, it is an open cloud data and asset-driven digital twin cloud platform.
We are planning to target first people managing complex buildings or owning complex buildings such as airports, hospitals, clinics, large universities, sports arenas, et cetera. Existing buildings, obviously, not only new buildings. These are large customers. When you say large customers, it's complex projects, complex buildings, so, so longer sales cycle. We are not, not expecting to see, you know, big revenue coming from digital twin at the beginning. Also it will be a way for us to potentially package some of our products while we sell digital twin to some of our customers. We can sell the digital twin data asset-driven solution standalone, but also together with some of the Nemetschek Cloud and some of the Nemetschek products and brands in general.
The data will not only come from, from us, from our product, but it's an open cloud platform, which means that the data could come from any third parties, including competition. This digital twin will read all and have all the historical data of the building from the design, planning and construction phase, but also all the live data coming from the IoT and sensors, et cetera. The main use cases will be around maintenance and also use cases around the energy efficiency. For us, it will be also a way to be a glue, a technological glue between our different brands on the data side.
Excellent. Thank you very much.
We are now going over to our next question. Our next question comes from Andreas Wolf of Warburg Research. Please go ahead, sir.
Hi, everyone. Congratulations on the quarter. I have three, if I may. The first one would be on the optimization measures. Could you provide us the time horizon, during which you will carry those out, and what will be the measures in detail? The second is on AI. Apparently the full value add provided by this, this technology can only be or can mainly be read in the cloud. Would this be an argument for you to shift your clients to the cloud going forward as the next step? The third is on the startups. Are you looking at those as future generating units, or are you mainly trying to leapfrog development steps via these takeovers? Thank you.
AI part, first. Clearly on AI, yes, obviously, with AI, it's going to influence a lot of our cloud features and additional features that we have. Now, thanks to that, we are going to push customers to take some of our subscription solutions. Clearly, you know, most of our offerings are hybrid solutions. Where if you look at design, we will still keep some level of our software on the desktop side, for example, Archicad, Allplan, or Vectorworks. Most of the additional features that we have, for example, BIMcloud, which is this collaborative collaboration solution with Archicad, is cloud-based. Our AI-based features will clearly be cloud-based, so it's going to be a hybrid approach, but of course, to have access to these features, you will need to take the subscription package linked with.
Yes, it is going to help us to drive further adoption of subscription, especially with some of our large design brands. Your last question on the startup side. Yes, why we are investing in ventures? It's many reasons, but one of them is really to help us on the innovation front, to leapfrog what we are currently doing internally, to help us to potentially disrupt ourselves and disrupt the industry. Clearly, around generative AI, generative design, there are a few interesting solutions there. That's why when we invest in these ventures and in these startups, our goal is, of course, to form some strategic partnership with them. First of all, on the technology front, to integrate some of the solutions with them, to license some of their technology with our own products and a roadmap.
Of course, potentially, some of the startups will become a very interesting M&A opportunity in the near future. We really are quite happy at the moment with our investment. Of course, it is our venture investment, so some of them may not be as successful as others. In general, what is the most important for us is really to focus on the right management team, creative people, innovative people, aggressive, and who are coming with really innovative solutions.
Yep. Maybe then, to the, to the end of your first question, to the optimization measures. I think you should rather think about this as while we are now growing our revenue substantially and transforming our business model, what we are doing on the enhanced operational excellence side and, and the business enablement side, it's really to bundle our resources, to, to join forces, so to say, to improve both cost efficiency, of course, as we grow, to make sure that we have the economies of scale going forward as well, but also the co-cost effectiveness to make sure that we have the right, the right kind of support where we need it in order to take all these opportunities that we have on the revenue side. You shouldn't expect, so to say, a larger restructuring program or anything like that.
This is really we are working with the e-enhanced operational excellence to see as we grow. It's very important for us to be able to keep our cost base and not grow it, to say, strongly, when we see a strong revenue growth and a changed business model. It is some timelines, we will have ongoing positive impacts out of it, so to say, to balance that growth and to balance the revenue growth that we are seeing.
Thank you. We are now taking our next question. This question comes from Florian Treisch from Kepler Cheuvreux. Please go ahead.
Thank you, and good afternoon. Thank you for taking my question. I have three, actually, two on design. The first is, as you have elaborated, we have several different drivers for your performance, as you mentioned, on pricing, et cetera. I'm just curious to hear about kind of underlying number of clients, i.e., are you seeing any changes in number of subscribers and change of the of your churn rate? The second part is, it's my impression, so maybe I'm wrong here, but my impression is that you're getting more aggressive on pushing the design segment into subscription and SaaS. Maybe it's driven because clients are more willing to adopt to it.
Looking at the impact just at, let's say, a smaller business, i.e., Bluebeam, how dramatic the impact is on top line, assuming that you are now more aggressive on design, are you still confident to see 24 to go to double-digit growth again, or is that really facing a risk? The third one is on your number of employees. I think it's now the second quarter with sequential, yeah, small declines. Is it also good enough to go for 10% SaaS growth next year, or do you need a clear acceleration here?
To answer first, thanks, Florian. Your design questions. We do not see, you know, a decline in number of customers. We are still growing on number of customers clearly on the design side. We see a huge growth of subscriber growth on design because, again, most of the business was perpetual license, but SaaS, so we didn't have so much subscribers for design brands, and this is really a huge, huge growth at the moment. Obviously, if you look at our design brands, we have many of them, but they all have a different dynamic. The largest one, as mentioned, are Graphisoft and Allplan. These two brands are still and will still offer for the next few years, perpetual license, but again, they will make it less attractive in terms of product features and commercially.
Then if you look at Vectorworks, yes, Vectorworks is going to accelerate a subscription-only move towards the next 18 months, and by 2025, should be almost fully there. Then Frilo, SCIA, you know, they are also moving, but yet they are much smaller brands. RISA is already completely on subscription. Of course, they still have some SSA maintenance customers that they need to migrate to subscription. Solibri is pushing mainly their new SaaS offerings anyway for the last few months. It is clearly a gradual and also a step approach on the move to subscription for design. It's not like, you know, in a very, very short time that, you know, we are putting all our business on subscription, like we are doing on Bluebeam, which is much more aggressive.
That's not going to be the case for the design. We are doing that in a segmented approach, as we already mentioned, and therefore, yes, of course, it has an impact. It has an impact for this year. It will have an impact also in 2024 and in 2025. Overall, when we see the growth of our different segments from design planning, build and construct, operate and manage, and media, we strongly believe, especially after, you know, a one-year subscription movement of Bluebeam or over one year subscription movement for Bluebeam, that we should see, again, low double-digit growth for the overall business on the revenue side for 2024.
Yeah. I think on, on your question regarding the MP development and, and how we are seeing that, I think we should first come back to you. We have, we have started our transition and invested therefore, in Q3 and Q4 over the last year in order to be set up for that. That is still, that's still valid, that we have now reduced that pace also, of course, based on what we see on the horizon, and are, of course, very thoughtful of that, making sure that we balance our, our hiring with what we see on the horizon. Also coming back to what I said before about the operational excellence as well. Of course, while we are transitioning our business model, we also continue to hire for new skills that we need.
As we can rule, that we are working with enhanced efficiency and effectiveness, so to say, in our existing structure, we can balance that from a number, and that's exactly what we are doing in the enhanced operational excellence initiative that we have currently on the way. We don't see any need to, to restate that what we have what we have been going so far.
Great. Thank you very much, and thank, thanks for the confirmation of 24 targets.
We are now going over to our next question. The next question comes from Deepshikha Agarwal from Goldman Sachs. Please go ahead.
Hi, thanks for taking my question. I just have quick three questions. First is basically, like on the Bluebeam transition, can you just give an idea on the number of users that have transitioned, like to the, the cloud, the, the cloud products so far, and then the kind of uplift that you are seeing, when the, the, the customers move on to the cloud product? The second one is more on the cost. Like, you talked about the headcount dynamics in terms of, you know, how it is it is driven by the, the, the operational excellence, it, the, the overall endeavor that you have there. Anything in terms of like, you know, any color on the cost flexibility that you have, especially given, you know, the, in, in the event of, in a scenario where if macro slows down start further from here.
Third one, more to do with the investments that you talked about in startup scale. In the light of that, how is your M&A pipe looking, both in terms of the kind of targets that you're looking at and the valuation, behind those?
Sure. Thanks, Deepshikha. First of all, on the Bluebeam transition, as mentioned, we have around 35% of our customer base who already migrated to subscription. It's around a 10% growth per quarter that we have. On your M&A questions. As said in previous calls, we are really scouting the overall life cycle of the construction. Of course, design and planning, but more importantly, build and also operate and manage to either complement our offerings or also potentially to look at further internationalization or also to look at technology buy-in, so the buy versus make on the technology front. In term of media also, we are also still scouting the market.
Then in term of valuation, unfortunately, I would say that the expectation of a few companies are still quite high, especially in construction tech, you can still see some high, high valuation, not as high as end of 2021 or beginning of still 2022, but clearly some of the valuation are still high. Our pipeline is still growing. We strongly believe that there will be some interesting M&A activity to be done within the next 18-24 months. Still a very important part of our DNA and different signs that we are looking at, from small, where we would buy just the technology, medium size, or even larger potential acquisition.
Maybe just to add one thing, I think on the, on the Bluebeam side, I think we continue to see in Q2 as well, the, the slightly higher uptake on our, as, as you've mentioned before, on our higher tiered packages, which have more of the cloud products included in that prescription transition. I think that's just to, to round that, that off as well. As to your quote on the cost flexibility, I think if you look at our, we have 13 brands, where we really can also balance the cost a little bit, depending on, on where we are going and, and how the transition is really going. I think that is, that's one of the things.
Combining that with how we going forward also can enhance that, so to say, bundled approach amongst the brand as well, from the spending side. I think that's also where we do have flexibility and where we already now, as a group, play that quite well amongst the brands as well, to keep that flexibility as we are moving forward, especially through the transition. That's how we are working flexibility. Of course, we also have some variable parts also in the personnel costs, et cetera, that we can also balance. I would say our strongest strength is probably that currently, that we can also use that flexibility going forward amongst the brands as well.
Okay. Thank you.
We're now taking our next question. The next question is from Martin Jungfleisch from BNP Paribas. Please go ahead, sir.
Yeah. Hi, good afternoon. Thanks for taking my question. I have two, please. The first one is on design subscriptions again. Can you comment if there's an attractive maintenance to subscription offer in the design brands that is similar to the one for Bluebeam, where customers can migrate at the same cost as the maintenance? As they move to subscription design, not yet as incentivized as it is for Bluebeam. The second question is on media. Growth in Q2 was still quite good, but was slowing down from last year's quite strong levels. Is any particular customer group where you would see that spending is weaker? Would you expect the segment to return to the mid-teens growth levels in the second half or next year? Thank you.
Yeah. Thank you, Martin. First of all, on the design subscription, again, the most of the brands are making subscription more attractive. Clearly on the SSA front, there is a price increase, which, you know, over time will push also people to take more subscription than just having their maintenance. Also, because they are subscription, they will have many more additional features than what they would get only on the maintenance, as I say. Today, we do not have such strong policy like Bluebeam, with the design brand, to push the SSA customer to subscription. You know, it may change in the future with potentially a couple of brands, but in general, they are not planning to have such policy. On the media side, we still see some nice growth.
Again, we have plus 20% subscription revenue growth, on the, on, on Maxon, so that's very good. We are still expecting, you know, for the month and year to come, a mid-teen growth in terms of revenue.
Okay, that's helpful. Thank you.
Before we going over to our next question, please let me remind you, if you want to ask a question, please press star one on your telephone keypad. We are now going over to our next question. The question comes from Victor Cheng, from Bank of America. Please go ahead, Victor.
Hi again, just a quick follow-up on the M&A comments. How is that baked into the 25 outlook in terms of, you know, the, the growth that you talked about, the mid-teens? How much of that is coming from M&A, if at all?
No. All our current guidance and outlook for 2024 and 2025 are purely organic growth, not inorganic.
Got it. Thank you.
As a further reminder, if you want to ask a question, please press star 11. There are no further questions in the queue at this very moment, so we'll hand out back the call to our speakers.
Perfect. Thanks everyone for attending. We are looking forward to catching up with you next quarter. If you have any follow-up questions, please do not hesitate to contact Patrick or myself. Yeah, thank you for dialing in again, and let's conclude the call for today. Thanks for joining us.
Thank you, everyone.
Thank you.
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