Ladies and gentlemen, welcome to the Nemetschek earnings call Q1 financial statement. I am Iruna, the core call operator. I would like to remind you that all participants will be listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefanie Zimmermann. Please go ahead.
Thank you, operator, and hello everyone and a warm welcome. Thanks for joining our earnings call today to discuss the results for the first quarter in 2026 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 quarterly 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. Yves, go ahead.
Thank you, Stefanie. Welcome everyone to our earnings call for the first quarter of 2026. Last month, as part of a full year 2025 result, we shared a substantial amount of detail on our key strategic priorities, including our AI and M&A strategy. Today, we are taking a more streamlined approach again and have returned to our usual short but informative slide deck. Our Chief Financial Officer, Louise Öfverström, and I will share therefore and give you a brief overview of the highlights of the first quarter of 2026 before leaving sufficient time for your questions. To begin with, please see the most important points of the first quarter of 2026 in a few key messages on page number 3. Firstly, I would like to summarize our start to the year as very successful. We continued the remarkable momentum from 2025 into the first quarter of 2026.
Driven first by an excellent performance in our Build segments, which once again showed an outstanding growth internationally and in North America. At the same time, Design segment continued to perform very well and re-accelerated its growth after last quarter's exceptionally high comparison base, supported by positive subscription momentum from very strong new unit growth, as well as subscription migration effects, including multi-year contracts. Thirdly, in the first few months of the year, alongside our strong financial performance, we also made important progress across several of our key strategic focus areas. Let me highlight two strategic priorities in particular. First, artificial intelligence remains a key strategic focus for the Nemetschek Group.
We are increasingly evolving from a leading vertical software player into an AI leader in our industries by leveraging our deep domain expertise, unique data intelligence, as well as our trusted customer relationship and strong network effects to ultimately deliver tangible value to our customers in their day-to-day operations. Recent example for that is our new Bluebeam Max package, which was successfully launched as planned in Q1 and which further strengthens our AI-enabled product offering. In addition, we were extremely pleased to announce that we have signed a definitive agreement to acquire Heavy Construction Systems Specialists, or short HCSS, just two weeks ago. The closing of this deal is expected to be in the second half of this year.
With the acquisition of HCSS, we are substantially increasing our market opportunity by 30% in the highly attractive infrastructure and heavy civil construction market and are creating the next global construction tech giant. By combining HCSS with our leading brands in the Build segment, we are creating a unique combination of scale, growth, and profitability, forming a global construction AI and technology powerhouse covering the full range of end Markets and Customer segments. At the same time, despite this being by far the largest acquisition in the Nemetschek Group's history, the tailored transaction structure preserves our balance sheet flexibility and strength, while ensuring that the Build segment will continue to be an integral part of the Nemetschek Group and will continue to be managed, steered, controlled, and fully consolidated by the Nemetschek Group.
The acquisition of HCSS therefore marks a major milestone for the Nemetschek Group and represent an important step forward in our ambition to become the global leader in the AECO industry. Therefore, as to a very successful start to the year, we are well on track to achieve all of our financial targets for the financial year 2026. Combination of our strong operational performance, targeted strategic acquisition, and AI-driven innovations creates a uniquely attractive growth and profitability profile in our growing industry. In short, we are well on the way to deliver again on all our goals. On the next slide, number 4, you can see these key messages translated into the development of our most important financial indicators in the first quarter of 2026. Starting with the revenue growth.
For the period from January to March, we recorded a reported growth of 10.7% to EUR 313.1 million. Adjusted for the continued FX headwinds in the first quarter, mainly stemmed from the weaker U.S. dollar, we achieved a strong growth of +17%. In line with our key strategic priorities, the transition to a subscription and SaaS-based business model, the main contributor to our growth was once again recurring part of our business, reflecting in our annual recurring revenue. In Q1, ARR grew by 14.4% on a reported basis and +21% FX adjusted, reaching almost EUR 1.2 billion. This continued strong increase in ARR is an important indicator of the group's revenue and cash flow growth potential over the next 12 months.
Looking at the different components of our ARR growth, it is not surprising that in line with our plans to migrate existing maintenance customer to subscription and SaaS, the related revenue category subscription and SaaS revenue was a main driver with a +27.3% on a reported basis and +35.4% on an FX adjusted basis. EBITDA increased even more strongly than revenue, growing by +22% reported and almost +30% FX adjusted to EUR 98.4 million. This over proportional increase resulted in an EBITDA margin of 31.4%, driven by our ability to scale healthy operating leverage, continued focus on our cost base, and continuous improvement in internal efficiency.
Despite continued investment into the future growth of our business, including AI, ongoing subscription transition, and to a smaller extent, transaction-related costs associated with the HCSS acquisition. In addition, supported by our strong earnings and a cash conversion of more than 140%, once again, further strengthened our balance sheet, which Louise will elaborate in more detail. As I mentioned at the beginning, the acquisition of HCSS, one of the world largest providers of infrastructure and heavy civil construction technology, marks several steps forward to further strengthen our global leadership in the AECO industry. Let me now briefly walk you through the key elements of our strategic rationale and why we are so confident that this transaction will create substantial value for the Nemetschek Group, as well as for our customers and shareholders. First, transaction is about creating a global leader in construction technology.
It significantly scales and strengthens our position in the highly attractive infrastructure and heavy civil construction market. HCSS is one of the most attractive assets in the AECO software space and combines strong and profitable growth with very close customer relationships and an extremely low churn, below 2%. By bringing together HCSS, which is the number one leader in heavy construction and infrastructure software in North America, with the Nemetschek Group in general, and with our existing leading build and construct portfolio, Bluebeam, GoCanvas, including of course SiteDocs and NEVARIS, we are combining highly complementary capabilities across infrastructure and buildings, covering the entire construction life cycle and all end markets. Second, we are significantly expanding our addressable market and further strengthening and scaling our position in infrastructure, thereby making the overall Nemetschek portfolio even more balanced and ultimately even more resilient and excellently positioned for further growth.
Infrastructure and heavy civil construction is a highly attractive segment, supported by very strong structural growth drivers, such as aging infrastructure, large-scale government investment, and the ongoing urbanization. With HCSS, we gain direct access to this growing segment and significantly expand our opportunity in building construction by more than 30%. A market expected to grow at a CAGR of around 11% and reaching approximately EUR 12 billion by 2028. Third, transaction creates complementary synergies. Complementary technology creates a comprehensive end-to-end construction technology portfolio with strong cross-selling opportunities, access to new customer groups, and the opportunity to further leverage our global presence.
In addition, very similar to the Nemetschek Group, HCSS, as a vertical software provider in infrastructure and heavy civil, is ideally positioned to win in AI due to its deep domain expertise, trusted customer relationship and network effect, as well as 40 years of proprietary industry-specific data. Combining that with Nemetschek's advanced AI capabilities will enable us to benefit from the huge workforce-related TAM opportunity in the construction industry, also now in infrastructure and heavy civil. Finally, we are doing all of this by having an impact of only EUR 450 million on the group's net debt position. We preserve our balance sheet strength, our strategic flexibility, as well as our group structure and the successful way we operate our business, all enabled by this tailored transactional structure.
As I highlighted earlier, the Build and Construct segment, including HCSS, will continue to be fully steered, consolidated, and managed by the Nemetschek Group, who will own around 72% in the segment. In addition, Thoma Bravo, the world's largest software-focused investment firm, will become a minority shareholder and partner with a share of around 28% in the Build and Construct segment. Together, combining their strong technology and software expertise with our deep industry knowledge and operational capabilities, we are very well-positioned to capture the significant growth opportunities in the build and construction market. Looking at the financial side of this deal, which is also highly compelling, HCSS, with over 4,000 customers, combine strong growth with a very attractive profitability profile, comparable to our standalone Build and Construct segment. In 2025, HCSS generated around $250 million in mainly recurring subscription-based revenues.
Over the last years, the company has built an impressive track record combining sustainable strong top line with an ARR increase of plus 21% in 2025, combined with a very high profitability reflected in an EBITDA margin of around 40% under U.S. GAAP. The mission-critical nature of this solution, deeply embedded in its customer daily workflows, drives a very high customer loyalty and strong retention, as reflected in KPIs such, again, as a very low churn rate below 2%. The transaction translate into a very attractive and significantly strengthened financial profile for our Build and Construct segment and therefore for the Nemetschek Group as a whole. The addition of HCSS, we are maintaining, in part even enhancing, our strong growth and profitability while significantly increasing the scale of the business.
To give you a sense of this, by 2028, we expect the combined Build and Construct segment on a standalone basis to generate clearly more than EUR 1 billion in revenue. This is a milestone that we have only just achieved at the entire group level for the first time in our history last year. At the same time, business will be characterized by highly recurring revenue base of around 95%, exceptionally strong customer retention, and an EBITDA margin of at least 40%, a level clearly above the group average. All of these means that we are building not only a rule of 40 business, but a segment close to a rule of 60 profile. Just as a reminder, the acquisition is expected to close in the second half of 2026 and is of course subject to customary regulatory approval and closing conditions.
More details regarding the transactions, potential synergies, as well as the expected impact on Nemetschek Group's financials and the outlook for the current financial year will be disclosed after closing. With that, I will now hand it over to Louise.
Thank you, Yves, and a warm welcome to our first quarter 2026 earnings call also from my side. Yves has already touched on some of our key financial indicators, and I would therefore now like to look in a bit more detail at the most important financial aspects of our results in the first quarter, as well as also at the underlying drivers thereof. On slide number 8, we have, as usual, an overview of the development of our four segments in the first quarter of 2026. Let's start with our Design segment from the left. In the first quarter, the segment recorded a growth of 5.7% and even 9.5% on a constant currency basis to EUR 136.2 million. The continued good performance includes a strong growth in new units.
At the same time, the transition to a subscription and SaaS-based business model continued to progress successfully and according to plan. That is also reflected in the strong growth of this revenue category that amounted to 54.7% on an FX-adjusted basis. In addition to this, growth was impacted by FX or revenue recognition impacts from multi-year contracts. These contracts are, as you know, being used to support the migration of existing maintenance customers to a subscription-based model at our Graphisoft and ALLPLAN brands. Reported EBITDA margin of the segment improved to 25.2% from 23.8% in the same quarter previous year. Moving on, our Build segment once again delivered a stellar performance in the first quarter, predominantly driven by high underlying growth in new users, both in the U.S. as well as also internationally.
Just as a reminder, in 2025, this segment benefited from the inorganic contribution of GoCanvas, as well as by temporary positive effects following the successful completion of Bluebeam's subscription transition. Consequently, as expected, growth moderated somewhat in Q1 2026, yet at a still outstanding high level. In Q1, reported growth of the segment reached 19.8%. When adjusting for the strong FX headwind that is stemming from the weaker U.S. dollar, growth reached an impressive 29.8%. In addition, Bluebeam also successfully launched its agentic AI-based product suite, Bluebeam Max, as planned in the quarter, marking an important further step towards our AI-powered solutions to further enhance the efficiency, effectiveness, and the collaboration across construction workflows.
The reported EBITDA margin in the quarter in this segment reached a very strong 39.5%, an increase of around 440 basis points year- on- year, despite the continued investments to support the future growth of this very strong segment. Moving on to our smallest segment, Manage, which recorded a growth of 3.2% for the first quarter of 2026. Whilst the development in Q1 might seem modest, the strong growth in demand and sales performance with existing and new customers, particularly in the public and financial sectors, provide a strong foundation for dynamic acceleration in the growth in the coming quarters, in line with our business acceleration plans. The EBITDA margin in this segment remained broadly stable at 10.4%.
Concluding with the Media segment, here revenue increased by 0.8% on a reported and a 6.6% on a constant currency basis to EUR 29.6 million. The segment's business performance continues to be influenced by we still see a mixed market environment with ongoing longer customer investment decision cycles and therefore still longer sales cycles. Nevertheless, during the quarter, the Media segment has laid important foundations for higher future growth, including the launch of its Archviz rendering solution to further drive expansion in the AECO industry, the introduction of a digital twin solution for real products, important for AI, and the partnership with Tencent Cloud to enable artists to accelerate early-stage 3D concepting using Tencent's 3D global AI engine. The EBITDA margin in this segment increased to 32% in the quarter.
The prior year quarter included a non-operating e-effect resulting from the insolvency of a service and payment provider. However, prior year quarter also included strong and consistent cost measures to mitigate the negative extraordinary effects. Let us move on to slide number 9, which summarizes well the progress and impacts of one of our key strategic priorities, which is also a regular topic here in our earnings calls, and that is our transition to a subscription and SaaS-centric business model. On the right hand of this slide, you can see why we are so pleased with the development of our transition. In line with prior quarters, the recurring part of our business, which recorded an FX-adjusted increase of 21% in the quarter, was once again the key driver of our strong growth in the first quarter.
With a new record high share of recurring revenues of 95%, it is also the logical and also the expected consequence that the gap that we now see between ARR and revenue growth continues to narrow. Looking at the different moving parts within the recurring revenue category, it becomes clear what has been driving the strong increase of this revenue category, and that is our systematic and highly successful transition to a subscription and SaaS-centric business model, which is reflected in an FX-adjusted growth of 35.4%, while revenues from maintenance contracts continue to decline perfectly in line with our plans by more than 20% year-on-year. At the same time, and fully in line with our strategy, license revenues declined strongly, at 53.7% year-over-year in Q1, reflecting the continued shift from perpetual licenses to a fully subscription-based model.
As expected, this more volatile and less predictable revenue stream now accounts for only 2% of total group revenues. The left-hand side of the slide also provides a longer-term view of the development of our subscription and SaaS revenues. While we started with a subscription base of just EUR 45 million in the quarter in 2022, we have increased these more resilient and predictable revenues to almost EUR 250 million over the first four years. Let us conclude our financial review of the first quarter by looking at a few highlights and developments beyond our revenue and EBITDA. As usual, you will find a more comprehensive overview of our income statement as well as the most important cash flow and balance sheet KPIs on slide number 10.
Starting with the largest component of our overall cost base here, the personnel cost, here we saw only a very modest increase of 4.4% year-over-year to EUR 123 million. This is in line with the growth we already saw in the second half of 2025, and it reflects our strong ability to scale and leverage efficiently, and also the continuous enhancement of our operational excellence and of the underlying resource efficiency. The increase in operating income and expenses of 9.7%, as you can see here, is showing a business volume growth-related increase, and to a lesser extent, is also impacted by M&A related costs in the quarter. Let us move further down the P&L.
Here you will notice that our healthy operating leverage is also evident in the overproportional growth in profitability below the EBITDA line, resulting in an increase in our earnings per share of 34.5% year-over-year. Turning to our cash flow development, the seasonally very high cash conversion in the first quarter, you know that our cash conversion is defined as operating cash flow in relation to EBITDA. Here we saw 143%, and this, along with our strong free cash flow generation in Q1, underlines the high quality of our earnings. Going forward, we remain very confident in our cash generating capabilities with a cash conversion rate expected to remain above 100%.
Finally, driven by our strong earnings and cash flow development, we further improve the quality of our strong balance sheet, reaching an equity ratio of 47.3% and a net debt position of just EUR 7.8 million. Here you can see that since the closing of the GoCanvas acquisition on July 1st, 2024, and the associated increase in the net debt to EUR 370 million at the time, we have now deleveraged in full in less than two years, despite continuing to successfully execute smaller value accretive acquisitions such as Firmus.ai in the meantime.
This strength of our balance sheet and our strong underlying earnings and cash flow generation enables us to comfortably absorb the approximately EUR 450 million impact on the group's net debt position following the expected closing of the HCSS acquisition in the second half of the year. This without losing our strong financial flexibility for further growth and enabling us to act should M&A or venture investment opportunities emerge. All in all, I believe it's very fair to say that the financials of the first quarter of fiscal 2026 are mirroring a very successful start to the year. With that, I'll hand it back to you, Yves.
Thank you, Louise, for that detailed overview of our financial results. To wrap up our presentation, let's turn to page number 12 and take a look at our outlook for the full financial year 2026. Building on a very successful start to the year, the strength of our underlying operational business, our clear strategic direction and our very strong innovation capabilities, in particular our clear focus on artificial intelligence, we remain very confident in our ability to achieve our goals for 2026 and beyond. Consequently, we fully confirm our guidance for 2026 after the first quarter. In particular, this means that today's perspective, the Executive Board expects a currency adjusted organic revenue growth for the Nemetschek Group in a range between +14% and +15%. At the same time, the EBITDA margin is expected to expand to between 32% and 33%.
We therefore expect to continue our strong and profitable growth trajectory even against high comparison base and despite the ongoing subscription and SaaS transition in our Design segment, thereby delivering one of the most attractive combination of growth and profitability in our industries. Highlighted last month when we introduced our full year 2026 guidance, please note that these forecasts are based on the assumption that global economic and industry-specific condition will not deteriorate significantly during the current financial year. In addition, we assume that the geopolitical situation, particularly in the Middle East, will not escalate further or persist for a prolonged period. In addition, more details regarding the HCSS acquisition potential synergies as well as the expected impact on Nemetschek Group's financials as well as the outlook for the current financial year will be disclosed after closing. With that, I would like to thank you for your attention.
We are now happy to take your question. Operator, please back to you.
Thank you very much. Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question from the phone comes from Joe George with JP Morgan. Please go ahead.
Yes. Hi, guys, thank you for taking my question. I might have missed it in the opening remarks, but just a quick 1 on the design growth through the quarter. Could you just touch on what proportion of growth through Q1 came from upfront revenue recognition of multi-year deals, please? Then secondly, a question just on M&A within the guidance. Can you just confirm, please, what impact from M&A is baked into the 14%-15% growth guidance? Or is this all organic? Even if we exclude HCSS for now, I know there's been a number of smaller acquisitions in the last 12 months, like Firmus.ai, Morpholio, and I think a few resellers as well. It looks like there was a small impact from M&A in Q1. Could you just confirm, please, what M&A, if any, is baked into the current guide, again, pre-HCSS? Yeah, and that's it for now. Thanks.
Okay. Thanks, Joe.
Thanks.
Regarding your question on M&A. When we guide, we guide only organically. It is true that we always expect to have some level of M&A costs. I mean, we do some small one, et cetera, here and there. There are some M&A costs, of course, already included in Q1. We will give you more details on the full M&A cost impact after closing of the HCSS deal, which is purely related than to HCSS.
Let me take Joe. Thank you. The question regarding design and the multi-year contract. I think we need to look a little bit broader on it in this year. Whereas in 2025, it was easier to say what is really the impact of the three year deals because there it was the first year where we had these impacts really for Graphisoft and ALLPLAN. Let me make the answer a bit longer just to make sure that we get the different factors here.
Just simply answering to your question like for like in the first quarter, as we have alluded to before, we still expect as we use these contracts in our different markets and the more conservative markets where this move to subscription-based contracts is maybe not as natural as in some other markets. We expect 2026 to have approximately the same level as we saw in 2025, and that's also what we saw in Q1. We cannot quite say that, and we don't want to quite say that either because that's depending on our customer groups, a little bit of country by country. In Q1, it's approximately the same level as the Q1 2025. We had an additional as the absolute amount is a bit higher, though, because it's, the share is the same.
You could say that you can calculate that we had a EUR mid-single digit million figure tailwind, lower to mid somewhere there. You should you need to look broader on it because this also covered for a part of the license decline. I just alluded to that, as you see, by over 50% decline year-over-year as well. Of course, that mitigated that by a factor as well. Then you have to look at the broader case. If I were to do the analysis, if we would have only had annual contracts and not had the three-year contracts, then we will of course have had a higher growth now in the Q1 in 2026 because then you know how it is.
We recognize a larger part up front, in the residual of those three years, you have a lower revenue recognition. If you would look at it like that, we would have had a few percentage points higher growth. You can. It's I mean, I don't think it's that complicated, these mechanics behind the scenes, you know. To answer a very short question with a long answer, as I just did, you can take this so to say low to mid single digit tailwind in addition. Share is approximately the same.
If you would say what is really the impact of three year contracts, you would have to look at it broader because then we will actually have had a more of a headwind if you may, as supposed. That's the mechanics on it, and we expect this level to so to say the same kind of share throughout the year. As said, it can deviate a bit between the quarters as well, depending on which markets are really taking on the subscription or the SSA to subscription transformation in the one or the other way. We will continue to disclose the way we do it now, what was the impact on the quarter.
I think if you want to calculate something for the year and drew conclusions, my take would be to look at it at the same level approximately from a quarter-to-quarter basis and approximately the same share as in 2025.
That was very helpful. Thanks very much.
The next question from the phone comes from Balaji Tirupati with Citi. Please go ahead.
Hi, good afternoon, and thanks for taking my questions. Two from my side, if I may. Firstly, could you kindly share your view on demand involvement and changes you might have observed since the beginning of escalation in Middle East? I appreciate limited direct exposure to the region. If you could share a broader color on what are you seeing or expecting in wake of current environment. The second question on if you could share how do you see the first quarter results across different parts of the business against your initial expectation. In particular, there in Media segment, given the dynamics you saw in first quarter, do you still expect return to double-digit growth for 2026? Thank you.
Thank you, Balaji. Clearly, if you look at the overall macro and then also in the Middle East, we do not see any specific large changes in the overall macro dynamic for our industry in AECO technology and software in general. I mean, the region's still the same compared to last quarter. It is clear that the good news is that Germany, which was partially challenged clearly in the past, there is a better, stronger positive momentum and which is already reflected a little bit in the numbers. Of course, we should not draw directly a conclusion that, you know, Germany is back to high growth. Clearly there is a positive momentum, and we saw in Q1 also of 2026 a very good performance in Germany.
Again, it's too early to tell when and how exactly it will affect really the demand, but the mood and sentiment in Germany has improved. Regarding Middle East, we are not too much impacted yet. I think of course, if the situation is deteriorating or if it is much prolonged, we won't be immune completely to a potential big economical crisis. Nevertheless, we are not there yet. The business that we are currently doing in the Middle East, yes, has been slower than expected, but we're talking about a very low base from because we just started really our activity directly in the region in May of last year. Therefore there is no big impact for us.
The direct exposure in the region for us is very small, and our guidance is based on the assumption that global economics and industry-specific condition will of course not deteriorate any further. We follow the development closely. We will act quickly, of course, with changes occur.
I think the second question was more on the continue on the Media segment, right?
Yeah, I think.
Thank you.
Clearly the market is still highly balanced. We have still a lot of customers who have some cost constraints, large one, but also medium, small ones. A dynamic in the regions is still different between Europe, Asia, and North America. Frankly, Asia and Europe is doing better than North America. Concluding that it's because of AI, it's not the case yet. Clearly, there is a mixed environment and slower demand and of course longer decision process in general for Maxon brands and product. This is why we decided, as you know, to diversify more portfolio. We launched a commercially in Q1 now, our architecture visualization rendering software, which is first on Vectorworks, and then it will be on Autodesk Revit this summer, and later in the year also on Archicad.
Of course we will roll out this Archviz Red Giant rendering software solution for architects on multiple, also third party, solutions. We also announced at CES in January in Las Vegas the fact that we are launching a new product, which is going to be a digital twin, mainly for web store and e-commerce business, which we're going to launch commercially more toward the end of this calendar year. Of course, we are also accelerating our AI roadmap with Maxon. This is why we did this Tencent Cloud partnership on their 3D AI engine, which is highly powered and full with many data that they have from their own games.
Therefore today, and also when you see, okay, it's too early to say for Q2 obviously, but already the beginning of Q2, et cetera, we see that, you know, for the full year, the revenue growth at constant currency, for the Media segment should be as expected still in the higher single digit growth on the revenue side. No change there.
Thank you.
The next question from the phone comes from Michael Briest with UBS. Please go ahead.
Good morning. Thank you. Or good afternoon, sorry. Just in terms of M&As, I think there was EUR 33 million in the quarter. The only thing I could see is you announced in the end of February, you bought your resellers in Australia and New Zealand. Can you explain what, what the strategy is on buying resellers? Because you bought the Japanese one in 2024, Swiss one in 2023, and a Vectorworks one in 2021. Is there a sort of desire to own the distribution? Is there some leverage you get from that? I guess why are you spending EUR 30 million on a company that sells your intellectual property? I've got a second one. Thank you.
No, clearly, this is part of our overall strategy to really control more or go to market, to go more directly. In some cases, if you look at A&A, in Japan, in 2024, you know, that was a distributor, so which means that they're still working with resellers. We want to avoid these two tier indirect channels. Yes, of course, we'll continue to do indirect. We like our channel partners. We have very, very strong partners and resellers, but we want to have a direct touch with them. In addition, in some other markets, we also want to have more direct touch with some of our end customers, and that's why also, we have this approach. In general, we still have here and there some distributors and they're therefore a two tier approach.
We really would like to avoid this two tiers approach and really go, more direct to our resellers or ultimately at the end of the day to our end users and our customers. That's the main reason.
Can you just say on the resellers, do they typically take a revenue share or are they paid on commission? I mean, let's say
It's both. I mean, it's really mixed. It's really, really mixed. If you take some resellers, they are pure agent model and commissions. Some others, they are just reselling the product. It's really depending on the products, on the region, on the reseller, the contract that they have. It's not one solution fits all. Be too easy.
Yeah. Michael, maybe.
Why
Please go ahead.
Sorry, go on.
Please go ahead.
I was going to say, well, why don't you just let their contracts run out, then take over the business, you know, organically? It seems expensive to spend EUR 30 million on someone that's selling your intellectual property.
Well, they develop also their own. The thing is that all the localization have been done by the distributors. For example, in A&A, they did a lot of IP. We are buying their IP that they developed on top of our products, for example, on top of Vectorworks. You have here a lot of localization and IP dedicated, and also sometime add-on products that they have developed that they are selling on top of Vectorworks, for example, or Archicad, et cetera. It is not only the pure go-to market, it is also IP and intellectual property that we are buying that they developed on top of a product or for the localization of the product for the specific markets.
Yeah. I think in addition, just to correct that a little bit, that was one. We also, as you might have seen also, announced our Morpholio acquisition. The whole sum, as you can see in the Q1 balance sheet, what we have spent there is not only on the reseller. We also continue to acquire tech, smaller tech, Morpholio, highly interesting solution, but also smaller tech acquisitions. It's also not the full sum as, that should be allocated to that. I think it's really important what Yves alluded to. I think our resellers that we are acquiring are specific in that, in that aspect, that they're, they have really been developing a lot of interesting add-on products and added services, so to say, that we are acquiring with that.
Morpholio, this is an acquisition that Vectorworks has done at beginning of the year, so it was in February. Morpholio is very strong. They have almost no revenue, but the tech is very strong. By the way, as soon as we acquired them, we launched a completely new AI-powered solution on top of Morpholio. Morpholio, Q1, they are very dedicated to iPad, so they create mobile-first design and sketching application specifically for architect or designers and other creative type of professionals. It's a very strong, very strong solution. They have a lot of free users, close to 1 million free, so non-paid, users.
Now we are taking their SketchUp CAD capabilities and other solutions on top of our different BIM authoring tools, adding that with some other data intelligence and also now our AI assistant and agentic AI solution. I'm very pleased with this acquisition, which is now first going to be deployed now on top of Vectorworks. Of course, as you can imagine, we are planning also to have Morpholio solution on top of Archicad soon. That's, was almost no revenue and it's mainly a tech and also a strong product and brand which we acquired. It's also part of this EUR 30 million.
Okay. Then just this quick one, Louise. Can you just walk us through the policy on capitalizing commissions on the long-term contracts? Is it sort of spread ratably over the presumable three years of the life?
Yes
W ould you expense on day one on a one year deal 100% of the commission? I'm just trying to understand the difference in cost allocation.
You're correct. The policy, which is our first policy, we are showing that ratably over the three years, in our balance sheet. Yes, the expense on the first day, we recognize the revenue as well. That's correctly understood.
How would you pay the sales personal partner? Would you pay them annually or all upfront?
Yes
On a three year deal?
No, that is a little bit depending on the partner and the country and the brand and the setup. That's a different payment pattern, couldn't really say. I would say most of them are not paid upfront, but more so to say on a more spread version. That's the more normal sequence, if you may, right? There are, as you know, we have been quite direct with our different brands in different setups in different countries, so there are differences there in the setups. I would say the installment somehow spread over the time, maybe on average. That's to say, shooting from the hip a little bit, the three installments somehow is the majority of the contract, I would say.
Oh, okay.
Don't take it to, not down to the last digit, but that would say directionally correct at least if you assume that.
Yes, that makes sense. Thank you very much.
Thank you.
The next question from the phone comes from Ines Mao with BNP Paribas. Please go ahead.
Hi. Thank you. This is Ines from BNP Paribas. I have two question about the Build segment. The first one is, following a pretty strong quarter, year-over-year in Q1, how should we think about the growth trajectory in the Build segment for the remainder of the year? My second question is about Bluebeam and GoCanvas cross-selling. Can you help us quantify what's actually happening today? For example, what percentage of customers are currently using both products, and how fast is the penetration increasing between the two products? Thank you.
Thanks, Ines Mao. We still clearly see a highly strong momentum in the Build segment, which is a combination really of all our brands. It's of course Bluebeam, very significantly, but also GoCanvas. SiteDocs on the safety side, is running very nicely, and GoCanvas are according to plan. NEVARIS, despite the fact that they are in Germany, I mean, there is also a very good strong momentum there. For the rest of the year, and as also described also beyond 2026, we see the Build segment being able to have a strong double-digit growth and clearly for 2026 above 20% revenue growth at constant currency.
If you look at GoCanvas and Bluebeam, there is of course still a small portion of Bluebeam customers who are GoCanvas customers. I mean, Bluebeam has now close to 4 million users. Of course, these 4 million users cannot necessarily become, or it would be appropriate for them to be a GoCanvas customers. For example, there are Bluebeam users who are people working in the municipality doing a permitting in California, for example, or you have some of them who are architects or some of them who are doing mainly design reviews, et cetera, in engineering firms, et cetera, et cetera. Of course, when you have Bluebeam more linked to construction workers and therefore like a link between the office to the field, et cetera, here there is clearly a link.
I cannot give you an exact percentage, I don't have it here yet, on how many Bluebeam customers are also GoCanvas customers, it's a small base. Especially as Bluebeam internationalization is going better and better. Clearly we are growing very nicely internationally, and yet GoCanvas internationally, it's only in some small pocket that we started to be more aggressive outside North America, mainly in U.K. and in the Pacific. The rest of the world, we don't have yet GoCanvas and SiteDocs and therefore, we're not targeting Bluebeam customers with this solution yet. Doesn't mean that we are not planning to, but that's not the case. Clearly, very strong momentum on Bluebeam.
I mean, we had a phenomenal growth again in Q1, which was driven, as said, not only in North America and in U.S., but also strongly in international regions, especially in Europe. Bluebeam Max also has been quite successful, the launch. Of course, as we discussed last time, Bluebeam Max is really a segmented approach on the launch. Launched it first to our direct touch customers, so the large enterprise customers, first in the U.S. and now since last month also more internationally. This quarter, we are planning to have now also our resellers of Bluebeam who will be authorized to sell Bluebeam Max. Later in the year, Bluebeam Max will be also available on the web store.
Again, it's all about adoption now. So far we got excellent feedback from our enterprise customers. We look forward to have very nice growth coming from Bluebeam Max over the years, especially as over the next quarters, we are also planning to add additional use cases on top of Bluebeam Max. As mentioned, Bluebeam Max pricing today is an introductory pricing, which therefore may increase next year. Depending on the type of features we may also launch in the future, we may also have more hybrid type of model of pricing. That's overall, you know, AI strategy, not necessarily linked to Bluebeam Max, where there will be not only a pricing link to licensing the product or to do via subscription or whatever type of licensing of the tool if you want.
In addition, there will be also token, of course, token-based type of pricing model, but that is more for the future, not yet implemented. Sorry.
Can I just ask first last question about the group adjusted EBITDA margin? Can you give us more color if we exclude the cost relating to HCSS acquisition approximately? I understand it was a headwind in Q1.
Okay. It's very again, the acquisition costs are very small. We are talking about low single digit number for Q1. As you can imagine, we had already some acquisition costs also in Q4 with some advisor fees, legal fees, et cetera, because it was not a quick, let's say, negotiation we had with our new strong partner, Thoma Bravo, which we really like. Therefore, yes, it will, it's small impact on the EBITDA margin in Q1. We will give you again the full picture of the M&A impact of HCSS after closing.
Okay. Thank you, Yves. Thank you.
The next question from the phone comes from Nay Soe Naing with Berenberg. Please go ahead.
Hi. Hello, good afternoon. Thank you for taking my questions. I've got two as well, if I may. First one is on, is a follow-up question on the previous question about the Build segment. You know, the growth momentum is really strong, almost 39% this year. I noticed it's the second quarter in a row now you've called out international growth contribution. Would love to get some more color on, you know, what's now working internationally for Bluebeam that it wasn't before. Second part of this question is, you know, given the current momentum behind the business, any indication as to how much longer this segment could continue growing at 20% plus, please? I'll just ask the second question at the same time.
It's around your AI partnership strategy. It's only because I've noticed that earlier in the week or maybe last week, some of your peers have announced product and route to market partnership with Claude. I was wondering if this would be something that you would consider yourself as well. Thank you.
Thanks, Victor. On the AI piece, I'm not sure I got exactly your question. Can you please repeat?
Yes, of course. It was SketchUp and also Fusion.
Oh, yeah.
Yes. But both of them announced integration with Claude, where you will be able to access the software applications through Claude.
Yeah.
On Claude, I should say.
Yeah, yeah. This is what we already announced. Bluebeam Max is a partnership with Anthropic. We have integration with Claude. There will be also an MCP integration. Therefore, you know, as soon as, you know, other providers and AI solutions such as Copilot and Gemini also will be integrated part of our MCP strategy. Yes, and that's for all our portfolio of product, by the way. We are doing MCP integration, it's not only for Bluebeam. With Claude and Anthropic, it's already launched since the launch of Bluebeam Max in February.
The intelligence is in Bluebeam Max, right?
Absolutely.
As I said, that's what we have been working with. As Yves alluded to, we have introduced quite some time about, and that's also our approach and how we see it. Let's say we see that the intelligence in the very specific vertical AI impacts in the AECO industry. That's the intelligence core that we are offering. Then you have an interface over the MCP with Claude. That's something we have.
Nay Soe Naing, to answer your question, on the build side, I mean, I think sky's the limit for the build growth. I mean, clearly, I don't see that stopping. I cannot even give you a date. I may not be part of this world any longer. Seriously, I think, look, we are, yes, the de facto standard in the U.S., but we have the entire world now to conquer, and we are going very nicely. Even in the U.S., you know, the SMB market is huge, and we still have a long, long way to go to have a even further full penetration.
Even when the penetration will be there, as we are becoming an AI leader in AECO, you know, you will have all this pricing and with more consumption, token base on top of licensing your tools, which is going to de facto increase the average revenue per user. As you know also, build and Bluebeam, in particular, pricing is very low. It's less than the price of a coffee in the U.S. U.S. coffee price is quite expensive, as you know, but still it's less the price of a coffee per day. We have huge leverage also on the pricing power over time if we see that the volumes potentially, they slow down.
In addition to that, now we have done this deal where we are now putting together unique, very, very strong assets in construction technology, building this construction tech giant, combining HCSS with our Build segment. HCSS, as I said, is the leader in heavy civil construction and infrastructure in North America. They are the number one player from far, and they have huge potential of growth, huge, for the coming many years. Clearly, we see this strong momentum being there for a long time, in particular because the structural drivers of this growth are completely intact. The Build segment market growth is much higher even than the rest of the life cycle of construction, if you look at design and planning, for example. Because even in infrastructure, the level of digitalization is even lower than in buildings.
The momentum is there. The drive is there. All our infrastructure are aging, especially North America. You have these huge investments coming for the next many, many years cycle. Very strong momentum, and we are very, very optimistic and positive about the very long-term growth and strong growth of the Build segment for many, many, many years.
Yeah. I think, Nay Soe Naing, to add to that, I think you also asked, what is now because we see very nice growth also internationally, not only in North America and the U.S. for Bluebeam, and what has now changed? What is working well? I think whilst Bluebeam is a product where they are extremely strong from the network effect, they are extremely strong in collaboration, pre-construction. That's where all the pain points are, as Yves Padrines alluded to, so that the market sentiment is really there. It's also you need to educate the market a bit. Every market, if you look at Europe, every market is different.
I think it would be wrong to say that we were not successful internationally, because if you look at the Scandinavian countries, in Sweden, for example, with all the huge construction companies, Bluebeam has been number one in-Everywhere, and they have actually even formed over the business associations. Bluebeam was the standard they concluded two years ago because they said this is the way we need to collaborate. That set standards. In other European markets like Germany, et cetera, France, Italy, that has taken longer, and that's why you also need to make sure that you find the right approach and the education of the market and into this product. That's what we have done now, invested in the last couple of years, making sure that we really have.
It's not changing the product, but really the approach to the market, the education of the market. That's really the payoff you see now. It's a very sticky product when you have it into, and when you start to develop this network effect that we see so nicely in the U.S., that happens elsewhere as well. If you then now see in Asia Pacific, where we have been strong in New Zealand and Australia, but we may now open up India, et cetera, I mean, you can just imagine when we create that network effect there. It takes time to enter into the market to make sure that you get it spread out. You also have this network effect through Bluebeam, which is very, very compelling.
No, absolutely. As you said, Louise, Bluebeam is viral in North America, especially in the U.S. now. Our goal is to make it viral everywhere in the world.
Thank you very much both for all the helpful, additional color. Yves, I look forward to talking, continue talking about good growth in Build for many more quarters and years to come.
Many thanks, Nay Soe Naing.
Thank you both.
The next question from the phone comes from Victor Cheng with Bank of America. Please go ahead.
Hi. Thanks for taking my questions and congrats on the solid quarter. If we just wanna elaborate on the questions just now, thinking a bit more about medium term, do you have an updated view, elaborate a bit on how you monetize AI? Obviously, with Bluebeam Max, you have a higher subscription, it's somewhat like a bring your own LLM model where, I think, you know, if you think about from the customer side, the total cost of ownership is not only a higher subscription, but also a separate LLM that they bring themselves. Should we expect similar models in the Design segment? I guess that would somewhat protect you from impact on margins from AI compute. How should we think about this?
Victor, yeah, good point, and I think it's really depending on the features and the solution and the AI product. It is true that for Bluebeam Max, for the moment, you know, if people are using Claude, I mean, they, you know, they have their Claude Pro subscription and licensing and tokens, et cetera, or, you know, with MCP, they will have probably other solutions. We are not providing at this point. People will have to pay for Bluebeam Max, which is today purely a subscription per user.
As you know, the introductory price is around $150 per year, more in addition to the higher package that we have today of Bluebeam without the AI package from Bluebeam Max. We are not going to disclose yet what may change, but as said, when we are going to launch additional features in the future, there will be different options. Some option is that these additional features can be in the current pricing package. Some additional features may have to be paid on top, maybe even still under subscription, or some additional features might be a little bit more token-based, which will be purely consumption-based, et cetera.
If you look at other brands, they will probably, and they are planning some of them to have, and they have, the same approach. Some others, they even just put their AI features on the higher tier package of their current subscription packages. It's not a pure AI package even. It's included in the premium package, including other things. It is clear that over time, you will see more and more consumption and token-based type of pricing coming from all different product line and all different solutions and brands. Are we planning to put, you know, the cost of Claude and others part of our price today? No. Again, this may evolve depending on the type of solution that we are planning to launch, but for the moment, that's not the case.
No, I think just to add to that, which I think is also something that we will see going forward, and we are depending on product also, as Yves said, I think it's also our job. As I said, we see our job also to make sure that we deliver the intelligence you need for our products, right? It's also very much about the ontology and the intelligence graph, et cetera, that we are ensuring. Maybe, I'm not saying that that's really the product pricing strategy we'll have, but it's also our job to direct, so to say, to the most efficient usage maybe of token, et cetera, because you might not need to use one model for everything you do, et cetera. That's also part of the intelligence.
We'll have to come back to that also when we have launched it. There, as you can hear, there are different avenues that we are taking on that to make sure that we, A, that we will monetize it, yes, for sure. That's something that is clear because there's a lot of value in the additions that we have here. That we can also support our customers to use this in the most effective and efficient manner, also in cost effectiveness, et cetera. That was part of also the value creation that we also do for the customers.
Very clear. Thank you.
The next question comes from Nicolas David with ODDO. Please go ahead.
Yes. Good afternoon, Yves and Louise. Thank you for taking my question. I would like to come back on the margin side regarding Q1. It's true that if we look at Design and Media, margin is improving, but actually if we were to restate from the provision you took last year, actually it looks like the margin of both division is slightly down. I think, Louise, you already mentioned for Media some action plan implying some cost. Could you elaborate a bit more on those actions and on the fact that those costs are purely exceptional, or should we expect more costs going forward? On the Design side, could you explain why the margin was slightly down if we adjust Q1 25 basis from the provision, and what we should expect for the coming quarters?
Still on the margin, for a question regarding the M&A transaction cost, what should we expect for Q2? You're not going to close, probably not to close, the deal before you release the Q2 numbers. Could you help us understand if you need to put a bit of M&A transaction cost into the PDF for Q2? Thank you.
In general, we are actually very satisfied with both the margin improvement and continuation of design and also media. I think it is progressing. I think what I alluded to before, and that goes for both design and for media, that in the first quarter last year where we had the extraordinary effect of the insolvency of the service and payment provider, of course we are very focused on cost sharing. We are balancing the cost when we have extraordinary expenses. You have seen that throughout the quarters here as well. Of course, we balance out our cost and our investments as well to balance also our profitability and cost management.
That's why also in Q1 last year, we took cost measures and postponed some investments, et cetera, to later in the year to see how, especially on the media side, where we actually had more impact on revenue, et cetera, to see how that played out. That's why you cannot just say that that should automatically come back this year because we also, of course, we are continuously investing into our business, and there in the first quarter last year, we also postponed some of those cost positions. I think in general also, as you see, we are investing into our business, and that's what you see now as well. That's a little bit also depending on when what is coming, right? In what quarter.
In general, the underlying profitability is well in line with what we have seen for this year and even above what we have seen for this year. I think that goes for both. Looking at the acquisition cost for Q2. We always have, as you say, we are, as you know, we are growing quite well over different anorganic deals as well. The costs do not always show up when we announce the deal, right? We always have a general impact on M&A costs. If you look at the HCSS impact, as Yves alluded to before, let us come back to that when we have closed the deal.
I would say if you expect something around what we have now announced for Q1, that would not be totally off. That's also a little bit depending. That might not only be related to HCSS. We will have an impact of that, of course, in Q2 as well. We will also have other deals impacting that. Maybe, yeah, around that a little bit more, but let us come back to that when we have closed the deal.
Thank you, Louise. The action plan you took on media, you were referring to something last year, not this year, right?
Last year, exactly. Of course,
Oh, okay. I don't understand what you're talking. Okay.
Yeah, yeah. That was what I alluded to.
Yeah, okay.
As we saw, we have the strong impact. We of course also mitigated our cost. Of course we have also. That's why you cannot just put that effect back in this quarter, right? Because normally we would have invested more in that quarter as well. In general, I would say, we are always very, as you can see as well, focused on operational excellence to really leverage when we scale. We're very focused on bundle investments, and that's what we are doing as well. Of course, when we have extraordinary effects, we always look out for ways to mitigate that. Currently, we are investing into our business in different directions, and I think that is also we will continue to do in order to ensure the growth.
Well, that's very clear. I just misunderstood your first comment in the prepared remark. Yeah.
Yeah.
It's true that when we restate for the provision, it's true that the underlying margin of both design and media last year was super high.
Yeah.
Thank you. Take care.
Thank you.
The last question comes from Florian Treisch with Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Good afternoon. Before we seem to making the call too long, just a quick one left on my end. In the Design segment, you mentioned that you have seen strong growth in new units. I think that's the first time you're flagging it. Has something changed here that you see more new business momentum? Thank you.
Well, Florian, clearly, I think, there is good momentum in term of new units. I mean, especially internationally. You know, as you know, we were working on internationalizing our Design business, which is mainly European, and we see some very nice growth outside Europe. Even in Europe, there's been some good momentum. As I said, even in Q1, in our local market here in Germany, there's been also some good positive momentum, which was not the case for a very long time. Yes, the new units growth is there for existing customers, but also of course, quite a lot of new logos, especially internationally.
Great. Thank you very much.
Ladies and gentlemen, that was the last question.
Wonderful. Thank you everyone for attending, and we are looking forward to catching up with you soon. If you have any further questions, please come to me or Patrick. We are always available for you. Thank you again for joining the call, and then let's conclude the call for today. Thank you very much.
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