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. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Stefanie Zimmermann, Vice President, Investor Relations, who will lead you through this conference. Please go ahead.
Thank you, operator. Hello, everybody, and welcome to our conference call. Thank you for joining us to discuss the results for the third quarter and the first nine months with us. Today's conference call is being recorded. A replay of the call will be available at our website after the call. As always, we have prepared a short presentation with the most important figures and highlights of the last quarter and the last nine months. You will find the presentation, the quarterly report, and the press release on our investor relations website as well. Now, let's start with the presentation. I would like to hand over to our Spokesman, Axel Kaufmann, who will lead you through the presentation. Go ahead, Axel.
Wonderful. Thank you very much, Stefi, and also a warm welcome and good morning, or good afternoon from my side to our earnings call. As Stefi said, we have prepared a little slide deck. We'll walk you through that quickly so that we have sufficient time for questions afterwards. Starting with Page number three. As usual, we would start with an overview of our top key figures for the most recent quarter. In short, I think we've delivered a good third quarter with a stronger-than-expected rebound. In particular, in the month of September, our reported growth increased by 7.5% to EUR 149 million. Excluding the negative foreign exchange effect, mainly from the U.S. dollar, as well as the positive contribution from our recent acquisitions, our organic growth also reached a very solid 7.1%.
In line with these trends we saw in the last quarters, the top-line growth was mainly driven by our recurring revenues, maintenance, and subscription, which increased by more than 18%. In contrast, our license revenues still recorded a negative growth of -6%, although the decline was far less severe compared to the -19% in the second quarter. The EBITDA of EUR 47 million corresponds to a strong way and to the strong margin. Our strong margin is a function of a healthy operational leverage, ongoing cost savings on, for example, travel and trade fair expenses, as well as the somewhat slower than expected ramp-up of our headcount in the recent months. However, please let me highlight that the strong margin in the third quarter should not be extrapolated into the coming quarters.
As we highlighted earlier already, our main priority is to set up the company for future growth, and we will therefore substantially ramp up our investments in Q4 as long as confidence continues to come back, which will result in a markedly lower margin quarter-over-quarter. Again, stronger than expected rebound in the third quarter, concluding a very solid development in the first nine months. Let's continue. By moving on to Page number four, this is a summary, and many of you are used to that. The key business highlights after the first three quarters of the year. Overall, we showed a bit more resilient development despite a challenging environment. We were able to increase our sales despite the FX tailwind and increase also the margin.
Similar to the third quarter, the main drivers were the recurring revenues in the first nine months with a strong growth of 22%, and in particular, subscription with a plus of 84%. We'll be talking about this in more depth in a moment. In addition, our high cash conversion of almost 90% once again underpins the high quality of our earnings. To summarize, a solid performance year- to- date, together with our swift reaction and decisive measures to cope with the effects of the global COVID-19 pandemic. That is why we believe we've also a good basis for the upcoming, still uncertain and challenging months ahead of us. On to the next Page number five, and just to illustrate some key parameters of the financial performance in the first three quarters. We're going to look into the main growth drivers in more detail on the next slide.
Before that, please allow me to shortly address the earnings per share growth of just almost 3%, a topic that we already discussed in our last earnings call, and I'm sure many of you understood the reasoning behind that. Just like in the first half, increased PPA charges were the main reason for this under-proportion development. This can be seen by looking at our EPS before the PPA optimization, which grew by almost 8% and are in line with our EBITDA. Let's move on to Page number six. As all of you know, one of our main objectives and always an important discussion point is the topic of increasing our share of the so-called recurring revenues. If anything, the recent events due to the COVID-19 crisis have further amplified the importance of these better predictable and more resilient revenues. Let's look at the revenue distribution.
As mentioned previously, we're very pleased to note that the strong increase in recurring revenues continued also in the third quarter. We've a bit accelerated, as we were discussing beforehand, those activities. In the first nine months of the year, we were able to grow our recurring revenues by 22% on a reported basis and still by 18.5% on an organic and foreign exchange-adjusted basis. With the recurring category, our subscription revenues almost doubled to more than EUR 60 million. This already represents a share of 15% of our total sales, compared to the just 9% one year ago. On Page number seven, we would provide an overview of our most important KPIs.
Without going through all the details, I think it's fair to say that we further improved the quality of our balance sheet, representing some important metrics such as the equity ratio, which is now at 45% compared to 41% last year, and our very low debt position. This solid balance sheet and virtually no net debt provides us with a high degree of safety going forward, while enabling us to act flexibly and opportunistically should interesting opportunities rise up. To conclude my view on the first nine months, let's look at our four segments on the Page number eight. Starting on the left, our Design segment returned to growth in the third quarter with a revenue increase of a bit more than 2%. As already mentioned previously, the slower-than-expected ramp-up of investments resulted in an unsustainable high margin of 37.6%.
A similar picture with a growth of 11% and margin of 38% can be seen when we look at our Build segment, so going from left to right on the chart. With the largest contribution to the revenue and margin improvement coming from Bluebeam, the important U.S. market held up better than actually feared. However, our order intake continues to point toward a further deterioration of the U.S. market. We'll talk about that in a moment when we come to the guidance. In our Manage and Operate division, the negative effects were only felt after a delay, and we're expecting to continue those due to cautious investments by the important customer group of facility managers and also some limitations where we cannot access buildings in the service area of this business segment as expected due to the COVID-19 and limitations.
Last but not least, our media segment presents a very satisfactory development with an organic growth of almost 12% in the first nine months and even 20% in third quarter. The high reported growth was strongly impacted by the first-time consolidation of Red Giant. We can say that the integration so far is doing well. Integration costs as well as the recent move to subscription by Maxon posted the expected negative drag on profitability, but that's not at all to our surprise. With that, before we move to our updated financial guidance for the remainder of this year, let me quickly follow on Page number 10 on two important strategic initiatives that we presented in our last earnings call, announced them, but executed in the meantime.
As a reminder, our first innovation was the Integrated Design, a cross-brand workflow solution that revolutionized the collaboration between architects, structural engineers, and civil engineers. With this integrated approach, it's now possible for architects and engineers to work together in one shared 3D model across disciplines for the first time. This is a major milestone for the industry and improves the efficiency in the collaboration process tremendously. Our second big innovation is our so-called Federated Design solution. At the heart of Federated Design is our SCIA, the SCIA AutoConverter, which significantly improves the current BIM workflow by converting any 3D structural model into a high-quality analysis model. This automatic process involves structural engineers much early in the BIM process and saves time because there is no need to rebuild analysis models completely from scratch.
The very positive feedbacks on both innovations, which we receive from the market and our customers, show that these address exactly the right needs and motivate us to continue with our cross-brand projects with the goal to further improve the workflow in the construction industry and to make doing business with Nemetschek much easier than in the past. We'll keep you in the loop about the progress and further steps. I'll basically skip the next Page, number 11, with some more important cornerstones of our success and why we think Nemetschek is so well positioned in today's market. Many of you have seen this before. It remains unchanged mid- and long-term, this is basically why we believe in further growth potential and the economic success foundation for our group going forward.
Let me draw your attention on Slide number 12, on which we updated our overview on where we stand in terms of the COVID-19. As already mentioned, we experienced a first in, first out effect with regards to COVID-19 on our divisions and geographies. While Asia was impacted first, we saw the tough second quarter mainly in Europe. While both regions now rebounded in the third quarter, the U.S. market further deteriorated. Also, as expected, our license business was hit the hardest while our recurring revenues showed a pleasantly resilient development. I believe our solid first nine months also show that our initial and quickly implemented measures, and particularly our cost savings efforts as well as our adapted sales and customer support measures, proved to be key in coping with the crisis and keeping the customer relationships.
We also preserved our very solid financial position during that period. We therefore leave our set working assumptions, which also built the foundation of our updated 2020 guidance, mostly unchanged. We continue to expect a very uncertain market environment also in the coming weeks and months. This is especially and particularly true and important for the U.S. market. At the end of my presentation, I would like to turn to our updated outlook on Page number 13. As a result of the good development so far, the intact long-term growth trends in our relevant markets, our high proportion of more better plannable revenues, as well as the broad regional and market-related diversification, we took the decision to upgrade our outlook for this fiscal year.
In particular, that means that from today's perspective and based on the current portfolio and environment, we increase our revenue outlook for this year and now expect a growth in the mid-single digit percentage range. In addition, we also increased our margin guidance to a range of 28%-29% EBITDA margin from the floor of more than 26% previously. Our assessment is based on the assumption that a certain reluctance on the part of our customers will also continue in the fourth quarter, especially with the currently dynamic development in the number of COVID-19 infections across Europe and the U.S.
Rest assured that we will continue to monitor the situation very closely, and that Nemetschek, as a group, is well prepared to also take market opportunities out of the current situation, as we are convinced that our products have the right fit and we have the agility and financial strength to act. It's not going to be an easy fourth quarter. We're in the middle of that, but so far, we're doing quite well, but we have to stay alert. With that, I'd like to thank you for your attention, your time today, and we're now happy to take any questions. Operator, please back to you.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone key pad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question has been answered before it's your chance to speak, you can dial zero and two to cancel your question. If you're using a speaker equipment today, please lift the handset before making your selection. One moment, please for the first question. The first question is from Gal Munda, Berenberg.
Hello. Good morning or good afternoon, guys. Thanks for taking my question. Just the first one is around the guidance. You obviously felt compelled, at this stage of the year, to kind of reassess where you are, especially based on very strong performance, and the rebound in Q3. I was just wondering, actually, if you can give us a little bit of an insight into what your assumptions are for Q4 when you provided that guidance, considering the fact that on a nine-month period, you already pretty much are there. Are you expecting potential deceleration in the Q4 in terms of the momentum? Especially looking at last year's comps, Q3 was actually a very tough quarter to follow- up on, right? I think organic growth last year was 16%, and in Q4, if I'm not mistaken, it's 10%. The comp gets a little bit easier.
Your licenses were only down 6% in Q3 versus, like you said, first half of the year. Everything kind of seems to be better. If the current environment continues, would you say that guidance is highly conservative for the rest of the year?
Thank you very much for your question. I think we need to differentiate what we do know and what still might happen. What we do know is that, yes, this is the end of October, and some of the trends that we've been seeing since June would indeed continue. On the contrary, some of the elements that we would have projected, already since a couple of months, are also coming into reality, and that is mainly related to the U.S. market, as an example, and to the currency development there. They clearly go against us currently.
If I was to say, is that a conservative Q4 outlook, I would say no, because on the top line, there is still clearly a lot of work to be done, and we're fighting against a sentiment that is clearly negative in Europe, particularly since, I would say one and a half weeks, two weeks, kind of. A continued slightly negative sentiment in the U.S. market overall, plus the currency situation. I don't see why any of those three would be really eased in the remaining quarter that is out there. Again, on the margin, I think with the 28%-29%, we have built into the forecast an assumption that we know that we have some year-end effects. We have also investments. We have also started, again, hiring, bringing people on board as the confidence, particularly in Europe, would have come back.
We know quite well our numbers, I would say, and we see some of the costs in November and December and some year-end effects that would not be visible in the Q3 run rate. That's why, no, actually to both aspects, although you didn't ask about to separate the question into revenues and margin, but I think it's fairly realistic, and I think it's a good guidance overall given the environment out there.
That's really helpful. Thank you for that. Just as a follow-up, Axel. When we look at the different trends that are going on in AEC industry today, I think it's fair to say that the outlook is really different based on the end markets you guys might be selling into. I just wanted to ask you if you can remind us in terms of your end market exposure between the infrastructure part of the market versus the commercial buildings and the residential buildings. If it's possible to touch on those, because obviously, with potential infrastructure build and things like that, some people are looking about different puts and takes into it, and I just wanted to see if you could provide some color on that.
Yeah. Thank you. Very good question. My spontaneous answer would be that if we divide the end markets into residential, commercial, and infrastructure, of course, it's a matter of definition. We have found that infrastructure, do we count schools, hospitals, airports, everything into that? We would, as a matter of fact. We would go by probably a third for each of those. We would also be somewhat optimistic that infrastructure could slightly benefit over the next couple of years from some of the programs that have been set up by governments around the world or stimulus programs. Albeit, we're not naive seeing that the commercial building as well as the residential construction space are experiencing an environment that is not very investment-friendly. I don't mean investments into software, but more into real new construction projects-
Right
overall, right? It's hard to say, will that be an offset? Is that an underlying net positive? Again, even on the infrastructure, I would need to tell you that we've been hearing a lot on this one, and when I talk to our salespeople or to our customers, those funds, those large amounts of money, have not been landing really in concrete projects. I don't see that much many more schools or hospitals or airports, or railway, whatever infrastructure would get de-projected or scoped out at this point of time. I think there is more talking, which still is an underlying positive because one day the talking and the funds will be needed to be called off and then this could translate. That's a matter of not a few months or quarters.
I think that's more a midterm, light at the end of the tunnel, if you may so, or a slightly positive that we also would be discussing in our industry. On the residential and commercial, of course, the COVID-19, the home office, all the numbers that fly around, is it the previously 100% of the office space that is still needed even after COVID because people got used to different working modes, travel modes, and what have you. It is a such tough question. I wish we would have the answer, really. The most statistics that we've seen, the most projections tend toward a slightly negative from there. Residential, I don't really have an opinion on at this point of time.
That's extremely helpful. Thank you so much, Axel, and congrats again on a very, very strong quarter.
Thank you. Appreciate it.
The next question is from Martin Jungfleisch, Kepler Cheuvreux. Your line is now open.
Yes, hi, good afternoon. Thanks for taking my questions and also congrats on a solid set of numbers. I have two questions, please. The first one is on subscriptions. These have increased a lot compared to licenses. In the future, would you be willing to accelerate and steer this trend or let customers continue to decide? If you would accelerate subscriptions, by how much would you be willing to sacrifice top-line growth and margins from this potential technical compression resulting from subscriptions? That is the first question. The second question is on your margins and planned investments. Your margins are obviously up quite nicely this year, but you mentioned that you want to increase investments in the coming quarters.
Could you describe these investments in what areas those will be and potentially also quantify them and if these will likely lead to a lower margin in 2021 compared to this year? That is it from my side. Thank you.
Thank you very much. I think your first question was already quite well-phrased and complex in itself. Let me start with this one. Two dimensions in your question, the way I understood in regards to subscription. First of all, a yes to the acceleration, which I think we're in the midst of doing. Despite the very positive momentum I see in the company currently, and this might surprise you, we still are not, and that's the second part of your question, not shifting completely away from the customer focus. By far, I think we'd be foolish to do so. What you called a voluntary optional choice for the customer, that's indeed still the case, even in those areas where we, in these days, would start a higher subscription attention and focus.
That does not mean that we wouldn't do everything to explain to the customer the value of subscription, i.e., new features, special bundling, more flexibility. We're going slowly but surely in that direction. That's what I stand for. That's what the management stands for. We're going into that direction. I wouldn't promise any significant leapfrog steep push in that respect. I think we're doing a bit more than the average of the last three, four years, and we'll continue with that pace probably. There will be setbacks, quite frankly, and there will be also differences in quarters because we cannot just turn everything around overnight. Sometimes it doesn't make sense, neither for the product development nor for the customer to just artificially push for subscription just for the sake of being able to show different numbers. That's not the driving motivation here for us.
You asked about whether we'd be willing to sacrifice. Well I don't want to go into that too much, but what I'm not willing to sacrifice as a company is the customer intimacy and the customer relationship. Right? The customer acceptance. As long as we have that, as long as I think we do it together, basically, and there's a win-win, I don't think we need to sacrifice really anything. Of course, there's going to be a negative impact on the revenues as well as on the margins.
Every time we would have seen a product shifting from perpetual to subscription, or at least offering subscription in a dual mode, as a second way to get the product, we would see some clouds or some negative effects on the licenses, which is quite natural because the amounts are simply lower, the frequency is higher, the turnaround is higher, and we might want to carefully look at the churn there as well as another parameter. No surprise that whenever we will have this development, it's our eagerness and our commitment to continue to report the visibility over what has caused potential effects on the top line as well as on the bottom line. We're foreseeing them to come, clearly. On the second question, if I may answer that the investments, some of them I mentioned already in the slide presentation, and those are the discretionary ones.
Clearly, we'll have more people on board. We'll have some bookings that naturally come at the end of the quarter, at the end of the year. We'll have different target achievements, personnel costs, all of those kinds, hopefully trade fairs, marketing costs. We're really ramping them up to be prepared for another good year going forward. The environment, quite frankly, is not improving really in those days. We'll try to cope with it as good as possible. The answer, clearly, to the guideline or guidance on the margin expectations for next year, I cannot give you at this point of time in this call. I think we want to go out with a full set of our guidance 2021, as soon as time permits, as soon as visibility permits, as soon as, I would say, we've probably closed this fiscal year.
I cannot exclude that, in the moment we would hire and lift the run rate of the expenditures by, for example, also product development, and we've shown you two examples in the presentation. We want to continue really to better connect the product, to optimize the internal processes and to prepare the company for further growth, be it systems, be it tools, be it staffing, be it locations, infrastructure, our own infrastructure. All of that will cost money and does cost money already as we have started some of those. It's for the sake of the long term, I would say, benefit and growth for the company, i.e., also hence for you as shareholders or investors. Yes, it's not unlikely that this will also be lowering a little bit on the profitability on the margin.
Why would the impact that we would see from the first nine months going into the fourth quarter, why would that not continue at least to a certain degree in the next year? Again, we'll come out with a guidance. It's not going to be disappointing, I'm sure. Again, thanks for the compliments on the third quarter. We take it as a motivation and challenge at the same time.
Cool. Very helpful. Thank you.
The next question is from Sven Merkt, Barclays. Your line is now open.
Good afternoon. Thanks for taking my question. Congratulations on the good quarter also from me. I have a couple of questions on Maxon. Firstly, could you help us understand what drove the acceleration this quarter, and how we should think about growth going forward as the subscription transition annualize? Any comments on how we should think about this dynamic would be helpful. Secondly, could you maybe comment on what the lessons learned from the subscription transition of Maxon are, and how you might apply this to your other brands? Just a follow-up on the earlier comments you made on subscription. You are on track to add about EUR 40 million to the subscription line this year. Is that a good assumption of the annual intake we should expect over the coming years? Thank you.
Very good questions. Thank you very much. Let me start with the latter, if I may. Be careful when you look at the subscription this year. We did acquisitions in the past that really help us also drive the subscription journey. In full transparency to all of you, that's not something we try to hide because those were intentionally made mergers and acquisitions to enrich not only the volume of subscription but also the know-how and the skill sets around the good, bad, and ugly. What do you need to know about subscription and its dynamics and SaaS business going forward? The number that you mentioned is I think including those effects.
There was a little acquisition at the second quarter coming into effect, and there was the full impact coming from the acquisition we did at the end of last year, early this year, in particular the Media & Entertainment segment that you mentioned. All of those would pay off nicely, a little bit effect in the Manage & Operate, a little bit in the Design, and then this major acquisition paying off in the Media & Entertainment. All of them also drove the overall number for the subscription. Right in time, however, we're still proud of being also able to show an organic year-over-year growth of the subscription. That's really the hands-on efforts of the guys here. That's a wonderful question. Thanks for asking me about Maxon. Two parts of your question.
Number one, what has driven the strong third quarter is a bunch of new product features that were launched by a series of online events really to the audience. We would combine Redshift, Red Giant and Maxon into one suite that customers now can buy in a much more flexible and customizable way. Along with the subscription, the introduction of really new product features and the combination, and I think a better marketing appearance, really a lot of launch dates and launch events really drove the third quarter. The negative and a bit of water in the wine, I'm sorry to say, but again, in the spirit of full transparency to all of you, is that Maxon is experiencing quite some headwind at the moment. The entertainment industry, we have two businesses within Nemetschek, Vectorworks, as well as Maxon in particular.
They are suffering from the recent setbacks, especially in the entertainment and event industry. All of those cancellations mean that, again, we're back to maybe the March, April, May timeframe, where there was a lot of uncertainty over new productions, be it movies, be it commercials, be it cinema and blockbusters, be it gaming overall. Wherever you need a team, and it's good that we have the technology, but then there is still a studio needed. Sometimes there's actors needed, there's a camera team needed, there's whatever effect needed. All of those experience a very hard time. We've been seeing this in the last three and a half weeks, and numbers are really going downwards, not as much as we had liked them to see. The trend is a negative one, and that's COVID-19 purely. However, overall, I would say thumbs up, the integration is doing very well.
We're forming to become really a relevant player in the first half next year in that slightly different industry than the AEC or AECO industry. That was always the intent, that was always the strategy, and we're executing on this promise. The subscription learnings, the second part of your question, that's a wonderful question because that is absolutely on its way. There is, again, good, bad, and uglies. There is scars, experiences, observations that we would have. Customers typically in that segment, however, are a bit more used to subscription and rather B2C customers than in the remaining parts or pockets of our business. I could not say that every learning we can take and extrapolate and copy-paste it to the other three divisions.
There is a working group, and we're taking a lot of those learnings, try to document them, do online tutorials and trainings in-house to say, "Okay, how do we deal with a webshop? How do we do with a back office integration, with the back office processes, with the billing, with the invoicing, with the T&Cs, with the rates, with the pricing, with the bundling, the customer explanations, all of those?" It will take really a long time. The big business unit, Graphisoft, has just started to introduce subscription. Vectorworks has done basically the same. ALLPLAN, as the oldest business unit in our portfolio, has not really started subscription to a big degree. There's a lot of homework still to be done. I'm glad that the testing now, I would say, of the waters is over.
I think we have collected sufficient experience to now stand united and drive this forward. Again, slowly but surely, we're going in that direction. Yes, we're connecting the brands and the know-how amongst the business units clearly so we can scale that better.
That's very clear. Thank you very much.
Thank you.
The next question is from Andreas Wolf, Warburg Research. Your line is now open.
Yeah. Hi, it's Andreas Wolf, Warburg Research. I hope you can hear me well. Basically, I have two questions. The first would be on churn with regard to subscriptions. Do you see higher churn with customers who have chosen the subscription model? Do you already have reliable data here? The second would be, you spoke about customer intimacy. Do you see more demand for cloud solutions? Because we see among some software providers, a push towards the cloud, not just a SaaS offering. Some insights here would be very helpful. Thank you. Congratulations on the quarter.
Thank you very much. Seems to be windy in Hamburg.
Yeah, it is actually.
for the good question. Yeah. We do have some data on the churn, and I'm not overly thrilled by it, quite frankly. I would put it in the pocket or in the category of still collecting experience in that regard. Indeed, we have seen the churn in one area, which I don't want to mention in detail, being a bit higher, and we're still trying to understand why this is the case. I think it's not sufficient data on hand to really make a final judgment call on that. If it was the case, by the way, then of course, we need to understand what we can do about it. The more flexibility we give to the customers, that also means that we need to be prepared for them acting flexibly, especially in this kind of environment, as you can imagine. Right?
Yeah
Do we have an opinion on the cloud and on the SaaS? Quite frankly, if I look at our portfolio and we talk about subscription, people sometimes mix everything into one big bucket, be it subscription, maintenance, SaaS, cloud, and then we all would call this recurring. In our case, I think it's fair to say that the first hurdle that we need to jump over here is the full understanding of the dynamics of subscription. If we were to understand that and introduce that in all business units, we can see how much we can drive this up. We will never give up completely the perpetual license business model. Again, there is some customers, especially with our legacy and the installed base, that we come from a different background than maybe some of the American competitors.
It's not necessarily bad as a thing, by the way, as well. That's the first hurdle. The next evolving stage or phase could be the true SaaS model. We're offering some of the services and solutions on the cloud already. We're working with too many providers, in my opinion, so we need to consolidate it a little bit. It was also the kind of testing phase in the last years and collecting experience how a cloud provider can help you and what is their business model and the data residency and the data security issues that we had to answer on behalf of customers and so forth. Yeah, of course, this is a long-term vision, and some of the products are already there. Spacewell, for example, in the Manage & Operate is a good example that is going in that direction more than maybe others.
That's the next phase. Let's first jump over the first hurdle.
Okay, great. Thank you.
You're welcome.
The next question is from Deepshikha Agarwal, Goldman Sachs. Your line is now open.
Hi, everyone. This is Deepshikha Agarwal from Goldman Sachs. Congratulations on a good third quarter. I have two questions, if I may. The first one would be on the competitive landscape. How has the competitive landscape been in the current environment? Are there any instances of competitive wins that you can talk about? Again, on the competitive landscape and more in the build segment, what are the key competitors that you see across both brands, basically, Bluebeam as well as NEVARIS? The second question would be on product integration. You did talk about a lot of positive feedback on Federated Design and Integrated Design. When do you expect it to be reflected in terms of numbers more significantly? Is what we wanted to understand.
Thank you very much. Without disappointing you, Deep, I think the second question is too early to answer. I think we've just introduced really those solutions and products to the market. We're glad that the feedback is positive. We'll monetize them as much as we can, along with the customer delight philosophy and get them introduced and launched more and more. I think the numbers so far are neglectable in terms of revenues. On the first one, also quick answer. I think it's a good question, and we get this a lot. The comp landscape, in our opinion, has not really changed. The big established players, Autodesk, Bentley, Trimble, they are there. We have certainly a theme in the industry that is called platforms or marketplaces, with the Procores of this world, Autodesk, with their offering there.
That's clearly a theme where players that don't have the AEC software in itself would have entered the market with more a data-centric offering, which adds value to the customers, obviously. The landscape overall has not changed. I wouldn't see a lot of dynamics there that are different from maybe half a year ago or a year ago. Especially if this is a quarterly call, I wouldn't say that in the third quarter we had seen any dynamics changing, really. Right? Those are the names, by the way, also that probably would compete with, you particularly asked about Bluebeam and NEVARIS. NEVARIS is a bit different. If you familiarize yourself with NEVARIS, there's two areas. The one is really the process solutions for the GCs or construction build firms, and then there's the ERP solutions.
For ERP solutions, I think you can imagine which of the infrastructure we're facing. RIB clearly is a competitor in that area that was recently acquired by Schneider as well. Then, again, those names that were mentioned beforehand. No overall changes, I would say.
Okay. Thank you so much.
You're welcome.
The next question is from Uwe Schupp, Deutsche Bank. Your line is now open.
Good afternoon. Hello, Axel. Hello, Stefi. Just two generic ones, really are left for me. Firstly, Axel, if you don't mind, can we try to nail you down on a few numbers regarding those investments that you have now managed some minutes ago? Basically, I saw from the quarterly report that you roughly added 60 or so heads in the quarter. Any indication would be helpful what would be to come on top in Q4 in order to get to the targeted margin level that you are suggesting. Really, sorry for that, I think I asked the similar question last quarter, but I think it's still an important one regarding M&A and what your shortlist is currently looking like.
In particular, I was wondering whether you are potentially making use of the current nervousness that you described yourself in the U.S. market in order to increase your foothold there a bit further. Thank you.
Thank you, Uwe. To your questions, you can try to nail me down. I'm not sure if you're going to be successful. I would pass the ball back over the net to you yourself, because if you think of our new updated guidance, mid-single digit growth, you take that and deduct the three quarters and nine months, I'm sorry, I think it's easy to see that we're probably talking about a, let's say, 4% or 5%-ish growth year-over-year in the fourth quarter. Right? That's really somewhat the expectation. From that, if I was you, I probably would try to calculate the kind of cost range that would lead us to the margin guidelines and bandwidth that we have given. It doesn't take a lot, I think, to nail me down, quite frankly, because it's not like dropping pens.
I think we want to appear as visible and transparent to all of you as possible. If you were to ask about the categories of the cost, I think that would be a very interesting aspect. Those before mentioned, one, discretionary spendings, product development, hiring personnel costs, and typical year-end effects. Our balance sheet and P&L is not so much different from others. Typically what we have is organizational changes that might lead to expenses, product changes or combinations that might lead to expenses, hiring that might lead to expenses, ramped up marketing preparations for some launches, then early next year, our continuous sales activities. All of those really will lead to higher investments/expenses at the end of the day. The exact amount, I do not know myself either, but I think we have a good feeling about the magnitude overall.
Again, we'll come out as soon as we can early next year to report backwards then on the hard facts in the fourth quarter. On M&A, wonderful question. I love it, again, as we wouldn't talk about really details in the pipeline. The nervousness in the U.S. market, I think we also have some nervousness coming back to the European market. I think many business models, they get on the proof point of are they sustainable? How valid are they? Are they vulnerable? Not only in our industry, but also in others. Construction industry is lagging behind. We all know this. It's a late phasing and it's a cyclical that many projects are still getting finalized. We know this.
There is many statistics and expectations or projections on how the build and construction industry overall with the start of new projects could develop in the next two years, 2021, 2022. I've seen a projection that would show decline in commercial buildings, a slight increase in public infrastructure, for example. That's what I was referring to earlier. Are those projections good enough already, with enough substance, question mark, or it's just a short-term impact that we're currently seeing? It's so tough to tell. M&A, I would say many people ask us, has the M&A pipeline changed? It hasn't really. Those targets that would come in consideration are the same ones as this is a quarterly call, as I would say, the last quarter, when we had the update call. No changes really there. We are ready.
I think we have a certain firepower and willingness to do something if it's sensible, if it's a good strategic fit or another benefit to our portfolio, to our business model. As you can imagine, we're always involved in some discussions. Some further advanced, some in early stages. Some do lead to nothing. Some do lead to some diligence work. It's the normal part of our work.
There's really no change to your philosophy in terms of quality, reasonable size, established brand, but nothing too big either, and you are certainly not looking at any businesses that are overly challenged and loss-making. Is that correct?
I wouldn't limit it, and I'm looking at Stefi. I don't think we would have really limited to anything. We have done early investments, but the majority, of course, is more mature, certain critical mass that was reached. We would have proven business models, profitable companies, more like than loss-making companies. I think that's not of a surprise. I wouldn't have said that we would have limited it, other than that the average size of our transactions in the last five years is give you a kind of an indication. Clearly the market has changed. Our acquisitions also got bigger over the years. We're ready for many things that could make sense, if they make sense.
That's great. Thank you very much.
The next question is from Knut Woller, Baader Bank. Your line is now open.
Yeah. Hi, thank you. Just two questions. The first one, Axel, if I have done the math correctly, maintenance was dropping to single digit growth in the third quarter. It was down slightly sequentially. Can you break out what the currency headwind here was? Was it basically comparable to what we have seen on the group level? The second question is a bit looking beyond 2020. You're doing a remarkable job and holding up well in the current environment. Still, if I look at consensus expectations, it's basically expecting a return to your historical growth range of the last years.
Looking at the slowing deferred revenue momentum now also in the third quarter, which is just natural given the license weakness, looking slowing maintenance growth, and also keeping in mind what you said about subscriptions, my feeling would be that current expectations to see such a sharp rebound in growth next year could be on the too optimistic side. Can you give us some feeling here? I know you will provide guidance at the beginning of next year, just whether my reasoning has any material mistakes included or not. Thank you.
Thank you, Knut. It's a wonderful question. I would love to answer at this point of time, but I'm afraid we don't give any guidance for next year at this point. I can understand your thinking, and we haven't been commenting on the consensus for 2021 so far. We will, rest assured, early next year, clearly.
On the maintenance side itself, Axel?
Yeah.
The slowdown to 6%, is that purely currency? Would we have seen adjusted for currency and still growth in absolute terms?
I'm sorry, I forgot your first question. I apologize.
No worries.
I think a general yes. We need to also note that and mention that the business that typically has something beyond the pure maintenance contracts, which we have in all business pockets really, is the Spacewell business. If I'm not mistaken, then they're also having a bit of a hard time. That should also show in the Q3 numbers by getting some of the service and maintenance work executed out there because of the COVID-19 limitations. Generally yes to your question.
Yeah, the headwind coming from the U.S. dollar was around 2.5%. The growth without currency was around 8%.
Okay. Great. Still decelerating a bit and reflecting the lower license trend we have seen in the first quarters. Okay, got it. Thank you very much.
As we have no further questions, I would like to hand back to speakers for some closing remarks.
Wonderful. On behalf of the entire Nemetschek Group and family, a big thank you to Stefi Zimmermann and her team. Thanks for your interest and loyalty in staying interested in the Nemetschek story. I think we'll keep you updated as usual and be back very soon. Thank you very much.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.