Nemetschek Group revenue was reported as stable for the second quarter of 2020 despite a globally uncertain market brought on by coronavirus pandemic. The German software company, which consists of a collection of AEC industry software subsidiaries, reported positive financial results.
Group revenue for Q2, 2020, rose by 2.7% to EUR 141.6 million, up 7.6% in the first half of the year. Q2 EBITDA margin was 28.8% and the company reports as very close to matching the previous year’s levels. Quarterly growth amounts to 24.2%, driven by subscription growth as various brands continue to accelerate to subscription models.
The company expects Covid-19 impacts in the foreign exchange rates in the US market in the third quarter, with the cautious outlook from March 2020 onward seeming both feasible and confirmed by the data.
Indicators of Success
The Group’s financial statement notes that upon the coronavirus’s onset, Nemetschek executives worldwide “were involved in intensifying cost management in the Group at an early stage.” It also notes how badly the coronavirus pandemic has affected the US market and that “it is not yet possible to foresee the effects of the pandemic in the USA, where the crisis has spread much more strongly than in other parts of the world.”
The statement also notes the Group’s response to customers during the crisis, including remote sales and support and online tutorials.
Nemetschek Group revenue at this point is a mixture of recurring business revenue and new license business revenue. Software service contracts and subscriptions continued to be a growth driver in Q2, the revenues from which increased by 21.5% to EUR 88.9 million compared to the year-ago quarter.
The proportion of Group revenue that is recurring is now at 60.7% where the previous period was 52.6%. The Group notes that as expected due to the pandemic, license business declined compared to the previous year, reaching EUR 46.7 million, a decline of 18.5% compared to the year-ago quarter.
The financial statement notes that the Design segment was already feeling the impacts of coronavirus spread in the US as early as March. The Build and Manage segments however were able to achieve small growth. And Media & Entertainment (M&E) showed considerable growth due to the Red Giant acquisition which consolidated back in January.
The Group also helped weather the coronavirus economic impacts through diversity of its portfolio. A larger quote by Dr. Axel Kaufmann, Spokesman of the Executive Board and CFOO of the Nemetschek Group explains:
“As a result of our broad solution portfolio, our high levels of diversification with regard to target industries and regions, and the growing proportion of recurring revenue, we have weathered the corona crisis better than anticipated. The increase in service contracts and subscriptions, in particular, show the robustness of the Nemetschek business model, even and especially in today’s uncertain market environment,” concludes Dr. Axel Kaufmann, Spokesman of the Executive Board and CFOO of the Nemetschek Group.
To read the complete Q2 financial report for the Nemetschek Group, visit here.
Architosh Analysis and Commentary
Last week a group of prominent global British design practices, mostly architecture firms, sent a stinging Open Letter to Autodesk over Revit’s aggressive licensing models—largely now moving to subscription models—versus the company’s actual progress on Revit features for architects.
The story has gotten significant global attention in the AEC Industry, particularly at large online publications for architects. What we can clearly see in this news above is how “reoccurring revenue” subscription models offer software companies a financial cushion to soften the blow of large negative economic developments. Architects and others learn to soften the blow of such things as dramatic economic downturns by simply not buy or upgrading software licenses.
Architosh has spoken to some of the British firms who have signed onto the Open Letter to Autodesk. They have noted their increased IT expenditures coping with the coronavirus and remote work. What types of countermeasures do architects and engineering consulting firms actually have to throttle their costs during severe economic downturns? Historically, they have had the ability to skip updates and renewals and pass on new offers, all while maintaining continuity of operations by continuing to use their existing perpetual software licenses.
As the Open Letter debacle for Autodesk continues to unfold, as the global pandemic’s economic impacts continue to stagnate overall AEC industry activity, do expect an intensity of discussion about how software companies’ interest in subscription license models can remove a key mechanism for how AEC companies throttle costs to adjust to sharp and unexpected economic downturns. In many ways, the AEC software industry pushing for SaaS and subscription models are off-loading financial risks to AEC companies themselves.