The Nemetschek Group, one of the world’s leading AEC industry software providers, has reported strong business development and growth momentum. In it’s Q3 – 2021 results revenue growth in subscription/SaaS models rose 48 percent to EU 34.5 million.
The German company also reported growing margins.
Revenue for Q3 – 2021 was EUR 169.3 million, up 13.9 percent year over year (USD 195.9 million at today’s exchange rate), as the German company slowly marches towards a 1 billion USD annual revenues in the coming years.
EBITDA (earnings before interest, taxes, depreciation and amortization) increased by 16.4 percent in Q3 to EUR 54.4 million, driven by a high growth momentum plus efficiency improvements, which led to EBITDA of 32.1 percent. On a 9-month basis, the EBITDA margin expanded by 2.9 percentage points to 32.5% wherein the previous year was 29.6 percent.
Earnings per share increased to EUR 0.30 from 0.22 the previous year. This is reflected in the current increase in the company’s stock price (NEMTF) now trading at over USD 100 as of this writing, up from under USD 65 back in April of this year.
A large driver of revenue growth has been its 48 percent revenue growth in subscription/SaaS models to EUR 34.5 million in Q3. This is a record high that the Nemetschek Group now looks forward to exceeding in future quarters.
“Our customers rely on the solutions of the Nemetschek Group for their digital transformation. Innovations and a strong customer focus are the key drivers for our sales success. This also includes our subscription and SaaS offerings,” says Dr. Axel Kaufmann, Spokesman of the Executive Board and CFOO. “With the very good operational development in Q3, we have laid the foundation to achieve the upper end of our previously raised target ranges for both our revenue growth and EBITDA margin for the financial year 2021.”
Strategy and Segments
The company released statements that in addition to subscription/SaaS financial goals a strategic focus on the ongoing internationalization of the business is central to their business strategy. The US AEC market is the largest in the world for software and technology sales and is a foreign market for the German software holding company. International revenue growth as a proportion of the overall revenue and growth was up 17.1 percent.
The company notes that its Design segment is focused mainly in Europe where it managed to organically grow 7.6 percent year over year for the quarter. This contrasts sharply with its Build segment which increased quarterly revenues by 16.8 percent. The Build segment is largely propelled by its Bluebeam Software brand which has a dominant position in the US construction market, across all scales of general construction firms. The Group has been pushing Bluebeam in the German and UK construction markets but did not release notes about its growth momentum there or its competitiveness in the US against key rivals in Procore and Autodesk.
In terms of segment revenues, the Design segment still has the largest revenue at EUR 85.6 million for the quarter, while the Build revenue was EUR 55.4 million. The Manage and Media & Entertainment third-quarter revenues were EUR 11.0 and 18.9 million, respectively.
The M&E segment grew the largest of all the segments at 37 percent year over year. EBITDA margin also expanded significantly to 42 percent from 32.7 percent a year ago.
In terms of strategy, the Group says it further intends to reduce complexity in its portfolio of software. Thus far it has merged DDS with Graphisoft and merged Precast and SDS2 with ALLPLAN.
Architosh Analysis and Commentary
The Nemetschek Group has also begun strategic investments in several interesting companies, including German contech champion Sablono and US-based construction AI company Reconstruct. With a growing war chest of funds, the Group has more money to further acquire additional AEC and M&E industry software companies. Recent acquisitions have been in the latter category, and unlike Autodesk’s past buying spree in M&E software firms, the Nemetschek Group’s buys are additive without cannibalization of existing competitive products.
At the beginning of this year, we noted the positive exposure of a US President Biden Administration infrastructure bill. Brands with positive upsides of the passage of such a bill include ALLPLAN, RISA, SCIA, and SDS2. The US infrastructure bill will be a long-term booster shot into the US AEC market placing a stable supply of funds for expansion over a decade. US schools and airports are some areas where growth in building projects will emerge.
The Group has oriented some of its investment strategy towards longer horizon targets in areas such as artificial intelligence. Some of this has been in the academic space in Germany. Other investments have been in US-based companies like Reconstruct.
Given the inevitable passage of the infrastructure bill, the Group may (and probably should) increase US-based investment activities via acquisitions of US companies or investment funding. The race for dominance in CDEs (common data environments) globally pits Nemetschek’s Build segment in direct competition with a host of strong players like US-based Procore (which is advancing globally) and US-based Autodesk which will benefit from Revit-centric halo-effects. Hot companies in this space that are independent (at the moment) include Revizto, which could become a very tempting acquisition target, potentially from a company like Procore.
Bluebeam Cloud looks destined to arrive in the first half of 2022 and at “first blush” appears to go toe-to-toe with much of the PlanGrid technology now embedded in rebranded Autodesk Construction Cloud products. A commonality in how these cloud+mobile first CDE products work is a good thing as it will mean skills are transferable so that various design, engineering, and build professionals can easily work across these tools from project to project. Bluebeam Cloud will be the Group’s main horse in the race for global CDE supremacy, going up against several strong players including Bentley, Autodesk, Procore, and some regional leaders.