The Nemetschek Group, the AEC/O industry German parent company of popular brands Bluebeam, Archicad, and Vectorworks, among others, is targeting currency-adjusted revenue growth of between 10 and 11 percent and an attractive EBITDA margin target in the range of 30 to 31 percent.
Such planned growth this year could mean the Nemetschek Group revenues in 2024 could exceed USD 1 billion for the first time. In 2023, FY revenues were EUR 851.6 million or USD 921.7 million (at the time of this article).
Transition to SaaS and Subscription
Part of the driver of growth at Nemetschek is the ongoing transition of business models in its daughter companies from perpetual software licensing models to subscription and SaaS models, which has a short-term dampening effect on revenue and earnings.
Nemetschek Group is expected to return to double-digit growth in projected FY 2024.
Instead of predictable larger sale upgrades, customers trade into lower annual or even monthly subscription cost models, with the latter costing the customer a premium on an annual basis but providing flexibility to turn off those licenses as needs change.
The CEO’s View
“Nemetschek remains on its growth path. In 2023, we met or exceeded our targets for all key performance indicators and set the course for growth in the coming years,” says Yves Padrines, CEO of the Nemetschek Group. “Especially in the current challenging market environment, particularly in the European construction industry, the inner strength and resilience that characterizes our business model are clearly demonstrated. We aim to strengthen this resilience even more by continuing to internationalize, significantly increase our recurring revenues, and drive innovation. This also includes our numerous ongoing initiatives relating to new technologies such as AI, cloud offerings, or digital twins. As a driver of these future success factors, we will continue to benefit as much as possible from the enormous potential of our markets, both in the construction and media business.”
FY 2023 Items of Note
Revenues in FY 2023 grew 8.0 percent, so this return to 10-11 percent for FY 2024 is a confident sign. Last year, earnings per share (EPS) growth remained flat (EUR 1.40) despite similar net income from the previous year (EUR 161.3 million). For investors with an interest in a steady dividend, the Executive Board and the Supervisory Board will propose an increase of the dividend to EUR 0.48 per share at the Annual General Meeting.
In terms of the segments of the Group, FY 2023 stats are thus: (all currency adjusted)
- Design segment — revenue growth by 8.6 percent. — commentary includes notes on the transition to subscription, longer sales cycles in the EU, and the tough EU environment.
- Build segment — revenue growth by 2.1 percent. — commentary includes a very successful transition to subscription with Blubeam with revenue doubling under this model.
- Media segment — revenue growth by 6.4 percent. — even with the prolonged strikes in the TV and film industry, there was still growth in the popular Maxon brands. EBITDA margin remains high at 38.7%.
- Manage segment: revenue growth by 9.8 percent (currency adjusted). EBITDA margin suffered this year due to the investments in the new Digital Twins business unit dTwin.
In looking ahead the Group does not see an improvement in the economic environment in Germany and Europe as a whole.
In 2025
The Group expects FY 2025 to see an acceleration in revenues and margin growth, with the further transition from perpetual licensing models to subscription and SaaS behind them. An expectation of mid-teen revenue growth in 2025 is seen on the horizon, and this guidance is based on the assumption that the global macroeconomic or sector-specific conditions will not deteriorate.
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Architosh Analysis and Commentary
Just a few years ago, the Build segment’s revenue growth was the hot item seen in the Group’s financial statements. This had largely been the case since the acquisition of Pasadena, California, based Bluebeam. Bluebeam is not the only company or segment transitioning to subscription and SaaS models. Furthermore, the software itself is much less expensive than CAD and BIM software, so short-term dampening effects seem to suggest less impact. Revenue growth of 2 percent in this segment is now quite stunning, a big comedown from the company’s high growth days.
So, what could be going on with Bluebeam?
The US construction market has grown steadily since the pandemic years. In 2021, the industry grew in the high single digits. Then, in 2022 and 2023, it saw low double-digit growth. Despite US growth in construction, the former software darling of the US construction industry has seemingly not kept pace, as a slew of new competition has entered the market for construction software. Bluebeam was once supposed to be the basis for the Group’s CDE (common data environment) shared amongst its daughter companies. That never panned out. (see: Architosh, “Architosh Exclusive—Nemetschek Group Unveils Its CDE Strategy with Bluebeam Technology at its Core,” 13 Dec 2017). The Group hasn’t made any sizeable acquisitions in this segment but has been active in several new construction industry startups. In 2023 alone, the Group was active with Stylib, LiveCosts, Briq, Preoptima, and SmartPM, all of which use AI and new technologies to help the building process. Presumably the goal with these acquisitions is multi-fold, including IPO or acquisition windfalls and possible future acquisition targets.