Nemetschek SE

XETRA:NEM

Earnings Call Transcript 2020-Q1

[Operator]

Dear, ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Stefanie Zimmermann, Vice President, Investor Relations, who will lead you through this conference. Please go ahead. Maybe you are on mute. We can't hear you at the moment. So one moment, please. [Technical Difficulty] Okay. The conference can now be continued.

[Stefanie Zimmermann]

Okay. Perfect. Thank you, operator. So excuse ourselves for the short delay. Hello, everybody, and welcome to our conference call. Thank you for joining us to discuss our results for the first quarter 2020. Today's conference call is being recorded. A replay of the call will be available at our website after the call. We have prepared a short presentation with the most important figures and highlights of the first quarter. You will find the presentation, the quarterly statement and the press release on our Investor Relations website as well. But 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. So go ahead, Axel.

[Axel Jörg Kaufmann]

Thank you, Stephie, and also welcome from my side to our first quarter 2020 earnings call. One more housekeeping comment before we start. In case you were wondering about the new time of the call, we just wanted to give our North American investors and analysts the chance to join as well given the great level of interest we received over the last months from that geography. Therefore, and going forward, this will be the new standard time of the Nemetschek conference calls. So let's start. As usually, we've prepared a little slide deck, as Stephie already mentioned, and I would like to briefly walk you through so that we have enough time for your questions afterwards. We'll begin with an overview of the financials on Page 3, which gives you a summary of our key business highlights in the first quarter of the year. Overall, we had a very solid start into 2020 with continued double-digit revenue growth of 12.8% to a bit more than EUR 146 million while preserving our high profitability at an EBITDA margin of more than 28%. Overall, we had a very solid start. And as you can see, we also benefited from a slight tailwind in the foreign exchange side in the first quarter, mainly coming from the strong U.S. dollar, while the negative effects from COVID-19 were only visible since the beginning of March, especially in the Design segment. We'll be talking about this in more depth in a moment. Main drivers were, again, our recurring revenues with a growth of around 27% as well as our international markets with a growth of around 15%. And you look at the right chart of -- the right side, excuse me, of this chart, you can see an overview of our M&A activities. As communicated earlier, we officially closed the transaction of Red Giant at the beginning of the year. And Red Giant does therefore contribute to our 2020 results as of January 1. In addition, this morning, we also announced a small bolt-on acquisition of ADAPT via our subsidiary, RISA. We significantly therefore extended our portfolio in structural engineering workflows while adding a low single-digit million euro revenue amount to our Design segment. We believe that by combining RISA, the market leader for steel structural design, and the U.S.-based ADAPT, the market leader for concrete structural design, our customers will significantly benefit from having an all material building design solution under one roof. So to summarize, with our solid start into the year and together with our swift reaction and decisive measures to cope with the effects of the global COVID-19 pandemic, we believe we have a strong basis for the upcoming uncertain and challenging months ahead. Moving on to Page #4, we have a more detailed overview of our most important financial parameters. As mentioned earlier, our strong 12.8% growth in revenues was supported by a 1.5 percentage point tailwind from the foreign exchange side. Additionally, if we exclude the positive contributions from Red Giant and Redshift in the first quarter, we still reported an organic growth in constant currencies of more than 8.5% despite first minor negative effect of COVID-19 on mainly, again, our Design business. Main growth drivers were again our recurring revenues, as mentioned before, with a reported growth of more than 27% organic, almost 22%, respectively. Our EBITDA in Q1 increased to almost EUR 42 million while we were able to stabilize our margin at a high level, thanks to our swiftly implemented cost-saving measures and strict cost control throughout the company. In sum, this translates to an increase in our earnings per share from EUR 0.17 to 19% -- EUR 0.19 or a growth of more than 9%. Moving on to Page #5, which gives you a good overview of the growth in the different regions as well as the distribution of now almost 3,000 Nemetschek employees worldwide. We're proud that we're again able to grow in all our major markets. I would like to highlight the important U.S. market, which accounts for almost 1/3 of our business and which again grew overproportionally strong. This development was mainly driven by a very satisfying performance again of our Bluebeam team, notwithstanding that we appreciate the fact that this cannot be expected to continue due to several reasons communicated beforehand. While we experienced the first isolated effects of COVID-19 and pockets of growth in Europe and Asia towards the end of the first quarter, we still managed to grow in both regions by 8% and 9%, respectively. Those of you who have been following us for a longer period of time already know that the topic of growing our recurring revenues is always an important discussion point and has become even more important in the light of recent events. So let's look at the revenue distribution between our categories: recurring, consulting and hardware as well as our traditional perpetual license business, all to be found on Page #6. We're very pleased to note a strong increase in our recurring revenues and the -- organically as well as the foreign exchange-adjusted basis. This also led to a sharp advancement of 7 percentage points of these more predictable and resilient revenues, which now account for almost 59% of total sales. Within the recurring category, I would like to highlight our subscription revenues, which more than doubled to almost EUR 20 million. This already represents a share of 13% of our total sales compared to just 9% last quarter, for example. As one could have expected, our perpetual license business recorded a less satisfying development with a slight decline in revenues of almost 3%. Main reason for decline were a slower customer demand due to COVID-19, especially in our Design segment as well as the move to an ongoing subscription-only model by Maxon, which was started already in the last year, particularly in the third quarter. On Page #7, we provide, again, an overview of our most important KPIs. While we have already addressed the most important P&L items, I would like to draw your attention to also some of the numbers that we haven't touched on during this call so far, for example, the extremely strong operating cash flow of more than EUR 43 million. In addition, we further improved the quality of our balance sheet in the first quarter represented in important metrics such as the equity ratio with now 43% and a net debt position of only EUR 22 million. Therefore, again, our extremely solid balance sheet and virtually no debt provide us with a higher degree of safety going forward while enabling us to act flexibly and opportunistically should interesting opportunities rise up in the coming months and quarters. Now to conclude my view on the first quarter numbers, let's look at our 4 segments on Page #8. Starting on the left side, our Design segment recorded the slowest growth with only 1.3% on a currency-adjusted basis. As we already indicated in our last conference call, Design was the first segment to be impacted from muted customer demand since March. However, we were still able to preserve our margin at a comparably high level. Our Build segment, with plus 20% year-over-year, continues a strong growth also in the first quarter with the largest contribution coming from Bluebeam and in the absence yet of negative macro impacts. Our Manage segment showed a similar picture with a good 21% year-over-year growth to EUR 10 million. Last but not least, our Media segment, that with the recent acquisitions more and more evolves into a separate business, which presents a satisfactory development. While reported growth of 67.7% was strongly impacted by the first-time consolidation of Red Giant, integration costs and the recent move to subscription by Maxon posted an expected negative drag on organic growth and profitability. Before we now move to our financial guidance for the remainder of this year, let me quickly reiterate some strategic views as we consider them important, not only to understand, again, our business model but also to assess the mid- to long-term growth prospects for our business. On Page 10, we have the strong -- we show again our strong conviction that the global short-term turmoil does not cloud the long-term growth potential of our business. The opportunities for the software business in our core industries still offer huge potential as penetration is still relatively low in almost all markets as pictured in our global BIM maturity map on the right side of the slide. Furthermore, increasing official regulations worldwide should additionally foster this growth potential. The Nemetschek Group is very well positioned to capture a good portion of the projected growth. Pages #11 as well as Pages #12 would show you that the Nemetschek Group is well positioned in these activities in today's markets. We've spoken about the attractiveness and the end market potential; our unique and widely spanning solutions portfolio and unique market position for customers; a strong business model, creating great returns for our shareholders; a strong financial position given the success of the last years; plus our ability to grow in parallel, both organically as well as via mergers and acquisitions. Most of you might remember the next slide, #13, from our previous fiscal year '19 conference call. It provides an overview of how we encountered the global financial crisis and the increased degree of diversification of our business model since then. We received a lot of positive feedback from many of you that the overview was very helpful. So we updated the slide after the first quarter, which led to only minor changes apart from the previously mentioned even higher share of recurring revenues. However, the key message remains unchanged. While it would be naive to say that we're immune to the negative consequences of COVID-19, we believe that Nemetschek is quite well positioned for a macro downturn. Of course, the big question is how long the downturn will last and how soon recovery kicks in. With that, please let me now draw your attention to Slide #14, which the team has assembled in order to give you an update on where we stand in terms of COVID-19 impacts on our business and our activities after and within the first quarter 2020. We all face an extraordinary challenge regarding the coronavirus pandemic as we already discussed before. Besides ensuring the business continuity, we responded fast to the new situation and together with our brand executives, adapted to the cost management in the group at an early stage. Additionally, we also adapted our support and training measures, in particular, to maintain close customer contact, which is so crucial in this situation. In this regard, for instance, we put in place virtual support and distribution options as well as online tutorials more than ever before. Our responses were based on the clear set of working assumptions, which also built a foundation for our 2020 full year fiscal year guidance. We continue to expect an improvement of the macro picture in the second half or, in other words, and already as of today, for us, it appears more like a U-shaped recovery than a V-shaped one. These are our assumptions. We therefore expect the biggest impact on our business in the second quarter. As already mentioned, we experienced also a certain phasing in the effects of COVID-19 in our divisions and geographies, starting in Asia, moving on to Europe and now be present in the U.S. Obviously, our license business will be hit the hardest while we expect our recurring business to show a more resilient development. So how have we responded to this new environment? Undoubtedly, the safety of our employees and customers was and is the first priority. In addition, all of our brands have taken the right measures to support our customers with a great sense of creativity and strong commitment. One example that I'd like to mention comes from our Spacewell brand. They reacted and created an offer for workplace solutions for the COVID-19 and post-COVID-19 era. Their software solutions helped building owners to prepare the offices according to the new distance and hygiene requirements. For example, provide employees with real-time guidance on mobile apps or help service providers to adjust their way of working according to the actual occupancy of buildings. And of course, also going forward, we, as the Nemetschek Group, will continue to steer our business on-site and react fast and flexibly as new developments unfold, just as we have done in the recent months. We need to be prepared to pivot more than ever before. As we come to the end of my presentation, I would like to now turn to the 2020 outlook on Page #15. Based on the solid start into the year and on the measures we already have implemented, we confirm our guidance for 2020 after the first quarter. In particular, that means that from today's perspective and based on our current portfolio and activities and knowledge, we project at least stable to slightly growing revenues at an EBITDA margin level of at least 26%. However, please let me stress one point again. As we have stated when we initially introduced our guidance, we are aware that it contains a high degree of uncertainty regarding the macro outlook. However, this still represents the best visibility we currently have, and we're fairly optimistic that we will overcome the difficult situation. Our operations are up and running. The leadership team is fully supportive and our teams globally are highly committed as ever while we stand by our customers in these days. Last not least, Nemetschek is 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. Rest assured, we will be monitoring the situation very closely. And with that, I'd like to thank all of you for your attention, and I'm happy to take on now your questions. So operator, please, back to you.

[Operator]

[Operator Instructions] And we've received the first question. It is from Andreas Wolf of Warburg Research.

[Andreas Wolf, Research Analyst]

Yes. It's Andreas Wolf, Warburg Research. Three questions, 3 quick ones, if I may. So the first one is on licenses. The softness that we saw in Q1, to what extent is it to less demand by customers, which might be attributable to COVID-19 and to what extent is it due to the transition to a subscription-based revenue model? So that's question number one. Question number two, how much training do customers actually need before purchasing software? So the favorable growth that we saw in Q1, to what extent is it new customers versus customers buying licenses for more seats? And then question number three, do you see opportunities arising in the construction software business given the ownership changes in the industry?

[Axel Jörg Kaufmann]

Thank you very much, Andreas. So on the first one, I think it's fair to say that the majority regarding the Design segment clearly is more the first reason that you mentioned. It's less a strong impact of the shift to subscription, which is, I think, the smaller amount of reasons that we would have found, especially when it comes to the development within the first quarter, which started a bit softer in Asia but then really in March, was kind of hitting Europe and across the board. Then I'll pick on your third question. The opportunities arising, I think we wouldn't talk about any concrete opportunities in such calls. But I think it would be too early to say that the pipeline and everything we have on the radar screen has significantly changed within the last few weeks. I think, again, we are prepared and are open for any kind of considerations in that space. But it has not really shifted views or changed dramatically yet. I think that's too early to say. Stephie, I don't know the second one.

[Stefanie Zimmermann]

The second one regarding the training. So of course, it depends on the brands. So we have total different software solutions. Sometimes it takes a little bit longer in the Design segment, for example, but also for some brands in the Build segment, if we look at Nevaris; and then for other brands, if we talk about Bluebeam, it's much easier because it's really an easy-to-use system. So online training is not really a very long-term thing. So all in all, Design segment, I would say, a little bit longer in the Build segment, especially at Bluebeam. It's quite easy to understand, the software.

[Operator]

The next question is from Martin Jungfleisch of Kepler Cheuvreux.

[Martin Jungfleisch, Junior Equity Research Analyst]

Yes. Ask 2, please. The first one is on the macro situation. When you look at the current situation, can you tell us what roughly the exit growth rate in March was for licenses or revenues in total, if this has slowed down compared to January and February? And also, can you explain a little bit what is driving this slowdown in your view? Is this more due to the more underlying lower demand from customers due to uncertainty and cash preservation? Or are your salespeople being less effective due to canceled fairs and events? Or is this rather as customers currently have other things to do than buying software? And that's the first one. And then I go back in the queue.

[Axel Jörg Kaufmann]

Okay. Martin, thank you very much. Yes. I mean, this is the center of our analysis, of course, as well in these days, the license business per se. We would not break out single months really in such calls. I think during the quarter, we can say that we would have seen impact in Japan, in Korea, China and then really basically major markets in Europe. In countries in Europe, March was certainly the strongest there. Again, the reasons behind that being is, of course, what you mentioned that our people cannot go out there and interact with the customers as they wanted. That's the clear one. But there's also a natural hesitation. Licenses are, of course, more expensive in terms of the spending levels for our customers than other offerings such as maintenance or subscription. And therefore, we can just imagine that there is a number of customers, without going into the specifics, that would have showed some hesitation and just be more sensible to pricing. We have not yet experienced a worsening of the situation in terms of the DSO, for example. I think those customers that were under contract or were engaged in business with us would not yet show any signs of a different payment behavior, though. So that's -- again, but that's still to be monitored in the coming weeks and months.

[Martin Jungfleisch, Junior Equity Research Analyst]

Okay. Yes. I think you almost answered my second question. That was if you see any request for customers wanting to extend payment terms. But also, can you comment a little bit, do you also see an increased demand for subscriptions compared to licenses in this environment as customers may want to preserve cash as you mentioned?

[Axel Jörg Kaufmann]

Well, for us, as we are still in this longer-term journey, I would say, from perpetual to subscription, that -- and we had planned anyways, even before COVID-19, some brands and some offerings really shifting from perpetual to more subscription-based offerings. It's hard to differentiate now whether they would have done the shift anyways with programs that we would have run anyways.

[Martin Jungfleisch, Junior Equity Research Analyst]

Yes. Makes sense.

[Axel Jörg Kaufmann]

It's because of this situation. But we have a good acceptance for our subscription offering overall. I think that we can say clearly.

[Operator]

The next question is from Florian Treisch of Commerzbank.

[Florian Treisch, Research Analyst]

The first is unfortunately on if you can provide us of a certain trading update, what you have seen in Q2 so far. The reasoning behind my question is simply as you are talking about citing a significant deceleration, would that also mean that you would not be surprised to see a clear negative organic growth in Q2? Or is that kind of ruled out given the tailwinds we are seeing from recurring revenues as we have seen in Q1? And the second is probably more for the next coming quarters. If you are seeing weakness in license revenues, it will ultimately also mean that you will see an impact on recurring revenues given that your maintenance revenues will also be impacted. Is that something like a rule of thumb? Or should we not overestimate the impact from lower license sales on recurring revenues?

[Axel Jörg Kaufmann]

Thank you, Florian. Well, let me start with the second one. I personally -- again, I mean, this is the -- we're still at the end of, let's say, the first 6, 7 weeks that we would have good data on hand to really track this. I would phrase it the following. I would not underestimate the impact of the potential license downturn and a shortcoming there. I think we would need 1 or 2 more months really to see where this is going. And you're right, there's a correlation to maintenance contracts clearly. So again, we would have said that Q2 is a very important data point for us, and we're in the middle of that currently. So not having even closed the first months within Q2, I think it's fairly early to say. All I'm trying to send is the message I would not underestimate. And the more we would go down there in Q2, we would also be able to update our assumptions on the second half at the moment. On the first one, I'm not sure I got your question. You called a trading update. Stephie, do...

[Florian Treisch, Research Analyst]

Basically coming back to the question what you have seen in April so far. And for me, the question is then if you can say, okay, would I rule out for the full quarter a negative growth rate as we are seeing these tailwinds from recurring revenues? In Q1, licenses were down, but you are still showing very solid organic growth given recurring revenue growth, i.e., what can really go wrong for Q2?

[Axel Jörg Kaufmann]

Well, many things can happen still in the months of May and June, quite frankly. But we have various calculations, 3 major scenarios that we would have run in the company and update basically on a daily/weekly basis. So without going into too many details there, again, there is 1/3 that we haven't even closed the months so far at this point of time of the call that I would not rule out anything at this point of time for the second quarter. I think that would be just misguiding. Yes, too early.

[Operator]

The next question is from Uwe Schupp of Deutsche Bank.

[Uwe Schupp, Small and Mid]

Yes. Two or 3 questions remaining from my side. Firstly, can you give us -- that's an easy one probably. Can you give us the U.S. organic growth, i.e., ex Red Giant? I'm sorry if I missed that somewhere in the presentation. Then secondly, it's good to hear that your DSOs are still in reasonably good shape, but I was wondering what do you think are the DSOs of your customers these days? Anecdotally, we are hearing here and there that some bureaus or the larger bureaus are indeed having issues in collecting their money, especially as far as they have been concerned with the public sector -- project in the public sector in recent weeks. And then lastly, on the Slide #14, which I thought was very helpful. And you gave actually a soft indication on, obviously, what you expect indirectly, I would say, on the divisions. Just trying to get that straight if you don't mind. When you say the divisional development, the Manage and the Build segment should be impacted very -- towards the end of this pandemic. Well, does that mean it will -- could stretch out into the second half, especially when it comes to the Build segment? Or how should I read -- how should we read this overall chart? Reason I'm asking, obviously, is that we are seeing lots of the construction sites still open, certainly in Germany. Austria has been reopened recently and so has been many other European countries. So just your latest thoughts there.

[Axel Jörg Kaufmann]

Thank you very much, Uwe. So let me start with the second one, and maybe Stephie can comment on the U.S. growth with and without the foreign exchange. Yes. I think you did read the Slide #14 in the right way that from a certain phasing, granted that our Build business and our Build division is not really yet a truly worldwide business dominated by a strong U.S. footprint and then a European one. But yes, you are correct that the project, that is also our feedback from the market, the projects that have been staffed and financed and are in operation out there, the construction sites are still seeing not a major impact in terms of the operations. That is what we hear around the globe. And as a matter of fact, some of the Asian sites have been impacted. They are coming back recently from what we hear. But you're right, as long as people can work out there on the construction sites, we would think that this is one of the latest probably areas or pockets of our business that would be impacted. The big question, of course, is will -- due to a certain uncertainty in terms of the ability to finance and to staff further new projects, will people refill kind of the pipeline with new projects, which would then go through the entire value chain from clearly Design via Build and then maybe manage as well.

[Stefanie Zimmermann]

Regarding the U.S. market and the growth in the U.S., and so in total, of course, we had a growth of around 18%. And currency adjusted, it was a little bit lower. It was a little bit above the 15%. And then, of course, we also had the Red Giant influence. Yes, because we consolidate Red Giant since the first of January. So all in all, definitely a growth still above the 10% in total.

[Operator]

The next question is from Knut Woller of Baader Bank.

[Knut Woller, Analyst]

Yes. Just getting a feeling on the Manage segment after we talked about the Build segment. I think that's a segment where probably a lot of on-site services are required. Can you give us an idea here on how you see things here changing and dynamics changing given that COVID-19 hit here your business in Europe very late in Q1. I think you have some visibility on the quarter. And I understand you don't want to give numbers, but just from a qualitative perspective, what are you seeing there? And then with regards to the cost savings, what kind of the cost savings that you target? Have you already realized what will kick in a bit later? And then on the recurring revenues, we talked a bit about the impact of licenses and recurring. I just want to get a feeling on what your experience was in the last downturn. Have you seen any cancellations of maintenance contracts in the last cycle or has that held up pretty steadily so that we shouldn't be concerned about that in this downturn if it is -- and then just the same pattern that you saw in the last downturn?

[Axel Jörg Kaufmann]

Okay. Many questions. Thank you very much, Knut. I think we try to start with maybe the aspect of the Manage segment. Thank you very much. Manage did concern us a bit because we would have seen sites for the installation of sensors, for example, and the interaction with our customers was simply not possible because of the shutdown and the lockdowns. That did open up and again, turns into at least a highly motivated kind of positive, prudent view of the division in these days. As I'm trying to give you on Slide #14, this example of the support solutions in terms of the distance and hygiene requirements post-COVID-19 really as many facility management companies call it in these days. Many of our customers in the Manage segment are turning to us, approaching us and say, "We need to run new simulations because in the post-COVID-19 era or times, we want to be prepared for what is the right office management in terms of hygiene, distance, occupancy and adjust our offerings." And providers are really seeking help there. And I think the Manage software solutions with the new features that they have been also launching in the last few months can help there a lot. So we will yet have to see. Maybe this also turns into a little opportunity. Of course, there is an impact on the business clearly because customers, again, were not as approachable. And our service engineers could not enter buildings even if we had signed contracts for them to complete and do the installations. That was physically limited, to say it politely, if not, blocked. And that yet has to improve further. But again, this is 2 sides of the same metal or coin, maybe the one rather positive, and we will try to report to all of you hopefully then after this quarter where we would have seen the development there. Second aspect you mentioned on the cost savings. Well, we'll continue. I think we would pull the brakes on many things, some of them by natural developments like trade shows and marketing spending. That simply is not possible. We would have loved to do it, and we were prepared to do it. But that -- some of the events simply do not take place. Travel is restricted, clearly, but then also hiring. And the company was prepared, and we had an agreed-upon budget for hiring several hundred of people net. And we've added, I think, a bit less than 80 people compared to the starting point on 1st of January so far only. And that's also been driven by some acquisition effects that we would have had from the Red Giant and Redshift, for example. So that -- the commentary on the cost savings, I cannot yet say, and I'm hesitant to give you any numbers because we will have to see, and we will -- we're prepared to pivot really the plans and to adjust as much as needed. But we're also spending in areas of the business more than we had expected. As for example, the online and the tutorial, I think the net amount is clear a saving currently. But we will make sure that we don't cut too short, especially on the customer front. I think that is very important to us in these days.

[Stefanie Zimmermann]

Regarding your last question, Knut, the growth of the license business and recurring business in the last crisis, 2008 and 2009, we haven't seen any cancellation in our recurring business. So we still saw a nice growth of around 10 -- 5%, sorry, and a minus, of course, in the license business of around 20%. So all in all, we had a decrease of our total revenues but recurring business was still fine and continuing. So thus, we do not really expect a cancellation in this crisis.

[Operator]

The next question is from Sven Merkt of Barclays.

[Sven Denis Merkt, Equity Research Analyst]

I think it becomes clear that this is becoming a major downturn, and I'm just interested in your view what would happen to your revenues if construction activity would remain subdued now after this crisis. Is it may be possible to split and quantify the sustainable growth that you have mentioned before into end market growth and increased digital penetration? And then a second question on subscription revenues. Could you just quickly explain us what the average contract length is and what proportion of revenues on an average contract are you recognizing upfront versus just on a straight-line basis over time?

[Axel Jörg Kaufmann]

Thank you very much, Sven. I'd prefer to start with the second one. I think the average contract length is around 1 year in the service agreements that you mentioned. And you're right. At the beginning of the year, typically, that is not unusual if we would have received upfront payments. That also is clearly a positive on the cash flow. The revenue recognition aspect is really complex. And in appreciation, in respect to the accounting experts, every contract and every circumstance is almost different, really. We have to see. So there is clearly an impact, which, by the way, also is part of the reason why Bluebeam in the U.S. did still even slightly better than we would have guided for the entire year throughout the next quarters, the business performance so far because of also some overhangs that would result from previous activities.

[Stefanie Zimmermann]

The second question or the first -- your first question, that's really difficult to split if we see -- and yes, the growth in the end customer markets are in terms of digitalization. So we do not really have data available. That is really difficult to give you an answer on that question.

[Sven Denis Merkt, Equity Research Analyst]

Okay. But it's probably fair to say that the vast majority is coming from increased digital penetration.

[Stefanie Zimmermann]

Yes. Yes, I would agree. Yes.

[Operator]

The next question is from Andrew DeGasperi of Berenberg.

[Andrew Lodovico DeGasperi, Analyst]

Yes. I just have 2 quick questions. I mean maybe could you give us an update on the competitive landscape right now, has there been any changes since March in Design or Build? And then secondly, can you just remind us when you think that Maxon headwind will dissipate on the transition to subscription?

[Axel Jörg Kaufmann]

I'm sorry, can you repeat the second one on Maxon, please?

[Andrew Lodovico DeGasperi, Analyst]

Oh, just when would that headwind, as it transitions to subscription, when will that dissipate?

[Axel Jörg Kaufmann]

Okay. Okay. Yes. Okay. That's an easy one. I think it will take us really throughout the entire year. We've started it in Q3, Q4 last year and with some new features that we were waiting for in order to combine it really to make it also attractive for the customer and create value. Through this year, this is going to occupy us for the entire 2020. The competitive landscape, Andrew, has not really changed. I mean the -- I would just suspect and presume we're all busy with coping with the current situation. We're not hearing that major competitors are doing significant things differently, completely differently than we are. There's different structures in terms of -- slightly different business models in terms of the split of recurring, for example, or perpetual versus subscription. But I think we're all busy with the current situation. We have not heard or noticed any changes really in the competitive landscape.

[Operator]

The next question is from Chandra Sriraman of MainFirst.

[Chandramouli Sriraman, Managing Director]

Just a couple. Firstly, it's very helpful, Slide #13. I was just wondering, could you give us a split between public sector-financed projects and private sector-financed projects? I'm just trying to get a sense of how the macro will affect these 2 verticals. And number two, I just wanted to get a sense of your EBITDA guidance. Clearly, you've done very well in Q1, and you're also being quite cautious with your hiring and investments. Just wanted to get some color on how you see EBITDA margins progressing for the next 3 quarters. I clearly understand Q2 is going to be tough. But as we look into the recovery, hopefully, how should we see EBITDA margins progressing this year?

[Axel Jörg Kaufmann]

Yes. Thank you, Chandra, very much. The -- so 2 difficult questions but very good ones. But I have to say the -- I don't think we have the visibility over any major changes in regard to the type of projects really at this point of time. We're getting many requests from capital markets as if the company would know where some of the funding from the governments would really be supportive or in which areas this would go. Very early, I think, at the moment, people are overestimating the impact on our business. Unfortunately, because those money flows that we would see would go to more consumers and would go more into financing and into credit taking or securing credits and giving assurance to the people who take credit. So in terms of the infrastructure projects, that, to me, is very hard to answer. I am not seeing any bigger projects from authorities really and from the public infrastructure sector at this point of time. I think spending goes really elsewhere, but yet to be seen. Could be an interesting fact, I think, going forward. And then on the cost, yes, we're not really giving margin guidance for the individual quarters. Please understand that we have a set of measures, the ones that we have initiated and activated and kind of launched already. And then there is an extra set. So we go into this with a phasing that we have a list of things that we could still further cut or improve on the cost side, on the discretionary spending mainly beyond what we do currently if the situation really worsens. But given the Q2 expectations, you can imagine that we have more or less done what we can and what we could really in order to be prepared for the Q2. And then we will know then latest in July how we would really come out of the second quarter and whether some of the very drastic measures will be needed for the second half or can be loosened a little bit there, and we would get back on track. So I'm sorry, but margin -- EBITDA margin guidance for the remaining 3 quarters, we would not give at this point of time other than that we're fairly confident to reach the minimum 26 on the entire year level.

[Chandramouli Sriraman, Managing Director]

All right. Perfect. Maybe one quick follow-up. Probably it's a bit too early. You have exposure in Asia, and Asia seems to be opening up a bit. Could you give us a sense of how the recovery is happening in Asia? Is it too slow or slower than anticipated? Or is it too early?

[Axel Jörg Kaufmann]

No. No, it's not too early. I think the only comment I'd like to make is that our exposure into Asia overall is a small one. I mean at the end of the day, we're talking that, that is a nice growth at the end of the day. But it is only a share of revenues of 8% for APAC entirely. And we always like to remember people like analysts and investors that when we talk about APAC, then it's a little bit of a China business. Majorly, it's Japan and Australia at the end of the day. And the rest is almost neglectible. So what we -- from that limited -- and I'm not saying that this is probably not completely representative, but the representation is certainly limited. From what I hear and from what we see, it's almost back to the normal budget planning that we would have had before.[Audio Gap]the impact overall on the business, even without COVID-19 is somewhat limited. And I think we all are[Technical Difficulty]

[Operator]

Sorry, we can't hear you at the moment.

[Chandramouli Sriraman, Managing Director]

Yes. Sorry, I lost contact. I lost the last few seconds. Hello?

[Axel Jörg Kaufmann]

I think Chandra was gone. Yes.

[Chandramouli Sriraman, Managing Director]

Yes. Sorry. I missed the last few seconds of the answer. It's fine. I can look at the transcript.

[Operator]

Then we go to the next question. It is from George Webb of Morgan Stanley.

[George W Webb, Equity Analyst]

I have 3 questions, please. First of all, just returning back to your top line guidance. Can you help us understand what's implied in that in terms of licenses versus recurring? I know you talked about a strong decline in licenses. Can you help put in a broad range of numbers around that? Are we talking licenses down 10%, down 20% as an example? Secondly, in terms of seasonality intra-quarter, what proportion of your sales in a typical quarter fall into the final month? And then just lastly, on the Media & Entertainment side, the margin was 24%. That was fairly depressed. Can you split out what part of that depression was from the subscription shift versus integration costs from Red Giant?

[Axel Jörg Kaufmann]

Okay. Thank you very much. George, I'm happy we have a question on the Media segment not to forget this. So can I start with this one, allow me to -- that's well captured. I think it's both aspects really. At the end of the day, there is integration costs. I would say 2/3 of that is probably more in terms of the subscription shift and -- or 60-40 kind of -- and then the 40 would be on integration costs and just the one or other one that I would more call a one-off, but it is to be factored in this year. So this journey from integrating the company as well as going from license to more subscription, that's going to be a theme really for the remainder of this year. And hopefully, by the beginning of '21, we'll be through this really. What we see in media, by the way, just to comment, because the related question earlier, is when we would be surprised on this phasing page that we would have shown by media so early. We had to notice that bigger end customers like a Disney or Netflix would have shut down and stopped completely, put a pause on any new production really, which would then hit our customers, the agencies, the creative customers there that we would have to use our software. So that was something that despite the content in these companies, the end customers are doing well and valuations are great on the capital markets for those, i.e., Netflix or others. There seems to be so much content preproduced that they could pull a break really and a harsh break on any new production. That's why they would appear a bit earlier in the phasing than we and others would have expected. But again, opening up and loosening and recovering, that could be also the ones that hopefully will open up then again and recover sooner maybe than others. That's why the phasing. On the top line guidance, well, yes and no. I think the software licenses really was one thing we would have highlighted in Q1 but only have referenced really for a few weeks of that trend. That trend did continue in April, clearly, so far. And that's why I can only say that the expectations here is that it's severe, weaker in Q2 without giving you a number. And again, our different modeling would show that at the end of the day, there is a question mark on the second half. How soon will this recover? How deep will it go down in Q2? And how soon will it recover? That we'd prefer if you allow us to monitor this a bit more, a few weeks, going out there because the reference of the last few weeks is just not good enough, I would say.

[George W Webb, Equity Analyst]

That's helpful. Just on the seasonality in terms of each quarter, how much is kind of into the final month?

[Stefanie Zimmermann]

So it's nearly balanced. We do not really have a peak in the last months. I know that a lot of software companies have that peak that -- and the majority of the revenues are done in the last 2 weeks, but that's not really part of our business. We have a quite balanced situation if you compare it from January to February to March. So there is not really a peak at the end of the quarter.

[Operator]

As there are no further questions, I would like to hand back to you.

[Axel Jörg Kaufmann]

Thank you very much. Is there any more questions? Please hand them in with the operator. If not...

[Operator]

[Operator Instructions]

[Stefanie Zimmermann]

So of course, if there are no further questions, thank you.

[Operator]

We've received the question now. It's from Christian Sandherr of Hauck & Aufhäuser.

[Christian Sandherr, Analyst]

Just maybe really a quick one. I've heard from a few companies that they are quite happy with the whole home office topic and how it works out for them operationally. And as a result, the exact thinking about moving a certain degree of the whole workforce into home office permanently, which would save them a lot on rent as they don't need as much office space, is that something that you are considering or that would be something that you could consider going forward?

[Axel Jörg Kaufmann]

Yes. That's a very good question, Christian. I think I'd like to address this by -- from 2 angles. The one is that considering this was for our 3,000 Nemetschek employees is one thing, and for the bigger locations, why would we not? But I think the more important is -- could be the considerations for the business really impact us, especially in the Manage segment, as we discussed a bit earlier already. So we need to be prepared for property owners to be confronted with such kind of requests from their tenants. And therefore, they need to be able to simulate and maybe optimize the space more than ever before. And that could be an area where I think the simulation software so, for example, Spacewell of the Design division could help.

[Operator]

Now there are no further questions.

[Stefanie Zimmermann]

So thank you all for listening. If you have further questions, you can reach me or Axel every -- not every second. But if and ever you have a question, so we are still available this afternoon. Thank you all. And yes, have a nice day. And yes, a nice weekend, too.

[Axel Jörg Kaufmann]

Thank you very much.

[Stefanie Zimmermann]

Thank you.

[Axel Jörg Kaufmann]

Goodbye.

[Stefanie Zimmermann]

Bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.