Nemetschek SE

XETRA:NEM

Earnings Call Transcript 2021-Q1

[Operator]

Dear ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customers' request, this conference will be recorded. [Operator Instructions]May I now hand you over to Stefanie Zimmermann, who will lead you through this conference. Please go ahead.

[Stefanie Zimmermann]

Thank you, operator, and hello, everybody, and welcome to our conference call. Thank you for joining us to discuss the results for the first quarter 2021 results.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 the strategic highlights of the first quarter. You will find the presentation, the quarterly report 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]

Happy to do so. Thank you very much, Stefanie, and welcome also from my side to our first quarter earnings call in this year 2021.After the substantial amount of detail we provided on our subscription strategy and our midterm ambitions in the course of our full year reporting last month, we have now returned to our usual short but informative slide deck, that I'd like to briefly walk you through, so that we have enough time for your questions afterwards. As usual, we'll start with an overview of our key business highlights in the first quarter. In short, I think we had a very successful start to the year, helped by an underlying recovery and improving confidence in the overall construction industry as well as our resilient business model, along with our strategy.This improving market condition translated into an organic top line increase of more than 12%, paired with a very high profitability. However, reported revenues increased by only 8.1% to EUR 158 million due to an ongoing substantial foreign exchange headwind, as previously announced and expected. In line with the trends we saw in the last quarters, our top line growth was again mainly driven by our recurring revenues, so maintenance and subscription sales, which increased by 16% on a currency-adjusted basis.In addition, we're pleased to report that our license revenues also recorded a positive growth for the first time since the beginning of the corona pandemic. As already mentioned, our profitability was exceptionally high in the first quarter. Main reasons were a higher-than-expected growth, in particular, in the month of March, as well as ongoing cost savings for travel, an example of trade fairs due to the COVID-19 restrictions.Therefore, please let me highlight that the strong margin in the first quarter should not be extrapolated in the coming quarters, and especially the second half of the year, whereas the transition of our previously announced Bluebeam to the SaaS business model will be a drag on our growth as well as on our profitability. Apart from the high cash conversion of more than 120%, the right side on this slide shows that we once again also increased the quality of our balance sheet significantly.Moving on to the next slide, Page #4. I already briefly touched on the negative foreign exchange headwind we faced once again in the first quarter. The main reason was the weakening U.S. dollar against the euro, which accounts for roughly 45% of our total revs. While this is certainly not a new trend, the impact on our reported figures has, however, increased steadily over the last quarters from 280 basis points in the third quarter last year to more than 400 basis points in the past quarter as depicted in the chart. Therefore, while our reported revenue growth was more or less only stable over the last quarters, I want to highlight that our underlying currency-adjusted growth is already back at the levels we saw prior to the global pandemic. I think that's a strong statement as well as a testimony for high resilience and growth potential of our business model and our end markets overall in general.Let's move on to the next page. As you all know, one of the main objectives, part of the strategy and always an important discussion point with many investors, is a theme of increasing our share of recurring revenues. If anything, last year's developments have further amplified the importance of these better predictable and more resilient revenues. We were able to grow those by almost 12% on a reported basis and even almost 16% on an organic and currency-adjusted basis. This translates into an advancement of 2 percentage points of the recurring revenue category, which now accounts for 61% of our total sales.Within the recurring category, our subscription revenues once again grew as the strongest and currently account for more than EUR 110 million. This already represents a share of 18% of our total sales compared to the only 13% 1 year ago.In addition, we're happy to report that the sequential improvement in our license sales that we saw since the beginning of Q3 also continued and even accelerated in the first quarter this year. Driven by our Design segment, software licenses, therefore, increased on a reported and currency-adjusted basis for the first time since the start of the global pandemic.On Page #6, we provide as usually an overview of our most important KPIs. We've already addressed our revenues, top line and EBITDA development in detail. So going down the P&L, you'll notice that our EBIT and earnings per share increased somewhat over-proportionally in the first quarter. This over-proportional growth is mainly a function of 2 factors. Number one, lower PPA charges compared to last year as well as second, a lower tax rate of just 21% in the first quarter of this year compared with 25% in the comparable quarter last year.I would like to also draw your attention to some of those numbers that we haven't touched on during this call so far, for example, the repetitively very strong operating cash flow of almost EUR 61 million, which underpins the high quality of our earnings. Last but not least, we've also further improved the quality of our balance sheet, represented in important metrics such as the equity ratio, which is now standing at almost 49% and a net cash position of around EUR 65 million.Therefore, our strong earnings and cash flow development, along with an extremely solid balance sheet, provide us with a high degree of safety going forward, while simultaneously 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 Q numbers, let's look at our 4 segments on Page #7. Starting from left to right, our Design segment recorded a strong recovery with a currency-adjusted increase in revenues of 11.5%, mainly driven by an organic license growth of 13%. Main contributor to the revenue and margin increase was our second largest brand within the Nemetschek Group Graphisoft in Hungary.Our Build segment with a plus of 4.8% year-over-year continued to suffer from the strong U.S. dollar and the foreign exchange headwind. The underlying growth of 11.2% shows a slight acceleration compared to the last quarters.Our Manage segment had the expected slower start into the year with the important customer group of facility managers continuing their more cautious investment activities, in addition, also to the margin development, as expected, as we continue to strongly invest into the future growth of this division.Last but not least, our Media segment continued its very satisfactory performance also in the first quarter. Being the first quarter with a strong foreign exchange, adjusted increase in revenues is entirely driven by pure organic growth.As we come to the end of my presentation on Page #9, I'd like to turn to our 2021 full year outlook. Based on the good start into the year, we fully confirm our guidance for 2021. In particular, this means that from today's perspective, at constant currencies, we expect at least a high single-digit percentage revenue growth despite our accelerated move to subscription. With this, we're very confident to also achieve our normally targeted profitability range and an EBITDA margin between 27% and 29%.Our assessment is based on the assumption that the market and the business environment in general will continue to normalize throughout this year. In addition, please keep in mind the various, partly even opposing, moving parts that will continue to affect our revenue and margin development over the coming quarters, as there is, for example, our second quarter growth in revenues and EBITDA will naturally be higher given the extremely low comparables due to the COVID-19 impact in the second quarter of last year. We will, therefore, see a normalization, as I would call it, of our growth and margin development in the third quarter, also due to the strong rebound we saw in the third quarter last year before we will start to really feel the impact of the Bluebeam transition, starting at the beginning of the fourth quarter in terms of lower revenue growth and lower profitability. We all know why we do this transition, it's for the benefit of the midterm strategy and the returns that we would expect from that transition.Given that Bluebeam is our biggest brand within the entire Nemetschek Group, I urge all of you to keep please this impact in mind and not just extrapolate, once again, our development of a single potential strong first half into the second half and especially into the fourth quarter. Nevertheless, with the first quarter of this year being a strong basis, we look very confident into the remainder of this year given the intact long-term growth trends in our relevant markets, our already high proportion of better plannable revenues, as well as the broad regional and market-related diversification.And to summarize maybe today's key points on an extra page that we have added at Page #10. Nemetschek had a successful start into the year 2021, with a strong top line momentum and a high level of profitability. Further, the growth was mainly driven by an underlying recovery and improving confidence in the construction industry in general as well as our large share of recurring revenues. The exceptionally high profitability in the first quarter is a function of a higher-than-expected growth as well as some ongoing cost savings due to the corona activities and actions that we have taken.However, as previously highlighted, one important caveat is that this high level of profitability with an EBITDA margin of more than 30% is not applicable for the entire fiscal year 2021. The transition to the SaaS business model of our biggest brand Bluebeam, which is very important and strategic, will have a negative effect on our top line, and therefore, also our profitability in the second half of the year.This is very consistent with what we have previously communicated in the last half year.Taking all of that together, we're convinced that the first quarter presents a strong foundation for a very successful remainder of this fiscal year 2021. And looking at the bigger picture, we can clearly see that all our long-term structural growth drivers, such as the low degree of digitalization in our industry, increasing BIM regulations for the need for more empty-efficient and environmental-friendly construction, are intact and offer substantial growth potential in the coming years.While we continue our positive operational development, we simultaneously also drive forward our various strategic initiatives in a structured and diligent way in order to set the Nemetschek Group up to become a EUR 1 billion company in the future.Lastly, let me shortly highlight our upcoming events. Our AGM taking place on May 12 as well as our second quarter reporting at the end of July, July 29, where we hope to welcome all of you again.And with that, I'd like to thank you for your attention, and we're now happy to take some of your questions. So operator, please back to you.

[Operator]

[Operator Instructions] And the first question is from George Webb, Morgan Stanley.

[George W Webb, Equity Analyst]

I have a few questions, please. Firstly, one clarification on margin. So like in Q1, you've clearly delivered a very good level of margin on the back of a strong top line and continued cost savings around COVID. Have those costs around COVID started to come back in through Q2 so far? Or is that a second-half story? And I guess tied to that, the margin headwind from Bluebeam, you seem to be saying it's more of an Q4 story. So is the magnitude of the impact from Bluebeam, the reason you keep the full year margin guidance unchanged? Or are you expecting some quite significant costs returning in Q2 or Q3? That's the first question.The second one is on the Bluebeam SaaS transition. Can you give us an update on where you are in that process? Have pricing or product changes being formalized yet? And have you been having any early discussions with pilot customers? Anything around these areas would be helpful.And perhaps thirdly, and one on the -- one of the longer-term themes that you've been consistent on since joining the businesses are organizational simplification or harmonization. Can you provide an update on where you see you are in that process?

[Axel Jörg Kaufmann]

Yes. George, thank you very much for very good 3 questions. I'd like to start maybe with the Bluebeam, and that's a simple, yes. Indeed, we have been reaching out to pilot customers, everything -- all traffic lights green. We're seeing the progress in preparing everything, not only the expectation on that front, but also the back end processes. But it's -- this is still a lot of work to be done. We're in the middle of this, I would say. We're confident that we can work ourselves through this and keep the time line. And everything that I think you had assumed is correct.To the organizational aspect of your third question, indeed, I think that, that's going to continue. We've been making, I'd say, simplifications, trying to keep the complexity of the overall organization somewhat under control.We've been launching various strategic reviews with the entities and trying to evaluate whether -- which processes, also some of the back-office processes, would give us some relief if we had organized them differently. So that is going to be a constant theme, and I'm glad you actually caught it over the last 18 months because I think that is helpful to become a EUR 1 billion company, you want to do that right in time and not when it's too late, just to prepare for being able to master somewhat of that future growth.And then on your first question on the margin, I think it's a little bit of what you said. Yes, Bluebeam plays an important role given the size of the business overall. Given also a level of uncertainty, I would say, overall in the macros still. I mean, this is Q1, it came in very nicely, slightly better than expected even. We're still seeing new developments within the scope of the pandemic, quite frankly.So I think we all felt just being prudent to keep it within the range of 27% to 29% overall as an average for the entire year. And I think the remark in the presentation was done on purpose that the Qs might look quite differently, especially when we have to take in mind the comparables from last year. It's a mix, I think, of a little bit of those points that you mentioned.We'll continue to be a bit more aggressive in investments. Some of those are related to the organizational simplification. Some are related to the transition, some might be related in just preparing for further growth in order to make that top line happen as we want to see it. So that's cost from the normalization. I would say that we didn't see literally any travel or any trade for costs in the last few months. But we expect that those will and shall happen, especially in the second half. It's a little bit of what we mentioned here with the organization preparation in the background for some processes. It's the Bluebeam impact. All of that leads us to not being overly too optimistic at this point of time that we would not promise something that goes beyond that range of the 27%, 29%, appreciating that I think the lights are increasing that we'd end at the higher end of that bandwidth of that range now given the first few months and the environment, hopefully, improving continuously.

[George W Webb, Equity Analyst]

Understood. That's really helpful. And if I can ask one follow-up. I guess, how should we think about the pipeline or the road map towards that Bluebeam SaaS transition being formally launched to customers? Will there be a point in maybe the third quarter where you'll be able to share more information on what the product changes are or what the strategy is? How should we think about that, I guess?

[Axel Jörg Kaufmann]

Yes, yes. I see no reason why this would not be a good time window as a matter of fact to do. So I think we'd like to respect customers first, and we want to make sure that we're 150% ready also internally once we would announce some of those officially and not discredit the communication to the capital markets, but I think that the priority would be for the business and for the customer side of those. But yes, I can imagine that being a good time window to do so.

[George W Webb, Equity Analyst]

Okay. That's helpful. And actually, one final question. I think in the past, there's been some kind of maybe -- possible that Graphisoft could at some point move for a subscription shift. Is that more likely to be a 2022 story at this stage than this year?

[Axel Jörg Kaufmann]

Yes.

[Operator]

The next question is from Sven Merkt, Barclays.

[Sven Denis Merkt, Equity Research Analyst]

Congratulation on a great quarter. Last year, you gave us a schedule how you expect the different divisions to be impacted by COVID with the Design division being the first segment to be impacted. Now of course, we're seeing a strong recovery in the Design segment. So my question is, is there any reason why we shouldn't expect the recovery to follow the same pattern?And then secondly, on the cost side, maybe adding another element to the previous question. We have increasingly seen that many companies in the sector don't expect a full return into their previous travel entertainment and event spend.To what extent do you think this is the case for Nemetschek? And to what extent have you factored that into your margin guidance?And then maybe finally on Bluebeam. Do you believe you face currently a headwind because some people maybe wait for the release of the new subscription version? And maybe related to the subscription transition, do you already know what KPIs you will provide?

[Axel Jörg Kaufmann]

Yes. Thank you, Sven, for, again, 3 questions. Let's try to tackle them one after the other. Indeed, I think the recovery pattern would be as follows that Design would have dropped and be impacted the most. And it seems like those are the ones that, especially given our customer structure, by the way, in the installed base of the small and medium customers and the perpetual license business being prevailing and somewhat dominant in that part of our business. Those seem to be also the ones coming out of that the quickest. And so that is confirming the pattern to go into such a crisis and coming -- and be able to come out of that as, I think, we've communicated with the capital markets almost a year ago.Second, we're not disagreeing with parties that would say travel and events, trade shows and so on will never reach the previously 100% level. And the new normal that we would expect, I don't know, but we haven't agreed on the magic number for the group in total because there is differences of some of the areas relying more on such customer to customer interaction. And the old way to do some of those activities as opposed to maybe some other areas of the business where we could learn already before corona that some of those online activities work quite well.So my best guess would be that we probably factored into our projections, a 2/3 level of what was previously maybe the average, if that's a fair assumption. And I haven't calculated that. So that would be a ballpark number at least for this year. And then we will see and take some learnings. The pandemic is not yet completely over. That's a fair point. I think the first real learnings we can take probably after the second half of this year when we have all gotten back to what is then the new normal, right? And yet to be seen.And then on Bluebeam. No, I wouldn't say that in the core markets of the U.S. were just because of the expected/perceived transition to subscription or SaaS, that, that is something that I hear a lot of customers hesitating. I think it was, overall, again, coming back to the pattern, the American market being somewhat weaker overall in the last few months of last year and recovering quite well overall as an industry. And the macros, I think, in the U.S. have improved.So I think it's a melange, of course. I think Bluebeam is having also territories outside the U.S., outside the core markets, where I think it doesn't matter so much whether you offer it as perpetual or as a subscription because the product is relatively unknown. It's relatively young markets for us. And we want to do both. While we transition in the core market, North America, to subscription and the SaaS business model, we've always said that being very consistent with previous announcement that we would like to continue to invest, which we have done in the first quarter, by the way, as well. In creating the foundation and the infrastructure in those markets outside the U.S., for example, where Bluebeam has a great deal of potential still as well. And that needs a little bit of preparation.So -- no, I don't think the sheer announcement, yet there was no official announcement of that, it's something that you know as our trusted analysts and people that follow us on the capital markets, that we have said that we will go into this. But we haven't totally entirely announced new products, new features, new functionalities, new pricing, new product positioning, all of that is yet to come, coming back to what George, I think, had implied in his question, if I understood correctly, is that when will that be made public and I think that'd be rather in the summertime, probably.

[Sven Denis Merkt, Equity Research Analyst]

Okay. Great. It was very clear. And on the KPIs, do you know already what you will provide? Or will you provide that to us later in the year?

[Axel Jörg Kaufmann]

Yes, that's an interesting one. And I can -- I've started discussing with the investor rel team and this has worked, quite frankly, and it would be also helpful to get a little feedback there as well that we've seen various companies that have gone through this transition doing it very differently, quite frankly. I -- we decide an ARR. I don't think there is -- and 1 set of KPIs that everyone uses. So we're sorting this out. We're in the midst of, I would say, preparing this. Happy to engage also in somewhat of a constructive bilateral discussion there, if some of you want.And I've also recognized that, again, the bandwidth of companies doing that. Now be careful with Nemetschek because it's not the one transition for the entire company with one set of KPIs. And typically, I have a hard time to mention that we would break out individual brands since we have so many, and it becomes a level of granularity of information, appreciating that this would be interesting for some of the audience. But I'd find it rather unusual if we go down that level of detail.But for Bluebeam, particularly being the biggest brand in the group, I can understand some of that discussion. And so therefore, no, it's not yet clear, and we're in the midst of becoming clearance on this one.

[Operator]

The next question is from Chandra Sriraman, Stifel.

[Chandramouli Sriraman, Managing Director]

Congrats from my side as well for a strong start to the year. I just have a couple. So in terms of the surprise in the quarter, I noticed that Design had bounced back quite a bit from an organic standpoint, whereas Build is still catching up. Would you say this recovery in terms of Design is more sustainable? I just was trying to get a sense, is this more driven by some slipped deals or you're seeing a more sustained recovery. Any comments on also April now that we're a month into the next quarter would be very helpful.The second question is we have seen a lot of other vendors talking about China being extraordinarily strong. Asia recovering quite fast. Any geographic highlights that you would like to mention would be very helpful.

[Axel Jörg Kaufmann]

Okay. Thank you very much, Chandra. We -- I think it's fair to say, relatively early in the year, but I think it's fair to say that this is a sustainable recovery from what we've seen regarding to your Design question. I think the guys are just doing a great job. We've been introducing a new product also last year or features at least. Remember the discussion we would -- have had about the integrated solutions.Some of the marketing activities and knowing that business is relatively Europe based, it wouldn't surprise you, concerning your second question that, that also that according to also the progress with the overall macro environment and the confidence coming back, the vaccination campaigns are progressing, that this is the basis really for that Design story that we would have seen. And that would include April, by the way, to your question.

[Chandramouli Sriraman, Managing Director]

Okay. Can you hear me?

[Axel Jörg Kaufmann]

Yes.

[Stefanie Zimmermann]

Yes.

[Chandramouli Sriraman, Managing Director]

Well, great. Maybe just a quick follow-up. I know -- I appreciate it's a bit too early, but I just noticed that managed EBITDA margins, EBITDA is growing quite strongly on an organic basis. So the transition has been relatively quick and pain free. So any thoughts on giving us a sense of how Build could go through the transition would be quite helpful for us.

[Axel Jörg Kaufmann]

Yes. Thanks for the follow-up question. I think we were -- you probably meant the Media segment, right? And the...

[Chandramouli Sriraman, Managing Director]

Yes, yes. Sorry. Yes, media.

[Axel Jörg Kaufmann]

Yes. And I like the question, particularly because this is something that typically falls through when we have limited time to talk with all of you, and you know my passion for the Media business there. So we're really happy that this has become an organic growth story now that we see the first comparable. Over last year when we still had the effect of the previous acquisitions, of course, that were driving top line as well. Now this is purely organic. It's substantially subscription-based and it's across various regions and territories. So that is something that we really like and feel proud about.On Build, yes, Build typically is the natural next one to follow in the, I'd say, recovery pattern that Sven mentioned with the question earlier. That given also there the predominance of license aspects of the business model, and the dominance of the U.S. market there, I think we're glad to say that overall, the American market, partially driven by the confidence, maybe also by just a certain positive underlying sentiment, certainly by the stimulus programs also and the political landscape that has cleared up a little bit, all of that, I would say, has gotten together for the construction industry being quite optimistic in general, be it the residential sector, be it the public sector. And that is, in general, I would say, helping us.So in our situation, being a smaller player, I would say, in the American market for Design and Build other than the Bluebeam business that, of course, would be an underlying that I would assume in whatever model you set up. Now in our specific case, we've been always sharing this with many of you that the majority of the Bluebeam business roots from the U.S. and while the overall macros are improving and the recovery is kicking in, we still will continue, for good reasons, the path of the transition to the subscription and SaaS model. And this takes companies 1 or 2 years typically.And yes, we're somewhat late with this compared to other software vendors, but we do that because we believe in the mid and long-term great benefits for all of us, for customers, for shareholders and for the value generation. And that's why almost, I'd say, whatever the macro does, we've seen setbacks or improvements or recoveries as we currently see. I think it's the right strategic move that was prepared for quite a while last year and therefore, announced at the end of last year and confirmed earlier this year that we would go into this transition. And that will have an impact, of course, as normal. But not so that we couldn't confirm the overall guidance for the group. And I think that's important to do that in a manageable digestible way. Yes. And that's my little answer to the Build question.

[Operator]

The next question is from Gal Munda, Berenberg.

[Gal Munda, Analyst]

The first one is just around the slow business model transition and how that might impact your go-to-market going forward. I'm thinking, as we go more into subscription environment, would you expect a high proportion of your revenue come from the e-commerce platform? So basically have customers coming directly to you, to your website purchasing or subscribing to the licenses that way. And maybe just if you can give us a little bit of an indication in terms of the split of direct and indirect today. I think it's around 50-50 over the past you said. And do you have any meaningful revenues from the equity side today?

[Axel Jörg Kaufmann]

Gal, thank you for being on the line for the questions, which I'm trying to answer both of them in one. I think the overall volume coming through web stores, for example, at the moment, when we look at the core business of AEC, Design, Build and Manage is relatively low. The intent is there for some of the features and functionalities that are maybe also easier with sophisticated customers, experienced customers to launch those in a more prominent way over the next couple of years. Absolutely.If we look at the media business, which is slightly more tailored around a B2C behavior when it comes to the end customers. There, indeed, we have gone through that exercise last year already, and we see a very pleasant and positive feedback there. And the proportion of the overall revenues coming through at the Internet of such stores is increasing. And we're happy to share that maybe at one point of time. But overall, I would say, as a conclusion for the group in total, there are some businesses that do not have such purchasing capabilities at all for end customers online. But I think we'll give that a greater priority in the next couple of years.

[Stefanie Zimmermann]

Yes. And just to round it up, Axel. So definitely, of course, for some brands in the Design segment, it's more difficult to sell their software solutions via deck shop or e-commerce. But for Bluebeam, of course, it's a little bit easier because it's not so expensive or -- and complex. So what we guess at the moment and e-commerce is very low at the Bluebeam organization, around 10%. And then, of course, there is a direct sales and the major part, I really would say, comes still from the indirect phase. So 50% what we estimate is around indirect and the rest is direct together with the e-commerce shop.

[Gal Munda, Analyst]

That's really helpful, yes. So I was thinking considering what you said about the Media & Entertainment segment of the business, if I look at margins improving and that obviously would have been supported by probably lower sales and marketing if you did have that kind of incremental margin that comes in at a much higher rate, right? So if you did a similar business model, transition on Bluebeam specifically.I wonder whether there's potential for incremental margins to even increase once you transition the business that was my thinking behind.

[Axel Jörg Kaufmann]

Yes.

[Gal Munda, Analyst]

Okay. The other question I have is just around the Bluebeam again. Can you give us maybe just a little bit of an indication before you head into the transition, like what is the growth rate at this point in time, especially like how we'd compare it to Q1 last year, which was still kind of okay. It kind of slowed down in the second half of the year. I think is that the right way to think about it?And then when you will transition the users from the old model to the new model? Do you have a significant amount of -- you were taking more than 2 million users that you've sold perpetual licenses to. And a lot of them do you have maintenance? Can you talk us about some of the drivers, some of the -- I don't know, the carriers and the stakes potentially that you might use in order to make sure that those people who are on maintenance today will move into subscription as fast as possible.

[Axel Jörg Kaufmann]

Yes. Thank you, Gal, for that follow-up question. I appreciate and understand that there's so much interest in the Bluebeam transition, quite frankly, it's a variety of exercises and actions that get prepared currently to make sure that as many, of course, transition as possible. I think that goes without saying I think it's a mix of additional features and functionalities. It's an attractive and slightly different price positioning. Debundling, maybe some of the features that you can imagine that not all users might need.But again, in respect to really our great customers, I'd say that, that would be maybe not ideal to lay those actions out that the team is currently preparing to all of you at this point of time. Please understand. In general, I think we have a good sentiment on the different types of customers, which in Bluebeam's case, we go from small, medium up to very large construction companies there. And all of that is taken into the consideration. Again, this has been in the midst of the preparation, not yet been publicly announced. Nothing was put out there to the customers. So again, we're having a little bit of problem in breaking that down to the level of detail that I think you desire, Gal. Please understand.

[Gal Munda, Analyst]

That makes perfect sense. I guess, we can pick that up in a couple of quarters when it does happen. That's really helpful. Maybe just the last bit. The Managed segment is kind of an outlier right now for the wrong reasons, considering the fact that with a below average margin profile and also the growth rate, as you said, is not quite there where you want it to be. I'm wondering, considering you have this very, very strong balance sheet and everything. Is the managed segment in need of kind of further investments, especially in other regions potentially where you could -- where you could consolidate some of that market and really get to the critical mass, where will you see it as a strategic growth driver in the future? Or do you think it's the ones that you've invested a little bit in and maybe just wait for any growth to come and then subsequently, maybe do more investment?

[Axel Jörg Kaufmann]

Yes. Thanks for the question. I think it's an excellent question. I'd like to answer it in a slightly different way. I think that in the overall perspective that someone like me has to take, I think it's a matter of also the opportunities and the alternatives at the end of the day, knowing how our final firepower and the capabilities of being able to invest organically as well as inorganically.We look at several great opportunities, Managed being one of them, and we've done, I'd say, more organic investments to prepare those pieces of the business to become a solid player, which, in the meantime, I think it has as the third division in the AEC space.On top, we've been doing the inorganic investments with the acquisition, for example, that we were digesting in the first quarter, which -- and integrating, which is part of the reason I'd say that also the margin is somewhat a little bit lower. But overall, I think it's a relatively healthy business with nice growth rates. We're still seeing ourselves in a certain investment way. Priority, I would say, is per se in the -- on the organic front, knowing that we are a European play. If you wanted to go to other geographies in a big, big time, leapfrog kind of moves then it's absolutely true what I think you were referring to, that then it would need substantial investments. Yes, that's correct.

[Operator]

Our next question is from Florian Treisch, Commerzbank.

[Florian Treisch, Research Analyst]

Yes. Also congratulations from my side. I have a kind of a follow-up question around the whole design performance. As you said, this should be sustainable and given the probably highest share of license business, I believe, at least from my perspective, that the license performance has been really one of outstanding driver in the quarter also for the margin. Looking into coming quarters and assuming your comment around sustainability and the Design recovery is true, I think there's hardly any reason to believe that licenses will be massively down maybe only starting in Q4, a bit of a headwind from the Bluebeam transition. But clearly, would you also expect, whatever, 3%, 4%, 5% license growth in the current fiscal year? And would you then also expect to see a negative rate in 2022 due to the Bluebeam transition?And the second one, maybe just around your hiring. If my numbers are right, I look it up like 3% quarter-on-quarter, 100 people. That does not at least sound like a meaningful push into new people. Is that accelerating yet in coming quarters? Or is it just, yes, more a normal run rate for you now?

[Axel Jörg Kaufmann]

Thank you, Florian, for your excellent question. I think let me start with a latter. The head count hiring, of course, in a market that is lightening up, where we see somewhat of a recovery, I think there's 2 things that come together. Do people really believe that this is substantial? In the meantime, I think we do -- and sustainable? In the meantime, we do, and therefore, I think an acceleration of hiring is really now taking place and maybe people coming onboard in a February, March time frame with cancellation periods, search periods and upfront work that you would have to do is easily 6 months before when you want to sign or start interviewing.So that was probably still in a period where we wouldn't see the kind of recovery that all of us were slightly also positively surprised, including you, probably how the markets performed and that's just in the last weeks overall. So not to correct you, but 100 people for us is quite a lot in just 1 quarter. If we sum that up, it would be not to be taken x4 because I think the basis also in the comparables from last year are somewhat continuing in a slightly different content, appreciating some smaller moves that we have done inorganically in between.But yes, the license Design business, I think, overall, Design is the main driver. You're right. And as I said previously in one of the questions being asked already, there's no reason at the moment to believe that this is not sustainable and not repeatable. Every quarter, we'll look, however, differently. Again, I'm cautiously hinting to the second quarter already today. I know that we had a good start in April, but the comparables are low. We saw the worst quarter last year was the second quarter. So to beat that and to show the kind of range of growth that you were indicating, it shouldn't be too complicated, quite frankly. That does not mean that we're getting even more optimistic as we are today already.On the overall year and for the company, for the Nemetschek Group in total, I agree with you the dimensions that you had given in your question are absolutely something we aim for. And licenses remain a core part of our business model in -- across almost all divisions, with the exception of Media being predominantly with 2/3 on subscription already.

[Operator]

The next question is from Knut Woller, Baader.

[Knut Woller, Analyst]

I have actually 3. One, just a technical one to start with. It's the PPA, which surprised on the upside. Can you give us some insight whether there are further PPA tailwinds to be expected in the coming years? And what level of PPA we should factor in? That would be the starting point, and then I have 2 more.

[Axel Jörg Kaufmann]

Yes. Thank you, Knut, for your question. We've analyzed that. And the way we see it is the PPA in the first quarter is somewhat lower than what we would expect for the remaining 3 quarters. There is accounting effects in there and some specials that have given us indeed the tailwind, as you say, not dramatically, but somewhat. And we would see ourselves on a relatively similar level for the entire year '21, like we have been on last year's levels.

[Knut Woller, Analyst]

Okay. And secondly, you highlighted the strong recurring revenue growth. If I look at the drivers, it was mainly driven by subscriptions and SaaS, while the traditional maintenance was just in "growing by 2% year-over-year." Is that only reflecting the weak license trend of last year? Or is there also some elements of the Bluebeam transformation to subscriptions or Maxon's transition to subscriptions reflected in the maintenance growth?

[Axel Jörg Kaufmann]

Yes, I think it's a good point. And thank you for highlighting this. Definitely, Bluebeam impacts are not yet in at all. And we've been, I think, seeing both of the effects that you were giving as an explanation yourself for that amount of the SSAs growing. And so there's nothing special to read into this, really. We're quite okay when looking at those numbers.

[Knut Woller, Analyst]

Okay. And the last one would be on the Media & Entertainment segment. I think if I remember correctly, the companies you acquired like Red Giant and Redshift reported stronger growth rates than your Media & Entertainment segment stand-alone/Maxon. Can you give us some ideas about what is driving the growth in the Media & Entertainment segment? I know you're always a bit hesitant to provide granularity regarding individual brands. But is Maxon growing as fast as the acquired assets like Red Giant and Redshift? Or is it growing slower?

[Axel Jörg Kaufmann]

Yes. Thank you very much. And again, thanks for all the questions going for Media, which is an indication that there is indeed some interest amongst the audience. You know what, when we look at the companies and their numbers, when we were doing -- performing our diligence before acquisition, we did not see a difference. As a matter of fact, now that we could offer combined products, one of them being Maxon One just recently announced a few weeks ago. Maxon One would be part of the answer to your second question, which is why and where is Maxon growing.In terms of geography, we're growing nicely in all territories, be it in Asia, namely also China or Japan, in Europe, but then also in the U.S. in various subsegments of the entertainment industry. But clearly, what we see is that Maxon One product, which is the combination of the best of all from -- you see the previous functions from a pure Maxon Cinema 4D then added by the Red Giant capability and functionality and the new rendering capabilities that is something that was a major driver. So we're having a close eye on this. It's relatively early, but it seems like we have a pleasant feedback from customers that they like the differentiation of how we position the product in the market. That you get it at the full load at a decent price, and please take a minute and go on the new web page that was just very recently announced. I think it's a wonderful way of how to display the different categories of the product there at maxon.com.And also coming back to a question earlier on regarding the web store, fair enough that this business is a little bit closer to B2C than B2B. And like Stefanie was mentioning rightfully, it's not to be compared with the structural design with some offering tools that are relatively complex. It's not to be compared with a managed product that, including the service aspects that are so helpful for our customers.This is really from little agencies from creative studios that have been working with the design tools, in this case, of the entertainment space before. They love our product. I think the team around our CEO, David McGavran, is doing a fantastic job. And the integration just pays off. I think that would be my humble answer to your question that we've been doing more than a year now of hard-core integration work from the organization to the back end processes to the pricing, position and product integration, all of that pays off now, and we're eager to continue that, of course, as much as the environment permits. But yes, that would be the explanation.

[Knut Woller, Analyst]

Yes. Thank you for providing that color. Just to get a feeling for the growth of the brands actually is, is Maxon growing at the same space as Red Giant and Redshift?Or is it going below the average of the segment?

[Axel Jörg Kaufmann]

Well, we can no longer -- I mean, that question I can only answer when we would go back to the stand-alone companies before we acquired them in the years 2018-'19 and the integration that happened January 1, 2020. From now on, we consider this as one total overall. And there is a movement like in political elections that customers that previously were maybe Redshift or Red Giant customers now buying the Maxon product, either because they kind of keep going with the legacy products and are just loyal customers or because they are attracted by the additional offering that they would get by the Cinema 4D previously Maxon functionality. So that we would not be able to track in the moment where we have now integrated all of that. And I don't see a reason why we should because at the end of the day, it's a product suite that we would offer there, being positioned in different features at different price levels, and it's an integrated team/solution in the meantime.

[Operator]

The next question is from Martin Jungfleisch, Kepler Cheuvreux.

[Martin Jungfleisch, Junior Equity Research Analyst]

Congrats on a strong quarter. Just 2 quick ones, please, on Bluebeam again. Could you disclose the growth rates that you had in the U.S. and Europe in Q1?I think last year, you mentioned that you would expect growth in the U.S. to slow due to the high saturation levels there. Has that happened yet? And what do you expect from Europe in terms of growth this year? And maybe are there any additional market entries in Europe planned also in light of the subscription offering in the coming quarters? That's the first question.And the second question is just on M&A, if you could provide an update there, if anything has changed to your comments from the Q4 call?

[Axel Jörg Kaufmann]

Yes. Martin, and thank you for the compliments and for your 2 questions.Let me start with Bluebeam. We're not eager, please understand to break those growth rates out per territory per region. But I can try to answer the question in a slightly different way and shed some color on the aspirations, let's say. So of course, what I think the investor rel team has been communicating and announcing for several quarters, of course, that does happen that the previously high-growth rates, 15%, 20%, what did we see, for years, growth rates have come down, including this quarter for Bluebeam North America. Because of a higher saturation because of a higher penetration, it's just the normal course of how we actually had seen -- foreseen the development.I can tell you that the DACH region, the German-speaking part of Europe, Germany, Austria, Switzerland, that is the biggest area where we invest currently outside the U.S. together with Scandinavia and the U.K. And we're expecting from the DACH region over-proportional growth in the coming quarters. Absolutely. And we're confident with some very prominent customer wins, small, medium as well as larger ones recently that we can deliver on that internal expectation. But what we wouldn't do, I think, is break out Bluebeam's individual regions. I think that would be one level under a brand, even if it's the biggest one that -- at the moment, we wouldn't do. But we're very confident and happy and pleased with the progress that we see outside U.S., and we're not surprised by the development in the U.S., let me put it this way.The second question regarding the M&A pipeline. There are several things that we look at, and I'd like to take the opportunity that Nemetschek is very close to be ready and announcing that we'd go into what we -- what other companies call venture and start-up investments. The more mature M&A targets, we have some that we currently look at, but it has certainly not become easier, given the selection that took place on the market overall and then also the price levels that we've seen. Given that our portfolio is complete, I think that we have a global reach that is very well covered in the meantime. We're trying to complement the M&A approach currently by adding startup and venture investments as an idea. And as soon as we would have done those, that's something for the mid- and longer-term out and strategic, of course, kind of as an additional inspiration and innovation kick besides what we do in our own innovation activities.But there's nothing substantial for the next coming weeks or quarters in terms of mature M&A targets that we see in front. I said already at the beginning of this year that this is going to be a year where we have to focus to a good degree, on organic growth, which we're delivering against the expectation currently quite well. And if opportunities permit and allow, then we'd be ready.

[Operator]

The next question is from Deepshikha Agarwal, Goldman Sachs.

[Deepshikha Agarwal, Research Analyst]

Congratulations on a strong quarter. I just had 2 questions. First of all on this subscription growth, it was pretty strong. Like, it continued to be strong in this quarter. And it seems to come from Media & Entertainment and also from what we understand, includes a small contribution from Design segment. So can you discuss where you are in terms of your dual offering of licenses and subscription in Design? Will like the subscription offering be more pronounced once the Bluebeam transition is through?And the second one is mostly on the cash flow. So the strong operating cash flow had some contribution from an inflow of -- inflow related to working capital. Can you comment on this, especially, like, in terms of how do you expect it to track through the remainder of 2021?

[Axel Jörg Kaufmann]

Yes. Thank you, Deepshikha, and welcome to the call, and thank you for the complementary questions. So regarding subscription, yes, I think you're right. It's coming predominantly from that area, but then there is also a little bit here and there. We have made this a top priority and a theme across all brands and divisions. So I think people understand more and more and see the value, but I think we feel confirmed that the approach that we are taking is that we don't do it with these gigantic moves of falling into the dip and falling into the next dip and falling into this dip.We've been talking about moving because here, the situation is somewhat different given the customer base, given the size of the brand. I'm not expecting such an effect taking place in another brand at the same levels of magnitude related to the overall group financials. But what I do see is that we're probably -- since you touched on the Design division, we're making nice progress there in smaller as well as in bigger brands to optimize their dual offering as part of your question, that our customers really are getting the support from us for both perpetual, the maintenance contracts as well as the subscription offering.Again, in Bluebeam, we go one step beyond because we transition the business into a true SaaS model, including the back end processes. That is something that I don't see on a big scale, short-term for any of the other brands, especially the ones that you mentioned around the Design division. But I'm confident that my colleagues and myself, we've been driving this. We've been educating the organization, taking the lessons learned, collecting experiences, taking outside-in view as well. So that I'm pleased that the -- I think the phased approach that differentiates Nemetschek from many other software companies, the phased approach, which is that we're doing that and constantly getting better while still delivering great top line and bottom line performance is the right one.

[Deepshikha Agarwal, Research Analyst]

Okay. And on the operating cash flow question?

[Stefanie Zimmermann]

Yes, regarding the cash flow, of course, we have this nice increase in our recurring business, and we have higher prepayments. That is the main reason.There will be a normalization over the year, second quarter, third quarter, fourth quarter, and that was really the strong increase in our recurring business.We had a similar effort also last year. There were also the cash conversion above the 100%. This year, it was even a little bit higher because we had the strong increase. So nothing really unusual.

[Axel Jörg Kaufmann]

Yes. It's the way that some of those, for example, maintenance contracts just get sold, and it seems to be becoming more and more popular to pay that upfront at the beginning of the year. Yes. Nothing, I would say, that should worry us. And in fact, it's rather the opposite. I think it's a positive.

[Operator]

And the next question is from Andreas Wolf, Warburg Research.

[Andreas Wolf, Research Analyst]

It's Andreas Wolf, Warburg Research. A quick one. On the commissions that you are paying to your resellers, as you're transitioning to subscriptions, how shall we think about this P&L item? Would other P&L items also be impacted like third-party services? Some insight here would be helpful.

[Axel Jörg Kaufmann]

Yes. Thank you, Andreas, for your good question. I'm not aware that there is a big amount of provisions, if we understood your question correctly, in particular, the Bluebeam business. Some of those businesses are depending on where they sell and how they sell and which agreements they have been historically negotiating with their resellers and distributors indeed would carry the higher the sales, a higher level also of the provision level.What we certainly do is price discounts in all of the businesses, depending on the size of the business, volume that we do with a business partner, a reseller distributor. But in this particular part of the business, I'm not aware that especially the subscription wouldn't change that because it's not a big theme in that business.

[Operator]

And the next question is from [indiscernible] Bank.

[Unknown Analyst]

Axel, Stefanie, congratulations from my side as well. 12 points goes to you from Denmark. Just a straightforward question. You might have at least partly answered this already on the revenue development for the rest of the year. If I just glance at the quarterly figures for the last couple of years before COVID-19 that has been a rather stable growth quarter-on-quarter. So with the nice starting point you've had on your revenues this quarter, do you see any reason why your revenue should not increase sequentially, let's say, just for the rest of the year from the current level? Because that in my model at least would indicate revenue growth comfortably above 10% this year. So are there any sort of drops or anything else we should be aware of for the remainder of the year?

[Axel Jörg Kaufmann]

Yes. It's a good question. Thank you, [ Anders ], and we take the 12 points from Denmark, happily. I -- but I'm not singing a song, I'm sorry to say.We -- well, I think you're probably referring to constantly -- to currency constant numbers, right? And if it wasn't for the, I'd say, Bluebeam effect that we would expect in the fourth quarter that could be a scenario where -- which I could buy or agreed to somewhat from a tendency, probably not in the Q1 call. I want to see at least one more quarter quite frankly to really have this materializing, which, again, that's the currency. There's still a pandemic out there with certain shapes and variations. And then we're 150% certain that we will launch that subscription in kind of the end of Q3, probably with financial effects in the fourth quarter latest. So that's my train of thought, how I would probably come to a similar picture, but then factoring in those points.

[Operator]

And there are no further questions at this point.

[Stefanie Zimmermann]

So perfect. Thank you all for listening and for your good questions. If there are no further questions, we will conclude the call. Thank you, and let's keep in contact. The next quarterly report will be published in July. So we are available also during this time. Thank you very much for joining the call, and have a nice day.

[Axel Jörg Kaufmann]

Thank you. Bye-bye.

[Stefanie Zimmermann]

Bye.

[Operator]

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