Nemetschek SE

XETRA:NEM

Earnings Call Transcript 2023-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 over to Stefanie Zimmermann, Vice President of Investor Relations, who will lead you through this conference. Please go ahead.

[Stefanie Zimmermann, executive]

Thank you, operator, and hello, everybody, and a big warm welcome. Thanks for joining our earnings call today to discuss the results for the first quarter of 2023 with us. With me today are our CEO, Yves Padrines; and our CFO, Louise Ofverstrom.

Today's conference call is being recorded. A replay of the call will be available at our website after the call. Additionally, you will find the report, presentation and the press release on our Investor Relations website as well.

But now let's get started. I would like to turn over to our CEO, Yves. Go ahead, Yves.

[Yves Padrines, executive]

Thank you, Stefanie and welcome, everyone, to our 2023 first quarter earnings call. 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.

Our Chief Financial Officer, Louise Ofverstrom, and I will give you a brief presentation on the highlights of the first quarter of 2023, so that we have enough time to address any questions you may have during the Q&A session.

So let's go directly on Page 3. So to begin with, I would like to summarize the first quarter 2023 in a few key messages. Q1, as you have seen, has been a successful start to the year, which in turn provides us with a good foundation to achieve all of our financial targets for the full fiscal year 2023.

Our Q1 has been indeed stronger, and if you look at -- in the Design, for example, we have seen slight stabilization in our underlying markets, especially in Europe, which was resulting with materially supported also by 2 different one-off effects that together strongly drove the growth in the Design segment.

Firstly, after a slower development of the Design segment in Q4 last year, we saw catch-up effects, especially in the second half of Q1. And secondly, combined with such catch-up effects, we saw a real run on our product in the Design segment before an announced price increase with some brands, which kicked only beginning of this month in April.

So in summary, this led to a very strong start into the year for the Design segment could mean that a small part of the demand that we initially expected in Q2 is a little bit already pulled forward to Q1, but in a very, very minimal level.

So we continue to execute exactly as planned in our journey to our subscription and SaaS-centric business model. The design brand Vectorworks as well as Nemetschek Engineering, so Scia and Frilo have successfully started their subscription transition with Vectorworks, initially focusing on its direct markets for North America, U.K. and Pacific.

Looking at Bluebeam, we are happy to report that Bluebeam transition continued as planned to. By the end of Q1, we have now migrated more than 20% of our Bluebeam customers. This progress gives us a great deal of confidence that we will be able to achieve our goal of migrating more than 90% of Bluebeam customers to the new subscription packages by the end of 2024.

In addition, it's very encouraging to see that the majority of customers continue to prefer our higher-tier packages, so core and complete, which include more of the newly introduced Bluebeam cloud features.

And last but not least, we continue to be well positioned to achieve our targeted above-market growth and shareholder return in the mid- to long term by capitalizing on our leading position in structurally growing industry. So in short, we are well underway to deliver our midterm 2024 and 2025 ambition.

Let's turn to Slide 4. We are very proud of the close relationship we have with our customers and partners, in general. This is clearly an integral part of the Nemetschek Group DNA and also one of our main strengths. However, this close connection does not just happen by itself. Apart from hard work and a service-oriented mindset, it is also requiring a lot of meetings and talking to our customers on a regular basis, but also returning to live personal events like trade show.

And as you know, due to the global COVID-19 pandemic situation, we had to somewhat pivot like all industries, and a lot of companies are approached to a more virtual one over the last years. However, while I believe we did a great job with several high-profile virtual conferences and events, I'm convinced that our virtual event can never be as good and as substitute to real physical events and meetings.

That's why we were very happy and are very happy that this year, we were finally able to visit all the important trade fair industry in person again. For example, NAB in Las Vegas, which we attended also last year with Maxon or BIM World in Paris, but clearly, also the large show here in Germany, Munich BAU, the world's leading trade fair for architecture, materials and systems, which attracted around 200,000 visitors this year.

Our increasing cooperation between our brands was represented with 1 large joint booth, where multiple Nemetschek brands were presented and presented the product and solution together for the first time under the one Nemetschek ground -- group umbrella. Ultimately, our vision is to transform the AEC industry, away from silos and towards integrated workflows along the entire life cycle of building.

So I'm talking like a lot of my peers on a very, very regular basis to a wide range of customers. And it is interesting to hear that also in the last months, customers clearly still continue to really have this special relationship with our products. They like them a lot. It's even for them a love relationship, and this is a very sticky product for them as per majority of these customers and users.

And as you know, we have over 7 million users for our overall brand portfolio around the globe. It is their main tool to work on a daily basis. And the overall building life cycle player sees a need to adopt more and more digitalization in order to survive in the mid- to long term, as explained in several other calls with all the challenges that the construction industry has.

So there are clearly different sentiments in the market. But overall, the long-term structural growth drivers of digitalization in the construction are intact and out there and are the main reason for strong belief of a positive mid- to long-term growth in this industry.

On Page 5, we are showing a summary of our first quarter key financial figures. So our Q1 revenue increased by 6.5% on a reported basis to EUR 204.6 million and by 5.5% on an FX-adjusted basis. The main contributor to this growth was once again the recurring part of our business, which is represented by our annual recurring revenue KPI, which increased by 23.5% to almost EUR 600 million.

Looking at the different components of the ARR growth, it becomes clear that, in line with our strategy, our subscription and SaaS revenue were the main driver with a growth of more than 40%.

As expected, our EBITDA in Q1 decreased to EUR 61 million, solely driven by the temporarily missing revenue contribution of our brands that are currently in their subscription and SaaS transition. However, looking at the group profitability, we are pleased to see in Q1 a continued high margin level of 29.8%.

So in conclusion, we are showing an attractive top line growth, combined with high profitability, while transitioning our business to subscription and SaaS business model.

I will now hand over to Louise.

[Louise Ofverstrom, executive]

Thank you so much, Yves, and a very warm welcome to our Q1 earnings call from my side as well.

Let's turn to Page 6 where you will see the development of our 4 segments during the first 3 months of the year. However, before we go into the details of the performance of each segment, let me shortly highlight some accounting-related structural adjustments that we have made, in general, starting in the financial year.

As you have probably already noticed in the materials, we slightly restated our segmental results. The main purpose of this is get to better reflect the underlying growth and the earnings position coming after that of each of our core segments. So what we have had with them, in particular, we have consolidated the intra segments that we have in revenues and allocated our headquarter and support function costs proportionately to each respective segment.

In addition, and as a result of our strategic business trend initiative, we have also reallocated our diluted funds from the Build segment to our Manage segment as a part of the newly formed Digital Twin business unit, as we have talked about before as well. So -- but with that, you should have known that to make sure that we have the like-for-like comparisons. Of course, we have restated the comparative level as well.

But now coming to the performance of our different segments in the first quarter of 2023. Start from the left, and it's already mentioned during the beginning of this call, the Design segment had a very good start into the year. And due to some effects that Yves have commented as well, slightly better than expected.

While we saw a slight stabilization in our European Design market during the first quarter compared to the fourth quarter 2022, the segment's operational development was also strongly supported by the catch-up effects, as Yves mentioned, as well as some high end of quarter perpetual licenses prior to the start of our previously announced price increases in Q2 in some of Design brands.

So the continued high EBITDA margin of 29%, despite the stated subscription and SaaS subscription of several Design brands, it's therefore mainly a function of the high revenue and also that demonstrate the healthy operational leverage we do enjoy in our business.

Moving on, and as expected, the performance of our Build segment reflects that our largest brand in the group, Bluebeam, is currently in the midst of the transformation to a subscription and SaaS models. The Q4, therefore, marked the second full consecutive quarter where we see the impact of our strategic transition.

Nevertheless, the nearly stable top line development, only a minus of 1.5%, as well as the, I would say, under the given circumstances of this transition continued high profitability show the resilient customer demand we have seen in the U.S. as well as our high internal operational efficiency.

Moving on to our Media segment. The revenue in the Media segment increased by 5% to EUR 26.8 million and therefore was in line with our forecast. The slower start to the year, as you can see here, has been expected as the comparison base being the first quarter of 2022 benefited also there from an inorganic growth contribution, but mainly from a strong positive onetime effect due to the large [indiscernible] sales of perpetual license in China. You can recall that we have taken this also during the fiscal year 2022 figures that we were expecting this.

So starting in Q2, the segment growth is expected to return to its normal growth trajectory in the mid to 10 -- high teens percentage range. And as a consequence of this, the Q1 EBITDA margin of nearly 35.2% is, of course, also expected to show a significant [indiscernible] normalization in the coming quarters for the Media segment.

Last but not least, let's have a look at our smaller segment, Manage. Here we reported a growth of 6.5%. We continue the investment into our Digital Twin business unit as well as also the ongoing reshaping of the Manage to position this segment optimally for the long-term growth opportunity due to the plentiful mega trends, such as [indiscernible] living, energy efficiency, and this is [indiscernible] that we see, and that's why that continued to burn in the segments profitability.

Moving on to Slide 7. This shows the progress on one of our main strategic priorities. Our transition to a subscription and SaaS-centric business model. And as you can see on the left-hand side, we have made significant progress towards this goal during the Q1 2023.

The share of recurring revenues expanded by 10 percentage points to 73%. This was mainly driven by a strong increase in the share of subscription and SaaS revenue. This now accounts for more than 30% of our total group revenue. Needless to say, both marked a good high -- new high [indiscernible] for the Nemetschek Group.

On the right-hand side of the slide, you can see why we are so [ thrilled ] for this development. Then in line with our prior quarters, these more resilient and better plannable recurring revenues were once again the main contributor to our growth in the first quarter of the year. Consequently, our most important operational KPI moving forward is the annual recurring revenue, for short ARR.

This one also grew overproportionately to almost EUR 600 million. But please allow me to highlight here that if we have stripped out the main new contracts that we have in this position that we have, the ARR growth would have been even substantially higher, as can be seen by looking at the growth rate of our subscription and SaaS revenues, which were almost twice as high with more than 40% growth.

Along with the ongoing progress of the subscription and SaaS transition in all of our segments, we also expect a continued acceleration of our ARR growth in the second half of 2023. As planned, over the termination of the licenses of [ Bluebeam ] and Maxon as well as its every [indiscernible] share that our customers opt for, for the subscription offers in the [ 5 ] segments as well, our licenses revenue in the group were deeply in line with our plans by 25%. As a result of this, this revenue category accounted for only 23% at the end of Q1.

So moving on to Page 8, we provide a more comprehensive overview of our most important P&L license. We have already addressed the revenue development in detail on the previous pages. However, going down furthering in the P&L position, you will notice that, as we also highlighted and guided in a lot of earnings call, we have ensured during that during the revenue growth through the first quarter, we have ensured that our OpEx base increased only at a reasonable rate.

For example, if we take a closer look at the largest component of our overall cost base, being the personnel cost, you will see that the personnel cost only increased moderately by 13.5% year-on-year. Given the strong wage inflation that we are seeing in many industries currently, and even despite a significantly higher headcount, which grew by almost 10% year-on-year, we see that this has stayed on a moderate level.

One such item that we would probably notice here that grew slightly over proportionately in comparison to revenues is the other operating expenses line that increased by more than 20%. However, this is driven, in addition to the general information -- inflation components, by increased travel expenses versus Q1 in the first quarter 2022 as well as trade fair related costs, like the BAU in Munich that Yves has referred to, and this is the major pieces of this larger part-- as a part of the larger increase in this position [indiscernible].

It therefore becomes very clear that the report of decline in EBITDA is almost entirely driven by the missing earnings contribution of our -- one of our most profitable brands, Bluebeam, and that is due to the fact that we are affected by the accountability decline in revenue due to the subscription and SaaS transition.

So looking shortly at our cash flow development, our strong cash conversion to operating cash flow related to EBITDA of 123%, along with our strong free cash flow generation once again underpins this verified quality of our earnings.

Lastly, we want to again improve the quality of our balance sheet. So our net cash position grew to EUR 189 million, while our equity ratio increased by more than 500 basis points year-on-year. This does not only provide us with a high degree of [indiscernible] during some [ sensitivity ] in the economic times. It also gives us a substantial firepower for value-accretive acquisitions in the coming months and quarters. So I would say that's a pretty solid basis for the remainder of the year.

And with that, I hand it back to Yves.

[Yves Padrines, executive]

Thank you, Louise. As we come to the end of our presentation on Page #10, I would like to turn to our outlook for the current fiscal year and our ambition for 2024 and 2025.

So we are fully on track to a successful H1 for fiscal year 2023 before we expect an even stronger second half of the year. Therefore, based on the successful start of the year and the strong fundamentals of our business, we fully confirm our guidance for 2023 after this first quarter.

In particular, that means that from today's perspective, the Executive Board continues to expect an ARR growth of more than 25% in 2023. As a result, the share of our recurring revenue is expected to exceed 75% at the end of the year. In addition, the revenue growth at constant currency is expected to be in the range of 4% to 6%, and the EBITDA margin will be in the range of 28% to 30%.

We also confirm our long-term ambitions. For 2024, we already expect our growth to return to the double-digit percentage range, where the EBITDA margin would be at a level of more than 30%. Due to the significantly over-proportional increase in subscription and SaaS revenue, we expect that in 2024, the recurring part of our business would represent over 85% of Nemetschek Group total revenues.

Following the successful transition of the majority of our business to subscription and SaaS models by 2025, we expect a further acceleration of growth to a range that is at least in the mid-teens, so significantly above the market.

And with that, I would like to thank you for your attention, and we are now happy to take your questions. So operator, please, back to you.

[Operator]

[Operator Instructions] And our first question comes from George Webb from Morgan Stanley.

[George Webb, analyst]

A few questions on my end, please. Firstly, on Design and the different effects you called out there, you only talked about a slight stabilization in the demand environment. It doesn't sound like a very material underlying strengthening. So how much of that 12% constant currency growth rate in your minds came from 4Q catch-up? And how much came from pull forwards from Q2?

Secondly, on the Design price increases, can you just remind me what the scale of those increases are? And did you expect to see the extent of early buying that you did see towards the last part of Q1?

And then lastly, just on the margin in Build, Q4 margins were clearly weak from the transition. Q1 was still well into the 30% range, despite a pretty similar constant currency growth rates. And the Q1 margin was only really a point lower than what you saw in Q3 last year before the transition has started.

So sequentially, I'm guessing the Build and the Bluebeam cost base must have been quite materially lower in Q1 compared to Q3 and Q4 last year. Is that just normal cost base seasonality? And I guess, when we think about the full year Build profitability, is there anything we should bear in mind in terms of the phasing?

[Yves Padrines, executive]

So thanks, George. First of all, your second question on the price increase, so the price increase is coming, which came early April, came from some of our large brands in Design. We are -- there will be some other price increase, but not as material for the rest of the year. So we are not expecting this type of behavior of customers who want to buy massively so much before any price increase for the rest of the year.

To answer your first question, I think, yes, Design had a good start. Now what we expect for Design for Q2 is probably more a growth, which is in the mid- to high single-digit growth on the Design side.

And then regarding your last question on profitability and margin, so -- can you please repeat it? Because, I mean, the line was a bit bad on our side. So...

[George Webb, analyst]

Yes, of course. I guess, when I look at the stack of the Build segment profitability in Q3, Q4, Q1, we already saw a very sharp impact lower on the Build margin in Q4, low 20% sort of margin range. Q1, you were kind of in that low 30s range. And it doesn't look that dissimilar to what you were delivering in Q3 before the transition has started. It kind of felt like the cost base, whether it's seasonality or something else has stepped down from Q3, Q4 into Q1.

And I was just wondering is that seasonality. Is it some other effect? And I guess, when we think about Build for the full year, when should we think about the thrust from a margin perspective?

[Louise Ofverstrom, executive]

Yes. I would say that, in general, there's always a different cost structure that you have in Q4 to Q1, as you say. So you year-end bookings, et cetera. And before there were some -- to say, nothing extraordinary, but there were some accruals made there in Q4 that was impacting Q4. So that's not completely comparable.

I think in Q1, it's more what you should be looking for, obviously, for the remainder. And to say the trough that we're talking, it started. Of course, it will be coming over the year. And as we have highlighted as well, we think that they will be, let's just say, the peak somehow Q2 this year, and then it will continue in the transition.

So you should expect -- and it's a little also what's looking into Q1 and Q2 over the year, et cetera. But the reason it's more the kind of year-end bookings you have in Q4 and Q1, a more normal Q1, but impacted by the transition to subscription, expected to peak a little bit more in Q2 and then as we go over while we move forward on the transition. I hope that's helpful.

[Operator]

And we are going over to the next question. The next question comes from Sven Merkt from Barclays.

[Sven Merkt, analyst]

Just first, maybe I wanted to follow up on the revenue pull-forward effect. Can you talk about the magnitude of that and how you exactly quantified that? And will this come all out of Q2 or maybe still impact H2?

And then secondly, you showed very strong cost control this quarter, and the headcount even dropped slightly sequentially. And OpEx has been now, more or less, flat over the last quarter. And therefore, the question, when do you expect to return to net hiring and sequential OpEx growth?

[Yves Padrines, executive]

Sven, thank you for your question. So to start with your last question on the cost side, so clearly, we are very cautious on our costs, especially in this market where there has been some [ limitation ], as you know, especially in the Design segment in the first -- in the second half of 2022.

So we are continuing to be very careful. We're still hiring. But of course, net-net, I mean, there has been some small decline in our total headcount. But of course, we are taking measure all across the organization to make sure that on the cost side, we are very careful and that we really make sure that we work on optimization, and we are efficient as much as possible on how we move forward to really make sure that we have solid base to help the growth of the company.

Then regarding what has been pulled forward, I think, again, it's a very small limited number of -- a very small number. In fact, I think the main effect was more the fact that a lot of the slowness that we have seen in Q4, a lot of customers who were supposed to buy more in Q4, with the delays, they bought more in Q1. And the pull forward has been very, very small. We are talking about a figure, which is close to the EUR 1 million impact, so small.

[Sven Merkt, analyst]

Okay. Understood. And then maybe a question on the trade fairs. I mean, I think from the past, I remember that BAU quite often had a quite supportive -- was quite supportive to growth. Had that a large impact this quarter? Or would you say this was more -- you will see the benefit more over the coming quarters?

[Yves Padrines, executive]

Now BAU in fact has been last week, so it's in Q2, but we wanted to talk about it because it has been so amazing events, with so many people. Again, very, very proud of, as I said, over 200,000 visitors, and we had a very, very massive presence because we had, for the first time, really, all our brands together under 1 booth instead of having different booths. And so it has been very successful in some part.

Now -- are we going to see a lot of short-term positive effects on the growth for that? Hopefully, but I cannot -- we cannot quantify it yet.

Mainly lead generation, of course, we made a lot of new customers, but it's also a lot of existing customers to presenting the roadmap, the product. And of course, these type of events, as we have all the brands under 1 umbrella, it is also helping on the cross-selling piece. It was then you can say, "Oh, by the way, do you know these brands?"

Like Solibri can help you or the BIM [ checking ], for example, if you talk to architects, et cetera, et cetera. So very positive in lead generation, cross brands, the cross-selling piece. So overall, we are very pleased with the feedback that we receive from the market, our customers, our partners and also analysts and the media.

[Operator]

We are now going over to our next question. And our next question comes from Nicolas David from ODDO BHF.

[Nicolas David, analyst]

I have 2 questions from my side. The first one is I would like to discuss your performance in Q1 and your outlook, rather from a geography standpoint, not only with the focus on the U.S. Could you just give us some details about what has been the outperformance of the U.S. in Q1, if there is one, compared to rest of the group? And what are you factoring regarding this market for the rest of the year? Do you think that it could remain very buoyant? Or are you a bit more cautious given some macro indicator, which can deteriorate right now?

And my second question is regarding the margin of the Design segment in Q1, which is down. Is it down only due to more marketing cost [indiscernible] trade fairs and travel? Or do you have also other investments impacting the profitability? And how should we look at it for the next quarter, the margin of this business?

[Yves Padrines, executive]

Sure. So clearly, when you look at Q1 and how it is splitted between the regions, so of course, revenue -- talking about revenue is a little bit -- okay, it is what it is. But in terms of sales, it's also interesting to see more and -- which means the invoicing sales. Clearly, the U.S. market is still very strong, super strong, especially with Bluebeam. Now of course, on the revenue side, if you look at Bluebeam, again, it has been not a big growth because of the push to subscription and SaaS. But overall, if you look at revenue, North America is plus 9% besides the fact that Bluebeam is kind of in a flattish growth environment. If you look at Europe, which is, again, very strong on the design part, we had an okay growth. I think if you look at Germany, it is not like it used to be over a year ago or 2 years ago. Clearly, there is still hesitation in the market, especially in the design phase.

So there are still some pockets in Europe, which are much lower than what it used to be in the past. Nevertheless, it has not been weaker than in Q3 or Q4. We have seen even some stabilization. And again, Q1 on Design has been better than Q4, but we are not expecting certainty for the rest of the year that Design is going to come back to very strong double-digit growth, especially because it's Europe because we still see some hesitation.

Nevertheless, again, talking to some customers in all these trade shows, but also more and more on a regular basis, depending on what type of projects they're working on, if you look at complex buildings, industry, infrastructure growth, public sector, et cetera, here, the demand is still very, very high. It's true that residential market, especially housing and new housing, there has been a significant decline, obviously, globally and in particular also in Europe.

But again, our customers are working on a very different type of projects. And therefore, the hit and the impact is not so big. But there is still hesitation.

We can see it that it takes longer for customers to make some decisions on buying aspects, but they do it. And this is what we have seen. There have been a lot of delays in Q4. But finally, in Q1, they woke up and they did it. So overall positive, but not extremely positive short term for Design.

And then on the margin side, yes, sorry for Design. Well, again, we have one of our brand leftovers who are moving fully to subscription for the direct markets, which are North America, U.K. and Pacific in the beginning of the year. So obviously, it has an impact due to the subscription move for the overall Design segment so for [indiscernible] , which is under the Nemetschek Engineering umbrella logo now.

[Nicolas David, analyst]

Okay. That's helpful. I appreciate the comments regarding geography, that's very helpful. And I agree it could be missing on the other top line number growth. So maybe on the IRR number, do you share IRR growth by geography to maybe have a better perception of what is the performance of the U.S.? And then maybe about the outlook in the U.S. with...

[Yves Padrines, executive]

No, we do not -- we're not splitting that KPI by geography.

[Operator]

We are now going over to our next question. Our next question comes from Nay Soe Naing from Berenberg.

[Nay Soe Naing, analyst]

Congrats on a very good start to the year. I've got 2 questions, if I may. Firstly, if I may dig a little bit deeper into the demand environment, especially in Design. Did I hear correctly that you said you're not extremely positive on the short term, but you are expecting quite a strong performance from H2. And this is maybe somewhat in contrast with what we're seeing in the leading indicators in the construction industry. So I was wondering what is driving that disconnect between your demand outlook in the Design versus what we're seeing in the underlying construction industry, please.

And secondly -- I'll just ask the second question as well. In the Bluebeam brand outside of the transition impact, could you share some details around the new user growth performance as well? I remember a couple of quarters ago that you delayed the transition because you're seeing very positive new user additions. Has that continued? How has it trended from that point?

[Yves Padrines, executive]

Sure. Maybe to start with your last question. So on the Bluebeam side, clearly, very positive new user growth. So we still see a strong demand especially in North America. Then if you look at H2, well, the growth that we see is clearly compared to last year. So because, of course, Q4 of 2022 was not as the previous expectation. So it will be an easier comparison base, especially in Q4 for H2. But also, there will be a lot of renewal waves on the Bluebeam side for subscription by the end of the year, and we will have all the positive effect of the subscription model that we will start seeing more towards the end of 2023. Now -- so therefore, we are not expecting definitely the demand from the customer side is going to explode in H2. It's more the fact that thanks to our move to subscription, and we see some of the effects already in the second half of this year.

[Nay Soe Naing, analyst]

Understood. And just lastly, would you also agree that there is somewhat of a disconnect between what's happening in underlying construction industry versus the amount of business activities for your software solutions?

[Yves Padrines, executive]

Well, depending who you talk to in the construction industry because the backlog of the construction industry is still very present. It's still full. And in talking to customers, again, about here and about mainly European, a lot of them were super, super busy. If you talk about multidisciplinary company, engineering company, architecture company, general contractors, et cetera, they seem to be all very busy. They seem to have a lot of work. They seem confident on the future. Again, it's mainly on the residential side that here, clearly, there is more hesitation and slowdown, but that's something we have seen already starting in April.

And clearly, our underlying structural growth drivers, so the low degree of digitalization, the fact that regulation is still pushing for BIM adoption, et cetera, et cetera, that's still there. And of course, as I mentioned in previous calls, that was also clearly testified by lots of customer discussions, renovation especially in Europe. So you have less new buildings, less new projects or new build, but you have more and more renovation projects since the second half of last year.

And it is increasing more and more and now we have seen that with what we are doing already for 2023 for energy efficiencies and other topics. So we need to use the software. So they see more and more requirement that they need to be more digitalized and the use of software is becoming more important to streamline the workflow between all the different players in the building life cycle because if they continue like they are, again, business as usual is not an option, if they still want to be profitable.

[Operator]

Our next question comes from Knut Woller from Baader Bank.

[Knut Woller, analyst]

Yes, two questions. The first one, looking at the Bluebeam transition. So I think you added now roughly 10 percentage points of customer base that has been converted to subscriptions in Q1. So how should we think about the future adoption of the subscription offering? Is it something to get to your 90% plus that we stick to the 10 percentage point ratio by quarter? Or do you expect something like a more accelerating momentum now and then it's phasing off?

And the second question more of a midterm question regarding the Manage segment. Looking at the digital twins, it could be quite an interesting opportunity for Nemetschek coming in the next year. So when we think about the segments, which revenue potential do you see for the Manage segment, and on the time line, when do you think this is really time to harvest this opportunity?

[Yves Padrines, executive]

Thanks, Knut. So first of all, on Bluebeam, so yes, increase by 10% of existing customers every quarter moving to subscription is currently a good expectation, and this is what we are planning. So we are profitable on the part that we are not expecting to see a bigger growth. We may have some nice surprise. We don't know, but that's our current expectation, correct, so that we can reach the 90% by the end of 2024.

And on the Manage and Operate division, I think clearly, digital twins is still under development. We will disclose more in the next few months and weeks about where we are. So be patient, this is going to come. Now telling you now exactly how much revenue we are going to expect and when, it's too early.

[Operator]

And the next question comes from Deepshikha Agarwal from Goldman Sachs.

[Deepshikha Agarwal, analyst]

So I just have 2 questions. So one is on Design. We just -- the price increase is something that has been just talked about during these results. I just wanted to understand how should we think about price increases more so in the cost -- in the context of the growth trajectory that we expect to see because of that, as in how much of like the incremental growth will be coming from pricing and design over the course of the remainder of the year? And second of all, you have built -- you're building slowly a good amount of net cash. And you talked about the firepower as well. So any color on the kind of pipeline that you have in terms of acquisitions or other partnerships that you have in pipeline and the environment around negotiations?

[Yves Padrines, executive]

Sure. So if you look at the design part and the price increase, so again, as an average, it's more in the mid to high teens -- single-digit -- sorry, single-digit growth. So again, it's depending. So you have SSA sometimes or maintenance, which might be more in the double-digit side, but then some perpetual items or subscription price increase of maybe more in the single-digit growth. So -- but as an average, more towards the upper end of single-digit growth in terms of prices. Now it doesn't have -- I would not say that still is the major clearly growth driver at all for the moment. And clearly, majority of the growth and what we are still expecting for the next part of the year is that the growth in Design will come mainly from new additional fees and new users.

On the M&A front, well, we are still talking to different targets. We are still scouting the market overall. It is true that we are looking at different parts of the life cycle, clearly in Design but also in the Build area, in the Manage and Operate area, also even in media.

So again, no change here on our strategy. So M&A is still a core part of our DNA, one of our key pillars and something that we are looking at very, very seriously more than even probably the last 2 years because we see that as a strategic buyer versus some other potential buyer, we have a lot of advantages today with the current market conditions. And clearly, there will be some nice opportunities in the short to midterm.

[Deepshikha Agarwal, analyst]

Okay. Just one quick follow-up. Given there is M&A., is there like -- I know you have dividends as well. So will there be any scope of anything more on the front of capital returns as well?

[Yves Padrines, executive]

No. But on the other hand, we're talking about M&A, but on venture investments, as you may have seen, especially for the last 12 months, we are increasingly investing more and more in venture, in start-ups because we strongly believe that's also an excellent way for us to innovate, to disrupt ourselves, to disrupt potentially the market. So you have seen that in Q1, we have done a multitude of start-up investments, especially around AI, ML activities and technology.

[Operator]

And the next question comes from Victor Cheng from BofA.

[Hin Fung Cheng, analyst]

Congrats on a solid quarter. A couple on pricing, just going back to pricing again. In Design, is it mostly Allplan and Graphisoft that is doing price increases? When I look at Graphisoft at least across a few regions, it seems like the price increase is more like higher than double digits in license and SSAs and maybe a bit lower in subscription. Is that a way kind of to encourage users to move to subscription? And what are you seeing in April in terms of buying patents in these brands and Vectorworks? Are you seeing higher churn or not?

[Yves Padrines, executive]

So to come back on the price increase, especially if you look at Graphisoft or others, so I mean, it's more like in the 12% on SSA around -- but it really depends. It's really on average. You need to look at depending on the region and the market. On the subscription side, we are also in the high single-digit growth around in the price increase. Clearly, it depends on the region, it depends on the brands. It's not a generic and general thing, it's more on average.

[Louise Ofverstrom, executive]

But you can say that it's slightly higher on the SSA than in the subscription. It is denoted, but it is really a calculation of different regions, different brands and different offerings that we have. So that's an average to be taken on but the direction is what it is.

[Hin Fung Cheng, analyst]

And how about the churn?

[Louise Ofverstrom, executive]

The churn on the [indiscernible]

[Yves Padrines, executive]

No, we don't see any high churn. I mean, the churn is still very low, same level, still strong, very sticky products.

[Louise Ofverstrom, executive]

And in a very good transition as well. We get feedback from the customer, very well indeed.

[Yves Padrines, executive]

Yes. The Vectorworks transition is working very well, very good user experience. You're welcome to go to the website and buy some lights from Vectorworks, if you want to test it. But no, it's very good.

[Hin Fung Cheng, analyst]

Yes. Very fair. And maybe just one quick follow-up is, well, you mentioned that the overall price increases is around mid- to high single digits in Design. But then you also talk about the majority of growth coming from new users in the next -- for the remainder of the year. So adding that together, does that imply double-digit growth in Design, which I guess that's not what you're guiding to. So maybe if you can help me understand some of the moving parts there?

[Yves Padrines, executive]

Well, again, it is very phased, this price increase. So it's not like we're doing all this price increase starting from January 1. Again, one of the large brands is doing some of their price increase on April 1, as mentioned the name just a few minutes ago. But other brands are doing their price increase in the different stages during the year or -- and so yes.

[Louise Ofverstrom, executive]

And we also have the move to subscription also there in Design segments mainly as well. We have taken up the higher growth expectation of the fees, but we also have to move to subscription that is, of course [indiscernible]

[Hin Fung Cheng, analyst]

Yes, very clear.

[Operator]

The next question is from Chandramouli Sriraman from Stifel.

[Chandramouli Sriraman, analyst]

Yes. Most of my questions have been answered. Just a follow-up. I think you mentioned about renewals in Bluebeam kicking in, in the second half of this year. Historically, cross-selling has not been a very powerful way to accelerate top line for Nemetschek. Are you here specifically talking about cross-selling or adding more seats to your Bluebeam business?

[Yves Padrines, executive]

So clearly, the number of new seats is coming from different angles, of course, as a point product sales, but we see slowly more and more cross-selling piece. Of course, it's still very low versus the potential that we can have over time. But we see more and more momentum with opportunities to cross-sell, especially some products on the design side or et cetera. So it is still slow and low, but there are a lot of opportunities. So long term, it offers great potential. And this is, for example, what Maxon has been able to do that properly with their premium package where -- in fact it's not cross-sell, but they put it everything in one suite of products, which is something that we are currently thinking about and working for the AEP customer base.

[Operator]

The next question comes from Andreas Wolf from Warburg Research.

[Andreas Wolf, analyst]

My question would be on clients who have purchased a license in the past on -- and paying maintenance right now. How are you dealing with those which do not want to move to subscriptions? Will that be an end of life for the existing licenses? The second is on dRofus. To what extent is the software already used for maintaining buildings? Obviously, in the world of the digital twin this might play a bigger role.

[Yves Padrines, executive]

Thanks, Andreas. So regarding dRofus, dRofus is mainly used at the beginning of a project. So it is really a software data management software to make sure that all the requirements that you have as an owner of a building, mainly complex buildings, these data are not lost within the overall life cycle of the design, of the planning and the construction of the project. And yes, of course, some of the data are then used for the Operate and Manage space. So it is a part of our digital twin concept, but it is definitely not the full digital twin concept. So dRofus stand-alone is sold, as you know, since a few years successfully, especially with complex buildings like airports, like clinics, et cetera, et cetera.

And then your first question was around -- yes, how to convince customers to move them to subscription. Well, again, just a move to subscription model is not enough. You need to bring them more additional features to make sure that there is something in it for them to pay on a monthly basis or yearly basis that subscription.

Therefore, with Bluebeam, we didn't launch Bluebeam subscription, we launched Bluebeam cloud, again, which was bringing additional features than the simple basic, let's say, review desktop solutions. Now what are we doing with people who do not want to move to subscription? Well, it is really depending on the brand. But most of our brands, if people bought a perpetual license, they have a perpetual license so they can still use the software on time.

Of course, they will still need to pay the SSA. And if they don't pay the SSA, they will not be able to have all the updates and upgrades to be able to use properly their tools. In some cases, we are also potentially putting some old versions end of life. But that's really depending on the brand, depending on the product within the brand, et cetera.

[Louise Ofverstrom, executive]

And I think that we can also see that with Bluebeam that as mentioned before, we see a higher uptick towards the core complete, which is even more the higher tier packages where we are adding more, and that's really coming on very, very well with the customers. And that is clearly something they really see as added value, and that's why we see a very supportive growth take-up there as well. So it is not [indiscernible]

[Yves Padrines, executive]

Yes, again, and thanks to that, thanks to the fact that most of the Bluebeam customers are going after the mid- and premium-tier package. As we said, it's still the case for Q1. The average Bluebeam subscription price represents between 50% to 55% of the perpetual license.

[Operator]

The next question comes from Martin Jungfleisch from BNP Paribas.

[Martin Jungfleisch, analyst]

Yes, two questions, please. The first one is on Bluebeam. Could you comment on the take-up of the maintenance to subscription of Bluebeam from your existing maintenance customers? Would this be immediately accretive or rather neutral to revenues? And how would you expect the maintenance space to evolve over the next quarters in Bluebeam?

And the other question is on cost. Would you say that the around EUR 90 million in personnel expense in Q1 is a good run rate for the next 1 or 2 quarters? So does that not include any rate inflation yet, which would rather come into -- in Q2 or Q3?

[Louise Ofverstrom, executive]

Like we start with the cost side of this. There were some of the salary increases that we only took forward [indiscernible] income as well. So we will also see that trajectory going forward throughout the year. So we didn't increase all the salaries as of 1st January. And I think also there it's important to highlight that we have differences in different regions [indiscernible] that we have. But to answer your question there, yes, it's a [indiscernible] basis, but we didn't take all the salary increases on 1st January. You will also see some [indiscernible] in Q2. That's on the personnel cost side. And as Yves already told you, our focus on hiring and we will continue to hire and we will continue to balance that as well over the year.

[Yves Padrines, executive]

Yes. And then on the Bluebeam side, if existing customers stay the same for maintenance you [indiscernible] subscription. Is that your question?

[Martin Jungfleisch, analyst]

Yes. Exactly. So first of all, [indiscernible], so the maintenance to subscription and then also from the monetization, if that's immediately accretive to revenues? Or is it rather neutral if someone moves?

[Yves Padrines, executive]

Yes. Again, it's really depending on the type of customer, the size of the customer. Of course, if it is an existing customer, at the beginning, the price to upgrade to subscription the first time. It's more or less the same price. But then we are increasing the price until it reaches the list price. So if existing customers are moving to subscription, they're kind of a discount, but over the years, it will increase and it will reach the list price.

[Operator]

[Operator Instructions] There are no further questions in the queue at the moment. So I would like to hand over the call to our speakers.

[Stefanie Zimmermann, executive]

So thanks, everyone, for joining the conference call. We will conclude the call. And if there are any follow-up questions, so please contact Patrick or myself. So we are happy to answer your questions afterwards. And yes, let's talk next quarter again. Thank you very much for listening.

[Yves Padrines, executive]

Thank you, everyone. Bye-bye.

[Louise Ofverstrom, executive]

Thank you, everyone. Bye.

[Operator]

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