Nemetschek SE

XETRA:NEM

Earnings Call Analysis

Strong Q1 growth; Subscription Transition On Track

In Q1 2024, Nemetschek achieved 10.3% FX-adjusted revenue growth to €223.9 million, driven by a 66.5% rise in subscription and SaaS revenue. EBITDA margin expanded to 30.5%, with net income up 17.4% year-over-year. The company is successfully transitioning to a subscription-based model, with recurring revenue now at 83%. The Build segment is on track for mid-teens growth, while the Design segment saw a 9.3% rise despite challenging European markets. The firm confirms 2024 guidance: 10-11% revenue growth, 30-31% EBITDA margin, and ARR growth around 25%.

Strong Start to the Year

The company began 2024 on a high note, demonstrating robust performance with noticeable revenue growth. Revenues for Q1 increased by 9.4% on a reported basis and 10.3% on an FX-adjusted basis, reaching EUR 223.9 million. This positive trajectory was primarily driven by substantial growth in recurring revenue, indicating a successful transition towards a subscription-based model. The annual recurring revenue (ARR) experienced a stellar increase of 24.5%, now standing at nearly EUR 744 million.

Operational Efficiency and Profitability

Profitability remained high with an EBITDA increase of 11.9%, totaling EUR 68.3 million and translating to a healthy EBITDA margin of 30.5%. This marks a margin expansion of 70 basis points year-over-year despite ongoing investments and the shift to a SaaS-centric model. The surge in net income by 17.4% to EUR 42.5 million and a rise in earnings per share to EUR 0.37 underscore the company's strong financial health.

Segment Performance

All four business segments performed well. The Design segment grew by 9.3% to EUR 116 million, driven by a 65% rise in subscriptions and SaaS revenue, with an EBITDA margin of 30.7%. The Build segment experienced a 10% growth with a 31.1% EBITDA margin, largely due to the ongoing successful migration of Bluebeam’s business to a subscription model. The Media segment rebounded significantly, growing by 10.9% and maintaining high profitability at 37.4%. Lastly, the Manage segment saw a growth of 9.9%, mainly fueled by AI-powered energy management solutions.

Strategic Partnerships

The company announced major partnerships with Autodesk and Hexagon aimed at promoting open BIM standards and accelerating the adoption of digital twin technologies. These collaborations are expected to resolve inefficiencies in construction workflows, ultimately benefiting customers by enhancing data sharing and operational efficiencies.

Sustainable Growth Outlook

The company reaffirmed its guidance for 2024, anticipating a revenue growth of 10-11% at constant currency and an EBITDA margin between 30-31%. ARR growth is expected to be around 25%, with recurring revenue reaching approximately 85% by year-end. For 2025, the firm remains optimistic, projecting accelerated growth well above market rates, aiming for mid-teens growth.

Improved Cash Position

Thanks to strong earnings and cash flow development, the company's net cash position surged by 79.5% year-over-year to EUR 340 million. This enhanced financial strength is further supported by a new EUR 500 million syndicated loan facility, providing substantial liquidity for future acquisitions and investments.

Ongoing Transition and Market Dynamics

The transition to a subscription and SaaS model is on track, with notable effects on short-term growth metrics but promising long-term stability. While European design markets remain challenging, the U.S. shows resilient demand. The Build segment's transition is expected to yield significant growth, particularly in Q4, with projections of tripling Q1 growth due to the subscription model mechanics.

Investor Confidence and Future Potential

The company's strategic focus on digital transformation through AI, digital twin technologies, and enhanced market approaches positions it favorably for future growth. The commitment to not sacrifice growth potential for margin optimization underscores the long-term vision of maintaining strong margins while capitalizing on emerging market opportunities.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the publication Q1 financial statement of Nemetschek SE. [Operator Instructions] Let me now turn the floor over to your host, Stefanie Zimmermann.

[Stefanie Zimmermann, executive]

Thank you, operator. Hello, everyone, and a big welcome. Thanks for joining our earnings call today to discuss the results for the first quarter 2024 results. 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, the presentation and the press release on our Investor Relations website as well. Now let's get started. So I would like to turn over to our CEO, Yves. Go ahead.

[Yves Padrines, executive]

Thank you, Stefanie. Welcome, everyone, to our first earnings call related to the financial year 2024. After the substantial amount of detail we provided on our subscription strategy and our strategic focus areas 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, therefore, give you a brief presentation of the highlights of the first quarter of 2024. So that we have sufficient time to address any questions you may have during the Q&A session.

To begin on Page #3, I will summarize our Q1 as a successful start of the year with double-digit currency adjusted growth and combined with a high profitability. Main growth driver was once again the recurring part of our business, in particular, very strong increase in our subscription and SaaS revenue, which is also reflected in all our major KPIs where we reached new record levels across the board. Looking at the underlying demand situation in Q1, we had the expected continuation of the trends we already saw over the last 12 to 18 months. An ongoing challenging demand environment in our European design markets as well as the continued resilient customer demand in the U.S.

If we look at one of our main strategic priorities or journey to a subscription and SaaS-centric business model, we continue to execute as planned and the different transition of our brands in the Build and Design segments are progressing very successfully. Our segments also developed in line with our internal plans. While media showed the expected reacceleration in growth, the growth in the managed segment continued to stay at a good level.

Despite the mentioned ongoing challenging environment, also our Design segment had a very strong start of the year. The Design segment benefited slightly from small pull-forward effects in connection with the announced price increases for perpetual licenses by one of our design brands. Therefore, together with introduction of new features, which are cloud-based, this price increase of perpetual license makes the subscription offerings of our design brands once again commercially more attractive for our customers.

With a consequently forecasted acceleration in subscription and SaaS sales and its short-term accounting-related dampening effects on growth, we therefore expect that Q1 likely marked the upper bound of the growth range for Design in 2024.

Our Build segment,continued to see a very resilient demand, especially in the U.S. and is fully on track to achieve its targeted mid-teens growth for the full year 2024. We have now already migrated more than 65% of Bluebeam's business to subscription and SaaS models. The highly successful transition of Bluebeam is therefore progressing according to plan. The planned low double-digit growth in Q1 is consequently forecasted to more than triple towards the end of the year in Q4. For this massive acceleration in growth, we do not expect any kind of additional recovery in market demand or any other special effects. It is rather the result of the pure mechanics of Bluebeam ongoing subscription transition combined with a substantially easier comparison base, which no longer include license sales for the first time in Q4.

Therefore, thanks to our successful start of the year. We are well on track to achieve all of our financial targets for the fiscal year 2024. The continued progress in our different strategic focus areas combined with our already very resilient business model today provide us a strong foundation to achieve an above market growth and shareholder returns in the mid- to long-term by capitalizing on our leading position in our structurally growing industries. So in short, we are well underway to deliver on all of our goals.

Let's move to Page #4. As we already presented last month, one of our strategic focus areas is the ongoing internationalization of our business as part of our go-to-market strategy. Our goal is not only to further increase our resilience, for instance, by further reducing the dependency on the European market, but to also benefit even stronger from the higher expected growth in regions such as North America and Asia Pacific and in particular, in India.

The Indian construction market has an extremely low degree of digitalization and is the third largest construction industry in the world. There are tremendous growth opportunities in India for us, strong urbanization trends, favorable demographics, high growth rates, et cetera. This is why we are proud to announce that we successfully launched Nemetschek India by opening a Go-to-Market office with a dedicated local sales team in Mumbai. It will be our second location in the country following our shared services, development and research center in Hyderabad.

India is also the first country where our solution will be sold by our direct sales force under the Nemetschek Group umbrella and not via by one of our integral brands stand-alone. We will, therefore, offers a different products and packages ranging from our design brands such as Allplan, Graphisoft, Vectorworks, Solibri to Bluebeam and also dTwin, all in the form of subscription only, by the way, jointly under the Nemetschek Group brand. We are convinced that by increasing our presence in India, we will be better able to participate in the enormous growth potential of the Indian construction market in the coming years and decades.

Let's move on to Page #5. During the first quarter of the year, we also announced 2 major partnerships, one with Autodesk and other one with Hexagon. As you probably know, especially in the construction industry, one of the major pain points is the fact that the different participants involved in a project still work in their separate data silos instead of sharing the data in a continuous workflow. The result is that approximately 90% of all construction projects are delayed and/or over budget. In addition, roughly 20% of the material used during the construction process are wasted. As you know, that is the reason why Nemetschek has been a strong driver of Open BIM, interoperability and open industry standards from the beginning. It's part of our Nemetschek Group's DNA. And the reason why we have pushed the industry to enable seamless collaboration along the entire building life cycles for decades.

With the announced 2 partnerships, we have now made the next step on this journey. First, we have agreed with Nemetschek to improve our open collaboration efficiencies for the AEC/O and media industries. The agreement will enhance the existing interoperability between the solution of the Nemetschek Group and Autodesk and improves the fluent exchange of information success across the products of both companies. Our goal is to ensure that our as well as Autodesk customers no longer have to deal with inefficient workflows due to data loss or file incapabilities.

The agreement will therefore enable Nemetschek Group and our brands and Autodesk to improve existing data exchanges, for example, via open APIs and open new data-centric workflows that span discipline and industries. In addition, we also announced our strategic partnership with Hexagon and its Geosystems division with the goal of to accelerate the adoption of digital twins in the operational phase. We are both convinced that digital twins are key in transforming the industry and overcoming the challenges that building owners and operators are facing today.

With our new horizontal open and cloud-based digital twin platform dTwin as well as Hexagon's end-to-end reality capture solutions will help customers to efficiently manage their facilities and optimize building operations based on real-time information. We believe that this is not only an important milestone for us but more importantly, for our customers and the industry. I will now hand over to Louise, who will dive deeper into the most important aspects of our first quarter financial results.

[Louise Ofverstrom, executive]

Thank you, Yves, and a warm welcome to our first quarter 2024 earnings call from my side as well. Yves already touched on some of the most important strategic initiatives from our first quarter, and I would, therefore, now like to focus on the most important financial results of Q1 as well on assets underlying drivers.

Looking at our double-digit operational revenue growth, combined with the continued high profitability, I fully agree with this assessment that we had a strong first quarter of the year 2024.

On Page 7, we show a summary on how our successful start to the year translated into our most important KPIs. Our Q1 revenue increased by 9.4% on a reported basis and even by 10.3% on an FX adjusted basis to EUR 223.9 million, driven by a strong development across all of our segments. In line with our key strategic priorities, the transition to a subscription and soft-centric business model, the main contributor to this growth was once again the recurring part of our business, which is representing annual recurring revenue KPI.

In Q1, the ARR growth reached 24.5% and amounted to almost EUR 744 million. This continued strong increase in ARR is an important indicator for the group's revenue and cash flow growth potential in the coming 12 months. Well, looking at the different components of this ARR growth, it becomes very clear and in line with our plans that our subscription and SaaS revenues was the main driver with a plus of 66.5% on a reported basis. Similar to the top line development, the EBITDA in Q1 also increased markedly by 11.9% to EUR 68.3 million. The corresponding EBITDA margin of 30.5% represents a margin expansion of 70 basis points year-over-year despite the ongoing investments into the future growth of our business as well as the ongoing transition to a subscription and SaaS-centric business model and you all are well aware about it's associated short-term accounting burden on our profitability.

The key reasons for this sustained high level of profitability are our operating leverage. The focus on our cost base as well as the continuous improvement in internal efficiency, thanks to our business enablement initiatives. The net income for the quarter grew over proportionately by 17.4% and to EUR 42.5 million, leading to earnings per share of EUR 0.37. Overall, I therefore believe that our Q1 results once again proved that our strategy of a phased transition of our business model to a subscription and SaaS model is working extremely well.

It does not only give us a substantially more control over the entire transition process and thus significantly, of course, reducing the associated risks but it also makes the migration more easily, digestible for our customers and shareholders, which is, of course, utterly important.

On Page 8, you will find the development of our 4 segments during the first 3 months of 2024. In short, all our segments developed in line with our internal planning. However, before we go into the details of each segment, let me just very briefly highlight some accounting-related adjustments we have made at the start of the year. As a result of our strategic reclassification, we have moved the digital twin business unit from the Manage to the Design segment. As you have probably already noticed, we have, therefore, also slightly restated our segmental results accordingly. But now coming to the performance of our different segments in the first quarter of 2024.

Starting on the left side, as usual, the Design segment had a strong start to the year with a currency adjusted growth of 9.3% to EUR 116 million. The main growth driver was the revenue from our subscriptions and SaaS models, which increased by around 65%. The EBITDA grew by 18.8% to EUR 35.5 million, which corresponds to a high EBITDA margin of 30.7%. And as is already mentioned at the beginning, the Design segment also benefited slightly from pull-forward effects in connection with the announced price increases at the end of Q1 for perpetual licenses by one of our brands.

With these price increases, we continue with our planned acceleration to a fully subscription and SaaS-centric business model in the Design segment as well. With the resulting forecasted higher share of subscriptions and SaaS sales in the coming quarters and its associated short-term accounting related negative impact on growth, we, therefore, expect that Q1 likely marked one of the strongest quarters for the Design segment in terms of year-on-year growth in 2024, and in line with our planning.

In our Build segment, the transition of Bluebeam continues to progress very successfully and in line with our internal planning with a currency adjusted growth of 10% and an EBITDA margin of 31.1%. Furthermore, based on both the continued resilient customer demand, especially in North America, as well as the current ongoing buildup of Bluebeam subscription and SaaS revenue base in the coming quarters, in combination with the comparison base in Q4 that does not include license sales for the first time, as I said, we continue to forecast that the revenue growth of the Build segment will more than triple in the last quarter. As expected, this is an effect of our accounting and the business model behind it.

So this massive acceleration growth, we do not rely on any improvement in the underlying market growth or any other special effects to come. It is solely a function, as I said, of the transition mechanics and the continued strong buildup of Bluebeam subscription and SaaS revenue base, which is, as you know, in this kind of model, already very well earned already in the figures. So consequently, we are therefore fully on track to achieve the segments targeted mid-teens growth for the full 2024.

The Media segment recorded a strong reacceleration in the underlying currency adjusted growth from 3.8% in Q4 to 10.9% in the first quarter of the year. And as expected, the last quarter of 2023, therefore, marks the low point in terms of growth for the segment while the media and entertainment market is still partially impacted by the negative effects of the long-lasting strikes in the film and TV industry in Hollywood that we saw last year. The Media segment's profitability continued to stay high at and above our group average level at 37.4%.

And last but not least, in our smaller segment Manage, we recorded a growth of 9.9% and therefore, in line with our forecast. One of the key growth drivers of our European-centric business that we have in this segment was the high demand for our AI-powered energy management solutions. The improvement in the margin is partially explained by the strategic reorganization of the Digital Twin business unit, as I explained before. Nevertheless, the margin of 6.6% in this segment is still impacted by the continued investments into this segment's progress portfolio as well as the future growth opportunities and therefore, still nowhere near the profitability levels we forecast for the mid- and long-term growth for this segment.

On Slide 9, comprehensively summarizes the financial results of one of our key strategic priorities, which is also a regular topic in these earnings calls, our transition to a subscription and SaaS-centric business. You can see on the right side of the slide, why we are so pleased with this development in Q1. In line with prior quarters, the recurring part of our business was once again the main contributor to the growth in the first quarter of the year. We have previously addressed the Q1 development of our most important transition KPIs. So the ARR growth of 25% as well as the subscription and SaaS revenue growth of more than 60%. And consequently, the more volatile perpetual license part of our business continued to decline strongly by 37.5%, perfectly in line with our plans in Q1.

We are, therefore, proud to report that by the end of the first quarter, the share of recurring revenues reached 83%, a new record high and an increase of 10 percentage points year-over-year. As a result, we are well on track to achieve our target of a recurring share of around 85% for the financial year 2024. The left-hand side of the slide also provides a longer-term picture on the development of our recurring revenues. While we started with recurring revenue base of just around EUR 86 million in 2020, as you can see here on the slide, we more than doubled these more resilient and better plannable revenues within the last 4 years. And also looking at the chart, it is also becoming very clear what has been driving this strong increase in recurring revenues.

Our systematic and highly successful and continuous transition to a subscription and SaaS-centric business model, which led to a more than fivefold increase in our subscription and SaaS revenue base. The corresponding subscription and SaaS revenue CAGR even reached a remarkable 52%. I believe that the chart, therefore, impressively shows the tremendous progress we have already made here in the recent years and which we are determined to continue going forward. As usual, you will find a more comprehensive overview of our income statement along with the most important cash flow and balance sheet KPIs on Page 10.

To conclude this financial review of the first quarter, I would, therefore, like to highlight a few developments below the revenue and EBITDA level. Therefore, if we break down our cost base and look at these underlying drivers, you will see that we have once again managed to limit the increase in the key OpEx component to a very reasonable pace. For example, if you take a closer look at the largest component of our total cost base, being our personnel cost, you will see that it grew by only moderately 6.1% in the first quarter despite our continued hiring of top talent in selected focus areas and innovation that we need for our future growth such as artificial intelligence or digital twins. These important investments in the future growth of our company are offset by continued improvements in efficiency and effectiveness, thanks to our various operational excellence initiatives.

Going further down the P&L, you will notice that the over-proportional growth in our earnings per share of 17.4% is partly attributable to a year-over-year decline in depreciation and amortization changes in the first quarter.

Now looking at our cash flow statement. The seasonally very high cash conversion, so operating cash flow in relation to EBITDA of 124%, along with our strong free cash flow generation in Q1, underpin the high quality of our earnings. Also going forward, we continue to be very confident in our cash-generating capability, especially in the light of the ongoing transition of our business model to subscription and SaaS offerings.

Lastly, thanks to the strong earnings and cash flow development in the first quarter, we were once again able to improve the already super quality of our balance sheet even further. Our net cash position grew to EUR 340 million. This is an increase of 79.5% or more than EUR 150 million compared to the previous year. And this, while our equity ratio also improved by more than 220 basis points year-over-year.

In addition, I am now very happy to announce that Nemetschek has recently replaced its existing bilateral credit lines with a new syndicated loan facility. Following a very strong interest from both long-standing house banks as well as our international banking partners, the syndicated loan facility has a volume of EUR 500 million. In combination with our already extremely strong balance sheet, this does not only provide us with a high degree of safety during -- should it be there on certain economic times, it also gives us a substantial firepower of north of EUR 1 billion for potential value accretion, acquisitions and venture investments in the coming months and quarters. So furthermore, the favorable transaction parameters as well as the very broad support from leading and international financial institutions is a strong proof of the high confidence in the operational and financial strength as well as the long-term growth prospects of the Nemetschek Group. And with that, I'll hand it back to you, Yves.

[Yves Padrines, executive]

Thank you very much, Louise, for this comprehensive overview of our financial results. As we come to the end of our presentation on Page #12, I would like to turn to our outlook for the current fiscal year 2024. We see that the pressure to digitalize the construction industry is steadily increasing, especially in the current challenging market environment. In addition to our consistent focus on the transition subscription and SaaS, we are systematically driving forward our other strategic topic in order to make the best possible use of the huge growth opportunities in our markets. Thanks to the new technologies, such as digital twin, artificial intelligence and cloud solutions as well as our intensified Go-to-Market approach, we process strong growth drivers for the future.

Based on the strong fundamentals of our business as well as a good start of the year, we fully confirm our guidance for 2024. We, therefore, continue to expect an attractive growth at the high profitability in 2024, even this tight, the still challenging market environment and the ongoing transition of our business model to subscription and SaaS models and its accounting-related dampening effect on our revenue and earnings. That means that from today's perspective, the Executive Board expects our revenue growth at constant currency of 10% to 11% and an EBITDA margin forecast to be in the range of 30% to 31%.

The ARR growth is expected to be around 25%. As a result, the share of recurring revenue is expected to reach around 85% by the end of the year. Furthermore, our ambition for 2025 is unchanged. Following the successful transition of the majority of our business to subscription SaaS models by 2025, we expect well above the market, a further acceleration of growth to a range at least in the mid-teens. And with that said, I would like to thank you for your attention, and we are now ready to take your questions. So operator, please, back to you.

[Operator]

[Operator Instructions] So the first question comes from Sven Merkt of Barclays.

[Sven Merkt, analyst]

Maybe first, you were very clear on the Build segment and the acceleration there in Q4 to over 30%. I was wondering if you could comment as well around the growth outlook for 2025. I mean it's probably fair to assume that it should be a rough stay around the 30% mark for Q1 to Q3 in 2025. But how should we think in addition to that, about the price increases that you have built in 40 customers that moved from maintenance to subscription, should that further boost the growth there? Or is it maybe just because of more difficult comps to stay around 30%. So if you could comment there on the puts and takes, maybe that would be great.

[Yves Padrines, executive]

So as you stated, clearly, on the Build segment for 2024, we are planning to have similar type of growth in Q1, maybe slightly higher, a little bit in Q2 and Q3. But then again, at least we are planning to triple as a growth of Q1 in Q4 for the Build segment in 2024. If you look at 2025, overall, the Build segment, which is the combination of the 2 brands, Nevaris and Bluebeam. We are assuming, I mean, in the north of the mid-teens growth for the division. This is including all the effects that we have from the move from SaaS to subscription, the automatic 10% price increase, et cetera, all of that is embedded. So it's in the north of the mid-teens for the overall division in terms of revenue growth for 2025.

[Sven Merkt, analyst]

Okay. Okay, that's clear. And just maybe on the maintenance migration for the division for the rest of the year. So with that 65 is now subscription and SaaS, so about 35 is maintenance. And the plan is still that this should go to 10%. And is it fair to assume that this should grow gradually to this level during the year?

[Yves Padrines, executive]

Yes, over time. So clearly, the level of recurring again will increase. So we are expecting, as I stated before, 85% of our total revenue should be recurring by the end of this year. We should be close or above to the 90% already in 2025 and by the end of 2025, majority of the revenue in 2025 -- by the end of 2025 should be subscription. And then, yes, the remaining piece is going to be a combination of perpetual license, a little bit of professional services that we still have, especially in the operate and Manage business with Spacewell and Crem, but also we have a little bit of trading fees and revenue which are more related to services and a very small portion is when we resell a little bit of hardware when you look at Spacewell business.

But overall, it is a perpetual license, services and hardware should represent less than 10% of our overall revenue starting from 2026 or, let's say, by the end of 2025.

[Louise Ofverstrom, executive]

Yes. And maybe just to add to that, I suppose that's clear, but just to add to why do we also keep some perpetual licenses while it's not really our strategic focus any longer. There are always some kind of clients, government clients, et cetera where it's not possible. So that will really be an exception, and that's why I alluded to will be 10% or below.

[Sven Merkt, analyst]

Okay. And can I -- sorry, I maybe misunderstood your first answer. Can I just maybe follow up on that. So you said 30% growth, is that for Build or just Bluebeam. And what would be the reason why it would decelerate to only at least...

[Yves Padrines, executive]

Mid-teens. So it's north of the mid-teens, the growth for the Build division.

[Sven Merkt, analyst]

For 2025.

[Yves Padrines, executive]

Correct.

[Sven Merkt, analyst]

And why would -- but it would come down there from 30% in Q4?

[Louise Ofverstrom, executive]

I think what you have to look at, I mean we are talking about Bluebeam is the one side to say where you have this really strong restoration in the Bluebeam growth and that will, of course, continue in 2025. But you always have to look at the comparables, as we do a full transition for Bluebeam. There's, of course, also throughout the year 2024, you still have comparable quarters for 2020 -- for 2025, you still have comparable quarters to 2024 this year, where we still have had a certain part of perpetual licenses, et cetera, where the transition was ongoing. So it's more to say the recurring revenue will have a very, very strong growth. But if you look at of the comparable side, you would still sort of say have that throughout 2025 until you are then completely done. We are done with the subscription transition 2024 Q4 this year. But then, of course, we will have the comparables next year. So that's the reason for Bluebeam and then, of course, you don't only have Bluebeam in the Build division.

But you should continue to expect this -- a high growth, so to say, on a quarter-on-quarter growth for Bluebeam, but if you always have to take the comparables, of course, into account.

[Operator]

The next question comes from George Webb of Morgan Stanley.

[George Webb, analyst]

I've got 2 questions I want to come on to, please. But firstly, if I just could just go back on the question spend, just so we can be super clear on this. Just when we think about 2025 in for Build, again, unless I'm misunderstanding it, you're saying at least mid-teens growth for Build in 2025. I mean the group guide is at least mid-teens. So should we interpret that as that's the absolute lower bound, but in reality, it's probably going to be if you look at consensus there in the market, you're certainly well into at least the 20% range for Build and you need to get to mid-teens on the group level, certainly feels like you can't -- I don't think anyone out there is expecting Design, Manage and Media to be growing necessarily as a group in the mid-teens next year. So could we just before a couple of questions. Can we just go back and clarify once more in terms of Build growth in '25 and how we square that against the group guide?

[Yves Padrines, executive]

Well, it will be north of the mid-teens, which is, yes, between 15% and 20%, for the Build division.

[George Webb, analyst]

Yes. Okay. Okay. That's clear. So then the 2 questions I had. First, just on the Design segment Q1 this year. Over 9% constant currency growth feels like a really strong performance against the tough base comparison from Q1 last year. You're still calling out the muted demand backdrop. It didn't feel like there's a lot of narrative in the results in the release around that degree of strength. So I wondering if you can flesh out a little bit around where you saw that strength coming from?

And then my second question is back on dTwin. I recall we talked about this at the full year results last month and you highlighted some of the partnerships that would become down the pipe. I guess the Hexagon one is helpful to understand how you can grab that real-world data into a model where I'm still a little bit less clear is on the go-to-market strategy, particularly given a digital twin is not necessarily going to be a budget line for a customer. Is this about direct marketing to building owners and operators? Or are there smarter ways you can build an efficient go-to-market with what you have to offer?

[Yves Padrines, executive]

So first of all, George, regarding the Design performance in Q1. So we had some strong performance mainly due to the fact that on the perpetual license front, we had one brand, so Graphisoft, which made again a price increase on April 1, and therefore, there has been some small pull-forward effect like we had also last year in Q1. So the demand is still okay, but we do not see the current environment in Design to be stronger or weaker than last year or previous quarter. So it is the same type of agitation that we see in the market, especially in Europe on the Design front with architecture firms and engineering firms. Nevertheless, it's not weaker. So that mean we are still growing despite the fact that the construction industry in Europe is struggling. So here, you should expect that Q2, Q3 and Q4 for Design in 2024 should be slightly lower growth than what we had in Q1 because we will not have any more a strong effect.

[Louise Ofverstrom, executive]

And I think we should add to that as well. That's very much driven by the accelerated subscription transition in the Design segment. So it's important also to look at that. While we do not see -- we don't expect to see a weaker market in the remainder of the year either. We don't expect an improvement, but we don't expect a weaker market. And as Yves alluded to, there's, of course, still a lot of -- there's still demand because there is so much sustained in this industry that needs to be digitized. So they have unchanged permits in the remainder of the year, but also in the remainder of the year, we have stronger effect, of course, also of our stronger acceleration towards the subscription and SaaS transition also in the Design segment.

[Yves Padrines, executive]

As you can see, clearly, now Vectorworks is almost fully subscription. There is only one market which is still perpetual license, which is Japan. But for any new or existing customers now globally, including in Europe, as the only option that you have as a Vectorworks customers is subscription. We see that our plan, they have around 80% of their new seats for exiting all new customers are subscription and only 20% of the new seats are perpetual license. And then Graphisoft is also doing a big push towards subscription, and they also announced beginning of this month the fact that they will stop the sale of subscription by -- in January 2025 for any new customers and by January 1, 2026, for any customer, so new and existing.

So [indiscernible] acceleration of subscription now in Design is highly positive, but of course, has some accounting effect on our revenue growth. And then to answer your question on dTwin and the go-to-market side. So clearly, dTwin, our main customer target group who are people who are owning or maintaining complex buildings or any type of buildings. And for that, we are having mainly a direct approach for the time being because we are already testing now solution, which is in a field trial with a few customers, which are either type of industrial buildings or airports or large residential buildings or large commercial buildings, health care, et cetera, et cetera. And we are doing that direct. So that's really a high touch direct type of selling. And then once we have that really proven especially our value proposition, which is really around predictable maintenance and energy efficiency use cases. We are also talking to few partners to see how the go-to-market can be done via some channels and indirectly. But for the time being, majority of the business for dTwin will be done direct and then indirectly. And then, of course, with our partnership with Hexagon, we are also looking at co-selling together to some of the Hexagon customer base or to the Nemetschek customer base, both the Hexagon zero system solution for reality capture together with dTwin software solution from Nemetschek Group.

[Operator]

The next question comes from Florian Treisch of Kepler Cheuvreux.

[Florian Treisch, analyst]

I have 2. One, again around Design. All your statements putting together, it will have some impact, probably less severe than Bluebeam or the Build segment, but can you actually kind of give us an kind of quantification how much you believe the impact will be in the coming quarters, i.e., it will remain a growth segment. So it's unlikely to see Design going to no growth segment in coming quarters.

And the second part is around India. So my question has been around what is your USP you can bring to that new market for you. So relative to the past, I would say, most of your growth was really driven by an acquisition first to really buy an established client base and then build from here. So the move into India is really kind of different in a way it is obviously focused on organic first. So is it a hint that maybe here also some M&A transactions are needed to build that franchise.

[Yves Padrines, executive]

Thank you, Florian. So on the Design front, no, we do not expect a decline or no growth. We will have growth. I mean, clearly, also for 2024, I mean the growth might not be as strong as in Q1, but it would be a slight decreased growth versus Q1. So it's not going to be a massive decline of growth for Design in Q2, Q3 and Q4. And even when you look at 2025 and 2026, we still see a nice growth coming from Design despite the fact that we are moving much more aggressively to subscription.

So clearly, a mid-single-digit growth at least should be there. So really at least mid-single-digit growth even when we will be. And frankly, it should be higher than mid-single digits, our expectation. Of course, it's all depending on how fast this move to subscription will go because for the moment, we see that in a very positive way, customers moving more aggressively to subscription and perpetual license. But mid-single-digit growth for the next few quarters should be really the minimum, at least. And we strongly believe that it should be higher than that.

So Indian market. Well, Yes, it's an organic play for the moment. If there are opportunities for M&A in this market, of course, we will look at it, and we are scouting that very carefully. But clearly, just for a pure organic play, it's a tremendous, fantastic growth opportunity for us. I mean, and for everybody in the AEC/O software industry. I mean, it's the third largest construction market now in the world. I mean it's one of the biggest economy also. I mean, high growth, urbanization, demographics growing very nicely. And our target audience are clearly the same than the rest of the world. So if you look at the design and planning side here, architecture firms, engineering firms. There is a huge long tail of small medium business there. Of course, there are also some large potential customers. In construction, we see also a huge opportunity there and of course, in operating manage. So 4 brands, in particular, Graphisoft, Vectorworks, Allplan. But also if you look at structural analytics and engineering with RISA and of course, Solibri with the BIM quality insurance classification software we see huge opportunities for all these brands in India. And even if there are some customers who already have a software, I mean most of them, they are mainly using 2D type of software or like autoCAD type of customer base or sketch up type of customer base. So here, really huge opportunity to tackle the first level of BIM or minimum helping all these customers to move to 3D authoring tool, 3D modeling type of software.

And then for Bluebeam, I mean, here, the potential is enormous. I mean, of course, we will look at a different pricing for the Indian market. We will not be able to market exactly at the same price in Western markets. So there will be a dedicated pricing but also dedicated packaging. So we will package more some of our brands, which will be branded Nemetschek type of packages, but everything will be under subscription. And we are also thinking to have kind of more basic type of package with some features, which are maybe a little bit downgraded versus what we have in the Western market to also justify a more aggressive pricing for the Indian market.

[Louise Ofverstrom, executive]

Maybe just underline that. I mean that's also the rest we did build up in the last years over acquisitions. We cannot play with that in to say what did you create the right kind of bundles really for that market. And we have really the different, as Yves alluded to, we will have this multiple combinations that we can replace in that market and markets like that, and we see a huge strength in that to win in the Indian market.

[Yves Padrines, executive]

And the person that we hired is accustomed to really start from scratch businesses for larger organizations. So he has done that for tech line Trimble coming from zero business in India and growing it very nicely, and therefore, he knows very well the industry and we hire now already a strong team with a lot of people coming from the AEC/O industry. So we are really enthusiastic about the opportunity over the mid- to long-term in India. Of course, it's going to take time, like any new territories and new markets. But clearly, there is room -- huge room for growth, especially as it is not completely a greenfield, but it is more brownfield than maybe than green, but still a huge opportunity for us.

[Operator]

The next question comes from Martin Jungfleisch of BNP Paribas.

[Martin Jungfleisch, analyst]

I have 2, please. The first one is on the Autodesk partnership that you announced a few weeks ago. So first of all, I mean given that Autodesk in the U.S. still has the majority of the market and it was traditionally difficult to move out of the Autodesk environment for clients? Would this agreement potentially help you in gaining share with larger customer groups in the U.S.? And of course, what are your general expectations from this partnership?

And then the second question is on the Build margins. They were down 400 basis points year-on-year in Q1, while growth was actually up. So just wondering what has driven this margin decline was anything specific? And would you expect this kind of trend to continue?

[Yves Padrines, executive]

Yes. Thanks, Martin. So regarding the Autodesk partnership, this is a long overdue thing for the market. Clearly, I mean, interoperability is a must. As you know, the market is highly fragmented with different solutions. And the 2 large players are the Nemetschek and Autodesk on the BIM world for the building construction industry. And here, our goal is really to ensure that the Nemetschek Group products, but also the Nemetschek Group customers as well as Autodesk customers no longer have to deal with inefficient workflows due to data losses or file incapabilities. And the agreement that we have now in place enable us and Autodesk to improve existing data exchange, for example, via open APIs, but also open new data-centric workflows that span disciplines and industries.

Now saying that, thanks to that, we are going to really ease the market share of Autodesk in the U.S. region. Yes, that's a little bit -- no, I don't think so. But clearly, it is going to help us and, of course, our customers to be more flexible and also -- I mean, frankly, because of that, there is refrain of market share loss for both parties because then as it is more interoperable, you are not forced really to move completely your user base to reset Autodesk platform or to move to ArchiCAD Graphisoft completely. So because everything now is much more interoperable. So of course, it is helping Nemetschek Group to enter into larger accounts because now the largest accounts, they don't need necessary to do a full transition from Autodesk credit to Nemetschek brands. They can use in parallel the Nemetschek solution and for their legacy users still Autodesk. So somehow, it is helping us, yes. But I would not say that -- thanks to that, we are going to eat significantly the market share of Autodesk in the U.S. On the building margin.

[Louise Ofverstrom, executive]

Yes. On the Bluebeam margin or the Build segment margin. There are different reasons for that. But I think, in general, the strongest reason for it is really volume-driven, right, and subscription transition driven. And while we go through, as you know, while we go through this strong transition to subscription, we have, so to say, we have a little bit of laggard in the revenue effects that come through. And then, of course, we still continue to invest into our -- in this huge growth that we have in the Bluebeam segment. So that's why where you see throughout the year, if you have this kind of gap until we say the revenue catches up in a way. So you have, of course, in the previous years, you have the higher share still of the perpetual licenses at the different pricing, a different way, you have the cost and the license revenues in 1 quarter.

So it's really a staging issue driven by the subscription revenue. So it's not a fundamental change in the earnings and the quality of earnings on the contrary for Bluebeam. We do still invest that we have also not invested overproportionally into it, but we continue to do that while transitioning into the subscription move. And I think that's extremely important. So you should see this come out with the transition that we stated before, of course, that towards Q4, we have to say, sweated out this transition completely and then you should see coming back to normalized levels. So it's a combination of continuing to invest. And then, of course, yes, volume subscription-driven basis as we go through the year. So of course, yes, of course. I think that was -- I hope that was clear. But just to make it really clear. So that way we go after you will come back over the years. Of course, to the normal level you will expect. So that's just a phasing issue in the subscription.

[Operator]

The next question comes from Nay Soe Naing of Berenberg.

[Nay Soe Naing, analyst]

I've got 2, that's all, please. One on the Graphisoft subscription transition plans. Obviously, it's not all flash to one like you're currently undertaking in the Bluebeam brand. But from the sounds of it, it's quite close to it. You no longer be selling perpetual license beyond 2025. So I was wondering within Graphisoft brand alone, what sort of near-term technical balance sheet headwinds that we should expect once the brand is only available on subscription, please? And also, what sort of impact that will drop down to the bottom line profitability as well in that brand.

[Yves Padrines, executive]

So again, for Graphisoft. So first of all, it's not like they are starting from scratch. They already have a portion of the revenue, which is in subscription. And they are substantially smaller than Bluebeam. And the transition really will accelerate massively starting from January 2025. Because by the end of 2024, everybody will still be able to buy perpetual license. By January 1, 2025, new customers will only be able to buy subscription. And by January 2026, new and existing customers will only be able to buy subscription. So that's why the transition of Graphisoft is phased. If you look at Vectorworks, they also phase it in 2023, it was their direct market. So North America, U.K. and the Pacific, and now starting from 2024, they are moving to subscription globally, excluding Japan.

So Vectorworks will come out of the transition by the end of 2025 and 2026. And that will partially definitely compensate the lower Graphisoft growth for the overall division. So that's why the impact at design level and definitely at group level is going to be much better digestible than the Bluebeam transition when you look at his move to subscription in design and especially at Graphisoft. So Graphisoft should be in the high single, low double-digit growth even despite the fact that they are going to move to subscription in 2025 and 2026.

[Nay Soe Naing, analyst]

Okay. A quick follow-up on that, if I may. Can I ask how much of revenue from Graphisoft comes from subscription model today, please?

[Yves Padrines, executive]

It's a little below 30%.

[Nay Soe Naing, analyst]

That's really helpful. And the second question is on maybe one for Louise here. You pointed to the personnel cost growth that you're quite limited at around 6% year-on-year. Top line is growing at low double digit -- sorry, low double digit. Given the reinvestments and the technology initiatives that you're pursuing and the expansion in India from the sound of it, it looks like it will be more initially -- in initial years at least, it will come at a lower profitability level than the group average profit levels so I was wondering, firstly, how should we think about the personnel cost going forward? And then secondly, margin expansion potential beyond 2024, please?

[Louise Ofverstrom, executive]

So maybe to come to that, first, the personnel cost, I mean, as we have been doing also throughout this year already, you can see it in the numbers, we will continue to do like that. We still have strong room for improvement in our operational excellence initiatives as we are harmonizing processes, system, structures, et cetera, as we grow. And that's why we will continue the structure that we have been doing now in the last 1.5 years as well to really use the headroom that we free up through synergies really to reinvest into our growth. And that will also be, to say, the driver of the personnel cost side. Of course, as we grow, we will also add further competencies, stronger competencies that we need in new areas, et cetera, but we would be able to balance that by partially by the synergies we render.

And to the second one, I come back to my fireside chat that I had together with you a couple of months ago where I say that you should -- we should -- I think we have excellent growth opportunities and the value creation in the Nemetschek Group and the growth side is really fantastic. And that's why we should not sacrifice that growth potential by margin optimization. However, I've said it before, and I will be happy to underline that again, we will not -- you should still continue to expect strong margins from the Nemetschek Group.

So there should be a three in front of the margin. Then you can see, okay, we'll be then rather 35% or will it go up to 40%, whatever. I don't say that we couldn't do it. With volume, we could. But we would always reinvest so to say that that's over shooting part into our growth if we see that the return is there. What I'm trying to say it's really -- be really clear on that, that you will expect and you should expect strong margins from our side, but we will not sacrifice our growth potential by optimizing the margin, where the potential would clearly be there, but we will also not go down. You should not expect a strong dip in the margins, right? So strong -- of course, continuous improvement in the margin as well, but not so to say, at the cost of our growth because that's really where the value generation is to be had.

[Operator]

The next question comes from Michael Briest of UBS.

[Michael Briest, analyst]

Just a couple of ones from me. Thinking about the sort of cadence of growth this year, you had a good Q1, given what you're saying about Build for Q4, that's clearly going to be a strong quarter. Certainly the low end of the guidance, still would that imply sort of a deceleration in Q2 and Q3 probably. Is that something that is still possible or what would be driving that? And then I've got a question on currency.

[Yves Padrines, executive]

I mean, clearly, if you look at the Build segment, we do not see any deceleration versus Q1 and Q2 and Q3. And again, it is just mechanical that Q4 will be at least triple the growth of Q1 for Build. And then in Design, as I stated, I mean Q1, Design is probably the highest growth that we will have for the year. Again, thanks to the -- also last time buy of -- or not last time buy, but of a special price and the price increase. So we have still a lower growth in Design in Q2 and Q3 and Q4 versus Q1, which is mainly coming from the lower -- the acceleration of subscription in Design.

[Louise Ofverstrom, executive]

Yes. And I think what we should say on Build, just to be very clear there. We have a very high share of recurring in the Build segment right now. So we are -- it's quite predictable. This is what I said before in this kind of model is very predictable at some point in time. And that's why it's continuously improving towards Q3, and then we have the strong acceleration in Q4.

[Michael Briest, analyst]

So I mean, thinking about the 10% to 11%, would you be disappointed with 10%, given where you've come out at the end of Q1?

[Yves Padrines, executive]

No, I think it's still between 10% and 11%. So I mean 85% of our revenue is recurring and Build. So it's highly predictable now. And so it's really depending, I think, how much the acceleration of subscription will be in Design, which is going to move us more to the 10% or to the 11%.

[Michael Briest, analyst]

Understood. And then is just on currencies. Can you explain what's happened in Design? Because you've got a currency headwind, which looks like it knocked off EUR 600,000 of revenues, but EUR 3 million of costs. What sort of currency moves cause that?

[Louise Ofverstrom, executive]

Sorry, I didn't get that acoustically. So we sorry, I was...

[Michael Briest, analyst]

On the constant currency, I think there's a headwind in Design of 60 basis points to revenues, but a tailwind to margins of 8 percentage points. So it looks like costs have gone down by about EUR 3 million because of currency movements and revenues have gone down EUR 600,000, which is unusual.

[Louise Ofverstrom, executive]

Okay. Now, I got it. Okay. So it's the [indiscernible]. So it's very much without going too much into details there. There is nothing operational behind that really that's we have some -- that's driven by Hungarian forint effect that we have in our Graphisoft accounts, and that's more a translation of euro-related accounts there. So it has nothing to do really with our operational performance.

[Michael Briest, analyst]

So we should expect it to continue? Or will it just be more..

[Louise Ofverstrom, executive]

You shouldn't expect that to continue, no. Not this kind of difference as they -- we always have -- of course, we have Hungarian functional currency in Graphisoft in general, right? So that's something that will continue. But this effect that we had in Q1, that's nothing that you should expect it to continue.

[Operator]

The next question comes from Deepshikha Agarwal of Goldman Sachs.

[Deepshikha Agarwal, analyst]

This is more around like going back to that comment around Build being somewhere between 15% to 20% in FY '25. And if we look at the guide, that is the target that is there for at least mid-teens, that implies double-digit growth roughly closer to low double-digit growth in Design in FY '25. Is that the right way to look at it? And then again, thinking more about the normalized growth in these 2 segments of Design and Build over the medium term. So will it be like the Design will move to low double digits over the medium term beyond FY '25 and Build will accelerate from that 15% to 20% beyond FY '25? Is that the right way to look at it? Or is it something -- like -- is there something more nuance we should be mindful of? And then I have a follow-up.

[Yves Padrines, executive]

Again, there is nothing new. I mean, absolutely nothing new. We are not expecting any big, huge changes versus how we were planning. We are going to have a strong growth in Build. It's again at least in the north of the mid-teens. So it is between 15% and 20%, which could be more close to 20% than 15% or even potentially higher than 20%. But Design is not expecting to be in the low single digits. It's not I mean, again, I mean, even if we are now moving faster the move to subscription, in a phased approach, we are not going to have the deep effect that we used to have with Bluebeam, because, first of all, the start of subscription already in there for some time. At Design, we are doing it in a gradual way. Some brands already move completely through subscription like Vectorworks, et cetera. I mean, we have already Allplan their new -- I mean, 80% of the new seats of Allplan are already subscription, et cetera, et cetera, et cetera. So that's why, as I stated, even Graphisoft, which is going to do a much stronger push to subscription and Allplan in terms of communication, let's say, beginning of 2025. We are expecting Graphisoft to still grow in the high single digits or even low double digits in '25 and '26.

[Louise Ofverstrom, executive]

And that at the same time when Vectorworks are coming out from the subscription move to say where we have the positive book to the other direction. And that's to say you have the -- you go through the top, so to say. And then you have the positive that we will see in Bluebeam and that will, of course, also then help because it comes from the Design side from Vectorworks when one brand goes in more or less to more of the trough you have, the stronger push up. So that is really not -- not a question mark of -- it's more a question mark of timing and so to say how we balance that, but that has not changed at all. And the plan perfectly in line with what we said also with the mid-teens, at least mid-teens in 2025.

[Deepshikha Agarwal, analyst]

Just to clarify, I meant like this for Design, will it be like high single digit to low double digit will be the new normal growth for Design?

[Yves Padrines, executive]

No, I think it's going to be between the mid-single and high single, the normal.

[Louise Ofverstrom, executive]

But throughout the transition, if you ask the normalized growth after the subscription, that is something else. But yes, okay. So there's no reason why that should be below double digits?

[Yves Padrines, executive]

Yes. It should be in the double-digit plus.

[Louise Ofverstrom, executive]

Yes, absolutely. And that is just which we see before as well. That hasn't changed. So it's really -- we have to go through the second transition, and there you will see this accounting-related effect. And after that, we move back to the double-digit growth in...

[Yves Padrines, executive]

Yes. Absolutely.

[Deepshikha Agarwal, analyst]

Okay. Got it. And just a follow-up. You talked about you're looking at M&A opportunities in India as well. So -- and there has been like an increased focus this year and that is also to do with like you have a good war chest in terms of the net cash. So like any updates on like how the pipeline is kind of like evolving in terms of M&A and like what are the focus areas that you're looking at?

[Yves Padrines, executive]

So that's still the same. No, we are really scouting the overall portfolio in all the segments. So first of all, in construction, we are looking from design, planning, build and construct up to operate and manage. We are looking at making M&A just to acquire technology. So small companies or to complement what we are offering. Clearly, in build and construct, this is where we see the potential biggest opportunity to complement Bluebeam portfolio to go more adjacent or to complement what Bluebeam can offer for general contracts or and construction companies. But also, in general, even in media and entertainment and visualization software aspects, we are also scouting the market.

[Operator]

And the last question for now is from Victor Cheng, Bank of America.

[Hin Fung Cheng, analyst]

A couple, if I may. I think you've covered it quite extensively throughout the call on the design kind of growth outlook for this year and maybe in 2 years as well. But maybe can you give us some more color on how we think the profile -- growth profile is throughout this transition. Obviously, among the big brands, Allplan, Graphisoft, Vectorworks, they all have varying degrees, but kind of quite set out plan on how the subscription transition can be done. So are we kind of at a trough in terms of the growth and expected it to be flat or accelerate going forward? And how should we think about margins as well? Clearly, it has a very different profile compared to when Bluebeam started doing that transition? And I have a follow-up question.

[Yves Padrines, executive]

Sure. I mean on the Design side, I stated in terms of move to subscription, different brands are in different stages, and therefore, we are doing that in a segmented way. And this is why the impact for the overall design performance, yes, there will be. And there is a small impact in terms of revenue and EBITDA margin, but it's a slight impact. Not the same as we used to have for Bluebeam and the Build organization. So that's why we are, again, planning for the next few quarters, even in '25 and '26 to have a revenue growth, which is going to be between mid- to high-single-digit the overall Design division, and we do not expect at all to be below the mid-single digit for Design revenue growth for the next few quarters, while we are in the move to subscription.

And the EBITDA margin, you should not expect also a huge impact on the EBITDA margin while we are doing this subscription. There has been, and there is, of course, an impact right now ongoing. And which will continue. But again, Vectorworks will go out from subscription and will be better while Graphisoft will be still in the middle of their move to subscription. So one brand is compensating the other performance from another brand.

[Louise Ofverstrom, executive]

And I think you can see it, Victor, if you look at -- you can see it already now, we are already in the transition in the Design segment. And you can see it already in the last quarters and you can see it in this quarter as well. You can recall where we were at Q1 with Bluebeam last year, right? So they really have the dip and then you are back quicker here. We will have the stage approach. That's why you will never see such a strong impact in the financials. Of course, in each single brand, it will, as you alluded to, will be done differently. But as we state it differently, and we also have a longer path to come there. That is more digestible than it will not show as strongly in the numbers.

[Hin Fung Cheng, analyst]

Very clear. And just to be absolutely clear, actually on this front. Does that include digital twin solutions? Obviously, you have now resegment them into the Design segment? And as digital twin ramps up that helps the Design growth as well? Is that baked into the...

[Yves Padrines, executive]

No, there is no -- I mean, the contribution is super low. I mean it's very, very low contribution.

[Louise Ofverstrom, executive]

I mean, in the midterm, right? But now we're talking in the mid, longer term, we expect it to have a contribution. But not that we will -- that was that they lend the effects that we are seeing now. That we have already said, it's a huge market. We have a lot of potential in this market, but it will take time really ramp up there the...

[Hin Fung Cheng, analyst]

Very clear. And maybe one last one is on the M&A front. Obviously, you've just commented on it. I think last quarter as well, you said you are planning to be a bit more aggressive on this forefront. So how are we looking in terms of the pipeline? And you just talked about different segments you're looking into, but thinking about media as well or some of the equivalent GenAI solutions are kind of clearly ramping up quite quickly. Are you looking to add maybe more AI capabilities through well, and organically as well?

[Yves Padrines, executive]

Yes, we are looking at everything. So on the AI front, we did quite a lot in 24 months, the last 24 months in venture investments. So it's more for us to invest in start-ups on the generative design, generative AI front, ML side. Of course, we are also looking at it on the M&A front, which would be smaller ticket, more to acquire technology, and this is what we are currently looking at also. But of course, we have to be very careful because a lot of these new generative design and generative AI start-up. They may have some time good solutions, sometimes not. And of course, it is highly margin dilutive because they are all losing a lot of money, most of the time. But yes, we are looking seriously on this front.

[Operator]

And with that, I would like to conclude the Q&A session since there are no more questions in the queue. And so I hand back over to the host.

[Stefanie Zimmermann, executive]

Perfect. Thank you, everyone, for attending. We are looking forward to catching up with you next quarter. If you have any follow-up questions, so please do not hesitate to contact Patrick or myself. So let's conclude the call for today. Thanks again for joining.

[Yves Padrines, executive]

Thank you.