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Dear ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Stefanie Zimmermann, Vice President, Investor Relations, who will lead you through this conference. Please go ahead.
Thank you, operator, and hello, everybody, and welcome to our conference call. Thank you for joining us to discuss the results for the third quarter and the first 9 months with us. Today's conference call is being recorded. A replay of the call will be available at our website after the call. As always, we have prepared a short presentation with the most important figures and highlights of the last quarter and the last 9 months. You will find the presentation, the quarterly report and the press release on our Investor Relations website as well. But now let's start with the presentation. I would like to hand over to our spokesman, Axel Kaufmann, who will lead you through the presentation. So go ahead, Axel.
Wonderful. Thank you very much, Steffi. And also, a warm welcome and good morning or good afternoon from my side to our earnings call. As Steff said, we have prepared a little slide deck. We'll walk you through that quickly so that we have sufficient time for questions afterwards. Starting with Page #3. As usual, we would start with an overview of our top key figures for the most recent quarter. In short, I think we've delivered a good third quarter with a stronger-than-expected rebound, in particular, in the month of September. Our reported growth increased by 7.5% to EUR 149 million. Excluding the negative foreign exchange effect mainly from the U.S. dollar as well as the positive contribution from our recent acquisitions, our organic growth also reached a very solid 7.1%. In line with these trends, we saw in the last quarters, the top line growth was mainly driven by our recurring revenues, maintenance and subscription, which increased by more than 18%. In contrast, our license revenue still recorded a negative growth of minus 6%, although the decline was far less severe compared to the minus 19% in the second quarter. The EBITDA of EUR 47 million corresponds to [ a strong way ] and to the strong margin. The strong margin is a function of a healthy operational leverage; ongoing cost savings on, for example, travel and trade fair expenses; as well as the somewhat slower-than-expected ramp-up of our head count in the recent months. However, please let me highlight that the strong margin in the third quarter should not be extrapolated into the coming quarters. As we highlighted earlier already, our main priority is to set up the company for the future growth, and we will, therefore, substantially ramp up our investments in Q4 as long as confidence continues to come back, which will result in a markedly lower margin quarter-over-quarter. So again, stronger-than-expected rebound in the third quarter, concluding a very solid development in the first 9 months. Let's continue. By moving on to Page #4, this is a summary, and many of you are used to that, the key business highlights after the first 3 quarters of the year. Overall, we showed a bit more resilient development despite a challenging environment. We were able to increase our sales despite the FX tailwind and increase also the margin. Similar to the third quarter, the main drivers were the recurring revenues in the first 9 months with a strong growth of 22% and, in particular, subscription with a plus of 84%. We'll be talking about this in more depth in a moment. In addition, our high cash conversion of almost 90% once again underpinned the high quality of our earnings. So to summarize, a solid performance year-to-date together with our swift reaction and decisive measures to cope with the effects of the global COVID-19 pandemic, that's why we believe we've also a good basis for the upcoming still-uncertain and challenging months ahead of us. Onto the next page, #5. And just to illustrate some key parameters of the financial performance in the first 3 quarters. We're going to look into the main growth drivers in more detail on the next slide. But before that, please allow me to [ shortly address ] the earnings per share growth of just almost 3%, a topic that we already discussed in our last earnings call. And I'm sure many of you understood the reasoning behind that. Just like in the first half, increased PPA charges were the main reason for this under-proportionate development. This can be seen by looking at our EPS before the PPA amortization, which grew by almost 8% and so are in line with our EBITDA. Let's move on to Page #6. As all of you know, one of our main objectives and always an important discussion point is the topic of increasing our share of the so-called recurring revenues. If anything, the recent events due to the COVID-19 crisis have further amplified the importance of these better-predictable and more resilient revenues. Let's look at the revenue distribution. As mentioned previously, we're very pleased to note that the strong increase in recurring revenues continued also in the third quarter. We've a bit accelerated, as we were discussing beforehand, those activities. In the first 9 months of the year, we were able to grow our recurring revenues by 22% on a reported basis and still by 18.5% on an organic and foreign exchange adjusted basis. With the recurring category, our subscription revenues almost doubled to more than EUR 60 million. This already represents a share of 15% of our total sales compared to just 9% 1 year ago. On Page #7, we would provide an overview of our most important KPIs. And without going through all the details, I think it's fair to say that we further improved the quality of our balance sheet, representing some important metrics such as the equity ratio, which is now at 45% compared to 41% last year, and our very low debt position. This solid balance sheet and virtually no debt -- net debt, I'm sorry, provides us with a high degree of safety going forward while enabling us to act flexibly and opportunistically should interesting opportunities rise up. Now to conclude my view on the first 9 months, let's look at our 4 segments on Page #8. Starting on the left, our Design segment returned to growth in the third quarter with a revenue increase of a bit more than 2%. As already mentioned previously, the slower-than-expected ramp-up of investments resulted in an unsustainably high margin of 33 -- 37.6%, I'm sorry. A similar picture with the growth of 11% and margin of 38% can be seen when we look at our Build segment. So going from left to right on the chart. With the largest contribution to the revenue and margin improvement coming from Bluebeam, the important U.S. market held up better than actually feared. However, our order intake continues to point toward a further deterioration of the U.S. market. We'll talk about that in a moment when we come to the guidance. In our Manage and Operate division, the negative effects were only felt after a delay, and we're expecting to continue those due to cautious investments by the important customer group of facility managers and also some limitations where we cannot access buildings in the service area of this business segment as expected due to the corona crisis and limitations. And last, not least, our Media segment presents a very satisfactory development with an organic growth of almost 12% in the first 9 months and even 20% in third quarter. The high reported growth was strongly impacted by the first-time consolidation of Red Giant. We can say that the integration so far is doing well. Integration costs as well as the recent move to subscription by Maxon posted the expected negative drag on profitability, but it's not at all to our surprise. With that and before we move to our updated financial guidance for the remainder of this year, let me quickly follow on Page #10 on 2 important strategic initiatives that we presented in our last earnings call, announced then but executed in the meantime. As a reminder, our first innovation was the integrated design, a cross-brand workflow solution that revolutionizes the collaboration between architects, structural engineers and civil engineers. With this integrated approach, it's now possible for architects and engineers to work together in one shared 3D model across disciplines for the first time. This is a major milestone for the industry and improves the efficiency in the collaboration process tremendously. Our second big innovation is our so-called federated design solution. At the heart of federated design is our, S-C-I-A, SCIA AutoConverter, which significantly improves the current BIM workflow by converting any 3D structural model into a high-quality analysis model. This automatic process involves structural engineers much early in the BIM process and saves time because there is no need to rebuild analysis models completely from scratch. The very positive feedback on both innovations, which we received from the market and our customers, show that these address exactly the right needs and motivate us to continue with our cross-brand projects with the goal to further improve the workflow in the construction industry and to make doing business with Nemetschek much easier than in the past. We'll keep you in the loop about the progress and further steps. I'll basically skip the next page, #11, with some more important cornerstones of our success and why we think Nemetschek is so well positioned in today's market. Many of you have seen this before. It remains unchanged mid- and long term. And this is basically why we believe in further growth potential and the economic success foundation for our group going forward. So let me draw your attention on Slide #12, on which we updated our overview on where we stand in terms of the COVID-19. As already mentioned, we experienced a first-in, first-out effect with regards to COVID-19 on our divisions and geographies. While Asia was impacted first, we saw the top second quarter, mainly in Europe. While both regions now rebounded in the third quarter, the U.S. market further deteriorated. Also as expected, our license business was hit the hardest, while our recurring revenue showed a pleasantly resilient development. I believe our solid first 9 months also showed that our initial and quickly implemented measures, in particular, our cost savings efforts as well as our adapted sales and customer support measures, proved to be key in coping with the crisis and keeping the customer relationships. In addition, we also preserved our very solid financial position during that period. We, therefore, leave our set working assumptions, which also built the foundation of our updated 2020 guidance, mostly unchanged. We continue to expect a very uncertain market environment also in the coming weeks and months. This is especially and particularly true and important for the U.S. market. At the end of my presentation, I would like to turn to our updated outlook on Page #13. As a result of the good development so far, the intact long-term growth trends in our relevant markets, our high proportion of more plannable revenues as well as the broad regional and market-related diversification, we took the decision to upgrade our outlook for this fiscal year. In particular, that means that from today's perspective and based on the current portfolio and environment, we increased our revenue outlook for this year and now expect a growth in the mid-single-digit percentage range. In addition, we also increased our margin guidance to a range of 28% to 29% EBITDA margin from the floor of more than 26% previously. Our assessment is based on the assumption that a certain reluctance on the part of our customers will also continue in the fourth quarter, especially with the currently dynamic development in the number of COVID-19 infections across Europe and the U.S. Rest assured that we will continue to monitor the situation very closely in that Nemetschek as a group is well prepared to also take market opportunities out of the current situation as we are convinced that our products have the right fit, and we have the agility and financial strength to act. It's not going to be an easy fourth quarter. We're in the middle of that, but so far, we're doing quite well, but we have to stay alert. With that, I'd like to thank you for your attention and your time today, and we're now happy to take any questions. So operator, please, back to you.
[Operator Instructions] The first question is from Gal Munda, Berenberg.
Just the first one is around the guidance. You obviously felt compelled at this stage of the year to kind of reassess where you are, especially based on a very, very strong performance and rebound in Q3. I was just wondering, Axel, if you can a little bit -- give us a little bit of an insight into what your assumptions are for Q4 when you kind of provided that guidance, considering the fact that, on a 9-month period, you already pretty much are there. So are you expecting potential deceleration in the Q4 in terms of the momentum? Especially looking at last year's comps, Q3 was actually a very, very tough quarter to kind of follow up on, right? And I think organic growth last year was 16%. And in Q4, if I'm not mistaken, it's 10%. So the comp gets a little bit easier. Your licenses were only down 6% in Q3 versus, like you said, first half of the year. So everything kind of seems to be better. If the current environment continues, would you say that guidance is fairly conservative for the rest of the year?
Thank you very much for your question. I think we need to differentiate what we do know and what still might happen. What we do know is that, yes, this is the end of October. And some of the trends that we've been seeing since June would indeed continue. On the contrary, some of the elements that we would have projected already since a couple of months are also coming into reality, and that is mainly related to the U.S. market as an example and to the currency development there. And they clearly go against us currently. So if I was to say is that a conservative Q4 outlook, I would say no because, on the top line, there's still clearly a lot of work to be done. And we're fighting against a sentiment that is clearly negative in Europe, particularly since, I would say, 1.5 weeks, 2 weeks kind of and a continued slightly negative sentiment in the U.S. market overall, plus the currency situation. I don't see why any of those 3 would be really eased in the remaining quarter that is out there. Again, on the margin, I think with the 28% to 29%, we have built into the forecast an assumption that we know that we have some year-end effects. We have also investments. We have also started again hiring, bringing people on board as the confidence, particularly in Europe, would have come back. So we know quite well our numbers, I would say, and we see some of the cost in November and December and some year-end effects that would not be visible in the Q3 run rate. So that's why no, actually, to both aspects. Although, you didn't ask about -- to separate the question into revenues and margins. But I think it's fairly realistic, and I think it's a good guidance overall given the environment out there.
That's really helpful. Just as a follow-up, Axel, when we look at the different trends that are going on in the AEC industry today, I think it's fair to say that it really -- the outlook is really kind of different based on the end markets you guys might be selling into. I was just -- I wanted to ask, if you can remind us, in terms of your end market exposure between kind of the infrastructure part of the market versus the commercial buildings and the residential buildings, if it's possible to kind of touch on those. Because obviously, with potential infrastructure bills and things like that, some people are looking about different puts and takes instead, and I just wanted to see if you could provide some color on that.
Yes. Thank you. Very good question. My spontaneous answer would be that if we divide the end markets into residential, commercial and infrastructure -- of course, it's a matter of definition. We have found that -- infrastructure, do we count schools, hospitals, airports, everything into that? We would, as a matter of fact. So we would go by probably 1/3 for each of those. And we would also be somewhat optimistic that infrastructure could slightly benefit over the next couple of years from some of the programs that have been set up by governments around the world or stimulus programs. Albeit, we're not naive seeing that the commercial building as well as the residential construction space are experiencing an environment that is not very investment friendly. And I don't all mean investments into software but more into real new construction projects overall, right? So it's hard to say, will that be an offset? Is that an underlying net positive? Again, even on the infrastructure, I would need to tell you that we've been hearing a lot on this one. And when I talk to our salespeople or to our customers, those funds, those large amounts of money have not been landing really in concrete projects. I don't see that much -- many more schools or hospitals or airports or railway, whatever infrastructure, would get the project that -- scoped out at this point of time. I think there is more talking, which still is an underlying positive because one day, the talking and the funds will be needed to be called off, and then this could translate. But that's a matter of not a few months or quarters. I think that's more a midterm light at the end of the tunnel, if you may, so -- or a slightly positive that we also would be discussing in our industry. On the residential and commercial. Of course, the COVID-19, the home office, all the numbers that fly around, is it the previously 100% of the office space that is still needed after -- even after COVID because people got used to different working modes, travel modes and what have you? And it's such a tough question. I wish we would have the answer, really. And the most statistics that we've seen, the most projections tend toward a slightly negative from there. And residential, I don't really have an opinion on at this point of time.
That's extremely helpful. And congrats again on a very, very strong quarter.
The next question is from Martin Jungfleisch, Kepler Cheuvreux.
Congrats on a solid set of numbers. I have 2 questions, please. The first one is on subscriptions. These have increased a lot compared to licenses. In the future, would you be willing to accelerate and steer this trend or let customers continue to decide? If you would accelerate subscriptions, by how much would you be willing to sacrifice top line growth and margins from this potential technical compression resulting from subscriptions? That's the first question. The second question is on your margins and planned investments. Your margins are obviously up quite nicely this year, but you mentioned that you want to increase investments in the coming quarters. Could you describe these investments in what areas those will be and potentially also quantify them and if these will likely lead to a lower margin in 2021 compared to this year? That is it from my side.
Thank you very much. I think your first question was already quite well phrased and complex in itself, so let me start with this one. Two dimensions in your question, the way I understood in regards to subscription. First of all, a yes to the acceleration, which I think we're in the midst of doing. And despite the very positive momentum I see in the company currently, and this might surprise you, we still are not -- and that's the second part of your question -- not shifting completely away from the customer focus. By far, I think we'd be foolish to do so. So what you called a voluntary optional choice for the customer, that's indeed still the case even in those areas where we, in these days, would start a higher subscription attention and focus. That does not mean that we wouldn't do everything to explain to the customer the value of subscription, i.e., new features, special bundling, more flexibility, right? So we're going slowly but surely in that direction. That's what I stand for. That's what the management stands for. We're going into that direction. I wouldn't promise any significant leapfrog, steep push in that respect. I think we're doing a bit more than the average of the last 3, 4 years, and we'll continue with that phase probably, right? And there will be setbacks, quite frankly, and there will be also differences in quarters because we cannot just turn everything around overnight. And sometimes, it doesn't make sense neither for the product development nor for the customer to just artificially push for subscription just for the sake of being able to show different numbers. That's not the driving motivation here for us. And so you asked about whether we'd be willing to sacrifice. Well, I don't want to go into that too much, but what I'm not willing to sacrifice as a company is the customer intimacy and the customer relationship, right, and the customer acceptance. So as long as we have that, as long as I think we do it together, basically, and there is a win-win, I don't think we need to sacrifice really anything. Of course, there is going to be a negative impact on the -- our revenues as well as on the margins. Every time we would have seen a product shifting from perpetual to subscription or at least offering subscription in a dual mode as a second way to get the product, we would see some clouds or some negative effects on the license sales, which is quite natural. Because the amounts are simply lower, the frequency is higher, the turnaround is higher, and we might want to carefully look at the churn there as well as another parameter. So no surprise that whenever we will have this development, it's our eagerness and our commitment to continue to report the visibility over what has caused potential effects on the top line as well as on the bottom line. And we're foreseeing them to come, clearly. On the second question, if I may answer that, the investments, well, some of them I mentioned already in the slide presentation, and those are the discretionary ones. Clearly, we'll have more people on board. We'll have some bookings that naturally come at the end of the quarter, at the end of the year. We'll have different target achievements. Personnel costs, all of those kinds, hopefully, trade fairs, marketing costs, we're really ramping them up to be prepared for another good year going forward, although the environment, quite frankly, is not improving really in those days. But we'll try to cope with it as good as possible. The answer, clearly, to the guideline on -- our guidance on the margin expectation for next year, I cannot give you at this point of time in this call. I think we want to go out with a full set of guidance for '21 as soon as time permits, as soon as visibility permits, as soon as, I would say, we've probably closed this fiscal year. But I cannot exclude that, in the moment, we would higher and lift the run rate of the expenditures by, for example, also product development. And we've shown you 2 examples in the presentation that we want to continue really to better connect the product to optimize the internal processes and prepare the company for further growth, be it systems, be it tools, be it staffing, be it locations, infrastructure -- our own infrastructure. And all of that will cost money and does cost money already as we have started some of those. But it's for the sake of the long term, I would say, benefit and growth for the company, i.e., also, hence, for U.S. shareholders or investors. So yes, it's not unlikely that this will also be lowering a little bit on the profitability on the margin. Why would -- the impact that we would see from the first 9 months going into the fourth quarter, why would that not continue at least to a certain degree in the next year? But again, we'll come out with a guidance. It's not going to be disappointing, I'm sure. And again, thanks to the compliments on the third quarter. We take it as a motivation and challenge at the same time.
The next question is from Sven Merkt, Barclays.
Congratulations on the good quarter also from me. I have a couple of questions on Maxon. Firstly, could you help us understand what drove the acceleration this quarter and how we should think about growth going forward as the subscription transition annualize? And any comments on how we should think about these dynamics would be helpful.And then secondly, could you maybe comment on what the lessons learned from the subscription transition of Maxon are and how you might apply this to your other brands? And then just a follow-up on the earlier comments you made on subscription. You are on track to add about EUR 40 million to the subscription line this year. Is that a good assumption of the annual intake we should expect over the coming years?
Very good question, Sven. Thank you very much. So we -- let me start with the latter, if I may. Be careful when you look at the subscription this year. We did acquisitions in the past that really helped us also drive the subscription journey. And in full transparency to all of you, that's not something we tried to hide because those were intentionally made mergers and acquisitions to enrich not only the volume of subscription but also the know-how and the skill sets around the good, bad and ugly, what you need to know about subscription and its dynamics and SaaS business going forward. So the number that you mentioned is, I think, including those effects. There was a little acquisition at the second quarter coming into effect. And there was the full impact coming from the acquisition we did at the end of last year, early this year, in particular, the Media and Entertainment segment that you mentioned. So all of those would pay off nicely, a little bit effect in the Manage and Operate, a little bit in the Design and then this major acquisition paying off in the Media and Entertainment. All of them also drove the overall number for the subscription. So right in time, however, we're still proud of being also able to show an organic year-over-year growth of the subscription. That's really the hands-on efforts of the guys here. And we'll -- and that's a wonderful question. Thanks for asking me about Maxon because -- 2 parts of your question. Number one, what has driven the strong third quarter is a bunch of new product features that were launched by a series of online events, really, to the audience. We would combine Redshift, Red Giant and Maxon into one suite that customers now can buy in a much more flexible and customizable way. So along with the subscription, the introduction of really new product features and the combination and, I think, a better marketing appearance, really, a lot of launch dates and launch events really drove the third quarter. The negative and a bit of water in the wine, I'm sorry to say, but again, in the spirit of full transparency to all of you, is that Maxon is experiencing quite some headwind at the moment. The entertainment industry, we have 2 businesses within Nemetschek: Vectorworks as well as Maxon, in particular. They are suffering from the recent setbacks, especially in the entertainment and event industry. So all of those cancellations mean that, again, we're back to maybe the March, April, May time frame, where there was a lot of uncertainty over new productions, be it movies, be it commercials, be it cinema and blockbusters, be it gaming, overall, wherever you need a team. And it's good that we have the technology, but then there is still a studio needed. Sometimes, there's actors needed. There's a camera team needed. There is whatever effect needed. All of those experience a very hard time. We've been seeing this in the last 3.5 weeks, and numbers are really going downwards, not as much as we had -- liked them to see. So the trend is a negative one, and that's COVID-19, purely. However, overall, I would say thumbs up. The integration is doing very well. We're forming to become really a relevant player in the first half next year in that -- slightly different [ industry ] than the AEC or AECO industry. So that was always the intent. That was always the strategy, and we're executing on this promise. The subscription learnings, the second part of your question, is -- that's a wonderful question because that is absolutely on its way. There is, again, good, bad and uglies. There is scars, experiences, observations that we would have. Customers typically in that segment, however, are a bit more used to subscription and rather B2C customers than in the remaining parts or pockets of our business. So I could not say that every learning, we can take and extrapolate and copy, paste it to the other 3 divisions. But there is a working group, and we're taking a lot of those learnings, try to document them, do online tutorials and trainings in-house to say, okay, how do we deal with the webshop, how do we deal with the back office integration, with the back-office processes, with the billing, with the invoicing, with the Ts and Cs, with the rates, with the pricing, with the bundling, the customer explanations, all of those. But it will take you really a long time. The big business unit Graphisoft has just started to introduce subscription. Vectorworks has done basically the same. Allplan, as the oldest business unit in our portfolio, has not really started subscription to a big degree. So there's a lot of homework still to be done. I'm glad that the testing now, I would say, of the water -- water is over. I think we have collected sufficient experience to now stand united and drive this forward. But again, slowly but truly, we're going in that direction. And yes, we're connecting the brands and the know-how amongst the business units, clearly, so we can scale that better.
The next question is from Andreas Wolf, Warburg Research.
It's Andreas Wolf, Warburg Research. I hope you can hear me well. So basically, I have 2 questions. The first would be on churn with regard to subscriptions. Do we see higher churn with customers who have chosen the subscription model? Do we already have reliable data here? And the second would be -- you've spoken about customer intimacy. Do you see more demand for cloud solutions? Because we see among some software providers a push towards the cloud, not just a SaaS offering, so some insight here would be very helpful. And congratulations on the quarter.
Thank you very much. It seems to be windy in Hamburg, and thanks for the good question. Yes, we do have some data on the churn, and I'm not overly thrilled by it. Quite frankly, I would put it in the pocket or in the category of still collecting experience in that regard. Indeed, we have seen the churn in one area, which I don't want to mention in detail, being a bit higher. And we're still trying to understand why this is the case. But I think it's not sufficient data on hand to really make a final judgment call on that. And if it was the case, by the way, then, of course, we need to understand what we can do about it because the more flexibility we give to the customers, that also means that we need to be prepared for them acting flexibly, especially in this kind of environment, as you can imagine, right? So do we have an opinion on the cloud and on the Saas? Quite frankly, if I look at our portfolio and we talk about subscription, people sometimes mix everything into one big bucket, be it subscription, maintenance, SaaS, cloud, and then we all would call this recurring. In our case, I think it's fair to say that the first step that we need to -- the first hurdle that we need to jump over here is the full understanding of the dynamics of subscription. And if we were to understand that and introduce that in all business units, we can see how much we can drive this up. We will never give up completely the perpetual license business model because, again, there are some customers, especially with our legacy and the installed base, that we come from a different background than maybe some of the American competitors. And it's not necessarily bad as I think, by the way, as well. So that's the first hurdle. The next evolving stage or phase could be the true SaaS model. And we're offering some of the services and solutions on the cloud already. We're working with too many providers, in my opinion. So we need to consolidate it a little bit, but it was also the kind of testing phase in the last years and collecting experience, how a cloud provider can help you and what is their business model and the data residency and the data security issues that we had to answer on behalf of customers and so forth. So yes, I mean, of course, this is a long-term vision, and some of the products are already there. Spacewell, for example, in the Manage and Operate is a good example that is going in that direction more than maybe others. But it's -- that's kind of the next phase. And let's first jump over the first hurdle.
The next question is from Nisha Agarwal, Goldman Sachs.
This is Deepshikha Agarwal from Goldman Sachs. Congratulations on a good third quarter. I had 2 questions, if I may. So the first one would be on the competitive landscape. So how has the competitive landscape been in the current environment? And are there any instances of competitive wins that you can talk about? Then again, on the competitive landscape and more in the Build segment, what are the key competitors that you see across both brands, basically, Bluebeam and as well as Nevaris? Then the second question would be on product integration. You did talk about a lot of positive feedback on federated design and integrated design. So can you -- like, when do you expect it to be reflected in terms of numbers more significantly is what we wanted to understand.
Thank you very much. So without disappointing you, the -- I think the second question is too early to answer. I think we've just introduced really those solutions and products to the market. We're glad that the feedback is positive. We'll monetize them as much as we can, along with the customer delight philosophy and get them introduced and launched more and more. I think the numbers so far are neglectable in terms of revenues. Now on the first one -- also, a quick answer, I think it's a good question, and we get this a lot. The comp landscape, in our opinion, has not really changed. The big established players, Autodesk, Bentley, Trimble, they are there. We have certainly a theme in the industry that is called platforms or marketplaces with the brokers of this world, Autodesk, what they're offering there. That's clearly a theme where players that don't have the AEC software in itself would have entered the market with more a data-centric offering, which adds value to the customers, obviously. Again, the landscape overall has not changed. I wouldn't see a lot of dynamics there that are different from maybe half a year ago or a year ago. Especially, if this is a quarterly call, I wouldn't say that in the third quarter, we had seen any dynamics changing, really, right? So -- and those are the names, by the way, also that probably would compete with -- you particularly asked about Bluebeam and Nevaris. Now Nevaris is a bit different. If you familiarize yourself with Nevaris, there's 2 areas: the one is really the process solutions for the GCs or construction build firms, and then there is the ERP solutions. And for ERP solutions, I think you can imagine which of the infrastructure we're facing. RIB clearly is our competitor in that area -- that was recently acquired by Schneider as well -- and then, again, those names that were mentioned beforehand. So no overall changes, I would say.
Next question is from Uwe Schupp, Deutsche Bank.
Yes, just 2 generic ones really are left for me. Firstly, Axel, if you don't mind, can we try to nail you down on a few numbers regarding those investments that you have now managed sometime some minutes ago? Basically, I saw from the quarterly report that you roughly added 60-or-so heads in the quarter. So any indication would be helpful that what would be to come on top in Q4 in order to get to the targeted margin level that you are suggesting. And then really sorry for that. I think I asked a similar question last quarter, but I think it's still an important one regarding M&A and what your short list is currently looking like. In particular, I was wondering whether you are potentially making use of the current nervousness that you described yourself in the U.S. market in order to increase your foothold there a bit further.
Thank you, Uwe. And yes, to your question, the -- you can try to nail me down. I'm not sure if you're going to be successful. I would pass the ball back over the net to you yourself. Because if you think of our new guidance, updated guidance, mid-single-digit growth, and you take that and deduct the 3 months -- 3 quarters and 9 months, I'm sorry, then I think it's easy to see that what we're probably talking about a, let's say, 4- or 5-ish percent growth year-over-year in the fourth quarter, right? And that's really somewhat the expectation. Then from that, if I was you, then I probably would try to calculate the kind of cost range that would lead us to the margin guidelines and bandwidth that we have given. And so it doesn't take a lot, I think, to nail down, quite frankly, because it's not like dropping pants. I think we want to appear as visible and transparent to all of you as possible. If you were to ask about the categories of the cost, I think that, that would be a very interesting aspect. And those before-mentioned ones, discretionary spending, product development, hiring personnel costs and typical year-end effect, I mean the -- our balance sheet and P&L is not so much different from others. So typically, what we have is organizational changes that might lead to expenses, product changes or combinations that might lead to expenses, hiring that might lead to expenses, ramped-up marketing preparations for some launches then, early next year, our continuous sales activities. All of those really will lead to higher investments/expenses at the end of the day. And the exact amount, I do not know myself either, but I think we have a good feeling about the magnitude overall. And again, we'll come out as soon as we can early next year to report back what's on the hard facts in the fourth quarter. On M&A, wonderful question. I love it. But again, as we wouldn't talk about, really, details in the pipeline. The nervousness in the U.S. market, I think we also have some nervousness coming back to the European market. I think many business models, they get on the proof point of are they sustainable, how valid are they, are they vulnerable, not only in our industry but also in others.So construction industry is lagging behind. We all know this. It's a late phasing, and it's cyclical that many, many projects are still getting finalized. We know this. There is many statistics and expectations or projections on how the build and construction industry overall with the start of new projects could develop in the next 2 years, '21, '22. I've seen a projection that would show a decline in commercial buildings, a slight increase in public infrastructure, for example, and that's what I was referring to earlier. Are those projections good enough already, with enough substance? Or is it just a short-term impact that we're currently seeing? It's so, so tough to tell. So M&A, I would say, many people ask us, has the M&A pipeline changed? It hasn't really. I mean those targets that would come in consideration are the same ones, as this is a quarterly call, as I would say, the last quarter when we had the update call. No changes really there. We are ready. I think we have the certain firepower and willingness to do something if it's senseful, if it's a good strategic fit or another benefit to our portfolio, to our business model. And as you can imagine, we're always involved in some discussions, some further advanced, some in early stages. Some do lead to nothing. Some do lead to some diligence work. It's the normal -- it's a normal part of our work.
And there's really no change to your philosophy in terms of quality, reasonable size, established brand but nothing too big either. And you are certainly not looking at any businesses that are overly challenged and loss-making. Is that correct?
I wouldn't limit it, and I'm not -- I'm looking at Stefanie. I don't think we would have really limited to anything. I mean we have done early investments, but the majority, of course, is more mature, certain critical mass that was reached. We would have proven business models, profitable companies, more like, than loss-making companies. I think that's not of a surprise. I wouldn't have said that we would have limited it. Other than that, the average size of our transactions in the last 5 years is giving you kind of an indication. But clearly, the market has changed. Our acquisitions also got bigger over the years. So we're ready for many things that could make sense if they make sense.
The next question is from Knut Woller, Baader Bank.
Just 2 questions. The first one, Axel, if I have done the math correctly, maintenance was dropping to single-digit growth in the third quarter. It was down slightly sequentially. Can you break out what the currency headwind here was? Was it basically comparable to what we have seen on the group level. Then the second question is a bit looking beyond 2020, you're doing a remarkable job and holding up well in the current environment. Still, if I look at consensus expectations, it's basically expecting a return to your historical growth range of the last years. Looking at the sequential -- looking at the slowing deferred revenue momentum now also in the third quarter, which is just natural given the license weakness, looking slowing maintenance growth and also keeping in mind what you said about subscriptions, my feeling would be that current expectations to see such a sharp rebound in growth next year could be on the too optimistic side. Can you give us some feeling here? I know you will provide guidance at the beginning of next year, but just whether my reasoning has any material mistakes included or not.
Thank you, Knut. It's a wonderful question. I would love to answer at this point of time, but I'm afraid we don't give any guidance for next year at this point. I can understand your thinking, and we haven't been commenting on the consensus for 2021 so far, but we will, rest assured, early next year, clearly.
And on the maintenance side itself, Axel. So the slowdown to 6%, is that purely currency? So would we have seen adjusted for currency and still growth in absolute terms?
If it's -- yes, I'm sorry. I forgot this is your first question. I apologize. Yes, I think a general yes. But we need to also note that and mention that the business that typically has something beyond the pure maintenance contracts, which we have in all business pockets, really, is the Spacewell business. If I'm not mistaken, then they're also having a bit of a hard time -- that should also show in the Q3 numbers -- by getting some of the service and maintenance work executed out there because of the COVID-19 limitations. And so generally, yes to your question.
Yes. And the headwind coming from the U.S. dollar was around 2.5%, so the growth without currency was around 8%.
Okay. Great. But still decelerating a bit and reflecting the lower license trend we have seen in the first quarters. Okay. Got it.
As we have no further questions, I would like to hand back to speakers for some closing remarks.
Wonderful. So on behalf of the entire Nemetschek Group and family, a big thank you to Steffi Zimmermann and her team, thanks for your interest and loyalty and staying interested in the Nemetschek story. I think we'll keep you updated as usual and be back very soon. Thank you very much.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.