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European AEC software: surprisingly strong Q1

European AEC software: surprisingly strong Q1

May 26, 2020 | Hot Topics

Autodesk, the Big Daddy of AEC, reports Q1 results tomorrow so it’s time to play catchup on the earnings of its public competitors. Bentley, the #2 player in AEC, is not saying anything publicly right now because it filed (again) for an initial public offering in February. But we do know what Nemetschek and RIB said, so let’s get to it.

Nemetschek Group, the parent company of the Nemetschek, Graphisoft, Bluebeam, Vectorworks, and other well-known AEC brands, made maybe the most positive-possible statement today when its board voted to pay out a dividend that is slightly higher than in 2019: €0.28 per share (versus €0.27 per share in 2019). If approved at next month’s Annual General Meeting Nemetschek would pay out a total of €32.3 million. We’ve talked about this before: paying dividends to shareholders means that cash isn’t available to fund immediate operations — though it’s a bet on the future when the company hopes returning that cash to investors will increase the share price. Given its Q1 results and the visibility it has into its sales pipeline, the company is clearly confident in its ability to generate enough cash. Axel Kaufmann, Nemetschek Group CFOO, explained it this way: “Even though the current environment due to the Covid 19 pandemic is expected to influence our business development, we still expect another good earnings level in 2020. This and our high financial strength justify that we allow our shareholders to participate appropriately in the successful 2019 fiscal year, even in these difficult times.”

For Q1, Nemetschek reported total revenue €147 million, up 13% (up 11% in constant currencies, cc), and up 10% on an organic basis. As with everyone else in our PLMish world, recurring revenue remains a growth driver, with revenue from that category up 27%. With characteristic calm, Nemetschek said “This more predictable revenue is of great importance to the robustness of the Nemetschek business model especially in today’s uncertain market environment”.

By segment, the Design products reported revenue of €77 million, up 2% as reported (up 1% cc). The company said that the Design segment started to see the effect of Covid-19 in March, when customer demand started to decline. The Build and Manage segments, reporting revenue of €49 million (up 20%) and €10 million (up 2% respectively). During its earnings call, Dr. Kaufmann said that the Build segment hasn’t yet seen the effects of Covid-19, Finally, Nemetschek’s Media & Entertainment segment reported revenue of 13 million, up 68% as reported and up 17% excluding the recent Red Giant acquisition. In general, Dr. Kaufmann told investors, in Q1 the company saw a deceleration of growth in parts of Asia and Europe — so slowing but no decline.

He expects the year to unfold (as do many others) with a significant deceleration in Q2, followed by a gradual pickup in Q3 and Q4. He expects everything to roll through the businesses Design business first, the Media & Entertainment, then Manage and finally Build; and in Asia first, then Europe, then the Americas. For Nemetschek as a whole, this means a decline in new license (perpetual) payments but solid growth in recurring categories (subscriptions and maintenance). For 2020, therefore, Dr. Kaufmann sees total revenue stable to slightly up.

RIB Software, the Germany-based maker of construction-focused solutions, reported that revenue was up 40% to €65 million. RIB reports in two main buckets: iMTWO, which is its cloud segment, revenue was up 43% to €63 million. The company said that the number of users of its cloud-based MTWO and iTWO platforms was up 18% to 81,586 users during the quarter — an important milestone, since it’s over 80% of the way to its goal of reaching 100,000 users in 2020. xYTWO, the building products portal, continues to struggle, with revenue down 19% to €2 million. RIB says it will reduce investments in xYTWO to focus on expanding the iMTWO segment.

You may remember that Schneider Electric is acquiring RIB. By the end of April, Schneider had acquired around 77% of RIB shares. Another milestone was on May 11; I’m not sure how many shares were acquired as of that date. But the bottom line is that Schneider effectively controls RIB at this point.

Given all of the uncertainty, RIB decided to yank its financial guidance for the year.

Even so, it was a good Q1 for AEC software vendors. As we’ve seen across our PLMish universe, Q1 might wind up being the bright spot — certainly of the first half and possibly of the entire year 2020. Recurring revenue is a lifeline right now, and companies are doing everything they can to shore up those lines of business. They’re also enacting cost-saving measures — but, notably, no one has mentioned a layoff.

Finally, from talking to AEC user firms, this new normal hasn’t been easy to get to and it’s still shifting like sand. IT departments had to scramble to provide work-from-home access, and some firms were far more successful at this than others. One possible bright side of this whole saga: senior management is finally hearing the digital transformation message. The short-term goal is to survive a possible second wave/peak in a few months. But the longer-term goal is far more ambitious: to rebuild the business to be far more agile, to take advantage of technology to new things, perhaps better than before. Thrive not just survive.

Let’s see what Autodesk has to say about all of this tomorrow.

UPDATE: I completely neglected to tell you that Nemetschek announced the acquisition of ADAPT, maker of concrete structural design tools. Add this to RISA’s steel capabilities, and Nemetschek says it now offers “an all-material building design solution under one roof”. Terms of the deal were not disclosed.

 

CAE is cautiously optimistic: News from Altair, ANSYS, and ESI Autodesk's Q1 was decent, hints at stable employment at its customers
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