Smartcraft ASA
OSE:SMCRT
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
20.1
33.2
|
Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Earnings Call Analysis
Summary
Q2-2024
In Q2, SmartCraft experienced a significant ARR growth of 29%, reaching NOK 461.3 million, driven largely by acquisitions. Organic growth stood at 11%. Despite increased churn and downgrades, the company expects to boost recurring revenue from recent acquisitions. SmartCraft's margin stayed stable, with an adjusted EBITDA minus CapEx margin of 29%. The company also launched new products for cross-sell opportunities and completed two acquisitions that expanded its total addressable market to NOK 50 billion. Looking forward, SmartCraft anticipates a recovery in the construction industry and aims for 15-20% organic growth with improving margins.
Good morning and welcome to SmartCraft Q2 presentation. My name is Gustav Line and I'm the CEO of SmartCraft. Today, we'll talk a bit about SmartCraft and the market for those that do not know SmartCraft at all. But we'll also talk about the highlights in the second quarter. And then I'll give the word to Kjartan, our CFO, who will talk about the financials before we finish off with a summary and a Q&A.
And as always, you can pose questions in [indiscernible] and we will answer them at the end of the session. SmartCraft provides software for small and medium enterprises in the construction industry. And before we look at what we actually do, let's have a little look at what sort of challenges face these companies.
First of all, they run at a very low margin, and a lot of them go bankrupt. So I have some numbers from the Norwegian market, but I think they are quite illustrative of what's happening in other markets as well. So in 2023, 29% of all bankruptcies were related to construction.
There's another thing that is very challenging, and that's the fact that there's a high level of conflict between the construction companies and their end customers. And if you look at the consumer authorities, 1/3 of all the complaints are actually from customers and they are related to the construction industry.
And thirdly, another thing that is really challenging for this industry is the fact that there are a lot of accidents and a lot of high level of deaths compared to other industries. And actually 29% of all deaths at work is actually related to the construction industry.
So in order to sort of beat this and to get better, the authorities have enforced a lot of documentation and reporting on to these companies that are already struggling with low margins. So this is where we try to help them to provide good software to deal with specifically 3 things: people, material and documentation.
So when you have people out in the field and they account for most of your cost, you need to be in control and need to make sure that everything they do is captured digitally, all the hours, the use of materials and so on.
Secondly, the materials that you order from the vendors must be at a good price at the right cues to obtain the right prices through our digital solutions.
And thirdly, the documentation that is needed to prove that you are doing things according to rules and regulations, we help our customers with documentation both for quality aspects, but also for safety aspects. All of this is captured in our solutions. It's one flow of information for the people in the office and the people out in the field. So they always have the same view. And this way we help them to get better overview of their business and better control, and also increase their revenue and margins.
Today, we have a leading position in the Nordics. And since 2017, we've done 12 acquisitions, and we have grown, on average, nearly 30% every year. When we've done these acquisitions -- and the growth is not only through acquisitions, of course, they're also organic growth. But when you look at the acquisitions we have done, we typically buy companies with a low margin. And then we work to lift the margin as we go along. And when you look at the margin uplift that we have had over the last years, you can see we've gone from 36% to 40%, which means that we've really been able to lift the companies that we acquire to a higher level through working to focus on the right things and also to work better as one team. Today we have about 260 employees, and we are present in Norway, Sweden, Finland and Sweden.
The construction industry is massive. It's one of the biggest industries in the world, and it has a lot of pockets of opportunities. Our pocket of opportunity, and our main segment is the renovation segment. This segment is very interesting for several purposes. First of all, there is -- there are a lot of existing buildings that are in the need of renovation and services. And this segment is actually growing faster than the new build sector and is also bigger than the new build sector.
And as you might have observed, the new build sector is the one that is under pressure these days, where, because there are very few new projects. And this is really affecting the larger construction companies more than the smaller construction companies that are more engaged, like we talked about in renovation. A good driver for our customers is the fact that a lot of the existing buildings need to be more energy efficient, and a lot of our customers are plumbers and electricians, and they are the people that are asked to do these jobs. So that's a really nice driver for our customers. And of course, this market, especially the SME companies in the construction industry, are not very digitalized. So it's a massive opportunity, and that's what we are going after.
The market has been challenging for the construction industry, but we do see some early positive signs. And I should be very careful to sort of say that now things are going to be a lot better. But at least these are some information that I would like to share. One sort of mixed signal we get from the Norwegian market is that when we sort of really deep dive into different NACE codes and the type of customers we typically operate with, we see that the number of bankruptcies has increased quite a lot. But we also see that new establishments have increased over the last 12 months. That's a bit strange. So it seems to be maybe that some of the companies that go bankrupt actually start up as a new company a little bit later.
When we look at insolvencies in the U.K., on average, the number of -- the number of insolvencies has actually stayed the same over the last 3 years, or 29 months. It's actually gone down slightly in 2024. And with the new government in the U.K., they promised to -- or not promised, they have an ambition at least to -- to grow the number of new homes to 1.5 million, which means that they need to more or less double the level of new build activity over the next 5 years. So that's also a positive drive for the U.K. market.
And in Finland that has been hit quite hard by the construction downturn. We see some positive signs. We see that what is categorized as construction starts, that means projects that are starting are now actually exceeding the projects that are being completed. And that's for the first time since 2022. So difficult to say exactly what's going to happen over the next months, but at least these are some signs that we think could be encouraging.
So let's move to some Q2 highlights. I think, first of all, I would say the big highlight is the fact that our annual recurring revenue is now at NOK 461 million and it has increased by 32% compared to the quarter last year. And of course, that is driven by acquisition, but also by organic growth and also to a certain exchange -- the exchange rate due to the weak Norwegian krone. Very pleased to see that our margin is staying more or less the same. We have a 29% adjusted EBITDA minus CapEx margin, which when you -- and that's excluded for the recent acquisitions that we did in April and May. So the, call it, normalized EBITDA is actually quite similar to what it has been. And that churn is staying at a decent level. It's at 7.9%. It's up from 7.4% in Q2 and 7.4% a year ago as well. So it's still at a fairly decent level.
Another thing that I think is quite good to mention for Q2 is the high level of marketing and sales activities that we have in the group. We are gathering more around the SmartCraft brand. We can do more with the same resources and get more bang for the buck if you like it. And an example of that is the fact that we actually attend several big fairs like [ Norwich ] and Eliaden, which are the biggest sort of fairs for construction companies and electrician companies in Norway and Sweden. And that not only creates a lot of exposure, but it also creates a lot of leads, but also some interesting on-site purchases, which is also quite cool.
So in total, we have increased our brand exposure, the visibility in the market by 5x compared to last year in Q2. So we're quite pleased with that. So I think SmartCraft as a group is more visible than ever in the market, which has created more inbound leads. We have increased inbound leads by about 30%. And also as a result of the leads, we also get more sales meeting.
And another nice factor is that we also get more online sales, which is a result of the work we do to see if we can optimize more of the sales process, especially for the smaller packages that are easier to buy online, because if it's a more expensive package, you want to speak to a salesperson, which is quite natural, but happy to see that online sales is now increasing quite a lot.
Another thing that I would like to mention is the launch of Tellus. And Tellus is a solution for -- to help construction companies and transport companies to be able to capture emissions data. And they have to do this. It's required to do this in Sweden, but they had to estimate how the emissions were, but now they can actually get it real time.
So we provided something called Tellus. It's an open source solution that everyone can use and they can connect to Tellus in order to capture the data. We have made APIs to Volvo, Scania, MAN and also Mercedes is coming quite soon. And this solution is actually used by Skanska today with really good results. So this is really a great initiative to help the industry to become more clean.
And in Q3, we will launch a solution that will enable the companies truck and machine operators to actually connect more easily if they don't have developers on site themselves. So that will be more of a solution that is possible to buy and use in a very easy way. So that way we will both create stickiness and also revenue going forward.
Another thing that we're very pleased about this quarter is that we have launched some cool functionality for our customers. We have launched a new app for our Bygglet customers, which is the biggest customer base we have. And it's always a bit daring and always a bit risky to close down something that the customers are used to. But they've had the app for many years and now we turned it off in Q2 and replaced it with a new app. And the feedback is really good. We get 4.4 out of 5 of the use of the new app. So that's definitely been a good decision.
Secondly, we also launched -- or we are piloting a module for budgeting, which has been requested by our customers for a long time. The feedback is really good and we will launch this going forward, which will probably be Q3, I think, at the end of Q3. Another interesting initiative that we've been working on for probably about a year is that we are packaging different solutions into different packages.
And if you look down at the slide you see that we have 4 solutions, Cordel, Kvalitetskontroll, El-verdi and Elinn. And we have made integrations between those, so that we can package them into different packages to give great customer value. So the customers can now buy a low entry solution called Electro Basic, or they can buy a more premium solution, or they can go for the more sort of full-size solution where they get also advanced calculation. So this is a really good way to cross-sell the solutions and make it a lot easier for our customers to buy from SmartCraft and get more value out of what we have.
One of the -- probably one of the biggest events this quarter is the fact that we have done 2 acquisitions. And as I've talked about, acquisitions is definitely part of our strategy. And we have acquired Locka in April and Clixifix in May. And Locka is a great solution for 3D visualization, helping construction companies and property developers to visualize for their end customers how their potential flat is going to be. And then there's a lot of buying functionality and communication functionality between the company and the end user.
Clixifix sort of takes over a little bit further down the line, when the property is actually finished, the flat is up and running, the customer has got the keys and the service period starts. That's where Clixifix comes in. And it's a great tool for creating service orders, complaints and repairs between the end user and the property company or the construction company, and also connecting this to subcontractors.
So this has been a great addition and also we're very pleased to be able to enter the U.K. market. We think there's a massive potential and we have lots of opportunities there. A thing that we find is that the market has gone softer, the construction market, which has also enabled more dialogues with potential targets, sorry.
So today we have 11 solutions and like I talked about a little bit earlier, we worked to put these packages together and we looked at Cordel, El-verdi, Elinn and Kvalitetskontroll and showed you how they can be packaged into different packages that make sense for the customers. And this is something we're going to do and look at for different solutions we have. And the way we see it is that everyone is trying to solve a bit of a big puzzle, but we are putting the pieces together to create a bigger picture for our customers.
So with the addition of Locka and Clixifix, we have increased our TAM dramatically. And the last time we calculated the TAM was in -- actually based on data from 2020, so we thought it was a good time to look at the TAM again. We applied the same methodology that we did in 2020 and just used the same way to calculate the TAM in the 3 markets plus the U.K. And then we arrived at the TAM of NOK 50 billion and 700,000 addressable construction companies. So we think this is very interesting. And remember, again, these are companies that do not have -- most of them do not have proper solution to solve their needs.
So just to sum up the key takeaways, before I give the word to Kjartan. We continue our growth with high margins, and despite the slightly challenging construction markets. We have some very strong results from marketing and sales across the group, mostly driven by the fact that we now work much better together and also apply methodologies that we have best practices around the group. We showed you some new product launches that will help us to drive both stickiness upsell and cross-sell. And finally, the 2 acquisitions that we acquired has increased our TAM to about NOK 50 billion.
So with that, please, Kjartan, take it away and talk about the financials.
Good morning. So let's get straight to it. So, our ARR has a significant growth in Q2 and it ends at NOK 461.3 million. It has a total growth of 29%, largely driven by acquisitions, and organic growth is 11%. I will come back to some positive signals in the markets shortly, but we do see increased churn to 7.9% and still a high level of downgrades hampering our growth.
While the additional ARR from acquisitions is high, the recurring revenue share in these companies are quite low and at a lot lower level than the rest of the group. This provides an upside for us to transition non-recurring revenue and boost ARR growth in the future. As I said, the recurring revenue share in the acquired companies' acquired solutions are a lot lower than the rest of the group and thus the recurring revenue share for the group in Q2 declines to 89.6%. If we exclude the 2 acquisitions that we did in Q2, the recurring revenue share for the rest of the group increases to 97.4%.
So we have a good track history of increasing our recurring revenue share. And as a part of our strategy, we will of course focus on this in the latest acquisitions as well. In total, we expect over time to be in the mid to high-90s range, as we have been before.
Of course, as all acquisitions we have done, the latest acquisitions have a lower margin than the rest of the group as well. So naturally there is quite a dilution from acquisitions now that we have not only did 1 but 2 this quarter. And the acquired companies dilute the group acquisition by 3.2 percentage points. So the adjusted EBITDA minus CapEx margin goes down 3.5 percentage points. The difference, the 0.3 percentage points, come from investment in marketing and investment in scalability as we now are entering new geographies.
We do have a proven track record to increase the profitability in all acquired solutions. And that is, of course, the expectation going forward as well. Now, as we grow, we spend more higher amount on development and capitalizations. But as revenue increases more then the percentage has now gone a bit down. We are expecting roughly 9% in total for the year 2024.
If we look at the segments in a bit more detail, in Sweden, we have a very high growth of 47% in total. This is, of course, driven by acquisitions, but we also maintain our momentum in sales to new customers. Comparing to 2023, the growth has gone down a bit. But in 2023 we had a very high boost in non-recurring revenue as we had the handbook sales to the electric market.
The positive signals in Sweden are very good. We did sign a major customer, Stockholmshem, which is one of Sweden's largest housing associations. And we have great feedback from our Tellus project and our new budgeting module. Of course, in Sweden, with acquisition, the margin is diluted as well and that affects the whole segment.
In Norway, we still have a very solid revenue. This comes from a structured sales process that drives the growth of new customers. Also, as the other market segments, we do see increased churn and a high level of downgrades. The margin in Norway will, at first glance, decrease. But if we look at a bit more details, then we see the comparable figures for 2023 was quite high because we had high capitalizations. The capitalizations in 2023 was adjusted at year end. And if we look then at the adjusted EBITDA minus CapEx margin, the underlying operations grow by 2 percentage points.
We have a high level of sales and marketing initiatives, especially towards the electricians market. We are piloting a new solution and we are looking at packaging the existing solutions together. We received great feedback and expect a good future opportunity in this electricians' market.
All in all, Finland -- the Finnish market is still challenging, but there are a lot of positive signals here as well. First of all, the negative growth has stabilized. We have the same growth in Finland in Q2 as we did in Q1. And also some statistics in the market shows that initiated construction projects are now higher than the number of projects which is closed. We also have a very good activity in sales and marketing, and we see a higher activity level with our customers increasing the transactional revenue for us. Of course, as before, when the market in Finland turns, we expect a growth tailwind.
Our cash flow and balance sheet is still very strong. Now, although I'm delighted to present more than 200% increase in operational cash flow, there is an important note to this as well. In 2023, we paid out more than NOK 17 million in earn out and as this was expensed, we had to change the classification from investing activity to operational activity and thus reducing the 2023 cash flow from operations. If we disregard this change, then the growth in 2024 is roughly 0%. That being said, we also had tax payments a lot higher in Q2 '24 as we did in Q1 '24.
On the balance sheet, that is, of course, still very strong. We are net cash positive and we still have a negative net working capital. The acquisitions, of course, affect most items in the balance sheet and we had net cash payments of NOK 157 million in the quarter relating to the 2 acquisitions. Lastly, we have now roughly 2.2% treasury shares at the end of August, and the program has now ended.
And with that, Gustav.
Thank you, Kjartan. So, just to sum it up, we will definitely continue to focus on driving in this market. We have a very customer centric model, which means that we're very close to our customers. We talked a bit about sales and marketing activities that we do. We will continue to be even better at optimizing and driving sales excellence and continuing to do really cool stuff in the market. And a big potential for us is to do more sales automation and self service. That's something we both invest in and spend a lot of time on. And we will, like we have [ done ] quarters, look for more acquisitions in existing markets and also outside existing markets. And like Kjartan talked about, we are very concerned about being prudent on cost. So we do anticipate a recovery in the general construction industry in the coming years. And we reiterate our medium term financial targets of 15% to 20% organic growth, and we expect margins to increase due to the scalability of the business.
So I think, with that, we should close the presentation and go to the Q&A. So, Kjartan, please join me.
Thank you, Gustav. We have several questions coming in from the webcast. And just to remind you, it's still possible to pose questions in the player. So first question is, can you say something about your pipeline for future M&A? And what is the potential in the Nordics compared to outside of the Nordics?
Sure. I think the pipeline in the Nordics is something we've been building up and maintaining over a long time. So it's actually fairly constant. It's good and constant. But I think there is great potential in U.K., definitely. So that's something we are working on at the moment. We think there's lots of opportunities there. So that would be our main focus area, but we are not disregarding new markets as well.
One other question regarding U.K., how do you plan to drive growth there? You mentioned M&A, but also organically, what's the potential there based on the platform that you now have acquired?
Well, the company in the U.K., Clixifix, has done a fantastic job and they have sort of built the company stone by stone. And the team is really, really great. I think, I really like the energy and the way they think. So I think it's a lot about scaling what they already do, investing a bit more, or making sure that we can scale using the methodology that we use in the rest of the group. We are hiring a full time marketing resource that they haven't had before. And of course if you have a half time marketing resource, it's difficult to do a lot of marketing, for example.
So we will see how we can scale the company. That is still early days, but there's a lot of potential. And we will also take off some of the complexity that they've had in the past, now that they are part of the group, so that they can focus more on business as well. So that would be the organic part of the growth.
Perfect. And when it comes to the other acquisition that you made in the first half, Locka, how do you plan to increase the revenue, the recurring revenue share there? And do you think it's possible to lift the recurring revenue share to the level in the rest of SmartCraft?
Yes. Yes, definitely. Locka has been in a special situation. There have been short of cash basically, have been restrained liquidity means -- which means that their business model has been trying to get as much money upfront as possible. But now that we have a solid bank with [ chart up ]. We are actually able to sell more like the way we would like to sell it as a service where you pay along the road, down the road rather than one big investment upfront. And we think this is much better for the customer because it creates more assurance for future payments as well. So we think it's good for us and we definitely think it's good for the customers.
And can you also give an update on the progress so far in terms of cross-selling or bundling of your solutions for electricians?
Yes, we did mention that in the presentation what we are actually doing. That's the main initiative we are doing and we are very pleased so far. But we are not revealing any numbers yet. Hopefully, we can talk more about that in the Q3 because it is still piloting, but it is good results so far.
Is there anything report with regards to cross-selling Locka, HomeRun and Clixifix. Have you done anything there so far?
No, we are having people sitting down to look at what are the opportunities. There's a lot of energy around what we can do, but we need to take that down into concrete actions.
All right.
And it's important to remember that the company was acquired just before the summer holiday and then there's been summer holiday both in the Nordics and in the U.K. So basically the people from the U.K. are more or less back from holiday -- well, this week actually.
All right. There's one question on -- more on the market sentiment. You had some reference to various data. Can you elaborate anything on what you're hearing from your customers? Are they getting more optimistic and interested in actually investing in digital solutions?
I think what we hear from our people out in the field is that the market is more or less the same, but people are a bit more concerned since there's been -- the challenges in the market has been going on for such a long time, which means that we sort of feel that some of the decisions are being a bit more delayed. It's a little bit more difficult to -- a bit more uncertainty in the market, I think, in general. But there are also, like we talked about some signs of maybe a bright future that hopefully will also boost some optimism. So it's difficult to say, it's a bit uncertain.
One more on the U.K. Any of you or any sort of information about the digital adoption over there? Are they as mature and ready for the digital solutions as -- as the Nordic clients? And also, how's the competition, would you say?
Yes, we've done some presentations of our solutions to the rest of the group and the people in the U.K. were like ecstatic of what they saw when they saw some of the Nordic solutions that, wow, this is absolutely amazing. If we can have this in the U.K., that would be the best thing since [ life spread ]. But we'll see. We're definitely looking into that. The impression is, and it has -- not only for construction software, I think software in general, the Nordics are much in front of the rest of Europe and also the U.K. So there's a great opportunity.
Perfect. Couple of questions on current market environment. Being well into the third quarter, can you say anything about how the quarter has started? Something similar, anything particular to be aware of?
I wouldn't say anything to be aware of. I would say it's more or less the same as it has been. Good activities, our people out in the field, meeting customers, doing events and doing marketing activities. And the response is fairly constant to what we've seen in the past.
Perfect. You touched upon your growth targets, the medium and long-term targets. Would you say that you are dependent on the cycle, so to speak, to reach that target, get into that corridor again? Or can you get there even if the construction market remains weak?
I would say we would definitely have a nice push with the market getting back into a better stage. I think that's fair to say. And we have been having a downward trend in our growth. So I think that would definitely give us a good push, saying that we are looking into the opportunities we have in the U.K. We are doing some really interesting initiatives. We're sort of pulling together the resources and the acquisitions, and things are starting to fall into place. But I think it would definitely help us to get into the corridor with a bit of a market getting back. And it has -- it's important to remember the crisis that the construction market is in at the moment is the deepest crisis it's been in for many, many years, and it's not -- it can't go on forever.
All right. Final question for now, at least. Do you think that the Q2 ARR was boosted in any way by the calendar effect relating to Easter this year?
Not in any major way, I would say. Easter always -- Easter is, of course, coming every year, but it's sometimes in Q1, sometimes in Q2. We see a slowdown in activity with the customers around Easter, but we don't see any major changes in Q2 [ now ].
All right. There are no further questions from the webcast viewer at this stage.
Well, let me take the opportunity to say thank you very much for tuning in, and have a great day.