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Welcome to the SmartCraft's Q4 presentation. My name is Gustav Line, and I'm the CEO of SmartCraft. I'm pleased to announce that we, for the seventh quarter in a row, continued to deliver on guided revenue and margin. We experienced great demand for our solutions and that they are a good fit in today's economic environment. And we continue to deliver strong operational cash flow. And at the same time, we have improved scalability of the company and reduced operational risk. You'll hear more about that in our presentation, and we'll finish with the Q&A. And you are more than welcome to post questions in the webcast tool.
In turbulent times, there is an increasing need for good solutions in order to look after your margins as they are under pressure. There are especially 3 areas that keep our customers awake at night. For a long time, for many years, they have not been able to attract skilled talent, and this is especially in the areas of plumbing, ventilation and electro. And this is where we have most of our customers. And when they lack people, they need to maximize the people they have, and that's why they need good digital solutions.
The last years, we've seen a dramatic increase in regulations and project documentation, both from regulators and from property owners. And in order to keep ahead and to be able to deliver this documentation, our customers need to capture the information out in the field with apps and digital tools.
Thirdly, what keeps our customers awake at night is that material costs have increased dramatically the last year and they need good systems to buy the right materials at the right price in order to control their margin. So as you can see, our solutions give our customers the competitive edge to increase both revenue and margin.
The construction industry is large and it's a big market with low digital penetration. Our customers work mainly in the SME segment. And this is the part of the construction industry that is less volatile as they are not working with large new building projects. And there are a lot of buildings in need of upgrade, service and maintenance, and this is the sweet spot of our customers.
Today, SmartCraft has a leading position in the Nordics, and we are constantly gaining market share. Since the IPO in June 2021, we have grown the customer base by 33%. And today, we have a good presence in our key markets, which is a good basis for further growth. In Q4, we present another record-breaking quarter. And this shows the solidity of our business model and our ability to execute. And all we do is about growing recurring revenue. And in Q4, the annual recurring revenue grew by 19%. At the same time, we increased our margin and kept churn at a low level.
But I'll now pass it on to Kjartan, our CFO, for some more financial details.
Thank you, Gustav. Good morning to you all. It's great to be here and great to see so many logged in. I hope this is because many have seen the robustness of our business model even through these turbulent times. So SmartCraft delivers another strong quarter. I wish to highlight 3 figures. Number one, recurring revenue share is at 96%, with a high recurring revenue share and consistently low churn, new sales and upsells all contribute to figure #2, which is 19% growth. Both organic growth and total growth are at a high level. With increasing revenue, high gross margin and full-time personnel as the majority of our cost base, we scale very well. And this leads us to highlight number 3.
In Q4, we have almost 41% margin. We do guide on increased margin due to scalability. And indeed, this is what we see. The increase in margin in Q4 is also including a 1.2 percentage point dilution from acquisitions, and this is improving our confidence in our ability to increase margin in acquired solutions.
As before, we have a solid financial position. The few changes in the balance sheet in Q4 include acquisition of ELinn and the buyback of shares. The buyback program was initiated in November and has a mandate of up to 2% of the shares. By the end of December, we have repurchased 450,000 shares. This is equivalent to 0.26% of the shares.
We are still net cash positive. We have a negative net working capital that contributed to operating cash flow. And SmartCraft has a positive cash contribution from operations every year and every quarter. We are highly focused on recurring revenue. Organically, ARR grew by 17%, and in addition to the 2 latest acquisitions, we have a total ARR growth of 19% and NOK 318 million.
In earlier quarters, we commented on a prolonged sales cycle. We still see this in Q4, but we also see positive effects from earlier quarters that came in Q4, contributing to sales and organic growth. Additionally, we have improved our sales process and increased our sales conversion. Going forward, we do still see a very strong pipeline.
In 2022, we were present in Norway, Sweden and Finland, and our solutions were managed cross-border. In the second half of the year, we restructured the group according to geography, with newly appointed and promoted country managers and country management. Going into 2023, a natural change is to align our reporting segments to this structure. In the Q4 report, we have stated both the previous and the new segments, and for your convenience, we have also included a spreadsheet with 2-year history of the new segments.
Looking at the actual segments now in Q4, you can see we had high growth and high margin in all geographies. It is now 2 years since the IPO. And when we IPO-ed, we guided on the medium term. Looking back in the 2-year period, we see we have a high organic CAGR of 19.5%, and we had a total CAGR of 23.6%. For the past 2 years, the macro picture has been a turbulent one. And it's not exactly what we envisioned 2 years ago. Nevertheless, we are and we have been always confident in the robustness of our business model, and we have not seen any reason to alter our targets. Our high focus on ARR, mission-critical solutions, a solid financial position and our disciplined approach to acquisitions is why we expect this solid track record to continue. And our medium-term financial targets remain unchanged.
So Gustav?
Thank you, Kjartan. As Kjartan said, we have a strong position in the market and our guiding is unchanged. And we want to go through some reasoning to why we have a positive outlook. And to do that, I would like to introduce Katja, our Chief Marketing Officer. Katja has more than 25 years of marketing experience from international and Nordic companies. She has, however, worked for SmartCraft for the last 5 years. So she knows our business really well and stepped into her role this autumn.
So I'm very happy to have you on the team Katja. So please take us through the next slides.
Thank you, Gustav. I'm truly excited about getting the opportunity to spread the word about our company. But now I will talk about our market strategy and show you some really interesting figures when it comes to our sales funnel. And due to our extensive marketing, we have a high number of inbound leads. And this figure, combined with all the outbound leads we get from all our cold calls, we experienced that we have a lot of sales meetings and these sales meetings are resulting in 61% of sales, 61%. This gives us 2 strong messages. One is that we have great solutions that solve the everyday problem of our customers. And secondly, we have really good salespeople who truly understand the needs of our customers and everyday challenges. In fact, they are also considered to be the trusted adviser of many of our customers.
Another figure that I would like to share with you that is not on the screen is that in Sweden, we are right now experiencing growth also in online direct sales, and it has grown during 2022 with 13%. And while this is an interesting figure, I personally consider is that it will, on the long term also lower our acquisition of sales, acquisition of customers.
The last figure I would like to bring to your attention is our lifetime value divided with our cost of acquisition. It's on 20. And the reason for this is that we have a really low acquisition cost, and that is due to our quite smart marketing and sales efforts together. Then we also have a low churn. This figure is also telling us that we build customer value in a really good way, and our customer stays for a long time.
And talking about customer value. When setting up our technical road map, we work very closely together with our customers in order to capture the features that they find most interesting. And also, we're trying to solve the very current headaches they're having for the time being. I will give you 3 examples of this. In Q4, we launched a customizable dashboard. And in this dashboard, we always show the status of the ongoing projects where they, in 1 view, and in real time can see the costs and also the resources that are being used. And if there are any deviations to the projects, they can take proactive actions at the right time. And thus, we get less cost damage in the company.
Secondly, right now in pilot, we have a modernized calculation tool, which is predicting material use and also the required installation time. Through this tool, we help our customers to make more accurate tenders and in that way also lower the cost. It's simply just no surprises in the way it used to be. A positive side effect is also less waste and carbon footprint due to less over dimensioning, which is usually a quite huge problem within the industry.
Thirdly, I want to raise also another popular feature where we are tracking finances on all the projects. So if the customers have a lot of changes to the products or add-ons, they won't forget to invoice their customers in turn, which means that they will be more profitable. So lower cost and more profits helps our customers to be more competitive in the market.
So how can we have such a positive view of 2023? Our customers operate in the SME segment, and they work with service, maintenance, upgrades of existing billings. And in these sectors, there is more solid demand over time. We're talking about plumbers, electricians, construction workers. And there we also have a further great boost in energy savings initiatives and clean energy. So given the demand, we find the outlook quite right and also that we have a lot of new sales and upsell opportunities. And the best of all, we also have the figures to prove it, which I will show you right now.
This slide show you 2 bar charts. And the figures we have aggregated from data collected from 1 of our largest solutions, Bygglet. And here, we are able to follow the average number of active projects and also the amount of invoices sent out by our customers, the aggregated amount they are invoicing their customers in turn. The first bar chart at the top, it tells us that 2022 are at the same level as 2021 when it comes to the average number of projects per customer. And in January this year, we are even seeing a further increase. Even more interestingly, I find is that we, in the lower chart, see that the customers invoice an average more per month compared to previous year. Also with an additional increase in January 2023. So our conclusion from this is that our customers are doing well and even increasing their business.
Some other interesting figures we have from other solutions is the activity level among active users or customers per solution. So in the bar chart to the left, you can see the growth of active users for every single month compared to the previous year. Also now in January, you see an increase. And to the right, you see a continuous growth of activities by our customers.
Now I will hand over to Gustav to continue.
Thank you very much, Katja. We have a strong value proposition to our customers. And 1 of the things that are really appealing is that we have a very low price point, and we also have low monthly fees with no extras. In 2022, we adjusted our prices at the start of the year. And unlike most of our competitors, we refrained from raising them further as inflation increased. This gives us room to increase prices in 2023 at a higher level, broadly in line with the CPI.
I think it's worth mentioning that the construction sector is 1 of the biggest industries in the world, but the turbulences that we've seen in the market hits the whole industry differently depending on which part of the industry you work in. And our customers like Katja said, work in a less cyclical part of the industry, and they experienced good demand as they work mainly with renovation, upgrade and services of existing buildings.
We work continuously to improve the way we do business and our solutions should be easy to buy, they should be easy to boost -- to use, and we should be easy to do business with. And all we do is focused on making great solutions at affordable and predictable costs. And since the IPO, we worked to reduce risk and to increase our competitiveness. Today, we have 33% more customers and virtually no single customer dependency. Our level of repetitive revenue has increased, while churn is at a low level. And also, like Katja said, in the sales process, we have become more efficient with a higher sales conversion rate. And these are some examples of how we work to reduce risk.
Our business model is very strong. Our customer acquisition costs are covered within a year. And with low churn and customers paying in advance we have a low risk. And after 1 year, we see a 90% incremental cash contribution every year, and this is the beauty of our business.
Software is all about scale, and we work continuously to do more with the resources we have. And here are some examples. We have a new leadership team in place, and basically, they focus on creating synergies and holistic execution per country. We also established a new marketing team led by Katja maximizing return on marketing spend across the group.
We're also continuously working to see how we could be efficient with our operating environment. So to make sure that they are both scalable and secure, but also how we can tune costs on the different data environments.
So let's move to M&A. Acquisitions are an important part of our strategy, and we have acquired 9 solutions in the recent years. We have some well-defined selection criteria when we look for targets. One of them is to acquire additional customer base. Another is that we would like to acquire unique functionality for cross sales. Of course, ideally, we get both customer base and unique functionality. We also want to buy teams and solutions that are fit to the market and have great SaaS understanding and mindset, understanding how to run a SaaS business. We would like the solutions to have commercial proof of concept, meaning that we can see that they are a good fit in the market and customers are willing to pay for them. The solution should be standardized. We would like them to be unique, but not too generic. Generic solutions are quite easily copied.
And then we have a well-functioning integration model, basically doing 3 main things. First thing we do is to make sure that the teams we acquire have the right focus and efficiency and that they do what is good for the longer and how to run a really good SaaS business. Then we also look at the SaaS business model and the way they price the solutions in order to move as much revenue as possible to repetitive revenue. And then, of course, we look to see how we can synergize with the group, taking the best out of the target and also the best of the group to do share-based practices.
In 2021, we acquired HomeRun and Kvalitetskontroll. And you can see the improvement we have done with those 2 companies. We improved revenue by 29% in 2022 and also increased the EBITDA margin by 22 percentage points. And as a matter of fact, the 9 acquisitions we have done, we managed to improve both revenue and EBITDA in all of them. I think the 3 latest acquisitions we've done are great examples of what we would like to do -- to buy. Kvalitetskontroll, they have a great solution for quality assurance. And they also have a great customer base. Elverdi and ELinn are excellent solutions for electricians, quite unique, specialized and they are still a little bit early in their commercialization phase, but we think that they can be great to grow on their own, but also great for cross-sells.
We have a solid balance sheet. We have cash at hand, and we have no debt. And this gives us several opportunities to execute on our strategy. We will continue to look for strategically good solutions to buy, and we will consider to invest in different initiatives, both in sales and development to increase our market share. However, we want to show capital discipline and invest wisely.
So we now come to the end of the presentation. And just to sum it up, we continue to deliver profitable growth according to plan and strategy. We continue to tune organization and solutions to reduce risk and increase our competitiveness. And at the same time, we continue to deliver strong operational cash flow.
So now let's open up for Q&A, and please join me Katja and Kjartan.
So we got quite a lot of questions, and I'll just see where to start. Yes. Could you provide a breakdown of the churn drivers? Bankruptcy, switching costs and other? And do you expect churn to stay at 6% in the future? Or do you see any structural reasons why churn should be different, better or worse? I think, Katja, you have looked quite much into churn. So maybe you could elaborate a bit and Kjartan, if you will, please also add.
Yes. When we are looking at churn across the different companies, we can see there are some variations, of course, but there is a problem within the sector that there are some bankruptcies, and we are, of course, also looking into that carefully during the year to come. But we can't really see that, that figure yet has increased. And as you can see also from our figures, it stays rather stable. So we're thinking the outlook looks rather well. Do you have anything to add, Kjartan?
Well, we previously have said that most of our churn is due to bankruptcies. This is still true. The increase we saw from Q3 to Q4 is also related to bankruptcies. But as Katja said, any major changes, we don't really.
Experienced yet.
No.
Okay. There's another question. What does the large financial expenses related to this quarter? I think that's a question for you, Kjartan.
Yes. In 2021, May, we acquired HomeRun. And HomeRun had an earn-out agreement which ran both for 2021 and 2022. So in 2021, we included the earn-out in the PPA and in 2022, we had to book the earn-out in finance. So of the total finance, NOK 12.7 million is relating to the HomeRun earn-out.
There's another question. The cash flow is a little bit weaker than expected. What do you expect from net working capital versus sales in 2023 to '25 in the medium term?
Yes. Just to address the first part of the question, the weaker per se, cash flow relates to the organizational change we did in the second half of the year. When we had the country management structure, we also aligned all of the companies within the same country. So we had some prepayments, some salary alignment of timing and when to pay, which has an effect of about NOK 3 million -- NOK 3.2 million in Q4 on a negative. So that is the Q4 part of it. Going forward, we still expect cash flow to increase. We have increased every year. We still expect this increase to continue. We have previously also said the drivers behind it is the prepayment from our customers. Customers are prepaying their subscriptions from everything between 1 month and 12 months, and that will continue.
Okay. Thank you, Kjartan. And there's a question about what is the mix of end consumers, end customers for your customers in terms of consumers, public sector, SMEs and enterprise, any rough approximate?
And I can answer that. We don't break it down exactly on the level that you asked for. We don't actually have the exact figures, but I would say we have previously said that about 10% of our customers are in -- of larger companies, and I think that still stands. We have quite a lot of consumers that use our solution where we don't have a figure to present, but they don't pay for the solution.
There's another question. What is your view on the M&A market in your sector? Do you see any changes in valuation multiples?
I think the M&A market was quite heated a year ago, and it cooled down around Christmas 2021. And in 2022, sorry, around last autumn, we saw that it's cooled down. And now we see that a lot of the private equity companies are sort of staying away and we see that there are more companies that were previously growth companies that are now struggling for finance, and they sort of knock on our door. I think the multiples are still quite high. We are quite positive to the market. We are in a good position to buy companies. But still, we are looking after our money and still going being a bit picky when it comes to picking the right opportunities. So the market is better than it was a year ago, but the multiples are still quite high.
We have some more questions. Are you expecting to expand into new geographies this year?
We have an acquisition strategy, which means that we want to grow by acquisitions. And if we expand into new geographies, it will be by buying another company. So that could happen. But I can't say anything more than that.
So there's a question here. How much price adjustment did you do in 2022? And what range do you see scope for in 2023? Kjartan.
Yes. When it comes to price, the -- we adjust prices annually, and we have historically. At the start of the year, we adjust prices according to roughly the CPI. And we did so last year as well in the range 3% to 5%. This year, we, of course, have a lot higher inflation. So we expect price increases to contribute to revenue between 5% and 7%. And yes, we started already in December to announce new prices. So yes, it's higher, of course, than last year.
There's another question relating to this, Kjartan. The price increases, does that mean that we will move from sort of NOK 7 to NOK 8 on average per day per customer, per user?
It's -- we see that NOK 7 is, of course, a rounded figure. We are some decimals above NOK 7, but not enough -- close enough to NOK 8. So I would say with the price increases, probably higher and possibly even rounding off to 8%, but not fully NOK 8.
Okay. Margins appear high in Sweden. Could you tell us more about the room to reinvest and accelerate growth in the region? Similarly, margins appear relatively low in Finland. How do you expect margins to develop here and why?
So I think it's important to say that we -- the different solutions and the different teams have a history and a different way of doing business. And we are sort of harmonizing that. The markets are quite similar. So I think you should expect that we have a more homogeneous margins and growth in the future. Anything else that you would like to add, Kjartan?
No, it's true. And if you -- we provided a 2-year history of the segment. So if you take a look at that, you will see quite a defined effect every time we acquire a company. So the margin, of course, goes down. And as Gustav just showed you, the 3 latest acquisitions we have done is in Norway. That's why the Norwegian margin is lower than the Swedish margin. And before that, the 2 acquisitions was done in Finland. So we are constantly improving the margin. It's a matter of maturity and when we acquire companies.
The last question is, how do you intend to progress with SmartCraft's M&A strategy in 2023?
And historically, we have done about 1 to 3 acquisitions every year. And well, we expect to be on that level also for 2023. And we are in good dialogue with quite a lot of companies in the Nordics but also companies outside the Nordics. So that pipeline is good and solid. So we'll see how that progress.
So I think that is the end of the session. And thank you very much for tuning in, and have a great day.