Earnings call transcript: SmartCraft ASA sees robust Q1 2025 growth amid challenges

SmartCraft ASA reported its first-quarter earnings for 2025, showcasing a strong performance with annual recurring revenue reaching 493.5 million, marking a 23% year-over-year increase. Total revenue stood at 137 million, slightly surpassing forecasts. According to InvestingPro data, the company has maintained impressive revenue growth of 27.16% over the last twelve months. Despite facing challenges, including customer downgrades and bankruptcies, the company demonstrated resilience with a 6% organic growth. The stock reacted positively, with a 1.77% increase, reflecting investor confidence in SmartCraft’s strategic direction, though it’s currently trading near its 52-week low.

Key Takeaways

• SmartCraft ASA achieved a 23% year-over-year growth in annual recurring revenue.
• The company launched new products, including SmartCraft Spark, targeting electrician companies.
• Despite challenges, SmartCraft maintained a strong market position in Nordic countries.
• The stock price rose by 1.77% post-earnings announcement.

Company Performance

SmartCraft ASA continues to strengthen its market position, particularly in the Nordic region, despite industry challenges such as low construction margins and high bankruptcy rates. The company’s strategic initiatives, including product launches and market expansion into the UK, have contributed to its robust performance. However, the sales conversion rate saw a decline from 60% to 30%, indicating potential areas for improvement.

Financial Highlights

• Revenue: 137 million, surpassing forecasts.
• Annual Recurring Revenue (ARR): 493.5 million, a 23% increase year-over-year.
• Recurring Revenue Share: 94.7%.
• Organic Growth: 6%.
• Adjusted EBITDA margin: Slight increase.

Market Reaction

Following the earnings release, SmartCraft ASA’s stock price increased by 1.77%, reaching a recent trading price of 23.0, up from the last close value of 22.6. This movement reflects a positive investor sentiment, aligning with the company’s strategic growth and product innovation efforts. InvestingPro analysis indicates the stock is currently trading at a premium valuation with a P/E ratio of 41.83, while analysts maintain a strong buy consensus with a price target suggesting potential upside. Discover more valuable insights and 10 additional ProTips for SmartCraft with an InvestingPro subscription.

Outlook & Guidance

SmartCraft ASA reiterated its medium-term organic growth target of 15-20%, anticipating margin improvements as market conditions stabilize. The company remains focused on mergers and acquisitions, sales excellence, and cost management to drive future growth. InvestingPro’s comprehensive analysis reveals a strong financial health score of 2.9 (GOOD), with particularly robust scores in profitability (3.94) and growth (3.63). Access the full Pro Research Report for detailed insights into SmartCraft’s financial health and growth prospects.

Executive Commentary

CEO Gustav Lene stated, "We are in a market where our customers are in desperate need for good solutions to run their business," highlighting the demand for SmartCraft’s offerings. He also noted, "The market is challenging, but we are in a very good position to execute going forward," emphasizing the company’s strategic readiness.

Risks and Challenges

• Customer downgrades and bankruptcies impacting growth.
• Declining sales conversion rates.
• Challenging market conditions in Norway and the UK.
• High industry bankruptcy rates affecting customer stability.

SmartCraft ASA’s strategic initiatives and robust financial performance position it well for continued growth, despite facing industry challenges. The company’s focus on innovation and market expansion remains a key driver of its success.

Full transcript - Smartcraft ASA (SMCRT) Q1 2025:

Gustav Lene, CEO, SmartGraft: Good morning, and welcome to the SmartGraft q one presentation. My name is Gustav Lene, and I am the CEO of SmartGraft. We’ll go through the q one in brief first and then Chartrand, the CFO will talk about the financials and then we’ll finish off with a q and a. And as usual, you can can put your questions in the web tool so we can look at them at the q and a at the end. So for those of you who are not familiar with SmartCraft, just let me give you a very brief intro.

We are a leading provider of SaaS solutions to the construction industry. Today we have a very strong base in The Nordics. We are represented in Norway, Sweden, Finland. And last year we also acquired Clicksyfix in The UK. So today we have a base of 270 employees and quite a strong base of customers and users across these geographies which gives us a very solid foundation for further growth in these geographies, but also to expand outside these geographies.

The industry has been challenged for many years with low margins and of course even more struggling today when the market is tough. And they have a very high level of bankruptcies these days. But in good times they have a margin of between 05%. They also struggle with a high level of conflict between the construction company and their customers. There’s a lot of conflict regarding to price, time, quality and so on.

And this is a big challenge for both their customers but also the construction industry in general. There’s a lot of accidents and deaths as well which is unfortunately they are on top of the statistics of all industries. So this has led to a lot more documentation and a lot more regulations as well, sort of putting even more burden on companies that are already struggling with low margins. So what we do is to make sure that the people out in the field can record and and make sure that they they record all the information needed in different projects from tie from the time they spend on the projects to the materials they use to filling in the checklist and they use mobile phone to do this. The people back in the office, they will be able to look at the different projects that are running at all the time and know that they are in control of both the revenue and also the margin.

And this way they can also make sure that they can maximize revenue but they can also make sure that they invoice enough and also buy materials at the right prices so they get the right margin as well. So that’s in essence what we saw. So moving on to Q1, we have an annual recurring revenue of million which represents a 23% increase year over year. That’s largely because we acquired two companies in 2024 but it’s also due to organic growth. Our adjusted EBITDA minus CapEx is at 27%.

When we adjust for the acquisitions and also an investment in SmartGraph Spark that’s a slight decline from last year but actually a 3% increase compared to last quarter. Our churn ended at 9.3 which is sort of all time high but still 0.1 percentage points higher than last quarter. We’ll talk more about the churn in a little while. So the market is challenging but despite that we work really well with marketing and sales. We actually managed to increase the number of new customers by 16% which really shows that there’s a good underlying demand in the market.

And we generate we do a lot of marketing activities generating 64% more leads this quarter than we did a year ago. We also conduct 52% more sales meetings as a result of these customer leads and again that ends to become new customers. But the thing is when you look at the conversion rate from the sales meetings, so when we have a sales meeting and that ends up as a sale that used to be closer to 60% and actually above 60% before the times were tougher. And in q one the conversion rate is actually down to 30% so it’s half of what we used to have in better times. And the main reason for that is the uncertainty in the market that our customers and potential customers delay buying decisions.

It’s not that they don’t buy from us or they don’t they go to competitors but they delay buying decisions because they’re unsure about the future. So all in all, we need to work harder to win the customers and you know let we can hope that this is a catch up effect that when the market turns better we will also see an effect of the leads and the sales meetings that we have conducted. So we also work to see how we can improve the organization, how we can scale better and how we can increase our margin. And we’re doing this across all geographies. And to give you two examples, in SmartGraft Norway we hired a new sales director started in April and we closed down one office in Norway and relocated the sales resources to an office outside Oslo where we already have a big sales organization so we can have everyone gathered at one place.

And we expect this to improve both the sales execution, but we also expect to improve the profit margin as a result of this. Smartcast Spark that we have talked about several times in the last quarters is our first solution that is born or made to be a total truly global solution. And that is a joint effort from the development departments across the organization, across the countries. So it’s a great example of how we synergize our existing resources. And talking about SmartCraft Spark, the project and the solution is progressing as planned.

It’s a disruptive solution for electrician companies which is based on our platform SmartCraft Core. And we aim to build a complete solution in ecosystem for electricians in all markets. And we have started with offer and calculation tools for electricians. And as you might remember, we soft launched SmartCraft Spark in Norway just before Christmas and we launched it now in q one in Sweden as well. And we have more than 100 paying customers and also signed up quite a lot of new partners in Norway that should be able to scale this into the Norwegian market.

So so far we are very optimistic and think we are on track with that solution. And again it’s been a soft launch, we haven’t really sort of launched it big time, which we will do later. Today, we’re also launching having an official launch of BIM features for our solution in Finland, Congrid, which is a quality and safety solution. And the solution has been running for several months, but it’s now that we’re actually launching it broadly in both Finland and Sweden, which will increase customer stickiness and also provide upsell opportunities to existing customers and also enriching our existing solution to new customers. So the market that we’re operating in is massive.

It’s a it’s a massive total addressable market and these customers need to digitalize. It’s gonna happen. Today very few especially of the SME construction companies have good solutions to run their business and we are very well positioned to grow in the future. Today the market is challenging as you probably have read in the newspapers and are aware of. If we look to Finland and Sweden, we can see that it is looking slightly brighter.

In Finland, they have been through a downward cycle for some time and now it seems to be improving slowly. The Swedish market is also seems to be improving. There’s been four interest rate cuts and also there are also some incentives by increasing the route, the deductible amount that private people can use to to refurbish and service their house or renovate their house. But in Norway and The UK, we still see high interest rates, quite a lot of uncertainty and really doesn’t look a lot more promising in the short term future. So we’re still waiting for some better results.

It’s a bit but the two countries are looking better, but UK and Norway still looking a bit challenging. So to summarize before I leave it, before I hand it over to Sharthan, We do experience strong demand from potential customers, but our growth is dampened by customers churning and downgrades that Sharthan will talk about in a second. We also are very excited about SmartGraft Spark which is a very important investment for us and that’s going as planned. And also we launched SmartCraft BIM which we’re also very pleased about which we think will be a good addition to the solution we have in the Finnish and Swedish market. So with that, Chetan, I’ll hand it over to you.

Chartrand, CFO, SmartGraft: Thank you, Gustav, and good morning, everyone. So ARR at the end of q one grew by 23% to 493,500,000.0. The growth is, of course, driven a lot by acquisitions of Lochka and ClickSafix, which now has a focus on transitioning nonrecurring revenue to ARR, and I will come back to that in a few slides. Our organic growth in in q one is 6%, which, of course, is well below our our ambition level, but it’s important to keep in mind the macroeconomic backdrop we’re currently experiencing. We are very pleased with new sales, which is at a high level.

And as Gustav said, we have 16% more customers from new sales, but that is hampered by increasing churn and downgrades. So if we look at what’s weighing down on our organic growth, Bankruptcies now are at a lot higher level than we have seen previously. So the negative effect from customers churning due to bankruptcies have a negative effect in the range four to five percentage points. But what what has turned out to be an even more effect on our on our growth is downgrades from existing customers, which when their business activity slow down, they they downgrade on number of seats and or functionality. So depending on how how far back we look, that has a negative effect on in the range five to eight percentage points.

And as you can see from the chart, downgrades the past three years have actually tripled a bit more than tripled. And then we, of course, have also the the price increase effect compared to last year. Total revenue ends at 137,000,000 in q one, and we have a 94.7% revenue recurring revenue share. We aim, of course, mid nine mid high nineties, and we’re we’re well on our way there. Looking at profitability, we’re setting in q four that we expect the same level the next six months, and we we do roughly lane be in line with with q four.

A slight increase in EBITDA margin, but a a three percentage point increase in EBITDA minus CapEx margin. We do have still quite high dilution from acquisitions, now 4.5 percentage points. And the investments we did in SmartCraft Core, Spark, and BIM still have a nine point 1.9 percentage point effect on the margin as well. Total development spending is at the same level as before. But given the depending on the on the project life cycles, the capitalization varies.

So in q one, we capitalized a bit less. We’re now at 7.3, but still we’re expecting at the range nine to 10% for the full year 2025. Looking at at Sweden, we see strong growth, of course, affected by acquisitions there as well, but we see good performance in new sales. And as the rest of the markets, organic growth is hampered by by churn and downgrades. The transition from nonrecurring revenue to recurring revenue and ARR, in particular for LOCA, which which has the longest way to go.

For those of you who who joined us for the q four presentation, we presented the LoCA growth at 9% quarter over quarter. This has now increased in q one to 17% quarter over quarter, which is 90% annualized. So LoCA has a very high momentum on ARR, and and, of course, both Lochka and ClickSifix will be included in organic growth when we go into q two. Adjusted EBITA margin is reduced compared to last year, of course, as a result of the acquisition, and LOCAI is still operating at a low profitability given the revenue transition. In Norway, we see still a very challenging market, and we have a lower growth in revenue.

We do see improved sales in q one compared to 2024, and q one was a higher new sales quarter than all the other quarters in 2024. So this this provides us with a good revenue pipeline going forward into 2025. But in q one, growth is, of course, as we have said, hampered by increasing churn and downgrades. We see a decrease in adjusted EBITDA margin year over year, which is due to the lower revenue growth and capitalizations. Compared to q four, we see a two percentage point increase.

And and as Gustaf said, we we launched SmartCloud Spark December 1, and in q one, we’re really getting traction. At the end of q one, we closed in on 100 paying customers, and we see great interest in the product and several large franchises have signed on. SmartCloud Spark comes with a one month free trial period, So so revenue recognition is a bit delayed still. That that gives us a very high number of nonpaying customers as well. So so our SmartCloud Spark team is now focusing on converting free trial customers to paying customers, and we are very pleased to see a very high conversion rate.

Let’s see. In the Finnish market, we we do see positive signals. We have improved growth further, and we expect the the improvements to continue. For those of us who who remember the the case with with the customer downgrades, we see that now coming in in Finland, and we expect the previously rapid bounce back to be at a bit slower pace. But but we do see several signals, positive signals in Finland.

And and amongst our existing customers, we saw have seen an increase in user activity of 33 in the last six months. So the hopefully, will this will mean activity really arising, new customers also coming in. We see a decline here as well in profitability year over year due to the investments in the BIM development, and the decrease quarter on quarter is due to lower capitalizations. If we look at Finland, EBITDA minus CapEx margin, that is stable from q four to q one. So the operating cash flow.

We have always been very strong on operating cash flow. We have always had a very good increase, but at the same time, we have we have done improvements in our invoicing routines that we started up back in 2023. So looking at q one last year, we had a more flat development, just 0.6 percentage points increase, while q two, q ’3, and q four increased quite a lot. The effect, of course, is that in q one, we see a decline, but that is because of the improvements we have done previously. So going forward, we expect the quarter to be more evenly spread out.

On the balance sheet, we we, of course, we have a very strong financial position still, net cash positive and negative net working capital as before. We hold now roughly 5,100,000.0 shares, SmartCraft shares. And worth mentioning here, in q one, we delivered just just less than 200,000 shares to the sellers of Clixifix as part of the acquisition. So, Gustav.

Gustav Lene, CEO, SmartGraft: Great. Thank you, Jartan. So we will focus on what we can do in a challenging market and that’s to make sure that we are visible in the market and we have sales excellence and we continue to build customers and convert them to customer pipeline and convert them to customers. And also to capitalize on the investments we’ve done and the investments we’ve done in SmartCraft core, we’ve done that for several years. And firstly, we will see the the capitalization coming out of SmartCraft Spark where we hope to give you more information in second half or we will give you more information about how it’s progressing and what it looks like.

But at the moment, we’re keeping the information a bit to ourselves. We will continue to see how we can realize synergies and to make sure that we are flexible and prudent on cost in order to make sure we maximize our people the way we do business and also see that we have a good margin. We will also look for to do good acquisitions. We have a strong balance sheet and we are in dialogue with several companies as we speak. We expect to be able to do acquisitions at the same pace that we have done in the past.

So that’s progressing as well. And like Sharthan said, we do expect our revenue to improve and also our margins as we see an improvement in the market. We have quite a lot of headwind from customers going bankrupt and also from customers needing to downscale their business And when the market gets better that will improve and we will see a higher growth. So we reiterate our guiding of 15% to 20% organic growth in the medium term and also expect our margins to increase as we scale the business. So this is a slide that is a bit difficult to speak to simply because it’s been a very difficult a decision for me to step down as a CEO after seven years at SmartCraft.

I will join in another software company in Norway that does not compete with SmartCraft. I will join as a CEO. And why should why and when should you leave a company like SmartCraft? I think SmartCraft is one of the best software companies in Norway and one of the best software companies in Europe. And when I joined, we were just over 30 people.

Today, are 270 people. We have IPO’d. We have gone from Norway to now being represented in four countries. We have an international leadership team. I think we have a fantastic team in place with the whole group.

We have a strong leadership team with a lot of trust and they work really well together. We have some fantastic solutions and we are in a market where our customers are in desperate need for good solution to run their business and we have those need to have solutions. We also built a great strategy. We’ve gotten two new board members in place and we also got a new leader of the board, chairman of the board. So I think why this is a fantastic time to leave because everything is good.

I mean the company is really running. We’ve never been in better shape. The market is challenging, but we are in a very good position to execute going forward. So the board is already looking to find a successor. That’s gonna take a bit of time.

In the meantime, I will stay on and it will be full speed ahead. So rest assured, the company is super motivated, the strategy is great and I’m still a big investor so I’m all in my best interest that SmartCove goes well as well. So with that, let’s open up for Q and A.

Moderator/Analyst: Very good. Thanks a lot for that transition. And how is how are you planning to work with SmartCraft Spark? Do you will you migrate current customers to SmartCraft Spark or is it mainly for new customers?

Gustav Lene, CEO, SmartGraft: So it’s a great question. First of all, SmartGraft Spark will be has been addressing new customers to see how they can utilize the solution because we have great solutions that already work with existing customers. But going into the Swedish market we have a very strong and solid base of existing customers but they use a different tool so they will hopefully really have a great motivation to start using SmartCraft. So that will be an upsell opportunity. So we will in Sweden typically go after new customers.

In Norway, we will most likely go off sorry, Sweden will do both new customers and existing. In Norway, it will probably be more new customers in the short term.

Moderator/Analyst: And on the sales there, there’s a question here, will you sell through partners? What kind of partners will you in that case partner with?

Gustav Lene, CEO, SmartGraft: We don’t really have a partner strategy as such today simply because we want our solutions to be very affordable for our customers so that provides them a great return on investment. Having a partner in between then we give away quite a lot of that. It makes the solution more expensive. But we do partner with some franchise companies like Chartrand mentioned where they have like a set of maybe 100 member companies and we will then provide a good solution and a good price for those member companies. So that’s one way we partner.

But we don’t although other than that, we don’t really have a partnership as such. Thanks.

Moderator/Analyst: Just one more question on SmartCraft Spark. How many of your current customers are potential SmartCraft Spark customers? Do you have any sort of overview of that?

Gustav Lene, CEO, SmartGraft: I would say roughly a third, roughly. Maybe slightly higher than a third of the customers.

Moderator/Analyst: Alright. Then there’s one question on the info you gave about ARR growth and the drivers for that in the chart that you showed. And on the downgrades, is there anything you can do to offset the downgrades? Or is this entirely due to market and hard to sort of influence for you?

Gustav Lene, CEO, SmartGraft: I think the two two main factors like Chatham just said, there’s the the people that you have less people. That’s one that one factor. So basically, you lay off people then it’s difficult to to do anything about that. The the second one or actually there are three factors. The second one is number of projects.

So how many projects do you have? Well, if you have less projects then obviously you want to downscale. And the third one is functionality. So the third one is maybe something possible to do something about where the customer said, look, I need a little bit less functionality than I have before. But in general, it’s a little bit challenging when customers are some of them are on brink of bankruptcy to to uphold their solution if they need to downscaling.

Don’t know if you have

Moderator/Analyst: any. No. Good. A couple of more questions. Meanwhile, just a reminder, please submit questions to the webcast player if you have any.

How do you consider m and a opportunities in the current market? And will you prioritize m and a during this year?

Gustav Lene, CEO, SmartGraft: Definitely, we we do prioritize m m and a. It’s important for us. It it is still a bit high prices as we have talked about before for decent companies. And there are more companies that are that are facing challenges and need funding but they are maybe a little bit out of scope for what we’re looking for because we don’t want to buy turnaround cases or companies with high risk. But we are in, as we said, we are in dialogue with several companies.

That hasn’t changed a lot over the last year I would say. Still fairly stable m and a market.

Moderator/Analyst: Thanks a lot. Final question for now. You gave an update on new sales kind of linked to that. Is there any do you have any update on the competitive situation?

Gustav Lene, CEO, SmartGraft: From what we hear and perceive, I think the competitive situation is is quite the same. I’ve I’ve mentioned this before that in a tough market, it’s good to have a good financial backbone like we do so we can continue to be visible in the market and so on. I think the smaller players without that financial backbone and solidity struggle and sort of have to cut back on several things. We don’t want to do that. We want to be in a strong position to continue growing and also to be in an even better position when the market turns better.

So I think there are some some bigger players, but I think everyone is facing more or less the same. There’s quite a lot of headwind, but but competition in general is is quite stable, I would say.

Moderator/Analyst: Perfect. There are no more questions from the webcast now, so I’ll hand it back to you, Gustav in Jarton.

Gustav Lene, CEO, SmartGraft: Great. Well, thanks thank you very much for joining in, and I think as we talk about, I think the company is in good shape. There’s a great demand in the market. We have excellent solutions. Things will turn better.

Things will. We will start to get wind in our sales instead of headwind, and then we will be in a great position to pick up speed, which we will. Thank you very much.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.