Hello, and good afternoon, or good morning, depending on your time zone, and welcome to Admicom's full year and Q4 results for 2023. Welcome. My name is Petri Kairinen. I'm the CEO of Admicom, and together with me here is Satu Helamo, our CFO.
So welcome on my behalf as well, everyone here in the studio and online as well, and my name is Satu Helamo, and I am the new CFO of Admicom, and now I've been here for about three months, so since October.
Very happy to have Satu here. Her first time presenting our earnings call and excited to hear the story going forward. As you can see from our materials already, we have undergone a unified brand change from this Monday onwards, and we are carrying this nice, bright orange color also associated with the construction work yards. Going further into unified brand across all of our products going forward. I'm still having my old pocket cloth, which is still this sort of lime green, but maybe I can give an excuse that this is the 2023 results, and then I will change my pocket cloth going forward. But hey, nice to have you here with no further ado, this is the agenda for this call.
I will first talk about the Admicom strategy execution in 2023. We have launched a new strategy in the beginning of last year, and the last year has been, past year has been the sort of the year of executing that strategy, and I want to take you, take you through and also remind what we are actually executing on. I think that it's worthwhile to, to mention the reasons for it. Then Satu will walk us through the Q4 and 2023 financials altogether, and then I will transfer into the expectations for 2024, and finally ending in the financial outlook for 2024 by Satu.
Then we have time for Q&A, and you online, please utilize the Q&A functionality in the software and place the questions there, and we will take it on the tablet at the end of the meeting. Thank you. With no further ado, let's continue on our strategic journey, being the first choice of partner in the European construction software ecosystem. So we just started this journey from the beginning of 2023, and previously you could say that we were this multi-sector ERP software in Finland. The kind of the main business case had been built along the Adminet ERP solution, very comprehensive ERP solution, sold to the construction sector and building engineering, but also the manufacturing industry.
We did a strategy refresh in the fall of 2022 and felt that we had a limited capability for international expansion with the sort of multi-sector focus. That's why we focused our strategy into the construction technology and also riding the big wave of construction software and construction technology. We also outlined two phases for the strategy. The first phase being this focus for growth phase, where we are building on that focus, the newfound focus, and building the structure, also bridging the recession in the construction sector and being prepared for the accelerated growth phase to begin in 2025. That phase would also lead to internationalization of the company.
So this is the journey, and as you can see from the orange star in the slides, we are now in the middle way of this focus for growth phase. It is also important to understand that the focus for growth phase is very much an investment phase for us. We are building on new capabilities, we are building on the software suite that we have for construction suite software, and then these are the sort of the prerequisites to speed up the organic growth in the accelerated growth phase going forward. Why are we so excited about the construction software and the building ecosystem altogether? You might wonder that, especially when you're reading the news in Finland about the construction recession and so on.
But on the bigger scale of things, the building ecosystem is really much behind many other industries in their software adoption. And when they are lacking the software adoption or digitalization, they are also very much behind in the productivity of their business. And we feel that this mega trend, this huge mega wave, is not only in Finland, it will be across Europe, across the world, and there are lots of opportunities there. And I think this is especially true now that the time of the zero interest rates has ended, because earlier, the construction companies could sort of build, build with zero, zero cost and, you know, just building and building and building. But now that the money has a cost, you really need to look into your productivity of your operations, and you need to understand the cost associated.
The time has cost, capital has cost, so you want to be as capital efficient as you can. And that's where you need digital tools. That's where you need good financial systems. That's where you need a integrated, seamless data flow across your operations. So that is the mega trend and opportunity that we are embracing with this refresh strategy. This is a slide that we touched on our CMD in January already, but it's good to note that we believe that there is a huge growth potential in the building sector, just in Finland. So there is a large addressable market opportunity just here in Finland, which can take us, you know, easily to do our current ambition of EUR 100 million ARR.
So there is still a market to be gained. We are a market-leading solution in Finland, very much, but the market share is still somewhere between 10%-20%. So there are huge growth opportunities even in Finland, both in the software and in the associated services that will also gradually transform into software going forward. And then when we take the international expansion, which we stated in our strategy refresh in January, that we want to become international. There are markets around the Baltic Sea and then in Northern Europe that are much, much larger than Finland is, but are also less developed in terms of construction digitalization. And during this year, I will come back to that, but we've been looking at these opportunities.
We have been cautious so far due to the recession, and we'll sort of continue on the cautious line, but we are building on that capability of becoming international. Like I said earlier, we launched our new brand identity, one Admicom brand identity, in this Monday, and the brand focus is built on the idea of being enabler of learning-driven construction. And what do we mean by that? Lots of construction work is driven by old habits and the ways of doing it earlier like this, and you know, just throwing things from the sleeve, especially in the SME market. Maybe not so much in the enterprise level, but in the SME market. And this is of course the case when you don't have the proper digital tools to support that growth.
What we want to say is that when we have the knowledge, when you have the tools that gather the knowledge and the data, then you can actually build on your competencies. You can, you can learn from your data. Once you have the data and you are learning, then you can be responsive, and you can be forecasting the data, and that will of course lead into value increase and competitive advantage. This is the one thing that we have actually seen during this hard year in the market, that during the fall or second half, a lot more companies have approached for the cost calculation solutions and estimation solutions. They know that if they are now making proposals, they really want to make sure that those proposals hold and their costs don't run away.
Similarly, of course, you know, if you are a company that is running tight on cash, you want to have the visibility into your cash balances. You need to be able to predict when you will have a dip in your cash position. And then these are again things that we can provide with our set of tools. In the brand launch, we also changed the branding of our products into a unified naming convention, and then several products switched their names in that same process. So Adminet, our core ERP, comprehensive ERP solution, became Admicom Ultima. Then we have another more flexible ERP solution, which was previously called Hillava. That became Admicom Flex, which is an easy-to-integrate ERP solution for managing field work.
Then there's Admicom Tempo, our new launched scheduling solution, shared real-time scheduling for everyone at the construction site. Then there's Admicom Vision, previously called Kotop ro, which is the documenting tool for documenting the workflow and creating reports on the fly on the construction site. Then Admicom Estima, the cost estimation and planning tool, and Admicom BIM3 , which is a building information modeling platform. There are some other solutions still in the package, but these are the sort of the core offerings that we are offering to our customers. And with these sort of unified naming conventions, we also want to bring in the suite to the clients, increase the cross-sell across the client deal, and make clients easier to understand that, hey, these solutions are tying together.
They are already integrated on some level, and the integrations will become deeper and deeper as we go along. So for the client, should be able to buy into the idea of having the whole digital suite from us, and that enabling more seamless data flows across their building practice. Good! That takes us for this sort of focus for growth phase highlights in 2023, so the full year. And the sort of the main points here are the ones with the check mark. They are the ones that we said in the CMD, that how will our strategy focus in 2023. And I'm happy to say that we've been actually executing very much on the promise that we then make and what we said that we are going to do.
We said that we will release the first new product, minimum viable product version, so first product, and we actually launched two new products, both from the sort of old document stack. So Tempo being the scheduling software, and then the Estima Pro being a cost calculation solution targeted more for the SME sector. So a little bit simpler, easier to use than the old cost calculation solution that we had. And the value in these two solutions is that they are now better fit for the Adminet users, and Admicom Ultima users, as we now say. So they are easier to sell along with Ultima and are better equipped for the SME needs. So that should create us a new growth base going forward.
This year is one of those years that we are now fully putting those into sale and to the market, and they have both gained clients, obviously, already in 2023. The joint brand and culture that we discussed already, a big undertaking, and of course, the cultural work will keep on going during this year. The importance of that is that it's of course supports this one Admicom suite cross-sell and development, but also the integration of operations in the whole Adminet going... Admicom going forward. We've also placed significant investments into our R&D, both in talent-wise, but also in the changing of practices. So we've been moving to fully agile development methods, which allow transformation to new modern features and solutions as we go forward.
Simultaneously, we've put the sales and marketing together by the end of this year, which enables us to have unified CRM and go-to-market approach. And again, this is targeting for doubling the wallet share, making sure that one client can easily buy the whole suite from us. And then once we get in with one product, there is a land-and-expand model going forward. We've also improved our customer success with helping the clients to increase their understanding of the solutions and how they are using them, which should prevent the churn and improve upsell as we go forward this year. In the international go-to-market planning, we have been cautious. We haven't pursued any drastic moves there as the market conditions has been quite challenging.
But we have opened up field sales in Sweden for the Vision product or Koto Pro product, and we have performed several market studies and M&A target screenings in the area of Baltic Sea. If we then jump into the results of the last Q, Q4, the sort of the highlights from Q4 were that new sales, even in these sort of challenging situations, we ended up on planned levels during Q4. So that was a good signal again, that even in this sort of hard market, we are able to sell. If we take the whole full year into spectrum, we could see that during the first half, we sort of got very surprising months at the stage, especially April first half was really tough that the kind of the new sales completely stopped.
But once we got the wheel rolling again, we've been able to produce a quite forecastable results and get the sales to happen. Of course, you know, we are not making historical sales numbers in this sort of market, but we are still selling all the products, which I think is really good message from the competitiveness perspective of the products. Well, like I said, the market situation in Finland continued to be soft, and we continued to see high churn levels, especially due to insolvencies and also MRR downsell in volume price solutions and, of course, user reductions along the way in other solutions.
And, in insolvencies, we have seen a tendency where actually the bankruptcy numbers of our clients are a little bit lower than the numbers that are, reported across the whole construction industry. So I think that's also a very positive signal, telling about the competitiveness and value add of our solutions. So, our clients are less inclined to go bankrupt. Well, internationalization planning I discussed already. So, we proceeded that, especially during the Q4. We put more speed into it, and then the move to unified branding we discussed. And finally, the sales and marketing teams have come together, and there's an organizational change where all the sales and marketing people are under the leadership of Pekka Pulkkinen from the start of 2024.
So that should drive the marketing efficiency and sales efficiency during this year. Good. That concludes the first part of presentation, and now handing over to Satu, please.
Thank you. Next, we will dive into the fascinating financials for a while. Here are some of our full-year key figures. Our recurring revenue growth in 2023 was 12.4%, and organically, it was 10.8%. We had a guidance from 8%-15%, so we landed quite nicely in the middle. Our EBITA guidance for 2023 was 35%-40%, and we landed at 36.9%. And as Petri said, we are in the middle of our strategic investment phase, so focus for growth. The EBITA decline was in line with our plans. The ARR growth was 8.5%, and we will come back to that a bit later in the presentation, so we have some more details for you on that.
The total revenue growth was 8.6%, and here we have a negative impact from the Lakeus accounting services customers that Admicom terminated, but also the Koto Pro acquisition in H1 has inorganic growth in H1. In Q4, we have done a significant amount of work around our ARR, and for that reason, we also have redefined our churn. So previously, you have been seeing a higher figure here as churn, and the reason here is that we have now been more clearly separating between churn and downsell. So this is now the customer churn, and the reason for changing the reported number is that it's also in line with our strategic and operational plans, where we actually view our solutions more as a one suite.
So the difference to the previous number that we have been reporting is the fact that the previous one was the aggregated solution-level churn, and this is now the customer churn from all of our solutions. In the full-year financials and also in Q4, you also see a decline in EBIT, and the reason for that is that at the end of the year, we decided to adjust the amortization period of Koto Pro goodwill. So previously, we had 20 years amortization period for that acquisition, and we've decided to adjust it down to 10, and that resulted in additional EUR 1 million amortization in the last quarter. And then if we talk a little bit about the Q4 numbers.
So, in Q4, our revenue declined from Q3 about EUR 300,000, and the main reason for that is the adjustment fees. So in Q3, we still had about EUR 500,000 of those in the PNL, and in Q4, the amount is lot lower. On the cost side, our Q4 was actually in line with Q2. So Q3 is typically lower in costs. The vacation season helps with the personnel costs when we recognize the reversals of the previously booked holiday accruals. But also the other activities are lower during the holiday season, and that results also in lower other operating expenses. So Q4, personnel costs and other operating costs were pretty much in line with Q2.
In Q4, we also have started our internationalization planning, and that resulted in some additional costs in the other operating expenses side. Now let's go to the ARR. So as promised, we have a couple of new slides for you here. So first, we have the ARR quarterly trend from 2022 to 2023. And as said, our ARR grew 8.5% last year year-over-year. Our new sales and upsell contributed about EUR 4.5 million to that number. And maybe I change now to the next slide, where you can maybe follow a little bit easier, or actually EUR 5.5 million. The price increases are included in the upsell number.
Our ARR definition also takes into account the last 12 months adjustment fees, and as you can see here from the bridge, the increase in those compared to 2022 was EUR 0.8 million, as we have reported. Churn impacted negatively to our ARR by EUR 2.1 million and downsell by additional EUR 1.5 million. And relatively, churn and downsell are higher in project management than documentation solutions. They are not as mission-critical as the ERP is, so it's easier to stop using those solutions, and also it's easier to reduce the number of users to save on costs. And then finally, here's our revenue split for 2023. So the recurring revenue is already 93% of our total revenues. And now handing back to Petri.
Thank you, Satu. Thank you, Satu. And of course, speaking of the churn numbers and downsell, it's also good to note that the bankruptcies have increased quite heavily, and then they are about double for the full year 2023, more than they were in 2022. And about quarter of the total churn is actually bankruptcies of the clients. Even though we've been faring better than the industry together, there is lots of those, and some part of the bankruptcies is also the clients that we are terminating ourselves when the clients are not paying their bills and so on. We are taking of course action in that sort of cases. Good! But hey, where are we going?
Even though if there might be construction recession right now, we believe that the North Star is pretty bright where we are aiming for, and we have defined that as the ambition which we want to reach. For us, financially, it means being EUR 100 million ARR in 2030. Once we are on that goal, we believe that we are able to provide a digital solution that significantly improves the productivity of our customers. We have stated about quarter target to being more productive than their peers. We want to achieve this goal by providing a superior customer experience, which also means that we need to improve the customer success and the ways that we are working with the clients, that they gain the full benefit of the solutions.
We, of course, augment that with a comprehensive data platform with the AI. We have a lot of data in our platform already, and then once we can sort of bring in implementations that will create more and more insights from that, I think we can create a very superior competitive advantage from there. And of course, we need the best people to learn from and grow within the company and also go to the other markets outside of Finland. So that's the ambition setting for this whole strategy. On the short term, that was the sort of the long-term vision, and of course, in the short term, we need to consider the market situation in the Finnish construction sector.
As you can see from the graph there, the volumes pretty much the full year 2023 has been reducing numbers, so the market has gone downwards. The construction industry, Finland, is estimating that the volumes in 2023 are about 10% less than they were in 2022. As we have the Admicom Ultima product, which has a pricing model based on the volume of our customers and we have the annual adjustment fees that are coming in. In five months after the end of the financial year, we will next year or this year 2024 we will see an effect from the customers. Customers' volumes going down, and at the same time, of course, the customers are adjusting their monthly fees as well to fit their going forecast.
So that leads into some downsell in the monthly numbers as well. The good part of that, of course, is that then the annual adjustment fees in 2025 will not be hit when the clients already sort of take that into account during the kind of ongoing months. But anyhow, the sector is still weak. Of course, the construction sector is not only the new residential builds; also there are other sectors and renovations and so on. But it is still going to be a difficult year for the client base. The government in Finland has made actions to speed up the industry, and actually we have started to see the apartment sales to pick up again in January 2024.
So now that the interest rates have stabilized, I believe that the demand for apartment and so on will pick up, and that should of course lead into a increased activity in the building sector. We expect, and we have sort of forecasted our numbers on the belief that towards the end of 2024, the sort of market will pick up speed again and be increasingly active. And of course, that coincides very much with the idea of leading into accelerated growth in 2025. So far, of course, like I said earlier, the customers have being more cautious and finances being tight, it means that the churn levels will remain high. There will be bankruptcies still in the beginning of 2024, and the usage has decreased.
It is interesting to see that how much are the clients anymore able to reduce the usage because they... Lots of companies did that already in the H1 of 2023. So might be as well that they are not able to reduce usage much anymore. But this is something that is a little bit cloudy for us that, and we'll have to proceed cautiously around that item. Then on the positive note, of course, in this timing, again, the cost efficiency, estimate accuracy, agility, and real-time visibility are increasingly important to our client sector, and these are exactly the things that our softwares are able to provide to the customers.
So, in that sense, the value proposition of Admicom is very well fitted, but of course, if you don't have money, you don't have money, and that is the case for some of the customers. Just to remind the sort of the three principles that guide us towards our North Star. So right now we are in the focus for growth phase, and there we are implementing on the winning customer experience, providing simple innovations to the customers and being transparently agile. I've discussed about this previously, so I'm not going too much in depth, but to give you the idea that what 2024 will be still about the focus for growth and preparing for the accelerated growth phase.
People-wise, we have grown the headcount of the company very much during 2023, and those have been investments into certain areas of our company, mainly in the Admicom Ultima business, where we have developed the customer success, product management and development, and also fully resourcing the accounting services, which were sort of running behind the headcount. And that, of course, enables us to take in more clients once we are fully resourced there. We saw a slight headcount growth in Q4, so moving from 263 to 271. But it's good to remember as well that these are headcount, not full-time equivalent. So everyone on some leave are also included in these numbers.
The plan for 2024 is to continue with only very targeted recruitments that are needed to build the winning team. So certain positions where we feel that we need to bring in external capability, but otherwise we are not looking to raise the headcount in 2024. Our employee net promoter score and overall feeling have remained on the good levels, even if the times are a bit challenging. So how do we see 2024? Which of course, in the market conditions will still remain hard, but for us, it is crucial that we get the platform ready, that we are towards the end of 2024, we are really set up to move into the accelerated growth phase.
Which means that we want to have the ARR and the customer base in such a strength and enough new sales happening, that kind of the growth will move towards the 15% organic growth target that we have set for the accelerated growth phase. What we will do is that we will move more towards sort of back-end improvements in our products into front-end improvements, meaning very visible to the customers. And one of the key things that we plan to implement during Q1 is a modern, customized dashboard and single sign-on for the whole suite. That will also become a new front page for Admicom Ultima users.
So providing a visibility and capability to integrate to the whole suite of products and also being more sort of customizable than the old front page. We have done the sales and marketing combination, and now what we want to drive is a joint go-to-market approach and increase cross-sell via that. We are now actually prototyping the first AI implementation in our products in Admicom Vision this time, but we have plans for all of the products to take AI tooling into use and also build on the data asset. And this is going to be a key topic for 2024, which we are also investing into our roadmaps.
We are expecting that towards the end of 2024 to open up an international market, and the main method would be the M&A. So we will look for a suitable target, and once the target is identified and the valuations are on the right level, we hope to open up an international market. And we are also planning to do a M&A that will be supporting the product suite further, so we will maybe in Finland look into that. And overall, sort of like I said, we feel that the market will be improving towards the end of 2024, and then that will build up the growth phase.
Those of you who have been following our press releases during this presentation should see that we actually issued a press release at 12:00 about further M&A. So we have today signed an agreement to acquire Trackinno, a Finnish company, which is focused on asset management and IoT in the construction sector. So they are providing asset management solution, which very nicely complements our existing suite of solutions. So there you can see the sort of the different modules or areas that our existing products are serving, and there Trackinno comes into play, providing very, very modern good features for mobile asset management.
And this is also very important in the sense that the especially Admicom Ultima Adminet has been very much focused on providing the efficiency at the back-end side, the administration and financial management side. It is also serving the fieldwork and so on, but kind of the fieldwork features have still been sort of a follow-up for the administration purposes. We've been already building up the fieldwork capabilities. For example, the Admicom Vision, old Koto Pro, is providing a very much efficiency into the actual construction site or building site or maintenance site. And now Trackinno will also complement that. So it will provide a capability of following the assets that you have at your work sites and where they are going, and how you are managing them.
And also having IoT following of these assets and so on. Very, very interesting. The Trackinno is not a huge, huge acquisition, so the company was established in 2015 with the vision of asset management to the next level. And last year, they were doing an ARR of about EUR 0.5 million, having an ARR growth of 22% and EBIT down to 14% line. They have currently customers in construction, industrials, and logistics, and have a proven end-to-end solution for this use case, and very high end user satisfaction. So we are very happy to welcome the team in Trackinno in Tampere to join Admicom and welcome in the team. Very excited to have you on. Good.
That takes us to the financial outlook for 2024, and Satu again. Thank you.
Thank you. So as you have probably seen, we have published our outlook for 2024 today, together with our reports. We are guiding an ARR growth from 5%-10% for 2024. Why we chose to base our guidance on ARR? So the reason for that is that, more than anything, we believe that it's, it's important for us to have a solid foundation for 2025. So when we start the next strategic phase of accelerated growth, we want to have a good foundation at the end of 2024. So that was the reason we chose ARR as a, as a guidance point. We believe that our renewed sales organization, together with the improved customer success, can deliver good cross and new sales figures this year.
But obviously, the economic situation continues to impact us, and it's really difficult to predict when the situation starts improving. We have also today, for the first time, given our own estimation of the annual adjustment fees that are part of our ARR. So we believe that they will be approximately EUR 1.5 million this year, compared to the EUR 2.3 million in 2023. And further, we have also given a guidance for revenue, but a very soft guidance. So we have said that we believe that our revenue, or we expect the revenue to grow from 2023, but we have not given a range to this growth.
In total revenue, we expect to see about one percentage point impact from the allocation of R&D or software development services resources from external revenue-generating projects to internal R&D, so that trend continues next year also. On profitability side, we expect our adjusted EBITDA to be within the range of 32%-37%. Why adjusted? So the reason for that is what Petri has now been explaining, that we are getting ready for international M&A, should we have the right target come along. So if that happens, and we have material costs from that project, then we will adjust those costs from the EBITDA.
For clarity, I want to state that our 2023 EBITDA is same as adjusted EBITDA, so we are not going to adjust the comparative number. The EBITDA decline is majority of that comes from the investments that we have made already in 2023. So, for example, the recruitments, the 30 new headcounts that we have brought in in 2023, they have been recruited throughout the year, so the full cost impact is only visible in 2024. So that's the main reason, and we have a plan to kind of protect our short-term profitability with tight cost control and taking this gas and brake approach to any investments.
So should the economic situation improve faster, then we can speed up with investments, but we are also prepared for a longer downturn in the economic situation. I guess that concludes our-
Yeah, maybe, maybe-
Maybe you want to-
Also from the EBITDA perspective-
Yeah.
... good to note that the annual adjustment fees are, of course, very much affecting the bottom line. So when we have our estimates are now that there is an EUR 800,000 gap in the annual adjustment fees, and that will, of course, kind of hurt the bottom line pretty much directly as well. So that's the effect that we have to take into account as well. The good part in this volume-based pricing, obviously, is that once the swing starts to go the other direction and going upwards again, then we will see a tailwind from that perspective. I want to conclude by stating the investment highlights, which have not changed.
So we believe that the company has a really firm foundation to build on, a large existing customer base, a solid finance sales and governance, and we have a huge long-term potential into construction technology. We have a very comprehensive, fully cloud SaaS suite, which is, you know, very welcomed by our customers, and all of the products are growth products. So it is a very, very interesting journey forward, and now we are setting the stage for improving that growth going forward. There comes the ambition and vision into play, and very, very committed to drive that forward. Thank you very much for the presentation, but I think we are ready to take questions.
I think we answered the one question that we have on the chat already, but I believe that we have the analysts in the room, so, so lots of questions to come. Emil, please.
Thank you for the presentation. Emil Mononen from Carnegie. I would like to have some clarification on your guidance for growth. Does that include M&A? So yes, they announced today 1.5% impact. That leaves then, is it 3.5%-8.5%? Does that number include M&A as well, or is it organic?
I think the sort of answer is that if we do any significant M&A, of course, then we will change the guidance accordingly. So the kind of ARR guidance as such doesn't include any significant M&A.
Okay, thank you. Could you remind us how many of your customers use all of the products or multiple products?
Yeah, it's a really, really good point, actually, and maybe I should have repeated. So, we have—we've been increasing the cross-sell during 2023, but with the market conditions, we have not been as successful in cross-sell as we would have hoped for, and we have overall more than 3,000 customers, and less than 15% of those are using more than one product. So saying the other way around, 85% are ripe for getting at least a second or even third or fourth product into their usage, and that is why we are now putting so much effort into the unified sales and marketing approach.
Thank you.
Thank you. Daniel Lindkvist from Danske Bank. So maybe going back to the ARR guidance and so on, looking at the slide you just presented, I guess, it read that there is this, one and half percentage point positive impact from the acquisition of the Trackinno, so this is included in the 5%-10% ARR guidance this year? Yes. Great. So maybe if we go to the sort of a bridge or your expectations, how this 5%-10% will materialize on top of this? Because the fact that the annual adjustment fees will be a big headwind for you, as you said, in Q2. So is it new sales? Is it price hikes? What are the components you are expecting to get the ARR growth target?
If I take that in a more generic level, so obviously there will be new sales, and we will probably look into the sort of the price hikes during this year as well, but the inflation numbers are going down and so on. So that is something that we need to see on how much we are aiming for that. So I think the new sales is the key to success, and like you said, there is the tailwind or headwind from the annual adjustment fees, which are based on history, so they are weighting down the ARR growth.
And maybe continuing on that a little bit. So as Petri mentioned, the downsell has happened quite a bit in 2023, so we don't expect as high downsell in 2024. And also, I think that with the customer success improved customer success organization, I think that we should be able to impact churn as well.
Yeah. We expect the H1 to still be pretty, pretty hard on the, on the downsell and churn part, but then towards the second half, we expect the numbers to be lower.
All right. Thank you. Maybe one question still, on the sort of impact from the internal R&D resources. You highlighted how long will this last? Is it a topic for 2024, or will this last longer than that still?
We, of course, now have the capability within, and we believe that in a scalable business model, the sort of like we've stated, that there is an investment phase and then the margins will climb up, and that will climb up with the growth. So there are no, like, immediate plans of reducing the R&D resources or moving back into the business of resourcing R&D staff outside of the company. So we are looking into turning these people into own R&D organization and at the same time, you know, once we get the growth going on again faster, that will build up the profit base for that.
All right, then, final question from me on the annual adjustment fees. Maybe looking at bigger picture and forward. Maybe I don't... Your assumptions on the sort of operations of your current customers this year. So what are you expecting from them in terms of that? Okay, their revenues declined clearly looking at 2023, but if this year will be even sort of more difficult than last year, wouldn't the annual adjustment fees be still a sort of a headwind you in 2025, if you look in the future?
Yeah, yeah, that's f orecasting is really hard, and especially forecasting future is really hard. But when we look at the construction industry, Finland, and their estimates, I think they are estimating that last year the volumes came down in 10%, and that is volumes, not revenues. So with the material inflation still ongoing and so on, the actual revenue is probably a little bit higher than the -10%. And the expectations for the construction industry for this year were that the volumes would still come down about -2%. So this year, in volumes wise, should be pretty flat. And that, of course, sort of would pursue that the annual adjustment fees would be about on the same level in 2025 as in 2024.
But like I said, that's pretty far, far ahead and really hard to expect.
All right. It's Atte Riikola from Inderes. Maybe first about your focus area about churn prevention for this year. We, of course, know that you can't impact that much for your customers' bankruptcies, but if you think about the competitive landscape, is there any particular competitors that are causing churn in your customer base at this moment?
Yeah. Yeah, there, there really isn't. So I think that's, that's sort of a happy, happy problem or happy situation from our perspective, that there isn't any one competitor who would be sort of winning market share. But the clients are churning for various reasons, and, and, you know, some of them are, are churning from, for example, Admicom Ultima, for the reason that it's sort of too comprehensive, and they don't really know how to use it. And that's one of the reasons of churn prevention, that we need to educate them further and, and get them to really use it as it should be used, and that's been one of the key, key reasons. The other is sort of bad communications from our part.
We have not been sort of communicating them or everything that we are going to do and how the roadmap looks like and so on. This is something that we are now improving and moving forward with the added capabilities that we now have. In the Tocoman, the actual... Like Satu said, a lot of the churn during the past year was actually within the Tocoman and Koto Pro products, the old names. And they, of course, they are not that mission-critical, so the clients are easier to ditch them or at least reduce the use significantly. But at the same time, we also believe that they can sort of pick up again once they go there. So the clients have not been replacing the solutions with something else.
It's more like that, "Hey, we don't... At this situation, maybe we don't need this tool," and so on. And we are seeing a lot of that coming back to us also, which is very, very comforting that, you know, clients who have switched or, or, you know, moved into something else or stopped using are sort of wanting to come back once they actually see that, hey, it's, it's hard to succeed without it.
Then about your profitability guidance. Now you're guiding adjusted EBITDA, and of course, we know that in the history, you haven't been making that much R&D activations into your balance sheet. But is there gonna be any changes for that for this year? Because of course, that's a trick that would boost your EBITDA if you start making more aggressive activations. So is there any plans for that?
Do you want to, Satu, take?
Yeah, I can. So, we don't have aggressive plans on that, but we have started to capitalize some fully new products already in 2023, so we will continue that also in 2024. There is a plan, some plans for the R&D to work on some new products in 2024 also. So some capitalization is expected, but I would not say that it's aggressive or that significant.
Yeah, we will probably also, also disclose that.
Yeah.
So it's not about hiding. The EBITDA that we were using didn't include the capitalizations either, and when we do a comparison across the peer companies, it seems like that everyone is sort of talking on EBITDA. So we felt that we are better fit to the peer group comparison, and that's why moving into that.
All right, and maybe then about your AI strategy. Of course, we know that there is, like, lots to do with on that field, but I think you're still pretty small company, and you have to focus your R&D resource on some part of that field. So what is like the key focus areas on that front?
Yeah, a really, really good point. We, we hired a head of AI in the end of also in Q4, so one of the strategic developments, and we've been now working on the strategy. At the same time, we are, like I said, also implementing first features. I think the AI, the sort of the fantastic thing, is that there are so many tools being created globally right now. So it's about more like choosing the best ones and implementing those as fast as you can. And then the actual competitive advantage comes from the data that you already have in your tools and the user base that you already have. And there, like I said, I believe we have a quite advantage across our current market.
We are not looking to create one huge AI investment in one area, but we are more like prototyping across all the products because we believe that this is the future, and all of the development teams needs to embrace AI, both in their own usage and own operations, utilizing the AI-based coding tools, for example. But at the same time, we need to implement this across the field. But we are learning, we are creating a sort of a virtual team around it to support and drive that development faster. Maybe on the other side, I should mention that one of the key profitability drivers that we see in the future is also the automation and use of AI in our internal operations, especially the accounting services.
We see that there is a lot of room to improve, and that is one of the reasons why we also believe that now that we got the resourcing to the level where it should be, now we next move into the optimization and then sort of this growth should be scalable. We wouldn't require the headcount increases to support growth in those areas.
Last question about your new Trackinno acquisition. So how many customers do they have, and what kind of ARR per or average ARR per customer we're talking about with this, this solution?
There is a different range of customers, maybe not disclosing them too deeply right now. But I think it's fair to state that it is a rather new company, rather small company. So what is the logic for us of acquiring it is, of course, the technological basis that they have, maybe not so much the existing customer base that they have. So what we want to do is to bring this technological basis in integration with our other tools, especially Admicom Ultima, and also to the our go-to-market machine, i.e. sales and marketing, and then get the actual, you know, sales going forward. So it's not so much about the existing customers and their size.
Okay, there's still one question maybe about the M&A pipeline. You mentioned that this year you're probably gonna open up some new international markets. So is there still, like, many, many different options on the table, or have you already decided the country?
Yeah, yeah. I typically don't hear that companies are proclaiming their plans publicly, publicly stating that what is the market where we want to go? And at the same time, I also believe that it's... When you do an M&A, it's a combination of the target and the market, so you want to have the good target market fit. It doesn't make sense that you choose to go to one market, but then you don't find the proper target, and then you buy something that's not a good fit. So I think it's much more important to evaluate that is this company a good one, and could this market be a good one? And if you then feel that this is actually a good fit, then you might choose one market over the other market.
So that is why we are evaluating several markets and have been evaluating. And then finally, of course, the valuations need to match as well in order to make that deal. But this is also an area where we are one of these investment phases, and you know that our former CFO, Petri Aho, now transformed fully into the strategic development and M&A role, and this is one of his key topics that he's working on currently.
Thank you.
Thanks. Felix Henriksson from Nordea. I'll continue on the M&A topic and consolidation overall in the market, 'cause I'm assuming that you've done now some market evaluation, and one of those areas that you've looked into is probably the Nordics. And recently we've seen some private equity-driven consolidation in Sweden, for example, with Hantverksdata and Next being combined. So throughout this sort of evaluation that you've done, have you discovered that competition for good acquisition targets would have been intensifying? 'Cause now you have this big player and also SmartCraft and maybe some others.
I think overall, of course, the consolidation process in this industry has been going on, and the PE activity has been very high. So I think if there is a good target, there is probably a competition for it. So that is one challenge that we need to tackle, and then we need to be active. We need to have our own strategy and kind of plan on how do we sway the company to our team and so on. So that's the case. On the other hand, I don't still believe that this market is in a consolidation phase. So I believe that it's a growth market. We don't need to compete head-to-head against the other competition.
We can go into any market pretty much and still be selling to clients, and then there are spots where we can find our own path as well. So typically, of course, you only consolidate the market fully once the market doesn't grow anymore, and then this is not the case in this market. But I think it's more the PE interest is more because of the very lucrative market possibilities, given the very low digitalization of the market, like we discussed in the beginning of the presentation.
I guess now you have two larger players across the Nordic SmartCraft, and these guys were backed by EQT, and they both have small presence in Finland as well, not as comprehensive as you guys. But have you sort of seen any more aggressive measures from that front in terms of competition in Finland, or is that something that you plan for in the future?
No, no, we haven't seen, and we are pretty secure in our position in Finland, and the works that we are now doing, I think will protect us further. And I see overall the sort of the whole internationalization of Admicom, I see it in a perspective that we need to have a very strong sort of fortress Finland. So we need to have the market position that we have here. It needs to be a growing market position. We need to take care of the customers and really protect the position that we have, and that enables us to have the resources to grow abroad and, of course, be cautiously with that.
I think that's the clear wish from the market and our investors that we don't proceed with too rash, and we don't sort of sacrifice the position that we have here in Finland or overall in the group. So that's why also this cautious balance. But the key is that we have the Aitio Finland, and it's steadily growing and very profitable piece of our operations.
Right. And finally, thank you for the ARR bridge. That's very, very useful. I'd like to touch on the churn metric, 6.9% for 2023. Can you provide any sense of, you know, historical comparison figures on how that figure has been in 2022, 2021, for example, and what's the sort of level that you plan for in your guidance for 2024?
Well, I think today we probably will not disclose those numbers. Obviously, the ARR bridge was from 2021 to 2023, so you already have two years there. But for 2024 guidance, I don't think that's a number that we will now disclose.
Overall, of course, we can say that from that customer churn, you can see that I stated in the CEO review that quarter of the churn was from the bankruptcies. So that gives you some idea that there is lots of bankruptcy-related churning there. And then of course, we stated that in 2024, we expect that the churn to stop, become lower in second half. But in first half, I think we believe that we will still be on the sort of the same numbers as the bankruptcies will still continue, unfortunately for the industry.
Right. Thank you. That's all for me.
Thank you.
Thank you. Do we have anything online?
Yes. Looks like that our analysts are done, and there isn't other questions that we, in my opinion, wouldn't have answered already. So I think we have spent a full hour. Thank you for really good questions. Thank you, Satu, Satu for presenting the first time, and let's carry on for the year. Thank you for joining us on this call.
Thank you.