studios, and Welcome to Admicom's Q1 Business Review. Today is 10th of April, and we are ready and released our financial business review for Q1. The agenda for this call is first me talking about the strategy execution. My name is, of course, Petri Kairinen, I'm the CEO of Admicom. Here with me in the studio is Satu Helamo, our CFO, and Satu will be delving deeper into the Q1 finance sales.
Hi everyone, and welcome also on my behalf to this Q1 release webcast.
After both of our sessions, we will have Q&A, and we welcome you to use the chat facility in this Zoom call to leave the questions there, and then we will take them after the presentation part. Like our financial statement, our business review really stated, we did grow in a challenging market, our ARR grew by 10%, which I feel is quite good, decent performance in a very challenging construction market here in Finland. Let's go further and talk us through what has happened during Q1. First of all, I want to start with the strategic journey and refreshing what we have been doing, because this is now the beginning of the second year of our refreshed strategy.
We unveiled the strategy in January 2023 in our Capital Markets Day, and then we outlined the goal of becoming the first choice of partner in the European construction software ecosystem. This meant that we, first of all, narrowed our focus from a multi-sector ERP provider into a construction sector or building ecosystem software provider. That narrower focus, of course, should enable us to grow faster and also enable internationalization. But at the same time, it means that during this year and the last year, we have been investing into this new strategy and into the growth possibilities and growth enablers, and then we are halfway on the journey. As you can see on the chart there, we are on the halfway of this focus for growth phase.
Much of what we are doing is actually focusing on the accelerated growth phase, where we aim to reach about 15% organic growth rate starting from 2025 forward and then accelerating the growth from there. When you look at our financial figures and so on, you need to understand that this is an investment phase that we are taking. As a software company, we don't have that much capital expenditure investment, so most of the investments are done via the EBITDA, and that, of course, causes the relative EBITDA to go down as we invest into the growth. In the beginning of this year, we unveiled our new unified brand promise to our customers, where we state that Admicom is an enabler of learning-driven construction.
What that means is that as the construction sector needs to be digitalizing, the digitalization level of the construction sector is way lower than in many other industries. They need to be increasing their productivity, and they will do that via digitalization. What our softwares enable our customers to do is that they enable them to, first of all, gather the knowledge, use the knowledge for competence growth, and also be more responsive and have better forecasting of their figures. That all, of course, should lead into a value increase and competitive advantage. The tools that we have are the software stack that we have, all of these cloud-enabled SaaS software products, the Ultima, formerly known as Adminet, being the main product.
But there is an increasing number of other software that we will continue to be selling as individual solutions, but we will tie all of these together into a one suite, which will provide the ultimately best value for our customers. We aim for a sort of promise of having a 25% productivity increase due to competitors that our customers should be gaining. So this is the bold promise that we are making, and this is a journey where we are.
So where are we in Q1 in our strategic journey and in this growth track? So what we are doing is that, first of all, we were able to grow even during these hard times. So our ARR growth was 10% year-over-year. We had satisfactory new sales, especially in the project management solutions, and we closed over, clearly, 100 new logos to the company.
This has been overall during this construction sector downturn. This has been a very promising sign that we are able to close new logos, the customers still have a need for our solutions, and we are able to get them on track. That is a really good thing, so the sales have not died completely. Of course, it's a harder time to make the deals, and customers are cautious, and the decision-making times are longer. But anyhow, it works. We also opened up our acquisition path again in the middle of January when we acquired the asset management solution Trackinno, where the integration process and cross-sales have already started quite nicely. We were quite cautious to do further acquisitions since I started as a CEO in the summer of 2022.
That was the reason that we were as a company, we were sort of not fit to integrate new solutions and have them truly as part of this suite. We didn't want to be driving a purely holding company structure where we just operate very different independent companies, but we want to be offering it to our customers, a very unified solution, and also enable cross-sale and providing a unified customer experience to our customers.
But now we feel that we have opened those doors, we have created the enablers, and we are better fit to work on that aspect as well. The other part of our business is, of course, as we are in SaaS business, in the continuous service model business, a very important aspect is the churn, which means the kind of the attrition from our customer base.
The contract terminations were actually lower in this quarter than in any other quarter in 2023, which is a very promising sign. We don't really know whether this is a really turning point and kind of the terminations will now head to become lower. This is, of course, our aim and ambition, but it is a very promising sign. The overall churn from revenues was still higher, and the insolvencies and bankruptcies played a large role in that churn.
From the product side, we launched quite interesting new features to our stack, a new modern role-based dashboard as an Ultima front page, being the kind of the latest one that we launched in the beginning of April. There you can see the actual quick snapshot of it on the right side. The big thing about this dashboard is that it ties together the suite products that we have.
So we are at the front page you can navigate with single sign-on to the different solutions that you are utilizing from our suite. Also, it is a very modern UI, so you can tailor it into your use cases and create role-based views and so on. So this enables us to have more sort of customer experience that the customers are demanding from the softwares. We are also looking forward to bringing AI further into our products and utilizing the data.
Now we have the first AI implementation with Admicom Vision, the former Kotopro product, in production already. So that's a very interesting development and more to come. The construction sector in Finland, as stated in the beginning, is, of course, having difficulties. The sudden rise in interest rates in 2022 led into an abrupt stop, especially in the residential new build construction starts.
So far, there are no clear improvement signs visible, at least in the statistical sense. The construction sector revenue trend was maybe a little bit less negative in February 2024, which is the latest month released by Statistics Finland. But, of course, these are quite abrupt drops from the year before. But there are actions to speeding up the industry, and the decreasing interest rates should be opening up the demand. So I think the overall feeling in the industry is that this is now in the sort of the mid-state, where it's probably not going to get any worse anymore. But when does it get better is the sort of the big question. Our expectation is that towards the end of the year, we start to see much more light and things starting to happen again.
The kind of mega trends in Finland are still very much in demand of increased construction. The urbanization in Finland is much less than in many other developed countries in Europe. So there is a need for new construction, also in the building side. Then again, the renovation and the industrial builds are actually going forward as we speak, so that sector has not dropped that heavily. And, of course, our software-side solutions that help our customers to stay afloat even in this difficult situation. So that is the promising side.
Final slide from my part, coming back to this slide that we also presented in our 2023 results release, so one quarter ago, when we said that what will be the things that we are working on to set up the accelerated growth in 2025, so what we will be doing in 2024 to set up the accelerated growth in 2025. We have now launched already the modern customized dashboard and SSO for the whole suite.
And, of course, the kind of modernization of the suite components, bringing them together, bringing the integrations, creating the suite vision, enabling better product marketing, these are the key things that we continue to work on during this year. And, of course, they should be feeding into the joint Kotopro market approach and increased cross-sell that we are now doing as a solidified sales and marketing team.
We are working heavily on the AI and data implementations into the products and also increasing our internal automation to create efficiencies in our way of working. I think we have a very solid data platform to build on, being in the industry for several years already and having a significant amount of customers. So we have the luxury of having the data there, and now we just need to tap into it.
We stated in January that we are looking to fulfill our international market entry promise. We are M&A mostly, and we expect to be doing that during this year. So we are still looking, and there hasn't been any targets that we would have moved already, but that is something that we expect to be doing this year as well. And further, M&A supporting the product suite can, of course, be either international or in Finland.
In Finland, we did the Trackinno acquisition already, which, first of all, creates or strengthens our suite of solutions, but also gives us a larger market penetration and better total addressable market as we go forward. It opens up a new market segment for us. Like stated earlier, we are looking towards the market improving towards the end of the year, and that should enable us to have faster new sales and also lower the churn as we go there.
That all should build the growth base for 2025. The short-term priorities in these market conditions are still, of course, having the efficient sales going, having a churn prevention, so saving those clients that we can and helping them to also save themselves, so not become bankrupt. We are driving a pretty heavy cost control mode right now, so we are not further investing.
We are not adding headcount into the staff levels until we see how the market starts developing. So that's very much on what we are doing, and I think we are executing very well on the strategy and actually overall very happy on how we fared during Q1. But hey, with no further ado, we'll take Satu there. And there are some questions coming to the chat, but we'll take those towards the end of the whole presentation. So Satu, the ball to you, please.
Thank you. Thank you, Petri. So as previously here on the first slide, I have some of the key figures from our first quarter. And in the brackets, you can see the comparative figure from the same period of last year. One thing good to note here is that in the growth numbers in the comparative figures, we still had quite significant inorganic impact from the Kotopro acquisition. I have highlighted the impacts here in the bottom of the slide for easy reference.
As Petri said, and as our release title also highlights, our ARR growth was 10% year-over-year in the first quarter, and Trackinno contributed about 1.7 percentage points in the ARR growth. The organic part was about 8.3%. The growth comes obviously from new customers, but also from upsell to our current customers in all of our solutions. Later in the presentation, we have the ARR bridge that we presented for the first time in the Q4 results webcast. You can see that the upsell and downsell net impact was positive in the first quarter.
Although the adjustment fees have come down from previous year, the total amount of the adjustment fees is fairly small still in Q1. Good to remember here that in Q2, we expect the decline in adjustment fees to have a negative impact in our ARR growth, as a majority of our customers have their financial year ending at the end of the year, and their adjustment fees will then be invoiced in May.
Next, on the recurring revenue, so the recurring revenue growth was higher than the total revenue growth, and this is according to our expectations also. As we have communicated earlier, we have continued to allocate the resources from our external or from the external R&D projects to internal development. But also in some of our software products, we have less non-recurring fees than we had a year ago.
Then if we look at the profitability side, so our adjusted EBITDA was in line with our expectations in the first quarter. Although it is lower than our full-year guidance, I'd like to remind you here that the Q2 and Q3 are typically higher in terms of profitability for us due to the seasonality in our business. In the second quarter, we have the adjustment fees coming in, and that boosts the profitability. Then in the third quarter, as all other Finnish companies, the holiday season helps with the personnel costs. The customer churn figure that has been given here is now our year-to-date number. From the ARR that we had at the end of 2023, in the first quarter, we have lost 1.8%.
Unfortunately, at year-end, when we change the definition of churn and we split the previously reported number between churn and downsell, we unfortunately do not yet have all the comparative figures for all the quarters of 2023 available. So that's why we are now reporting the year-to-date churn number. But maybe to give a little bit more light on that, I can tell that in absolute terms. So in euros, the churn in the first quarter was quite well in line with Q4. So as we expected, the churn continues at the higher level that we had in 2023 also. Finally, from this slide, as you can see from the recurring revenue of total revenue, the share continues to grow as we also expect. So 94% currently comes from recurring revenue.
Then if we go forward, here on this slide, I would maybe draw your attention to the quarter-over-quarter changes because we already discussed the year-over-year quite comprehensively. Quarter-over-quarter, our ARR growth was almost 4%, and over half of this is organic. Also, the recurring revenue growth was 5%. Maybe the most positive thing from this slide is that our profitability increased from Q4. As Petri already commented, we have quite tight cost control, and we have been able to manage the costs according to our expectations in Q1. Our adjusted EBITDA was almost 9% higher than the Q4. If we compare to Q1 of last year, in that quarter, we did not yet have all the investments in. Q1 and Q4 are actually quite well comparative in this sense.
In the EBIT, I would maybe remind you here that we are not an IFRS company, so we have amortization of our goodwill, and that creates the rather large gap between EBITDA and EBIT. In Q4, additionally, we recognized an additional amortization to the Kotopro goodwill. So the huge variance in EBIT between Q1 and Q4 is related to that additional amortization. At the moment, our quarterly goodwill amortizations are about EUR 900,000.
The increase from previous year is partially because of the change that we made in Kotopro goodwill. But also, we have acquired Trackinno in Q1, and we have new goodwill to amortize from that acquisition as well. As Petri also mentioned already, we have very conservative R&D capitalizations in our P&L. So the adjusted EBITDA and EBITDA numbers pretty much capture all of the R&D costs that we have in the company.
Now we can move forward to the ARR trend. So you probably remember that in Q4, we had a decline compared to the previous quarter, and now we're back on the growth track. But obviously, then the adjustment fees, as they are calculated into our ARR, so the dip we will see in the second quarter from those. Finally, before we recap the outlook, here we have the ARR bridge. So you are now able to see the two full years, so 2022 and 2023. Then we are building this up quarter by quarter as we go on. So you can see more precisely the elements that impacted our ARR growth. Maybe we recap the outlook shortly here.
As mentioned or as we have released in our Q4 results, our outlook is to grow our ARR by 5%-10% by the end of this year. We also expect the total revenue to grow. We have a profitability outlook that our adjusted EBITDA will be between 32% and 37%. The drivers remain unchanged, and also our total outlook remains unchanged. Maybe good to remind you here that the biggest things impacting the profitability that we expect to decline from previous year is that we have the investments that we made in 2023, and those are now fully in our costs in 2024.
Then also, the adjustment fees, we have stated in the background of our outlook that we expect the annual adjustment fees to reduce from EUR 2.3 million to EUR 1.5 million. So that has a direct impact also on the EBITDA for the full year. But I guess that's maybe all from my side now from the financials and giving now back to Petri.
Thank you, Satu. Thank you, Satu, for wrapping the numbers. And my part, just wanting to remind us all of the vision of the company, so being the first choice of partner, the European construction software ecosystem. And now, like said earlier, this is the time where we are building the foundation, where we are investing into lots of these enablers that enable us on the faster growth speed and reaching the ambition of EUR 100 million ARR by 2030. And the great thing is that we are a very first of all, we are a vertical SaaS platform, which enables us to have a quite extensive moat around our customers.
We have a very strong foundation with the history of the company and the data that we have and, of course, the profitability structure that we have and the construction technology, even if it doesn't look like it today. The promise of digitalization in the construction technology is a huge megatrend over all the world. That is clearly a tailwind for us going forward. Right now, we have a very comprehensive cloud SaaS suite.
Of course, the integrations need to be better. We need to be working on that whole suite promise. The kind of softwares that we have, they fit very nicely together, and the use cases for the customers are clear. Having solid financials and governments to support that growth journey is the kind of the bigger thing that we have driving us forward. That concludes our presentation.
It's 25 minutes now, and we have lots of room for questions, which we see in the chat that there are already questions in. So I will stop the sharing right now, and let's go to the webinar chat. If you have further questions, I want to take from here the sort of the first question. That was a question from Saku asking that, "Can you tell when you expect the light to appear?" Light regarding the construction sector downturn, I guess that is the question. I do hope that I would have a crystal ball, and I do believe that everyone in the construction industry would like to have the same crystal ball. But like said, we are expecting that there will be light for our business towards the end of the year in H2.
And why we believe that and why that actually might be a little bit different from the kind of the construction sector actual numbers is that there's always been a saying that there is never a good time to be buying an ERP solution in the construction. If you are building very fast and rapidly, you don't have time to be switching systems.
And when you are in a downturn, you are so worried about getting bankrupt that you don't want to invest into anything new. And in that light, actually, in my opinion, the best time to be buying an ERP or any digital solution is when you know that you will not be going bankrupt, but you are not yet on the kind of the full swing of the cycle. So you have still time to kind of prepare for the cycle.
In that sense, I believe that once our customer base feels that they will survive, they do see some light going forward, then it's the right time for them to be investing into their digitalization and into their productivity if they are smart. I do hope that many of them are smart. That's how we see it. Let's move to further questions. There's Daniel's question, "How is your visibility to the financial positions of your more important customers? Are you seeing any risks that there would still be bigger, more material bankruptcies in your customer portfolio?" We, of course, have standard account management procedures, and we are having risk discussions with them. Overall, of course, we are disclosing, and we don't see any acute risks of our customers getting bankrupt.
The bigger ones, typically, they have more means of creating financing and so on. There are no huge risks. Of course, we are also prepared in our financial planning to have insolvencies and have customers that are not able to pay their bills and so on. We expect some of that to be there. It's good to remember also that the largest client that we have is still clearly less than 1% of our revenue. The client risk is very diversified. There is no huge one client that could topple the whole company. There's the question about the Aitio R&D resources to internal project. Did they still impact growth negatively in Q1? Do you want to, Satu, take that one?
Yes. It had a small impact. It's not material, but yes, the revenue is still declining compared to previous year, Q1.
And it's actually, I think, quite large in year-to-year comparison because the IT resources were not that heavily, or the kind of the use of them has gradually increased during the year as well. Yeah. Then there's the question from Felix about how have your existing customers taken to any product suite with the new UI and product name Ultima? Has there been any resistance from customers used to using your legacy solutions?
That is a good question, and that's always a problem when you are modernizing your software, that some of the existing users are very happy with the old one and don't want to see any refreshments. But then the new ones probably would want to see a modernized software. I think the kind of the reception has been quite good. And of course, we are caring carefully in a way, so we are not pushing anything aggressively.
We are leaving room for the customers to decide when do they take them into use and so on. So no sort of impact from that side. Then there's also a question from Felix about landing more than 100 new logos, clearly more than 100 new logos in Q1. How does this compare to quarters in 2023, and what is the total number of customers as of now?
So these are not the numbers that we are regularly disclosing, and I will not sort of comment on the actual numbers. We just wanted to make this number available now that it is visible that we are closing new customers and there is also a new logo increase. We will see whether we have a better sort of visibility into the numbers and whether we start to disclose these as we go forward.
But right now, it's more like a snapshot number. Then there's an Atte's question about compared to your own expectations, was Q1 better, worse, or in line with the expectations? What gives you confidence that you believe that the market situation will improve in H2? Is there some positive signs among your customers? Typically, of course, we don't comment regarding our own expectations or plans or so on, but maybe it's enough to state like I state that I'm quite happy in how we fared in Q1.
So quite much according to the plan. So I'm not ripping my shirts off or I'm not bopping champagne bottles yet. So quite much in line. I think also quite well in line with your estimations if I correctly check them. And what gives you confidence that you believe the market situation will improve in H2?
So I think, of course, this amount of terminations was a good positive sign. Then, of course, overall, we all know that the interest rates are going down and kind of the downturn in construction has continued for quite long. So at some stage, it needs to pick up, and there is still room for towards the end of the year. So I think that's where we place the faith.
And like said, I expect that the digitalization market will pick up speed a little bit faster than the actual construction. So in a way, those companies that know they will survive, if they are wise, they pick up the SaaS solutions. And also the beauty of the SaaS is that there is no huge front--what's the right word for it?--but there's no front investment. So you pay monthly fees and so on. So it's easy to take into use.
It's not a sort of cash flow stopping for these customers. Then also a question about tracking this integration and how has that progressed? It has progressed well. We are, of course, not rapidly putting the team together and everything there. So there are plans supposed for the cross-sell side and for the technical integration, and that is progressing. And what kind of AI tools you are currently piloting?
Our approach to AI is that we want to pilot as much as we can, and we want to find the best ones available. Right now, the kind of the first implementation that I said was about the speech recognition. So how to write reports from the field using your speech instead of typing down, which is very handy when you are in the field conditions. So you want to be speaking, not writing.
And then, of course, we will move more into the GPT type of solutions, which I feel it's been quite typical for many companies to adopt these sort of assistants coming to help. But more about these as we progress. Then there's Emil's question about the EBITDA in Q1. Do you want to, Satu?
Yeah, I can take this one. So as said, our goodwill amortization at the moment is EUR 900,000 per quarter. So EBITDA was EUR 2.5 million.
And then there's a question from Daniel, "Should we expect similar year-to-year margin errors in Q2 than now seen in Q1?" And of course, a little bit tricky question as we don't guide individual quarters. I think our fantastic analysts have great Excels in your disposal to model it based on the numbers that we have. I think it's sufficient to say, and Satu, help me out here.
But like said, we are sort of freezing the cost levels fairly much. We are not increasing the headcount, which is the main investment that we have. And of course, then there's the churn and new sales that are different in Q2. But the main level is, of course, the adjustment fees where most of them are coming in Q2. And there is the downward movement from last year's Q2. Anything else, Satu, that you'd like to?
No, I think that's pretty much it.
There's a question about what is driving the rather strong new sales, newly started companies or older companies wanting to improve efficiency. Yeah. And of course, I wasn't saying that it's rather strong. I said that it's satisfactory in these conditions. So we are able to sell and quite along our expectations. I think we are selling both to new companies, but maybe more into sort of the older companies that want to improve their efficiency.
And we are seeing especially in the project management solutions where we are selling cost estimations tooling and scheduling tooling that they kind of need for better cost estimations. Better capability of pricing your build projects is quite important to the customers. So that is maybe one area which we can note. Then again, maybe into sort of the documentation side where we have the Vision tool, the Kotopro tool. There we are seeing that it is sort of a new add-on solution which the customers would need to take into use to enable their new processes. It's not a replacement for anything.
So there we are seeing that the growth is not on the levels where it was prior to the kind of recession in the construction. Then there's a question about driving the upsell in the currently soft market. Do you want to, Satu, comment on that?
Well, I think there is not one single driver. I think that partially our cross-sales has succeeded better in Q1 than last year. We are seeing some glimpses of our larger customers also starting to kind of increase the use of the not-so-critical tools like the documentation and PM solutions. So we have some of that. And I think in Ultima, our customer base is quite versatile. So we do have also companies whose revenues are growing, and they are updating their contracts and their monthly fees to be in line with their current revenue expectations. I think it's a combination of multiple things.
I think this is also a good point to note that when you are reading the magazines, you would think that all of the construction companies are suffering, but that is not the case. There are companies that are faring quite well and are in very good condition and so on. It's not that everyone would be suffering. I think this is, of course, the fundament in these sort of recessions as well, that the strong will survive. Those that can be productive, they will survive better than the others. That's, of course, where we want to play a part as well to make our customers more productive than the rest of the pack.
Then there's a question from Emil about what does the valuation of acquisition targets look like, and can you expand on what kind of requirements you have for acquiring a company? Yeah, that's a good question. And of course, the valuations are very much case by case by the owners and their perspective and so on. I guess overall, you could say that the private market valuations have been coming down as well. So overall, generically speaking. But then again, there are always owners who believe that it's still 21 or 20 or something like that, and then the valuations are based on those beliefs.
The kind of fit for us is, of course, that we are either looking for a technological fit, that the acquisition would really provide added value to our customer base and would fit together with our suite of solutions like Trackinno that we acquired in January, or then we want to open up a new geographical market, mainly abroad, obviously, where we would acquire a company that has an existing customer base and is providing a fitting solution for that base.
There we would accept the sort of a complementary solution that is not adding to our suite, so to say, but has an existing customer base. Like I've said earlier, the sort of the whole internationalization market choice is not so much about which market we want to enter, but it is a cross between a right target company and the market where that company exists.
So in a sense, if we find a perfect target and it's in a good market, then it's a good fit. But if in some market we would think that's a perfect market, but we can't find a fit, then we don't go into that market. And if there is a target company that's a perfect company, but it's in a market which is not a fit for us, in our opinion, then we shouldn't go there. So it's a combination of these both items.
And then there's a question on Felix about have you implemented any price increases in conjunction with the new software suite launch, or are you expecting to do so at some point in 2024? Yes, so far we have not implemented any price increases from the beginning of the year. Last year we did those that took place during the summer.
This year we are also, for certain products, doing similar things, but then we are still considering for which products and how much. So that planning is still on the table. And then a final question so far is that what can you tell abroad about the expansion situation? Discussions are probably going on. Yeah, and this is what I probably touched a little bit earlier as well.
So we are currently scanning the different markets, finding potential partners, potential acquisition targets. And we are doing that across several markets. So we are not focused in one certain market that this is the market where we want to go, but we want to find the best fit between probably acquisition target and the actual market. And we are not in a hurry, so we are not set a certain deadline by which we need to do it.
That means also that the kind of the valuation plays an important criteria. We are not going to just pay anything in order to enter by a certain date. We need to find a good, smart target that adds value to our shareholders going forward. Great. Looks like that it concludes the questions. Anything else, Satu, on your mind right now or any shooting from the hip questions from our audience?
I don't think I have anything to add here. Good questions, and quite a lot of them this time. Thank you for the questions.
No, there's something. That was our note in time. Thank you for the participants. But hey, thank you very much. Concluding by saying that I think this was a satisfactory quarter, pretty much online where we are going and what we have said that we are doing. It's good to remember it's an investment phase where we are building up the enablers for further accurate growth in 2025. That's the story that we are building on and continue to execute. Thank you for being here with us today. Take care and have a nice day.
Thank you. Have a nice day.