Hello, and good morning. We are live on Admicom Results Call Webinar. It's not 10:00 A.M. yet, so we were waiting for a moment, and now it seems like it is 10:00 A.M., Helsinki time. Welcome, everyone, to this Admicom Q3 financial report presentation. My name is Petri Kairinen . I'm the CEO of Admicom, and together with me, there is Satu Helamo, our CFO, in this webcast.
Welcome also on my behalf.
So, our Q3 financial report showed early signs of market improvement, and we reported ARR growth, plus 4.2% and adjusted EBITDA 41% of the revenues. And, that's the topic that we are covering today. We will go into the strategy execution first with me, and then Satu will cover the Q3 financials in more depth. And in the end, we will have a Q&A. And in the webinar, you have a chat box where you can type in your questions along the presentation if you wish, or wait until the end and then ask them, and we will have plenty of time to go it through. So let's proceed. I wanted to start this earnings webcast by going through our purpose and vision.
So our mission statement, as this is a very, very purposeful thing that we've been now touching with our Admicom community culture building sessions together with the team. So we have stated that our mission is building the sustainable future together, and how Admicom is contributing to that goal is that we want. First of all, we want to increase the productivity of our customers, our construction and building ecosystem customers, so that their results and productivity would improve. And we believe that by increasing that productivity, by improving their results, we allow these customers to also invest in the quality of their construction work.
I think this is especially during these hard times in construction recession. I think many of our customers are struggling with their results and, you know, it might lead into situations where they are not able to put the effort into quality or unable to comply with it. And if that is not happening, we of course can't really have a sustainable development in the buildings. So we believe that by increasing the productivity and the results, we increase the quality of construction work, which in turn creates more sustainable development in the building ecosystem. And then again, of course, with more sustainable development, with more quality development, we can produce better customer productivity again, because you will have less reclamations, less need for later actions, and so on.
You are much better on plan and so on. It's a self-feeding circle, and we believe that with our solutions, with our softwares, we are able to help our customers to really reach that goal. And of course, we believe that by fulfilling this mission, we will have a chance to become the first choice of partner in the European construction software ecosystem. That's why we exist, and we are quite excited in creating that virtual cycle. To Q3 and what has happened during that time, I already touched the ARR growth that we had, and of course, the growth is not on the level where we hope it to be in the future, but we still believe it's a decent growth during these times.
What we are seeing is that deal size seems to continue to be small, but actually, in the small end, there is a lot of activity. Yeah, with our Ultima Lite product, we actually made a one-month all-time high sales record. One of the reasons is that there are lots of entrepreneurs that have gone bankrupt, and they are starting new companies now in the sort of the smaller end. But on the other side of the coin, the larger deals, the larger companies are quite hesitant to take any action, and the kind of larger deals continue to be elusive. We have been increasing our pipeline, so we are hopeful for the Q4 to be able to close further larger deals as well.
But in Q3, that was the situation, that the deals were mainly on the small end. Then on the other hand, the contract terminations, there we continue to see the positive trend in our churn decreasing, but totally the Q3 totaled higher terminations than Q2, and especially the share of insolvencies was still high and much higher than in Q2. So the insolvencies have definitely not gone away yet. Our net logo growth year to date is plus 50 logos, but we have lost over 150 logos due to insolvencies. So that sort of highlights that we are constantly... Our growth is sort of running on a wheel, where we are losing some ground at the same time as we are advancing.
We did a pretty extensive suite packaging change, including a pricing change for Ultima that is effective from the beginning of this month. What we did is that the Ultima suite now includes starter packages for Vision, our documenting tool, and Trackinno, our asset management tool. And the idea is that by including them into the pricing of Ultima, we of course give our clients a free access to these softwares and give them the ability to start immediately using them and experimenting and trying them out. And of course, we want to provide added value to our customers and have them the use of these advanced tools to increase their productivity.
But then at the same time, we believe that as the customers get to know these tools and like them, there is an upsell potential also there without our need to explicitly be selling these tools to them specifically. Finally, maybe a highlight from Q3 was that yesterday, at the FinnBuild Fair in Helsinki, we unveiled our Admicom AI vision, which we have been technically testing during the Q3, and now we sort of first opened up dialogue about it. And I'm happy to actually go a little bit in depth in this presentation around that vision as well. And when we talk about the AI, I think it's also important to go a little bit into the life of the foreman at the construction site.
And I think what we have heard from our customers and what do we know is that the life of a foreman is quite hectic. There's a lot of moving pieces, there are a lot of things happening, and how the foreman stays on top of these things and is able to control all of that is a really, really, really arduous task. And that is one of the focus areas where we are also moving our software suite to better support the actual construction site work. Much of Admicom solutions have been focusing on the financial processes, on the procurement processes, on the planning of the construction, and so on. But we have been more, let's say, focused on the back office than the actual construction site.
And now, with the suite tools that we have, we actually have a chance of tying this together and producing a package for the foreman. And there are some of these questions that a typical foreman might see during the day. So, you know, where can I park when I'm going at Kalasatama construction site? What tasks at this site have been started? What has been completed? Who is doing what? Did we have any asbestos reports? Where can I find it? Now, there is a foreign worker doing the tiling, but he doesn't speak or she doesn't speak Finnish, so how do I give the work instructions to him?
Completing the round around the building, I need to do a report about it, but do I go to the office to do it, or can I actually do it when I'm walking around the site? Then finally, resourcing people when someone's ill. Lots of things, and lots of these things are happening right now, right there at the construction site. What is our future vision solution for it? We want to provide a Admicom AI tool, a sort of a chatbot tool that can be accessed via natural language, either written natural language or spoken natural language, which in the construction site would be the easiest way when you are having heavy gloves in your hand, and so on.
So you'd be just talking to your application and asking questions about your tasks that you are having, who is doing what, what is the schedule around the site, and what documents are associated with this, what is the weather, messaging to your team, and so on. So the idea is to create a user experience layer, an interface layer, that accesses the different tools that we are providing to customer and the site. And with this interface, with this layer, you can get an improved UX, improved user experience to all of these in a very simple way, in a written manner. So we are very excited about this. It is still very early developments, so this is not in production yet.
It is not launched as a product yet, but we are moving into the pilot phase and trying it out, and there are lots of promise on this area. We believe that it is a very nice way of showing the cutting-edge capabilities that Admicom is having and being the forerunner in improving the productivity in the construction and building ecosystem. Then on the macro picture, what is happening at the construction? Of course, the construction volumes are still decreasing. We saw a sort of a positive trend that the construction decrease is getting less. So the decreases are not that big, but still, the overall decrease in two thousand twenty-four is estimated to be 7% by the Finnish construction industry.
The expected growth in volumes for 2025 is expected to be 4%. The growth next year is estimated to be modest, but there will still be growth. What we are not seeing yet is the residential building, which is very dormant, but the overall construction in other areas, infrastructure, so on, is picking up, and that's creating a more positive mood, along with the interest rates that have been lowering during the fall. We are seeing glimpses of hope, and when we are discussing with the customers, we are sort of hearing them to be more positive about the future aspects and seeing sort of the light at the end of the tunnel. But then again, like I said, the kind of the heavy signals.
The heavy activity signals are still sort of elusive during Q3. And the impacts for the software sector and ourselves, like discussed earlier, the larger customers continue to be cautious and the insolvencies remain high. Overall, in Admicom clientele here, we are seeing that the insolvencies are lower than in general. Then, of course, the positive side in insolvency is that there are a lot of new companies have started, and then there's demand in the smaller segment. And what we tend to see is that if you have been using Admicom solutions earlier, you are very likely to come back to us when you are starting a new company. Then, finally, a word about our employees and our culture. We defined our values during the spring.
We care, we dare, and we grow, and that is the basis for our growth culture going forward. We want to create a joint Admicom community growth culture, which ties together all of the acquired entities in Admicom and the different teams that we have, and is built on very modern, transparent, self-initiative-taking principles that are typical in modern workplace. Our personal investments during 2024 have been increasing mainly on the accounting services, customer success, and R&D, but now we are slowly turning the focus into sales and marketing, and we will see increases in that area, whereas these other areas will likely remain more cautious.
Our FTE is on the level equivalent to May 2024, so actually, we have not been growing the FTE levels, although the headcount that you can see on the right side of the slide has been slightly growing. Our eNPS we increased in Q3 survey to 20 from 18, and overall satisfaction being 4.2/5. There, of course, is room to improve as we work on our culture and going forward. This is exactly the same slide that I showed in H1, and it shows that we are setting up for accelerated growth according to our strategy during 2025.
And we have done already many things that we promised that we will do this year, and the international market opening is something that we are constantly looking on and searching for right targets for M&A, and we are seeing discussions taking place and so on. So that's something that we are looking forward as well. And like I said, Q3 was still a very slow quarter, but we are expecting the growth to be picking up towards the end of the year. So nothing new on this area. With this, I turn more into the Q3 financials, and let Satu continue from here. Please, Satu.
Thanks, Petri. So before deep diving into the financials, I was thinking that maybe it's worth refreshing your memories about the definition of ARR at Admicom. I believe we have some new investors also on the line or watching the webcast later, so it makes sense to make sure that we are all aligned. So ARR for us also contains the twelve months rolling annual adjustment fees, which we invoice from our Ultima customers based on their actual revenue for the ended financial year. And this invoicing happens retrospectively, five months after the customer's financial year has ended, and we also recognize them at the time of invoicing. So with this background, you can now understand our ARR growth better, as it is weighed down by the lower amount of adjustment fees compared to previous year.
We did see a first impact of the lower adjustment fees in the second quarter, when majority of the annual adjustment fees were recognized, and the impact now continues in the third quarter. We do have a fair share of customers whose financial year ends in March, and that means that their annual adjustment fees are invoiced in August. The negative impact of the annual adjustment fees was in line with our expectations, and we landed with ARR growth of 4.2%. The adjustment fees impacted approximately minus 2.3 percentage points in the growth. Similarly, the adjustment fees also have an effect on the recurring revenue growth, which is 3.1% in third quarter, and obviously in the revenue, total revenue growth as well.
In comparison to previous years' growth rates, which we have here in the brackets, it's important to note that last year we had all the price increases effective already in the third quarter, whereas this year, Ultima price increases have only taken place in October, so they are not fully comparative in that sense. What we are fairly pleased with is the profitability, so the adjustment fees, they have also a direct impact on the bottom line, so landing this close to previous year's EBITDA level is a success for us, and it also proves our ability to manage costs effectively. Another positive thing in this quarter is that, year to date, we have now lost about 4.4% of the ARR that we had at the end of previous year.
To me, this is a good number, knowing that the insolvencies are still high. In Q3, our churn was approximately one percentage point lower than it was in the first and second quarter, and that is a result of a low amount of customer terminations received in the second quarter. However, now, as Petri already said and is stated in the CEO section of our release, the Q3 customer terminations now increased a bit from second quarter, but they are still lower than a year ago. On the next page, we have a bit more details of the financials. Petri, if you go to the table, we also have comparison to previous years, previous year's third quarter and year to date, also this year's second quarter.
Main things to comment about the year-over-year development were already discussed, but I want to remind you of the EBIT decline. It relates to the change in Kotopro goodwill amortization that we made at the end of 2023. It means that this year, in the third quarter, we have higher goodwill amortization than we had a year ago. And finally, maybe to the new investors who just started following us, a reminder that Admicom is not an IFRS company, so we amortize goodwill from acquisitions according to the Finnish accounting standards. In comparison to the second quarter, the main difference is the amount of annual adjustment fees that we have in our revenue.
Second quarter has a higher amount of those, as majority of our customers do have their financial year ending at year-end, and this explains the revenue decline from previous quarter. However, if you look at the EBITDA and EBIT levels, we have almost bridged the gap that we generated in the revenue, and the main reason for that is the holiday season in Finland, which means that the positive impact from reversals of the holiday pay liabilities come in into the numbers and have a positive impact on the costs. Finally, year to date, our revenue has grown 2.4%, and recurring revenue 3.9%.
The investments that we made last year, they are fully now in the cost base this year, and that mainly explains the variance in costs and EBITDA. Moving forward, on the next slide, we have the ARR trend. The trend is to the right direction, but obviously the recession has been slowing us down here. When we go to the last quarter, we expect the ARR growth to improve and land within our external outlook, which is 5%-10%. On the next page, the ARR bridge now showcases the division between new sales to new customers and upsell to existing customers. Especially in upsell, we have been successful in all of our products.
And also, what's very well visible here from the bridge is that the adjustment fees impact last year, it boosted our ARR growth by EUR 800,000, and this year we have a similar downward impact. And finally, on the next page, we have our outlook. It remains unchanged. We are confident with all three elements of our outlook, and also with the basis or the background of the outlook remains unchanged. I think that concludes my session, so maybe, Petri, you take us to the end next.
Great. Thank you. Thank you, Satu, and thank you, everyone following us. Maybe to ending our presentation part in saying that we believe that we've been able to weather this recession in a very prudent manner, and during that time, we have used the time to focus for growth, which is our strategic facing. So building the company together, building the platform, making sure that we have investments going on into AI and other forerunning applications. And now, like I said, we are gearing up for the accelerated growth. What is sort of kind of hard to say is that how long will the sort of the volume-wise recession proceed, and you know, when does the market really pick up?
We are already seeing in the news in Finland that the residential build-up, if it doesn't start like immediately, we will face soon some pretty dire consequences of running out of apartments in a few years' time and so on. So definitely there is a need, and also the infrastructure and renovation building, there is a need. So the market will definitely take up, but what is the exact timing? That's still really hard to say. Anyways, we believe that we have a really strong foundation, which we are going to build on the next growth journey, and there's a huge long-term potential in construction tech altogether. Admicom is well positioned with our comprehensive cloud SaaS suite to take on that continuing mega trend. We are prepared for accelerated growth.
We are starting to have all the pieces together. So we will continue on our journey towards our ambition, one hundred million ARR by twenty thirty. That concludes our presentation at this Q3 time. Thank you. I'm stopping sharing, and next we can go into the questions in the chat, and if you have anything further, please have them out as well.
So, there is a Atte Riola's question, our analyst from Inderes, stating that you have seen first positive signs about market situation improving. What are all the key KPIs and indicators that you follow and have made that conclusion?
So yeah, that is a good question, and of course, the sales metrics, the pipeline, what are we seeing on the sales activity, how is the pipeline developing, is the sort of the hard metric that we are following. Then, of course, there are the discussions that we are having with customers, the sentiment, the news and media outputs, and so on. So what is the overall feeling? I think there's a lot of things, you know, depending on lots of things, and then when the ketchup starts to become out of the bottle, then it typically comes out pretty fast. So that's what we are following. But then, of course, the KPIs are sales related.
Then, of course, the insolvencies and terminations on the other side is one key aspect that we are following as well.
Yes, I would maybe add also that the soft signs that we get from the field, from our own people, is one thing. And then also we... For example, with our Ultima customers, we can monitor also how they are doing-
Mm
... with our software. So I think that what we have seen so far, I think it proves the resilience in our customer base also.
Yeah, and then there's a next question from Atte Riola, asking that,
How large price increases did you make with this change in Ultima pricing?
We did quite modest price increases for many reasons, and they were about in line with the previous increase that we did. A little bit lower effective values there, but let's say below 5% is the area where we are aiming to get the effect on that. And like I said, kind of the main thing there is of course also to get the products into use, the Vision into use, and then enabling upsell on those products when the customers are getting them into. Then there's the question about the cross-sell.
Is there some specific product combo that is working particularly well?
That is a good question, and we are about to start packaging the products into a specific sort of use case product combos. But what we are seeing is that, of course, documentation is quite well received. The need for documentation, even in order to avoid litigation in construction error cases and so on, is increasing, unfortunately. And then, of course, very proactive quality documentation and so on. We do see an increased need for that. So what we are seeing is the Vision is going there.
We launched a new Quantima product, our cost quantity takeoff calculation tool, and that is selling very well, even being in MVP state at this stage and so on. And also the scheduling software Tempo is going there. But I would say that that vision is the typical combo going with the other products. Maybe not with the user amounts in the beginning, but going in. Then Atte has a question about:
What is Admicom's advantage in M&A markets when trying to find good acquisition targets with reasonable valuations? It seems like there's lots of private equity money flowing into the market.
Yeah, that is a good point, and I think this is especially true when you are looking at the sort of the larger sized deals. So there where you have a private equity players being interested and so on, that is a good question that what can we do and what can we say to make the founders come to us and not be paying absolute valuations? I would say that we believe that in the sort of maybe a little bit smaller segment, we have a best possibilities, and especially if the product is a good fit to our suite and it can augment the whole suite.
I think this is also very beneficial for the founders themselves and for the current owners. So that's that. And then, of course, the culture and the things that we are building. I think we are a very mission-driven company or becoming a very mission-driven company, and I think that is probably of interest for many founders, at least those founders that we want to get onto the team. They should be interested about the same things as we are. Good. Moving to the next question.
There's Jukka Pesonen from Nordea asking that:
Could you walk us through the Ultima pricing update? Was this simply a price increase, or was the pricing logic materially updated as well, for example, considering the annual adjustment fees?
Yeah, that is a good question, and this is something that we have been thinking about, that how do we adjust the Ultima pricing and let's say, overall, the suite pricing, because we currently have very different pricing methodologies across the different products that we are having. And, we have been thinking about adjusting the kind of the pricing models to be more uniform, to be supporting the suite thinking that we are having. But right now, we decided not to go into that path yet.
It is a pretty complex path, and now we chose to do this sort of suite packaging and the price increase based on that, but we didn't touch the actual pricing mechanism of Ultima. So the annual adjustment fees are there still and so on. We moved the lowest levels where the annual adjustment fees are calculated a bit upwards and so on. So we did sort of minor adjustments, but no huge pricing change or model change. That is still something that we need to return to. The kind of need has not gone away, but it was not implemented now.
Then there's a question from Daniel Lepistö from Danske Bank: "Can you discuss the percentage impact of the Ultima price hikes and bundling?"
And I think I touched that already, so it's in the lower single digits if we made is the sort of the Ultima price increase level at this time.
And then the question about foreseeing improvement with closing these larger Ultima deals during the end of the year, or is the market for such deals still too uncertain?
Yeah, that is, of course, the really, really big question, which I would hope to have the all-seeing mirror with me or some magic ball where I could look at the answers. We do know that the pipeline has been filling up. We have a sort of good cases in the pipeline. We are having a good discussions with the clients, but whether they will be closed during Q4 and so on, that is the big question. We believe that they start to be closed. We see that positive sentiment there, but we don't yet have that booking order to kind of show it. So that's the question.
Yeah, and then there's a question from Josef Weckman: "Any reason behind that the number of employees is up 10% this year? Thanks."
Yeah, we have been increasing our employment numbers since starting the strategic refresh, and that is due that we were very, let's say, under-resourced in many areas of the company.
We had been running with a very tight budgets, and now with the investments into the growth in the future, there are certain areas that we needed to upscale. For example, the accounting services, we were unable to take on new customers because we were not having the people to do the work. And we have been increasing the accounting team size, and at the same time, also the accounting services. We have been upselling the existing customers with the accounting services, so that has been immediately flowing into our P&L. And the same applies to the customer success, where we were not able to produce a good customer experience to our customers because we were understaffed in that area.
And then the new products that we have been bringing to the market, they demand R&D capacity and so on. So that's those three main areas where the number of employees has been growing.
And then the Trackinno acquisition also.
Yeah, and the Trackinno acquisition as well in organic, so that was six people. Six people joining in January, so that's actually a big, big percentage increase as well.
Then from Daniel: "What was the impact to revenues from the annual adjustment fees in Q3? I think you only referred back to ARR." So Satu, do you want to take that?
Yeah, so, I can't remember the exact number, but I think it was between EUR 200,000 and EUR 300,000 in Q3.
There is a question from Henrik Karlman: "Given the development of the company, it seems that the margin guidance are very concerned that we- you're currently at 37% adjusted EBITDA year to date. Is there any specific reason for being so cautious in the guidance?"
Yeah, of course, but the current guidance that we gave is in the beginning of the year when the sort of the market conditions were very, very cloudy, and that's the sort of the reason that we were giving a very, very wide guidance. On the EBITDA side, we could have probably narrowed the guidance, but we didn't want to sort of go into that right now, as it's still sort of uncertainties.
As the sort of market conditions improve, we expect that the guidance will also be, let's say, stricter or tighter as we go forward. But right now, there is that conservatism.
I will also add a bit to this question. We have quite a lot of variance between quarters, so second quarter and third quarter are typically highest in EBITDA. Second quarter, because of the annual adjustment fees, we get the majority of those in the revenue, and third quarter because of the holiday season, so the fourth quarter is more similar to the first quarter if you compare in EBITDA, so that's also one reason explaining why we are keeping our guidance.
Yeah, exactly. Very, very good point. Thank you, Satu. So in Q4, the EBITDA margin will not be on the same level as in Q3, but it will be lower.
Then Atte is asking: "The big Nordic client that you won and the possible greenfield expansion it sought, have you made any decisions with that already?"
We've been now busy, of course, making sure that we fulfill the acceptance tests of that client. I'm happy to state that, yes, we have fulfilled the acceptance tests, and the client is quite happy. We have also received the first referral from that customer, so another big Nordic customer is contacting us and asking that they would like to buy the same stuff as this company was buying. We are seeing very, very sort of positive early signals, but we have not taken any sort of concrete actions like hiring people into Sweden or so on. It's been mainly on implementing that delivery and making sure that goes well, and then we sort of move into next step. It's of course important that we have the reference who is very, very happy with the solutions that we have.
Daniel is asking: "Are you looking for bigger or smaller scale M&A for international looking forward?"
We have not narrowed our sort of target in any way. So if there is a perfect large company that we could acquire, and the valuation is in the right range, and we could have the monetary power to finance it, I think we would be very interested. But then at the same time, I think it's quite likely that sort of the first acquisitions will be on the smaller end. For many reasons, the competition is not that hard in that size range, and at the same time, it's less risky for us to move at that level and so on. That's the situation, but we haven't narrowed ourselves for any reason. I think it's so much depending on the company and their product and market and so on, that we want to evaluate each case individually. Good.
Looks like that we have reached the end of the questions that we had so far in the chat. Anyone willing to throw the one final question? Maybe worth mentioning is that the founder of the company and the main shareholder, Matti Häll, he indeed sold his shares in first of October. So about 20% of the company ownership was sold, and then Matti currently is not owning any shares, as he flagged to us. We have only received one flagging notifications from Säästöpankki Rahastoyhtiö from Finland that used to be an owner previously, but they increased now above the 5% range.
In our understanding, that would then mean that this Matti's part is distributed between several institutional owners who are not owning more than 5%. So we have sort of now got a distributed ownership from institutional owners, which I think is a very sort of positive signal and of course how a stock exchange-listed company should be operating and having a wide, diverse owner set, which of course we from investor relations purposes are serving and having the dialogues and so on.
We are likely to report on our nomination committee composition going forward, now this fall, and that will of course then do the suggestions for the board to the AGM and so on, and that's the normal governance process going forward. Okay, and now we get... That's what you get when you're having a monologue, that you get more questions.
Thank you, Jacob. So there's a question that, "As the whole market is bottoming out, are there any updates on international expansion? Is that currently a focus, or would you prefer to wait until the core market stabilizes? Additionally, is international M&A a possibility at this time?"
Yes. Like we said in January, our focus is to start our international expansion, as we believe that it is a clear driver for our accelerated growth phase.
And we stated in January that we look forward to being able to close the first M&A deal during this year, and that sort of target is there still. So we are having a focused watch on suitable targets and having the discussions needed to take any of these deals home. But then at the same time, we are not pressured to make the deal at any cost, so we will definitely not make a deal that is hurting our shareholder value and so on. So we are not bound by... It's not a promise that we will close an M&A deal by the end of the year, but we are focused on reaching that, as we believe that it is a driver for the accelerated growth going forward.
Great! Hey, I think we have gotten all the questions answered, and you heard the presentation. Thank you for following us through... Is there more questions? Thank you, and well done comments. Thank you, thank you. Thank you for being with us today, and we will continue to work. Happy to meet you after our full year results. Thank you so much.
Thank you. Have a good week.
Bye-bye.
Bye.