Welcome to the SmartCraft Q4 presentation. My name is Gustav Line, and I'm the CEO of SmartCraft. I'm pleased to announce that we, for the seventh quarter in a row, continue to deliver on guided revenue and margin. We experience great demand for our solutions and that they are a good fit in today's economic environment. We continue to deliver strong operational cash flow. At the same time, we have improved scalability of the company and reduced operational risk. You'll hear more about that in our presentation, and we'll finish with a Q&A, and you are more than welcome to pose questions in the webcast tool. In turbulent times, there is an increasing need for good solutions in order to look after your margins as they are under pressure. There are especially three areas that keep our customers awake at night.
For a long time, for many years, they have not been able to attract skilled talent, this is especially in the areas of plumbing, ventilation, and electro. This is where we have most of our customers. When they lack people, they need to maximize the people they have, and that's why they need good digital solutions. The last years, we've seen a dramatic increase in regulations and project documentation, both from regulators and from property owners. In order to keep ahead and to be able to deliver this documentation, our customers need to capture the information out in the field with apps and digital tools.
Thirdly, what keeps our customers awake at night is that material costs have increased dramatically the last year, and they need good systems to buy the right materials at the right price in order to control their margin. As you can see, our solutions give our customers the competitive edge to increase both revenue and margin. The construction industry is large, and it's a big market with low digital penetration. Our customers work mainly in the SME segment, and this is the part of the construction industry that is less volatile, as they are not working with large new building projects. There are a lot of buildings in need of upgrade, service, and maintenance, and this is the sweet spot of our customers. Today, SmartCraft has a leading position in the Nordics, and we are constantly gaining market share.
Since the IPO in June 2021, we have grown the customer base by 33%, and today we have a good presence in our key markets, which is a good basis for further growth. In Q4, we present another record-breaking quarter, and this shows the solidity of our business model and our ability to execute. All we do is about growing recurring revenue. In Q4, the annual recurring revenue grew by 19%. At the same time, we increased our margin and kept churn at a low level. I'll now pass it on to Kjartan, our CFO, for some more financial details.
Thank you, Gustav. Good morning to you all. It's great to be here and great to see so many logged in. I hope this is because many have seen the robustness of our business model even through these turbulent times. SmartCraft delivers another strong quarter. I wish to highlight three figures. Number 1, recurring revenue share is at 96%. With a high recurring revenue share and consistently low churn, new sales and upsales all contribute to figure number 2, which is 19% growth. Both organic growth and total growth are at a high level. With increasing revenue, a high growth margin, and full-time personnel as the majority of our cost base, we scale very well. This leads us to highlight number 3. In Q4, we have almost 41% margin. We do guide on increased margin due to scalability.
Indeed, this is what we see. The increase in margin in Q4 is also including 1.2 percentage point dilution from acquisitions. This is proving our confidence in our ability to increase margin in acquired solutions. As before, we have a solid financial position. The few changes in the balance sheet in Q4 include the acquisition of Inprog and the buyback of shares. The buyback program was initiated in November and has a mandate of up to 2% of the shares. By the end of December, we have repurchased 450,000 shares. This is equivalent to 0.26% of the shares. We are still net cash positive. We have a negative net working capital that contribute to operating cash flow. SmartCraft has a positive cash contribution from operations every year and every quarter.
We are highly focused on recurring revenue. Organically, ARR grew by 17%, and in addition to the two latest acquisitions, we have a total ARR growth of 19% and NOK 318 million. In earlier quarters, we commented on a prolonged sales cycle. We still see this in Q4, but we also see positive effects from earlier quarters that came in Q4, contributing to sales and organic growth. Additionally, we have improved our sales process and increased our sales conversion. Going forward, we do still see a very strong pipeline. In 2022, we were present in Norway, Sweden, and Finland, and our solutions were managed cross-border. In the second half of the year, we restructured the group according to geography with newly appointed and promoted country managers and country management. Going into 2023, a natural change is to align our reporting segments to this structure.
In the Q4 report, we have stated both the previous and the new segments. For your convenience, we have also included a spreadsheet of 2-year history of the new segments. Looking at the actual segments now in Q4, you can see we had high growth and high margin in all geographies. It is now two years since the IPO, when we IPO'd, we guided on the medium term. Looking back in the 2-year period, we see we have a high organic CAGR of 19.5%. We have a total CAGR of 23.6%. For the past two years, the macro picture has been a turbulent one. It's not exactly what we envisioned 2 years ago.
Nevertheless, we are and we have been always confident in the robustness of our business model, and we have not seen any reason to alter our targets. Our high focus on ARR, mission-critical solutions, a solid financial position, and our disciplined approach to acquisitions is why we expect this solid track record to continue. Our medium-term financial targets remain unchanged. Gustav.
Thank you, Kjartan. As Kjartan said, we have a strong position in the market, and our guiding is unchanged. We want to go through some reasoning to why we have a positive outlook. To do that, I would like to introduce Katja, our Chief Marketing Officer. Katja has more than 25 years of marketing experience from international and Nordic companies. She has, however, worked for SmartCraft for the last five years, so she knows our business really well and stepped into her role this autumn. I'm very happy to have you on the team, Katja. Please take us through the next slides.
Thank you, Gustav. I'm truly excited about getting the opportunity to spread the word about our company. Now I will talk about our market strategy and show you some really interesting figures when it comes to our sales funnel. Due to our extensive marketing, we have a high number of inbound leads, and this figure, combined with all the outbound leads we get from all our cold calls, we experience that we have a lot of sales meetings. These sales meetings are resulting in 61% of sales. 61%. This gives us two strong messages. One is that we have great solutions that solve the everyday problem of our customers. Secondly, we have really good salespeople who truly understand the needs of our customers and everyday challenges.
In fact, they're also considered to be the trusted advisor of many of our customers. Another figure that I would like to share with you that is not on the screen is that in Sweden, we are right now experiencing a growth also in online direct sales, it has grown during 2022 with 13%. Why this is an interesting figure I personally consider is that it will on the long term also lower our acquisition of sales, acquisition of customers. The last figure I would like to bring to your attention is our lifetime value divided with our cost of acquisition. It's on 20. The reason for this is that we have a really low acquisition cost, and that is due to our quite smart marketing and sales efforts together.
Then we also have a low churn, and this figure is also telling us that we build customer value in a really good way, and our customer stays for a long time. Talking about customer value, when setting up our technical roadmap, we work very closely together with our customers, in order to capture the features that they find most interesting. Also we're trying to solve the very current headaches they're having for the time being. I will give you 3 examples of this. In Q4, we launched a customizable dashboard, and in this dashboard, we always show the status of the ongoing projects where they, in one view and in real time, can see the costs and also the resources that are being used.
If there are any deviations to the projects, they can take proactive actions at the right time, and thus we get less cost damage in the company. Secondly, right now in pilot, we have a modernized calculation tool which is predicting material use and also the required installation time. Through this tool, we help our customer to make more accurate tenders, and in that way, also lower the cost. It's simply just no surprises in the way it used to be. A positive side effect is also less waste and carbon footprint due to less over-dimensioning, which is usually a quite huge problem within the industry. Thirdly, I want to raise also another popular feature where we are tracking finances on all the projects.
If the customers have a lot of changes to the products or add-ons, they won't forget to invoice their customers in turn, which means that they will be more profitable. Lower costs and more profits helps our customers to be more competitive in the market. How come we have such a positive view of 2023? Our customers operate in the SME segment, and they work with service, maintenance, upgrades of existing buildings, and in these sectors, there is more solid demand over time. We're talking about plumbers, electricians, construction workers, and there we also have a further great boost in energy savings initiatives and clean energy. Given the demand, we find the outlook quite bright and also that we have a lot of new sales and upsell opportunities.
The best of all, we also have the figures to prove it, which I will show you right now. This slide show you two bar charts, and the figures we have aggregated from data collected from one of our largest solutions, Bygglet. And here we're able to follow the average number of active projects and also the amount of invoices sent out by our customers, the aggregated amount they are invoicing their customers in turn. The first bar chart at the top, it tells us that 2022 are at the same level as 2021 when it comes to the average number of projects per customer. In January this year, we are even seeing a further increase.
Even more interestingly, I find, is that we in the lower chart see that the customers invoice in average more per month compared to previous year, also with an additional increase in January 2023. Our conclusion from this is that our customers are doing well and even increasing their business. Some other interesting figures we have from other solution is the activity level among active users or customers per solution. In the bar chart to the left, you can see the growth of active users for every single month compared to the previous year. Also now in January, you see an increase. To the right, you see a continuous growth of activities by our customers. Now I will hand over to Gustav to continue.
Thank you very much, Katja. We have a strong value proposition to our customers, and one of the things that are really appealing is that we have a very low price point, and we also have low monthly fees with no extras. In 2022, we adjusted our prices at the start of the year, and unlike most of our competitors, we refrained from raising them further as inflation increased. This gives us room to increase prices in 2023 at a higher level, broadly in line with the CPI. I think it's worth mentioning that the construction sector is one of the biggest industries in the world, but the turbulences that we've seen in the market hits the whole industry differently depending on which part of the industry you work in.
Our customers, like Katja said, work in a less cyclical part of the industry, and they experience good demand as they work mainly with renovation, upgrade, and services of existing buildings. We work continuously to improve the way we do business, and our solutions should be easy to buy, they should be easy to use, and we should be easy to do business with. All we do is focused at making great solutions at affordable and predictable costs. Since the IPO, we work to reduce risk and to increase our competitiveness. Today, we have 33% more customers and virtually no single customer dependency. Our level of repetitive revenue has increased while churn is at a low level. Also, like Katja said, in the sales process, we have become more efficient with a higher sales conversion rate.
These are some examples of how we work to reduce risk. Our business model is very strong. Our customer acquisition costs are covered within a 1 year. With low churn and customers paying in advance, we have a low risk. After 1 year, we see a 90% incremental cash contribution every year. This is the beauty of our business. Software is all about scale, and we work continuously to do more with the resources we have. Here are some examples. We have a new leadership team in place, and basically, they focus on creating synergies and holistic execution per country. We also established a new marketing team, led by Katja, maximizing return on marketing spend across the group.
We're also continuously working to see how we could be efficient with our operating the environments, to make sure that they are both scalable and secure, but also how we can tune costs on the different data environments. Now let's move to M&A. Acquisitions are an important part of our strategy, and we have acquired 9 solutions in the recent years. We have some well-defined selection criteria when we look for targets. One of them is to acquire additional customer base. Another is that we would like to acquire unique functionality for cross-sales. Of course, ideally, we get both customer base and unique functionality. We also want to buy teams and solutions that are fit to the market and have great SaaS understanding and mindset, understanding how to run a SaaS business.
We would like the solutions to have commercial proof of concept, meaning that we can see that they are a good fit in the market and customers are willing to pay for them. The solution should be standardized. We would like them to be unique, but not too generic. Generic solutions are quite easily copied. We have a well-functioning integration model, basically doing 3 main things. First thing we do is to make sure that the teams we acquire have the right focus and efficiency, and that they do what is good for the long run, how to run a really good SaaS business. We also look at the SaaS business model and the way they price the solutions in order to move as much revenue as possible to repetitive revenue.
Of course, we look to see how we can synergize with the group, taking the best out of the target and also the best of the group to do the share best practices. In 2021, we acquired HomeRun and Kvalitetskontroll, and you can see the improvement we've done with those two companies. We improved revenue by 29% in 2022 and also increased the EBITDA margin by 22 percentage points. As a matter of fact, the nine acquisitions we've done, we managed to improve both revenue and EBITDA in all of them. I think the three latest acquisitions we've done are great examples of what we would like to do to buy. Kvalitetskontroll, they have a great solution for quality assurance, and they also have a great customer base.
Elverdi and ELinn are excellent solutions for electricians, quite unique, specialized, and they are still a little bit early in their commercialization phase, but we think that they can be great to grow on their own, but also great for cross-sales. We have a solid balance sheet, we have cash at hand, and we have no debt. This gives us several opportunities to execute on our strategy. We will continue to look for strategically good solutions to buy, and we will consider to invest in different initiatives, both in sales and development, to increase our market share. However, we want to show capital discipline and invest wisely.
We now come to the end of the presentation, and just to sum it up, we continue to deliver profitable growth according to plan and strategy. We continue to tune organization and solutions to reduce risk and increase our competitiveness. At the same time, we continue to deliver strong operational cash flow. Now let's open up for Q&A, and please join me, Katja and Kjartan. We got quite a lot of questions, and I'll just see where to start. Yeah. Could you provide a breakdown of the churn drivers, bankruptcy, switching cost and other? Do you expect churn to stay at 6% in the future, or do you see any structural reasons, why churn should be different, better or worse?
I think, Katja, you have looked quite much into churn, so maybe you could elaborate a bit and Kjartan, if you want, please also add.
When we are looking at churn across the different companies, we can see there are some variations, of course. There, there is a problem within the sector that there are some bankruptcies, and we are, of course, also looking into that carefully during the year to come. We can't really see that that figure yet has increased. As you can see also from our figures, it stays rather stable. Yeah, we're thinking the outlook looks rather well. Do you have anything to add, Kjartan?
Well, we previously have said that most of our churn is due to bankruptcies. This is still true. The increase we saw from Q3 to Q4 is also related to bankruptcies. As Katja said, any major changes, we don't really.
Experience yet.
No.
No. Okay, there's another question. What does the large financial expense relate to this quarter? I think that's a question for you, Kjartan.
Yes. In 2021, May, we acquired HomeRun had a earn-out agreement which ran both for 2021 and 2022. In 2021, we included the earn-out in the PPA, and in 2022, we had to book the earn-out in the finance. Of the total finance, NOK 12.7 million is relating to the earn-out HomeRun earn-out.
Here's another question. The cash flow is a little bit weaker than expected. What do you expect from net working capital versus sales in 2023 to 2025 in the medium term?
Just to address the first part of the question, the weaker per se cash flow relates to the organizational change we did in the second half of the year. When we, when we had the country management structure, we also aligned all of the companies within the same country. We had some prepayments, some salary, alignment of timing and when to pay, which has an effect of about NOK 3 million, NOK 3.2 million in Q4 on a negative. That is, that is the Q4 part of it. Going forward, we still expect cash flow to increase. We have increased every year. We still expect this increase to continue. We have previously also said the drivers behind it is the prepayment from our customers.
Customers are prepaying, their subscriptions from everything between one month and 12 months, and that will continue.
Okay. Thank you, Kjartan. There's a question about what is the mix of end consumers, end customers for your customers in terms of consumers, public sector, SMEs and enterprise? Any rough approximate? I can answer that. We don't break it down exactly on the level that you ask for. We don't actually have the exact figures, but I would say we have previously said that about 10% of our customers are in larger companies, and I think that still stands. We have quite a lot of consumers that use our solution, but we don't have a figure to present, but they don't pay for the solution. There's another question. What is your view on the M&A market in your sector? Do you see any changes in valuation multiples?
I think the M&A market was quite heated a year ago, and it cooled down around Christmas, 2021. In 2022, sorry, around last autumn, we saw that it cooled down. Now we see that a lot of the private equity companies are sort of staying away, and we see that there are more companies that were previously growth companies that are now struggling for finance, and they sort of knock on our door. I think the multiples are still quite high. We are quite positive to the market. We are in a good position to buy companies. But still we are looking after our money and still going, being a bit picky when it comes to picking the right opportunities.
The market is better than it was a year ago, but the multiples are still quite high. We have some more questions. Are you expecting to expand into new geographies this year? We have an acquisition strategy, which means that we want to grow by acquisitions. If we expand into new geographies, it will be by buying another company. That could happen. But I can't say anything more than that. There's a question here: How much price adjustment did you do in 2022, and what range do you see scope for in 2023? Kjartan.
Yeah. When it comes to price, we adjust prices annually, we have historically. At the start of the year, we adjust prices according to roughly the CPI, we did so last year as well in the range 3%-5%. This year, we of course have a lot higher inflation, we expect price increases to contribute to revenue between 5% and 7%. Yeah, we started already in December to announce new prices. Yeah, it's higher, of course, than last year.
There's another question relating to this, Kjartan. The price increases, does that mean that we will move from sort of eight kroner to eight kroner on average per day, per customer, per user?
We see that NOK 7 is, of course, a rounded figure. We are some decimals above seven, but not enough close enough to eight. I would say with the price increases, probably higher and possibly even rounding off to eight, but not fully eight.
Okay. Margins appear high in Sweden. Could you tell us more about the room to reinvest and accelerate growth in the region? Similarly, margins appear relatively low in Finland. How do you expect margins to develop here, and why? I think it's important to say that we the different solutions and the different teams have a history and a different way of doing business. We are sort of harmonizing that, just the markets are quite similar. I think you should expect that we have more homogeneous margins and growth in the future. Anything else that you would like to add, Kjartan?
No, it's true. We provided a two-year history of the segments. If you take a look at that, you will see a defined effect every time we acquire a company. The margin, of course, goes down. As Gustav just showed you, the three latest acquisitions we have done is in Norway. That's why the Norwegian margin is lower than the Swedish margin. Before that, the two acquisitions was done in Finland. We are constantly improving the margin. It's a matter of maturity and when we acquire companies.
The last question is: How do you intend to progress with SmartCraft's M&A strategy in 2023? historically, we have done about one to three acquisitions every year, well, we expect to be on that level also for 2023. we are in good dialogue with quite a lot of companies in the Nordics, but also companies outside the Nordics. That pipeline is good and solid, so we'll see how that progress. I think that is the end of the session. Thank you very much for tuning in, and have a great day.