Admicom Oyj (ADMCM.HE) Earnings Call Transcript & Summary

So everyone, welcome to our Q3 pre-silent call with our analyst community. We will be recording this session, and we will be posting this on our website as well. And to get started, just a couple of words from myself just to, in a way, reflect the situation after our Q2 release call. I think overall, from a strategy perspective and our execution, it has been very much as planned and as we laid out in the Q2 release call, of course, the market has really shown a stagnation to low levels of construction revenue volumes. And we're following very closely Statistics Finland, different monthly changes in the overall construction volumes. And since the last 2 months, meaning the June and July reported months, the change has been now minus 0.8% negative as the year-over-year change in the construction industry revenue volume. So unfortunately, the market has been quite heavily stuck on the very low levels of volumes. And even though we have some positive indicators from the macroeconomics and from the interest rates and so on, we have not really seen a change in the overall reported construction volumes. And also, we have now a new member in our leadership team as we announced some time ago that Henna Kotilainen joined us in the beginning of September. And now after 2 weeks in the role, I must say that Henna has had a very strong start, and she has come into the team very strongly. And I'm very, very happy with her strengthening the leadership team and being able to focus on our strategic plans and helping us to lay out the foundation for the next coming years. And regarding that, we will be hosting or we are planning on hosting an Investor Day or CMD by end of the year to lay out the foundation for our next strategy period. It is still in the planning, but we will announce more clear time lines and plans as we have our upcoming Board meeting, and we will be then deciding upon the more details around that. And also as we discussed in the Q2 release, we have been more or less invested in during the beginning of the year against our plans and strategy. So as Henna was starting in her new role, we've had during the beginning of the year, many roles now fulfilled, and we are now in full readiness to execute the plans forward. But with those couple of highlights or comments, I will now open to Q&A. Daniel, please start.

Maybe if we could start as a sort of a reminder of your exposure to these different construction segments such as infrastructure, renovation, building service engineering because we all know that the new building statistics are super poor still right now. So can you remind us on how is your customer -- different customer segments looking?

Yes. So we're not dependent on one specific subsegment of the market. So we have all new building, renovation, building engineering, specialist construction companies, actually quite a lot of those, meaning companies doing the roofs, the painting and the foundations and land moving and so on. And also, we have some infrastructure-related construction companies. So we're not only relying on new construction or new apartment building. So even though statistically, that has been the segment that has suffered the most during this recession. So infrastructure construction companies and some other specialist construction companies have been doing better during this time. And it's also visible in our clientele. So we have companies who have been growing, and they are quite often specialized construction companies. And also something we have been mentioning before is that our customers are typically small and medium-sized construction companies, and they have been quite creative in finding new areas of business. So some have moved more into maintenance work and repair work when there's no new construction projects. And some have been moving in -- especially in building engineering, they have been moving from apartment -- residential apartment build to industrial build. So they have been bidding for larger industrial construction projects and some have even made specific special areas like supporting the data center projects. So they have been more nimble in shifting their focus, and therefore, they have been doing quite well. So we have significant amount of new construction, new residential building construction companies, but I would say that it's not a representative of a majority of our clientele or we have more areas of specialty, which is shown in the better performance in our clientele compared to the overall market performance. So that's obviously a good news for us that when looking at the data from our customers' revenue growth and also ability to be resilient during the downturn, statistically, they have been doing better than the market. So that's also a good evidence point of how distributed our clientele is.

Should we move on to the next question or should I jump to the back of the queue?

I think we have plenty of time, so you can empty your question slot.

Well, maybe one -- if you could remind on where is the sort of current downsell coming. So if you can sort of dissect a bit what are the issues with the downsell or what were the key issues in H1 with the downsell? So could you dissect that a bit?

Yes. So typically, downsell for us means that some of our contracted like revenue-generating parameters from the customers is kind of downgraded. So it means in the user-based licensing or revenue models, the customers are informing us of less seats that they are needing for some of the specialty tools in the project management or project planning tools. That's one example. The other example is that in Ultima and accounting, we have a revenue multiplier. So when the customer informs us that their revenue compared to the contracted revenue is going down. So the revenue multiplier is negative compared to the original contracted volumes. And then in Bauhub, for example, we have one revenue kind of criteria is the number of projects that the customers are having. And if the customer is having less active ongoing projects, that's also, in our case, downsell. So those are the most typical downsell drivers for us. And the reason for -- yes, go ahead.

Maybe I can add to that. So especially in Ultima and accounting, the customers typically sort of reestimate the current year revenues in the beginning of the year. So in the first quarter, we had a lot of those customers whose contracts were updated downwards. Now as we are moving to the new billing model for Ultima and accounting, these will gradually become history. So we will not be updating based on the customers' estimate, but rather the monthly fees will live according to the customers' historical revenue. So this is a big change that will happen in the future.

But I guess this is a topic we have discussed, but if your customers sort of now estimated that their revenues will be less maybe than previously projected during the start of the year. And I guess even though there were weak months, June, July, I guess the construction sector turnover still grew like 2% on the first half. So I guess there is a possibility that your customers have underestimated their revenues for this year, which will be then visible in the adjustment fees next year. So be it that, okay, with the billing change, there will be more evenly distributed, but still the net amount of these fees should be -- there should be a bit of an upside maybe to those fees. Or am I saying this correctly?

Yes, I think you're correct. And I would maybe say that the customers tend to be more eager in updating their contract downwards than upwards. So we typically see the upward impact in the MRR only with the adjustment fees. But as I said, we are moving away from this model. So it will become history quite soon.

Okay, thanks Daniel. Let's Emil go to you.

Maybe continuing on the adjustment fee model change. You said that it's starting now during Q4, right? So no impact on our Q3 figures. And then do you have a time line on when all the customers should be converted to the new model?

So we have -- yes, go ahead, Satu.

So the first customers will be rolling -- or we are rolling out the new model to first customers in October. So in Q4, we had the first batch, so to say. After that, quite soon, we will have the second batch. The timing of that is still a little bit unclear, but I believe that we are able to communicate about that in our Q3 release. After that, we will have at least maybe 1 or 2 batches after that. I would maybe estimate at this point that within 12 months, we have converted all customers to the new model. There are some specific cases like groups, customer groups that we will have to sort of analyze separately. So those might take a little bit longer than just individual customers. So -- but maybe in 12 months, we are ready.

But should it be kind of assumed that it's very front loaded at the pace that it's more exceptions that take a little while than it would be kind of linear?

Yes.

Then another question because you also said in Q2 that you're doing some price hikes. Was it so that they are only impacting Q4? And do you have any kind of indication on what that price hike would be?

Yes. So we have our price hikes this year done separately for separate products. So we have first price hikes actualizing in Q3. That's a smaller part of the total price hikes. And then in Q4, we have the rest of the products. And this is a topic that we are currently planning to do in a more synchronized way going forward. So when we move to 2026, we will probably have only one time during the year when we will do the price hikes for all products. But this is still a sort of a legacy from the previous business units and different legal entities. governance model that we have had.

And also next year, it will be much more clear to estimate and also give time lines on the impact during the year.

That's great to hear. Maybe going back one more on the adjustment fee. So already thinking quite a bit ahead, but does the kind of now pricing model change mean that there probably is no adjustment fee or very minimal then for Q2, Q3 next year? Is that kind of your planning?

We will still be issuing adjustment fees next year to some customers. So we have selected those customers who have had high adjustment fees this year that they will be rolling out to the new model later so that we can still issue next year adjustment fees. Because without that, we would have left a lot of money on the table if we have rolled out the new model in, let's say, Q4 this year or Q1 next year, and we would have not invoiced the adjustment fees. So there will still be adjustment fees next year, but only for certain customers.

And maybe just as a clarification, why certain customers are having still high adjustment fee. Basically, they have decided not to update their contracted revenue volume to their actual revenue volumes, but they have then selected to pay a smaller monthly fee and then have a higher adjustment fee once a year. And for these customers, we, of course, don't want to leave that revenue opportunity on the table. Felix over to you.

A follow-up on the price increases, the list price increases that Emil asked about. Can you just specify a bit about the magnitude of the price increases and also the month in Q3 when these adjustments took place?

Yes. So we had a very small portion of price hikes in July, so only for a couple of our products. And then we have some in September. We are talking about pretty much similar magnitude as in previous years in total for the price hikes.

And this is what we also communicated during the Q2 release.

Yes. Can you just remind me on the last year's levels? Was it sort of...

So last year, we did about 5% price increases, but the effective impact was less because we did not issue them to every customer depending on their contract status.

Yes. Got it. Then just wanted to hear your thoughts about the ARR guidance because from the sort of end of Q2 baseline, it takes about at least EUR 3 million of incremental ARR for the second half of the year to get to the lower end of your ARR growth guidance. So can you just specify how much of this EUR 3 million or more comes from the list price increases, how much from Ultima billing change and how much from other potential sources? I just wanted to understand a bit about the acceleration in growth that you see for the back half of the year.

Yes. So those are definitely the components and the elements impacting our ARR guidance. We are not ready to disclose our estimates on how much from each component. But we will review in relation to our Q3 release, if we can give a little bit more light on that.

And of course, many of those activities that are within our control are quite end of year loaded. So this is also the reason why we have not changed the guidance, and we're still working on the topics like the billing model change and our own sales activities. So -- but all the drivers that we have been mentioning that what are the growth drivers affecting the ARR growth, they are still very much valid. And some are, of course, shown to be maybe more negative compared to our original thoughts like the speed of recovery in the market. But then on the other hand, during the year, we have been creating our own activities to boost up the top line like the billing model change. And this is what we communicated during the Q2 release that the underlying assumptions have somewhat updated. They have been updated, but we didn't change the overall guidance numbers.

Got it. Then last one for me, just an update on the competitive landscape and the intensity that you see, especially in this bit of a weaker market would be interesting to get.

Yes, of course. And many of the competitors who we are facing on the day-to-day basis is there are smaller ones -- there are companies bidding for the small end of the spectrum. And they are, of course, in the same very, very challenging market, and it's reflected quite often to very lucrative and aggressive price incentives. So there are up to minus 50% incentives for quite a long period of time. So this is really the time during which the -- especially with the new customer acquisition is very competitive. And -- but at the same time, we have been relying on our differentiation, meaning we have a broader portfolio, and we can provide the most extensive support for the whole construction project life cycle. And I would say that where we have been able to deliver the message and the value from our platform approach has been resonating well, and it has been leading into good deals often containing multiple products at the same time. And then on the other hand, if the customer has been asking for a very limited set of capabilities and the competitor is there with an aggressive price point, we haven't gone crazy with discounting and price point reduction. So we are kind of like keeping our promise to the customers and the value proposition, and we want to make sure that the customers understand the true value from that and not to take us into like non-apple-to-apple comparison than just the price defines the end result. And we do see that there's also some customers that have been maybe slightly misled with certain platform capabilities, and they have been churning from us and now recovering back --7 or returning back to us because the promise that the competitor had made didn't materialize. So clearly, we can see that the market is using pricing -- aggressive pricing for the new customer wins. But at the end of the day, the value perceived and value delivered is what really makes the difference. So -- and then also, we are looking into further strengthening our unified platform approach, and we will definitely tell more about this during the Q3 release as well. So how we are bringing even more incentives to our customers to use broadly our set of products. Thanks. Atte, over to you.

Actually, my next question was about sales. And on overall, if you think about your sales operations, have you made any changes now there when we know that the market situation has been still pretty tough and there's that much tailwind from the market. So any changes in your approach to trying to win new customers or do upsell, cross-sell?

We have been sticking with the plan that we explained during beginning of the year in March when we released the new operating model. So we did the change so that we have approximately half of our field sales focused on new customer acquisition and half of the field sales force is looking after our existing customers. And we believe that the cross-sell opportunity is definitely worth now the investment from the sales side, and we have more account managers doing proactive work in helping customers to extend their use of our technologies so that we are not only relying on the new sales motion. And also, we did the change that we have 2 sales segments containing new sales and customer success unit with the account managers. So we have the small segment where we have from 0 to EUR 5 million revenue customers and then from EUR 5 million to EUR 100 million. And we can definitely see that the -- both the existing customer cross-sells and new sales momentum is not the same in both of those segments. So we have to really create the playbooks that work for both customer segments and types of customers and also make sure that our account managers are continuously educated with the cross-sell opportunity of the products. And there, the implementation of this sales model has been a lot to do with also enabling ourselves with the full portfolio. So we have salespeople who have been focusing only on one product before. And now they have 7 or 8 products that they are selling. So we've been doing a lot of sales enablement to get the account managers up to speed, and this has been quite a significant effort from our sales team and sales support teams.

I opened your website and I saw some updates there. It seems like there is more focus on like the Ultima and the project management tools and all the other points are a little bit more hided behind that is there some -- is that something new in your sales approach or is it just me?

Yes. We haven't made any decisions on discontinuing any products, but we have been making certain decisions on how to prioritize different products for a different stage of the client relationship. So we have more land products that we are using to land a new customer. And then we have expand products that are then easier to cross-sell as we have then the customer actually onboarded. So that's also visible in our website that maybe some of those land products are a little bit more highlighted than the expand products.

Any update about your AI project at this point?

Yes. So as we discussed in our Q2 release, we have had now our first pilot customer project completed. It was conducted with 10 customers, and we were testing and piloting, especially AI capabilities that are helping during the site operations. So making it easier for the construction workers and the format and project managers to update the schedule, update the status of the project. And as already then indicated that we're now moving into a commercialization stage and that we are currently planning. And I would hope so that during the Q3 release, we can give a little bit more color to that and specifics of how we are now progressing with the first actual commercial packaging.

Then last question. So there was the flagging notification that ALCUR FONDER has increased its stake to over 10%. So any comments on that?

No, we're very happy that some investors have been making decisions on increasing their position, and we have a very good dialogue with them as well. And I would say that our distribution of ownership is still very high. So they are with the 10% ownership, they are the largest owner at the moment. And I'm very happy with the messages that we're getting from our investor community about their investment strategy and what they are expecting from us as a company and as our future perspectives. And I must say that after the founder and significant shareholder, Matti Häll, reduced his position to 0. I think we're having a very, very consistent message coming across the investor community. And it's helping us as the Board and the management team to build a strategy that is then, of course, fulfilling those expectations. So I would say that I'm very happy with the dialogue that we have at the moment with our investors. And I must say that it's very unified the message that we get across from those meetings. All right. Round 2, Daniel, over to you.

Just one question, maybe on the cost base and the growth investments that you have been doing over the past 2 years. I think we have discussed this before, but just to make sure that these -- many of these or most of these growth investments they are now behind and especially the employee count, which corrected quite a bit in Q2. I think this is something that won't change abruptly going forward. You are happy with the capacity you have right now. Of course, there is positions to fill and so on. But there won't be any drastic investments coming in.

That is the message that we have been forwarding, and we did finalize certain open positions still during the beginning of the year, and we had even some headcounts that were overlapping. So then you saw the correction during the Q2 reporting. And like we have been mentioning that we are now quite well invested in. And we're even in certain areas, slightly overinvested on purpose just to make sure that we have enough capacity to build certain cross-functional capabilities in our platform. We have enough capacity to invest into the AI capabilities and so on. And in the longer run, I think the cost to revenue ratios will play favorably for us and create some operational leverage. But at the moment, we're satisfied with the level of investment.

Maybe one more question.

Go ahead, Atte.

About the churn, I think you mentioned in Q2 report that you now expect the churn levels to be on the elevated level also on H2. So has the situation been that or any change at least the bankruptcy statistics are still showing pretty bad numbers?

Yes. And as you might guess, this is something we're not disclosing in the pre-silent call. We will report that in the Q3 release. And I think overall, just looking at the industry situation, you can draw the conclusions that the situation has not significantly improved in the market. Good. If there are no further questions, dear analysts, I would like to thank you for the pre-silent call, and we will be publishing this on our website on a very short notice and then looking forward to providing you with a more detailed Q3 report as we close the quarter. But thank you for now, and we'll return back to financial releases in October. Thank you.

Thank you.