SmartCraft Group AB (publ) (SMCRT) Earnings Call Transcript & Summary

It's 2:00, and we welcome viewers to this broadcast where you can ask your questions in the live chat during this -- the length of this broadcast. Today, the company SmartCraft has published their report for the second quarter of 2026. And with me, I have the company's CEO, Jeremias Jansson. Welcome.

Thank you so much.

Do you have a presentation on the quarter that you will give where you'll be also joined by your CFO. So without further ado, I will simply hand over the word and return later to ask some questions.

Thank you so much. Yes. Hello, everyone, and I'm going to go through the Q2 report for SmartCraft, and it's going to be a pleasure to do that. So first, a short disclaimer and then directly into the agenda. So what we're going to cover today is, first, this is SmartCraft a little bit shortly for you who doesn't maybe know that much about our company. Then we're going to talk about a little bit Q2 highlights, and then I'm going to be joined by our CFO, Tobias, who's going to talk about the Q2 financials, and then we're going to do a summary, and then you have the opportunity to do a Q&A. So let's jump directly into it. So first and foremost, this is SmartCraft. So I normally start by saying why do we exist and what we do basically. What we do is that we basically put all our focus on helping smaller companies in the construction sector, handymen and similar to fix their daily life. That's what we're trying to solve for most of our customers. And by doing so, we hope that we help them to become more digitalized and actually give them a higher profit, of course, but also help them to make sure that what they do in their daily life has a high quality. So that's basically SmartCraft. Now SmartCraft to support that has a couple of software products. And as you can see from this picture, we have also put those software products into different buckets. And the reason for that is that we in SmartCraft believe that it is very important that our software are tailor-made for the end customer so that they can really be efficient when using these ones. And what that has led to for us in SmartCraft is a continuous growth over a very long period of time. So basically, for SmartCraft, we have seen a growth in 15 years and continuing. And that is, of course, the financial outcome of us delivering solutions to our customers that helps them in the daily life. So that's basically SmartCraft in short. Now going in and looking at Q2 highlights. What have we done in Q2, what has happened in the quarter? So basically, if we look at it and start from sort of the top, we have had an organic growth of about 7%, which is something that we have had for the last quarters. Even if that is a slight increase year-over-year from Q2 in 2025, it's still a growth that we want to be higher, and we will come back to that in a little bit. The reason for the average growth as is in the company is basically a mixed performance around the 4 different business areas and also the geos where we are doing our daily business. The Swedish market has become a little bit better for us during the last year and also showed some good growth, so have also the business areas of the smaller construction companies, SMEC and also the business area of enterprise. While we have had a little bit more challenging times in Norway and Finland and also, therefore, in the business area of HVAC. During this period of time and looking at one of the numbers that we work very hard with is, of course, the churn number. For about a year ago, we were up to 10% in churn, and we have managed to push that down both year-over-year but also quarter-over-quarter. And the churn number has gone down, but at the same time, we still have some downgrade on our existing customers, which is why our existing business part is not growing more. When it comes to the downgrade, if we look into that a little bit directly, you could say that it could be seen as a positive that the customers decide to not leave us, but instead decrease their cost for the software when they themselves decrease in size as a company. What we've also done during Q2, which I will deep dive into a little bit, is that we strengthened our executive team. We are moving in the direction of what we call One SmartCraft, where we try to become one company in always to support higher and faster growth. During the quarter, we also decided to do a change in our enterprise area, which led to a cost saving that we will see from 2027 fully out of about SEK 15 million. I will also deep dive into that a little bit. And as a headline, you can also say that we continued the strong cash generation from Q1 into Q2. If we go into a little bit and look at the numbers, more or less, I normally use these ones when I present what we have added as sort of a fifth high-level number is the return on equity, which we will come back to a little bit in the presentation as well, how we work with that. If we look at the other ones, as I said, the churn number was a very good number. We do decrease a little bit in margin for this quarter and the background of that is basically that we are continuing to invest in our products at the same time as we have done some extra work on the centralization of SmartCraft that short term has costed some money as well. Good cash generation, as I said. And if we talk about sort of a nonorganic total growth, it's about 8% year-over-year on the annual recurring revenue. If we look into the change in enterprise that I mentioned, we can say that what we're trying to do in SmartCraft is step-by-step getting the company to a little bit of a different company. So we're trying to make sure that we invest the money that we have into the right products in our product buckets and that we make sure that when we see something in a business area that we think we have to change to make sure that we enable growth, then we push hard for that. In the case of enterprise, the starting point of doing this change was actually about exactly that. We want to make the enterprise business area more similar to the other business areas in the sense of their organization to create more common function within it, clearer ownership and therefore, get faster delivery and a better alignment between the teams in a couple of countries. Doing this change also gave us a financial benefit in the form of a saving of SEK 15 million on annual cost savings. It also gave us a one-off cost for doing this restructuring of SEK 7.2 million, which is in the numbers of the quarter. During Q2, we also continued to build on ramping up our executive team. So from the start when I came into SmartCraft and started to talk about One SmartCraft -- sorry, I also talked about the fact that we are going to take in good competencies into SmartCraft to make sure that we can grow the company in a faster way. Joining me today in the presentation is Tobias, who is our new Chief Financial Officer. He started in June, and I'm very happy to have him on board. And then we also recruited Daniel Karlsen to work on the HVAC and Plumbing business area as leader for that. And this is a very important hire for us because that business area, as you can see from the number, is a business area that has had a little bit less growth than the other one in the last year. And what I'm hoping, of course, and our plan is that together with Daniel and the build in that team to go back to a higher growth number in HVAC and plumbing, which will then, of course, also affect, if you look from a country perspective, the Norwegian numbers that we have. Joining us also a little bit later this year is Thomas Staven. Thomas have had a long career in tech and is a fantastic person when it comes to product and technology. And taking him into SmartCraft, at the same time as we're putting Christian Saleki into a direct role to lead AI and technology part within SmartCraft, we're hoping will of course, enhance our AI offering and our tech platform. But we also invest into the company in trying to find the same platforms, same routine. And Karin, who is joining us as a Head of IT is an example of a couple of coworkers that is joining us for this. Now one of the most important things still in our transformation as a company is to use the new technology at all time to become more efficient over time and also produce software to our end customers that they can use more and more. And in the past, I've talked about why we think we have a unique position in this as a company that we can use to deploy different solutions to our customers. So this one is sort of not new. We're sticking to this idea. If we look into that one a little bit from what have we actually delivered, we, of course, deliver new features and functions within our products at all time. So we basically have 2 different parts of this that is important. One part is how we make sure that in our solutions, we build capabilities that can make the customer get more efficient from our solutions. The other part is, of course, to use AI in our own production of software, which was a project that we run through Q1 and Q2 to make sure that our development teams, especially from the beginning, are using AI to develop our products in a faster but also even more reliable and efficient way. So to summarize the Q2 a little bit in headlines, we are continuing on the path that we have decided. That means transforming SmartCraft into One SmartCraft. We have a couple of different products, and we will continue to do that. They are niche for different areas. However, we want to run as one company and therefore, get those scaling benefits for that. And that is what we're trying to do with attracting new talent for our leadership, with making sure that if we are in a situation where we see that we need to change the structure of a business area like enterprise, we do that. And if we think that we have to make any part of SmartCraft more efficient, we do that as well. We will continue doing this also through Q3 and Q4. So there are more things that we are, of course, planning to do as a company in making sure that we push ourselves closer to become One SmartCraft. With that, I will hand over to my good colleague, Tobias, who will talk a little bit about the Q2 financials.

Hello, everyone. My name is Tobias Lindquist. I joined as the CFO for SmartCraft in June. So this is my first quarter to report. So happy to meet you all. I'll start with ARR. So we ended the quarter at SEK 514 million, which is up 8.1% compared to last year. We had an organic growth of 6.8%, which is slightly better than 6.0% we had in the Q2 last year. If we look at where the growth is coming from, it's very much from enterprise, which was up 11.9% in organic growth and SME construction, which was up 8.7%. Sweden is especially interesting and where we look at the SME construction, their ARR of now 15 -- in Sweden it's SEK 153 million, which is up more than 11% year-over-year. And almost all the increase from -- we have in ARR for SME construction is from Sweden, SEK 15 million out of the SEK 17 million increase in ARR. We added SEK 10 million in net new ARR during the Q2, which is 14% more than we had last Q2. Our customer base has grown with 366 customers year-over-year. Churn, as we mentioned, is particularly good, improvement of 1.9 percentage points to 8.1%. What is important with the organic growth is that it is not only driven by price increases. Pricing is helping, but we're also seeing growth from upsells, new customers and better retention. The mix of there between varies between the different business areas and markets. In some cases, there is some more price sensitivity and where we're putting more focus on upsell and expanding our customer relationships. Finally, the quality of earnings has also improved. Our recurring revenue now equals 96% of the total revenues, up from 95% last year. So overall, I think the ARR looks quite healthy. Growth is holding up and especially then Sweden and SMEC is the most positive signs. If we're moving over to revenue. Reported revenue was up 7.8% year-over-year with an organic growth of 6%. That's a clear improvement from 5.2% in Q1 and importantly from the negative 0.2% that we had in Q2 last year. So we're seeing a gradual improvement in the revenues and the underlying trend as -- also here, it is SME construction, which was the strongest contributor to the revenue with a revenue growth of 11.7% and an organic growth of 10.3%. On costs, adjusted operating expenses increased by 9.8%, faster than the 7.8% in the revenue. So we're not seeing yet the operating leverage, which we normally would have expected. And there are a few factors behind this development. As Jeremias mentioned, we're building One SmartCraft following the change into business area structure we did last year. And with that, we have given opportunity to harmonize systems and processes across the group, which includes areas such as CRM, ERP, et cetera. At the same time, we are also continuing to strengthen the organizations with the relocations from key personnel to Sweden. Looking at the results, the EBITDA result, adjusted EBITDA was SEK 2.2 million, improvement from last year, reaching SEK 52.6 million. So despite the high cost, we have a better adjusted EBITDA -- EBITDA result. However, development of CapEx increased with SEK 3 million. So as a result, the EBITDA -- adjusted EBITDA was SEK 0.8 million lower than last year. The focus is now to making sure that we can leverage on the investments that we've done in development and also in the organization. If we're looking at this slide showing then the development between the different areas, the development in revenues, organic growth and adjusted EBITDA. The development, as you can see, is different from the different -- amongst the business areas, and that also leads to that we see different opportunities for moving ahead. SME construction is the standout. We have good growth in both ARR revenues and also high profitability. So there, it is -- and this is driven by, as mentioned before, Sweden, but -- so here is continued the growth journey that we have ahead. Enterprise is different. We have a good ARR development, slower in revenue and also the margins are lower than other business areas within the group. This is also why the restructuring that we have made or putting in place now is important. We're reaching uplift in the margins to similar levels as group level. Electro remains positive, but there is room for improvement. ARR is growing slowly 4% and organic revenue is up 6.5% and margins is stable but lower than the average. So here, we have improvement of possibilities, both in sales and the margins. HVAC and plumbing, here, we have revenues, slight improvements, top line, but very good profitability. So here it is for us to focus on driving top line. Moving to the next slide and the cash generation. So we had a good cash generation in the quarter, SEK 8 million improvement from Q2 last year, ending at SEK 33 million. We were helped with the cash flow by lower tax payments this year compared to last year. We were at SEK 4.5 million compared to SEK 14.2 million last year. But at the same time, we also saw improvements in working capital and higher customer prepayments, which is also encouraging and evidence that are supporting our ARR growth. ROE was 9%, and this is an area where we see a clear upside, both in terms of improving the result, but also to have more capital efficiencies ahead. In terms of capital efficiencies, we are having an ambition to act on the share buyback that was decided by the AGM in May. Yes, continuing on the capital allocation. And so of course, we have a very solid cash position of SEK 140 million. We have positive net interest-bearing assets of SEK 180 million. So we are in a good cash position. That gives us flexibility to both -- to first, of course, invest in our existing business, investing in product development and growth top line. Secondly, when it comes to M&A, we are actively working -- focusing on finding selective M&A opportunities, which supports to expand our offerings and footprint. And thirdly, it's ambition to act on the share buyback program that mandate that we were given by AGM in May. So overall, we have a strong capital base, which should give us room for not only acting in one area, but in all the 3 areas simultaneously. With that, I am returning back to Jeremias.

Thank you, Tobias. So to sum it up a little bit then, we had an organic growth for Q2 on 6.8%, which is a little bit down from Q1, and we want to do better than that. And how is that then going to happen basically to sum it up. Well, we have to continue with the good work that we have done in churn and try to push that number down a little bit more, even if 8.1% is better than Q1 and better than last year. At the same time, we need to make sure that our existing customers, of course, find solutions and interest in our products enough that even if they are pressed by low growth themselves, that they keep the number of users in our system. And there, we have some way to go in all honesty. And then thirdly, we have to continue with the push on the net new business and always be smart on what we're doing there concretely. We did see okay-ish, I put it like that net new business, but I think that the existing business could be improved from our part. So that is about the growth part. If we look at the efficiency part, we will continuously look into how we do similar things as what we did in enterprise when it's needed. But of course, what we want to create is scalable internal solutions. And as mentioned by Tobias, we have invested in some of those systems that is supporting us for the future growth. And then the third part is that we actively, with the help of Tobias and other ones, is trying to make sure that the return on investment on our capital increases, and that is a sort of new focus even though, of course, we always have that focus, but to really make sure that we find ways of spending our good capital that we have in the best way for the company so that we can get more growth. We hope that by doing that, we will move towards our ambition in the midterms more and more despite the market that we're into. And with that, we will end our presentation, and we will go over to Q&A.

Yes. Thank you very much, Jeremias, and Tobias will also be joining us here on the stage. I thought we could begin with talking about the ARR growth organically that increased 6.8% and you exit Q2 with SEK 514 million in annual recurring revenue. As you described in the presentation, it's below your expectations. Where would you want to be?

Well, we have given the market, of course, a midterm idea of where we want to go. And what I've said since I started is that we take quarter-by-quarter, of course. I don't want to give exact numbers on next quarters or anything like that. But for sure, we have ambitions of getting up to a higher point than that. And of course, we have given a traction on where we want to be in a good market at a longer period of time.

Sweden is clearly recovering. Your other markets are still soft. But apart from factors that are market related, what are holding you back?

Yes. So first and foremost, we also have to set it in perspective. I think that, for example, the construction industry in some part grew with 5% and electricians in 2% in the number of -- and we can see that in Sweden, the bankruptcies goes down a little bit, while it doesn't in other countries. But as you say, that's the market. We can't do much about that. And what we're trying to do is, as I said, we're trying to handle, of course, the churn factor, which I think we have increased even if the market has not become better. But then what we have to do, as I said, was to make sure that our existing customers feel that using a little bit more of our software tools give them a good advantage, and that's really what we're pushing for. And then thirdly, we are doing changes, as I said. When we struggled in Finland, for example, we now did this change in enterprise, a little bit in the structure, partly because also trying to get better in that market. And in Norway, we, of course, have put in a new leader for the HVAC part to drive more when it comes to net new sales as well.

And that's internal -- how do you say it, internal efforts to sort of meet the softer markets?

Yes. exactly.

It's always fun to see an active chat and this chat is very active. And there are 2 questions here regarding the ARR growth here. Could you quantify the contribution on ARR growth from price increases, upsell and downgrading and compared to Q1.

Yes. So again, we haven't given out those numbers. So I think we have to come back with the exact different numbers on that one. We have given -- trying to give to the market a little bit of a bridge on the different elements. In some cases, for example, upsell and a price increase can go hand-in-hand. But what I can say and share is that we see that we mainly get more money from sales than price increases. But as Tobias said, it is a little bit variance between the different business areas and countries.

Torbjorn also asks, is price sensitivity limited to certain business areas? Or is it broad-based? How is the reception of the 10% Bygglet price increase been?

So it is correct, as he says, that it is a little bit different on different products. And that is, of course, pretty natural. It depends on how the products are priced from the beginning compared to the market, of course, but also in what market you are, which country and what submarket. So yes, that is a difference for sure. It is different in different one. For the SMEC area, which we comment on, of course, which Bygglet is the biggest part on, you can see that they have managed to have a pretty good growth, which then tells you that so far, that price increase has gone down in a positive way. We also try to give our customers, as I said, more solutions, more software for the money in those ways we can.

Tobias, Jorgen Weidemann from Pareto has also asked a few questions here in the chat regarding markets. First and foremost, you mentioned that the market traction in Sweden is improving. Could you elaborate on what you're seeing currently?

Well, we have seen overall the market output within the construction sector has increased the first 6 months during the year as well as also the -- when it comes to bankruptcies has decreased in comparison to last year, even though being on high historical levels. However, it's quite fragile with the July output where the bankruptcies actually increased compared to a year ago. So it is improvement, but it's fragile in that sense, I'd say that varies from month to month.

So you can't concretely expect that recovery to continue throughout 2026. Am I interpreting you correctly?

I think what we see that it is a slow positive development. That is, I think, what we can expect to say, but not any major uplift in demand during this year.

What signs are you seeing in your other markets for potential recovery?

Well, it is -- the market in Norway and Finland and U.K. are more challenging than in Sweden. They have higher interest rates. Their residential has been quite heavily affected and so forth. So we see slower recovery in those markets than in Sweden.

On the subject of markets, here's a fun one. Some of the markets in the EU like Poland, Ireland, Netherlands are growing much faster than Norway and Finland. Would you like to have your footprints in these markets, too?

Well, I think it's -- we're focusing on our current markets and so forth. But -- and if we were to expand in a new market, we will let you know.

Jeremias is excited to jump in there.

No, I think that was a question for Tobias. But I would say that we have our core markets, as we have said repeatedly, and that's where we mainly try to grow our business. If there are opportunities in other markets, we could, of course, have a look at that. But today, we are trying to run our business where we are.

More questions regarding ARR. Jorgen asks, ARR from existing customers is down SEK 2.7 million in the quarter. In light of recent price increases, how should we interpret this? Are customers not willing to pay the higher prices? Or are there some other effects in this number?

So I think that mainly, of course, the churn goes down. And as I tried to allude on, if you're positive, and I don't want to be over positive, which I think the audience know by now. But if you are a little bit positive, you can say that the customer is choosing to stay instead of leaving in that case. So that, I think, is a trend that's going on. However, I still think that the customers are very pressed if you have a growth number yourself of 1.5%, 2%, which big parts of our markets has, they, of course, are trying to hold back on all the costs that they have. And therefore, if they used to be 10 persons working in a firm and now there are 6 people, of course, that will mean a reduction of 4 people regardless of what we do.

And clients downgrading, do you expect them to later upgrade when recovery is more, how do you say it, concrete?