© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to today's conference call regarding the Q1 results 2019 of NFON AG. [Operator Instructions]Let me now turn the floor over to Sabina Pruser.
Dear, ladies and gentlemen, also from my side, a very warm welcome to our first quarter 2019 results call. My name is Sabina Pruser. I'm Head of Investor Relations at NFON AG. Also on my side are Hans Szymanski, CEO and CFO of NFON AG; César Flores Rodriguez, CSO of NFON AG; and Jan-Peter Koopmann, CTO.Hans will guide you through the presentation. This will take about 20 minutes after the presentation. You will enter -- we will enter in our Q&A session.So let me now turn over the floor to your host, Hans Szymanski. Hans, please.
Thank you very much, Sabina. Good morning, ladies and gentlemen. I'm very pleased to present to you the first quarter results 2019 of the NFON Group. And I would, as always, like to start with our mission statement. We want to dominate the European cloud telephony market by delivering freedom of business communication. So our goal is to become the #1 in the cloud telephony in Europe.Looking at the achievements one year after the IPO, we see that major strategic milestones has already been achieved. We have now more than 30,000 customers in 14 countries. We successfully launched our new cloud product, Cloudya. We have more than 300 employees. We are operating more than 390,000 seats and 35,000 and SIP trunk channels. And we have a vast partner network of more than 2,000 partners. And last not least, we have also successfully done the acquisition of the Deutsche Telefon Standard AG. So NFON not only realized its strategic milestones, we also have reached our targets.I would now like to draw your attention to the key figures for the Q1. NFON starts on schedule in the financial year 2019. We have a revenue growth of 21% and a recurring revenue growth even higher with 29%. The recurring revenue, as you may know, the high-value revenue. We have 86% of the recurring revenues in the ratio in comparison with the total revenues, and this is above the guided range. We have increased the seats by 45%, and we successfully started the migration of Deutsche Telefon Standard AG, also started the sales activities in Italy, and we plan to start the activities in France next month in June 2019.So looking and analyzing our business model, we see that we have a proportion of recurring revenues, with 86% well above the guidance. The recurring revenues come from the license fee per extensions that the customers pay us per month from the airtime and also from the premium solutions. On the other side, we have 14% nonrecurring revenues. These are one-off revenues coming from the activation fees that we ask our customers to pay when they, the first time, use our solution, also from the hardware sales and the professional services. So the high portion of the recurring revenues amounting 86% is the basis for our sustainable and scalable business model. We achieved in the first quarter 2019 a sales turnover of EUR 12.1 million. We have to consider that we have here the Deutsche Telefon Standard consolidated only one month -- the consolidation only for the March 2019.Total revenues grow by 21%, as I commented, to EUR 12.1 million in comparison to EUR 10.0 million in the first quarter 2018. We have also to consider that we have a cumulative effect quarter-by-quarter due to the steadily growing total number of seats. Looking at the nonrecurring revenues, we see that these are at the previous year's level, with roundabout EUR 1.8 million in the first quarter. And as I commented, we have a significant increase of the recurring revenues by 29%.As you may know, the seat is the main driver for growth, and we see in the seat base a very strong development, plus 45% comparing Q1 2018 with the Q1 2019. This increase of the total number of seats by 45% includes, of course, also the seats of the Deutsche Telefon Standard.If we look at the ARPU, we see a slight decrease in the blended ARPU due to the following influencing factors. First of all, we have a very successful development of our business with wholesale partners selling their own airtime, and we have also lower license fees from DTS because they are positioned in the mid-market segment. If we look at the definition of the ARPU, this includes the total recurring revenues, minus the revenues out of the SIP trunk channel license fees, divided by the total seat base. I think it's important to emphasize that, although the blended ARPU is slightly decreasing, that we have, in the specific ARPU in the single sales channels, we have here a stable situation. We also would like to emphasize that we have a very low gross churn rate of less than 0.5% per month, which underlines the quality of our product and services and which is the basis for continuous recurring revenues. Additionally, premium solutions that we offer to our customers represent also upsize potential for the ARPU development in the medium term.Looking at the gross margin, we see that we have a consistently increasing in the gross margin, emphasizing the scalability of the business model. The cost of materials are largely variable in nature and mainly comprise of cost of hardware sold, cost of airtime sold and data center housing costs. The cost of materials rose under proportional in comparison with the development in the revenues and achieved 4%. Gross margin shows very positive development and could be increased to almost 78% in comparison with the gross margin of 74% end of the year '18 or with a gross margin of also 74% end of Q1 2018, so a significant increase also in the gross margin up to 78%.Looking at the development and the personnel expenses, we see a significant increase here, and this is due to the fact that we are securing the tomorrow's growth by investing into today's workforce. The personnel expenses as reported amount to EUR 5.5 million, in comparison with the previous quarter 2018, which amounts to EUR 4.2 million. We have the adjustments for mainly retention bonus on stock options in the amount of EUR 0.3 million, so that we see the adjusted personnel expenses, which rose by 29.3% and amounts to EUR 5.3 million. The headcount increased from 204 employees end of Q1 2018, up to 333 headcount now end of Q1 2019. This significant increase mainly -- is mainly driven by increasing sales teams in Italy, U.K., in Germany, but, of course, also include the Deutsche Telefon Standard as of March 31, 2019. This ongoing development in personnel expenses is the foundation for the future growth of the NFON Group.Let me now give you some background on the increasing of the marketing expenses. We are also heavily investing in marketing expenses. This rose from EUR 0.8 million in the first quarter '18 to EUR 1.6 million in the first quarter '19. Marketing expenses increased as planned and built a strong brand and drive sales and partner growth. We have a clear separation between central marketing and local market activation, and this is both important for the future growth. We have teams focusing on the implementation and local activation in the markets, allowing fast scaling go-to-market, high-quality implementation from day 1, but we have also teams building a strong brand in the central marketing department. The mix of outbound and inbound marketing harvests the existing demands in the markets. We have now more than 2,000 partners across Europe, and we need to be -- to serve these partners with strong brand, which leads to -- which generate also leads through the NFON channel.We have -- looking at the adjusted other operating expenses. These are, in general, the other expenses, which comprise of sales commission, supporting costs, general administration expenses, consulting fees, et cetera, and the adjusted expenses, which are adjusted by the marketing costs and sales commission. We see here an increase from EUR 1.5 million in the period Q1 2018 to EUR 2.0 million in the first quarter 2019. This increase of the operating expenses is due to the ongoing European expansion. We have sales commissions, which amount to EUR 1.4 million in Q1 in comparison to EUR 1.0 million in Q1 2018. These are stable in relation with the revenues. The increase of the other operating -- the adjusted other operating expenses from EUR 1.5 million to EUR 2.2 million is due to the following reasons, amongst others: the start in Italy and France; expenses from the DTS, which first time which were consolidated in March. So it shows the ongoing European expansion.Despite this dynamic growth strategy, the adjusted EBITDA is with minus EUR 0.9 million near the breakeven. We have a reported EBITDA of minus EUR 1.7 million. The adjustments of the stock option and retention bonus and one-off expenses related to DTS amount to EUR 0.5 million, so that we have a total adjustments -- sorry, amount to EUR 0.5 million, the expenses of DTS. The total adjustments amount to EUR 0.8 million, so that we see an adjusted EBITDA of minus EUR 0.9 million. This is in accordance with our strategy by investing, as I commented, heavily in personnel expenses, increasing the staff, but also by investing in marketing and sales commissions. This is the dynamic growth strategy that we are implementing and rolling out throughout the NFON Group.Let us now have a look on the -- today and tomorrow and on the rollout of our growth strategy. We are delivering on our growth strategy. We have a growth strategy, which are laying on 5 pillars. We have -- in the pillar number one, we have the increased penetration and adoption in the existing markets, so we are here investing in marketing and in sales forces to increase our sales. We are also, in the column number 2 and 3, investing in our product by transforming the products, including additional services and features, but also by open our product for other systems and developing APIs. We are also investing in the market development by expanding regionally and entering new markets, and we want also to be part of the market consolidation. There is a very fragmented market in the cloud telephony, and we want to be active part in this market consolidation. I would like to remember you that we have -- looking at column number one, that we have increased the seat base by 45% in the first quarter. We have, looking at the product development, successfully launched Cloudya end of last year. And looking at the column of market development, we have entered Italy. We are planning to start the business in France next month, but we also opened subsidiaries in the last months in Manchester and in Innsbruck. And last not least, being part of the market consolidation means also acquiring promising and attractive companies. We did that with the acquisition of the Deutsche Telefon Standards. Looking at the outlook 2019. We want to accelerate our growth in the year 2019. The number of seats, we want to increase the customer base by at least 45%. And by the way, that's exactly what we achieved in the first quarter, plus 45%. We expect a revenue growth rate between 40% and 45%, of course, including the full consolidation of DTS since March 2019. And we expect the resulting recurring revenues in 2019 to be between 75% and 80% of the total revenues. And we have, as I commented, achieved 86% in the first quarter, which is well above the guidance. So we are successfully implementing our strategy and accelerating the growth. The management hereby confirms the outlook for the year 2019.Let me now give you a summary on the key investment highlights. Number one, we have a huge addressable business communication market, being now disrupted by a structural shift to cloud PBX solutions, a very promising market, and we are very well positioned here by becoming the dominant European player and being the only true Pan-European cloud PBX company in the European market. We have also a very strong business model, resulting in a unique combination of massive growth on the one side and sustainable recurring revenue, with a very low churn rate on the other side. We are state-of-the-art German engineering cloud PBX, the company with a solution tailored to the European customer needs. We have an outstanding track record of scalable growth. And we have a proven growth strategy, leveraging multi-dimensional layers of growth, these 5 columns that I described before.So summarizing the Q1, I would like to emphasize that the increasingly positive development of the seat growth by plus 45% underscores the sustainability of our business model. It also shows the successful implementation of our growth strategy. NFON is well on track.So this is our presentation of the Q1. I would now like to emphasize again and to highlight the financial calendar and especially to draw your attention to the Annual General Meeting that we will have next month on the 5th of June. And I would be very happy and delighted to have all of you in our AGM.Thank you very much for your attention, and we are now open for your questions.
[Operator Instructions] And the first question is from Knut Woller, Baader Bank.
Yes. Actually, it's 3 quick ones. The first one is regarding your guidance, Hans. We saw ARPU being down, and you highlighted the reasons for that. Given that DTS will be fully consolidated now in the remaining -- remainder of the year, is it fair to assume that the ARPU declines we have seen will likely persist at this magnitude in the remainder of the year? Then looking at your guidance, you had a very solid start in terms of nonrecurring revenues, which are the major driver of your profitability. However, nonrecurring was slightly weaker than I expected. And with regards to the full year targets, there needs to be an acceleration here to match that. Can you help us understand what should drive this acceleration of hardware? And then also with regards to profitability, you were off a better start. Is the EUR 0.9 million something like a run rate? Or should we rather expect due to the market entry now also in France that, here, we should see some slightly more pronounced negative results in the second quarter, which could become a bit better in the remainder of the year if the first revenues from that will also be booked? Then lastly, on 8x8, they introduced recently a new Flex Hardware Program device as a service and to take also the upfront invest from customers' waive with regards to the hardware part of the business. Is that something you're considering as well? Or do you still intend to stick to the traditional hardware reselling business with the margin?
Very welcome, Knut. Thank you for your interesting questions. I hope that I have noted all that. If not, please ask again. So first of all, you asked for the further development of the ARPU considering that we will -- that we have consolidated Deutsche Telefon Standard and that we will see Deutsche Telefon Standard for the next quarters, not only for 1 month, but for then 3 months per quarter. As you know, Deutsche Telefon Standard is positioned in the mid-price segment and have lower ARPUs -- achieved lower ARPUs in comparison with the NFON, for instance, so that we, on the one side, will see indeed and expect -- expect indeed a slightly decrease in the blended ARPU due to the successful integration and consolidation of DTS. You know that the additional premium solutions represent upside potential, but only in the midterm. So I think it's fair to expect a slightly decrease here. On the other side, if you look at the ARPU definition, you see that we have here also the airtime in the ARPU. DTS is generating a lot of SIP channel -- SIP trunk channels, which theirselves generate airtime. So the airtime influence would be positive on the ARPU. But summarizing, I think it's fair to assume that we will, in the blended ARPU, see a slightly decrease. Although I would like to repeat that the specific ARPU in the single sales channels, including also DTS, here, we see a stable development.Your question number two was referring to a very strong recurring revenue of plus 29%. Thank you for that remark. But your question is looking at the nonrecurring revenue, which was more or less on the previous year's level. What -- and you asked for the acceleration of nonrecurring. Let me, first of all, give you one of the other reasons for that development on the nonrecurring. It has to do, of course, with less hardware sales. And this less hardware sales have to do with customers that when they first time signed for the NFON solutions, they have already IP telephones, so that they do not need new hardwares -- hardware. And we have not these hardware sales. This is one of the reasons that has driven this stable development on the nonrecurring.How is -- how could that be accelerated? Well, first of all, by entering new countries, such as Italy and France, we indeed expect then more customers to need IP telephones. So looking at Italy, that's a market that is not very well developed, looking into cloud telephony, so we expect here accelerated hardware sales and an increase here for the next quarter -- for the quarters to come.Your third question was, if I'm not wrong, looking at the profitability and asking for the adjusted EBITDA of only minus EUR 0.9 million, so almost EUR 1 million loss on the EBITDA level. And you asked if this is a run rate for the full year. Yes and no. We do not guide the EBITDA, as you know. What we have seen in the first quarter was a good development in personnel expenses, so we could acquire a lot of new employees and win a lot of new employees. This is a reflect almost -- already reflected in the Q1. On the other side, we are also planning marketing campaigns in the different countries, such as in Italy and France, but also in the countries where we are today, so we expect also increasing marketing expenses. And also we do expect increasing expenses by entering the countries itself. So we are happy with the development in the profitability, but we know that we have a lot to expand, a lot expenses planned for the next quarters.Your last question was looking at the 8x8 products, and I would like to hand over this to my colleague, César.
Thank you very much, Hans. Cesar speaking. Your question was related to the 8x8 Flex Hardware Program. To answer very shortly, we have more or less the same. It's offered in different regions, that hardware option, which is on a rental basis effectively. No CapEx required for the customer. No upfront invest, therefore. So it's quite similar to the 8x8 Flex Hardware Program.
And we are happy -- by the way, we are happy that a company like 8x8 is following the offering that we have in the market.
Next question, Alina Koehler, Hauck & Aufhäuser.
I just have one question, actually. How are your premium solutions developing? And could you give us a rough estimate on the revenue share?
Well, thank you very much, Alina, for that question. The premium solutions are developing well. We are offering voice recording, as you may know. We are offering also contact center solutions. We are offering vertical solutions in the different markets. We are happy with the development of the premium solutions. Nevertheless, the impact in the ARPU, and that may be the question behind your question, the impact in the ARPU would be only in the medium term. Why? Because we have a very, very big base of now cloud telephony seats. And before we see the impact of the higher-value ARPU and the more expensive solutions coming from the premium solutions, it takes, of course, some time. If we look at the premium solutions alone, we can confirm that we have seen a positive development in the first quarter.
Okay. But could you maybe quantify, like, how many seats already have premium solutions?
Well, I would like to ask for your understanding. This is not a figure that we are reporting to the market, so -- and so we cannot give more disclosures here. The seat development, as you know, was a very positive, plus 45%. And this, of course, include also the seats for premium solutions.
Next question, Ahmed Ouni, ODDO BHF.
I have one question about DTS recurring revenue. And could you give us magnitude about the revenue -- recurring revenue from DTS in the first quarter, if that's possible?
Well, I have to say it again. We do not report single sales turnover development of the single companies and product areas, but what I can tell you is that the DTS have a similar high portion of recurring revenues, like the NFON Group. So we have here more or less the same structure in the DTS that we have in the NFON Group.
So at the moment, there are no further questions. [Operator Instructions] Yes, there are no further questions.
So thank you for attending our presentation for the Q1 results 2019. We wish you for now a very nice day. Thanks again for your attention. As I said, and if you have any further questions, feel free to call me or send me an e-mail.
Thank you very much, and see you at the AGM.
Thank you.
Bye.
Bye.
Buh-bye.