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Good morning. On behalf of Montega, welcome to the earnings call of the NFON AG regarding the publication of Q1 figures 2023. We're looking forward to the results, and I hand over to Claudius Krause from Investor Relations.
Thank you very much, Flora, for hosting us today. Dear, ladies and gentlemen, also from our side, a warm welcome. This morning, we published the information on the business development of the first quarter. The documents are available on NFON's website as usual.
Today, I'm very happy that we have NFON's former CEO, Klaus Von Rottkay; the company's new CEO, Patrik Heider as well as Petra Boss and Jan-Peter Koopmann with us. They will give us some more insights into the latest development, and we'll be happy to answer your questions afterwards. But for now, I want to hand over to you, Klaus. Stage is yours.
Thank you very much. Good morning, everyone. Thanks for dialing in. It will be our pleasure to present the financial results of the first quarter. But as you're all aware, within Q2, we have transitioned to a new CEO, Patrik, and it's my pleasure to have Patrik introduce himself before I basically tell you about Q1 results before he joined.
Yes, also a warm welcome from my side. Thank you, Klaus, and I'm completely excited to be back in the public market after being 3 years and now in private market. And I don't need to introduce in detail myself. Maybe you know me still from the Nemetschek story. We had together also in the public markets from 13 to 20. I was the spokesperson of Nemetschek.
I'm completely excited about the NFON. Only being 8 days in business, I can't tell you too much about, but I'm really positive and confident. My [ credo ], as you know also from my Nemetschek times, is that a healthy development of the company also is always combined with a positive profitability, and we are well on track what you can see then afterwards.
And then also, obviously, growing stronger the business is something we will elaborate in the next days. And I'm excited to work with you, and I'm looking forward to the cooperation. And this is why I'm handing over to Klaus back. Thank you, Klaus, and then you will see the results. Thank you.
Excellent. Thank you, Patrik. So then let me take a step back and basically remind us what our vision was as a company when we set out on our course for profitable growth. It's to be become a leader of European integrated business communication.
So I -- like I highlight now that we want to obviously focus on business communication. We want to have integrated business communication, bringing several of the [ silos ] together and really supporting and integrating also with business apps on the company side and focusing on Europe as our turf to play.
There are actually -- our goals for this year, obviously, our financial goals that you are aware of and that we'll reiterate at the end of the call, but there is certain components of growth, which you see has 3 pillars here.
Obviously, growth and product-driven growth, bringing out new features, new functionalities, additional products, own products that have been developed further, partner products that we are selling. So this is one important pillar of growth.
Second one is to continue to create the best-in-class channel. We are a channel company. We have a large and loyal followership by many partners. And we continue to improve our capabilities and make business with our partners, for our partners more attractive.
And at the same time, besides the day-to-day, I would say, transactional partnering, we always look for strategic alliances and partnerships that will add on to the business, and this is our third pillar of growth, a little bit more long term that, but nevertheless, important as some examples of the last year's show.
Obviously, we know that we can't be profitable without being operationally excellent. And that's why it's good to take a first look under the hood of where our profitability efforts have taken us.
And last but not least, obviously, sustainability has grown more and more to be an intricate part of our company agenda. And so that kind of belongs towards our top priority goals. But with that, I'll hand it over to Petra to lead us through the financials for Q1.
So very warm welcome from my side. And first, we have a look at our first quarter results. In a nutshell with the most important factors, like we were able to grow the recurring revenues by 5.3% compared year-over-year with the first quarter '22.
And we increased the share of recurring revenues again with now a very high 93% -- percentage, which is higher than we had in the last years. And we significantly improved our EBITDA, which was EUR 2 million. So you see we are well positioned to reach our full-year's target.
And now we go a little bit more into detail of the figures. So the recurring revenues, which is an important one for us, grew by 5.3%, as I said. And the total revenue growth was only 2.6%. This is quite low, but this is as a consequence of we had a decrease in the nonrecurring revenues, especially hardware.
And the nonrecurring revenues are very volatile. So we are very confident that we will have a higher total revenue growth by year-end. But the nonrecurring revenues are not that important for us. And the reason for that is that they have a very low margin.
So you have seen that we have a good EBITDA. So you see we are not harmed very much by losing nonrecurring revenues because they have a very small impact on the gross profit.
And the most important figure for us is that we have the high share of 93% recurring revenues. And you can see that this figure is constantly growing year-over-year the last period.
And the basis of our growth is always the seat growth. And as we are now focusing on profitability. And the profitability is not only dependent on the seat growth because we sell additionally premium solution, et cetera, and we want to increase our ARPU. Therefore, it's not -- we are not guiding.
It's not a key performance indicator for endpoint, but it's still important that we have for constant growth, which we can show here. And this is based on our very low churn rate.
So even though economic circumstances haven't been that easy and -- in last period, we have not observed a higher churn rate back up amount of bankruptcies or something like that. We still have about 0.5% per month on a very stable basis.
Following the very high share of recurring revenues, we've been able to improve the gross margin as well, constantly growing over period. And you see the decline of the cost of goods sold. And this is because we haven't sold that much hardware with higher revenue, but lower COGS. And therefore, the gross profit is still very good.
We told you the last time that we now focus on profitability, and we have now implemented the measures, and we reduced the personnel expenses. We made the business more efficient, and we looked at all areas where we really need people and where we can be a little bit more conservative on spending on personnel expenses.
And there, you can see that we have reduced the personnel expenses in -- not only in the ratio, but in absolute figures as well. And we are very confident that we will have a further decrease in this ratio during the year. And some measures will only be effective from Q2 on.
But you see, we decreased the average number from -- the weighted average number from 503 to 468, which is a minus of 7.5% in the headcount figures.
The EBITDA figures look very good, as you see it, EUR 2 million. And you see we have been profitable before in the past that shows and demonstrate that we can be profitable whenever we want, when we have lower investments.
But in the past, it was caused more or less that we have been a little bit conservative on the investment side during the Corona period. But now, we change that we want to be profitable on the long run on a very steady basis. And we are very confident that we are able to achieve a full-year target on the EBITDA side.
But you -- what I want to set the expectations right that I think we should not just quadruple the figure and -- for expectation for last year. As you can see, the first quarter in '22 has been positive as well. And we had more investments in the second half of the year.
We have some more -- we'll have some more marketing [ investments ], but we will be EBITDA profitable for sure and above EUR 4 million, which is our target. And there's potential for overachieving it, but not for [ us ]. What I [ want to say ] it too high by the first quarter.
And as you can see, we have not adjusted that much in the EBITDA figure. It's -- $1.9 million is the EBITDA, and adjusted is EUR 2.0 million. It's like with only very minor adjustments on the personnel costs by focusing on core markets. And in the past, we adjusted the stock options, which is not necessary anymore.
And here, you can see, as I said, the positive EBITDA development that we significantly reduced the marketing and the headcount expenses. And with that, I give back to Klaus.
All right. Then let me summarize that in terms of reiterating our guidance we gave for this year. We will expect recurring revenue growth to remain in the mid- to upper single-digit percentage range. We expect also our recurring revenue to be larger than 88%.
Why do I say 88% if we had 93? Because I said like sometimes you have like a high or a low quarter in terms of hardware sales, and they can have short-term deviation.
But the long-term trend, as Petra explained, that the recurring revenue share is growing, which is something we like because obviously, it's good, high-margin revenue and very stable. That's something a continued focus for us.
And we also reiterate the guidance of being adjusted EBITDA above EUR 4 million, as Petra has pointed out, where you can see that we are on a very good track for.
And -- so in summary, basically, if we give you the same points, you obviously know. We are well positioned in the European market for integrated business communication, especially in the DACH region.
There is still a large untapped market potential. Just it's like temporarily slowed growth, doesn't mean that the long-term potential is any smaller. So it will come at some point, but cloud penetration is not going through the roof right now.
And we are a business made in Germany, hosted in Germany, with a stack tailored to European needs, and there are not a lot of European competitors actually who can claim that. And so customers really look for that.
We can obviously augment our historical growth record with additional strategies for profitable growth. It's not just adding another extension. We have other things in store like premium solutions.
And as you've seen from the results, our business model is rather stable as it really relies on a large socket of recurring business, which is good. And obviously, we have a large loyal network of partners that makes this business model really robust. With that, I'd like to open it up for Q&A.
Thank you very much, Dr. Rottkay, Mr. Heider and Ms. Boss for detailed presentation. We will now move over to the Q&A session. [Operator Instructions] And we already received the first question via audio. Please go ahead, Philipp Sennewald.
Yes, perfect. Can you hear me well?
Yes, we can hear you very well.
Perfect. Then first of all, welcome, Mr. Heider, from my side. I heard -- all the best from my colleague, Mr. Christian [ Santee ], who covered Nemetschek in the past couple of years. And on the other hand, of course, congratulations on the significant profitability improvement in the first quarter.
As a question or a couple of questions regarding the cost side throughout the year. Petra. You mentioned personnel costs. You already reduced staff significantly in the last quarter. Now at 468. What is your target figure there for the end of the year, you said you aim to reduce staff further?
May I jump in there because like we don't aim to reduce staff further, but some of the people that we reduced just left at the end of Q1. So the 468 basically is the number -- the average number for Q1. There might be maybe like 10, 15 more people leave.
But basically, the wave of headcount reduction is true, but not all of that was fiscally active in Q1, but we had lower marketing expenses in Q1. That's why it ended up at positive profitability anyway.
All right. Well understood. Then maybe on the marketing side as well. You already said it, a significant reduction on marketing spend also year-over-year. From top of my head, when I calculate the marketing to sales ratio, it's roughly 1% right now. You mentioned already that might go up again throughout the year.
So what is like a marketing ratio you're aiming for on a midterm basis to also enable the growth you're striving for?
And so in terms of like overall marketing -- I think in terms of revenue, we are actually rather closer to 10% and 1% on the long-term average. But obviously, Q1 sometimes is a slow quarter because you have to set up -- you have some measures you have already launched that are still active in the channel.
And when you set up new measures, not all of them are basically becoming fiscally active in Q1. So I would say, we have probably a shift of maybe like short of 1 million from Q1 to the latter quarters.
And as I said, we always adjusted marketing a little bit to where the business opportunity is. And when the markets are a little slower, sometimes it's actually a good time also to slow down marketing spend because the ROI is becoming substantially worse.
Sure, sure. All right. Thank you very much. That's it from my side at this point. Thank you very much, and all the best. And yes, thank you very much.
Thank you very much, Mr. Sennewald. And we received a few questions from Mr. [ Kuntuella ] and to Mr. Heider. Should we expect any changes of strategy, going forward?
First of all, thank you very much, a warm welcome and also to all other colleagues. And I do believe that, Klaus, the team did a great job in creating that strategy. And no, there won't be any big changes in the strategy.
As you know, my credo is always profitability growth, means that you need to grow EBITDA stronger than revenue and revenue needs to be stronger than market. And this is the aim we have.
And what I definitely do the first weeks, I do a so-called relevant check. What does that mean? I do believe, and I'm a strong believer into that one, that focus, focus and focus for our company is the right thing.
And given the capacity we have, we need to make sure that the output is going stronger. And that's what I do. And companies like, in this size we are in, having great ideas. And by the way, that's positive that people have great ideas, but maybe we have too many. And this is why I would like to support the company in a great focus.
And then coming into this circle that EBITDA growth is bigger than revenue growth and revenue growth is bigger than market growth, and that's what I call a healthy company. Hopefully, that makes sense.
But from a general, let's say, strategic positioning, I think Klaus and the leadership team did a great job, and that's exactly the right thing to do.
And two; follow-up questions. How should we think about NFON in the market, going forward, under your leadership, Patrik? Will you focus on growing organically? Or do you always aim to be [ consolidated ], going forward?
That's a good question being 8 days in business. But obviously, as you know, from my history that I'm also a strong supporter in tech companies and tech environments to really consider strong M&A.
But given the opportunities at the moment with the free cash flow situation we have, we need to work first on organic growth machine in order to become independent financially-wise and then also going into M&A opportunities.
I'm a strong supporter of having both balanced and sometimes it's just too long to develop something by our own and buy might be interesting, especially when you see market environment at the moment, and definitely multiples are going down and becoming more interesting for us.
And so I would say, it's balanced. It should be balanced, but the first focus will be on organic growth and development. Hopefully, that makes sense for the moment. Give me some more couple of days.
Okay. [Operator Instructions] And another question from [ Kuntuella ] regarding seat growth. It's not your major guidance metric any longer, but is there room to accelerate seat growth?
I think that -- obviously, we always want to profitably grow our seat basis. But the reason why we defocus a little bit because there are many ways to do that in a not very profitable manner.
So I think I'd rather focus on accelerating other things, like growing the right number of seats and doing the right upsell, driving increased premium solution sales.
So I would say, yes, there would be many ways to increase seat growth going through hospitality, for example, going through large tenders where the seat price is really low.
So -- but we don't want to do that. We want to focus on profitable seat growth. That's why we also initiated changes that we do. So I would say, the focus #1 is growing the profitable seats more than rather the metric.
Thank you very much. And we've received another question by audio line. Please go ahead, Stéphane Beyazian.
Yes, can you hear me? I think again on from ODDO BHF. Should -- is it possible that, therefore, we could see even slower net additions of seats in the next couple of quarters versus 11,000 that you added in the first quarter? Is it possible that there is further slowdown because you want to refocus on profitability?
And a side question to that, is there anything such as a new product or potentially big tenders going on in the market that could actually have a positive impact on your net addition -- customer addition in the next couple of quarters, something big that you think can reaccelerate a little bit there?
Okay. So in terms of growth, I think it is, as we said, like in terms of the guidance. I wouldn't expect a major slowing of the growth because we are already now focusing on the profitable seats. So I think you'll probably see like a run rate in order of magnitude, which we think is sustainable for profitable growth.
And in terms of major events, I mean obviously, we are finishing our Teams app in Q3, which is a big milestone for us, which complements basically our fourth offering that we offer to grow with the Microsoft Teams momentum.
But it's not going to -- even if it's received super well and the sales go up, it will not -- the number of installed base will not increase drastically short term because those -- the bigger the deals, the longer the sales cycles and the longer the deployment cycles.
So it's not going to be a massive change on the organic side. It's rather going to be like an increased run rate over whatever, 2 or 3 quarters.
And we received another question from [ Kuntuella ] regarding the operating cash flow. Do you expect it to be positive in 2023?
I think if it's not positive, it's very quite close to it. We're still improving on the EBITDA side over the years, but it's absolutely that -- our target to reach operating and positive operating cash flow on the short term.
Okay. Thank you very much. Well, it seems right now that there are no further questions. And then I would say thank you very much for your question, and thank you very much, Dr. Von Rottkay and Mr. Heider and Ms. Boss for the detailed presentation and your time answering all those questions. And for some final remarks, I hand over to Dr. Von Rottkay.
Yes. Well, thank you very much for dialing in. Also, thank you for giving me the opportunity to share with you the progress of NFON over the last couple of years, which I'm very proud of.
And for next -- in our call, basically, Patrik will take over. And I wish him obviously in the company as also a shareholder, obviously, best of success. And I'll still be around until the end of my term to support the transition to my best efforts. So thanks very much for the partnership.
Thanks very much, Klaus, and thanks for the community. Thank you, looking forward to the corporation.
Bye-bye.
Thank you. Goodbye.