Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of NFON AG. Following the publication of the first half-year figures of 2024 , the CEO and CFO, Patrik Heider and Friederike Thyssen from Investor Relations, will guide us through the presentation and the results. The floor will be open for all upcoming questions following the presentation. Kindly note that it will only be possible to place your questions via audio line, and we're looking forward to the presentation. And with this, I hand over to you, Friederike.
Thank you, Judith. Good morning. Warm welcome also from my side to NFON AG's six months 2024 earnings call. As Judith just mentioned, I'm Friederike Thyssen, VP, Investor Relations and Sustainability at NFON. Joining me today, on today's call to discuss our results is Patrik, our CEO and CFO at NFON. We hope you've had the opportunity to review our report that we issued earlier this morning. Our relevant documents and the following investor presentation are available on our website. Let me quickly outline the agenda for today's call. Firstly, Patrik will take you through a short business update and will then give you an insight into our financial results before presenting our business outlook for the full year 2024. This will take us approximately 15 to 20 minutes, and we will then take your questions.
Having said that, I'd like to hand over to Patrik.
Thank you, Friederike. A warm welcome from me as well to the earnings call of NFON AG. As already mentioned in our previous earnings calls this year, we are continuing to work on our transformation journey in 2024 . We initiated this comprehensive transformation process with the goal of ensuring that dynamic growth and attractive profitability will go hand in hand at NFON in the future. The transformation that we have set in motion is also evident in the personnel restructuring at the management levels. All key positions in our management have been filled with highly experienced manager. In the second quarter of 2024 , we centralized all revenue-related functions under a new Chief Revenue Officer, CRO. This role provides a comprehensive view of the entire customer life cycle, ensuring that all customer and partner-related actions are geared towards maximizing revenue for NFON.
We successfully finalized the merger of Deutsche Telefon Standard GmbH into NFON AG in Q2 2024. This consolidation strengthens our position in the German market, creating a standardized product portfolio that will allow us to leverage further synergies and efficiency gains in the future. We are actively working on integrating DTS and NFON AG to fully realize the benefits of this acquisition. Our technological modernization efforts are well underway. We are confident that our ongoing innovations, including new product capabilities and a strong focus on AI-driven solutions, will meet our customers' evolving needs. Moreover, the introduction of a professional portfolio management tool has already enhanced collaboration with our customers and partners, aligning with our internal R&D plan. We are also making significant progress in transforming our sales teams, a process that has been bolstered by the CRO's leadership.
This transformation includes reorganizing the sales structure, optimizing our partner ecosystem management, and introducing a new sales incentive system focused on recurring revenue. With optimized KPI management, our sales teams are now better equipped to address churn, manage ARPU, and secure new business. Finally, our efforts to optimize our ERP business support system, BSS, continue to be a key priority in 2024. I'm very pleased to announce the acquisition of Botario. This acquisition is the starting point in our vision to become a leading provider of AI-based business communication solution. Botario is a specialist in artificial intelligence for communication solutions, with a strong focus on language processing and automation. Botario's customized AI platforms are designed to help companies optimize their business processes and automate their custom communication workflows. The purchase price for Botario GmbH is in the low double-digit million euro range on a cash and debt-free basis.
The agreement includes an initial partial cash payment and a three-year earn-out period, which is tied to the future development of Botario. While we have agreed to keep other details of purchase confidential, we can confirm that in 2023, Botario GmbH generated approximately EUR 2.1 million in revenue, with an impressive EBITDA margin of around 30%. Anticipated revenue growth per annum for the next three years is expected to be around 40% each year on a remaining EBITDA level of 30%. NFON Group will benefit in the following areas from the acquisition: A, innovative product development, expanding our portfolio with innovative AI features such as bots, live chat, transcription, or modern AI platform. B, cross- and upselling in both organizations with a broader product, industry, and market segment reach. C, growth and profitability.
While traditional voice-centric UCaaS markets continue to grow steadily in the range of mid to high single digits, we are opening up a high growth segment for NFON and adding profitability from the beginning, and this brings me to the results of H1 2024. Despite a challenging environment in the German economy, I'm happy to announce that the following key achievements for NFON in H1 2024. We achieved solid recurring revenue growth of 4.4% compared to the first half of 2023. Our recurring revenue share remains strong at 94.3%, reinforcing the stability of our revenue model. Most notably, our adjusted EBITDA has improved to EUR 5.5 million , reflecting our ongoing focus on profitability. These results underscore the success of our transformation initiatives.
On slide nine, you can see our continuously growing share of recurring revenue of 94.3%. This growth is driven by both the acquisition of new customers and the upsell of existing customers, including new enhanced products, our premium solutions. The total revenue growth of 3.3% compared to six months, 2023, is lower due to the decrease of non-recurring revenue, primarily less profitable hardware sales. SaaS growth is steady and in line with the budget for all quarters in 2024, with price indexation adding additional revenue from April 2024. On the next slide, you can see our improved gross margin of 84.5% due to the successfully growing share of high margin sales. In the first half of 2024, our material costs remained steady at EUR 6.6 million , matching the previous year.
Lower hardware sales reduced costs, but this was balanced by higher revenues. Consequently, our material cost ratio improved slightly to 15.5%, down from 16.0% last year. The positive development is a result of increased share of recurring sales, which has a significantly higher margin compared to non-recurring sales. On Slide 11, you can see the impact of reduced personal expenses in line with our strategic focus to grow the business more efficiently and profitably. Compared to the previous year, the average number of employees fell about 9% to 412 in the reporting year. Previous year, 451. Expenses of EUR 0.1 million were recognized in connection with the merger and integration of Deutsche Telefon Standard GmbH. On the next slide, you can see our significantly improved profitability development.
An increase in sales, higher gross profit, and reduction in personnel and other operating expenses resulted in an adjusted EBITDA of EUR 5 million and adjusted EBITDA of EUR 5.5 million for six months, 2024. EBIT also improved to EUR 1.1 million . The main adjustments were driven by severance payments from reorganization activities. In 2024, we plan to spend EUR 1.5 million in integration cost of the merger and integration of DTAS and NFON AG. These costs will be adjusted as planned. We still see potential here in terms of profitability and expect further positive development of profitability. Coming to our next slide, let's take a closer look on the cash flow performance as of June 30, 2024.
Our operating cash flow saw a significant increase, rising to EUR 3.7 million from EUR 2.3 million in the same period last year. This improvement is due to the positive development in our net profits as we move from pre-tax loss, EUR 1.3 million, to a pre-tax profit of EUR 0.5 million. The increase in other receivables and assets led to a reduction of EUR 0.8 million in our cash flow. Additionally, the ongoing utilization of provisions related to the top management realignment, which were established last year, reduced our operating cash flow EUR 0.3 million. Foreign exchange rate gains contributed EUR 0.2 million, consistent with last year, to primarily from British pound to euro conversions within our UK subsidiary, driven by intercompany loan and charge valuations.
On the investment side, our cash flow was negatively impacted by EUR 1.6 million. This was due to EUR 1.3 million invested in intangible assets related to our development projects, and EUR 0.3 million invested in property, plant, and equipment, focusing mainly on IT infrastructure and hardware. Finally, our financing activities resulted in a negative cash flow of EUR 0.8 million, due primarily to repayment of lease liabilities. Overall, these movements reflect our strategic investments and prudent financial management, balancing growth initiatives with careful, careful cash flow management. Let's turn to the outlook for this year and beyond. Our focus is clearly on the consistent continuation of our growth ambition and the profitable transformation of NFON. This year, we will implement further measures to strengthen operational excellence at NFON.
On this basis, we plan, as mentioned, to increase our profitability disproportionately, despite one-off expenses for our transformation process, such as the integration of DTS, and to be able to accelerate the pace of growth again from 2025, while maintaining high profitability. Financially, we expect an increase in adjusted EBITDA for financial year 2024 to EUR 10 million-12 million. We also anticipate growth in recurring revenues in mid- to upper-single-digit percentage range. Our ambition for the future remains: profitability should grow faster than revenue, and revenue should grow faster than market growth. To further build on the performance of the first half year and achieve our financial targets for 2024 , we will consistently implement further strategic measures. One of these measures is our new acquisition.
The acquisition strengthens NFON expertise in the field of AI, and will put us in a better position to add AI functions to its existing product portfolio and enter the CRM segment with customers. This opens additional sources of growth for NFON. The acquisition through SaaS fits seamlessly into the transformation of NFON and supports its orientation towards becoming a leading provider of AI-based business communication solutions. Botario will have an immediate positive impact on our KPIs. Thank you for your time today, and we look forward to providing further details on our acquisition, our overall strategic plans, and the future outlook of in our capital market day on September 11th. I'm now happy to answer your questions. Thank you.
Thank you very much for your presentation and the dive into your numbers. We will now move on to the Q&A session. For a dynamic conversation, we kindly ask you to ask questions via audio line. To do so, click on the Raise Your Hand button. If you have dialed in by phone, please use the key combination star nine to enter the queue and star six to unmute yourself, followed by introducing yourself with your name, and questions via chat cannot be submitted today. We already received a few questions, and the first one is with the phone number ending zero zero seven five. You should be able to speak now. Hello? Okay. Please unmute yourself with the star six. And we tr-
Hello? Hi, can you hear me now?
Yes, we can hear you.
Excellent. Apologies. That's Knut from Baader Helvea, with a couple of questions on the acquisition of Botario. Patrik, can you share with us the split between the earn-out and the fixed component of Botario, looking at the double digit, low double digit purchase price?
Yes, I can. It's, it's 60% fixed and 40% in earn-out, and the earn-out is based on profitability only. It's for 2.5 years, meaning the business years of 2024 , 2025 and 2026, with the growth rates, obviously, as an underlying base I gave you in the call, which is growth of around 40% each year.
Excellent. And looking at the penetration of your own base with Botario solutions, I assume it's quite low?
Exactly. This is exactly what we mean. Also, on both sides, there will be cross-selling opportunities. Obviously, the synergy case is all based for NFON purpose and benefit, but there will be definitely synergies on Botario's side, selling NFON products, and the same for us. So overall, the increase of the much more, let's say, attractive customer portfolio is on both sides. Additionally, I need to mention. Sorry to interrupt, Knut. Additionally, I want to mention that also, which is very interesting, that they are highly focusing on different market segments and industry, as for example, the financial and insurance segment, where we were traditionally not as strong in, and we can benefit from this as well, as an example.
Sounds good, and on the sales approach, Patrik, from Botario, did I interpret you saying correctly that it's mainly a direct sales approach, and looking at your approach to modernize the partner system or revive the partner system, and also your partner channel, cross-sell Botario solutions going forward?
Yes, exactly. And it also needs to be mentioned that Botario has 16 employees, and we give much more intel on the capital, details on the capital market day, and that was only developers, and we can now benefit, they can now benefit from three thousand highly motivated partners, and that's obviously also a huge step forward. Exactly.
Great. And then maybe just a last question from my side before I step back into the queue. Looking at the integration of DTS AG, can you share with us the expected cost synergies, so how much did you spend this year, and what would be the cost synergies going into the next year?
Yeah. We only spent so far for first half year around EUR 300,000. It was forecasted to spend EUR 1.5 million this year, which would be all then adjusted. To be very open and honest, as always, I don't see. I see here potential to not spending everything, so that will positively impact our EBITDA. And then, yeah, that's the actual situation at the moment.
Okay, so did I just to double-check the EUR 1.5 million you are confident to spend this year still? Or-
No, I don't think that we don't need all of this. It was in budget, but we don't need all of this.
Okay, got it. Thanks very much, Patrik.
Thank you, Knut.
Thank you for your question. And Philipp Sennewald, you should be able to speak now.
We can't hear you, Philipp.
Do you hear me now?
Yeah. Yes, now we hear you.
Perfect. I thought I was on speaker before. Sorry, so Philipp here from NuWays. Good morning. Hi, Patrik.
Hi, Philip.
Let me follow up on the Botario deal. I have a question regarding the financing. Having computed some numbers here, I assume the price is between or in the range of EUR 15 million-20 million. You said 60% is a cash component now. What is with the financing? You have a line of EUR 5 million. Will you use that?
Exactly. We will partially finance it by a loan. That's exactly the range you're going to see then in cash flow, obviously, in reporting Q3. You will see that in detail, but you're matching the number quite right. And the rest is obviously paid by cash by us.
All right. Well, well understood. Maybe one follow-up as well on the DTS integration, following up on the synergies. So you are spending or you intend to spend EUR 1.5 million, maybe it's less this year. What are the synergies you expect for the year 2025? I don't know if you, if you said that before.
No, and I was not. Already in the last call, I struggled with the answer in detail, to be very honest, because I gave you a qualitative answer that we don't have any more double accounting departments, double HR accountants, double software licenses, double CIM systems, double ERP systems, all that stuff. We didn't identify a euro value for this, but definitely will impact positively our journey to a 20% EBITDA margin, which is predicted, and our ambition for the overall group. But I struggled already last time to give you an exact number, but definitely we will give you an outlook in the guidance next year, what it means.
Perfect. Thank you. So, you mentioned, as well, the price indexation you had in April. Can you quickly give us some color on the effect that this had on your growth in the first half?
Yeah, yeah. Definitely overall, for the overall year, we do see when you take the absolute growth, it's 25% of the absolute growth is coming from price indexation.
All right. Perfect. Thank you. And maybe a couple more, if I may. So you were talking about the strong free cash flow and also strong cash conversion in the first half of the year. What is your aspiration for the second half and also for the full year on free cash flow?
I mean, we are a little bit ahead of what we thought, to be honest. The free cash flow is because profitability obviously is developing so well. We will continue this journey, and the free cash flow will be around EUR 3 million-4 million by the end of the year, which is extremely positive when we predicted to be slightly free cash flow positive. I think it's a wonderful result for this year, and that will be the aim, without M&A.
Agree. Yeah. Thank you very much. And one last question: your personnel expense ratio, when I look at it, it's above the average of the past three quarters now in Q2. It has also been higher in Q2 in recent years. Can you explain what was the reason for that?
It was more or less to restructuring activities. So what I said is also, I mean, taking the 40% is definitely we need to become lower in this area. So when you move ahead to an EBITDA, and our ambition is to turn the business into a 20% EBITDA business, the most important lever you have is obviously personnel ratio. And definitely, we need to come below the 40%, but the Q2 effect is more or less to restructuring efforts. We expect around 39% end of the year.
Oh, perfect. That's very helpful. Thank you very much. That was all from my side.
Thank you, Philipp.
Thank you.
Thank you.
Thank you, Philipp, and the next question is from Gustav Froberg. You should be able to speak now.
Yes. Hi, thank you very much for taking my questions as well. A few on Botario also. First one, Botario's revenues, are they all considered recurring, or how are the solutions sold to clients? It's my first question. I'll do them one after the other.
Yeah. It's around 65%-70% in recurring. And yes, the size I gave you already, the 2023 revenues were 2.8, and they... 2.1, I'm sorry. I was corrected by my colleague. 2.1, and then the 40% range of growth year on year also for this year.
... Okay, super. And the non-recurring part?
The non-recurring part is implementation and consulting.
Okay, great. And then a question just on how it complements the NFON portfolio. It sounds very easy on the face of it, but do you see this mostly as a contact center solution complement? Or could you give us maybe some examples of how it complements the other parts of the portfolio as well? Maybe something you've thought about in terms of clients or anything like that, just so we can visualize it a little bit better.
Yeah. I give you a little bit of idea how we see the acquisition overall, and if you may, I would also refer to the Capital Market Day, where we also come up with some interesting use cases for you. But overall, it's a technology acquisition and also a financially highly attractive acquisition. So we saw it from both sides. Obviously, it gives us all the development teams, and it gives us all the footprint moving into AI. For us, besides the things we already deliver in AI, for example, in our CC Hub solution, definitely we will move forward here. And as you remember, I also told you last time that we already in NFON, without Botario, we built up an AI competence center. Obviously, we can move all the 16 people from Botario also to this competence center, so that will be a real strength.
From a financial perspective, it's already. It gives us the idea of faster growth segments. I mean, UCaaS traditionally is growing single- to high-single-digit, but we always wanted to have the ambition to grow double-digit the business again. This is what I mean, that you need to have a market segment where you grow double-digit, and with 40% each year, you definitely will have an impact on group level as well. Also, for us, it was extremely important in the financial situation we are in, that we add a business which is already contributing margin. So with 30% of margin, which is highly attractive for us, we can stay within our ambition that we want to move higher and faster in profitability than in revenue, but also growing revenue stronger than the market.
And at the moment, we need to be careful because of earn-out period, because we need to work separately. This will be separately, so this will be one plus one, clearly bigger than two. So we want to work with bundles, we want to work with really things keeping separately in order to accelerate growth. But we will give you much more use cases and reference cases in the Capital Market Day, if you allow me.
Okay, super. We'll wait for the CMD. Last one for me.
Yes.
Just on growth rates, I mean, you mentioned it just now, this will cause an acceleration, obviously, to headline growth. However, do you expect the underlying business to also accelerate? And could you-
Yes.
talk a little bit about why?
Yes, definitely because, to be honest, we shouldn't forget that we're coming out of a phase where we had some technical issues. This is why we call the whole year transformation issues. This is why my colleague, and he is doing a great job, Andreas Wesselmann, has joined us, and we should not forget that we were in a business where we didn't drove innovations as we should have done. We are preparing on this in the transformation year. This is why I'm very confident that we are moving back also here in the business. We are having a higher sales efficiency, as I also had in this discussion now. Our sales teams are much more measured now on, let's say, sales efficiency parts. This is why NFON Core, I call it, without Botario, will definitely also have an acceleration.
This is why I'm confident overall for the business, that we are moving in both parts, ahead.
Great. Thank you.
Thank you, Gustav.
Thank you. And the next question is from Stephane Beyazian. You should be able to speak now.
Stephane, yeah, thank you, Stephane from ODDO. Just a follow-up, please, on Botario. Can you share with us your vision of the CCaaS market? I can see the company has 100 clients. What I mean there is there anything interesting that you've learned, you know, looking at targets in this market? For instance, how fast the market is, and, you know, traditional clients are moving to the new generation GPT chatbots versus, let's say, the previous providers of these solutions. Are you already seeing, you know, companies moving to these new generation product? And how good they are, actually, in terms of answering client with queries.
I heard that, you know, potentially you can go up to 70%-80% automated responses, but you can't go much higher than that. So what have you learned in, you know, doing and working on this acquisition? And perhaps just to follow up on the existing NFON business, I noticed, if my calculations are right, that the ARPU is a little bit better in the second quarter and up year on year, and I was just wondering, is there anything to signal there? Is it from upselling products or just some seasonal traffic effect? Thank you.
Yeah. Thank you, Stephane, for that. I take the second question first. The ARPU is slightly up, yes. It's touching around the 10%, EUR 10 , and it's mainly about upselling of premium solutions as well. Again, we give you also an idea on the CMD, how we do see ARPU in the future and also the mid-term guidance, and then you will have details. On the first one, that's very interesting, and I missed to answer the question when Gustav asked the questions: Do I see this or do we see this Botario as a pure CCaaS contact center solution? No, we don't. We still continue with CC Hub. It's a wonderful product we have in place with our tech partnership with Telefonica.
We do see Botario going more horizontal via the whole product portfolio. It's not only a CCaaS solution, it will help us in UCaaS as well, and in other markets we are going. This is highly interesting. Here we benefit in UCaaS as well. This is why, to be honest, every number I would give you in market size, et cetera, because this market is purely new for us. We only know that this is highly interesting because the growth rates are so attractive. This player, I mean, it was founded only in 2019 , which is highly interesting to generate already this revenue with this margin and this growth rates. It's overall helping in the CRM. We'll give you also further details.
It remains in voice-centric, video-centric UCaaS, it remains in CCaaS, but overall, these AI-driven things will benefit in all corridors and market segments. And this is why we are so attracted by this target, but we will give you further details in the CMD.
Okay. One just follow-up, if I can: Do you plan to rebrand it, or would you actually continue to run the Botario brand?
At the moment, and also given the earn-out structure and given the idea to keep it really separate in order to enable growth, we would not rebrand it. We are going to promote Botario. And obviously, we are working with ideas such as taglining and making it clear that this is part of the NFON group, that we can overall benefit also in the end from portfolio from this. But these are things because we signed the contract yesterday, so give us a little bit of some hours and some days to make this one also, and we're going to communicate it also.
For sure. Thank you very much.
Thank you, Stephane.
Thank you, Stephane. And the next question is from the person with the phone number zero zero seven five. Please introduce yourself again.
Yeah. Hi, Knut with two follow-up questions. The first one, Patrik, to accelerate your own revenue growth, can you give some ideas how you want to accelerate the non-recurring part of the business going forward, which is the drag of the overall growth for the company? And you need to accelerate that also to achieve your ambition of double-digit revenue growth. And then just a second question: You said that you progressed very well in modernizing your own technology base to drive growth. Can you give here some color on how we should think about this modernization and what the perception of your customer base regarding this is? Thank you.
Yes, of course. So the first part is really clearly stated that we are not focusing on the non-recurring part, because we do believe that hardware sales is not contributing margin-wise as it should do. It's not a profitable business, but sometimes it's a needed business in order to attract customers. So we are not focusing on this. We are focusing in all activities to increasing recurring revenues, and the higher the share of recurring revenues, and then obviously with the given perspective of next year's growth, we are focusing on this. But you are right, overall to the revenue, it hurts us a bit, because overall revenue this year is definitely below recurring revenue. The second one is the modernization, and here I would really refer, Knut, if that's okay, to the CMD, because then you would also see the presentation from Andreas.
You would get personally in contact with him. He's doing great stuff on all angles, I would say. But I'm really confident that the team is completely differently organized. We are working on our platform abilities, we are working on our data centers, we are doing so many things. And I would say, yes, that's still also for our customer base. We keep them really aligned with our partner board and the whole partner community. And we should also be very clear and honest that this is also, let's say, sometimes we are still struggling, but a good sign is that 0.5% is still the high churn. Overall churn was a little bit higher with 0.8, something like that.
But we are going to continue to be really putting the fundamental base on our technical platform to drive innovations, and we are already delivering. So the first three months were really hard in all the restructuring, but now we are already delivering, and partners do recognize that. We get already positive feedback from them. We are much better communicating, we are much better in terms of times delivery, et cetera, et cetera. Give me the opportunity to really refer to Andreas and the overall presentation we give in the CMD, and we will put some more color into it, into this one as well.
Excellent, and looking forward to the CMD, Patrik.
Yeah, thank you, Knut.
Thank you very much. And in the meantime, we have received one more question in the chat. Kurt Kamera asks: Is it planned to improve the news and events section on your website, nfon.com, and when will that happen?
He's even saying it's poor. Yes, there will be some. We have so many things to do, but there will be some improvements. I don't have the details here, but we definitely also work on the nfon.com webpage. This is what I know, and overall, there will be a different impression, hopefully soon.
Thank you very much. In the meantime, I've received no further questions. I will hold the room one more moment, so I have the chance to ask you questions. Yes, and it doesn't look like that. We therefore come to the end of today's earnings call. Thank you for joining the dynamic conversation and all your questions. Should further questions arise at a later time, please let us know. Contact Friederike from IR. And a big thank you also to Patrik for the deep dive into the results, the outlook, and thank you for the time you took to answer the questions. I wish you all a lovely remaining Thursday, and I hand over again to Patrik for some final remarks.
Yeah, I can only forward that big thank you to my amazing team. I think the speed is high at NFON. Everybody is running fast, and I think we deliver. We deliver in all aspects. We deliver now also in acquisition, we deliver transforming our organic business, and I'm quite positive to continue this journey and this is why I'm also excited to meet all you guys, maybe on the CMD, to give you much more color and insights into the further plan, also in terms of midterm guidance to NFON. This is why I also wish you a wonderful day, and stay happy, and we see us maybe in a couple of days. Thank you very much.