As well as Vice President of Investor Relations and ESG, Friederike Thyssen, who will guide us through the presentation and the numbers shortly. The floor will be open to all upcoming questions after the presentation. Kindly note that we only accept questions via audio line today. And with this, I hand over to you, Friederike.
Thank you. Good morning, everyone. Thank you for joining us today for our nine-month 2024 earnings call. As Judith just mentioned, my name is Friederike Thyssen, and I am joined by our Chief Executive Officer and Chief Financial Officer, Patrik Heider, today. We hope you've had the opportunity to review our quarterly statement that we issued earlier this morning. The document and the following investor relations presentations are available on our website. We'll cover three main sections in today's presentation: a short business update where Patrik will take you through recent highlights and achievements. After that, he will give us an insight into our financials, focusing on our nine-month 2024 financial performance before presenting our guidance. This will take us approximately 15 minutes, and we will then take your questions. Let's dive into it, and I'll hand over to you, Patrik.
Yeah, thank you, Friederike. Good morning, everyone. Don't be surprised. In the meantime, I need some glasses. Also, a warm welcome from my side. Let me walk through the key developments and the progress we have made in Q3 2024. Organization: In December, we welcome our new VP Group Sales, Alexander Wettjen. In this position, he will be responsible for all national and international sales, including field marketing, and will report directly to me. With Alexander, we are gaining an experienced colleague who will ensure and effectively expand NFON's partner-centricity. Technology: We have made significant progress in developing our technical platform, ensuring scalability for the future. This will strengthen our ability to deliver cutting-edge solutions and maintain flexibility as we grow. Strategy: Our corporate strategy continues to evolve, with initial workshops already conducted to ensure alignment across teams and objectives.
This work is grounded in an OKR framework, which provides clarity and focus as we refine our long-term goals. This process is not just about setting milestones. It's about creating a roadmap that adapts to the dynamic environment in which we are operating. Integration: We continue to integrate DTS, our acquisition from 2019, to finally fully benefit from the synergies. For botario, we are making sure that in the first step, we focus on sales and product synergies. We are engaged in an intensive exchange of ideas on the latest AI trends and developments and are driving forward the accumulation of knowledge and the promotion of technical AI expertise. The pace we are setting demonstrates not only our agility, but also the seriousness and commitment we bring to making this acquisition a huge success. Innovation: Our approach to product and AI development is comprehensive and holistic.
We aim to meet our customers' needs from their first experience, guiding them through the entire journey from identifying their requirements and utilizing AI-powered products and receiving ongoing support. This holistic approach involves a synchronized, cross-functional strategy to ensure all actions and processes are aligned and optimized. This means this integration requires careful planning and time. Jana Richter, as our new VP AI, is leading this area. Whether through automation, personalization, or real-time analytics, our innovations are designed to enhance both customer experience and operational efficiency. For example, we are currently working on an AI assistant for product questions as well as for service and support. In addition, we are in the process of integrating AI functions into our cloud telephony portfolio and providing AI-centered extensions. We are developing these solutions in close collaboration with our partners, ensuring they align with market demands and client expectations.
This week, our annual partner day took place in Munich. The feedback to this approach and the new AI capabilities was extremely positive. ESG: In Q3, we successfully completed the assessment process, our double materiality analysis, marking a significant step in enhancing our sustainability framework. Building on this, we have initiated the trial run for the 2024 sustainability report. To summarize, this is another quarter that has been defined by transformation and progress, leading us to sustainable, profitable growth. This brings me now to the financials. Our recent financial performance underscores NFON resilience. In the first nine months of 2024, revenue grew by 4.9% compared to the same period in 2023, with recurring revenue now accounting for a substantial 94.3%. Adjusted EBITDA saw significant improvements, reaching EUR 9.1 million. These results reflect NFON's commitment to profitable growth.
On slide nine, you can see recurring revenue continued to be a core strength, now representing over 94.3% of total revenue. This share is driven by both the acquisition of new customers and the upsell of existing customers, including new enhanced products, our premium solutions. As non-recurring revenue decreased by 6.8%, total revenue grew by 4.2%. Since its inclusion into consolidated financial statements of NFON AG, botario GmbH has contributed EUR 0.2 million to consolidated revenue and EUR 19,000 to consolidated EBITDA. For 2024 contribution of botario, we expect EUR 1 million in revenue and EUR 500,000 in EBITDA. On the next slide, you can see that NFON has maintained a consistently high gross margin. The gross margin has increased slightly from 84.1%- 84.9%. COGS remains steady, decreasing only slightly from EUR 9.8 million- EUR 9.7 million.
The positive development is the result of an increased share of recurring sales, which have significantly higher margin compared to non-recurring sales. Aligning with our strategic focus, NFON achieved an 8.8% reduction in personnel expenses, amounting to EUR 25.6 million for the first nine months. This decrease is attributed to effective scaling and efficiency improvements alongside continued workforce optimization. As we progress through 2024, we anticipate further reductions of the adjusted personnel ratio to around 39%, reflecting our commitment to long-term sustainable cost management. Adjusted EBITDA continues on an upward trend. Key contributors include increased revenue, higher gross profit, and our ongoing cost reduction initiatives. Adjusted EBITDA is up by 50.9% to EUR 9.1 million. EBIT improved to EUR 2.3 million. Coming to our next slide, let's take a closer look on our cash flow performance as of 30 September 2024.
Operating cash flow for the first three quarters of 2024 was EUR 5.1 million, slightly below last year's EUR 5.4 million. Cash flow was impacted by reporting day-driven reduction in liability, other provisions, and tax payments over the nine-month period. Investment cash flow rose to minus EUR 12.3 million due primarily to EUR 9.9 million payment for shares in botario GmbH. Financing cash flow increased by EUR 6.4 million- EUR 4.8 million, driven by EUR 5 million and EUR 1 million credit line for the botario GmbH acquisition. Overall cash and cash equivalents decreased by EUR 12.3 million- EUR 9.9 million.
Free cash flow has improved notably in 2024, rising from EUR 0.8 million in nine months 2023 to EUR 2.7 million. Looking ahead to the 2024 financial year, we expect an operational cash flow of around EUR 8 million-EUR 9 million and a free cash flow between EUR 3 million and EUR 4 million. Let's turn to the outlook for this year.
Our primary focus is on maintaining steady growth and driving NFON sustainable transformation. We see 2024 as a pivotal year in our journey toward long-term profitable growth. This year, we will implement further steps to enhance NFON's operational excellence. As mentioned, we aim to generate profitability significantly, even with one-off expenses related to transformation projects such as DTS integration or the acquisition of botario. By 2025, we plan to accelerate our growth rate by sustaining high profitability. In our successful Capital Markets Day in September 2024, we presented our strategic ambitions. Financially, we expect for 2024, Adjusted EBITDA to increase to EUR 10 million- EUR 12 million, with recurring revenues growth in the mid to upper single-digit percentage range. Our guiding principle for the future is and remains profitability should outpace revenue growth, and revenue should grow faster than the market.
Thank you very much for your attention, and I'm now happy to answer your questions.
Thank you very much for your presentation, and we will now move on to the Q&A session. For that, we ask you to ask your 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 followed by star six, and kindly note that questions via chat cannot be submitted today, and we also have three hands up. Knut Woller, you should be able to speak now.
Yeah, hi, and thank you for taking my questions. I will do them one by one, Patrik. First, on botario, did I get it right? The full year expectation for revenue is EUR 1 million and for EBITDA, EUR 0.5 million?
That's right, Knut. Hello, first of all, good morning. Yeah, that's right.
Thank you, Patrik. And so the EUR 0.5 million seems to be a bit more than the margin botario reported in the past, if I remember correctly. What is driving that?
Yeah, that has only seasonal effects during the year, as we are consolidating only the last years, and traditionally, the impact in the last quarter is better. So we obviously benefit from this effect. We remain with an overall guidance between 30% and 35% of the business.
Excellent, thank you. When we look at the expected growth acceleration from 2020, Patrik, can you break it a bit down? What kind of contribution should come here from the revived partner channel and what from new products?
I mean, definitely what we will have in the guidance, we will report it in the organic and the inorganic part. Definitely that we need to increase also with the enhancements of AI capabilities, our organic portfolio. That definitely goes to the high single-digit growth, and then with botario, additionally, we will reach the double-digit growth expectations for next year, so overall, the new product world with botario is definitely helping us to come to double-digit, and the AI features and also sales efficiency parts in the traditional organic business will lead us to high single-digit growth.
Excellent, thank you. And just while you refined your guidance with regards to recurring growth to the low end of guidance, is it fair to assume that also looking at the cash flow guidance that we should see the Adjusted EBITDA reaching rather the high end of company guidance?
It's more into the middle, exactly in the middle, I would say, and the reasons to be very transparent for the low end part of the revenue guidance is twofold. The one reason is that we see really resistance from the markets to decide about investments. That's definitely, especially for Germany, and our current revenue share in Germany is 80%. That's definitely had an impact. And then also while we were working on the technical stability and we are very positive on this one, people also saw that we were a little bit hesitant to drive further seat growth. But now the churn rate is still 0.5%, which is really low. Those two impacts will bring us to the low end of the revenue guidance, but again, we will see it positive for 2025. And for the EBITDA guidance, we are exactly in the middle.
Great, thank you. And just a final question, Patrik, regarding the AI products that are in the making, can you give us here some more color on when we should expect these products to be available for the market, like the AI assistant you're currently working on? And that's it from my side, thanks.
Yeah, we see, thank you very much. First of all, we see three different parts. We see AI, AI, or two, three, AI enhancement in our traditional Cloud PBX business. That's already available by the second quarter, mid of next year. Then we do see also, we continue to drive in the CC Hub contact center world, AI enhancement as we do already. And then we see the botario portfolio, which is already existing. So I would say there's already starting the 2025 years with all capabilities. We presented them in the partner day in front of 300 partners in Munich this week. And it's highly interesting how attractive they see the portfolio. I think it's confirmed that this route, bringing voice-centric cloud business communication tools together with AI, is the right way to be.
Excellent, thank you very much, Patrik.
Thank you, Knut.
Thank you for your questions, Mr. Woller. We will move on to Mr. Froberg. The stage is yours.
Perfect, thank you very much, and good morning, and thank you for taking my questions. Two from me, please. Firstly, do you see or do you foresee any change to the competitive landscape in Germany given the recent acquisition by Gamma Communications entering the market? And then my second question, could you talk a little bit more about the AI enhancements that you are making to your Cloud PBX business? What exactly is this? How does it work? And what are some of the benefits? Thank you.
Good morning, first of all, Gustav, and thank you for your questions. To the competitive landscape, we don't see any change. I mean, you're talking about the Placetel acquisition, which came from Cisco to now Gamma. We do see that they also use it very strongly for the U.K. market to bring Webex to the U.K. market as well. For our traditional business in the German market, we don't see any change. Placetel was a kind of competitor where they were more to the larger business, but that remains the same. So we don't see any other players in the market, STARFACE, Enreach, they are still there. We will have no major change. And AI capabilities is more or less in the cloud telephony business is all driven to efficiency. How can we help to the pain point of our customers to increase efficiency? That's something we are working on.
We give a lot of efficiency tools to our customers in the traditional Cloud PBX business as well, as we do see that the traditional Cloud PBX business in a couple of years won't grow double-digit anymore. Already we see traditional UCaaS voice-centric parts only growing in the mid-range of single digit. And this is why we enhance it with efficiency tools, first of all, and also bringing the whole bot technology, chatbot and voice bots together with voice-centric business communications tools is key. We already presented some use cases on the Capital Markets Day. We also detailed and defined them for the partner days. And this is why we are approaching already readiness by second quarter next year. And we are confident that this is going in the adoption rate very fast.
Great, thank you.
Thank you, Gustav.
Thank you, Mr. Froberg. We will move on to Mr. Sennewald. The place is yours.
Yes, good morning from Hamburg. Hello, Patrik. A couple of questions and a couple of follow-ups from my side. Did I get it right? Just that you mentioned in Q2 2025, you expect first impacts of the new AI tools?
So first of all, good morning, Philipp. And we already have an impact from the first quarter with the botario standalone business. And yes, from Q2, we come up with some releases also from the integration of AI capabilities in our organic portfolio. Yes.
All right. Then another follow-up on the EBITDA guidance. I'm a bit puzzled with the middle of the guidance you just mentioned, which would imply only EUR 1.9 million adjusted EBITDA in Q4. Does that imply that you won't adjust for the DTS adjustments still ahead? And can you quantify on those adjustments in Q4?
I mean, traditionally, also in the Q4 business, we also have huge investments. So the OpEx part is in Q4 much stronger. We had some spending, obviously, also in investing into integrating AI capabilities in our business, etc., etc. This is why we won't be cautious, but not conservative, but we think it's realistic to be in the mid-term, mid-type of the guidance. All the adjustments at the moment in Q3 are driven by the acquisition adjustments we have, almost EUR 500,000, EUR 0.5 million in terms of the acquisition costs. Then, yes, that's the part that DTS integration is well ongoing. We won't have bigger adjustments by the Q4 world because we also have the integration parts into 2025. This is what we include into the 2025 guidance then.
Okay, understood. Thank you. And did I get it right that botario is not part of your full year guidance? This is only NFON or?
Yes, this is only NFON. But the part, this is why we were transparent as well, what you can expect coming from the botario part is the EUR 1 million and the EUR 0.5 million in EBITDA.
So that would come on top of the middle of the guidance. All right. Maybe a couple of further questions from my side. We saw a significant working capital swing in Q3, especially on the payables side. What was the reason behind that?
Sorry, can you repeat your question?
We saw a working capital swing in Q3, especially regarding payables. What was the reason behind this?
That was only reporting date-driven changes, so last year, it was the payables. This year was the payables. Last year, it was the receivables, but overall, we are very positive in terms of cash flow, so you can expect really, that's what we always aim for, and we thought it's a little bit tight, but now it's confirmed that we overachieved this one definitely, that the free cash flow will be between EUR 3 million and EUR 4 million and the operating cash flow between EUR 8 million and EUR 9 million, which is a great development in our perspective.
Thank you. That helps a lot. And one further on recurring and non-recurring sales, which we're looking at Q3 isolated, yeah, stabilizing, even slightly improved year-over-year. Is the trough reached there? Do you see any turnaround on the non-recurring side?
To be honest, we are not so interested in the non-recurring sales as they are not really contributing also to profitability. This is mainly hardware sales. And we wouldn't put the focus on this one for the next couple of years. You already saw since last year, we are increasing recurring share of the revenues clearly above the 90%. So I would say the 90% guidance is more conservative. So we are reaching at the moment 94.3%. And we are not putting focus on hardware sales as they are not contributing to profitability overall. And we see just a decreased demand from the market. So hard phones are really decreasing. There are a couple of headphones, which might be interesting. But are we really putting focus on that one? No.
Okay, perfect. Maybe one follow-up then. So you're simply saying hard phones are not in demand to that extent anymore. So non-recurring sales, the relation of non-recurring sales to new customer gains isn't that significant anymore, right?
Exactly.
Okay, perfect. Yeah, thank you very much. That was it from my side.
Thank you very much, Philipp.
Thank you very much, Mr. Sennewald. So far, we have no questions left. Please feel invited to raise your hand if you have any questions. For this, we will hold the room another moment. Mr. Stéphane Beyazian, you should be able to speak now.
Yes, thank you. This is Stéphane Beyazian from ODDO BHF. Thank you very much. Just a question on the EBITDA target for 2027, the margin target, excuse me. Since you've been saying that in the long run, you should be between 15%-20%. And you've done so much already since you've arrived. There's been such an improvement in the profitability. But it means also perhaps not a big step versus from where we are today. And I was just wondering whether which expenses do you think will be increasing more over the next couple of years? And I would guess probably you're looking to put more money into a commission and perhaps advertising. I mean, whether you could expand a little bit on where costs could increase in the next couple of years. Thank you.
Bonjour, Stéphane. Thank you very much for the question. And it's obviously for the details, it's a very difficult question so far for the moment, but I can give you some ideas. So what I always stated and what we see that the traditional Cloud PBX business is really when you see competitive environment, you really need to try and would be capable, and we are capable, and we are showing that you should grow the business in line with market, and then you would generate a margin around 20%. So if we would only go for this one, we would be very positive to reach it very soon. But with AI capabilities coming to the business, stronger growth, we even see an upside there. So AI capabilities is not helping only our customers to drive efficiency, but also internally see definitely driving efficiency.
So that business in other industry we started as well is clearly helping our organization even to go above the 20%. When does it come? We don't know yet because we also need to make clear that we need to invest into top-line growth. So it's always the balance and the question how much top-line growth you can generate, how much percentage rate you can grow above the market, and what return do you get for this one. In a mature business, I definitely see with AI capabilities a higher margin than 20%. Mature businesses for me, you are staying on market growth. In terms of when do we see more aggressive market growth opportunities, obviously, we would also accept a lower margin rate for a moment for a couple of one year or two years. So that's the balance we are working on.
So, definitely we need to, and this is why I'm always saying we can't focus on profitability only on EBITDA optimization. We need to see both the growth opportunities in top-line and also the EBITDA. But overall, the 20% would be too conservative for the next couple of years, but it depends on the market growth you are delivering.
Very good. Thank you.
Thank you very much.
Thank you, Stéphane. And in the meantime, we have received no further questions. We therefore come to the end of today's earnings call. Thank you very much for joining, listening, and all your questions. Should further questions arise, please feel free to contact Friederike Thyssen from Investor Relations. And a big thank you also to you, Patrik, for the dive into the numbers, for answering the questions, and your presentation. And dear participants, I wish you all a lovely remaining Thursday and hand over again to Patrik for some final remarks.
Yeah, your final remarks were already very nice. Thank you very much for helping us. And also thank you very much for your attention. Maybe some of your colleagues we will see next Monday on the Equity Forum in Frankfurt. And if not, we are always available for you. We are very positive for the remaining year, and we stay in contact. Thank you very much. Stay happy and stay safe. Thank you.