Okay. Good morning, everyone, and welcome to today's earnings call of NFON AG for the first quarter of 2025. My name is Friederike Thyssen, VP Investor Relations and Sustainability, and I will be your host for the session, which is being conducted in collaboration with NEWWAYS. Thank you for joining this morning. Today's presentation will be led by our CEO and CFO, Patrick Heider, who will walk you through the operational, strategic, and financial developments of Q1 2025. As usual, we published our quarterly statement and the full investor presentations earlier this morning on our website. Both are available on the Investor Relations site. The presentation will be structured as follows: first, business highlights, financials, then guidance, and at the end, our Q&A session. Please note that questions can only be asked live during the Q&A session at the end of the presentation.
If you would like to ask a question, please use the raise- your- hand function. I will then unmute you. After unmuting yourself, I would ask you kindly to state your name and your institution before posing your question. Written questions via the chat or the Q&A function will not be accepted. Thank you for your understanding, and thank you in advance for your contributions. With that, I would hand over to Patrik to begin the presentation. Over to you.
Thank you, Friederike. Good morning, everyone. Also, from my side, a warm welcome to our earnings call for the first quarter of 2025. Let's start with a brief overview of the key highlights for the period. In January, we rolled out our new strategy, NFON Next 2027, which marks an important milestone in the future development of NFON. Within this strategy, we aim to become the leader in AI-driven business communication solutions. It forms part of our dual strategy to optimize the core business and to grow our offer in AI-based solutions. One focus area we started with in Q1 is the definition and integration of AI within our product portfolio and to develop how we are bringing these solutions to the market.
Let's take a closer look on how we are structuring our AI sales organization and aligning our go-to-market approach to effectively connect these innovative products with our customers. We have concentrated on establishing a robust AI sales framework, integrating key components such as provisioning, pricing models, and support processes. This comprehensive ready-to-sales process is designed to equip our partners and internal teams with the necessary tools to effectively engage with our AI-driven offerings. Since the start of the initiative, we have conducted over 10 partner workshops, ensuring our partners can convey the strategic value of our AI solutions clearly. We also participated in three major expos: CCW, Zukunft Handwerk, and Digital X in Munich, which significantly increased our market visibility and helped us to establish strong customer touchpoints. Our efforts are already paying off.
In just three months, we generated over 60 leads, conducted more than 30 customer demos, and secured our first notable contract with bytesquad in March, a significant milestone that highlights the potential impact of our AI sales strategy. With this strong foundation in place, we are ready to capitalize on these early successes. Innovation, especially in the area of AI, is a key pillar of our strategy under NFON Next 2027. In the first quarter of 2025, we introduced two new AI-powered products that further integrate AI into our core portfolio and strengthen our market positioning. First, voicemail transcription. This AI-powered tool automates voicemail transcription, turning a traditionally time-consuming task into a streamlined, efficient process. It not only saves money, but also improves documentation accuracy, enabling our customers to respond more quickly and more effectively. Second, Nia, NFON Intelligence Assistant.
Nia is designed to provide 24/7 intelligent customer support, handling common queries seamlessly and delivering essential assistance in real time. By leveraging AI, Nia not only reduces response times, but also enhances the overall customer experience. Both products reflect our ongoing focus on integrating AI in practical, customer-centric ways to add value and strengthen our product portfolio. Now, with that overview of our key business highlights for the quarter, let's turn to the financial results of Q1 2025. Despite a challenging start to the year, we managed to deliver a 4% increase in total revenue, reaching EUR 22.1 million. In terms of adjusted EBITDA, we saw a slight decline to EUR 2.6 million, down 6.9% compared to the first quarter of 2024. Now, let's move on to the breakdown of the financial development in the next slides.
Our revenue development in Q1 2025, despite a challenging start to the year marked by a difficult economic environment, extended lead times up to six months, and the ongoing focus of our partners on the DTS migration rather than new sales, we managed to achieve 4% revenue growth, reaching EUR 22.1 million. The economic environment continues to impact customers' decision-making and extend sales cycle, making it harder to convert leads into sales as quickly as planned. At the same time, our DTS partners are still focusing on completing the migration to the NFON platform, limiting their capacity to drive new business during the quarter. Additionally, lead cycles remained longer than expected, particularly for AI-driven solutions, as sales teams and partners required more time to adjust to the new AI product landscape.
Nevertheless, we managed to drive revenue growth through the initial impact of botario, which contributed EUR 0.8 million, accounting for approximately 90% of the revenue increase, as well as targeted price adjustment and the continued rollout of our premium solutions. In total, this underscores the potential of AI-based solutions to generate new revenue streams, even in a challenging environment. Recurring revenue remains a core strength, increasing by 4.3% and now accounting for 93.9% of total revenue. This stability is essential as we continue to shift our focus from non-recurring to recurring AI-driven solutions. Non-recurring revenue decreased slightly to EUR 1.3 million, primarily due to lower hardware sales as we prioritized recurring AI-based services. The blended ARPU improved to EUR 10.02 million, reflecting the impact of price adjustments and increased sales of premium solutions, including AI-enhanced products.
In terms of seat development, the number of seats grew by 0.4% to 661,350, which is below our expectations. The slower growth is a direct consequence of longer lead cycles and the continued partner focus on DTS migration rather than new sales. However, our churn rate remained stable at 0.5% per month, highlighting the resilience of our core business. Let's now take a look at our cost structure and gross margin performance. Our gross margin improved once again and now stands at 86% compared to 84.1% last year. This increase reflects the growing share of high-margin recurring revenues, as well as the contribution from botario's AI-driven project business, which requires significantly fewer external resources. Cost of materials decreased slightly to EUR 3.1 million, even in the face of revenue growth. This demonstrates the scalability and efficiency of our business model.
The material cost ratio dropped to 14%, down from 15.9% in 2024, a clear result of targeted efficiency measures and strong procurement discipline. This development is fully in line with our strategic priority of creating operational excellence and lifting our margin profile over time. When it comes to personnel, our approach is equally disciplined. Total personnel expenses increased slightly to EUR 9.3 million, up from EUR 8.6 million in Q1 2024. This rise was mainly driven by the integration of botario. Wages and gross salaries rose to EUR 7.2 million, reflecting the additional headcount from the botario integration and targeted hires to strengthen AI capabilities and other strategic priorities. The average number of employees increased by 1.4% to 425, which is a moderate increase that aligns with our focus on scaling key areas while maintaining cost discipline.
Adjusted personnel expenses totaled at EUR 9.2 million, resulting in a personnel expense ratio of 41.6%, slightly above the 40.1% recorded in Q1 2024. The personnel expense ratio is expected to decrease below 40% in the coming quarters as we stabilize the workforce and focus on leveraging existing resources more efficiently. Adjusted EBITDA reached EUR 2.6 million in Q1 2025, slightly below last year's level of EUR 2.8 million. The decline of 6.9% aligns with our strategic focus on investing in AI initiatives and targeted personnel expenses linked to the integration of botario. EBITDA decreased to EUR 2.5 million. This figure was EUR 2.7 million in Q1 2024. This figure for the first quarter of 2025 was impacted by higher operating expenses related to AI development and the initial ramp-up of AI sales. Despite these additional expenses, our cost discipline allowed us to manage profitability effectively, absorbing strategic investment while maintaining a stable EBITDA margin.
Looking ahead, we will focus on managing costs and maximizing operational efficiencies as we advance our strategic investments. Now we turn to cash flow. Cash flow performance remained solid in the first quarter, reflecting effective working capital management and operational discipline. Operating cash flow increased to EUR 1.8 million, up from EUR 0.9 million in Q1 2024. This improvement was driven mainly by favorable changes in trade payables and receivables, supporting overall liquidity. Free cash flow rose to EUR 1.1 million compared to EUR 0.1 million in the previous year. This reflects a strong operational performance and a disciplined approach on cash management, despite ongoing investments in strategic initiatives. Investments remained stable at EUR 0.7 million, and we focused on developing new products and features, particularly in AI and premium solutions. Financing cash flow increased slightly to EUR 0.5 million, primarily due to interest payments related to the botario acquisition loan.
Overall cash and cash equivalents increased to EUR 13.6 million, providing a solid liquidity position to support our strategic initiatives in AI product development and operational efficiency. Looking ahead, our strong cash flow base sets the stage for the coming quarters, where we anticipate further momentum as strategic investments start to contribute more significantly to top-line growth and profitability. This brings us to our guidance for 2025. While results for the first quarter came in slightly below expectations, we remain confident in our 2025 guidance, underpinned by several key drivers that will gain traction in the coming quarters. Revenue is expected to grow between 8% and 10%, driven by strategic pricing adjustments implemented in May, which will have a full impact starting in the second quarter. Botario's growth momentum will intensify as we ramp up sales efforts and initiate targeted reselling activities, positioning as a key contributor to revenue acceleration.
AI in business telephony is set to drive new revenue streams through premium solutions and targeted sales campaigns, further expanding our offering and monetization potential. On the profitability side, we expect adjusted EBITDA to range between EUR 13.5 million and EUR 15.5 million, reflecting both the anticipated revenue growth and the ongoing cost discipline. Looking further ahead, our midterm target for 2027 includes double-digit revenue growth and an adjusted EBITDA margin of over 15%, driven by continued expansion in AI-driven solutions, premium offerings, and ongoing operational efficiency. To summarize, the groundwork laid in Q1 will start to pay off in the coming quarters as strategic initiatives ramp up, setting us on a clear path to achieving our full-year guidance and positioning us well for sustainable, profitable growth. Thank you very much for your attention. Now I'll open up for questions.
Yeah, super.
Thank you very much, Patrik, for the presentation and for the detailed insight. We will now open the line or the flow for questions. As a quick reminder, if you would like to ask a question, please use the raise-your-hand function in the platform. I will then call on you and unmute you. After unmuting yourself, when asked, please state your name and the organization you are representing. Please note that questions via chat or the Q&A tool will not be considered. We are now looking forward to questions. The first one is Stefane Beyazian.
Yes.
Okay. Hi.
Hello. Hello. Good morning. Thank you very much. I've got two questions, if that's possible. The first one is on the price hikes that you just mentioned since May, if I'm not mistaken. Can you give us a little bit more color on the size of the price hikes?
Which products are, you know, exposed to the higher prices? My second question is just coming back on the number of seats that is down and whether you could give more color on, you know, whether you've lost specific customers, whether you think there is also more competition, perhaps, in the market. Going forward, are you not a little bit concerned that your price hikes could also lead to further erosion in the number of seats over the next two, three quarters? Thank you very much.
Thank you very much, Stefane, for the question. For the pricing rounds, we have two pricing rounds. The main one is in May. For the rest of the growth for the year, it's around 15% of the growth, which will be contributed by pricing. To give you an idea, that's around EUR 1 million. Second question is about the seats.
The seats is, let's say, I already gave you two main reasons, and that's the economy situation we have overall in Germany, and 80% of our revenue comes from Germany. The DTS migration, they focus on the DTS migration instead of new seats. Overall, also, we need to mention that we had a challenging year 2024, where we didn't come out with a lot of innovations. Obviously, as an ARR player, that means in that full world of ARR contributing to next year's growth as well, we didn't win enough seats already next year. The main reason for that was also the innovation part. Since a couple of years, as I always stated, we were not as innovative as we should have been, but that's now completely changing.
Already in quarter one, we are already adding, as I stated, things like Nia and also the voicemail transcription part, and there will be some follow-ups. That means AI features into our core business. That means the core business will definitely catch up, and we will see a stronger growth in the future. Pricing will be an important part, and I do not see an erosion of pricing things coming to the core business because already with those AI features, we need to make clear that we want to price them into the core business as well. This is why you see the core API is already going up slightly, but it will also go up in the future, adding some AI, let's say, features into the core business. Hopefully, that answers most of your questions. If not, please let me know.
It does. Thank you.
Thank you, Stefane.
Perfect.
Next in line is Knut Woller.
Yeah, hi. Thanks for taking my questions. Also, a couple. Looking at the organic revenue momentum, Patrik, it looks like it was broadly flattish in Q1. Is it?
One moment.
Should I start from scratch again?
Yeah.
No, I missed the one question. One, it was the organic revenue development.
Okay. Should we expect already organic revenue growth again to accelerate in the second quarter, helped by the price hikes? When we also look at the margin development, Patrick, it looks a bit that you front-loaded investments in the year to accelerate growth in the second half, particularly of the year. Do you expect already adjusted EBITDA to return to growth in the second quarter, or is it also rather an H2 topic?
Lastly, on the ARPU, what should we expect from the ARPU in the remainder of the year? Thank you.
Yeah, thank you very much, Knut, for the questions. For the organic growth questions, definitely will accelerate already from May. It is a price increase, which obviously also impacts the ARPU, but we definitely need to be stronger, and we will be stronger in the seat gains. That is definitely something we already see in Q2, Q3, Q4. As I already indicated, one main driver is sales excellence, but also from the product portfolio, new features, as for example, voicemail transcription and others, which are also impacting the organic growth. From a margin perspective, you are absolutely right. It is more backloaded to H2. To give you an impression, we see in overall profitability contribution an allocation to H1 to H2, which is 40%- 60%.
In revenue, we do not see that as strong. It gives you an idea. It is around 48%-52%. That means profitability-wise, it is clearly backloaded. The third question, Knut, was about the ARPU, how we are moving forward. We always have this still, and we forgot about this one a little bit, that we also see some voice minutes going down in the ARPU, which is influencing ARPU as well. We see the counter impact is price increase. Definitely, it is more or less stable the last 24 months, but I assume, but I cannot guide it for now because we do not know yet. I assume with AI features also in the core business, ARPU is tendency-wise going up, also with the premium solutions we are selling. I cannot give you, and we are not guiding this one, but definitely going up.
Thank you, Patrik.
Just one follow-up, just to clarify. Your comment about the 40%-60% was referring to EBITDA contribution H1 to the full year and H2. Is that the right way to look at things?
Exactly. Exactly right. We are clearly flying. Obviously, it's my responsibility. It's our responsibility to see how revenue is coming in. With an easy P&L, we can obviously steer our OpEx. We are obviously focusing to achieve guidance also in terms of profitability, but we also have in mind that there will be a year after 2025. That means our strategic investments need to be driven from AI, AI, AI. We open up a Kosovo hub, which we won't stop because of this situation, etc., etc. I will let you know in Q2 call, obviously, but I see definitely the guidance is fully achievable in those aspects.
Great. Thank you.
Good. Next in line is John Carides.
Thank you. Good morning. My name is John Carides, and I work for Deutsche Bank. Thank you for taking my questions. I have three questions, please, and they all relate to the number of seats that NFON has in Germany. I just wondered whether you'd be willing to tell me what happened to the total number of seats in Germany since the end of 2024. Are we to assume that the change in the group number, all of it comes from Germany or more than that or less than that? Secondly, regarding the migration, could you help us understand how far you are in this migration? How much is left?
I just sort of wonder if I'm a partner, I do need to focus on the migration, but I also want to grow. Why haven't you sort of seen any sort of benefit from the partners' wish, I think, to grow? Thirdly, based on all the questions I've asked until now, what are your expectations for seats in Germany, how they might evolve for the rest of this year? Thank you.
Yes, of course. Hi, John. First of all, thanks for the questions. Coming to the number of seats, you can do the same allocation as with our revenue allocation. 80% of our business is coming from Germany. That gives you an idea where the seats, what amount of seats we have in Germany. We have obviously the most impact and the highest impact when Germany is growing or doing the opposite.
This is why it's impacting most with 80% of the revenues. We remained almost stable in Germany. That means Germany remained also stable with 0.5%, but that means we did not win enough, won enough customers since 2024. We had a year of working on stability on our platform. We had some incidents last year, and we are proud to say that now we scaled up the technical platform, that the technical platform can run to a million seats. That means last year there was just missing the innovative part of our products. People were searching for features, and we did not win enough customers. This is what we changed dramatically. Obviously, coming to your third question, Germany needs to contribute with the wind gains to the success of NFON. As I always stated, there will not be anything without core. We are not making the strategy 2027.
Yes, AI is definitely an important part, and you see it already. 90% of our growth is coming from AI, but we need to work on winning more seats in core in Germany. For the migration of DTS, and that is a very difficult topic because that was an acquisition in 2020. For four years, we were running double, let's say, procedures, process systems, CRM system internally. When we joined, Andreas and myself, we clearly decided we want to migrate it and merge it together because we want to benefit from the synergies. We did the groundwork last year. We merged the companies, etc. Now the work needs to be executed and finalized that the customers are migrating from the old DTS platform to the new NFON platform.
As we have almost only smaller partners with these DTS customers, you can imagine there's not much room for other business, new business. They want to grow the business, of course, but we need to even incentivize them to do the migration. That's an investment on the other side as well in our OpEx that we incentivize those partners. That maybe answers also your question. They are okay-ish to get that incentivation for migration so that they can live for one year without having a provision on the new growth. At the, let's say, H2 or next year, we should definitely focus on the growth again when we finalize the migration. Where do we stand with the migration? I would say we are 40% migrated on the seats. To the rest of the year, we have a clear plan we are executing.
To give you an impression, we are migrating month by month, almost 1,000 seats to the new platform. That is really a lot of work, huge work. It is running. It is now established. It is possible. We are happy to see now execution. By the end of the year, it should be all executed.
Thank you. Can I just check that the last reported number we had was 82,300 seats for DTS? Is that right?
I need to see and look to my team if somebody is shaking their head. If not, I am going to send this answer afterwards to you. I get the thumbs up. Yes, it is right.
That is exceedingly kind. Thank you, Patrik. Thank you, sir.
Thank you, John.
Thank you, John. Next in line is Phillip Zennewald. Go ahead.
Yeah, thank you, Friederike.
Despite a lot of ground already having been covered, some follow-up questions from my side, I will do them one by one. Did I just understand that right? 82,000 seats at DTS and you're migrating 1,000 per month. If you're at 40% right now, this will still take some time, right?
Yeah, absolutely. We did the groundwork in Q1. It's a lot of manual work. We have now automated these processes, and those 1,000 will obviously scale up to a much higher number per month. All the 82,000 will be migrated by the end of the year.
Okay, perfect. That's good for clarification.
Yeah, that's right. Thank you for the question. That's right.
Maybe on the margin, given the margin accretiveness of the botario deal, what was the underlying margin of the core business in the first quarter?
Can you maybe put a price tag on the investments you made in personnel and AI in the first quarter? What investments are there to follow in the remainder of the year?
Yes. I mean, I'm looking to my figures, and the net income contribution of botario was around EUR 200,000. They keep on going, growing the business revenue-wise 52%, which is good, good signals. They keep the margin, and this is why we are really happy to see the overall contribution to NFON Group with almost 90% of the revenue growth coming from botario. On the investment side, we opened up, I can't give you, and we are not telling you the exact figures and details, but I can give you some ideas about investments overall for the group. We opened up the Kosovo hub where we already hired four people.
Obviously, we have the full year impact of the whole botario team in the P&L because since we consolidate only since 1st of September last year, the first two and a half quarters, we have the full year impact of personnel costs as well here. And we have some additional hires for AI to the AI competence center here in Germany. All in all, we are and some salespeople, of course. Overall, we are focusing on sales and AI investments and the Kosovo hub.
All right. Thank you. That gives me some more color. I did write a 52% growth at botario.
At the moment, yes. Q1 2024 to Q1 2025, yes.
That is better than you expected, right? You gave out like a 40% guidance when I remember correctly.
Expectations are always high. It can always be better.
Overall, in our business case, we are assuming for 100% of the earnouts, it should be at 30%.
Okay, thank you. Maybe one last one. You mentioned that the improvement on operating cash flow was partially driven by favorable working capital developments. Are those sustainable, or will they revert in the coming quarters?
I mean, we always need to be very clear and transparent here. It is always a reporting date effect. In the last report, the last quarter, we had a little bit negative because, yeah, you always have a shift if you get an incoming cash the second day after reporting date. That means there will be an, let's say, equalization a bit over the year, but it is a healthy, let's say, sustainable progress.
Perfect. Thank you, Patrik. That is it from my side.
Thank you, Phillip.
Good. Thank you for your questions so far.
Before we close the session, let me briefly remind you or ask you, are there any questions from your side? If so, please use the raise- your- hand function now. If not, and that seems to be the last of your question, thank you again for your interest and your contribution. I will now hand back to Patrik for a brief closing statement.
Yeah, thank you very much for your really interesting question and also your contribution and participation in the calls. I'm looking forward to the next touchpoints we have either on the conference or in the next earnings calls. Thank you very much and have a great time.