Good afternoon and welcome to this half year report from Lemonsoft Oyj where we'll today be talking about the Q2 results as well as some update on our growth strategy and acquisitions, and of course, also go through the financials. My name is Jan-Erik Lindfors. I'm the Deputy CEO of Lemonsoft and responsible for our customer relations, customer operations. And of course, with me today is also Mari Erkkilä, our CFO, and Alpo Luostarinen, our Director of M&A and Investor Relations. I said the agenda for today, Q2 results, update on the strategy and the market, and also some insights into our latest acquisitions that we've done during the quarter to help accelerate our growth strategy.
Without further ado, let's dive into first of all the Q2, where I would say, the quarter was, there was nothing extraordinary in the quarter from a kind of sales perspective. We had good sales growth of 32.7%, driven by new customer acquisitions, also good sales to current customers, especially in the latter two months of May and June. Of course, the acquisitions of Logentia Oy and Planmill Oy, and the asset purchase of Talosofta that we did back in 2021. Nice contribution to the growth also from the acquisitions that we made during the last twelve months. Now, the most important value driver that we have is still our SaaS revenue growth, which was 39.4%.
Now, gross margin is still high at 87.1%, so key performance indicators still at a good level. Q2 adjusted EBIT was 24.4% on net sales. It was according to expectations, and adjusted EBIT is affected by higher costs that we have for personnel due to the recruitments and some higher administrative costs that we had in other operating expenses as well, more or less being derived from the IPO that we did last year. Number of employees at the end of the quarter is up to 169. 158 was the previous number from Q1, and of course, that is driven by the Logentia acquisition. We have been recruiting at a little bit of a slower pace during 2022.
Of course, we did a lot of upfront investment in staff in 2021, and that is still visible in our adjusted EBIT from that point of view. We'll go through the financials in more detail later on during this presentation, and Mari will take us through the sales and the costs and so forth. These are the highlights from the first quarter from that point of view. There's nothing out of the ordinary. The growth continues, and we've supplemented that with the acquisitions of Logentia and Finazilla then just by the end of the current reporting period. I'm going to take you next through a couple of updates on our growth strategy and what we see happening in the market.
First of all, if we start from the left-hand side with the strategy piece, our core focus areas are still the same. Product leadership and customer experience, those are the areas where we need to execute very well in order to grow as best we can. The product portfolio roadmap is still on track. We do new releases continuously to all of the products that we have in the SaaS portfolio. We have been complementing now with the acquisitions some white spots that we had in the portfolio, and myself and Alpo will walk you through the Logentia and Finvoicer acquisitions in a little bit more detail later on.
More or less, Logentia fits very nicely into the demands of our customers in the manufacturing and the wholesale and retail verticals. While Finvoicer provides certain functionalities like forecasting and budgeting that we have had requests from customers to develop and use. I think both acquisitions nicely supplement our growth strategy and also fit very well as targeted acquisitions into the portfolio of products. Now, from a customer experience point of view, we're still driving the direct sales as well as the channel sales. What we saw during the quarter was more or less that manufacturing industry still going strong.
The demand is still there, and especially, from a horizontal point of view, the time and workforce management requirements from customers increased, and we had a very nice sales trajectory for our Kellokortti product. Thank you very much to the team around Kellokortti, and the direct sales team. That's been very good, nice deals that we won during the quarter. Our transaction business is still in line with plan. We have a 13% growth in Q2. Nothing out of the ordinary there either. Market demand is still on a good level, even though there's still macroeconomic uncertainty of course, we all know. Lead generation, very good level, and sales pipeline development continued to develop positively during the whole quarter as well.
I think we had very good sales to current customers as well in May and June, so really happy about that. I said, when you look at our verticals, we still see a high demand in the manufacturing industry and the wholesale and retail segments, but some lower demand in construction and professional services. New customer acquisition, we're making good progress there, not only in the Kellokortti product, but basically across the whole product line. Then consulting and services sales was still on a high level. Because we are selling well to both current customers and doing well in new customer acquisition, there's still pressure on our delivery capability and capacity.
Even though we've made progress in consulting and services side, what we're taking, you know, the products into use for customers, we've had basically recruitments done. We've made internal resource transfers to supplement the team, and we've made partnerships with some of our accounting partners to use their resources as well for delivery. Even though we've done those, and we see good progress, especially now in May and June, there's still pressure on the delivery capability because we're simply selling at a good level. We started already cross-sell, upsell activities leveraging the Logentia acquisition. I see a lot of potential to increase sales to our enterprise accounts. Logentia, as you know, they provide optimized transport management solutions to minimize transportation costs, but also sustainability data gathering and sustainability analysis.
Both those kind of features are very needed for our customers. Of course, as I mentioned before, there's some macroeconomic uncertainty which is continuing. We did see during the start of the quarter some customers postponing their buying decisions. Again, those customers decided then to buy during May and June instead once they felt that the situation was a little bit more normalized. Of course, our customers are still, you know, affected by the inflation, the increases in fuel and energy prices and so forth. Those are problematic for any companies. As we see it, the macroeconomic uncertainty also provides us with a growth opportunity. For us, we need to make sure that we help our customers become more efficient at what they do.
If we can do that, then even though there's macroeconomic uncertainty, we will still grow and our customers will still stay loyal. We haven't really seen any effect on churn or customer loyalty from the macroeconomic uncertainty. I think if we focus on our core strengths and we help our customers get better, then the stickiness that we have in terms of being the engine of their operation makes it so that they're more inclined to buy more instead of churning. That's in general about the market. Still seeing good demand in our main sectors. Some effect of the uncertainty, but still positive about, you know, going forward.
I will hand over for the next couple of slides to Alpho to talk more about the acquisitions of Logentia and Finvoicer, as I mentioned earlier. Please, Alpho, just go ahead.
Thanks, Jan-Erik. We've continued to accelerate our growth through acquisitions during the second quarter with two acquisitions, Logentia and Finvoicer. Both acquisitions fit perfectly well with our acquisition strategy and the objectives that we've set out with the board, strengthening our industrial focus areas as well as expanding our offering. Logentia strengthens the wholesale and retail vertical as well as the industrial manufacturing vertical and brings value through an expanded solution offering for managing transportation costs. Finvoicer on the other hand strengthens our offering in financial management and BI solutions, providing us a solution, especially for budgeting and forecasting, which our customers have been asking for. Both companies have a very highly competent management team in their respective fields, eager to continue developing and growing the businesses.
We are very much looking forward to working together with both teams. If we take a look at Logentia in more detail, the business, it's a software company founded by two entrepreneurs with long and solid experience in the logistics industry. The solution they've built focuses on helping companies using logistics services by reducing transportation costs, improving reliability of deliveries and reducing time needed for managing transportation. The value they bring is quite clear. The value proposition they have is to reduce, for example, transportation costs by 15%.
The services include, for example, optimizing the sourcing of transportation services, selecting the right partner, providing a highly automated invoice control for complex transport invoices and so on. With the current inflation and rising logistics costs, many companies are looking to find more ways to cut costs and Logentia brings a very clear-cut approach to this. Logentia has several larger Nordic customers, and the customers are on average somewhat larger than Lemonsoft's current customer base. We are looking to expand the service they bring to Lemonsoft's existing customer base as well. Looking at the financials of Logentia, from a financial point of view, they've shown excellent performance during the past five years.
Revenue has grown and profitability has improved consistently with profitability on an exceptional level for a growth company. Logentia has a high number of recurring customers, already several international customers from the Nordic countries as well as other European countries as well. The solutions they offer are very adaptable to other markets than Finland as well, which is why we are looking to maintain growth internationally as well as in Finland. Diving a bit deeper into Finvoicer, the latest acquisition we did closed two weeks ago. It's a great addition to our current offering in financial management solutions.
Several of our customers have been asking for a wider, more comprehensive solution within budgeting and forecasting especially, which is a sort of new area for us. The reporting function we already have, in which Finvoicer brings more value into. This is a sort of there are some white spots in Finvoicer as well, which we are very happy to include into our offering. Both of these acquisitions complement our offering, well, and also improve our growth profile going forward in the long run. We are very eager to start working together on growing the two businesses and working with the management teams. Interesting to look at how we can develop these businesses. Back to you Jan-Erik.
Thank you very much, Alpo. Maybe just a quick comment on both acquisitions from my point of view. I think, especially with Logentia, there's a significant cross-sell, upsell opportunity for our enterprise accounts, our bigger customers. We've partnered with Logentia also already before. We have working integrations between the two systems, so it's easy to, you know, take that into use. I would say what I'm really excited about is the Logentia sustainability data collection service and analysis service. I think that's something that's been neglected in the SME segment in Finland. If we can expand that to cover a large part of our customer base, I think that would be really great for us and for our customers.
Finvoicer, as Alpo mentioned, we have several customers already using Finvoicer as their budgeting and forecasting system. We've had requests for integrations for a long time, and I think our offering to the financial management and accounting sector is perfectly complemented by this acquisition. I don't see anything but upside from a customer point of view here. They get an even better functioning whole through these two acquisitions that have been now done. Good. Then I'll hand over to Mari for a couple of slides. Let's go through the financials. Here first, Mari, if you would comment on the net sales growth, please.
Yes. Thank you, Jan-Erik. The second quarter continued to develop in line with our expectations. The strong growth in net sales is majority based on SaaS revenue growth. Net sales were EUR 5.3 million, and adjusted EBIT margin was at an anticipated level, 24.4% of net sales. Net sales growth has been 32.7% in the review period, and SaaS has grown by 29.4%. SaaS revenue growth due to new customer acquisition and upsell to current customers, as well as this year and previous year acquisitions of Logentia, Planmill, and Talosofta. Net sales of acquisitions were not included in the comparison period. Logentia's net sales have been included in the review period only in June.
Organic growth was 11.7% in the review period. Distribution of expenses. Material and services costs comprise purchases relating to hosting licenses and other external services, which is proven gross margin. Cost base consists primarily of personnel expenses. All R&D development costs have booked on profit and loss statement. Recruitments made in the second half of 2021 and first quarter of this year weakened the relative profitability in the first half of 2022 compared to the second half. Higher other operating expenses mainly due to IPO-related new recurring cost items. Yes. Thank you.
Very good, Mari. That was about the net sales and the costs. Then, if we're looking at our staff growth during the last year, you can see that we're now up to 169 people, up from 158 in Q1, and that's mainly through the addition of the Logentia personnel then. We did, as said, do quite significant investments in growing the team during the second half of 2021. Also during Q1, we did some additional recruitments. We continue to do recruitments in the areas where it makes sense.
I still think and believe that we have room especially to invest on the sales side, both on new customer acquisition, sales people, as well as, resources for taking care of our current customers or customer success agents. During the review period, we did a couple of recruitments to R&D, also added on to our customer service department to make sure that we can take care of our current customers properly, and make sure that we get the implementations done in the consulting team as well. As a kind of general comment on job market, I would say that it's pretty hot at the moment. There's a definite kind of pressure on.
You can see definite pressure on wages both coming from, you know, the status with inflation, that people want to be paid more, but also, that we have, I would say a competition for talent out there when it comes to IT personnel, whether that's sales or whether that's R&D or whether that's customer service, then we can see that's the trend where things are going. If you look at how our staff is split, we're still about the same, in terms of split between function. 56% is still in R&D and the rest then in customer service sales and administration. As said, I still think we have the possibility and to invest in our sales and marketing and customer operations side.
We did an update for the outlook for 2022, along with the acquisition of Finazilla Oy. We updated our profit forecast, so that the net sales is now projected to be between 30%-36% growth compared to 2021, and the adjusted EBIT at a level of 28%-33% of net sales. Now, there is no major changes or updates to our growth strategy. We still need to succeed with sales to customer, new customers, to sales to current customers. We need to grow our transaction business. Of course, leveraging the newly made acquisitions is also really important for us, to supplement the organic growth with the inorganic growth. The market demand is still there. I don't see that changing anytime soon.
Even though there is macroeconomic uncertainty, it only means that that's actually a sales opportunity for us because customers and companies need to be more efficient at what they do. I said we expect customer retention to remain high. We have had churn around a 3% level. We have seen, you know, even lower levels than that this during this year. The three percent customer retention or customer churn is about, you know, what we've seen as a trend over the last couple of years. We don't expect that to increase in any way.
As mentioned, the final point on the outlook is that the recruitments that we've done, the investments in personnel, they weaken the relative profitability of the first half of 2022 compared to the second half. Q3 and Q4, we expect increased adjusted EBIT. Good. Next steps is basically that we have our interim report coming up on October twenty-eighth. Of course, Alpo and Kari are the contact persons for any investor relations related questions. All the information that you have here will be available of course as material from investors.lemonsoft.fi as well. Now I think it's possibility to do some Q&A. If we have interested parties out there who want to ask some questions, please feel free and maybe Alpo you have some already gathered during-
Yes, definitely. Thanks. Yeah, we've received quite a few questions. Maybe we could start with the organic business questions. First of all, the bottlenecks that have been discussed in the first part of the year, did they hinder organic growth in Q2? If so, what's the effect of the bottlenecks, and are we already past those issues?
Well, we are not 100% past those issues. We still have a pressure on our capability, on delivery pressure on our consulting and service department as I said. We did move in the right direction. We've moved many customers forward in their implementation projects, especially during May and June. Things are continuing to get better. Of course, the more we sell, the more pressure we have on our delivery organization as well. I would say we need to continue the actions that we're doing in terms of recruitments, in terms of working our ways of working to make sure that we are as efficient as possible.
Of course, also if we have the possibility to use partner resources or reallocate internal resources, we will do that, and we have done that already and will continue to do so. There is of course effect on the organic growth from not having all projects completed as soon as we would like. Also customers have their own schedules and, some customers decided to postpone also implementations to the fall. That means that we have a couple of projects scheduled already for September, October that were originally planned for quarter one or quarter two.
Perfect. Thanks for that. Going to Lemonsoft, what kind of business potential are we expecting, and what have we estimated for Lemonsoft in the second half? If we start with the business potential.
Well, the potential is of course big because in Finland 94% of all companies are small, medium-sized companies, right? Lemonsoft is a solution for automation of financial management for micro companies. If you're a company in kind of the early stages of development, and you need to spend as little time and you want to spend as little time as possible on the actual financial management yourself, then Lemonsoft is a good solution for you. For entrepreneurs, startup micro enterprises, and then when those companies grow, of course, we want to move them over from Lemonsoft to Lemonsoft financial management solution. They can take more advantage of the ERP functionalities as a whole.
There's a lot of new companies being founded in Finland every year, and we have set an internal target for ourselves in terms of how many of those we want to onboard onto Lemonsoft and, of course, how many of our current customers that we typically serve through the accounting companies that we can also put onto Lemonsoft. Money potential, I think it's difficult to say. We can get back to that when we get some more feedback from the market during Q3 and Q4. As you know, Lemonsoft has now been out on the market only for a couple of months.
Yeah, exactly. Good. For gross margins, our analyst says that they've seen many software companies reporting gross margins a bit lower than expected, and they are asking whether hosting costs are going up. My understanding is that hosting costs for us have remained stable. For our gross margin, there's a little bit of a reduction due to some individual items in terms of purchases, but nothing long-term and should remain where they've been for the past quarters. Mari, if you want to comment on that in more detail.
Yeah. I have no more detail. It was that. It was something display equipment what we buy from Metsä.
Perfect. Yeah, and.
Hosting related, I could comment quickly, of course, that we are using some of some software with licenses, and we have seen price increases in those licenses during the last couple of months. There might be some effect of that. If there are similar scenarios in the market. Of course, everybody is looking on their own bottom line, and we see the big tech companies raising prices on their cloud services and some of their licenses. Might be an effect of that.
Yeah. Employee turnover, if we talk about personnel, have we seen people leaving? How difficult it is to obtain more competent people and so on? We've discussed this quite a bit, but if you want to add another comment on this.
I think our employee turnover is still at a normal level. We haven't seen any kind of big dramatic changes on that. What we have seen is that the competition is intense for talent. Our people, both from an R&D perspective and from a sales perspective, are talented. We can see that the competition is trying to offer them some very good deals. We've managed to retain, you know, our key personnel anyway. When it comes to recruitment, I would say that it's more difficult than before, especially to find salespeople.
If you look at the breadth and depth of our portfolio, you need to be very experienced to sell the whole portfolio, or then you need to be very focused on a certain vertical and a certain product, and that simply takes time. If I could wish for something, it would be that we could accelerate finding, you know, more talented salespeople from that.
Yeah. Moving forward into pricing, have we raised prices? Have we tried to raise prices so far in 2022? How much and how much are we expecting to raise prices going forward?
That's a good question. Of course, if you would be cynical, you would say that now is the right time to kind of raise prices because people are kind of getting desensitized to the level of inflation, which is going at the moment. We did raise prices from the start of the year for most Lemonsoft ERP products by 2.2%. We also raised prices on our consulting and services, our hourly rates and our daily rates. We made some targeted price increases from the start of the year when it comes to our Kellokortti products and also when it comes to our certain other licenses that we bundled and provide more functionality for our customers than before. We do see an opportunity to still optimize pricing.
I would say that we will be reviewing this part pretty thoroughly now during July, August, September to be well prepared for the autumn and next year. Personally, I think if we can bundle even more and give customers more value, then we can also raise prices accordingly. That's an exercise that we're definitely going to look into. We have individual products where we haven't done price increases in many years, where we have to go through, discuss with customers, and kind of understand are we at the right level or is there something that we still could do.
Moving to license sales, we mentioned in the last report that we had some license sales in Q1 2021. Question on whether we had that in Q2 2021 as well, and then what would the organic growth be in Q2 2022 adjusted for that effect? If you want to, Mari, comment whether we had some license sales in the comparison period now as well.
Yeah. We have also license sales in this period, this second period, and it was almost same level than last year quarter two license sales. Organic growth is zero.
Yeah, the effect on that. The growth in organic growth is actually sort of real life growth.
Yeah.
Very good. I think we've handled basically all of the organic questions. Well, maybe the last one. Has competitive landscape changed since Q1? If you want to, Jan-Erik, comment on any further competitors coming into market or so on.
No dramatic changes worth mentioning, I think, during Q2. Depending, of course, on the product and the solution that the customer needs, the competition is different, and so on, so forth. No kind of new entrants that would dramatically have come in and won deals or taken market share or anything like that. It's still the same. The big ones on the manufacturing side are still Visma, ourselves, Oscar, et cetera. On the construction side, it's still Admicom, ourselves, a couple of others. So it's, yeah. Kellokortti, the workforce time management, Nepton, Timer, those are still the same. It's a competitive market, but no major changes.
Perfect. Moving to acquisitions, Logentia acquisition, now that they have customers abroad, do we see it relevant to start selling other Lemonsoft products abroad as well? What do you think, Jan-Erik? Would you like to comment on that?
Well, Logentia is not the first, Lemonsoft, you know, product to be sold abroad. Planmill has international customers in Germany and Switzerland and Austria and so forth, and Canada as well. Applirent has customers all over the world. It's nothing new to have our products out in the world. What is good with Logentia, I think, that there is certainly a European kind of expansion potential because the service works all across Europe, all across, you know, major logistics chains and so forth. There's certainly the possibility to accelerate if we want to make that choice.
Very good. As for Logentia's fitting into our portfolio, it's clearly a white space. What about Finazilla? Do we feel that it adds? I discussed this a bit previously, that it actually adds some more flavor into our product offering. If you want to, Jan-Erik, comment this once more.
Yeah. I would say, especially when you look at it from a kind of budgeting perspective and a forecasting perspective, those are features that Lemonsoft customers have been requesting and also some advanced, more advanced reporting, right? Definitely with the budgeting and the forecasting, it fills a white spot in our portfolio and something that customers have been requesting. Clearly, I think a good targeted acquisition for us to make.
Finazilla fitting to the core Lemonsoft product, and the integration into that, we are planning to integrate Finazilla to some extent into Lemonsoft. Is it an additional module to upsell? Well, it is, but if you want to, Jan-Erik, expand.
Yeah. Of course the integration needs to be done. I think there are two things here. First of all, to complete the kind of normal integration so that you can use Finazilla and Lemonsoft products kind of side by side and share data. The other part is then, you know, productization, what is there that we can, you know, build on top of the engine of Finazilla that could then be productized and rolled to the market or expanded or utilized within our core ERP. That decision hasn't been done yet, and I'm not kind of technically qualified to comment, but I think there's both aspects are there, and we need to use them both.
Yeah. Finazilla will remain as an independent brand to be offered as it is for now, but of course integrate also into Lemonsoft. I think the final question would be about Finazilla's goodwill. How much goodwill is coming from the acquisition? Is the amortization period 10 years or something else? If Mari, you want to comment on that.
Yeah. It's eight years.
Perfect. That's a clear and simple answer. Eight years amortization period. What's the effect on quarterly goodwill amortization?
Good quarterly total Finazilla and this Logentia quarterly goodwill amortization is about EUR 300,000.
Perfect. Very good. I think we've gone through all of the questions. Anything else, Jan-Erik, you'd like to mention at this point?
No, I think if we recap, you know, the first half, it was more or less, you know, according to plan. Good sales growth, good acquisitions, good additions to our portfolio. Still working on you know, resolving all of those delivery capability issues. Not 100% there, but for sure going in the right direction. Q3 financial development is adjusted EBIT is expected to be better. Of course, we have the holiday accruals that we're releasing and so forth. Also I'm expecting also to see a better, you know, even more growth in Q3, Q4. Let's hope for the best and work, you know, to make that happen.
Perfect. Thanks a lot, Jan-Erik and Mari. Have a nice day to everybody.
Thank you.
Thank you.