Ladies and gentlemen, welcome to this Lemonsoft Oyj interim report for the first nine months of the year with a focus on Q3 this time around. We'll be talking about our growth and continued growth and our improved profitability from the first half of the year. Together with me today my name is Jan-Erik Lindfors. I'm the Deputy CEO of Lemonsoft. Together with me today we have Mari Erkkilä, our CFO. We also have Alpo Luostarinen, our Director of M&A and IR. We'll be walking you through the highlights of our interim report for the first nine months of the year. Talking a little bit about the market, about our growth strategy, the stability of our business, which I think is important to reiterate to everybody on the call.
Of course, also how are we doing, you know, with the integration, for example, of our acquisitions. Mari will be talking about the numbers, our net sales growth, our organic growth, and then we'll do Q&A at the end as well. Without further ado, let's start with the highlights from the third quarter this year. As you can see, our net sales grew 30.6%, and our adjusted EBIT improved up to 32.17%. Our gross margin is still very stable at 88.3%. As I said in the beginning, our business is very stable.
Our customers now up to 7,600, and that means that we're not dependent on any particular segment or vertical or any particular, you know, customer for the stability and growth of our business. We're now 187 people, which is at the end of Q3. The main growth in personnel comes from the acquisitions of Finazilla and Logentia during the last couple of months. I would like to also present you know, how our net sales and how our customer growth has developed during the last couple of quarters. As you can see on the left-hand side, the net sales per quarter steadily growing up until the EUR 5.8 million that we had this last quarter.
If you look at the rolling 12-month net sales, we're up to EUR 21 million in net sales, which is of course a nice piece of growth over the last couple of quarters and years as well. Number of customers is growing steadily, which is of course contributing to our growth. What is important to understand here is that our customer acquisition is done both directly through our own sales and then indirectly through our channel sales. The channel sales is typically bringing in the lower side of the customers, the smaller customers through the accounting companies, and then the larger customers are handled by our own direct sales teams in the organization.
The growth in customers during the last quarter was actually quite a lot through the accounting companies. It also means that the average deal size was a little bit smaller than what we had in the previous part of the year. Taking a look at the growth strategy and the market update, and of course, as we all know, there is a challenging macroeconomic situation out there. We still see good demand for our ERP services and our products. That, how should I say? We haven't seen any kind of major effect of the macroeconomic situation.
We do have a longer sales cycle from if you think about complex sales also of ERP solutions, then what we do see is that especially in the manufacturing and in the wholesaler retail sector, it takes longer now to get the deal from lead to deal. Our sales pipeline still continued to grow during the quarter, and we still have a stable amount of deals to work on. There's no problem with that one. Channel sales, as I said, new customer acquisition softened slightly. Smaller customers, smaller deals across the range. Consulting and services sales, pretty stable. I'm happy to report that we don't have any more bottlenecks in our delivery capability.
We've been pretty efficient during, I would say, July to end of September in delivering the projects that we have. Albeit we also have customers who have postponed their implementations over to next year. Of course, that means that we now have room in the delivery capability, so once we get new deal in, we can basically start working on that project immediately. Finazilla and Logentia were positive additions to our product portfolio. I think when I look at those two products, they are really suitable. Both Logentia with the cost optimization of transportation costs and Finazilla on the budgeting and reporting and forecasting front.
Those products have shorter sales cycles and, of course that's a great way also for us to get, you know, sales growth from that point of view. Coming back to the market conditions, there is uncertainty in the air. It's very challenging for our customers. We did see some churn during Q3 as well. There were bankruptcies in the construction sector. There were some single bankruptcies in the manufacturing sector as well. Of course, if the customer goes out of business, that affects us as well. I took a look at the barometer for the SME sector for Finland yesterday, which was published at the end of September. It's clear to see that the customers are at the moment trying to protect their own profitability.
The biggest challenges that they see is from the market conditions is the increasing cost from raw materials, from energy prices, et cetera. That's clearly their biggest challenge. Of course at the same time, that's an opportunity for us because if we can help them be more efficient in what they do, then they will automatically save costs anyway. The challenging market conditions for our customers is both a kind of threat and an opportunity for us, if you put it like that. Cross sales and up sales of Finazilla and Logentia products have taken off very well. I was happy with the sales of Finazilla and Logentia products during the last quarter.
We have trained our current sales team to do the cross sell of the Finazilla product. I'll get back to Finazilla in the next slide because I want to give a little bit more detail on that one. Really happy how the integration and the cooperation with both acquired companies have gone. I think we have great products. We have great people in those companies and really looking forward to kind of take the next step on the growth journey together with them. Speaking of Finazilla, and how does that complement the offering that we have at the moment?
We acquired Finazilla back in July 2022, and the main thing that it brings to our product portfolio is the forecasting, budgeting and analytics and reporting capabilities, which is really something that our customers have been asking for for a long time. Being able to take data from one, two, three, four different system sources and present that in an insightful way to customers so that they really know what's going on with their business is crucial. As I said, we've trained our sales team for both solutions. We're working on the technical integration between Lemonsoft and Finazilla. Finazilla additionally offers something called CFO as a service, which really complements the overall offering from a kind of service perspective.
If you don't have the capability of a CFO or a controller in your business and you need help setting up your financial management processes and your reporting and so forth, then Finazilla can help with that as well. I think clear value for customers, increased visibility into their business, and through that they have. It's much better to feel in control of your business through good tools and processes than being without them. Couple of nice key customer references as well as you can see from the logos below. Really looking forward, as I said, to working with the Finazilla team to scale this product as well over the next couple of months and years. Excuse me. Right. Alpo, do you want to comment anything on the Finazilla part?
Yeah. Thanks, Jan-Erik. First of all, very happy to see the expertise we have in each product field and teams we have within Lemonsoft now. It's an excellent addition. Good demand for Finazilla's products especially within the Lemonsoft customer base that we've been working on. Developing the solution fully to support our own core ERP solution offering is interesting to see the next few quarters how we can develop that. As for Finazilla's relationship with their customer companies, it's very deep. They have a good position with the client individuals and providing deeper insight for us how we can help their businesses develop. Excellent addition with Finazilla.
On the other hand, Logentia, they have a bit separate value proposition for both Finnish and international companies. Very easy to provide value to customers utilizing logistics services. Reminding that Logentia's customers are a bit bigger than Lemonsoft's in size. Typically, it's a bit separate business, but otherwise, the larger end of Lemonsoft's customers we can also provide Logentia's offering. Both good additions.
Yeah. Maybe to further comment, we've already closed the first kind of cross sell deals for Lemonsoft customers with the Finazilla product as well. That's really great to see that it's taking off in a good way. Good. I think that's about it on the market and that situation. I see questions coming in, you know, also from the audience, so we'll be happy to answer that in a little while. I think for now let's go on the financial part, Mari. If you want to go over the development of the sales and the costs.
Yes. Thank you, Jan-Erik.
Let's go through net sales first. The strong growth in net sales is majority based on SaaS revenue growth. Net sales were EUR 5.8 million and adjusted EBIT margin was 33.7% of net sales in the review period. Net sales growth has been 30.8% in the review period and SaaS has grown by 25.6%. SaaS revenue growth due to new customer acquisition and upsell to current customers, as well as acquisition of Finazilla and Logentia, which net sales are not included in the comparison period. Organic growth was 10.3% in the review period. New sales were slightly slower than expected in the review period. Organic growth was lower than expected for business acquired before 2022. Yes. Distribution of expenses.
Material and services cost comprise purchases relating to hosting licenses and other external services, which is approved cross-match. Cost base consists primarily of personnel expenses. All R&D development costs have booked on profit and loss statement. Personnel expenses increasing through acquisition of Finazilla and Logentia. Other operating expenses is in line with plan. Thank you.
Thank you, Mari. If we go through then, as I said, from the start of the year, we've been also increasing our staff and our personnel. We're now up to 187, mainly through acquisitions though. If you look at the way that our recruitments have been done, the majority of the personnel additions have been through the acquisitions of Logentia and Finazilla. We have, though, invested also in our sales team. Basically our customer success managers have been added to the team since the start of summer, and we're still looking to grow that team because of course we understand that we need to take care of our customer base as a whole.
When, if we see a slight slowdown of, for example, new customer sales, then it's even more important to make sure that we have customer success managers in place taking care of our current customers in the different focus verticals that we observe. There's been an investment on the recruitment side of this one. As you can see, we're still the main part of our staff is still in R&D roles working on product management, product development, quality assurance, et cetera. The rest in customer service, sales or other functions.
I still think that we have room to invest on the customer success side, also on the sales side, making sure that we have enough capable people taking care of the leads and taking care of our customers. Looking forward to see how that develops then during Q4 and of course during next year as well. The outlook for 2022. We will keep our forecast unchanged. We of course did an update on the eighth of July when we did the acquisition of Finazilla. Our net sales growth is still in the region of 30%-36%, compared to 2021. From a profitability point of view, our adjusted EBIT on the scale of 28%-33% of net sales as well.
If you look at the long-term situation, we're still extremely well-placed to grow. The Finnish ERP market is still low penetration if you think about it from a ERP point of view. Those segments, those verticals where customers are taking into use their first ERP or where there's still a lot of pressure, for example, to modernize, still very attractive to us. As said, our product portfolio is broad enough and our customer base is broad enough to kind of withstand, you know, also a challenging situation. The positive development of course of digitalization as a whole will not stop.
Even though there is maybe challenging time for our customers in terms of the macroeconomic situation, that's still a driver for us to be able to sell and deliver, right? I think what we need to see is this market situation as something that we need to kind of grab by the neck and simply use to serve customers better as well as take market share. That would be my kind of personal ambition from a sales point of view for us over the next coming quarters and months. All right. I think that was the official part of the program. I see we have some questions coming in here, for example. Alpo, would you like to moderate please and pick out what we should look at?
Yeah, definitely. Thanks, Jan-Erik. First of all, we've received a few questions on organic growth, so probably we want to begin on that. Trying to understand what hurts organic growth, the first question. We added 300 new customers in Q3, but the average revenue per customer was a bit lower than expected. What are the causes of lower ARPU? Wanna begin on that one, Jan-Erik?
Yeah, as I said, I mean, the smaller deal sizes of course also converts into smaller or less than expected growth. If you look at where our new customer acquisition comes from, it's from our direct sales and it's from our indirect sales. If you look at the relative share of customers or the share of customers acquired, a lot of it came through the accounting channel, and a lot of those were small customers maybe taking into use, for example, our eKuitti product. A lot of new customers, but also a lot of smaller contracts being signed.
One thing to note in the 300 new customers we gained, roughly half of those are through Finazilla. Not all from our existing channels.
Yeah.
Continuing on organic growth, we mentioned that organic growth was slower than expected for businesses acquired before 2022. What we mean by that, maybe I can take that one. Basically companies that we acquired in 2021, Finazilla, Talosofta and PlanMill, those hit the organic growth figure in Q3 2022. Those have a bit slower growth rate than the latest acquisitions and they sort of hit the organic growth a bit at the moment. Continuing on sales and any update from LemonSmart, it was supposed to boost organic growth already in Q3. It seems that has not been the case. Janne want to comment on that?
Yeah, that's correct. A little bit slower uptake on that side, and that's based on our cooperation on the accounting company side, of course, is key to that one, but not as quick uptake of LemonSmart as we had expected.
Yeah. Any changes on the way our sales pipeline accrues? Are we happy with the development of sales pipeline in Q3?
Yeah. Good question. No changes to the way our sales pipeline accrue. We of course work every week to have good visibility on where our pipeline is and which deals we are going to close this week, this month. Value of the pipeline is still on track. As I said, leads have been coming in during Q3 at almost the same rate as in Q2 and Q1. But the one thing that we notice, it takes longer to get from first discussion to last discussion over the last couple of months than it did before. Happy with the development of the sales pipeline. Of course, always you want to have more leads, but we've invested quite a lot in marketing activities during the fall.
We've done radio campaigns, we've done current customer campaigns, we've been also to a couple of exhibitions and fairs on the construction side and on the subcontractor side during autumn. Quite a lot of activity on the sales and marketing side there.
One thing we discussed earlier about current customers versus new customers, where's our emphasis between those?
Yeah. We need to get to the organic growth level or growth level that we want to do. We need to succeed on both new customer acquisition as well as current customer sales, right? We're still executing sales activities and acquiring new customers, but also invested, as I said, resources in taking care of current customers and making sure that they get the best out of what they bought so that we can then do additional upsell, cross-sell, more licenses, more seats, and so forth. Both of those areas need to work together hand in hand.
Exactly. We mentioned in the first half of the year that we suffered from bottlenecks in implementation. Is there still pressure for our consultants in that end?
We have a lot of work, but we don't have the same kind of buildup and bottleneck that we had in Q1, Q2, for example. We've been able to finish quite a lot of projects during Q3. Also, as I said, some customers have moved their implementations over to 2023, which means that there's been capacity freed up. You know, we're able to take on new business and do new projects at the moment.
Good. I think looking backwards, that was for sales and then looking at the bankruptcies in construction and manufacturing, what was our churn in Q3, and do we have any visibility on the amount of bankruptcies in Q4?
Yeah. I mean, I can only speak from what I see from our numbers and from our customers. I haven't taken a look yet at the overall kind of market situation and segment situation. We did see a couple of bankruptcies in the construction sector during Q3 that affected churn. We also saw some single bankruptcies in the manufacturing sector that of course also affect churn. It doesn't affect churn immediately because even though a company goes into bankruptcy, they still need to have the systems available and so forth. The effect of that churn will be seen only then going forward. As a whole, of course, when you look at the SME business and the particular verticals, then you I think there's quite a lot of pressure on our customers. Unfortunately.
Yeah. As for the churn figure, we don't report that on a quarterly basis, but Mari, do you want to comment on a general level, where it lay in Q3? Were there any changes?
Yes. Thank you. Of course, it is a little bit bigger because the situation is what it is, but still it's not nothing very big growth in there, so it is very good level.
Yeah. Fairly stable churn thus far. Looking a bit forward, what kind of visibility we have for 2023, as for price hikes, new sales campaigns to boost sales pipeline and reach new customers? Jan-Erik Lindfors, you wanna comment on that?
Yeah, of course. When you look at 2023, we basically forecast 12 months ahead and try to have as good of a crystal ball as we can in terms of the segments that we work with and how many deals we can complete per segment per month to understand how that, you know, the year pans out. That's an ongoing process that we always do. We don't do budgeting, you know, from September to December in 2023 or 2022 and say, "Okay, this is it for 2023." That's an ongoing process continuously for us. When it comes to price increases, we have already told customers of a moderate price increase of 3.2% that we sent out in September that will take effect from the 1st of January.
We are looking at ways of delivering more value to customers by packaging our products in a slightly different way for 2023. That will also have an effect on pricing as well. Sales campaigns, of course, we do that all the time. That's also ongoing continuously. As I said, we've been running different campaigns for especially new customer sales during the autumn. For new customer acquisitions, I think it's more of a continuation of executing well on the lead pipeline. We're generating our leads through inbound and outbound marketing, validating those leads, and being even crisper with our value proposition and the way that customers can benefit from using us is important there.
We're working with our sales team on something that we call Sales Academy, basically through all the three stages in the sales process from lead generation to the actual, demonstration and sales to the actual closing, as a continuous improvement project and, expecting to see good effects from that as well.
Thanks. We've talked about the few projects that have been prolonged, moved forward and some projects moving on to 2023. What are the sizes of these projects? Are these large or normal size as business?
They would be normal sized and a little bit on the larger size from that point of view. Typically, it's small projects. Those are easy, quick to deliver. It's really more about, you know, what does the customer see in his environment? Does he have the resources to actually take it into use? Has he done all the work on his side and so forth? It's not been so much on our side, more on the customer saying, "Okay, I'm so busy," or, "I need to do. You know, I need to handle the basics." We have small projects being postponed. We have midsize being postponed and also one or two larger that are being postponed now.
Good. We've talked about a lot about sales and churn and customer relationships. Going a bit forward into personnel, we've seen some turnover within personnel. What kind of salary inflation are we looking at?
Look, I think everybody at the moment is looking at their own situation and trying to figure out how they can afford the electricity bill, right? The logical kind of conclusion is, "Well, can I talk to my employer about a salary raise?" We do anticipate some salary inflation for you know, Q4 and 2023, at least for 2023.
Good. All right. I think we've covered all the questions that we've received, and we'll be looking a bit further into our business in Q4 and in more detail. Thanks from my side, Jan-Erik Lindfors and Mari Erkkilä.
Thank you, guys. Really appreciate that you guys took the time to be with us today and good questions.
Sorry, Jan-Erik Lindfors, we just got one final question.
Yeah.
Attrition rate, what size is that then, and what's the employee turnover? How we see that?
Did we have that at 14%, Mari? I'm 100%.
Yeah. About
100% sure.
Yeah.
Fourteen percent, I think, was the attrition rate.
Yeah. On an annual basis, I suppose.
Yeah.
Yeah. Good. All right. Thanks, Jan-Erik Lindfors.
All right. Thank you so much and have a good day. See you later.
Cheers.
Cheers.
Thank you.
Thank you.