Ladies and gentlemen, welcome to this interim report by Lemonsoft Oyj, where we will be going through the results from January to June 2023, and also with a focus on the second quarter. My name is Jan-Erik Lindfors, together with my colleagues, Mari Erkkilä, our CFO, and Alpo Luostarinen, our Director of M&A, we will be going through the material today. Of course, we will be having, you will be having the possibility to ask questions also through the chat. Please feel free to submit your questions, we will take them then by the end of the session. Let's first have a look at the second quarter of 2023 in terms of our key numbers as well as our net sales and our adjusted EBITDA.
Looking at it from a, from a net sales perspective, we grew 15.9% from the previous year. Our SaaS revenue grew 14.9%. A little bit lower gross margin than before, so at 86.7% and adjusted EBITDA at 24.8% of net sales. To kind of summarize the quarter, I would say that our growth was driven by the acquisitions that we've done throughout the, the year. Our organic growth was a disappointment.
We're not happy with that, I think, in terms of the actions that we're doing to remedy the organic growth, we're looking at actions ranging from bundling products, looking at product pricing, focusing on account management and customer success, and also doing some actions on the product development side to make sure that we get the organic growth back on a better track than, than before. We're still at the, at the recurring revenue number of 82.2% of, of revenues, which is really good, and of course, through the Finvoicer acquisition, we had a majority or a large number of customers added to our customer base. We'll talk more about the Finvoicer acquisition and the rationale for that, as well as the impact later in the, in the presentation.
We're now at 220 employees, which is of course, also a consequence of the Finvoicer acquisition, but a nice increase in our competency. When we come to the summary of how employees and how our resources split at the end of the presentation, we can see that we're now having a major focus on customer operations, which is really good from my point of view. Of course, a large thank you also from my side to the board and to the previous CEO, Kari Joki-Hollanti, who's done a splendid work before.
I'm happy to step up to the role of CEO from now from first of August, and looking forward to, together with our customers, our employees, and our other stakeholders, to drive the growth during the next couple of years. As mentioned, also during the review period, we had our largest M&A acquisition up to date with the Finvoicer Group, and Alpo will be going through in more details later. We also had change negotiations during the period. Our challenge is always balancing when to accelerate and when to, to break, and that's something that we also have to always have to take into consideration. It was a quick negotiation. We had a reduction of six employees, and the positions of three employees were changed.
Let's go to the next slide and look at the sales growth and increasing customer base across the second quarter. If you look at the trend of net sales, clearly Q2 was, from that point of view, still good. Looking at it from EUR 6.2 million in revenues, still smaller than Q4 in 2022, which was then driven by exceptionally high consulting sales. If you look at our sales split, the SaaS is clearly still on a good and stable level. Where we have had challenges during the quarter or during the first half is actually on the consulting and services sales side of things, where customers are still protecting their bottom line. We're still also seeing customers downgrading or at least looking at their.
The number of seats that they use for different modules, we see an impact on, on customer, net retention revenue on, on that one. Net sales is up to EUR 24.3 million over time, a, a really nice peaking trend over there, and of course, a massive increase in customers from the, from the acquisition of Finvoicer. The customer base is now even wider than before. The majority of customers that came in through the Finvoicer deal is actually small customers. We can see the increase from 4,600 customers in, in Q1 to Q2, the, the, the majority of the, the addition is still those who are using the quick transaction-related services that Finvoicer provide in terms of the HelpostiLasku and so forth.
If we take a look at the following slide, I'd like to go through a little bit more in detail our, our growth strategy and the market update. If we start from the left, left-hand side of things, the two focus areas are still the same. We need to be competitive from a product portfolio point of view. That's our starting place and our, our ticket to play. We're executing our current product development roadmap as planned. Especially investing into the Lemonsoft ERP browser-based version. We're investing into the Kellokortti work time management solution, and also in the construction vertical for the Lixani product, which is focused on renovation projects as a whole.
Still investing a great deal in, in product development, and that's of course, also, visible in our, in our numbers. From a product point of view, we've also done a lot of work, to look at product bundling and product pricing to make sure that our current customer get base gets as much out of their investments as possible. We've launched from the first of August, new bundles with more functionality at increased prices for our, for our current customers. From a customer experience point of view, during the quarter, we allocated more resources for customer success and support purposes. We wanted to make sure that we recovered from the malware attack in, in, March, April, in a, in a good way, and that we were able to support our customers then during April, May, June, as, as well as possible.
Which means that, we, we, reallocated some resources from other functions to customer success to make sure that we took care of our customer base as, as well as possible. From a new sales perspective, we saw, manufacturing sales picking up at the end of the quarter with some large and nice deals, and also work time management is something which is popular for customers. Seems that the demand is very stable, and we were able to close a, a nice amount of new Kellokortti product deals during the quarter as well. Really, really happy with the performance of the sales of that product. Current customers are still careful with investments, so we can see that affecting upsell and cross-sell, possibilities as, as well. Lead generation was slightly softer than previous quarter.
In, in the first quarter, we had a nice mix across all industry verticals. Now, during Q2, we saw more leads coming in from the manufacturing vertical compared to the PSA vertical or the construction vertical. Especially the demand for construction softened. We can see a clear cyclicality when it comes to the construction vertical. The sales cycle is during, you know, spring and fall, and then during summer, construction companies are very much focused on executing the work for their customers. From a large ERP or medium-sized ERP implementation point of view, we're still continuing, continuing to close deals. However, we still see that customers are also postponing decisions, when it's exceptionally kind of large projects or, or complex projects. The market conditions are still challenging for our customers, the macroeconomic situation in Finland is still challenging.
I think inflation in June was 6.3%, in May it was 6.5%, well above the predictions of 5.5% that, for example, ETLA has for the rest of the year. It's difficult to predict the market situation long term. I'm still thinking that H2 will be more or less a reflection of H1 from a market perspective and a macroeconomic perspective, not expecting any big changes in the kind of landscape from that point of view. Okay, that about the market, and then I'll hand over to Alpo for some comments on the M&A strategy side, and especially on the Finvoicer acquisition. Alpo, please go ahead.
Thanks, Jan-Erik. We've continued on our M&A path. In, in June, we finalized the largest deal in Lemonsoft's history to date with the acquisition of Finvoicer Group, which we are very thrilled to, to welcome into Lemonsoft family. Finvoicer goes well with all of our objectives, basically supporting the customer verticals by providing a horizontal software in invoice lifecycle management. They also bring new functionalities. We, we also already provide some of the features that Finvoicer brings through the Lemonsoft ERP solution, as well as our existing partners. Finvoicer expands that especially with the invoice financing and, and further digital financial management.
Really, really happy to welcome the whole team and especially the management of Finvoicer, who has done an excellent job in growing the business in the past 10 years. Looking a bit on the detailed information of Finvoicer, we have identified several different areas where we can find both sales and cost benefits for the combined group. Finvoicer basically provides small and medium-sized companies with comprehensive invoice lifecycle management solutions, from invoice delivery to invoice financing, and all the way to digital financial management. What we can basically do with Finvoicer is to provide the whole solution in the value chain to our customers in all the industry verticals that we are in at the moment.
We also are looking to reduce some overlapping costs in Finvoicer and Lemonsoft through overlapping processes. We should find some cost benefits there as well. Looking at the financial profile of Finvoicer fits very well with our objectives with the acquisition strategy. Finvoicer has grown to a pretty sizable size range with EUR 4 million of revenue. In the past few years, Finvoicer has grown about 15%-20% a year with healthy EBITDA margins of 25%, roughly. They have a recurring revenue of roughly 75% in the software space. Basically, all of Finvoicer's revenue is recurring in nature, but 75% comes from the software directly and the remaining part from services.
The customer base is, is very wide. Finvoicer has almost 8,000 customers, most of which are, are focused on the invoice delivery solution, and the remaining part is, is, is served through a wider set of financial management services and solutions. Finvoicer has about 40 people in Finland in three different locations. The headquarters is in Turku, with roughly 30 people, roughly seven people in Tampere, and then a few individuals in Jyväskylä. As mentioned, the whole profile from the solution offering to the financial profile of Finvoicer fits well with our objectives, and we are looking forward to growing together with the team. With that, I give back to you, Jan-Erik.
Thank you. Yeah, happy with the acquisition of Finvoicer, and as said, you know, the team is very committed, very positive, and I see a whole lot of synergies that we can do across the customer base to apply the Finvoicer solutions to the whole Lemonsoft customer base as well. Really happy with that one. It also means that when you look at the, you know, the personal split of, of the whole Lemonsoft Group, then we now have quite a few persons which are kind of focused on the financial sector and so forth. That's also good to keep in mind.
Now, when we have a kinda combined offering with Lemonsoft, we have Finazilla for budgeting and forecasting, and then Lemonsoft, or sorry, Finvoicer for the invoice management, and that, that complete solution basically covers everything from planning process all the way to invoice delivery and, and cash flow. That's very important to understand. I think we'll give the word to Mari to look at the financial numbers, please.
Yes, thank you. First, net sales. Net sales increased due to the acquisition of Logentia, Finazilla, Duunissa.fi business, and Finvoicer Group. Net sales were EUR 6.2 million. Adjusted EBITDA margin was 24.8% of net sales in the review period. Net sales growth has been 15.9% in the review period. SaaS, SaaS has grown by 14.9%. Organic growth of the review period was -3.9% due to the challenging market situation, especially consulting and other income remained at the lower level than in the comparison period. Then distribution of expenses. Material and service costs grown by comprise purchases relating to hosting licenses and other external services, which is approved gross margin.
Gross margin was slightly lower than previous year. Material and services was 13.3% of net sales. Cost base consists primarily of employee benefit expenses. During the review period, have been capitalized, development expenses about EUR 400,000. Other operating expenses has increased as planned. Thank you.
Thank you, Mari, and I, I think, a comment on the capitalization there. As said earlier, we are still continuing to invest in our product development, and especially on the Lemonsoft side, the Kellokortti side, and Lixani side. So those capitalized expenses are related to those products that we're developing further. Just a quick recap of our kind of summary of, of, the staff. As said, we are at 220 persons now at the end of the second quarter, up from 182 at the end of, of Q1, and that whole increase is basically due to the acquisition of, of Finvoicer.
As I mentioned also previously in the webcast, now we're looking at the distribution of, of personnel, where we have 50% of our people now in customer functions or customer operations, around 44% in R&D, and then 6% in other functions, such as finance and management and so forth. Still, looking really, you know, customer-focused, looking at the, at the, the way we serve customers with more focus on the current customer base, making sure that we take care of them as well as possible. Then, of course, the services that Finvoicer provides in, in relation to customer is also really customer-focused. A kind of normal development from, from that point of view. I said, I'm really ha-happy to help, to welcome the Finvoicer team to the group.
I think we'll do great things together in the, in the next coming, coming years. The outlook for 2023, we updated our profit forecast due to the acquisition. Now we're looking at a net sales growth of about 15%-20% compared to 2022, and then adjusted EBITDA, 25%-30% of net sales. We still want to grow profitably. We still want to be helping our customers to be as operationally efficient as possible. We know that we want to improve also, at the same time, our organic growth, which is which we were not happy about at the review period. At the same time, we have clear action plans in place when it comes to product bundling, pricing, customer success, and taking care of our customer base in the best possible way.
We're still sticking to our, our forecast from that point of view, but on the other hand, the market conditions are still challenging. I said earlier in the webcast, H2 is difficult to predict. When you look at it from a kind of customer vertical perspective, industrial manufacturing is kind of stable, but still with challenges as well. Construction is clearly something which is, is suffering at the moment. Looking at the, for example, the Helsingin Sanomat today, there was an article about the increased amount of, of bankruptcies and amount of unsold construction projects in, in Finland and so forth. It will be interesting to see how the market develops during the fall.
Looking back at previous kind of crisis, let's say Ukraine and COVID, there was kind of a quick bounce back always after August in those years. 21 and 22, you could see the market bouncing back. I'm not 100% sure that the same thing will happen this time because the kind of factors influencing the market is different. Let's see, hoping for as good a year as we can do it from an H2 perspective, and clearly, our objective is always to make the next month better than the previous month and the next quarter better than the previous quarter in the comparison period. Thank you for the attention. If, well, if there's any questions, then Alpo, please moderate, if you would, from the Q&A or chat.
Yes, perfect. I think we have, have quite a few, few questions. Let's, let's begin with the revenue side. Basically, how well we see any potential price hikes to stick in this environment, or do we see a risk of bundling or price hikes increasing churn?
I think we provide so much more value now with the new pricing packages for the... or the bundled packages for the Lemonsoft product. I don't see any, any kind of churn risk from that point of view. Historically, we have sold 150 different licenses that have been combined to a, a different kind of user role and module. Now, where we've kind of simplified those into seven different packages that are available for all the industry verticals that we serve, I think it's much easier for the customer to see value in what we deliver and, in turn, pay a little more for that as well.
Good. Thanks. On an overall level, how do you see, Janne, the, the view on the market for second half of the year and, and 2024 already since, the market is, is still in a fragile state?
Yeah, as I, as I mentioned at the, at the end of the, of the kind of official material, I think, H2 is still more or less a kind of mirror of, of H1 from my point of view. I don't see any kind of quick signs of, of the macroeconomic conditions changing, which is still, which still in turn affects our customers. Now, our customers, primarily the large part of that, are small, medium-sized companies, and they live and die by cash flow, right? If that, if that is impacted, you know, from inflation or from regulatory measures or, or from the market, then of course, they have a difficult time in their, their business. We need to help them be as cost-efficient and as good as possible at what they do.
It just means that we need to be closer to the customers during all times, basically. Making sure that we're more proactive and that we take care of them in a, in a better way, that in turn ensures that they will keep using our services in the best possible way.
Good. We've typically talked quite a bit about the organic growth. Can you still quickly go through the components of our organic growth, which was, which was negative in, in Q2, and how do you see that?
Sure. The most important thing or the most important component of our organic growth is still the SaaS revenue, which still was clearly positive, right, with the growth of 14.9%. Consulting and services goes up and down based on how much we have new implementation projects going on and how much we can cross-sell, upsell our consulting services to customers during the year. I think the most important thing is to keep a good eye on the SaaS, the recurring revenue, and make sure that grows in a stable way. Depending on our customer needs, we just need to be able to supply the needed consulting services over, over time. Q4 last year was really good. Customers were optimizing, you know, for this year.
Q1 was a little bit softer, and Q2, a little bit in, in line the same way. As long as the SaaS revenue is growing steadily and profitably, then, then, I think everything is, is okay.
Good. And we discussed already the malware attack in, in Q1. Did that have any effect on, on the Q2 growth figures?
Indirectly, I would say, because we reallocated resources in April and May to ensure that our current customer base recovered from that attack as, as smoothly as possible, right? We took people away from kind of new customer acquisition and made sure that they took care of our current customer base. For sure, from a new customer acquisition perspective, in April, we did see an effect on that. On the other hand, looking at new customer sales in the manufacturing sector, that picked up in May, and it also picked up in June. It was a kind of short-term effect from that point of view.
Good. Good. Moving to the, the cost side and, and, actually the, the personnel development, we've had twice change negotiations within the past 12 months. Which functions have been under review, and whether it's administrative, R&D, sales, or something else?
Yeah, we. That's a good question, actually. First maybe, a little bit of a kind of management principle from my point of view, that you need to be able to kind of accelerate and pull the brakes at the same time. It's all about prioritizing and making sure that we put our resources in the right places to be able to drive both kind of growth and profitability at the same time. Always, we're always having to balance the investments that we make in terms of product development or sales, because we have such a large customer base, and we have such a large product portfolio as well. Now, in the last round, we identified overlapping roles. We also identified roles that needed to be changed.
Basically, a really small, from my point of view, change, that we let 6 people go, and then we changed the roles of three people to be more focused on the right things. It's always a balance, as I said, accelerating and braking. I don't think there will be any change in the future from that point of view. If we need to conduct negotiations to make sure that we grow profitably and we have the right focus, then, then we'll do so.
Good. After a very eventful Q2, probably the biggest change was still the acquisition of Finvoicer. So let's discuss that from a few different angles. One is the cross-selling opportunities that I mentioned already. How do you see those, and are those larger now since there's a really wide customer base? And how about the customers as such, are they all paying customers and just have a really low average revenue?
If, if I look at it first from a kind of cross-selling perspective or from the kind of existing Lemonsoft customer base or the previous Lemonsoft customer base, I think now we have the opportunity to offer all of those customers a really comprehensive lifecycle invoice lifecycle management solution that covers the whole all of the phases. I think that should be attractive to all, I see really, really good upsell possibilities from, from, from that. Of course, the majority of customers that came from the Finvoicer acquisition are using the HelpostiLasku, so the easy invoice service and so forth. Then again, we have the possibilities to offer those companies, you know, the, the, the services that they need to be able to grow.
There's also synergies coming from, from that. As I said, I think it fits pretty perfectly in terms of our financial management solutions. I, I think, you know, these are synergies that we can start realizing quite immediately from that point of view. The quicker we can get, you know, integrations between the Finvoicer systems and the Lemonsoft systems, systems done, the better that means that all of that, that whole service portfolio is available to customers.
Thanks. As for the customers being paying customers, yes, those all 7,900 customers are paying customers.
Yeah
... and some of them are, are small, as, as mentioned. As for, the transaction revenues, which, which grew pretty significantly after the acquisition for, for the whole Lemonsoft Group, we've received a question regarding the nature of these revenues, the transaction revenues, so whether they are linked to the customers' economic activity and whether they are under pressure at the moment due to the market conditions.
That's, that's a good question, actually. If I look at it kind of pre-Finvoicer acquisition state, and of course, it's linked to our customers' activity as well. If our customers are doing well, that means they're selling more, it means they're invoicing more, it means that they're hiring more, et cetera. It also means that they can use the, the invoice factoring services to get the, the invoices paid, you know, before time and so forth. I think clearly you can see a correlation. If our customer base is doing well, then the transaction services should be growing in, in as well. If they're having challenges, then you can see some, some, you know, effect on the, on the growth on that.
Yeah. Yeah. Good. One specific question regarding the EBITDA of Finvoicer, which in the release stated 1.0, and now we state in the presentation that the EBITDA is 1.0. Are, are they the same? I, I can answer that. They are pretty much the same. There's basically EUR 20,000 worth of depreciations, but otherwise, they are pretty much the same in that respect. Yeah, good. Another question regarding our product portfolio as a whole. We have a wide portfolio, and whether we need to streamline or divest something when we're updating our strategy. What do you say, Jan-Erik?
Yeah, I think it's a natural question to ask, right? I think the products that we have at the moment, they're serving different segments of the market, right? If you look at the work time management horizontal, for example, we have an offering which consists of Duunissa.fi, Kellokortti, and then Lemonsoft as well. All are applications where you can record your working time, and you can connect it back to your financials and so forth. They're all directed at different parts of the market, so it's up to us to direct that sales effort to the right customer group, and offer the right solution, right? Duunissa is for small customers.
They can sign up, they can start using it immediately, while if you use, for example, Lemonsoft and Lemontime work time management solution, then you typically have a bigger implementation. It's a, it's a different kind of customer profile. Kellokortti, as I said, is I think a really nice product, suitable across industry verticals and with the added benefit of having the salary robot, which calculates, you know, all the implications of the collective agreements and makes sure that everything is up-to-date when it comes to salary payments and so forth. They, they serve different purposes.
I, I, I acknowledge the fact then that when we look at the strategy as a whole and the portfolio going forward, then, of course, we will be looking at possible overlaps, and if there's something that makes sense to, to take out, then we'll take out, and if there's something that makes sense to buy or grow and, or build ourselves, then we'll do that.
Good. Thanks. From an M&A perspective, I could mention that from the other point of view, we are focusing on manufacturing and wholesale, as well as financial management. Those focus areas will definitely be there in the long run. We got another question on M&A, whether we see more opportunities now when the valuations are coming down. I could answer that as well. Basically, the market is at the moment has sort of digested the lower valuation levels, and I could to somewhat agree that at the moment there are pretty good potential discussions on a reasonable valuation level. Good. Anything else, Jan-Erik, you wanna add at this point or Mari?
Well, from my point of view, I just want to, you know, say thanks again to all of our stakeholders, so ranging all the way from employees to customers and to investors. I think it's a privilege for me to step up to the role as, as CEO and work with the team and, and all our customers and all our owners to be able to drive growth over the coming years. Really looking forward to interacting with everybody over the next couple of months and, and years. Don't hesitate to reach out if there's any questions or any discussions that you want to go.
Perfect. Thanks a lot, and we'll come back to you this, in, in Q3.
Thank you.
Thank you very much.