Lemonsoft Oyj (LEMON) Earnings Call Transcript

Welcome to the Lemonsoft Q2 2025 Results Webcast. We will begin with the result presentation followed up with Q&A session. Please post your questions in the chat. Now handing over to Lemonsoft's CEO, Alpo Luostarinen. Please go ahead.

Thank you, and good afternoon, and welcome to Lemonsoft's Q2 report presentation. I'll be discussing our recent development and the results. We had an interesting Q2 with a lot of -- a major transition ongoing, both with our platform transition to Azure as well as our organizational change negotiations, leading to a significant reduction in personnel. Our net sales grew 5.3%, and our gross margin remained fairly stable, a bit down from last year due to increased costs from the -- double costs with the platform as well as increased costs after that. And we've been working on optimizations on the platform, and we expect the costs of the platform to go down in the second half of the year. Our adjusted EBIT was 16%. We had all of the change negotiation-related costs booked on Q2. And from Q3 onwards, we should be seeing the cost savings effects from that, which are roughly EUR 400,000 per quarter. Our headcount increased from last year, but after -- in Q3, we will see the reductions, which are roughly 25 employees after Q2. And another main event, we had our Chief Commercial Officer, Tuomas Koivisto, step down and which we discussed already in the Q1 report. Looking at our development from sales perspective, we had 2 quarters now declining net sales, which we are looking to transform or turn into a growth mode again at the end of the year. The revenue split remains fairly stable but increased recurring revenue. So our revenue split is SaaS transactions and consulting. And as for SaaS revenue, the share has grown somewhat in the past few quarters, and we'll be seeing that effect most probably continuing. The transaction revenue has been going a bit down mainly due to Finvoicer's transaction revenue and especially the invoice financing volume, which is cut a bit after the main customer loss in Q1, which we discussed already earlier. Consulting revenue is affected mainly by two different factors. First of which is Lemonsoft's consulting revenue reducing a bit after -- and we've been doing -- packaging with our consulting revenue and packaging the implementations into SaaS revenue, which affects a bit and other consulting revenue has been reducing a bit as well. And another part is the revenue from Finvoicer continuous services, which is coming a bit down. Significant operational changes during Q2. We've been doing the organizational changes, and that has had a major effect on our sales organization, which has been -- which is being restructured, and we reduced the amount of our sales personnel somewhat, and we are working on rebuilding the sales management team in the next few quarters. We've had -- we've been seeing higher volume in manufacturing and wholesale ERP deals, which is the sector that we focus on mainly. More than half of our revenue comes from manufacturing and wholesale. And if you look at the past 6 quarters, so '24 and '25, we've been seeing highest volume in Q2 in terms of manufacturing and wholesale deals, which is the direction, of course, where we want to go forward as well. Technology transition has been completed as for Azure migration and the legacy data center has been written off. The post-migration issues that we've had are mostly resolved. Work is still ongoing, and we are optimizing the platform to ensure the cost efficiency as well. As for our subsidiaries, Spotilla and Applirent, which were acquired last year, have been continuing strong MRR growth, we are talking about roughly 30-plus percent growth, which is, of course, where we want it to be. Several customer expansion cases have been ongoing between Spotilla, Applirent and Lemonsoft. We've been integrating -- we are integrating Spotilla and Lemonsoft together. And then Applirent, we are -- we've been focusing on getting the invoice delivery combined with Lemonsoft's delivery partners. As for organizational restructuring, we finalized the negotiations in -- at the end of May, and then that reduced the headcount by 25 employees. We, of course, our organization has been under heavy stress before and during summer, and that's something that we need to work on a lot with our employees to find a good and efficient way forward. We are also under individual key recruitment processes, especially the sales -- Chief Sales Officer for the whole group, which is a key part in our growth strategy. And as for our product development, we've had -- following the platform transition, we've had a slow development in our product road map, which is now resuming to previous speed. And we've already seen or are seeing significant updates to Lemonsoft's ERP product already in the next few weeks. We are also developing new AI features, working with partners to develop a few pilots and also ourselves working on bringing new feature and functionalities to Lemonsoft to ease the use and make it more easy to use for our customers. And as for capital efficiency, we completed a share repurchase as a reverse accelerated bookbuilding transaction, which is a fairly uncommon transaction type. So we basically approached all of our largest shareholders and offered to buy our own shares up to roughly EUR 8 million and we were able to buy shares of the value of EUR 2.5 million. We've also had a new share buyback program, and that is ongoing. So basically, all of our shareholders, the largest and the smallest ones are able to sell shares if suitable in our share buyback programs. And this is, of course, affecting our profit per share -- earnings per share as well as our profitability, our capital efficiency as well. Looking at our revenue figures in more detail, we have been seeing growth in our SaaS revenue at 10.4%, which has -- which includes, of course, Spotilla and Applirent from last year's acquisitions, and they are now organic from July onwards. Organic growth was a bit negative minus 2%, reflecting the consulting and transaction-based revenue, especially. And as for the recurring revenue, organic growth, that was also slightly below 0 at 0.3%, which is affected mainly by the challenges in our transaction growth and the invoice financing volume. But otherwise, the SaaS revenue is what we emphasize and what we need to be seeing growth in, and that is still where we want to be in the short run and that we want to accelerate going forward. Looking at our MRR, we ended up in Q1 at 22.4%. And we've seen new sales, which is not where we wanted to be 1.1%, but still we've been able to do some -- close some deals, especially in manufacturing and wholesale as discussed previously. Net downs and upsell due to the major transition period, it's been slightly negative, and we expect that to turn to positive going forward. And as for churn, we've seen some bankruptcies, some financial difficulties with our customers, which is very, very difficult situation still, and we would expect the market situation to improve, but no major signs yet that there will be a drastic change to positive. But otherwise, as for our own churn, the next few -- in the next quarter, as we can see, typically a few months forward seems to be smaller than previously, and we ended up at 22.2%, which is basically flat from last quarter. And as for the cost base, the gross margin decreased slightly, and that was mainly due to platform costs and the platform transition. So we basically have been increasing the power of our platform, and we are bringing that down as much as possible as we move along, and that has been already ongoing in July, August and going forward in September and the fall. Personnel reductions were completed in Q2, so that will begin contributing to profitability in Q3 and Q4 already in full effect. There were some nonrecurring costs, especially the termination periods of the personnel, which have been booked on Q2. And as for the cash flow, we've had a very positive cash flow in Q2, and that has been due to sales receivables and as well as financing receivables. So we've had basically a EUR 1 million positive return on that end. The personnel change negotiations have now been finalized, and we are looking to stabilize the situation and now build on where we are. And now we've been looking to make some individual recruitments and basically looking at the organization to see where we are after the reductions and where there's -- if there's any special situations that need to be taken care of and need to be added some resources. But otherwise, we are in a good situation right now. Q2 personnel figure is, of course, a bit up from the actual situation in -- at the end of June. Hence, July onwards, we'll see some reduction in that figure. But otherwise, the personnel by function is pretty much as before. And we'll be reporting our Q3 figures later on this year in October and then moving to next year and the full year report. And as usual, you can see all of our information and the webcast and reports on our website. And now we can move on to questions.

Thank you, Alpo. The first question from Daniel Lepisto at Danske Bank. How much were the direct costs related to the concluded change negotiations? And were these costs impacting the Q2 figures? And follow-up, are you treating these costs as items affecting comparability?

No, we are not treating these costs as items affecting comparability. If we're talking about adjusted EBIT, so adjusted EBIT is only adjusted by the acquisition-related costs. And as for the costs that were affected by change negotiation, that number, I actually don't have the exact figure right now, but that number is fairly limited.

Okay. Then Atte Riikola from Inderes. After major changes in organization, what is the overall feeling of employees? Have you seen unexpected attrition?

We've seen some unexpected attrition, and we are looking to work extensively with our employees to understand the feelings. And of course, there are some negative feelings going on. But otherwise, we have been -- all of our key employees that are working on our product and our sales right now and the customer base, we want to treat as well as possible, and then we'll be working with them in the next few months. And we actually arranged a whole company meeting in June, which was a positive event, and we've been looking to take all the feedback from our employees and we'll be continuing that work actually tomorrow with the full company meeting.

Okay. Then transaction revenues were in decline. Do you expect a similar negative trend to continue in the coming quarters?

If you look at the financing -- invoice financing volume, that decline has been sort of that's a continuous volume level that we have right now. So that will cause a negative trend if you compare it to last year's figures. So that will have some effect. But otherwise, no drastic decline in transaction revenue.

Then further from Atte Riikola. Azure migration has caused problems in some customers. Has this resulted in customer churn? Or have you had to give discounts to these customers?