NFON Q1 2025 slides: Revenue grows 4% as company doubles down on AI investments

Introduction & Market Context

NFON AG (FRA:ETR:NFN), a European provider of cloud-based business communications, presented its Q1 2025 results on May 22, showing modest revenue growth while significantly increasing investments in artificial intelligence capabilities. The company’s share price declined 3.68% to €6.55 following the presentation, despite results largely aligning with expectations.

NFON continues to position itself as a leader in the European cloud communications market, with a particular focus on the German-speaking region. The company highlighted its strategic pivot toward AI-driven solutions as a key differentiator in an increasingly competitive landscape.

Quarterly Performance Highlights

NFON reported total revenue of €22.1 million for Q1 2025, representing a 4.0% increase compared to the same period last year. The company’s recurring revenue grew at a slightly faster pace of 4.3%, accounting for 93.9% of total revenue, demonstrating the stability of NFON’s business model.

As shown in the following revenue development chart, NFON has maintained consistent growth in recurring revenue over the past several years:

Despite the revenue growth, adjusted EBITDA declined by 6.9% to €2.6 million, as the company increased investments in AI initiatives and expanded its workforce. Management characterized this as a strategic decision to position for future growth.

The company reported an improved gross margin of 86.0%, up from 84.1% in Q1 2024, reflecting scaling effects and operational efficiencies. Cost of materials decreased slightly to €3.1 million, with the material cost ratio reduced to 14.0% from 15.9% in the prior year period.

AI Strategy and Initiatives

A significant portion of NFON’s presentation focused on its AI strategy, which CEO Patrik Heider described as central to the company’s future. NFON has established a dedicated AI sales organization and introduced several AI-powered products, including voicemail transcription and NIA (NFON Intelligent Assistant), an AI-powered virtual assistant for customer interactions.

The following slide highlights NFON’s key AI initiatives:

These AI investments have contributed to the increase in operating expenses, with marketing expenses growing by approximately 52% to €1.2 million and selling expenses rising 6.2% to €3.1 million. Management emphasized that these investments are essential for long-term growth and competitive positioning.

Financial Analysis

NFON’s seat development remained relatively stable, with total seats increasing by 0.4% year-over-year to 661,349. The company maintained a gross churn rate of approximately 0.5% per month, while blended ARPU (Average Revenue Per User) improved to €10.02.

Cash flow metrics showed improvement, with operating cash flow increasing to €1.8 million and free cash flow rising to €1.1 million. The company maintained stable investments at €0.7 million, primarily focused on new products and features.

Personnel expenses increased slightly to €9.3 million, with the average number of employees growing by 1.4% to 425. This reflects NFON’s continued investment in talent to support its strategic initiatives, particularly in AI development.

Outlook and Guidance

NFON maintained a positive outlook for 2025, projecting revenue growth of 8-10% and adjusted EBITDA in the range of €13.5-15.5 million. For the medium term, the company set ambitious targets for 2027, including double-digit revenue growth and an adjusted EBITDA margin exceeding 15%.

The company highlighted several investment factors supporting its growth trajectory, including its market position in Europe, scalable business model with high recurring revenue, and AI-driven growth strategy.

During the Q&A session, management addressed analyst questions about pricing strategy, revealing plans for a 15% price increase. They also noted that the DTS platform migration is 40% complete and that the recent acquisition of Bottario has significantly contributed to growth with a 52% increase in that segment.

While NFON faces challenges including a difficult economic environment in Germany (which accounts for 80% of revenue) and extended lead times of up to six months, management expressed confidence in accelerating organic growth through the remainder of 2025.

Full presentation:

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