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Lemonsoft Oyj, a €117.65M market cap software company, reported a robust performance in the first quarter of 2025, with a notable 10% year-over-year revenue increase and a significant rise in profitability. Following these results, Lemonsoft’s stock saw a 6.43% surge, reflecting investor optimism. According to InvestingPro analysis, the company appears undervalued compared to its Fair Value, suggesting potential upside opportunity. The company also provided forward guidance, indicating stable growth and strategic initiatives aimed at enhancing efficiency and reducing costs.
Key Takeaways
- Revenue grew by 10% year-over-year in Q1 2025.
- Profitability increased from 16.2% to 23.1%.
- Stock price increased by 6.43% following the earnings announcement.
- The company is piloting new pricing models and expanding its software portfolio.
- Forward guidance suggests stable growth with cost-saving measures.
Company Performance
Lemonsoft demonstrated strong performance in Q1 2025, driven by a 10% increase in revenue compared to the previous year. The company’s focus on organic growth and recurring revenue contributed to this success. The transition to Azure cloud and expansion of the software solution portfolio are expected to further strengthen its market position.
Financial Highlights
- Revenue: Increased by 10% year-over-year.
- Organic growth: 3.1%.
- Recurring revenue organic growth: 4.6%.
- Profitability: Rose from 16.2% to 23.1%.
- Annual Recurring Revenue (ARR): Increased from €21.9 million to €22.4 million.
- Gross margin: Improved by 1.4%.
Market Reaction
Following the earnings release, Lemonsoft’s stock price rose by 6.43%, closing at 5.96 euros. This movement reflects positive investor sentiment, supported by the company’s strong financial health score of 2.7 (rated as "Good" by InvestingPro). The company continues to perform well within its 52-week range, maintaining a conservative debt-to-equity ratio of 0.32 and a healthy current ratio of 1.2.
Outlook & Guidance
Lemonsoft anticipates stable quarterly growth and aims for approximately €2 million in cost savings through organizational changes. The company is targeting a reduction in platform costs and expects salary increases of around 3%. Efforts to reduce churn in the second half of 2025 are also underway.
Executive Commentary
CEO Alpolo Osterenen emphasized the company’s long-term focus, stating, "We are not looking for short-term cost reductions, but longer-term profitability enhancements." He also noted, "We expect to see more stable growth going forward," highlighting Lemonsoft’s strategic initiatives to improve efficiency.
Risks and Challenges
- Potential credit loss provisions, as indicated by a significant €1 million provision.
- Employee reductions could impact morale and productivity.
- Market competition, particularly in the manufacturing and wholesale ERP sectors.
- Economic uncertainties that might affect customer spending.
- Integration challenges with new software solutions and cloud migration.
Q&A
During the earnings call, analysts inquired about the credit loss provision and the departure of the Chief Commercial Officer (CCO) related to FinVoiser’s performance. Lemonsoft confirmed its commitment to the factoring business and addressed potential employee reductions, emphasizing that growth would not be compromised. For detailed analysis and comprehensive insights, investors can access the full Pro Research Report available on InvestingPro, which covers all essential aspects of Lemonsoft’s business model, financials, and growth prospects.
Full transcript - Lemonsoft Oyj (LEMON) Q1 2025:
Moderator, Lemonsoft: Welcome to Lemonsoft q one twenty twenty five results. We will start with presentation of the results followed by an q and a. Please use the chat function in the player for questions to the speaker. Lemonsoft CEO, Alpolo Osterenen, the floor is yours.
Alpolo Osterenen, CEO, Lemonsoft: Thank you. And welcome from my part as well to Lemonsoft’s q one interim report presentation. My name is Alpalo Osterenen, and I act as the CEO of Lemonsoft and will be presenting today. We’ve had, again, quite an eventful q one. We’ve been progressing the the changes that we’ve been working on for the past past year or so, and and everything has gone quite according to to plan, although some bumps in the road.
But as for as the financials, we were able to grow 10% in Q1 compared to last year’s first quarter, mainly due to the acquisitions of Spotila and Aplarant in July 24. And and then also we were able to to get our organic growth back to a positive track. And and organic growth was 3.1%, basically driven by a few factors. First of all, our sales have been has been a bit there’s there’s been a cautious uptick after q four last year and q one this year. Our Lemosoft ERP and Kelleckorte price increases have also contributed to the growth in organic organic growth that we implemented in in in the beginning of the year.
We are now beginning to report on a continuous basis also our our organic growth figure for recurring revenue, which was 4.6% in in q one. We also implemented after after we implemented the price increases, we will do some price increases to other products also later in the year. So so we will see some positive benefits from that part later on. Our gross margin increased a few, let’s say, one one on 1.4% in in q one mainly due to reduced external services as well as the the price increases, and and and that’s been a positive direction lately. Our profitability increased quite significantly from 16.2% last year to this year’s 23.1% of of sales.
The the profitability was benefited also from the delayed salary increases. So due to the local collective bargaining negotiations, the increases in salaries have been delayed until until May 25. Our recurring revenue share increased. That’s due to basically Spottella Spottella’s higher recurring revenue share as well as our reducing con consultancy revenue lately. And and also transaction revenue has been growing less than than previously.
Our number of employees have risen from 220 to 230 since since last year’s same period. And basically, Aplerent and Spotell acquisitions have increased the figure a bit. And, otherwise, we’ve been actually reducing a bit of personnel. Other main events that have happened in in q one, we have nearly finalized our Azure migration, which is one of the biggest projects in in the company’s history. And we started the the actual transfers in December 24 and have now in January, February, March, and April implemented the the remaining parts.
And after April 25, we should be quite finalized with the project, and and everything should be transferred to Azure from from our own data centers. Of course, there’s been some some effects on our customers’ use of software, which is which we have been working on very thoroughly, and and we hope to be able to finalize all the all the corrections and and changes in the system in the next weeks and months going forward. We’ve also initiated change in negotiations in April after after q one, and the objective is mainly to ensure our efficiency and profitable growth in the coming years. So we are not looking for short term cost reductions, but longer term profitability enhancements. We estimate that we need to reduce personnel at most 35 employees.
About 192 employees are included in the change negotiations, and we’ll report, in more detail in at the May when the negotiations are are finalized. On April 23, so last Wednesday, our CCO, Thomas left his position as as member of the management team as well as his roles in in Lemonshot’s CCO position as well as CEO of FinVoiser Group, and we’ll continue recruiting another person for for those roles. Basically, the the financing invoice financing business that we have under FinVoiser, it hasn’t been run as as we’d like to, and and then we’ve had to draw conclusions. Also, with that regard, the provision of credit losses on trade receivables and financial receivables has been reassessed, and we have a significant increase in the provision from 100,000.0, so 100,000, to to more than 1,000,000, which is significant. And the credit trust losses and the provisions related to those are related mainly to Finvushers, invoice financing business, and mainly to one significant significant customer.
Moving forward to to the monthly and quarterly development, Spotila and Upluarant’s acquisitions are driving the sales growth mainly in Q1 twenty five. We’ve also had in previous years, we’ve had a significant increase in sales in Q4. And as you can see, the effect of that single higher peak in the quarterly development has diminished, we expect to see more stable growth going for going forward. And and as for the revenue split, SaaS revenue has has grown to almost 74%, and and transactions has gone down a bit and and consulting revenue as well. So SaaS growth, as as we’ve commented many times before, we will be emphasizing the the effect of of SaaS revenue to our business going forward.
And a few comments on our operational focus during q one. We had a good quarter in terms of manufacturing and wholesale ERP deals, and we’ve increased the share of those deals from compared to our overall sales performance. We piloted a few different pricing models. We are planning to make deployment easier for our customers so that they can move from other company’s software easier to our software. We’ve we are expanding or making it easier for customers to expand to to more and more software solutions within our product portfolio and make it more attractive for also new and and existing customers.
And that we’ve had a positive feedback in the beginning of the piloting phase. The technology transition, I already commented briefly. We’ve moved several hundred customer environments and thousands of customers into cloud. And and that’s almost finalized, and we are expecting to see the cost and efficiency improvements later in the year, especially in the second half. We’ve been working on integration and group level sales.
We’ve moved basically all our group companies into using Lemonsoft software in their own administrative work and to enhance visibility across the group, for example, in terms of sales and and other performance. Then we’ve also increased the number of customers taking in to use several solution from our offering, and that is also related to the piloting of of different pricing models. We’ve started the organizational restructuring, which affects the the organization in a quite wide extent. We have the change negotiations are related only to Lemonsoft OYJ and Finvoyer Group, which are the two significantly largest entities in in the group. So so almost one more more than 190 people are anyhow affected, but we’ll make the decisions and then conclusions at the May, that’s the plan, and then we’ll see the effects go after that.
We we think that approximately 2,000,000 of €2,000,000 we would be able to save if we go with the the initial estimates. Then the product development side, we’ve been reorganizing our product development teams in in February and and May, and we are continuing that work in the change negotiations. And after the Azure migration is finalized, we should have more resources to focus on achieving a significant improvement in the product development cycle time, which is one of our key strategic targets in ’25. And lastly, capital efficiency. We’ve implemented or initiated last year the first share buyback program of Lemma Soft’s history, and we’ve now finalized the first phase, which ended at at AGM this year.
We’ve acquired or bought 106,000 shares worth roughly 1,000,000 by the end of end of q one. And the objective, of course, is to improve capital efficiency and EPS and make it make the earnings per share for our investors higher. And a brief overlook on our financials. Net sales, especially in in q one twenty five, has has grown in the SaaS SaaS revenue especially. And as you can see, transactions have been stable, and consulting and other revenue as well been stable.
So the the share of of SaaS increases. I briefly already commented on organic growth, and the biggest effects have come from price increases as well as the slightly improved performance in our new sales and upsell net down sell figures. And looking at the ARR development in detail, we had €21,900,000 of ARR at the end of twenty four, and that that figure is adjusted based on FinVicer’s recurring revenue reclassified partly into into transaction revenue. So new sales, roughly 1%, which is significantly less than we want to have, but that figure we expect to increase and want to increase later in the year. Net down sell and up sell has been positive.
The effect the part of that effect is price increases, and part of that effect is is current customers increasing their use of our software. Churn was slightly elevated in in in q ’1. Especially in in January, we we saw some customers that actually informed us already in the beginning or in the middle and and end of last year about reducing use of the software. And that figure is and we expect it to be a bit elevated in in the first half of twenty five. And after that, by the end of the year, we expect that to go go down, and that that’s our target.
Now we’ve ended up at 22,400,000 of of ARR at the end of q one. As for our cost base, we had a significantly higher cost base, especially in terms of employee expenses in in q one last year, and that figure has now gone down back to 49%, and we expect that that development to continue. And and one of the reasons, of course, for the for for the change in negotiations is also to get that level to a healthier healthier level. And the last year’s expenses, they were fairly high, and and one of the reasons was because of the last CEO’s termination agreement in in February, March last year. As for personnel, we increased slightly our personal figure in in q one.
A few individual employees have been hired in the beginning of the year, but otherwise otherwise, quite a stable situation. And the main target of our future growth is to make our organization more and more efficient. We are working on in in all the departments working on making our processes, the tools we use, and and and the the the performance we can do with those much, much more efficient. And and we also are taking into use and have taken into use a lot of AI tools, which should improve our efficiency later on. And the distribution between r and d and customer functions is still quite the same as you as before.
Roughly half of our employees are in the R and D department, and the customer functions make up almost the other half. And more information will be distributed in in the half year report later on in in 08/04/2025. The interim report for q three will be available on thirty first October twenty five. And, otherwise, myself and and the CFO, Maria Arkela, will be available for for questions. And, of course, as always, visit our website for more information.
Thank you.
Moderator, Lemonsoft: Alright. We can open the floor for questions. First, a couple of from Atri Kolat Inderes. First, about the provision for credit losses. How conservative is the new assumption?
And do you see risks that you need to make more of those in the future? And are you planning to continue the factoring business under FinVoiser?
Alpolo Osterenen, CEO, Lemonsoft: I would say that the the assumption is quite realistic. The the as I mentioned, there’s one single client contributing for for a significant majority of of the provision, and we see that there might be, smaller, increases to provision later on, but nothing nothing close to close to this increase. So so we will continue factoring business under FinVoiser, and we have implemented already at the end of last year new measures in in how we affect estimate the the risks of each each customer and how we estimate the the measures that need to be done after those customers and their business develops develops in a worse direction. But this is mainly a single event that we try to keep keep so.
Moderator, Lemonsoft: Okay. Then could you open up a little bit more the recognition of additional purchase price as revenue, which was €900,000 in q one. Is that related to FinVoiser or some other acquisition?
Alpolo Osterenen, CEO, Lemonsoft: Yeah. That’s related to purely FinVoiser acquisition, and and that, of course, relates to the previous question as well. So so there’s still, the other half of of earn out earn out that that can be, let’s say, removed after ’25, but that’s the the part of ’24, which we don’t see realizing.
Moderator, Lemonsoft: Okay. And still from Atri Cola, CCO departure came as a surprise. Could you open up reasons behind that a little bit more?
Alpolo Osterenen, CEO, Lemonsoft: Yeah. As I mentioned before, we haven’t seen the the financing business of Finvoice are being run-in the way that we want, and there’s been a lack of visibility in in some functions. And and, unfortunately, we’ve been forced to to draw conclusions after that, but that’s basically the the only thing I can comment on at this point.
Moderator, Lemonsoft: Okay. Then about the salary increases, how big are those going to be in q two?
Alpolo Osterenen, CEO, Lemonsoft: Yeah. The based on the local negotiations, we we are looking at at roughly a bit more than 2% increases, based on the negotiations, and we typically, do a bit higher increases ourselves. So we we are looking at roughly 3% as a whole.
Moderator, Lemonsoft: Okay. Then how much cost improvements are you expecting from technology transition in h two?
Alpolo Osterenen, CEO, Lemonsoft: Yeah. We are looking at we we had the the platform costs at around €150,000 per per month, and we expect that figure to go down to closer to €100,000. And we expect some 30 roughly €30,000, which is, of course, just the just the estimate at the moment, but on a monthly basis. So so you can calculate from there.
Moderator, Lemonsoft: Okay. Then a question from Daniel Lepist at Danske Bank. Regarding the material change negotiations previously announced, do you expect these employee reductions to affect negatively to grow? And will there be reductions in sales personnel or customer support?
Alpolo Osterenen, CEO, Lemonsoft: We’ll see how the negotiations go and and how we’ll treat different functions. But, of course, sales personnel and customer support as well as the the whole r and d department are included in the negotiations. We, expect that the negotiations or or the reductions that that we need to make, wouldn’t have a significant effect on our performance, and and we try to make any decisions accordingly. And we we expect to be able to continue growth going forward as as planned before and and to increase significantly our profitability at the same time.
Moderator, Lemonsoft: Yes. That was our final question. So back to you, Alpo, for any closing remarks.
Alpolo Osterenen, CEO, Lemonsoft: Thank you, and thanks a lot for everyone for for joining. And we’ll be reporting in more detail after we have all of these major changes behind us in in q one q two. So so happy to give more light on our business performance after that. So thanks for joining, and have a nice day.
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