Earnings call transcript: Lemonsoft Q2 2025 sees stock rise on SaaS growth

Lemonsoft Oyj reported its Q2 2025 earnings on August 14, showcasing a 10.4% increase in SaaS revenue and a 5.3% growth in net sales. The company’s stock rose 4.03% following the announcement, closing at €7.22, up from the previous close of €6.94. According to InvestingPro data, the stock has delivered an impressive 25.37% return year-to-date, significantly outperforming broader market indices. With a market capitalization of $145.7 million, Lemonsoft maintains a strong financial health score of GOOD, as rated by InvestingPro’s comprehensive analysis system. The positive market reaction was driven by strong SaaS performance and effective cost management, despite challenging market conditions.

Key Takeaways

• SaaS revenue grew by 10.4%, bolstering overall sales.
• Stock price increased by 4.03% post-earnings.
• Organizational restructuring expected to save €400,000 per quarter.
• Focus on manufacturing and wholesale sectors, with more than 50% revenue contribution.

Company Performance

Lemonsoft’s Q2 2025 performance was marked by a robust increase in SaaS revenue, which grew by 10.4%. This growth helped offset challenges in the broader market, particularly in the manufacturing and wholesale sectors, which contribute over half of the company’s revenue. The company completed a significant organizational restructuring in May, reducing its headcount by 25 employees, which is expected to generate substantial cost savings moving forward.

Financial Highlights

• Net Sales: Increased by 5.3%.
• Adjusted EBIT: 16%.
• SaaS Revenue: Grew by 10.4%.
• Organic Recurring Revenue Growth: 0.3%.
• Share Repurchase: €2.5 million completed.

Market Reaction

Following the earnings announcement, Lemonsoft’s stock rose by 4.03%, reflecting investor optimism about the company’s SaaS growth and cost-saving measures. The stock is currently trading close to its 52-week high of €7.90, indicating strong market confidence. The positive sentiment was further supported by the company’s strategic focus on manufacturing and wholesale sectors, which continue to show potential despite current market challenges.

Outlook & Guidance

Lemonsoft aims to transform its declining sales into growth by the end of the year. The company is working on optimizing its platform, with costs expected to decrease in the second half of the year. InvestingPro analysis reveals the company operates with a moderate level of debt and is expected to remain profitable this year, supporting its growth initiatives. Access the comprehensive Pro Research Report for detailed analysis of Lemonsoft’s growth strategy and financial outlook, available exclusively to InvestingPro subscribers. Financial targets are set to be updated in the fall, and the company anticipates positive net downs and up-sells in future quarters.

Executive Commentary

CEO Alpo Ostrarinen highlighted the company’s strategic direction, stating, "We’ll be in a very different position as we’ve been in the past six months." He also emphasized the company’s acquisition strategy, noting, "We want to continue closing up acquisitions in the next few years."

Risks and Challenges

• Market Conditions: Customer bankruptcies and financial difficulties pose ongoing challenges.
• Platform Optimization: Costs associated with platform improvements need careful management.
• Competitive Pressure: Maintaining growth in SaaS amidst increasing competition.
• Economic Factors: Broader economic conditions could impact manufacturing and wholesale sectors.

Q&A

During the earnings call, analysts questioned the impact of the Azure migration, with the company reporting minimal customer churn. Discussions also touched on potential acquisitions and the impact of organizational changes, which are not expected to incur significant additional costs.

Full transcript - Lemonsoft Oyj (LEMON) Q2 2025:

Webcast Moderator, LemonSoft: Welcome to the LemonSoft q two twenty twenty five results webcast. We will begin with the result presentation followed up with q and a session. Please post your questions in the chat. Now handing over to Lemma LemmaSoft CEO, Alpolo Ostrarinen. Please go ahead.

Alpo Ostrarinen, CEO, LemonSoft: Thank you, and good afternoon, and welcome to LemmaSoft’s q two report presentation. I’ll be discussing our recent development and and the results. We had an interesting q two with a lot of major transition ongoing both with our platform transition to Azure as as well as our organizational change negotiations leading to a significant reduction in in personnel. Our net sales grow grew 5.3%, and and our gross margin remained fairly stable, a bit down from from last year due to increased costs from the the double costs with the with the platform as well as increased costs after that. And we’ve been working on on optimizations on on the platform, and we expect the costs of the platform to go go down in in the second half of the year.

Our adjusted EBIT was 16%. We had all of the change negotiation related costs booked on q two. And from q three onwards, we should be seeing the cost savings effects from that, which are roughly €400,000 per quarter. Our headcount, increased from last year, but, after, in q three, we will see the reductions, which are, roughly 25 employees after after q two. And, another main event, we had our chief commercial officer, Thomas Carvester, step down and which we discussed already in the the q one report.

Looking at our development from sales perspective, we had two 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 and consulting. And as for SaaS revenue, the the share has grown somewhat in the past few quarters, and and we’ll be seeing that effect most probably continuing. The transaction revenue has been going a bit down mainly due to FinVoicers transaction revenue and and especially the invoice financing volume, which which is cut a bit after the the main customer loss in in q one, which we discussed already earlier.

Consulting revenue is affected mainly by two different factors. First of which is is Lemonsoft’s consulting revenue reducing a bit after and we’ve been doing packaging with our consulting revenue, packaging the implementations into SaaS revenue, which affects a bit, and then other consulting revenue has been reducing a bit as well. And and another part is the revenue from FinVoicer continuous services, which is which is coming a bit down. Significant operational changes during q two. 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 we reduced the amount of our sales personnel, somewhat, and and we are working on on rebuilding the the sales management team in the next few quarters.

We’ve had we’ve been seeing higher volume in manufacturing wholesale ERP deals, which is the sector that we focus on on mainly. More than half of our revenue comes from manufacturing and wholesale. And if you look at the past six 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’re optimization optimizing the platform to ensure the cost efficiency as well. As for our subsidiaries, Spottedla and Uplurant, which were acquired last year, have been continuing strong MRR growth. We’re talking about roughly 30 plus percent growth, which is which is, of course, where we want it to be. Several customer expansion cases have been ongoing between Spatilla, Apparent, and and Lemonsoft. And we’ve been integrating we are integrating Spottila and Lemonsoft together.

And then Applerant, we are we’ve been focusing on on getting the invoice delivery combined with with the Microsoft’s delivery partners. As for organizational restructuring, we finalized the negotiations in at the May, and then that reduced the headcount by 25 employees. We’ve of course, our organization has been under heavy stress before and and during summer, and and that’s something that we need to work on a lot with our employers to to find a good and and efficient way forward. We are also under individual key recruitment processes, especially the the sales chief sales officer for the whole 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 slow development in our product road map, which is now resuming to previous speed.

And and we’ve already since or are seeing significant updates to Lemosoft ERP product already in the next few weeks. We are also developing new AI features, working with partners to develop a few pilots, and and also ourselves working on on bringing new feature functionalities to to Lemoshopped to ease the use and and make it more more easy to use for for our customers. And as for capital efficiency, we completed a share repurchase as a reverse accelerated book building transaction, which is a fairly uncommon transaction type. So we basically approached all of our largest shareholders and offered to buy our own shares to to up to roughly €8,000,000. And we were able to to buy shares of value of the value of 2,500,000.0.

We’ve also had a new share buyback program, and and that’s that is ongoing. So basically, all of our shareholders, the largest and the smallest ones are able to to sell shares if if suitable to 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, spot Spotila and Aplerent from last year’s acquisitions, and they are now organic from July onwards. Organic growth was a bit negative to minus 2%, reflecting the the consulting and transaction based revenue, especially.

And as for the recurring revenue, organic growth, that was also slightly below zero at 0.3%, which is affected mainly by the challenges in our transaction growth and and the invoice financing volume. But otherwise, the just the SaaS revenue is what we emphasize and what we need to be seeing growth in, and and that is still still where we want to be in the short run and 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 up sell 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 would be a drastic change to positive. But otherwise, as for our own churn, next few 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 and that was mainly due to platform costs and and the platform transition.

So we basically have been increasing the the the the power of our platform, and and we are bringing that down as much as possible as we move along in and and that has been already ongoing in in July, August, and and go going forward in September and and the fall. Personal reductions were completed in q two, so so that will begin contributing to to profitability in q 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 then as well as finance financing receivables. So we’ve had basically a 1,000,000 positive return on on that end.

The personnel change negotiations have now been finalized, and we are looking to to stabilize the situation and and now build on on where we are. And and now we’ve been looking to make some individual recruitments and and basically looking at the organization to see where we are after after the reductions and where there’s if there’s any special situations that need need to be taken care of and need to be added some resources. But, otherwise, we are in a in a good situation right now. Q two personnel figure, which, of course, a bit up from from the actual situation in in, at the June and 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 q three figures later on this year in in October and and then moving to to next year and the full year report. And as usual, you can see all of our information and the webcast and and reports on our website. And now we can move on to questions.

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

Alpo Ostrarinen, CEO, LemonSoft: 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 by the acquisition related costs. And and as for the the costs that that were affected by change negotiation, that number, I actually don’t have the exact figure right now, but that number is is fairly limited.

Webcast Moderator, LemonSoft: Okay. Then Atri Kola from Inderes. After major changes in organization, what is the overall feeling of employees? Have you seen unexpected attrition?

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

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

Alpo Ostrarinen, CEO, LemonSoft: 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 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 in transaction revenue.

Webcast Moderator, LemonSoft: Then further from Atri Cola. Azure migration has caused problems in some customers. Has this resulted in customer churn, or have you had to give discounts to these customers?

Alpo Ostrarinen, CEO, LemonSoft: We actually haven’t seen significant churn, and and we’ve seen very limited churn related to the Azure transition. We’ve had customers ex experiencing difficulties, and and that’s, of course, something that we want to take very seriously. And and we’ve put a lot of effort into fixing all of the issues and and and taking care of our customers. So we’ll be first, in in in July, we’ve done a lot of work. And and in August, we’ll be now finalizing that we get the issues fixed, and and then we’ll be working on discussing with our customers about any potential further questions and and looking to grow together from from there onwards.

But very limited churn and and actually very limited discounts as well.

Webcast Moderator, LemonSoft: Okay. Then your cash flow was strong in q two. Was there something special related to that?

Alpo Ostrarinen, CEO, LemonSoft: Yes. I mentioned before, there was a good return on sales receivables as well as invoice financing receivables. So so that’s that’s been a positive take on on the cash flow. But, otherwise, nothing nothing drastic.

Webcast Moderator, LemonSoft: Alright. Then are you are you more actively exploring new axe acquisitions now that the biggest changes in the organization and technology platform are behind?

Alpo Ostrarinen, CEO, LemonSoft: Yeah. We’ve been discussing with potential acquisition targets all along as we as we typically do. Of course, in the first half, we’ve been more hesitant in engaging in further discussions. But after the summer, we’ve seen some uptick in the activity, and and that’s a very positive sign, of course. And and we want to continue closing up acquisitions in the next few few few years as before and wouldn’t be surprised if we would finalize another acquisition in the next few few quarters.

Webcast Moderator, LemonSoft: Alright. Then are you planning to update your financial targets at some point?

Alpo Ostrarinen, CEO, LemonSoft: Yes. We are during this, fall.

Webcast Moderator, LemonSoft: Alright. That was the last question. So back to you for closing comments.

Alpo Ostrarinen, CEO, LemonSoft: Alright. That’s a brief very brief update on q two, and and we’ll be looking to take, our business forward in in q three and q four. We’ll should be in a very diff different position as as we’ve been in the past six months. And thanks for a lot, and thanks a lot for for watching, and we’ll come back in the report in October.

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