Yesterday, NFON released FY ’23 prelims, which show moderate top-line growth but strong profitability improvements as well as another guidance beat. The FY24 guidance points towards further ARR growth and an improving profitability. In detail:

FY recurring revenues came in at € 77.1m (eNuW: € 76.8m), implying a moderate 4.8% yoy increase at a continuously strong ARR ratio of 93.7% (+2.6pp yoy). This was mainly based on slightly increased seat base of 656k (+3.5% yoy) following further customer wins as well as successful up-selling of premium solutions. Total sales increased by 1.9% yoy to € 82.3m (eNuW: 82.4m).

FY adj. EBITDA increased substantially to € 8.4m (vs € -1.0m in FY ’22), thus coming in ahead of our estimates (€ 8.0m) as well as consensus (€ 7.6m). With this, the company slightly outperformed the already upgraded guidance range of € 7.8-8.3m. Reported EBITDA came in at € 6.8m (eNuW: € 6.7m) vs € -5.3m in FY ’22. The strong improvement in profitability should have been mainly due to an improved gross margin (eNuW: +1.9pp yoy) as well as the effect of the imposed efficiency measures especially in relation to personnel costs (14% staff reduction after 9M) as well as improved marketing efficiency (e.g. channel marketing. Notably, NFON will report positive FCF (€ 1.0m vs eNuW: € -0.2m) for the first time since going public, prooving that the cash burn of previous years is a thing of the past now.

FY24 guidance. With the preliminary results, management also put out a guidance for FY ’24, targeting ARR growth in the mid- to high-single-digit-% range (eNuW new: 7.3%), an ARR ratio of >90% (eNuW: 94%) as well as an adjusted EBITDA of € 10-12m (eNuW: € 10.7m), implying a margin of 12.5% at mid-point. Given the scalability of the capital-light business model with strong recurring revenues and further cost-optimization potential in the cards (e.g. DTS integration), the new outlook looks clearly achievable.

In our view, the release fully confirms the success of the ongoing turnaround. We continue to like the company’s positioning among the technological leaders amid the structurally growing market for integrated business communication. Here, especially the historically underpenetrated German market should offer compelling growth prospects going forward.

Although NFON shares have been on a rise this week, valuation continues to be attractive, as stock is trading on a mere 1.1x EV/Sales ‘23e. We reiterate BUY, unchanged PT of € 11.70 based on DCF.