Topic: NFON released a good set of Q2 results and lifted its FY profitability guidance following the continuous successful implementation of cost savings.

Q2 recurring revenues increased 4.7% yoy to € 19.0m (eNuW: € 19.2m) at an implied strong ARR ratio of 93.0% (H1: 93.2%) thanks to continued key customer wins visible in a seat growth of 5.1% yoy to 641k (eNuW: 650k).  Importantly, the churn rate remains low at only 0.7% per month.

Q2 adj. EBITDA grew substantially to € 1.4m (eNuW: € 0.6m) after € -2.0m in Q2’22 thanks to ongoing cost saving measures allowing for significant scale effects. The material

expense ratio decreased by 1.7pp yoy to 3.3m (eNuW: € 3.3m)

due to lower non-recurring revenues, allowing for an improved gross margin 84.1% (vs 81.9% in Q2’22). Moreover, the company hit the break on marketing spend, reducing the marketing ratio by 12pp yoy to 5%, as the company is focussing on more efficient marketing spend putting channel marketing to the forefront.  Personnel expenses also shrank due to the implemented downsizing

measures to € 9.5m (-9.4% yoy;

eNuW: € 8.9m) including negative one-offs to the tune of € 0.6m in connection with the reorganization of the top management.

Against this backdrop, management increased its FY profitability guidance from € >4m adj. EBITDA to € 6-7m, while maintaining the ARR outlook of mid to upper single-digit growth. We regard the new outlook as ambitious but achievable as we expect an adj. EBITDA of € 6m and 6% ARR growth.

Notably, the new CEO Heider announced that NFON will put out a mid-term guidance in Q1/Q2’2024e to increase visibility on the company’s prospects. Overall, NFON is seen on track to turn the story around while grasping the promising growth potentials in the underpenetrated European PBX market. On top, well perceived premium solutions like CC Hub are set to allow for a significant margin expansion going forward. For 2024e, we estimate a positive EBIT contribution of € 3.2m (3.5% margin) as well as positive FCF of € 1.7m for the first time since the IPO.

Valuation continues to look undemanding, especially after the recent share price weakness, as the stock is trading at 1.3x EV/Sales 2023e, a notable discount to the 2y forward-looking historic average of 2.0x.

We reiterate BUY with an unchanged PT of € 10.50 based on DCF.