NFON released Q1 results, showing a continuously strong recurring revenue ratio as well as further profitability improvements. In detail:

Q1 recurring revenues increased by 2.8% yoy to € 19.9m (eNuW: € 20.4m) and remained at a continuously strong ratio of 93.6% as total sales came in at € 21.1m. Sales growth was predominantly driven by an increased seat base (+2% to 659k) as well as the cross-selling referring to the company’s premiums solutions. This also becomes visible in the blended ARPU (adjusted for SIP-Trunk sales), which improved to € 9.82 vs € 9.80 in Q1’23.

While we expect seat growth to remain at a stable pace throughout the year, ARPU is seen to further improve driven by (1) premium solutions like CC Hub, where ARPU levels of € 30-40 can be achieved, as well as (2) price indexation effects which came into effect in April.

Profitability further improved, as adjusted EBITDA increased disproportionately by 43% yoy to € 2.8m (eNuW: € 2.6m; reported EBITDA at € 2.7m). This was partly driven by a slightly improved gross margin of 84.1% (+0.3pp yoy) but more importantly by ongoing improvements on the personnel (-2pp yoy sales ratio) and other OpEx (-1.5pp yoy; mostly sales & marketing) level. Q1 EBIT came in at € 0.7m while FCF was slightly positive with € 0.2m.

Going forward, we expect continuous improvements based on the mentioned development of the sales-mix as well as further efficiency gains, especially in connection with the integration of DTS, which is seen to crease significant synergies from H2 onwards.

On this basis, management confirmed the FY guidance, targeting recurring revenue growth in the mid- to upper-single-digit-% range (eNuW new: +5.3%) at a recurring revenue ratio of >90% (eNuW new: 93.9%) as well as an adjusted EBITDA in the range of € 10-12m (eNuW new: € 11.5m).

That said, valuation remains attractive, in our view, as shares are trading on a mere 1.2 EV/Sales ‘24e (9.9x EV/EBITDA). We therefore reiterate BUY with an unchanged PT of € 11.70 based on DCF. NFON remains part of our NuWays Alpha List.