Yesterday, NFON released a strong set of Q3 results. While recurring revenues were in line with our estimates, the company provided a significant beat on the bottom line.

Q3 recurring revenues came in at € 19.4m, up 5.3% yoy (eNuW: € 19.4m) based on a slightly increased seat base of 646k (+3.7% yoy; eNuW: 650k) following successful key customer gains as well as the cross- and up-selling of premium solutions to both, new and existing customers. Total sales increased 1.1% yoy to € 20.5m (eNuW: € 21m), implying a strong recurring revenue ratio of 94.4% (+3.8pp yoy)

Adj. EBITDA increased substantially by 274% yoy to € 2.6m, which is a strong beat on our estimate of € 1.5m. Main drivers of the significant profitability improvements were an improved gross margin of 84.5% (+2.2pp yoy) as well as the imposed efficiency measures, which gained traction quicker than anticipated. In detail: Personnel costs decreased 10% yoy following a 14% staff reduction. Moreover, marketing costs significantly declined by 51% yoy as the new management is focusing on more efficient marketing measures (e.g. channel marketing).

Against this backdrop, management is lifting its adj. EBITDA guidance for the second time this year to now € 7.8-8.3m (prior: € 6-7m). We regard the upgrade as sensible and the new outlook as achievable, given the strong Q3 release, and position ourselves at the mid-point (eNuW: € 8.0m). The ARR guidance (3-9% yoy growth & >88% ratio) was confirmed.

New CTO announced. Starting January 1^st, Andreas Wesselmann will take over as CTO to lead NFON’s path toward a data driven organization, which should in turn enhance the scalability of the platform. Previously, Wesselmann was part part of SAP’s Global Leadership Team where he has proven his ability to expand and improve existing cloud solutions in a cost efficient manner.

In our view, the release fully confirms that the turnaround remains in full swing as NFON is seen to continuously grow profitably based in the still underpenetrated European PBX market.

We confirm our BUY recommendation with an increased PT of € 11.30 (old: € 10.50) based on DCF.