Q3 sales came in at € 21.7m (eNuW: € 21.6m), implying a 5.9% yoy increase. This was mainly based on an improved seat base of 666k (+3.1% yoy) as well as up-selling effects leading to an improved blended ARPU (ex SIP trunk) of € 9.88 (vs € 9.73 in 9M ’23). Further, we saw a first improvement of non-recurring hardware sales, which increased 6.1% yoy to € 1.2m (vs -12.1% in H1 ’24). Recurring sales increased by 5.9% yoy to € 20.5m, implying a recurring revenue ratio of 94.9%.

Q3 adj. EBITDA improved disproportionately to € 3.5m (+35% yoy; eNuW: € 2.9m), implying a margin of 16.3% (+3.6pp yoy). This should have been partly driven by the improved gross margin (+1.1pp yoy to 85.6%) as well as the imposed efficiency measures in personnel (cost ratio -1.4pp yoy) and other OpEx (-0.6pp yoy). Unadjusted EBITDA came in at € 3.1m, up from € 2.3m in the same period last year. Despite this, FCF came in weaker than expected at € 0.7m, which was mainly caused by an unfavorable WC swing in Q3. Yet FCF at 9M significantly improved yoy to € 2.7m (vs € 0.8m at 9M ’23).

Against this backdrop management confirmed the FY guidance of mid-to-upper SD-% recurring revenue growth, although specifying it to the lower end (eNuW: +5.2% yoy), adjusted EBITDA of € 10-12m (eNuW: € 12.0m) as well as a recurring revenue ratio of 90+%, which should be easily achieved given the 9M ratio of 94.3%. Our recurring revenue estimate hereby implies 6.1% growth in Q4 as well as an adjusted EBITDA of € 2.9m, which should be in the cards given the strong Q3 figure. Mind you, the guidance does not include the acquisition of botario, which was closed at the end of Q3.

Speaking of which, management provided more detail on the deal, disclosing a purchase price of € 18.1m implying a 34x EV/EBITDA, whereby € 10.9m were paid at closing with the remainder being subject to earn-outs. While this does not look cheap at first glance, mind you that botario is projected to achieve 40+% top-line growth with EBITDA margins north of 30% going forward. Moreover, it significantly enhances NFON’s AI capabilities and creates valuable cross-selling opportunities. We therefore regard the deal as strategically highly reasonable.

Valuation continues to be attractive given that shares are trading at 7.1x EV/adj. EBITDA '24e (5.1x '25e) and an adj. FCFY25e of 13.7%. We hence reiterate BUY with an unchanged € 11.70 PT based on DCF and confirm the stock as one of our top-picks in our NuWays Alpha List.