Lemonsoft Oyj (LEMON) Earnings Call Transcript & Summary

Welcome to Lemonsoft Q2 '26 Results Call. We will begin the event with the presentation from CEO, Alpo Luostarinen, and follow up with a Q&A session. You can post your questions during the presentation. Without further ado, Alpo, the floor is yours.

Thank you. So my name is Alpo Luostarinen. I'm the CEO of Lemonsoft, and I will be presenting our Q2 results in the next hour. Let's jump right into our first half financial results. We've had a fairly good first half of the year. We've been improving our net sales. We've been growing slightly and especially our SaaS income has grown roughly 10% in the first half compared to last year, which is our most important revenue stream. Our adjusted EBIT has grown 22% compared to last year. And especially due to our change in negotiations last year, we've been able to improve our cost base roughly 3.8 percentage points. And looking at our Q2 results, we've had a good growth of 5.4%, which is mainly due to the Jakamo acquisition completed in March. Our SaaS income grew 12.4%, and we are focused on improving that figure going forward. Adjusted EBIT was especially strong in Q2 with 39% growth year-on-year and 5.1 percentage point growth. The major events that we had in Q2 and actually after Q2 ended, we finalized a transaction -- actually 2 transactions in July and August. In July, we completed a financing round where we got new financing into our subsidiary, Lixani Oy. And we had got a new investor construction company, which is already a Lixani customer, Redan, which joined Lixani shareholder base and is now a new minority shareholder. We retain our large minority ownership in Lixani and we think the business will continue in a positive trajectory in the next few years and will be a very active minority owner going forward. In August, we completed another transaction where we sold Finvoicer Group accounting and debt collection services to eCount. We retained Billgo and Finvoicer financing business, which are now part of Lemonsoft, and we will retain those businesses going forward. So what we did there is basically we moved the accounting and net collection services and focus on providing those services through our partner network. Both of these arrangements are aimed at sharpening our focus in manufacturing and wholesale and in software and especially recurring SaaS business. The effects of both of these transactions will be visible in Q3 and forward. Looking at the market, the main industry areas we are in manufacturing and wholesale are performing better and better, each month basically. In July, the growth was above 10% and has been increasing every month in the past 6 months, which is very positive for our future development. Wholesale growth has been positive for almost a year now as well, but not as strong as manufacturing in Finland. Looking at our focus in Q2, we have been able to transform the business quite well from a fairly mixed portfolio to a strong focused software business towards manufacturing and wholesale. The first few things that have been affected in our focus segments is, first of all, the legacy ERP replacement cycle is actually accelerating quite fast. And one of the drivers in that space is, to my mind, the fact that AI functionalities are increasing. And while the modern service providers, software providers are increasingly adding AI features into the software and the legacy ones are basically not able to do that or not willing to do that. The cycle is accelerating towards modern solutions, and we are well positioned there to support the transition. And due to that as well as our own sales organization developing into a positive direction and our new sales -- Chief Sales Officer in the past 8 to 9 months has been building a new organization. The level of sales activity in the beginning of the pipeline is now substantially increased and is higher than in the last few years. We've been able to expand both the -- or maintain our inbound lead amounts and now expand quite drastically our outbound lead amounts. We are also actively looking into supporting our Finnish customers and their growth capabilities internationally. So what we are basically doing is that we are looking to adjust our software to function well for our customers, looking to expand into nearby markets, especially Sweden, some other Nordic countries and in Central Europe. And this is something that we are now investigating more thoroughly during autumn and phasing. We basically have a few phases planned where we investigate more and more thoroughly how we can support; first, by software; and second, later on by services and sales. We've been focusing on getting our software solutions to be the best category defining solutions in the market. We've been implementing during Q2 a new agent-based development model and getting new and getting the best tools into use in our software development, which is shortening development cycles and improving our -- getting our software functionalities into market as fast as possible. We are looking to -- and we actually, in Q2, already have been able to do important releases, product releases to the market, especially in some smaller AI functionalities as well as some of the manufacturing and wholesale functionalities that are relevant for our customers. In early autumn in Q3, we are still anticipating to release new functionalities, especially in manufacturing and wholesale, but also in accounting and payroll solutions. As for our organization, we are still maintaining our focus to get our customer-facing capabilities to function properly and customer satisfaction and customer engagement to a new level. And that we've actually made several key hirings in Q2 and Q3 to be able to support our customers as well as possible. Now overall, our operating model and our organization is finally in the past 6 months, stabilized, and we are now in a new situation after quite drastic changes in the past 18 months. So I'm referring, of course, to the platform transition as well as our change negotiations last year as well as the most recent transactions that we completed now in the summer. And all of these support our strong execution in the core segments that we want to focus on. And finally, we are focused on value-driven M&A. And now in -- after Q2, we were focused on getting also the sort of current portfolio to be optimal going forward. And the Finvoicer divestment as well as the Lixani financing round and also getting new a lead for the Lixani team are key pieces to support those set goals. And looking deeper into Finvoicer and Lixani transactions, what we did there and what was the rationale of those transactions. For Finvoicer, Lemonsoft is increasingly focused on getting scalable SaaS and recurring software revenue up. And considering that Finvoicer is mainly focused on services and transaction revenue, which is not our key focus at the moment. It was fairly good clear rationale to leave that to our partners. And we will focus on getting or providing accounting services, payroll services, debt collection services through our partner network and allowing us to focus on the software -- scalable software business. And that transaction also increases our focus on manufacturing and wholesale, considering that most of Finvoicer's customers have been smaller general SME customers. And just a reminder that we retained Billgo, which is a very easy invoicing solution, which fits really well to our strategic goals. And as for Lixani, construction is an industry that we haven't been focusing on strongly in the past few years and sits outside of our core industries. And we've been thus interested in still retaining our ownership there and sort of maintaining our long-term upside with the company since we see a lot of potential in the product, but that's not the product that is directly in the core of our focus right now. And of course, the addition of Redan to the shareholder base of Lixani brings a lot of expertise that we can then utilize to grow the business in the next few years. And moving into financials for Q2. Looking first at the revenue streams. Overall, our revenue grew 5%. Organic growth was slightly negative at 2.1%, driven by the transaction and consulting revenue decline. SaaS revenue increased quite well, 12.4% and organically 2.7% as well. Transaction and consulting revenue decline has been fairly vast, and we are looking at 14 to 16 point (sic) [ 14% to 16% ] decline. We are expecting that in Q3, those figures will be smaller. The decline will be lesser. And afterwards, of course, the Finvoicer's consulting and transaction revenue will be -- will not be in Lemonsoft's figures in Q3 going forward. Then looking at the revenue mix and our SaaS revenue growth, we -- our new sales growth was 1%, net downsell/upsell was minus 0.4% and churn was 1.5%. (sic) [ minus 1.5% ] Churn has been somewhat elevated still and the first half was roughly in line with last year's churn figures. In the next few months and the end of the year, we still expect that figure to remain elevated. There's a few reasons for that. There's especially some bankruptcy still with our companies. Otherwise, we see the market developing quite well, but there are still some companies that are suffering from a long 3-year period of worse market environment. And the new sales figure is still much lower than we want it to be, and we are now looking to utilize the good atmosphere as well as our good early pipeline and close deals in the second half of the year. SaaS revenue on the right-hand side grew from -- or the share of SaaS revenue grew from 75% last year to almost 80%, which is a really good direction, and we want to continue that direction. We also expect that figure to grow quite significantly after Finvoicer's figures are not included in those figures anymore in Q3 and Q4. Look at our cost base. After last year's change negotiations and organizational restructuring, we were able to reduce our employee benefit expenses roughly by 2% and our adjusted EBIT is increased by 5% percentage points. And of course, also our other operating expenses have been lower and depreciation and amortization has also been lower than last year. And other OpEx is mainly due to our credit losses and legacy data center shutdown in the comparison period last year. So this year has been cleaner in that sense. And looking at the organization, our headcount was roughly in line with Q1 headcount. We are looking into hiring good expertise, especially in our customer-facing functions. Now we've been executing that in Q2 already and continuing to grow in those functions in Q3. Those numbers -- the number has not been increasing due to our decline -- we've been reducing employees in some functions, especially in Finvoicer before the transaction. So we expect that figure to grow slightly in the second half of the year. And now we are looking into hiring employees, especially in functions that are focusing on our core growth areas, especially in manufacturing and wholesale. And also, we consider in all of our hiring decisions, we consider also our international growth ambitions going forward, which we are now investigating. And finally, we are publishing our Q3 report on 5th of November, and happy to invite you all to listen to that report after Q3. And now handing over to our host for any questions that we might have.

Thank you, Alpo. We have plenty of questions first from. New sales activity is up "substantially." Can you put a number on it?

Yes. And to be exact, I'm referring to the beginning of the sales pipeline. So our leads and offers that are out have been increasing, let's say, 2x to 3x compared to a normal period, which is quite good. But we still are looking to or are waiting to see those numbers reflected in the closed deals, but roughly in that sense.

Okay. Then Visma's legacy T7 ERP reaches end of life in 2028. How significant demand driver is this for you?

Well, it's one of the biggest legacy ERP solutions that we are looking to replace. There are, of course, other, let's say, 3 to 4 other legacy ERP software in the market that we are -- we've been replacing in the past 1 to 2 years as well. Visma's client base has been very interested in looking at our solutions, and we are working on that. At the moment, it's quite a big share of our new leads. But of course, there are -- we are looking to direct our sales efforts in a more wider sense to manufacturing customers. There's a lot of manufacturing customers that are not -- that we haven't been talking to in the past few years. And there's a lot of also energy sector clients that we are interested in directing our efforts to.

Okay. Are you expecting churn to cool down in H2? Have you noticed any AI-related churn in your customer base?

We are expecting new churn to cool down in H2, but to be frank, we have -- this is a sort of long cycle. So we've seen some churn in the first half of the year and all typical customer churn is at least 3 months. So if we get the notice of customer churn, it takes at least 3 months to be reflected in our figures. And typically, it might take even 6 to 12 months before the customer actually leaves. So those numbers may not be cooling down in the second half of the year yet. AI-related churn in our customer base, we have not seen at all, or almost. So some smaller customers may have been. We don't know everything, but all the larger customers are midsized customers. We know the reasons, and we haven't seen basically at all AI-related churn. And we are considering that at all times, but our -- majority of our customers are looking into getting AI-related functionalities on top of the large suite of solutions that we already have.

Okay. Then the next question still from Atte Riikola. How has Jakamo been performing since the acquisition?

Jakamo has been -- if I can say so, it's been a very good, even a positive surprise to us. So Jakamo has been continuing its profitable growth and has been doing that very successfully in the first 6 months that they've been part of Lemonsoft. And for now, it seems that, that pace will continue. And the most positive sign there is, of course, that an aspect of that is that all the Jakamo customers are basically manufacturing customers in Finland, Sweden and so on. So that's very sweet spot in terms of our strategy.

All right. You mentioned evaluating internationalization as a part of your growth strategy. Can you elaborate on that a little bit more?

Yes. We've had now in the past few months, we have had -- we've been seeing a lot of our customers asking for our solutions to support them in their international growth. And we are, of course, very happy to support that. We -- as for Lemons -- and now I'm talking about Lemonsoft ERP, since Jakamo, Spotilla and Logentia all have customers in all Nordic countries. So I'm not talking about Lemonsoft ERP. But Lemonsoft ERP customers are looking to grow as well in other countries, and we are supporting that, now working on the Swedish market, especially looking to get our functionalities to support that market. And it seems that we are -- the localization needed is actually lesser than we have thought before. So it looks rather positive. We are evaluating what type of overall product suite we need, what type of overall services we need to provide, how local services, consulting and so on and trying to fit those requirements to the competitive market in its geographical market. But that work is still in its early stages, and we'll report on how that develops further on.

Okay. Are you screening M&A targets from international markets?

Yes, we've been doing that all along with -- but we haven't -- that hasn't been a strong focus in the past 1 to 2 years since we've been focusing on getting our -- everything together at our home market. But yes, we are looking at M&A as well, but that's not actually the main objective in the internationalization investigation right now, but that's a key part of it, of course.