NFON AG ($NFN)

Good morning, everyone, and welcome to NFON's Q1 2026 Earnings Call. Thank you for joining us today. My name is Friederike Thyssen, Vice President, Corporate Affairs and Investor Relations, and I'll be your host for this session, which we are holding together with NuWays. As usual, we published our quarterly statement and presentation earlier this morning on our website under Investor Relations. Today's presentation will be led by our management team, Andreas Wesselmann and Alexander Beck. Let me guide you briefly through our today's presentation. Andreas Wesselmann, our CEO, will give you a short general business overview. He will then hand over to Andreas -- Alexander Beck, sorry for that, who will present the financial performance in detail. Afterwards, we will open the floor for your questions. Please note that questions can only be asked live during the Q&A session at the end of the presentation. [Operator Instructions] -- for that, I hand over now to Andreas to start the presentation. Over to you.

Yes. Thank you, Friederike, and also from my side. Hello, everyone, and thank you for joining us in the call today. The beginning of '26 was challenging. The overall market environment remains demanding with continued macroeconomic uncertainty, cautious customer spending and slower decision-making processes across many customer segments. At the same time, we are seeing that this is not only a temporary cyclical slowdown. The software and communications market is currently undergoing a broader structural transformation, driven by the fast-evolving AI technology progress, the growing importance of action-driven AI agents and the increasing importance of digital sovereignty in Europe. In the recent weeks, this structural shift has clearly speeded up. As a consequence, we are accelerating our transformation into an AI-first company with a clear focus on AI-driven growth across our entire portfolio, spanning intelligent assistance, customer engagement and business telephony, while also capitalizing on the increasing relevance of digital sovereignty. We deliver AI-powered solutions that solve real customer problems. For example, human-speaking voice bots acting as 24/7 AI receptionists with integration into existing business systems and communication solutions or AI agents structuring and delegating inbound customer traffic as well as initiating follow-up actions or AI services doing relevant call summaries with automatic language detection or to the point AI knowledge bots answering all kind of content questions. These examples illustrate the business value of the AI-based solutions we offer today. We deliver these AI innovations combined with trusted European cloud communications expertise and EU-based data processing. And we see this combination as an increasingly important competitive advantage for customers and partners. A great example of our focused innovation strength is the productive release of our own developed text-to-speech AI model based on the in-depth and long-standing experience of the Votaro team. This solution delivers differentiating high voice quality combined with flexible deployment models, cloud and on-premises and EU-only data processing. It confirms our innovation speed, strengthens the technological and commercial independence and opens up additional growth opportunities across customer interactions and agentic AI use cases. At the same time, we are continuously expanding the partner and customer enablement around the AI solutions portfolio. We believe people need to experience how the solutions work themselves. Therefore, and following the successful launch of the hands-on format during our Maxis Partner Day, we are now extending this concept into a so-called hackathon roadshow, starting with Germany as also announced in our press release mid-May. During a complete day, our partners implement AI solutions for their specific customer use cases, leveraging our AI solution portfolio. To conclude, the driving objective is clear: accelerate the AI transformation, drive adoption, strengthen our partner ecosystem and translate AI-driven innovations into scalable commercial opportunities. And with this, let me hand over to you, Alexander, taking us through the financial performance of the first quarter.

Yes. Thank you, Andreas. Hello, everyone, and also from me, a very warm welcome, and thank you for joining today. Let me walk you through our financial performance for the first quarter of 2026, and I will start with a brief overview. As already mentioned, the market environment remained challenging, which was reflected in our revenue development. Total revenue declined by 2.3% year-on-year to EUR 21.6 million, while adjusted EBITDA came in at EUR 1.8 million. At the same time, the quality and resilience of our revenue base remain strong. Recurring revenues accounted for 93.8% of total revenues, underlining the predictability, stability of our business model. Our seat base declined by 3.1% year-on-year to around 641,000 seats, reflecting the muted market environment on the one side and slower customer investment decisions. However, blended ARPU increased slightly to EUR 10.04, supported by pricing measures and a higher share of premium and AI-based solutions. Looking at the revenue development in more detail. Total revenue amounted to EUR 21.6 million. Business telephony continued to represent the core of our business, accounting for more than 90% of total revenues. At the same time, our newer growth areas continued to gain traction with customer engagement and Intelligent Assistant together contributing around both 5% of revenues. Both Customer Engagement and Intelligent Assistant achieved a year-on-year growth of more than 10%. Recurring revenues in Q1 declined by 2.5% year-on-year to EUR 20.2 million, mainly reflecting the softer market environment and lower seat development in our business telephony portfolio. At the same time, non-recurring revenues remained stable at EUR 1.3 million, supported by continued project business. Overall, our revenue mix remains highly resilient with recurring revenues continuing to account for around 94% of the total revenues. Moving to profitability and cost development. Material expenses increased slightly by 3.5% year-on-year, resulting in a material cost ratio of 14.8% compared with 14.0% in the prior year period. This was mainly driven by lower recurring revenues combined with somewhat higher hardware-related business. Despite the softer revenue development, gross margin remained at a strong level of 85.2% compared with 86.0% in Q1 2025, underlying the scalability and resilience of our platform business. Other operating expenses decreased slightly year-on-year to EUR 7.3 million, reflecting disciplined cost management, lower commissions and reduced consulting expenses. At the same time, we continued to invest selectively in our growth initiatives, particularly in AI positioning and product marketing and in partner enablement activities. Looking to personnel costs, our personnel expenses increased by 3.9% year-on-year to EUR 9.5 million compared with EUR 9.1 million in the prior year period. This development mainly reflects targeted investments in strategic growth areas, particularly artificial intelligence and product development capabilities. The average number of employees increased slightly to 429 employees compared with 425 in Q1 the year before. At the same time, we maintained disciplined personnel cost management and after adjustments of around EUR 0.1 million -- these were mainly related to stock option programs and harmonization measures. Personnel expenses came in at EUR 9.4 million and remained broadly in line with our strategic priorities and our plans. Looking to adjusted EBITDA. Adjusted EBITDA amounted to EUR 1.8 million in the first quarter compared with EUR 2.6 million in the prior year period. EBITDA amounted to EUR 1.7 million versus EUR 2.5 million in Q1 '25. The decline primarily reflects the lower revenue base, combined with continued investments into strategic growth areas, especially AI and product innovation. At the same time, our adjusted EBITDA margin remained positive at 8.3% compared with 11.8% in the year before, demonstrating ongoing financial discipline despite of the more challenging environment. Adjustments remained low at EUR 0.1 million and were mainly related again to stock option programs and harmonization measures. Turning to cash flow and liquidity. Our operating cash flow amounted to EUR 1.6 million in Q1 and therefore remained only slightly below the prior year level of EUR 1.8 million despite lower earnings. This development was supported by high disciplined working capital management. Investing cash flow amounted to minus EUR 0.8 million compared with minus EUR 0.7 million in the prior year period, mainly reflecting capitalized developments related to new products and enhanced functionalities. Financing cash flow totaled minus EUR 0.8 million versus minus EUR 0.5 million in Q1 2025, primarily reflecting lease and loan repayments. With this, cash and cash equivalents remained solid at EUR 12.9 million at the end of the quarter 1 compared with EUR 13.6 million in the prior year period, providing a strong liquidity base to fund operations and strategic initiatives. Our free cash flow reached EUR 0.8 million, underlining disciplined cash management and our ability to continue funding investments from operating performance. Looking ahead, the overall market environment remains demanding and visibility continues to be limited in parts of the market. At the same time, we continue to see strong structural growth opportunities driven by AI adoption, automation and digital sovereignty requirements. Against this backdrop, we confirm our outlook for the full year 2026. We continue to expect total revenue growth in the low to mid-single-digit percentage range. and an adjusted EBITDA of slightly above EUR 12 million. This follows total revenues of EUR 89.1 million and adjusted EBITDA of EUR 12.6 million achieved in the financial year 2025. At the same time, we continue to closely monitor market developments and the pace of recovery while remaining focused on disciplined execution and the further expansion of our AI-driven growth areas. Our focus remains on balancing disciplined execution in the current environment with continued investment into the strategic growth areas that will drive NFON's next phase of development. With this, thank you very much. I will hand back to Friederike to open up the Q&A session.

Thank you very much, Alexander and also Andreas for the detailed insight. So we will now open the line for questions. [Operator Instructions] We are now looking forward to the first question, Ross Jobber, Edison.

I wonder if you can talk a little bit about how the business that you're moving into, if I can use that expression, differs from your classic business telephony. So as you move more into intelligent assistant and AI. And the sort of things I'm thinking about is the level of investment required to grow that business compared to your traditional one, the level of the organization that you sell into selling intelligent assistant and AI solutions as opposed to, say, more simple business telephony. Yes. So just if you could just help to characterize the challenges, not just with business telephony, but the challenges associated with this new business and how it differs from your old one.

Yes. Thanks a lot for your question, Ross. So let me start with a bigger picture. I think what we are currently seeing is not specific for the business communications area. If you take a broader perspective on all the current relevant Software-as-a-Service players, you have one consistent theme, namely that going forward, there will be a transition from user-based licenses and pricing towards more, I would say, it, consumption or value-based pricing. And if you map that to our industry, that means then that there will be a transformation from what is classical user licenses. In our terms, it's called then seats towards other revenue streams. And we are clearly seeing that as well. For example, by monetizing the AI agents that I see, that has nothing to do then with seats any longer. It's then by the service, it's then by the minute, it's by the traffic that is created. It's by the integration in the business systems, et cetera, et cetera. And for us, as you -- and maybe I'll stop there as a general overview. That's the structural dimension, and this is where we, with our portfolio, and I outlined several examples, have a coverage along our specifics in the business communications area where we address all these new things, where it's also a playing together of, you could say, human agents with virtual agents -- and this is exactly where our core competence lies and that combination in playing that together and also by keeping a certain core expertise, and I mentioned our own developed new AI service for the speech service because that's absolutely essential also as a differentiator and also on the commercial side because currently, if you take a look at the market, you see a lot about, and this is also true for coding that the more tokens you consume, the more exponential the price points grow. And therefore, from our perspective, it's absolutely core that we own part of our value story with core AI services we own and operate ourselves. And maybe as a last point, to also do this in a sovereign environment. So, we are really operating that under EU boundary conditions. There is no call out to U.S. vendors for these capabilities, and this is something where we feel that as a third component gets also more and more relevant. Maybe that gives you a holistic approach on how the structural information and structural transformation looks like and how we are seeing that.

Yes. No, absolutely. I suppose if I could sum it up in one little thing. Do you think that in the future, let's say, 5 or 10 years in the future, there will be a requirement for NFON to understand their customers' business deeper because they're providing more value-added solutions than perhaps 5 or 10 years ago when they were providing a business telephony solution, which maybe didn't require them to quite understand the business in the same way.

Yes, I would say a clear, yes. It comes by nature because the more in the communication you interact between humans and then voice and virtual agents, the deeper you get in the core business processes. We already see it to now that in all our new AI solutions that we sell all of them are integrated in existing or newly defined business processes. So the topic of communication from my perspective, strategically in the long term that you mentioned will be more important than it has been maybe in the past where it was just a call.

Next in line, Philipp Sennewald, NuWays.

This is Philipp from NuWays. First question is on the confirmed guidance, especially the bottom line. Can you help us building the bridge there? Is it purely hope for H2 recovery based on AI? Or how much visibility do you have on improvements that help you reach that bottom line guidance?

Yes. Thank you, Philipp, for your question. So first of all, yes, we have implemented a clear defined package of revenue and efficiency measures. So, revenue, sales on the one side and cost on the other side. And that is already reflected in our forecast now. This includes, on the one side, targeted revenue initiatives and on the other side, also structural cost adjustments. Important, the majority of the impact is expected in the second half of the year. So the initiatives scale progressively. We, therefore, expect a visible improvement of -- over the course of the year with revenue growth turning positive from Q3 on and accelerating further in Q4 as AI monetization and commercial initiatives gain traction.

Okay. Understood. Regarding expenses, I mean, we see revenues down, but personnel costs up, you have more employees than a year ago. Are you -- do you continue to hire into AI and product development? And where do you see efficiency potential on that end?

Well, you are right. We are slightly -- we have slightly increased our headcount from 425 to 429, while the revenues were declining. So as we said before several times, we have the strong plan and the strong idea to go on investing into our growth areas, and this we also will continue. But obviously, we will also adapt our plans to the reality, and we will adapt also our cost planning to the reality, and we will slightly adjust and this is what I said before. So we have cost and efficiency measures on the one side, but it's important to state we also have a bucket package of measures on the revenue side on the other side in order to drive revenue growth from half year 2 on.

Yes. Maybe, Philipp, to add the picture. So we see one is, as Alex said, the dedicated investments still in our growth areas. The other topic is internal shifts on the growth-related areas. And the third topic is, of course, using also ourselves the AI technology to increase productivity massively. So, it's a combination of those things that give us, from our perspective, the right investment in the growth areas as we needed to have on our outline plan.

Okay. Fair enough. And one last is on general AI strategy. Maybe can you give us a better picture on how you approach your client base? And maybe I don't know if you can provide that figure, but out of here around about 640,000 seats, what percentage already has some kind of AI solutions embedded?

So, the -- if we start with the -- maybe the latter one. As you know, we have our AI knowledge bot, which we call the NFON Intelligent Assistant. So think about of intelligent knowledge bot that you can ask any kind of product question. It's part of every deployed solution already. So, in that sense, everyone that uses our cloud telephony has access to that knowledge bot. We decided consciously that this is not priced separately, but that this is an entry point to all further things. So, we have already a good entry point as you said there. And then maybe you have to quickly help me what was the first part of the question that I don't miss it?

In general, how do you approach customers precisely? And your -- how many of your partners, for example, are actively promoting those products to their clients.

Yes. I think coming to this question, I think what is a key approach and key learning is to break it down to the dedicated challenges and use cases that they have. So what we are currently doing is if you want a transitioning from a more product-focused feature-like rollout to a solution and problem-solving approach. Like if you take it very, very simplistic, you can, on the one hand side, talk about you have a call summary and then you get it or you talk about you have an incoming call and after that, you get the core assets out, you get -- if you, for example, if you, for example, buy something, you have the buyer name, you have the duration of the call, you have the interaction, you have the value, et cetera. So, you really get structured value out of it. I take the example of the receptionist we call NIA Front Desk, which is then a 24/7 available, which is a very easy pitch to sell because most of especially the midsized customers have no capacity and no person to do that. And then they can answer customer calls and don't lose on the opportunity, and you can easily do calculations how this is done. So, it's a combination of what is the concrete problem that you solve with very fast showing the benefit and then also calculating the positive business impact that is worth that investment. So, it's a different go-to-market. And therefore, also the partner education, which I mentioned, is extremely important. So, we work very, very closely together with our partner ecosystem to enable them also in that way because they see the same demands from their customers as well. But yes, it's also a transition on the way how we sell. I think this is not specific for us either. I think it's a phenomenon that you see across the whole industry.

Next in line is John Karidis.

It's John Karidis from Deutsche Bank. I just have a numbers question, please. Not withstanding what you said up until now, a lot of the revenue still comes from seats. So may I please know how many seats you had at the end of the first quarter, specifically in Germany and separately in the U.K.

Yes. First of all, thank you for your question, John. We can. So overall, we had in Germany, more or less -- I'm rounding, more or less 470,000 seats end of quarter 1. In the U.K. we had roughly 70,000 seats.

Right. That's great Sorry, go ahead, sorry.

No, no. This was the concrete answer of the questions concerning the seats. So overall, your question was if the bigger part of the revenue is still coming from the telephony business. You are right. I think I said it during the presentation. So roughly 90%, 9-0 percent is coming from business telephony coming out of the seat and so on. And then we have our 2 growing pillars, which are growing, one customer engagement and the other one is Intelligent Assistant -- around AI, around the bots and so on. And in these 2 growing areas, we achieved both together roughly 10% of the business. But both of them are also growing double-digit wise. And this is a development what we expected and where we are actually happy with.

Okay. Next in the line [indiscernible].

I have 2 questions a bit related to the installed base. First, on the current situation. You mentioned the selective customer losses. Are these losses are concentrated in a specific segment, geographies or partner channels, sorry. And the second on what the expected payback period on this -- on the incremental marketing spend and from which quarter should we expect to see a tangible impact on order intake, seat growth and retention?

Thank you very much, [ Maximilian ], for your question. So I'll start with the seat development. So the current decline in seats is mainly driven by 2 factors. Firstly, a still cautious market environment on the one side with the restrained customer investment behavior. And secondly, on the other side, also ongoing harmonization measures and portfolio optimization. When we talk about geographically countries, what I said right now, this counts largely for Germany, also for the U.K. When we take a look to our portfolio in other countries, the situation is slightly different, even more positive. For instance, in Austria and also in Italy, 2 of our biggest markets, we see significantly increasing trends in our customer base also in seats and also in revenues. Yes, so much to the seats. The second question was expected payback and when we see tangible input. So first of all, our marketing invests were higher in Q1. This is right. But this has several reasons. On the one side, yes, we had Andreas mentioned it before, we had several initiatives like hackathons where we wanted or where we still want to enable our partner base in order to better understand and to better sell at the end of the day, our new functionalities. So, what we have seen last year in 2025, NFON has increased significantly its speed in terms of innovation and in terms of release of new products and new functionalities. And yes, this higher innovation speed also required different formats in enabling our partners to sell them. And therefore, we had several initiatives in Q1, which led at the end of the day to higher marketing costs. Your question, when will we see tangible input in tangible output in terms of profitability, in terms of revenues. So clearly, we have planned a forecast, current actualized forecast. And yes, we see quarter 2 still complicated, but we expect a significant trend from Q3 on. I hope this answers your questions, [ Maximilo ]. If not, please go ahead.

Okay. Good. So are there any final questions from your side? Because so far, I do not see any or some questions? No. So that seems to be it. So thank you again for your time, your interest and your continued engagement with NFON. I'll hand over to Andreas for a short closing statement.

Yes. So, thank you to everyone joining the call. Thanks for the questions. Thanks for the attention. I think we clearly and transparency laid out where we are. We have a clear plan going forward. We are very confident to execute on that plan and to leverage the growth opportunities related to the structural transformation and AI innovation-driven companies with our ambition to transform that NFON really to an AI-first company. And with that, I wish you all a great day. Thanks for attending and talk to you soon.