Lemonsoft Oyj’s Interim Report for 1 January – 30 September 2024 (unaudited) - Technology transitions driving long-term efficiency gains

JULY - SEPTEMBER 2024, IFRS

• Net sales increased 7.2% and were EUR 7,315 thousand (6,825)
• EBITDA was EUR 2,576 thousand (2,604), 35.2% (38.2) of net sales
• Adjusted EBITDA was EUR 2,754 thousand (2,604), 37.6% (38.2) of net sales
• EBIT was EUR 2,051 thousand (2,218), 28.0% (32.5) of net sales
• Adjusted EBIT was EUR 2,476 thousand (2,394), 33.9% (35.1) of net sales
• Profit of the review period was EUR 1,752 thousand (1,673), 24.0% (24.5) of net sales

 
JANUARY - SEPTEMBER 2024, IFRS

• Net sales increased 12.3% and were EUR 21,239 thousand (18,907)
• EBITDA was EUR 5,552 thousand (5,703), 26.1% (30.2) of net sales
• Adjusted EBITDA was EUR 5,745 thousand (5,924), 27.0% (31.3) of net sales
• EBIT was EUR 4,147 thousand (4,771), 19.5% (25.2) of net sales
• Adjusted EBIT was EUR 4,938 thousand (5,385), 23.2% (28.5) of net sales
• Profit of the review period was EUR 3,088 thousand (3,621), 14.5% (19.2) of net sales

  
Key Figures, IFRS

*The calculation of key figures has been changed for other operating income and the comparison periods have been changed accordingly.

CEO Alpo Luostarinen

During the third quarter of the year, we focused on implementing several major technological development projects and integration of the acquisitions made over the summer. Our net sales were 7.3 M€ and the growth in net sales was 7.2%. Adjusted EBIT was 2.5 M€ and the adjusted EBIT margin was 33.9%. 

Although there were slight signs of improvement, our customers’ business environment has not significantly recovered.  This is evident in the moderate growth of new users. However, on the new sales side, the business developed well despite the summer season, especially in reporting and work time management services. Customer churn during the third quarter was slightly lower compared to both the previous quarter and the same period last year.

We have continued working on several extensive development projects aimed at improving our backend technology and architecture. For over a year, we have been preparing for the migration of our physical data center to Azure-cloud based service. This transition will enable us to make significant advancements in enhancing information security, increasing the service’s reliability, strengthening monitoring, improving software testing and release process and scaling the service. Additionally, we are changing our e-invoicing operator partner, which will enhance the automation of our invoice forwarding and monitoring processes. Both these transitions will contribute to substantial long-term cost savings. The goal is to complete both transitions by the end of the year.

The acquisitions made at the end of the second quarter complement our product and service portfolio and bring us more expertise, particularly for manufacturing customers. Integration efforts are progressing on schedule, and the integration of Spotilla’s maintenance and field service management into the Lemonsoft ERP is progressing well in collaboration with selected mutual customers.

We remain optimistic about the future. We will continue to focus our resources towards SME customers in manufacturing and wholesale, especially with Lemonsoft ERP and Spotilla products. With the acquisition of Spotilla, our market share among key manufacturing customers rose to 15%, and our aim is to remain the first option in this sector moving forward.

Group Financial Development

Group financial result and profitability

July - September 2024
Net sales for the review period were EUR 7,315 thousand (6,825). Net sales increased by EUR 489 thousand, 7.2%. Organic growth of the review period was 1.0%, but organic growth of the recurring revenue was clearly higher than this. Consulting and other income remained at the lower level than in the comparison period. Net sales increased mainly due to the acquisition of Atmotics Oy (2024) and Applirent Oy (2024), whose net sales were not included in the comparison period.

The share of SaaS income was 73.2% (72.2), the share of transaction income 11.5% (10.2), and consulting and other income 15.4% (17.6).

EBITDA was EUR 2,576 thousand (2,604), 35.2% (38.2) of net sales. Adjusted EBITDA (adjustments specified in the Alternative performance measures section) was EUR 2,754 thousand (2,604), 37.6% (38.2) of net sales. EBITDA and adjusted EBITDA were lower than the comparison period due to the timing of certain development projects.

EBIT was EUR 2,051 thousand (2,218), 28.0% (32.5) of net sales. Adjusted EBIT (adjustments specified in the Alternative performance measures section) was EUR 2,476 thousand (2,394), 33.9% (35.1) of net sales. EBIT and adjusted EBIT were lower than the comparison period due to the timing of certain development projects.

Profit for the review period was EUR 1,752 thousand (1,673), 24.0% (24.5) of net sales.

Cash flow from operating activities was EUR 464 thousand (-198).

January - September 2024
Net sales for the review period were EUR 21,239 thousand (18,907). Net sales increased by EUR 2,332 thousand, 12.3%. Organic growth of the review period was 0.5%, but organic growth of the recurring revenue was clearly higher than this. Consulting and other income remained at the lower level than in the comparison period. Net sales increased mainly due to the acquisition of Finvoicer Group Oy (2023), whose net sales were not included in the comparison period in January - May and due to the acquisition of Atmotics Oy (2024) and Applirent Oy (2024), whose net sales were not included all in the comparison.

The share of SaaS income was 72.1% (74.4), the share of transaction income 11.5% (7.4), and consulting and other income 16.3% (18.1).

EBITDA was EUR 5,552 thousand (5,703), 26.1% (30.2) of net sales. Adjusted EBITDA (adjustments specified in the Alternative performance measures section) was EUR 5,745 thousand (5,924), 27.0% (31.3) of net sales. EBITDA and adjusted EBITDA were lower than the comparison period due to the timing of certain development projects and termination agreement with the CEO.

EBIT was EUR 4,147 thousand (4,771), 19.5% (25.2) of net sales. Adjusted EBIT (adjustments specified in the Alternative performance measures section) was EUR 4,938 thousand (5,385), 23.2% (28.5) of net sales. EBIT and adjusted EBIT were lower than the comparison period due to the timing of certain development projects and termination agreement with the CEO.

Profit for the review period was EUR 3,088 thousand (3,621), 14.5% (19.2) of net sales.

Cash flow from operating activities was EUR 3,144 thousand (2,072).

Balance sheet, financing and investments
The balance sheet total at the end of the review period was EUR 53,143 thousand (48,885 at the end of the year 2023).

The Group has capitalized development expenses of EUR 585 thousand during the year 2024 (1310 thousand during the comparison period 2023). At the end of the review period, the Group's balance sheet included capitalized development expenses totaling EUR 2,620 thousand (2,352 at the end of the year 2023).

Total equity was EUR 31,553 thousand (30,422 at the end of the year 2023), equity increased EUR 1,132 thousand.

Equity ratio was 59.2% (61.9 at the end of the year 2023) and interest-bearing debt was EUR 10,945 thousand (8,399 at the end of the year 2023).

Cash and cash equivalents at the end of the review period were EUR 5,495 thousand (7,389 at the end of the year 2023).

Personnel
The Group’s number of employees was 231 (213) on 30 September 2024. We reported our Group personnel as follows:

• R&D 112 employees
• Customer functions 105 employees
• Other functions, a total of 14 employees

Share-based incentive plan
The Board of Directors of Lemonsoft Oyj has established a new share-based incentive plan for the key employees of the company in March 2024. The aim of the new plan is to align the objectives of the shareholders and the key employees in order to increase the value of the company in the long-term, to encourage the management to personally invest in the company’s shares, to retain the target group at the company, and to offer them a competitive incentive plan in which the participants may earn shares as a reward for performance and their personal investment.

The new Performance Matching Share Plan 2024 - 2028 includes three performance periods, covering financial years 2024 - 2026, 2025 - 2027 and 2026 - 2028. The Board will decide annually on the commencement and details of a performance period. The prerequisite for participation in the plan and receiving the reward is that the person allocates freely transferable Lemonsoft Oyj shares held by him or her to the plan or acquires the company’s shares in a number determined by the Board.

The rewards from the plan will be paid partly in the company’s shares and partly in cash. The rewards will be paid by the end of May in the year following the end of the performance period. The cash proportion is intended for covering taxes and tax-related costs arising from the reward to the participant. In general, no reward will be paid if a participant’s employment or service in the group ends before the reward payment.

The performance criterion in the first performance period 2024 - 2026 is the Total Shareholder Return of the company’s share (TSR). The achievement of the required TSR levels will determine the proportion out of the maximum reward that will be paid to a participant. The target group of the plan consists of 4 persons (the CEO and three members of the Management Team). The gross rewards from the first performance period 2024 - 2026 correspond to the value of an approximate maximum total of 77,000 Lemonsoft Oyj shares, including the proportion to be paid in cash. The final number of shares depends on the number of shares acquired by participants and the achievement of the TSR levels. The reward to be paid on the basis of Plan will be capped if the limits set by the Board for the payable reward from the performance period 2024 - 2026 are exceeded.
 
Shares and shareholders

Share capital and number of shares
The company has one series of shares, and all shares have equal rights. At the end of the review period, Lemonsoft Oyj’s share capital consisted of 18,671,632 (18,562,005) shares. The average number of outstanding shares during the review period July - September was 18,610,538 (18,562,005).

The company's share is traded on the First North Growth Market Finland marketplace maintained by Nasdaq Helsinki Oy. During the review period July - Sptember, the highest share price was EUR 7.80 and the lowest EUR 5.55. The closing price on 30 September 2024 was EUR 6.05. The market value of the company at the closing price of the review period was approximately EUR 113.0 million. Average daily trading volume during the review period was 7,523 shares (EUR 49,581).

On 30 September 2024, the company had a total of 2,367 shareholders. The company's largest shareholders can be found on the company's investor website at https://investors.lemonsoft.fi/osakkeenomistajat/.

Authorizations of the Board of Directors
Lemonsoft Oyj has decided in its Annual General Meeting on 9 April 2024 to authorize the Board of Directors to decide on the repurchase of the company’s own shares on the following terms and conditions:

• By virtue of the authorization, the Board of Directors is authorized to decide on the repurchase of a maximum of 1,800,000 of the company’s own shares. The proposed maximum number of shares to be repurchased corresponds to approximately 9.7% of the company’s shares. The authorization includes the right to accept the company’s own shares as a pledge.
• The company’s own shares can be repurchased otherwise than in proportion to the existing shareholdings of the company’s shareholders (directed repurchase).
• The company’s own shares can be repurchased at the Nasdaq First North Growth Market Finland marketplace or outside of the marketplace.
• Own shares can be repurchased at a price formed on First North Growth Market Finland on the date of the repurchase or at a price otherwise determined by the markets.
• The shares shall be repurchased using the company’s unrestricted equity.
• The shares shall be repurchased for the purpose of financing or carrying out acquisitions or other arrangements, to implement the company’s incentive schemes, to develop the company’s capital structure, or for other purposes as decided by the Board of Directors.
• The Board of Directors shall decide on the other conditions related to the repurchase of the company’s own shares.

 
The authorization is valid until the 2025 Annual General Meeting, but not beyond 30 June 2025. The authorization shall replace the authorization granted to the Board of Directors by the Annual General Meeting of 4 April 2023 regarding the repurchase of a maximum of 1,800,000 of the company’s own shares.

The Annual General Meeting authorized the Board to decide on an ordinary or bonus issue of shares and the granting of special rights (as defined in Section 1, Chapter 10 of the Limited Liability Companies Act) in one or more instalments:

• This issue may total a maximum of 2,000,000 shares corresponding to a maximum of approximately 10.8% of all shares of the company. The authorization applies to both new shares and treasury shares held by the company. The authorization may be used to fund or complete acquisitions or other business transactions, for offering share-based incentive schemes, to develop the company’s capital structure, or for other purposes decided by the Board of Directors.
• The authorization entitles the Board of Directors to resolve on all conditions of the issuance of shares and special rights entitling to shares, including the right to deviate from the shareholders’ pre-emptive right.

The authorization is in force until the next Annual General Meeting; however, no longer than until 30 June 2025, and it replaces the previous authorizations.
Lemonsoft Oyj's Board of Directors has decided on February 15, 2024 directed share issue and deviation from the shareholders' preemptive right based on the authorization given by the

Annual General Meeting on 4 April 2023.The share issue is related to the acquisition of Finvoicer Group Oy, which Lemonsoft announced on June 1, 2023. New shares a total of 17,986 (112 thousand euros) were registered in the trade register on April 15, 2024. As a result of the share issue, the total number of Lemonsoft Oyj’s outstanding shares increased to 18,579,991 shares.

Lemonsoft Oyj's Board of Directors has decided on June 29, 2024 directed share issue and deviation from the shareholders' preemptive right based on the authorization given by the Annual General Meeting on 9 April 2024.The share issue is related to the acquisition of Applirent Oy, which Lemonsoft announced on July 1, 2024. New shares a total of 91,641 (570 thousand euros) are being registered in the trade register. As a result of the share issue, the total number of Lemonsoft Oyj’s outstanding shares increased to 18,671,632 shares.
 

Significant short-term risks and uncertainties
The deterioration of the economic situation and geopolitical changes may have direct and indirect effects on Lemonsoft's business. These may be reflected in the business operations of Lemonsoft's customer companies, for example, in reduced investments by industrial manufacturing companies and decreased needs of subcontracting chains, as well as business and bankruptcy risks. In turn, customers' business challenges may affect Lemonsoft's new customer acquisition, upsells from existing customers, and customer retention.

In the longer term, the biggest challenge for our industry is the availability of skilled personnel. Success of the Group and opportunities for growth depend largely on how well we can recruit, motivate, and engage more skilled personnel and develop our expertise.

In Lemonsoft's cost structure, the single most significant factor is personnel costs, and an increase in the general price level may increase the pressure to increase personnel costs. Lemonsoft constantly monitors the development of the situation from a risk management perspective and strives to ensure the continuation of profitable growth by optimizing its cost structure and pricing.

The ERP market is generally a highly competitive market, and the industry is fragmented. Smaller players are primarily focused in a specific sector of SMEs and larger players do not compete directly for customers in the same market. However, competition in Lemonsoft's operating markets may intensify due to existing competitors or agile new entrants.

Risks related to information security and the IT systems of service providers are a significant factor affecting the security and continuity of the Group's business. Lemonsoft constantly invests in high reliability and high security systems and strives to ensure the high quality of the services it purchases by selecting leading players in the industry as its key partners. European data protection regulations may also bring unexpected risks to Lemonsoft's operating environment.

Success in acquisitions and related integration work is a key factor for Lemonsoft's growth. The company has made several acquisitions in recent years and aims to continue to grow through acquisitions. There may be unexpected risks associated with target companies and their integration into Lemonsoft.

Events after the review period
Lemonsoft Oyj announced on October 4, 2024, that it will start a share buyback programme based on the authorization granted by the Annual General Meeting on April 9, 2024. The maximum number of shares to be repurchased is 300,000, which corresponds to approximately 1.6% of the company’s shares. However, the amount used for repurchasing shares will be at most EUR 2,000,000.

Profit forecast for 2024 (unchanged)
Lemonsoft estimates that the net sales for the financial year 2024 will increase by 10-18 percent compared to the financial year 2023, and that adjusted EBIT will be 23-28 percent of net sales in 2024.

Financial information
Lemonsoft Oyj will publish the financial calendar for 2025 later this year.

Lemonsoft Oyj
Board of Directors