Lemonsoft as an investment

Lemonsoft’s management has identified the following factors as the company’s strengths:

SaaS company with rapid growth during its history and very strong key metrics across the board

Lemonsoft’s management sees that the company has a very strong performance with respect to the key metrics used for measuring the operations of SaaS companies, which creates a foundation for strong growth, profitability and sustainable business development.

  • High share of recurring revenue
    Approximately 83 percent of our net sales in 2020 was from recurring revenue, the majority of which was from monthly SaaS invoicing.
  • Low individual customer dependency
    In June 2021, the single largest customer in our customer base represented approximately one percent of our annual recurring revenue. In September 2021, the number of the customer companies using our software solutions exceeded 6,600 and in June 2021, the number of users exceeded 50,000.
  • Strong net revenue retention
    The net revenue retention that is based on monthly recurring revenue was approximately 108 percent in 2020, which means that the revenue generated from our current customers was on average eight percent higher in 2020 compared to the revenue from the same customers in 2019.
    Low churnChurn calculated from monthly recurring revenue was 1.6 percent in the nine-month period ended 30 September 2021.
  • High gross margin
    Our gross margin in 2020 was approximately 88 percent (76 percent being SaaS peer group median (1)).
  • Strong unit economics
    The efficient sales process, modular service offering supporting upselling and long-term customer relationships promote the strong return in relation to the cost of customer acquisition. The customer acquisition cost payback time was approximately 6 months. (2)

(1) The peer group 2020 median for gross margin in a comparison realised by the company’s management. The peer group consists of 63 Finnish, Nordic and international publicly listed SaaS companies. The source of the financial information about the peer group is Factset.
(2) Customer acquisition cost is calculated by dividing new customer acquisition costs with customers added. The customer acquisition cost payback time is calculated by dividing the cost of customer acquisition with the product of average monthly recurring revenue and gross margin percentage.

Strong market position in the sizeable ERP market for SMEs

We estimate that, in terms of market share measured by the number of customers in the SME ERP market, we are the largest operator in the segments of industrial manufacturing and wholesale and retail, the second largest operator in the segments of professional services automation and construction companies and the fourth largest operator in the segment of accounting firms. (1)

Our addressable market is approximately EUR 290 million and the full potential of the addressable market in Finland is approximately EUR 2 billion. The market growth from its current size towards its full potential is driven by growth in ERP system penetration and by increase in the average ERP spend per customer.

1) The numbers of customers publicly announced by the largests competitors were used in the analysis.

Comprehensive product and technology portfolio for managing SMEs’ business critical processes

Lemonsoft’s ERP system works as a comprehensive solution offering typically all key features for a company in one modular software. The system centralises enterprise resource planning and enables the ccustomers to streamline their business operations in different areas by typically integrating all of their business information and necessary tools into one platform.

Our software solutions provide each of the our target verticals with industry-specific modules and functionalities, with which the customer companies can meet the industry-specific requirements for business streamlining.

We use our own personnel in sales and implementation, which leads to good and professional service as well as an easy purchase process and implementation. Our Service Desk customer satisfaction was 92.4 percent in 2020.

In addition to rapidity, we see that the implementation of Lemonsoft’s ERP system is also significantly less expensive than the implementation of competing solutions. (1) On top of this, the running costs of our ERP system are moderate since the system does not involve separate maintenance costs or a need for expensive upgrade projects.

We have a strong focus on product development to bring new functionalities tackling customer needs to the software solutions. On 30 September 2021, approximately 55 percent of our personnel worked in product development. The strong development work enables continuous launches of new products, modules and features, improvement of the software and up-to-date system maintenance and reduces source code related risks. Determined and continuous investments in product development lead to long-lasting software and customer relationships.

(1) The average cost of implementing the company’s ERP system is approximately EUR 20,000, while the cost of a typical ERP system is according to the company’s management approximately EUR 34,000.

Strong growth prospects by increasing ARPC, adding new customers and releasing new products

We see that we have significant potential to increase our average revenue per customer through upselling and cross-selling. The upselling and cross-selling consist, for example, of selling more extensive services, a higher number of users and new modules to existing customers.

In addition to upselling, our organic growth prospects are supported by our significant potential to acquire new customers. In Finland, there are approximately 192,000 companies within our target verticals. (1)

(1) Source: Asiakastieto (search in the service provider’s company database including corporate forms public limited company, limited company, private trader, limited partnership, general partnership and limited liability housing company as well as companies in accordance with Standard Industrial Classification TOL 2008, that may use ERP in the view of the company’s management).

Potential to continue the successful acquisition strategy

In addition to organic growth, Lemonsoft seeks to support growth by acquisitions. We have a clear strategy and criteria for making acquisitions and selecting targets.

Our targets for acquisitions include the following:

  • strengthen Lemonsoft’s position further in our current target verticals
  • open new verticals
  • add value and functionalities to existing software solutions
  • bring in new talent to the company
  • expand into new market areasg supporting upselling and long-term customer relationships promote the strong return in relation to the cost of customer acquisition. The customer
  • acquisition cost payback time was approximately 6 months. (2)