Napatech

Greetings, ladies and gentlemen, and welcome to the NAPA Tech H1 2026 report call. Please note that this call is being recorded. All participants are currently in listen-only mode. A question and answer session will follow today's prepared remarks. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. It is now my pleasure to introduce Klaus Kovup, CFO, please go ahead.

Good morning, I'm Claus Skorup, CFO of Navatech. I'm pleased to welcome you all to Navatech's presentation for the second quarter and first half year of 26. Joining me today is our CEO Karthik Srinivasan. Our first half year 26 report was released earlier this morning on the Oslo Stock Exchange and is also available on the investor relations section of the Navatech website. For your information, a recording of this webcast will be available later today. There will be a question and answer session following the presentation. During and after these prepared remarks, you may submit your questions via text on the webcast page, or we can take your questions on the phone. If you would like to ask a question, please follow the instructions on this slide. Please note that this presentation contains forward-looking statements that are subject to risks and uncertainties. Our actual results may differ from those discussed in the forward-looking statements. For further information on risk factors, please see company announcement and the slides prepared for this presentation. With that, over to you, Karthik.

Thank you very much, Klaus. And hello, everybody. Let me spend the next few minutes talking about the business and the momentum we are seeing across both core infrastructure and AI infrastructure. As we look at Napa Tech today, there are four things I want investors to take away. First, our core infrastructure business continues to provide a strong and profitable foundation for the company. Second, AI infrastructure is increasingly becoming a production story rather than simply a design win story. We have moved from engineering engagement to design win to initial production and now to a follow on production order. That progression is an important proof point for us. And as volumes scale, we're building the operational capabilities and supply chain needed to support that growth. Third, we're deliberately broadening the customer and partner ecosystem around both businesses. That gives us more routes to market and over time should help AI infrastructure develop into a portfolio of opportunities rather than a single customer story. And finally, as inference becomes increasingly heterogeneous and distributed, Networking requirements are evolving alongside the computer architecture themselves. That is precisely where programmability matters, because the infrastructure can adapt as those architectures evolve. Put simply, core infrastructure is our strength today, while AI infrastructure represents a significant growth opportunity for tomorrow. And you can see that momentum in our first half results. In Q2, we generated revenue of US dollars $7.4 million. an increase of 55% year over year, with a gross margin of 67%. For the first half, revenue was $13.1 million, up 61% year over year, while unit volumes increased 20%. The difference between revenue and unit growth also reflects an important mixed shift in our business. We are seeing demand move towards higher speed, higher value products, which carry higher average selling prices. As that mix continues to evolve, revenue growth will not necessarily translate proportionally into unit growth. This is a trend we highlighted during our full year 2025 earnings, and we are continuing to see it play out in 2026. Importantly, this growth has been driven primarily by our core infrastructure business, while we also have begun to qualification orders for our AI infrastructure. So we are delivering strong growth from the established business while at the same time advancing our next growth engine. And based on our performance through the first half and our current visibility, our full year 2026 revenue guidance remains unchanged. Here, we show the role that each of our two businesses plays in the Napa Tech story. Core infrastructure remains the profitable foundation of the company. first half revenue grew 65% year over year to $12.8 million at approximately 70% gross margin. We also added 12 design wins in this segment, which gives us additional opportunities for future revenue growth. At the same time, we're building AI infrastructure as our next growth engine. The revenue contribution today is still relatively small as these programs progress through engineering, validation, and commercialization. But importantly, we are beginning to see that activity translate into production orders and higher volume deployments. As you would expect with programs of this scale and complexity, individual opportunities will progress at different rates. Our engagement with our tier one OEM, for example, has moved more slowly than we originally anticipated, largely due to organizational and management changes at the customer. The technical engagement remains active, and we continue to see significant strategic value in the opportunities we are pursuing together. More broadly, our AI infrastructure pipeline continues to grow, providing multiple paths to future revenue. And as these opportunities move toward higher volume production, we're building the operational, manufacturing, and supply chain capabilities required to support that scale. We also expect to continue investing as the business grows. But importantly, we are building our AI technology for reuse and our organization for operating leverage. As AI infrastructure revenue scales, we do not expect operating expenses to increase proportionately with that revenue. Our objective is not simply to grow revenue, but to translate that growth into increasing operating leverage over time. Before I get into the numbers on this slide, I want to point out this is a new view for us. We haven't historically presented our revenue geographically in this way. But as Napa Tech grows and our strategy evolves, we believe it's useful to give investors greater visibility into where our growth is coming from and where we are investing for the future. We see this as an additional strategic lens into the business that will help investors better understand how Napa Tech is developing over time. In the Americas, first half revenue grew 27% to $7.3 million. This is also where we are making a significant portion of our strategic investment in AI infrastructure, and we are seeing strong engagement with our customers across both core and AI infrastructure. In the rest of the world, revenue grew 141% to $5.9 million, driven by strong execution across our core infrastructure customers. So this geographic view gives you another perspective on our strategy. strong growth across our established markets alongside targeted investment in the areas where we see the greatest opportunity for future expansion. Let me finish my section by stepping back and talking about why we believe AI infrastructure represents such an important opportunity for NAPA tech. AI inference is changing rapidly. The industry is moving beyond architectures built around a single type of processor. Increasingly, AI systems are becoming heterogeneous, combining CPUs, GPUs, and specialized accelerators, each optimized for different parts of the workload. We are seeing this direction validated across the industry, including by pioneers such as Nvidia and other leading AI infrastructure companies. And importantly, we believe the shift towards heterogeneous compute plays directly to the value proposition of Nappertech's adaptive AI NICs. In this new world, established leaders will increasingly coexist with a new generation of specialized AI companies, each bringing different compute architectures and capabilities. And the more diverse that compute environment becomes, the more important and more complex the infrastructure connecting it becomes. The challenge is no longer simply about how much compute you have. It is also how efficiently you can connect that compute and move data between it. That has a direct impact on performance utilization and ultimately the economics of AI inference. We're seeing these architectures evolve rapidly across the industry, including an increasing focus on high performance networking technologies such as RDMA. And this is where our programmability becomes particularly important. Our adaptive AI NICs are built on programmable architectures. As processors, accelerators, networking protocols, and workloads evolve, our technology can adapt with them. Our goal is simple, help our customers move data more efficiently, keep their expensive AI compute better utilized, and ultimately improve the economics of AI inference. And as AI infrastructure becomes more heterogeneous and more complex, we believe the value of that programmability increases, further differentiating NAPA tech and strengthening the moat around our adaptive NIC architecture. That combination of adaptability and programmability is at the heart of AI infrastructure business we're building. And we believe this growing relevance combined with the differentiation of our programmable architecture is an important part of the long-term value creation potential for NAPA tech. With that, I'll hand it back to Klaus to take you through our financial performance and outlook in more detail.

Thank you, Karthik. We delivered strong revenue growth and improved operating performance in Q2 while maintaining disciplined cost control. As Karthik mentioned earlier, our revenue in Q2 was $7.4 million, up 55% compared to Q2 last year. In Danish krona, revenue increased 52% to DKK $48.1 million. Our core infrastructure segment is driving profitability in Q2, while the activity in the AI infrastructure was driven by early customer qualification orders coming at low margins due to the limited quantities produced. When production increases, the marginal unit cost will decrease and margins improve. Our gross margin was 67.3%, slightly above Q2 last year and within our guidance range. For the first half year, Revenue was DKK 84.7 million, up 53% compared to last year, and gross margin was 68.3%, essentially in line with last year. Staff costs and other external costs were 41.2 million Danish kroner in Q2, down 3.4% compared to Q2 2025, reflecting continued cost discipline. EBITDA improved significantly to a negative DKK 6.6 million compared to negative DKK 19.6 million in Q2 last year. So while we are still investing in the business, the operating leverage is clearly improving as revenue scales. Free cash flow in Q2 was negative DKK 35.3 million, mainly driven by working capital movements during the quarter. Net cash flow from operating activities was negative DKK 32.1 million in Q2. The main driver was a DKK 26.1 million negative working capital adjustment, primarily reflecting backloaded invoicing in Q2 and a ramp up of inventories to support expected customer demand. For the first half, year net cash flow from operating activities was negative DKK 36.9 million compared with negative DKK 44.3 million in the first half year of 25. Free cash flow was negative 41.1 million Danish kroner which is an improvement compared with negative DKK 50.6 million Danish kroner in the first half year of last year. Networking capital increased from around 73 million at the end of Q1 to around 99 million Danish kroner at the end of Q2 due to the increase in inventories and receivables as mentioned. Cash and cash equivalents were DKK 62.7 million at the end of Q2 and including on ground committed credit facilities of DKK 21.6 million total available liquidity was 84.3 million Danish kroner. The year-to-date cash development reflects both the improved operating performance and the higher working capital tied to inventory and customer timing. We continue to manage the business with a strong focus on cost discipline, cash preservation and ensuring that working capital supports expected production ramps and customer demand. Our revenue guidance for the full year 2026 is unchanged at DKK 200 to 240 million, corresponding to approximately 32 to 38 million US dollars. And as Karthik mentioned, we are seeing demand move towards higher speed, higher value products, which carry higher average selling prices. As that mix continues to evolve, revenue growth will not necessarily translate proportionally into unit growth. Furthermore, we are expecting lower than originally anticipated units sold within AI infrastructure in 2026. This leads us to a lower unit guidance for expected units sold in 2026 to the range of 7,700 to 9,700. We maintain our gross margin guidance of 60% to 70%, though you should note that in the next quarters, we expect gross margins to be lower following a higher share of AI infrastructure revenue coming at a lower margin and increased component prices here under especially memory. Staff expenses and other external costs are expected to be 170 to 180 million Danish kroner, while staff costs transferred to capitalized development costs are expected to be 5 to 8 million Danish kroner. Both are unchanged. At the midpoint of our guided range, EBITDA would be negative at around DKK 25 million for the full year. And as always, our outlook remains subject to normal risks, including currency movements, market uncertainty, trade barriers, and supply chain volatility, which we continue to monitor closely. As we wrap up today's presentation, we would like to invite you to visit NABATECH at one of these upcoming events. Our full year event plan is shown online at the link provided. If you happen to be in one of these great cities during the coming period, we would love to meet you in person. With that, we are now ready for the Q&A. Operator, we are now ready to take the first question.

Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Your first question comes from the line of Christopher Bjornsson of D&B Hanyangi. Your line is now open.

Hey, good morning, and thanks for taking my question. So first of all, on the core info segment, it seems to be progressing well. I would just love to hear Kartik's reflections on that business after being in the company for a while. I think previously, at least the previous management was more excited about the AI infrastructure segment, but now it seems the core infrastructure is also booming. And I think some of the traditional customers within that space, for instance, within trading and financial services have surfaced as some of the big buyers of AI computing and billions of dollars from the likes of O'Neill Cloud and new acceleration companies. So you see an opportunity for you guys to be attached to those ramps within the more traditional base, or is that something you're not necessarily playing in? Just your reflections on the core info segment going forward, if it's exciting or not, would be appreciated.

Hey good morning Christopher and thank you very much, as always, for your question, we do feel the core infrastructure market is is got a huge Sam and as part of that Sam. We as nap attack were partaking in that Sam in a fairly limited capacity till now with the single product that we call capture. And in that space, market signals are positive and we see a resurgence in demand in there as reflected in our earnings. As a core infrastructure market is recovering and the demand signals are growing, we remain excited about the core infrastructure space as well. Of course, the AI infrastructure market doesn't need any explanation. It's very, very exciting for everybody. It's dynamic in nature. And we are very well placed as a company with our programmability to participate in that success. But at the same time, our focus remains unchanged on the core infrastructure side as well. That's a market that we understand that that's a go to market that we understand the customers and the partners are something that we have worked with for many years. So Christopher, that is the core infrastructure market remains a focus area for us over and above what we're doing in the AI infrastructure space.

Well, just a double question on the AI infrastructure space. So I think first of all, on the current lead customers that have given you these initial orders, maybe you can't say too much, but I think last quarter you gave them a tip on how you're developing or progressing. with their next generation efforts. They have new products coming out, new architecture, just how you see yourself being positioned to have a role there as well as they move to a completely different architecture on their main compute side. And then secondly, on AI Infra, just any updates, Morgan and Areth, on other opportunities within AI Infra, just how those are progressing, what kind of roles are you seeing there?

and kind of if you see any timing there you can comment on beyond the matrix that would be appreciated as well awesome sounds good yeah on on the uh that our leading ai infrastructure customer as you know there's a lot of uh industry information available not just on how uh their individual next generation architecture is evolving but also in the last six months or so, heterogeneous compute has become pretty much commonplace. Anytime you hear AI inference, you hear heterogeneous compute in there. The role that Napa Tech plays across both of these individually within our leading customer and their next generation, as well as how we participate in the heterogeneous, they are kind of related, Christopher, in the sense that we went from a dedicated kind of offering uh for their first gen to a more uh industry rdma specific offering that we are working on and that is an engagement that we are currently uh doing with with our customers uh both across the lead customer as well as the industry the industry is gravitating towards rdma and you can see in any journal that now there are four or five different kinds of rdma technology there is rocky and then there is uec there is then there is mrc and then most recently meta announced meta rocky that a very dynamically changing landscape and uh the underlying programmable architecture that napotec has uh now becomes an extremely important weapon for us in in playing in this field as this rdma that is is changing so dynamically and it becomes a differentiation for us that's that's super helpful thank you and then on the the other opportunities anything there anything material you can

the skills in terms of incoming or outgoing calls or opportunities.

Yeah, so Christopher, you have to assume that our pipeline is something that we are actively working on. But right now, it's a little too soon for me to come in and provide you with any sort of guidance in terms of names or numbers. But rest assured that as soon as I am able to do that, you will know.

All right, thanks. I'll hop in the back of the queue.

Thank you, Christopher.

Again, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your next question comes from the line of Christopher Bjornsson of DNB. Your line is now open.

Sorry. You went back in line just to confront him.

That was quick. That's great. I just have to ask, you know, on the cash flow and the balance sheet kind of housekeeping question, you reflected somewhat on it, but just how do you see the runway and how do you see the working capital requirements and so on into the second half and beyond? I see, you know, your current cash, negative cash flow is driven by working capital to a large extent. You seem like it could be on like a, operating free capital basis into positive territory in the second half at some point. So just some reflections on how you see that progressing through the second half of the year.

Yeah, thank you, Christoph, and you're absolutely right. So the reason why we had this cash burn in Q2 was that we built for inventory to meet the demand here in the second half year. And then Q2 was also backload. So we did a lot of the invoicing in June and thereby will first receive the payments for those in July, August. While we go into the second half year, our expectations currently are that we will exceed 10 million in revenues in the coming quarters. And thereby, we should be close to cash flow neutral and hopefully even cash flow positive also in the next two quarters.

Great. Thanks. That's all. Thank you.

Your next question comes from the line of . Your line is now open.

Good morning. I have started with a question on the tier one server manufacturer. You're saying the ramp up there goes a bit slower. I know it's very difficult to comment on specific customers. Are there any kind of things you can share about the progress with that customer you're still working on? several projects with our customers. You have stated previously six ongoing projects, and do you still see the opportunity there as big as it has been previously?

Hey, good morning, Øystein, and thank you for your question. Absolutely. Undoubtedly, the engagement at the technical level remains extremely strong. I think, as I mentioned the last time, these big companies have a very disciplined, multi-phased approach going from qualification to production. And these big companies, unfortunately, also face a lot of management changes. And that's what we are in the middle of. So this is nothing more than just a little bit of a delay in the progress, but it doesn't take anything away from the activity or the size and kind of scope of the overall effort.

That's very good to hear. And on the core infrastructure segment, it is good to see that that is also performing now very well, growing strongly there in the first half of the year. If we look into 2027, what's kind of your visibility for the core infrastructure segment in 2027? Do you have a new design lens to support continued growth in 2027? Should we kind of expect to continue to grow at the rates we are currently seeing, or is this kind of a bit of an extraordinary growth this year in that segment?

Yeah, good question. How much the core infrastructure grows by in 27 A little too early for me to comment on, and I'm pretty sure over the next quarter or maybe a quarter and a half, I can get you better visibility into the size and the rate of growth, Einstein. But I can tell you directionally, we are expecting growth, of course, in our core infrastructure and needless to say, in the AI infrastructure in a meaningful way next year. So we are investing and will continue to invest in both of these segments because we fully expect both of them to grow. How much they grow by, Einstein, we'll come back and give you the numbers.

Okay. Thank you very much. That was all of my questions.

All right. Thank you.

I think there's one more question in the line, right, operator?

Yes. Our next question comes from the line of Lars Knudsen, a private investor. Your line is open.

Yeah, hello. Thank you for taking my question. So I think the CEO of the Matrix, he gave an interview, I think, a few days ago where he talked about that they're deploying one to two megawatt of compute this year and that that will go to 30 to 50 megawatts of compute in 27. I mean, I'm a bit puzzled how to read that because just look at it. It's like a 25x in terms of compute, i.e. also cast. Is that also something that you're recognizing when you have discussions with Gmatrix?

Yeah, thank you for the question, Lars. The conversion of the wattage of these data centers that the compute architecture teams plan and how that gets converted actually into the networking component, which is what Napa Tech provides, the math or the arithmetic there, Lars, is not that easy. But what we have visibility to is a direct forecast and POs that we get from our customer. And that's what we plan based on. And then we, of course, have some level of buffer so that we can plan our supply chain. We're obviously also monitoring what some of these public statements are. And we'll start building our models over time to see how these exact wattage of the data center converts to forecasting units and potentially revenue for us going forward. But still, again, this is such a dynamic business right now, the direct conversion of a component such as what Napa Tech provides to this landscape and getting that equated to the bigger picture of what the megawatts or the gigawatts conversion is, is a little difficult today.

Yeah, thanks. And second, just on the order pattern from the matrix, do you have any insights into the two orders that you have received? Are they for different customers? Is it one customer scaling? And I mean, we're very early in this journey, but the first order was for like Q3, Q4. The second order was for Q1. Will the next order, will that be for Q1-27 or will it be for Q2-27? How do you see the order pattern and what insights to have into which customers they're deploying at?

Yeah, Lars, another question where the answer is tough to predict. All we know is the first order that came in, that's for delivery in 26, and the second order that we announced last month was for starting in Q127. That's pretty much the information that we've been directly provided. Everything else that, all the other questions that you asked, I don't have the answers to. Okay. Okay. Thank you. Thank you, Lars.

Thank you. I'd now like to hand the call back to the NAPA tech team to address the web questions.

Thank you. And we got a question from . Actually, a couple of questions. So I'll just read out loud here. Congrats on the strong revenue growth. Could you add some more detail on how memory cost increase impacts the gross margin? How big of a bill of material is memory? And I think the answer to that one, Anna, is that it's a quite significant part of the bill of material. And maybe let me just give a quick Quick example, hypothetical example, but it gives some flavor to it. So let's play that we sell a unit at $5,000. We have a margin of 70% on that $5,000, so $3,500 in gross profit margin, thereby the COX is $1,500. If the COX suddenly increases to $3,000 due to increased memory costs, we keep the price at $5,000, then our margins would decreased to around 40. If we wanted to keep the margin of 70%, then we needed to sell the product instead of for $5,000 at $10,000, so double up the price. And that's, of course, where it gets a little bit difficult because customers, they also know that memory prices is not increasing that much. So they need to pay double the price for the product they have before. But what we are doing is, of course, to get the highest price we can to get the best possible gross profit margin for Navitek. And then there is a second question here. Given the acceleration in design, how big is your pipeline nowadays? Maybe you want to answer that one.

Yeah, so the pipeline nowadays for both on the core infrastructure side that we announced, the 12 new design wins, as well as on the AI side, it's a growing number for us. For 2026, the design wins that we announced this year obviously will not have an impact, but the prior announcements that we made for design wins, those will obviously come into play for 2026. the the the question is what is what are the core levers to hit the top end of the guidance it really is the demand signals are very clear for us it's uh it's now just a matter of how we manage our deliveries how we manage the pricing uh and we and the guidance that we have provided uh i think that's we're still holding on to that guidance we'll manage it in that range

Yeah, and we are making sure that with the product mix, we expect that we have enough in our inventors to meet the demand to end in the high end of the guidance.

Yeah, one thing I will reiterate, just because the question is in that space. I know we announced that the unit count forecast of the guidance has come down. But I do want to emphasize that the lesser units do come at higher value, higher ASP. for Napa Tech, which we see as positive news. It's because it's now our customers are moving to a higher speed of Ethernet, higher value of our products. And that kind of is the reason why, despite the forecast of units going down, we're not changing the revenue guidance in here at all. So I do want all of the investors to notice that this is the revenue is being attached to a higher value product that Napa Tech is shipping.

Good. And then there's a question from Torre Volant on slide 11. So you say AI infrastructure products come with a lower gross margin. Can you give us a sense of what margin we should be modeling on the production orders and whether that improves as volumes scale?

Yeah, so the exact number of what the margin will be, we will get to know that because there is still some level of volatility on pricing owing to this, the memory changes and some of the other pricing of our components. And as we scale and we will have more visibility, Tori, we'll come back and give you some level of guidance in here. But our objective within Napa Tech, of course, is to continuously improve margins across every possible way we can. And those come from different aspects of managing our supply chain well, managing our value that we add into our solution that dictates the pricing. So those will forever be continuous efforts by Napa Tech to improve the margin in this space. But how exactly we model it with those numbers, we will get a little bit more educated over time.

Thank you. And I think that was the last question we had in the comment space. And I think operator, you can confirm we don't have anyone on the line either, right?

We don't have any questions as of this moment from the conference line.

Perfect. Then I think that wraps up the Q2 webcast. Thank you everyone for participating, calling in and also sending out the questions. Thank you very much. Sorry, there's just come one more question in on the last minute here from Benjamin. Hi, let's say you get an order of 20,000 units instead of 2,000 units like you have today. Would you be able to deliver on this type of big orders?

Thank you, Benjamin, for that fantastic question. I would love to get that order. But the short answer is yes. We have been anticipating a big explosive growth in the AI infrastructure space and have been planning for our supply chain, both across our contract manufacturers, as well as the different vendors in the landscape that we have in our supply chain. So we are gearing up for this level of growth in this order of magnitude.

And maybe I should just comment from a liquidity point of view. What we would like is, of course, to get these big orders, but maybe come a little bit growing so we can also follow it from a liquidity point of view with our working capital, because there is, of course, some commitments we need to do there. And there we need to figure out how to finance if we need to produce such a big order, potentially by getting prepayments or similar. good and i think that's the last questions then so i'll just thank you everyone again for attending so operator i think we are ready to close the call thank you very much thank you everyone for attending today's call you may now disconnect