Smartoptics Group As

Good morning and welcome to Hotel Continental and good morning also to you online. It's a fantastic and sunny day in Oslo and it is a fantastic day for smart optics and a great quarter that we are going to talk about today. I want to start by just a few thoughts to my staff and my team. Thank you very much to operations for always being there, supporting us through the quarter and also supporting us through the relocation of production in Q2. I want to address all of our staff that, much like me, have spent their life contributing to the optical networking industry. Very few people get to contribute to technical innovation that changes humanity forever once. We are starting our second time around now. That's a luxury. To the new people who have joined Smart Optics, warm welcome. You have a beautiful future ahead in this industry. Stepping to the quarter, obviously super strong momentum and really, really good progress overall and in some of our strategic areas that we've been talking about for a couple of years now. I want to start this conversation around the market that we are in. And I think today versus about a year ago or two years ago, there is no doubt the market projections for our market for the coming five year period and beyond look much, much more attractive than they did previously. It seems like consensus is somewhere high single digit to low double digit growth over the coming five years of the industry. So in particular, Signal AI, which is the analyst firm that we have been using for reference, is projecting $16.5 billion in 2025 to grow to $24.7 billion in 2030. It's not difficult to find higher estimates than this. And some people will say this is only a 10% growth. What's all the fuss? I would like to remind you that smart optics game has always been to take market share. We are the challenger of challengers. We are growing faster than anyone else. And we are developing our products to have a larger and larger addressable market. The fact that we have in 2030 another $9 billion to fight for is fantastic for us. That means we can target our technical innovation. We can target our customer activities towards that market and really grow this company for a very, very long time. So great news. You will also notice those of you who have followed us for some time that we are no longer talking about a subset of the market. There are subsets in this market that is growing faster and faster. But with the innovation that we have done in our product portfolio, over the past years, I think it's more relevant to look at the whole market. We are not a pure play long haul player as an example, but we are certainly there in the gray zone competing for long haul kind of applications, a development that has happened in the past year or so. That gray zone is huge for us and it's an important market for us and it will be an even more important market as we move forward. So a great market around us. And broad and high traction in everything strategic that we have been talking about for several quarters. We normally don't report order booking, as you know, for many, many reasons. But from time to time, we talk about our order booking strategy. to illustrate a phenomena or to give you a sense of the traction that we are feeling on a day-to-day basis. And I will do the same today. What I want to say is, first and foremost, great traction through the quarter, great order booking through the quarter. Our book-to-bill is considerably higher than one and very stable. If we look at the United States of America, to illustrate the width of our market, we have orders from about 100 accounts. By far, the largest one is a US tier two operating across the United States. It's an unannounced customer, so it's not someone that we've talked about. They represent a little bit above 15% of our order booking in the quarter. uh two runner-ups um sort of um one to one point five million dollar accounts in the quarter are regional tier twos also from the csp segment and so um clearly and we have several accounts like that as an example in 2025 our largest customer was a very similar tier two operating in a number of states, then they are not among the three that I'm talking about here this particular quarter. So great success in what we have referred to as our large account strategy over the years. But that's not it. We have California-based ISP, sort of million dollar account in the quarter. We have financial verticals of trading, algorithmic trading and such. around about a million dollars. And we have our first individual neo scaler placing orders in the same range, million dollar orders. So great progress also in this emerging segment of neo scalers where we have a handful or more customers today. EMEA looks similar from one perspective, but still a little bit behind the US. We have orders from about 125 accounts, million dollar plus bookers in the quarter include, for instance, government in Nordics, tier two business to business operators, so typically data center to data center in the UK. And we have an algorithmic trading company placing orders north of $1 million in the quarter, operating on a global scale. So great potential in those type of accounts too. Asia, from an order booking standpoint, good news. We have opened up one new market in the quarter. We have a between 500 000 and a million dollar po from the philippines which is a market where we have not done business before so our best dev activities in asia are scaling and you will see also when i talk about revenue that there is some good news also in in in the revenue so Great position. I will leave the numbers. I will let the numbers speak for themselves here. And now Stefan will come back in great detail. We have a lot of new shareholders that have joined and invested in the company over the past months and year. So I want to, as we normally do, take a step back and talk a little bit about the drivers in our market. What one should remember is that the mega trend that we are leaning on is something that we have referred to as the ever-growing demand for bandwidth. It's always been there. Drivers come and go, drivers accelerate. All of the forces that we have talked about over the years are still there. The need for modernization of global transport infrastructure, particularly in the metropolitan and regional area networks, to support higher bandwidths, the cloud applications, the mobile, the streaming, all of that is still there. And now the ever growing demand for bandwidth has a new best buddy called AI. So AI is the second mega trend that I talked about that will change humanity forever. And we are very much part of contributing to that development. If there are people who still doubt AI and the existence of AI and whether or not that's going to affect us all and how we do everything in the future, my recommendation is think again. So it's nearly impossible to talk about our customer segments without talking about AI. So I will take that stance today. So we have three customer segments, cloud and AI, network operators and enterprise. And I think what's happening now and what will happen in the coming decade is going to be very, very relevant for all customer segments. So cloud and AI, those are the cloud service providers, the ICPs, internet content providers. We package also all of the content delivery networks and such into that and obviously the neo scaler. So what's going on in the world is that data centers are being built at a pace that we have never seen before. A lot of those data centers are loaded up with GPU technology, and it's at massive scale. So the GPUs are instrumental machines when all of you, the public, are using AI. All of the compute is happening. All of the models are running in these GPU-enabled servers. And there are hundreds and thousands of those per data center. And there are many, many, many data centers and it's still growing. So in order to build one of these data centers, as I said in Q4, you need power. Number one, you need cooling. Number two, so water, cold climate or whatever, or space for that matter, or submerged or whatever really. And you need connectivity. So connectivity is what we do. Fibers in the ground, we light them up and we send massive amounts of data over those fibers. to connect those data centers to, for lack of a better term, the internet, to reach the users, and also in a growing fashion to connect those data centers together to allow for the emerging machine-to-machine communication between these GPU clusters, which is going to be huge. So owning a data center and owning one of these GPU parks or whatever it might be, you always have the option to buy network products and software and services from Small Optics. and build your own network. That is happening. You also have an option to place your equipment in a multi-tenant data center owned by someone else who then may buy the network connectivity from smart optics and connect this data center to the world. You may also use either of the two models that I just referred to and call a network operator, a CSP, very much like the three customers that I talked about being our lead order bookers in Q1, and ask them to supply you with bandwidth to connect your data centers. this is happening in in the whole world for us so as many of you know we have no direct engagements with the hyperscalers of the world but we have a lot of um indirect hyperscaler related business sometimes named accounts as an example this operator needs to build this network for whoever it might be, say Meta as an example. And we have a lot of general demand from our operator customers who are selling a lot of capacity to hyperscalers. But hyperscalers are not alone. It's neoscalers and a lot of other organizations who are building that sort of infrastructure. So high growth for us in the network operator segment, also driven by the same development. Enterprise is an interesting one because I believe that's going to be a very, very important market for us in a few years. We're seeing that happening. We're seeing the enterprises realizing that the token cost for running every AI demand that you have is going to be a significant part of your overall cost in the company. Hence, you will start to invest in your own AI infrastructure and GPU technology to run your models, to run your workloads natively or in the data center somewhere. So I think that, and this is not for all AI workloads, but it's for some. So I think the enterprise community will build this type of infrastructure for a very long time. We, Smart Optics, we have already started to build our own infrastructure to run our AI models that our customers will connect to and run our models when they buy our software products that are AI enabled in the future. So a great market also there. So fantastic market and Smart Optics is here to service that and we are here to stay and we're here to continue to develop our products to become more and more and more relevant. I want to dig in a little bit more into the quarter and look at the numbers. We start as usual by looking at the different geographies. In 2025, it's been an obvious pattern that the US in particular and the Americas region overall, which is in our case, 95% US or something like that. It's way ahead. Great traction. We're winning. a lot of new accounts and there is just growth everywhere and opportunity everywhere we look. And the development between Q4 and Q1 is a very unusual development. The normal seasonality in our market is that Q1 is the weakest quarter. We're actually sequentially growing Americas to an all time high in Q1. That is a proof point of the market around us and our performance in that market, our attractiveness for our customers. I also talked last year a lot about MEA and how I think MEA will catch up. That was based on the reality that MEA in 2025 looked a lot like the US in 2023, meaning large accounts, a lot of business development towards larger customers, projects that we can name, identify and design for future wins. And MEA has gone through the first phases of that now. We have won a lot of new customers in the area in q1 and the drivers in emia the engine in emia is built largely on the nordics and uk ireland the other regions are performing absolutely okay but the growth for right now it seemed to be the strongest in nordics and the uk But a fantastic, fantastic quarter for Team MEA. APAC is still very small. It is a best dev market for us. What we see in Q1 is that our large and established market, Australia, is fairly weak in the quarter. the $1.2 million doesn't include a lot of Australia. Hence, for the other geographies, it's an okay quarter. There are not that many larger projects in the quarter. There is one sort of $300,000, $400,000 project, and that's in South Korea. So that's a second example of how we're opening up a new market. South Korea has also been more or less virgin territory for us in the past. So overall, good progress with our business development activities in APAC. It is still Japan, it is still the cluster of countries from From Singapore down through Malaysia and Indonesia. It is still Australia and New Zealand. And now we're adding the Philippines and South Korea to the mix. And we have opportunities in all those geographies that are significant for the future. Looking at products and growth and revenue, we can clearly see that, well, Same as always, where we invest money, we get the good growth and returns. So small optics has been on a journey for the past seven, eight years to invest in our solutions, software and service businesses. Those are very tightly connected to each other. When we sell solutions, we sell software and services. And occasionally we sell software and services when we don't sell solutions. But that's something we still have in the future to develop our products, to become more multi-vendor, to be a pure software play in certain applications and certain areas. But today they are largely connected with each other. And we can see the same phenomena as we saw in the US that we have sequentially growth Q4 to Q1. which is great and in my fairly long career in the industry, actually unheard of. Again, demonstrating smart optics attractiveness in a fantastic market. We're also growing business area devices and that's important because that has been now for more than a year. It's more like one and a half year now when we have put a little bit more focus on that, have put in a new leadership. have done great changes, have invested in our software platforms to better support that business. And I'm very pleased to see growth in that segment. So it's following the market. It is time to talk about details of the numbers and I will invite Stefan to do that. Welcome, Stefan.

Thank you, Magnus. So the revenue was a very strong quarter. We have an increase of 59.6% to 22.9%. And that, as Magnus said, was mainly driven by high growth in Americas and EMA, mainly within business area solutions. The gross margin in Q1 was 48.2% compared to 47.3% last year. and in line with the full year gross margin for 25 of 47.8%. The underlying margins are still consistent quarter over quarter and we believe that the full year 2025 gross margin still serves as a good guide going forward. The EBITDA was 2.7 million compared to 1.2 last year with an increase of 1.5 million and that is split up in the revenue. made an increase of 4.2 million. And the employee benefit expenses increased with 2.2 million from 6.7 to 6.7 from 4.5 with 48%. And that can be broken down into some components where we see 11% is related to non-recurring costs related to the consolidation of production. and that's around 0.5 million. We have 10% that is an FX component. We have 70% of our cost in NOC and SEC and we have 20% in US dollars. 14% of the growth is related to organizational growth where full-time equivalents grew from 129 to 147. persons and that includes new hires of sales in the US that with a mix with more people in US the average cost per employee goes up remaining 13% is related to inflation annual salary increase and variable compensation related to the positive development in sales. Other operating expenses increased from 1.1 to 1.7 and that component, half of it is based on employees and half of it is related to the development in sales. The EBITDA margin increased to 11.7% compared to 8.4% last year, and excluding the non-recurring cost, the EBITDA for Q1 was 13.7%. The EBIT margin was 7.9 compared to 4.1 last year and excluding the same non-recurring cost, the EBIT margin would have been 9.9%. Cash flow from operations in the quarter was good, 2.2 million compared to 2.6 last year and we have a stable working capital. Looking on our balance sheet, we have an equity ratio of 56% compared to 58% last year, and the decline is a result from the growing balance sheet. Non-recurring assets amounts to 9.1%, up from 8.6% last year. Current assets is 39.3%, up from 34.4%, and is related to mainly inventory and trade receivables. Cash 8.4 million compared to 9.9 last year. We have available credit facilities of 7.7 million dollars equivalent to 75 million NOC. We have a high focus on cash. We continue to manage trade receivables. but we expect inventory to increase and that will then result in an increased working capital. Non-recurring liabilities, a small item, 0.2 million, and current liabilities excluding deferred revenue amounts to 11.4 million, down from 11.6 last year. Deferred revenue is still growing and is now 13.6 million up from 10.2 last year. The working capital amounts to 14.6 compared to 13.6 last year and is up 100k from last quarter and there's no major changes. Inventory is mounting to 18.4 compared to 49 last year. And the increase is related to longer lead times in components. We see also that, as I said, higher levels of inventory are essential to secure the future growth in sales. and we see a very low risk in our inventory. Trade receivables amounted to 19.1 compared to 18.4 last year. We have had normal collections in Q1 and we have a higher share of sales later in the quarter compared to last quarter. We see no risk in our trade receivables. Trade payables has decreased to 5.7 compared to 6.9 last year and are on par with last quarter. Our payment terms is mainly 60 days, but we have some suppliers that force us into 30 days. Net other short-term liabilities increased to 17.2 million and that is mainly related to deferred revenue as I mentioned and also we have net tax liabilities of a little bit more than a million. The board has proposed a dividend of 0.6 NOK per share and the company is emphasizing an increasing or stable dividend. We see a stable and positive financial development with a solid financial position. and a strong cash flow. The dividend is still pending, AGM approval later today. Thank you all, and back to you, Magnus.

Thank you, Stefan. I want to talk a little bit about the long term targets. This slide is the same one and these targets are the same ones that we've been using since mid last year. So the company at the moment, me and my team, we are in the middle of our yearly strategic review process. We are also in a market that has changed dramatically. The outlook for the coming several years is absolutely phenomenal and we are of course adjusting to that. In Q2, we will release new targets. And I would like to say that there are a number of things that you should expect and there are a number of things that you should not expect. There is nothing wrong with the targets that you see in front of you now. They are strong, solid for us in the company and for people deeply involved in our industry. They are understandable But I don't think they are good enough for a broader audience. We have to clarify what do we mean and what are we really striving for in the coming five years? You should also expect more KPIs from Smart Optics where you can track our progress in greater detail and that we can really lean on when taking our investment decisions going forward. So an overall improvement in that area, but not significantly different. What you should also expect is continued investments. We have a fantastic opportunity ahead of us. And as I've said for several quarters, not investing in the company's future at this point would be full out foolish. So that's the path we're going. And that's the future we have ahead of us. With that, we are done with the presentation part of today, and I would like to hand over to Per, our moderator, if there are any questions.