Smartoptics Group As

Good morning and welcome to Smart Optics Financial presentation, financial report for Q2 2026. It's great to be here. It's fantastic times for us. I hope also for you guys. Most of you should now be enjoying some sunshine. I hope you are. And thank you very much for taking the time to spend some time with us this morning. Next slide please Not only are we delivering a quarter in which I expect us to grow faster than anyone else in the market, but we are also We have also started our journey towards the next goals for smart optics for the next big things that we have ahead and and thus we want to spend a little bit of time in this presentation in this call to talk about that to introduce our thinking around the future for the company but as usual let's turn to the main happenings in the quarter and I will leave the details of the numbers with very few exceptions to Stefan's part where he will cover those in great detail in in a few minutes. We can only conclude that we're continuing to have a fantastic America's fantastic USA stellar performance by Team USA but since a few quarters we have been discussing an increased momentum and increased traction particularly around large accounts in Europe and this quarter we're seeing the result of that so also A fantastic Europe with growth in all sub-regions and fantastic growth in UK Ireland and the Nordics in particular. Our business is increasingly driven by AI and indirect hyperscaler business. And as an example, this is now happening across the globe. So it's in every region we are working with these type of opportunities. As an example, our South African partner, TransmissionCo, together with us, are building a network for a hyperscaler in Africa in the quarter. So important momentum there. We can also see that the traction from Q1 is continuing with book to bill comfortably over one in the quarter. Exactly the same scenario as in Q1. Gross margin is a little bit down in the quarter. This is related to one project, one customer in the quarter, where we can see that the difference between the lower gross margin in the quarter and a perfectly normal quarter that we've been delivering recently, all of the difference there between the two numbers is related to this case. So this is a case that has been restored, that will be restored in Q3 and onwards from a margin perspective where we are choosing to support our customer in a critical phase where we were undergoing qualification for a number of large applications. And this is a U.S. Tier 2 that is building networks across America. So a very good win and a very good proof point of our large account strategy that is resulting in short-term, a little bit lower GM. We have been talking about this for years, that we want to have the flexibility and need to have the flexibility to act In the best interest of the company and in particular our growth journey when we need to and that's the full story behind it. So no big drama around the gross margin from my perspective. Quite expected in fact. And yes, so obviously we are here in in Stockholm today from our new super nice Main office location and production and so on and so forth As you all know we were talking in Q1 about Q2 being a catch-up quarter Of course catching up towards a normal Q2 performance Versus Q1 and we can see that we are Way up there in the upper range of what what normal seasonality is So so a very good performance and in particular bearing in mind that We delivered about 11% of the revenue in the first month of the quarter. So the company was effectively shut down from a delivery standpoint for a few weeks and the team has performed really really well so thank you very much team operations for your efforts through the quarter so reminding everyone what have we done well we have moved all of our production facilities the two of them into one and going forward the work to make this even more efficient is going to start and continue for four years but clearly we're demonstrating in the last two months of the quarter that our capability is already at at the very high level right so revenue and the geographical spread as I said fantastic performance in in America and there is no doubt it's a record quarter over there. Largely driven by the results of our efforts in the large account strategy over the past several years. We can see now that large parts of our revenue, still being fairly broad, but large parts of it is now coming from The accounts that we have been talking about typically regional tier twos and tier twos and and similar both data center operators and and network provide network operators Delivering bandwidth to to the data centers In the region so very good America Percent growth Quite expected That we would see a good MEA After several quarters of having Very good Traction and very good win rate In the larger Projects that have been out there For tender and similar So All good And as I mentioned earlier Good growth in all sub-regions Dachis in Europe, Southern Europe But stellar performance in the Nordics and UK Ireland APAC is still project dependent as we point out in the headline here and we can see quite modest growth in APAC however what we are seeing in this region much like the other ones is that the larger data center AI related projects are popping up in several regions within the APAC territory and we have developed our partner landscape in the region we have of course developed our product to have a better fit going forward and we have invested in the region with more people working for and with smart optics so I'm very positive about APAC for 2027 and the second half of 2026. Timing is, of course, a little bit uncertain, but I think that we can see a much better performance from the APAC region going forward. So that's very nice to have yet another contributor to our growth. Product Mix As usual, it is the more advanced products that is sold together with our software and service offering that is leading the way. Those of you who have been with us for quite some time probably noticed that we have Shuffled around the order in this slide So and we have done that to clearly outline the fact that solutions software and service belong together nearly to 100% and So fantastic growth. This is important because It's telling us that where we are investing and we are also achieving growth So that's always comforting. It is a proof point that our product roadmap, the products we have developed are the right products for the market. The regions and customers and applications that we're going after are the regions and customers and applications where we can see growth. So very, very good proof points. As you all remember, we have since some time also put a little bit more focus on our business area optical devices with Bjorn Andersson leading those activities for us since quite some time now. We have been engaged in really upping the performance of the back end of that business Investing into our software platforms, investing into our production tools, investing into the tools that our customers are using to configure these products for their live environments. And we're seeing that much like the previous two quarters, very good growth in business area devices too. So it's no longer an anchor for the company anymore. It is yet another growth vehicle contributing to the overall revenue.

So I'm very pleased with that situation.

I will hand over to Stefan to take you through some of the details on the financials.

Thank you, Magnus. The revenue increased 54.6% to a record high of 28.9% compared to 18.7% last year. As Magnus mentioned, we have had very strong growth in Enea of 112% and in the Americas of 36%, primarily driven by business area solutions. The gross margin was 46.1% compared to 48.6% in last year and 47.0% year-to-date. The lower gross margin is fully related to the breakthrough deal that Magnus mentioned and follow-on business where this customer is expected to deliver normal margin levels going forward. The underlying gross margin remains stable quarter-over-quarter and The full year 2025 gross margin remains as a good reference for future quarters. We have a record EBITDA of 4.5 million compared to 2.6 last year, up 1.9 year on year. The strong revenue growth increased gross profit by 4.2 million, more than offsetting higher operating expenses. Then fee benefit expenses increased 29% to 6.7 million compared to 5.2. Main drivers is the organizational growth of 21%, where FTE grew from 132% to 160%. people, including the expansion of the US sales organization earlier, end of last year. The ethics impact is impacting 3% and the annual salary increase and other factors are contributing with a 5% increase. Other operating expenses increased to 2.2 million compared to 1.4, reflecting the business growth and organizational expansion. Total operating expenses in relation to revenue amounted to 31% compared to 35% last year, so an improvement. The EBITDA margin improved to 15.5 percentage points compared to 13.7 last year. The year-to-date margin increased to 13.8 compared to 11.4. If we exclude non-recurring costs relating to the relocation or the production, in Q1, the year-to-date EBITDA margin was 14.7, a difference of 0.9 percentage points. The profitability is improved despite continued investments to support the future growth. The EBIT margin improved to 12.5% compared to 9.8% last year. And the year-to-date, the margin increased to 10.5% compared to 7.3%. Excluding non-recurring, the EBIT margin yesterday was 11.4. The operating cash flow amounted to positive 0.9 compared to negative 0.5 last year. Positive operating cash flow despite a 2.2 million increase in working capital driven by the higher sales and deliberate inventory build-up to support the future growth. The balance, the equity ratio was 42% compared with 53% a year ago and 56%. The decrease is mainly explained by the recognition of the new Stockholm office lease under IFRS 16 which increased total assets without a corresponding increase in equity. So total assets increased to 66.6 million compared to 49.9 last year and that's mainly reflected by the Stockholm Office Lease addition and as well as inventories and trade receivables that increased in line with the continued growth of the business. The increase in assets was financed mainly by Corresponding lease liability to the Stockholm office As well as higher trade payables Reflecting the higher level of business activity Despite the dividend paid out during the quarter Total equity increased to 27.9% Supported by continued profitable operations Cash ended at 2.1 compared to 3.1 last year. We have available credit facilities of 7.6 million, equivalent to 75 million NOC. We have a high focus on cash, including continued management of trade receivables. The working capital increased to 16.8 million compared to 15.7 last year and up from 14.6 last quarter. The inventory increased to 21.3 compared to 16.8 last year and up from 18.4 last quarter. An increase versus last year is mainly driven by longer component lead times and a deliberate strategy to maintain higher inventory levels to secure Product availability and support the future sales growth Inventory quality remains high with a very limited inventory risk Trade receivables increased to a record high 26.4 million compared to 19.8 This is of course reflecting the highest level of sales We have had a back-end loaded quarter with more than half of the quarterly revenue invoice during the final month of the quarter. We have had no normal collections and no increased credit risk. The trade payables increased to 12.7 million compared to 7.7 last year and up from 5.7 last quarter. We have had higher inventory purchase towards the quarter end, and the accounts payable mainly consists of suppliers with 60 days payment terms. Net other short-term liabilities increased to 18.2 from 13.2 last year, and the largest item is deferred revenue that increased to 13.3 compared to 10.7. Then we also have the tax liabilities that increased to 2 million, reflecting the higher taxable profit level. Thank you and back to Magnus. Thank you.

We will now leave Q2 behind and start looking forward into the future and give you a taste of the new financial aspirations and the new strategic choices that have been worked out. through the first half of this year. The material here is short and sweet, I hope, and I'm expecting that we will continue to talk about this now over the foreseeable future and clarify more and more the material and how we're progressing against that. So the first thing to note is that the ever-growing demand for bandwidth is continuing to drive our business. Our business is the growth, the underlying growth is broad-based. But of course, it's impossible to overlook the fact that recent CapEx investments in AI and AI data centers is coming on top of this as an additional driver. Reminding people that building an AI data center on a cornfield in any tier two market is pretty useless unless you can connect it to the bigger cluster and to its users. So the technologies that we are working with are absolutely instrumental to make this work. It is of course a privilege for us who have been dealing with optical technologies for a longer period to see a second wave of really changing the behavior of the human kind going forward. Maybe big words, but that's in fact what's happening. Smart Optics has over the years systematically and strategically been working to develop our product offering, hardware, software and support services to address more and more applications with the purpose to broaden the addressable market for the company. We have always viewed ourselves as a metro optical networking player leaving the long haul market to others to deal with. But we have since some years started to move into that long haul market. And we have done it with pretty large steps. Now building really high capacity networks, terabits of bandwidth over thousands of kilometers. It is no longer true to say that we are a pure metro play. This journey will continue. So Adding a substantial and fast-growing market onto our list of opportunities is, of course, a great way for us to scale the addressable market. So why can we do that now and why is it a suitable timing for us to do that now? I would like to point out a few facts. Number one, the way SmartOptics has developed. We have built a product offering that is highly suitable for some of these applications, these longer haul, higher capacity, not for all yet. But in terms of suitability, one should understand that of course you can build the whole internet and all AI infrastructure using only smart optics products but on the peak and most advanced applications we would probably not be cost effective today the journey we have ahead of us is to become a very cost effective and technically capable alternative also For some of those more advanced applications We can do that today Because if we look at the longer whole market Traditionally who has been building those type of networks If we go way back a long time You would see that there were a handful of selected tier ones Who were building those type of networks As an example AT&T in America Those are organizations that come with a large set of requirements, a very, very big backpack of legacy equipment that needs to be supported, and so on and so forth. That is not true anymore. Of course, the hyperscalers have been building long-haul networks for many years, and we're now seeing new players coming in, To support the hyperscalers and to support the build-out of AI infrastructure. So a lot of new network operators, new challengers are building these type of networks. We're seeing neoscalers building fairly long-haul networks to support their business model, etc., So the market has changed, and we believe strongly that that market is a market that's highly suitable for a company like Smart Optics. Not only our products, but also our role as a challenger in the market and the cost efficiency that we can bring to the table. The other thing that has happened over and above the market changing is, of course, that technology has evolved. So, in the past, you have nearly been forced to deal with a high degree of vertical integration to address this market space. And we see now that the merchant technology that we use in our transponders and transponders are becoming very, very capable and indeed becoming the go-to choice for many organizations, making also our products technically more suitable for going after the larger and more advanced opportunities. This will not come without an effort from small optics So we are going to move into an investment phase that we have already started and since some time back So we have some investment areas that are incremental to what we are already doing and So it's not a revolution. It's an evolution of the product offering and and And those three investment areas are simply to build AI-ready optical networks to deal with interconnected clusters or scale across, as we say in the market lingo that we are using. So basically, when you outgrow one AI data center, you need to build a new one and you need to connect them together. So that's what we're talking about. In order to do that, we need to improve our products and develop a few new alterations of our products to support longer reach and higher capacity networks. And those products are now on the drawing board and we have a way forward that we believe in very much. Some of it being of course Not suitable to share to the open market yet But it will be announced and released down the line the third area of investments where we are getting exceptionally good feedback from our customers on the work that we have already done and If in the software space agentic AI software and automation where we've had the luxury and And not only to have the right team in place to do this But also to have the right timing to develop new software platforms where we can utilize everything that's that's available to us through modern software development and Which is of course more difficult to do if you have a huge legacy to deal with while developing your product. As I said, we're getting very good feedback from our customers. We believe that we are ahead of competition broadly. And we believe that some of the ideas that we are bringing to the table are unique and very, very beneficial for our customers. So stepping into a new era of growth is the ambition, and we will, as we have always done in small optics, plan, execute, measure, change the plan as needed, execute and measure again, systematically invest into our products. Systematically invest into scaling our organization to also utilize new technologies to enhance our operations and to become a much more efficient company overall. When we measure ourselves against competition and peers, we can see that already today smart optics is producing a higher revenue per full-time employee than most other organizations. And we want to continue to scale that in order to outperform the market in yet another way. So that's something to study going forward, how we're performing against those metrics. And that's something that I expect us to talk a little bit more about down the line. And when we are there, lead and really become a top three vendor in the target markets in North America and MEA and increasingly APAC. That is the ambition. So, of course, scenario planning is everything. And we've been doing a lot of that in the spring here to give us a solid roadmap forward, also a financial roadmap that we believe in, that we think that we can execute on. And when we do that, we're seeing a number of scenarios. and we therefore provide you with a range in terms of revenue potential the three to four hundred million US dollars being the next target for the company and of course to achieve a CAGR of over 25% going forward We are very committed to profitable growth as we have been over the years, and we're now starting our journey towards EBIT margins above 16%. Having said that, I think it's important to look at the roadmap that we have ahead of us. I think that the EBIT margin target that we are talking about here is something that we're striving against and that we are absolutely targeting and we're absolutely seeing an upside to those numbers when we do our modeling. But it's something that we want to talk about for the second half of the planning period. My focus and the team's focus is now going to be on revenue and revenue growth and the investments that we need to do to achieve that. So only keeping one eye on the long-term EBIT target for now and coming back to that in in a while. So this is it. Full throttle ahead. We have a just do it attitude in the company and we will move forward. With that, I would like to hand over to Per to look at questions.

Yes, we will start with our analysts on the call. First up is Kristoffer Wang Bjarnsson from D&D Carnegie. Kristoffer, unmute yourself and ask your questions, please.

Good morning. Congrats on the great quarter. I just want to start out with the issues you mentioned in the first couple of weeks of the quarter where you essentially said that you were, for battery purposes, shut down when it comes to Deliveries I think That kind of Implied that If you had Moved more Effectively over To the new site You know Your revenues Would be More into the To the 30s Million dollars I guess you said In the past That you shouldn't Expect Neutron Quarters To go towards The 60s But given that You kind of You are Supply constrained Rather than Demand constrained And you have A decent Look to big Well above One That like The underlying Demand Output as an indicator for second half is quarters in the in the 30s rather than in the 20s or other particular component Supply issues that makes it difficult to kind of enter into the 30s in the in the second half quarters. Is that my first question?

Yes, thank you. Thank you, Kristoffer. So as you know, we are not providing near-term quarterly guidance, and I will, of course, not do that here either. What I can say is that clearly our growth will not be limited by our own capability in the second half of the year. Production is fully up and running, and as Stefan mentioned, we delivered about half of our revenue In The Last Month Of The Quarter So No Problem There The Remaining Risk In This Market Is Of Course The Component The Component Shortages That We See Out There That Is Something We've Been Talking About For A While It's Something That We Need To Continuously Work With And And and we have very very strong partnerships and we get very very good support from our component suppliers today actually delivering better than expected so our hope is of course that they will continue to do so promise one thing and deliver more we have certainly done our homework you know, doing revenue planning for Q3, Q4, Q1 and Q2 now. Scaling our inbound component purchases, etc. So, yeah.

But just then backwards looking, are we correct to understand that you had two weeks of potentially zero output and that revenues would be in the circus if you didn't have those additional hiccups at the beginning of the quarter?

Well, you know, we're talking theory here. I don't know what it would have been if we had not had those two weeks, but clearly we're delivering half of our revenue in the last month, and of course the revenue could have been much higher if we had had the similar performance through the quarter. But it was three weeks and I think a good data point is the fact that we delivered about 11% of our revenue in the first month.

So really not a lot. Okay, great. Thank you. And then just moving on to the long-term targets. Can you just like, you know, you have a good visibility on like the market forecast and so on, but can you help us understand a bit like What kind of visibility you have on the, let's say, the 27, the 28, the 29. I guess there's not really a good degree of backing that up, but maybe more visibility on projects you expect or stuff you're already planning to build. Beyond the market forecast from Signal AI, what kind of gives you confidence that there is business out there for you to list revenues as materially as you're kind of now indicating? That would be helpful.

Absolutely. So the pipeline of projects that we are working with is considerably higher than it has been in the past. Of course, we have a very close dialogue with our customers around projects that are to materialize in 2027 and beyond. We are of course guiding our customers to give us the visibility as much visibility as they can because that's the only thing that's jointly going to help us through any upcoming supply problems that we can see. We're seeing some of the larger competitors we have in the market now guiding that they have basically filled their order books for the year and beyond. which means that choosing smart optics because we are the nimble player in the market who can deliver quickly is going to continue for a considerable time and last but not least of course the traction we have in our large account strategy and of course the amazing opportunities that we have ahead of us in relation to that is also giving us a lot of confidence. It's a journey. You need to get through all of the steps that you need to get through. But in general, I would say that what you have seen of the large account strategy so far that has been driving our growth And the opportunities we are working on now are bigger rather than anything else. So yes, so we have data points that give us confidence.

I think and then just finally, more on the on the investment side, you mentioned, you know, more focus on revenues than the learnings network, which is I think it's great, but I think you added a lot of people during the quarter, now at 160 FTEs, which is a record number of ads, both sequentially and year-over-year, as far as we can tell. Is this kind of a new ramp, which puts you at a number of people that you targeted for the year, or will this new pace of hiring continue in the next couple of quarters, and then as an add-on to that, like 30 new people quarter over quarter like what areas are you primarily hiring in right now?

So the 160 is a little bit inflated as you know we moved production and those are still counted as FTE so we have 10-ish people that will be removed in the second half so it's not that dramatic Okay We have five minutes left before we need to close this call to get on to the next one.

I suggest we go to the next on the list, which is Marcus Heiberg from SEB. Please ask your question, Marcus.

Thank you. So the first one from me is on the new addressable market here, moving from 5 to 6 billion market to 11 to 12 billion, roughly. So how much of your revenues are currently in these new segments and how do you see that portion of revenues for smart optics moving over the coming quarters and years?

I can say that it will increase. We are not measuring that. We do not really have that visibility in our ERP systems. So unfortunately I don't have the data It's gradually growing and it's bigger and longer distance all the time, so growing for sure. And we are still reporting all of our numbers into the metro regional segment.

Yeah, so it's fair to assume that you have meaningful revenues in those new segments already.

Yes.

That's good. And then last one for me to get through the queue here. So on the gross margin and maybe in relation to EBIT margin and phasing over the coming quarters, it sounded like it was a one-off to some extent or one large account explaining the lower gross margin this quarter. But that could happen, I guess, also in the future. So how should we think about the coming quarters in relation to gross margin and also the phasing towards your EBIT margin targets?

I think on the growth margin, 2025 is a pretty good reference going forward, which is just below 48%. You are absolutely right that from time to time, we may choose to be a little bit more aggressive on a particular deal or account. That can happen in the future, too. I think the second part of the facing to the DA was... Do we have an answer on that?

Not really, no. The second part of your question.

Can you repeat, Marcus, please?

Yeah, more about that, because if you look at consensus, it's already sort of in 2027, you will be about more than 16%, which is your target. Do you think that's reasonable, that you will be there already at more than 16% EBIT margin in 2027, or will it be more back-end loaded towards the end of your forecast period?

I think it's all going to depend on the revenue growth, which is of course the biggest contributor here. We will see, as I mentioned, only one eye on that target in the near term and the remaining three eyes we have will be on We'll be on the investments that we need to do and the revenue growth and and Yeah To go after the bigger the bigger target Understand. Thank you. Thank you.

Okay up next.

I stand long gone from ABG Good morning and congrats on the blowout quarter and A couple of questions to start off. First, though, if you can give some more flavor on this new breakthrough customer that you mentioned. And secondly, with these new targets, you're not kind of specifying a time frame. You're just saying long term and second half of the period. Can you be more specific on when do you expect to reach 300 to 400 million in revenue?

Yes, so the new customer, I cannot give that much more flavor. It's a large US Tier 2. So it's a very, very good potential customer for a very long time at higher levels.

So that's great.

When it comes to the timing of the target, you can see that we're also guiding for or rather we're putting an aspiration on what we expect in terms of growth we have of course been working with several scenarios here if you use our aspiration of 25% you will end up in 2031 if we grow a little bit faster than that it may happen a bit earlier of course yeah so I think that's That's kind of the timeframes we're talking about.

Perfect. And the second half, you say a bit more to the above 60% of the second half of the period. Does that then mean like 2029, 2030? Yes. And also you're saying you see a potential for higher margin longer term. Can you say something about what you think the margin potential of the business is? Or is there something you don't want to comment at this point? We'll save that for later. Okay. Thank you very much. Congrats again. Thank you. Thank you.

Good, and we have a couple of questions on the portal. We have some more time, actually. Okay. I got notified. Good, thank you. In a squeeze. From Jörgen Weidman, could you please specify what you mean by midterm? Is this still the 2060-30 period you have planned for before? Yes. Good. From Bent Mikkel Haugen, how do you see the need for equity increase and other financing? to fund your strong growth?

So that's obviously something that we have been working with together with our banks. We're in the final moment of extending our credit facility to secure cash. And that's the activity for now. No other major events planned or anything.

Good. Then we have one more from Jörgen Weidmann. When you increase the EBIT margin target so significantly so quickly, can you please provide some color on what changed and how we should think about this?

So to begin with, I don't think we have changed it that quickly. We have earlier been talking about 13 to 16%. So it's not miles apart from the new target. I would just like to point out that obviously focusing a little bit more on the upper range of the old guidance and also for us to look at potential beyond that is more interesting as we conduct the business and as we run the company so I would say and I mean if we are to talk about changes affecting the capability to produce EBIT and EBITDA I would like to point out what the future holds for us in terms of more efficient operation through utilizing automation, robotics, AI, and so on and so forth. That is the material thing for the future.

Perfect. So that was the last question on the portal. So if there's no other things, I think we're done. Yes.

Then thank you very much. Enjoy the rest of the summer. We certainly will. And thank you again for taking some time out of your day to listen to us today.

Bye bye.