4C Group AB (publ)

Good morning and welcome to this Earnings Call webinar where we will deep dive into Foresight Strategies results for the first quarter of 2025. My name is Jonathan Jurisow and I will guide you through this session today. With me I have our CEO Jonas Jonsson. Also joining this call later on during the Q&A session is Anders Norgren, our CFO. And as usual, feel free to enter questions in the chat and we'll try to answer those after this initial presentation. So with that said, a lot has happened in the world during the first quarter and also at Forsyth Strategies. And Jonas, could you please give us a little overview of where we stand and your thoughts on the situation?

Yeah, no, thank you, Jonathan. And good morning, everyone. And thanks for joining this call. Yeah, I would like to just initially take you through a little bit of a sort of a focus area on our two main product segments. So we talk about our defense sales and we talk about our resilience sales. And I think everybody in the world today is aware of the discussions and the situations that are ongoing in the global defense buildup. We've seen shifts in the U.S. global politics and the U.S. approach to global politics over the last quarter, which we were not expecting, I think it's safe to say, at the back end of last year. We've also seen an acceleration in the European approach to defense spending and defense infrastructure and the defense rebuild that is ongoing. So I think some of the graphs that you can see on the screen here shows quite clearly that there is a significant investment going on at the moment into the market. This is right now at the sort of the political and the very high macroeconomic level. We are still starting to see that it trickles through into actually the purchase of new systems, into the purchase of new or more ammunition and that force generation build up etc but it is taking time but i think if you just look at the trends that we're seeing both in europe but also in for example as you see on the screen here in sweden there is a quite a significant moment and quite a significant movement going on at the moment uh in terms of where the defense organizations in europe are are heading um i think so how does that impact us at 4c well i think just as an example during q1 We've seen additions and expansions with both the UK Ministry of Defense, but also we've seen a significant contract with the Norwegian Armed Forces, which we're very pleased for, obviously. We've also seen that increased focus that comes from all of these different organizations across Europe. and NATO and the allied countries in terms of, we've now done the first initial stages of this rebuild in terms of looking at the new platforms, the rearmament of munitions, and we now start looking into how are we gonna put this into production? How are we gonna train all of these troops and these soldiers and this, sailors and airmen in terms of actual delivery of forced generation. So we're seeing quite an increase when it comes to dialogues with us in terms of how we can support with that. But I think and we're still assessing obviously, but we're still not we haven't seen the full impact yet in terms of our position. We've talked earlier about the first, second, third, fourth wave in terms of defense investments. And I still think we've got a lot more to see in the coming quarters and in the coming years in terms of how all of this investment and this ambition which is now being put in place is going to be converted into actual force readiness and and a higher military presence from the European countries. So a lot more to come. But I think all in all, we've seen a greater instability and uncertainty than we were expecting during Q1. But if you look at the macro trends when it comes to defense, there is a clear and present need in terms of the solutions and in the areas where we operate and where where Exxon, our military product, comes in as the ERP for training and force readiness. So really excited to see how this takes us forward during 2025 and beyond. And if we shift focus slightly towards the resilient side of the house, I mean, there's a lot going on. As I said, there's a lot going on in the world and everybody's aware of that. But just a couple of examples here. You saw earlier this quarter where Heathrow shut down because of an explosion in a power station overnight and the impact that that has on global society and global travel. And this is just one example of things that are going on. We see adverse weather conditions increasing. We see increased demand on supply chains and an increase or a decreased tolerance when it comes to disruptions. And this is obviously the area where 4C has been working for a really long time now, over 20 years, in terms of trying to get organizations to prepare in a more structured way for this. And that interest is also increasing, albeit in an environment where it's slightly more tricky to take decisions given impacts on global economies, etc. So during Q1, we had an event here in Stockholm where we launched our newest version of our continuity manager, which is one of the four elements in our resilience platform. And you can see as an example here on the screen, you can see a visualization of that impact mapping and how do you as an organization or how does an organization work in terms of being better prepared so that when something maybe not as extreme, but also in that case, but maybe not even as extreme as the explosion at Heathrow happens, how is that gonna impact your organization? And how can you then mitigate that? And how can you plan for being better prepared to handle that disruption? And I think one thing that we're seeing quite clearly as a market trend is that this kind of work, this preparation is now not only happening in the heavily regulated areas like financial industries, insurance companies, et cetera, but it's also increasing in the lower echelons when it comes to these areas because the requirement is coming that this is no longer a nice to have if you look at it from a board of directors perspective and you look at how you're running your business. So manufacturing, the providers within the supply chain and everything basically that is in a business to consumer operation is looking at how do we better prepare so that we can handle these disruptions when they inevitably happen. So a lot going on, a lot of challenges on the macro level, a lot of uncertainties, but obviously also an increased interest, which I think from my perspective and from 4C's perspective is shining a light on the services that we provide. So yeah, a lot going on.

Perfect. Thank you. And given that, let's circle back a little bit and look at Q1 results. I know that most of you are here to listen into that. And let's start on an overarching level and then we can go down on each market segments, please.

Yeah, no, absolutely. So I'll take you through the numbers in a little bit more detail. If we look at the executive summary here, you can see that we came in Q1 with a net sales result of 91 million SEC with an EBIT margin of 10%. And if you compare that with last year, it's obviously a significant increase. We've seen a 19% growth compared to Q1 last year. And we can see also now that we've got an order book above 300 million and we've got an annual recurring revenue in Q1 of just over 180 million SAC. And this is obviously or this is continuously increasing as well, which is very positive. We've seen key deals signed in the defense space. And as I mentioned previously, we're also initiating a lot of new dialogues. And so all in all, when we look at Q1, I would say that we've done a good quarter, a good stable quarter, tracking the trajectory that we've seen over the last couple of quarters. And if you compare, obviously, to where we were last year, it's a significant improvement. What we've also done, which you will have heard about, is we've completed a share issue. We did that just at the back end of the quarter with the with the aim to ensure that we have a increased financial stability, because as I mentioned, we are seeing a bit more uncertainty when it comes to timing of these major defense deals, and that can impact our cash position. So I'm very pleased to say that we did our share issue in the way that we did, and with the interest that we had, and I think it came out really positively. So that was good, and we're now moving forward towards the rest of 2025. And if we take a slight look at the rolling 12 months and you will have seen this slide over the past couple of earnings calls as well. So we can see that the trend and the trajectory is positive. We can see the blue line which outputs the total software revenues also increasing both as a percentage but also when it comes to the actual figures. And as I've mentioned a number of times over the last year or so, the positive thing and the assuring thing that I see is that we are seeing a good, stable growth in all of the markets. Now, you'll then challenge that by saying, well, APAC is not actually growing in this rolling 12 months. No, it's not. But then, as you will see in the report and as we come back to, There are seasonal shifts which impact a packed quite a lot. So if we look at it and the two major ones obviously being EMEA and North America very positive development, but also with a stable expert services delivering at a high level. So a positive 12 months period coming out of Q1 2025. And if I continue then. into a slightly more deep dive into the different segments so we'll start with our emea so europe where as i mentioned previously we've signed a multi-year defense agreement with the norwegian armed forces this is something that we've been working for quite some time so we're really really positive and really thankful for the norwegians to to take this step to further enhance the way that they work with our products and to roll that out in terms of a wider force generation within the norwegian armed forces so So that's a really positive one. As you will have seen as well, we've had a couple of really good news stories with the British MOD as well. One of our key customers going back for a really long time and now we've secured that contract out even further into the future as well. And also signing more deals outside of the land space within the UK. And in the resilience space, we're seeing our primary traction at the moment within the UK financial sector, but also within Sweden when it comes to municipalities and regions who are really ramping up their efforts when it comes to total defense, when it comes to continuity management, and doing that in a way through digital tools, which we've been pushing for quite some time, but we're now starting to see that effect both primarily in the pipeline development, but also in executed contracts during Q1. So all in all, a positive outcome for Q1 in EMEA. Shifting to APAC, as I mentioned when we were looking at the previous slide, we have progressed as expected during Q1. We've got key deliverables coming in later in 2025 with both extensions and expansions in the pipeline. We've got key preparations going on for our key delivery event within the region, which is called Talisman Sabre 2025. Now, this is a major defense exercise, including over 20 nations. It's co-led by Australia and the U.S., and it's basically looking at a major event happening in the Pacific region. This will be delivered during the second half of July and a little bit into August. And it is an event whereby forces strategies and the excellent software is used to deliver plan and deliver all of that exercise activities across the Pacific. So really exciting opportunity and we'll see more coming back from a pack during the year. On the resilience side of the house, we are still doing a market entry operation in a pack. It's a It's a good market. They're quite exposed in many ways when it comes to natural disasters, etc. So they're also quite well prepared. But they are also increasing their use of digital technologies to support continuity management, incident management and risk management. So a positive development on the pipeline, but we're yet to see that transform into contracts. But we're hopeful for the remainder of the year in that area as well. Moving over to North America, you've heard me talk a lot about North America over the past year. It's obviously one of our very key markets. It is an interesting market, even more interesting now as it's developed over Q1. There's a lot of focus on North America and there's a lot of focus on what's happening in North America almost on a day-to-day basis, which is challenging in many ways. There's a big focus on spending cuts in the U.S. and efficiencies and what's going to happen with the government organizations and the government budget in North America. What we've seen is that we've signed a major contract at the start of the quarter, and we've also then been able to progress a number of our COTS deals, which is the smaller contracts, delivering direct to the customer at the point of need to be able to deliver efficiency at a much quicker time pace. We've done a number of outreach campaigns and outreach opportunities in the resilient side of the house. We've attended trade shows, we've been talking to a lot of customers, we've seen a few contracts being converted as well during Q1. But we're still at that early stage of breaking into what is a significant market potential for us within the resilience space. The maturity when it comes to using software in the resilience space, I would say, is probably higher in North America than it is in Europe, which also means that instead of providing a new tool, you are in a lot of areas replacing their current system, which can give you longer lead times and end up in a situation whereby it takes longer to convert deals. But we're seeing a very positive interest, and I think we've done a really good outreach campaign during Q1. And finally, then shifting focus over to our expert services side of the house, as you will have seen in the report, if you've had time to look at it, but our expert services had a good quarter, really strong Q1 compared to basically any quarter, but specifically compared to Q1 last year. We've had a very high delivery output, lots of hours being delivered. We've had an increase in our in the order book. So we're looking very positive for the remainder of the year. But we've also importantly increased the hourly chargeout rate in terms of what we're able to on average charge our customers for our services. So we've seen the highest average chargeout rate for any quarter in 4C history. And that is due to the increased interest, but it's also due to the increased quality of our delivery and the hard work that comes out of that team in terms of increasing operational effectiveness. We've also had a number of key hires going on during Q1, which is really great because we've been struggling a little bit in terms of being able to grow that team in the pace that we need to. So all in all, I would say expert services is looking really positive and it is a key component as we move forward in terms of providing that USP on the market for the combination of software services and expert services. And I think we're going to see an increased demand on that as well, where organizations want to actually increase their capabilities and be better at what they're doing, not just do tick box compliance. So across the globe, a lot of positives in Q1. A lot of challenges as well. We're seeing delays and we're seeing challenges when it comes to actually completing the contracts and getting ink on paper. The interest is there, but the uncertainties in the world create hesitance in terms of actually wanting to take that final step. So lots more to follow during the coming quarters, but a lot of exciting stuff around the world during Q1. Perfect.

Thank you. And you described your key priorities here, Jonas, during our last earnings call. And I think it would be good for us to circle back a little bit on those and look at the status, you know, what have we achieved during this quarter?

Yeah, no, for sure. And this is where we are on a higher level looking at how do we continue to build 4C. And I mentioned this after Q4 as well, that we are looking to strengthen our position further and being that go-to brand in defense training and readiness. And I think we continue to see that when the organizations come to the point where they're looking at, okay, how are we going to deliver these large-scale exercises? How are we going to... to increase our effectiveness on massive scales of training, but also now down to towards the individual level and how do you make that better? We are seeing that they're coming to us and asking that question. How can you help? What is it that your tool do? And that, you know, the brand that is out there for having been the guys who have developed this for a really long time. It's getting there. We're continuing to push it and I think you're going to see a lot more over 2025, especially within the sort of the AI driven development that's going on here. On the resilience side, we are expanding our market share and we're doing that through continuing to increase the effectiveness of our products and also streamlining how we package these products for more effective go to market. And that is progressing well. We are working both in the outreach campaigns towards the end customer, but also looking internally at how do we actually put this all together and prepackage it in a way that the flash to bang is shorter once you start the process of implementing a new risk system or a new continuity management system. So it's not a new IT project that takes a year to continue. We are actually up and running within four to six weeks with new customers. So quite exciting progress here. I think there are a lot more to come in the resilience space. And as I mentioned initially, the macro interest when it comes to this is broadening. So it's not only the heavily regulated markets anymore, but it's really everyone who is starting to see this as a need to have. And then finally, our third bullet point here is looking at our operations and continuing to look at making sure that we optimize 4C for what it is. We've announced our new CTO previously, Mattias Saltin, he started in March and I think he's already making great progress in terms of helping us look at how do we build the software how do we how do we improve the processes around that and how do we actively implement all the support and all the new technologies which are available out in the market so we are we're keeping a heavy focus in terms of our cost base in terms of our right sizing programs in terms of our operational performance and making sure that we invest our money in the right places to continue the growth journey for 4C. So I think we're progressing well. I think we are off to a slightly slower start during 2025 than we were expecting back in 2024, but I think given the Given the turmoil that's really been going on on the markets and in Europe-US relations, that shifts basically overnight. And how does that impact us and all that uncertainties? So all in all, I would say that we are in a positive place. And I think that the most recent developments that we're seeing as well is positive. I think we're seeing a slight sort of increase in collaboration across the pond as well and i think hopefully we will see a stabilization over the next couple of months but i am quite certain that we're going to see any continued increase in interest in terms of our areas both when it comes to defense and the resilience space so Lots to do during 2025. A lot left. We're continuing to push. But yeah, that's what we had today.

Great. And that wraps up the first part of this earnings call. So thank you for your attention. And also thank you for the questions that have been posted in the chat. With that said, I will invite Anders Nogren to join us on the stage. And we will be happy to take your questions. Thank you.

All right. Thank you very much. So we're now into the questions. Andres here as well. So looking into the first question we've got come in here this morning. So it's a question on OPEX. So the OPEX landed at 76 million second Q4 and 73

million sec now uh is this the level we should be expecting for the coming quarters yeah i can take that and good morning everyone first um we are still seeing the effects of the optimization that we implemented last year and overall i'm fairly satisfied where we ended up now in q1 Moving forward, we will continue to be careful with our cost, but I expect to see a slow increase in our cost base, especially now when we are introducing more revenue generating people into their group, particularly in expert services where the backlog is strong and we see an increased amount of our services. So I expect to see OPEX or our total cost to start slowly increasing, but with a clear connection to an increase in top line as well.

Now, I think as we see some of our development programs ramping up as well, and also, as I mentioned, we've got a strong order book and a strong incoming business in the expert services. And obviously, to be able to deliver on that, we are looking at optimization and how we can deliver on that smarter. I saw a question in the chat as well here around around how our ACOR impacts our total sales within that segment. And it's a partial impact. It's positive. And I think we've been able to deliver more with less during Q1. But as we move forward as well, we are going to see a slight increase in costs associated with that continued top line growth within those segments. So from that perspective, we will see. But we're obviously, I mean, it's been a focus area for the last year to really make sure that we are we keep a very close eye on the on the cost side of the house right yes we've got a question you talk a lot about uncertainty in Could you provide some more detail on how you expect it to show in the coming quarters? Well, yes, I know we've been talking a lot about uncertainty, and I mentioned it a number of times as well in the CEO comments in the report. I mean, I think the point we're trying to make and the point we really want to emphasize is the foundation of the business is good. The foundation in the market is really good looking at sort of the areas where we are where we are pushing our services and where we see the demand and the requirement for our services. What we're seeing, though, in the same time, when you look at it and when you're trying to operate with government customers, but also with corporations who are heavily reliant on sort of the financial situation of the world, that the big fluctuations are not good. The big short-term movements are not good. The uncertainties about what's happening in the US and how is that impacting Europe and so on. That is causing challenges when it comes to the final stages of contracting. Now, I think, as I said, I think that's going to settle down. But we are going to see a continued quarterly volatility. And until we get the volume up further when it comes to the resilience and our COTS business within defense, we're going to continue to see a bit of fluctuations up and down. So I think that's what we're primarily focused on. But yeah, no, it's the underlying essence in the market is definitely growing. So that's a positive. The short term, you know, big movements is sometimes challenging. So I think that's That's where we're going. Right. So we've got a question here coming in around receivables continue to increase. How do you see working capital during the year? And do you expect continued build up in receivables or should it start to reverse? I think I'll hand that to you Anders.

I think we can connect that to other questions that we have regarding cash flow. to start the operating cash flow and the negative free cash flow that we had in in q1 is primarily due to the working capital development and especially that we saw higher activity and or we saw higher levels of contract assets and accounts receivable at the end of the quarter which is a result of of higher business activity late into the quarter or just to simplify it we signed a lot of contracts late into the quarter We are working very actively with with our contract assets, and I believe we have a good chance to see positive development here where we reach, for example, milestones within U.S., where we know that we will be able to invoice for work that we have delivered. However, it is a bit hard to predict, especially that after that, we have seen now that the business activity is very strong late into the quarter.

driving the contract assets but in general i believe that we will see a positive trend in the working capital which will lead to that the contract assets will come down to a lower level in the future yep right we've got a question on order book as well so historically we haven't been really showcasing our order book and talking that much about it we're we're now looking at that and how that is progressing and What I can say today is that we've seen a significant uptake in orders during Q1 and also over the last back end of last year. And we've also shifted our revenue recognition policies a bit when it comes to the resilience side of the house. So to a more linear approach. So our order book as of the end of Q1 is significantly better than it was a year ago. And I think we're going to continue to see an increase. But as I mentioned as well, it's heavily dependent on the fluctuation between the quarters. So I think over time we will be able to provide a clearer picture linked to this. But obviously, The large movements in the defense market is something that's going to continue to strengthen our order book and the longer term commitments and contract that we can get from those kind of customers in terms of not only our software, which is quite quick to be converted, but also with the long term support contracts that come with our software sales in the growing defense market right now, both in Europe and in the U.S. So we'll see a continued continued increase on this and we'll be continuing to track it and to be able to give you more reports on it. We've got a question here on organic growth in 2025. Obviously a challenging situation to go into in terms of how much we're expecting. What I would say though is we've still got a very positive outlook on the year. We came into 2025, I think, expecting a bit more sort of steady trajectory upwards than what we've seen. I think nobody really expected the level of global turmoil coming out of this administration in the US, for example, and how that's impacted Europe. But I do believe that we've got a very good position for continued growth in 2025. And I'm expecting us to to continue on a positive trajectory. If you look at 2025 as a whole, we've got a positive outlook for the year without going into any specific percentages or details, I think.

Any other comments, Anders? No, well, I can take the opportunity to comment on two items below EBIT, which might stand out, and that is financial expenses. I also see that we have a question around financial expenses in the chat. That is primarily related to unrealized exchange differences. Current turbulence or turmoil also impacts us, as for many other companies where the Swedish krona, for example, has strengthened significantly during Q1, which then results in unrealized exchange differences for us. Another item that might stand out is estimated tax. It's estimated tax and not paid tax. And it's primarily related to stronger taxable positions or profits in UK and US. But it is estimated tax and based upon on the tax position as per today.

Yeah, so we'll be tracking that obviously throughout the year. Right, I think that's us. So at the end of this morning session, I would just like to take the opportunity to thank everybody for logging in and listening and for tracking the 4C journey. As I mentioned, I think we've done a good strong Q1. The team is working hard across the globe, and we're seeing a really high increased interest, which is exciting. And looking to the future, I think we're going to see a lot of exciting opportunities to continue to build the 4C brand and the 4C presence and helping organizations create readiness and resilience around the world. So keep watching this space, and thank you very much for your trust and confidence and for joining us for this morning's call. Thank you.

Thank you.