Clavister Holding AB (publ.)

Good morning everyone and welcome to our Clavister Q2 interim report presentation. My name is Kate Linwood and I will be your host for today's session and I would like to introduce you to our presenters today which is John Vestberg, Clavister CEO and David Nordstrom, Clavister CFO. So we will start today's presentation with the Q2 report by John and David and after the presentation we will have a Q&A session. So please submit your questions you have during the session already in the Q&A box. And then after we will answer all your questions. So, yeah, with that, I would like to hand over to you, John.

Thank you very much, Kate. And again, welcome to Clevver's interim report presentation. So to start with, I'm really happy to see that the transformation journey we are on continues according to our strategy. So this quarter actually denotes our 11th consecutive net sales growth quarter. So if if if. Everything goes according to plan. There is a good chance that we are to celebrate a three year growth quarter next quarter. If we look at the sales for the quarter, it came in around 45 million SEC. That is around 17 percent growth. This is somewhat below our ambition. Keep in mind that we had set out an ambition of 20 percent. Still think it's important to look at a few key aspects from the quarter. We had expected a number of quite large deals to come in during the quarter. They did slip into the second half of the year. And secondly, as you've seen in the report already, probably the currency headwind is quite impactful on Clavister, given our sales in euros and SEC. As a matter of comparison, if we just for the currency effect, our net sales growth came in at 23%. So a full six percentage points of impact. If we look at the underlying growth drivers. Given that, as I mentioned, a number of larger deals slipped over into the second half of the year, it's quite interesting to see that the growth is driven mainly by two factors. Of course, deliveries that continues from existing defense contracts, that's one part, but also from the underlying base business that continues to deliver stable growth. If we look at the actual shipments in the quarter, there was, first of all, an increase in the volume of shipments. That's good. The quarter saw quite a large share of hardware components, the hardware that our customers use to run our software. This is momentarily impacting our gross margins. Again, because we're selling our hardware components to a quite nominal margin in order to onboard customers as soon as possible on our software. As you might recall, our gross margin target is 80%. We came in slightly below at 79%, so it's still okay, but somewhat below. Entirely affected by the volume of hardware. Still important to keep in mind when we ship a hardware, a customer would never buy a hardware from Clavister without signing up for a software contract. So these shipments that we made in the quarter that they would basically mark the start of a number of software contracts where revenue recognition will happen over time going forward. With the underlying growth, the business flow we see, we essentially copy paste from our Q1 standpoint where the full year, we continue to see a positive view on that. We believe our net sales growth has a good chance to stay above our expected 20% for the full year. We see absolutely the trend going in that direction. If we look at the cost levels, our operating expenses, they are more or less on par with the previous year's cost. And as you recall, the ones who have been following us for a while, you've seen that we've placed a lot of effort on our cost level and we plan to maintain the cost level we have for the full year. So we don't expect any and the surges in OPEX. A positive indicator from the quarter, looking at our operational cash flow, that turned from minus 8.4 million last year to 4.3 positive this quarter. And with the total cash burn, including the The repayments we're making has improved significantly in the quarter. Also from the cash injection we had since Q1, we maintain a strong cash position. So that's all good news. That gives us a good position for driving this journey going forward. With that, I'd like to move over to David.

Thanks, Johan. So we will look a bit more on our performance in certain areas. We start with order intake. So looking at the order intake for Q2, we see a 13% growth. Looking at... All quarters here since 2022, we see that this is the first quarter where we go above 50 million SEC in order intake without support of large defense contracts, I think. And that is interesting. And I'm going to elaborate a little bit on this. Since a ambition for us for a long time has been to reduce the volatility in our growth, order intake, of course, will always be quite lumpy due to the inflow of large contracts that happens in certain quarters, but not in others. But to reduce the lumpiness, an ambition for us is to grow more. the base, and base is Next Generation Firewall and IAM, because that is built up of much, much more contracts, but they are typically small to mid-sized, not so often very large, as to opposite of Defense and Telecom, who more often have large but few contracts. So to see the growth coming on these levels, driven by the base, I think that's quite strong. So glad to see that we go above the 50 mark without support of large defense and telecom contracts. So we're pleased with that. That then fuels net sales of 17% in this quarter. Looking at the long-term trend, we see that the trend line of growth, it's clearly there. But as Jan alluded to, 17% is a bit below our ambition of delivering 20% plus growth. And of course, we were aiming for a third consecutive quarter with about 20%. Didn't fully get there. We landed at 17%. If we would be counting the FX effects, we would be about 20. But when we set the target to drive 20% or above growth for this year, that means in reported numbers. So didn't meet the target for this quarter. So the ambition to drive more growth is clearly there. Looking at ARR, continue with two-digit growth, 11% in this quarter. Net sales in this quarter was very much fueled by hardware in both defense and civilian hardware. So that, of course, doesn't give the full support in growing ARR with the same number. And so the 17% doesn't fully translate into ARR growth. But I would say that that's a quite good number. It's a stability here. Since we started reporting in ARR for 2022, we have seen no individual quarter with any decrease in ARR, but rather a stability in growth. If we move over, talk about gross profit. Well, gross margin-wise, Jan mentioned that in his presentation, it came in at 79%, a little bit under our ambition of 80%. Of course, compared to the comparison quarter, it was almost 84. And explanation here is, of course, we have much more defense deliveries in this quarter. They are hardware centric. The majority of delivery is made to BAE. But we also have a strong growth of civilian firewall hardware. So hardware is a growth driver in this quarter. And that means, of course, that is good for net sales. But the gross margin in hardware is not as strong as for software. So, of course, with more hardware in sales mix, that has an impact on the gross profit. So we don't carry the full 17% here. We carry with us 10% growth. The trend line is there. We come in with, I would say, the second strongest gross profit quarter of Clavisor so far. So I would say that's good, especially with so much hardware in the mix. Then OPEX. Of course, for us, we set out an ambition back in 2022 or actually late 21 to bring our costs downwards. That we did. That has now evened out for some time. As you know, we have been communicating also that our ambition is to maintain costs at roughly the same levels at 2023. we're succeeding with that. We have a 3% increase of cash OPEX in the quarter, given the fact that we have a much stronger growth trend line for some time now. This quarter growing with 17% of net sales. We have had strong inflation push for pushing costs upwards for quite some time, even though the inflation rates now are coming down. We are in an environment where it is a challenge to keep costs down. So I think us being able to keep costs down on these levels, despite the fact that we're growing, despite the fact that we have quite a lot of inflation driven costs pushes around us. I think this is also something that we're proud of, of this achievement. And that, of course, then moving over to EBITDA, it grows in reported numbers with or adjusted numbers from with 30 percent. So there is a continued EBITDA growth, but We'll have to say that we feel that a 12% adjusted EBITDA margin is a bit slower, a little bit less than we were aiming for in this quarter. Of course, reason for that is our sales ambition, sales not fully meeting the ambition, a little bit of a weaker gross margin due to more hardware in the sales mix. And that's the root cause of the EBITDA not fully being where we want it to be. I don't think cost is the problem here because we're maintaining costs on the level that we set out to do. But so focus here going forward is absolutely a growth focus to drive more sales. So and that will in turn drive EBITDA growth going forward. So I stopped there for the main comments and move over to John to do more updates in the business. Thank you, David.