Clavister Holding AB (publ.)

Hi, and welcome to our Q3 Interim Report presentation. My name is Jenny Ramkans, and I will host this session. With me, we have our CEO, John Westberg, and our CFO, David Nordström. We will start the session with John and David giving the presentation, and then end the session with a question and answer session. If you have any questions, type it in the Q&A tool. That's the box with the question mark. But now let's start and over to you, John.

Thank you, Jenny. And again, warm welcome to our interim report. Starting as usual with a summary of the quarter after I will leave to David to walk you through some of the key metrics. And then we will look at some specifics in our individual business areas as a. Overall summer of the quarter, I think we can conclude that Clevester has had a very eventful and a very positive quarter, actually in all aspects from all metrics point of view. One important milestone, of course, is reaching positive operating profit or EBIT. That's a milestone that we have been working hard to reach for a time. And finally, this quarter, we came to that point. If we look at our sales, the sales growth continues, and I think continues steadily is the keyword here. We have now 12 consecutive quarters of year-on-year growth. So I think that's something to be quite proud of, to be honest. If we look at the metrics in terms of non-FX adjusted net sales growth, we reach 16%. Adjusting for FX, we're looking at 21%. So we're hovering around the 20% growth numbers that we're targeting. We would like to increase that somewhat more. We see that the trend is pointing upwards. Looking at annual recurring revenues or ARR, a growth of 10%. As usual, our ARR growth is trailing somewhat from net sales growth, given the time lag from shipments of solutions or products to the actual contracts are starting. Looking at our consequential, then our EBITDA margin raised even further to 25% adjusted. If we look at the growth drivers, I think one key takeaway from this quarter is that there are no major significant individual deals. That is the pure explanation for the growth. It's on the contrary, an overall improvement of our base business topped with deliveries from our existing defense contracts. So the key base business in the companies is overall improving in a very steady fashion. Looking at errors and order intake, you might have seen a strong flow of press releases during the quarter. And it is actually new business contracts flowing in over all our business area. And that's especially nice to see that we're gaining traction also in business areas that have been a bit flattish before. And we'll come back to that. So all in all, the order intake for the quarter grew by 31 percent, which means that we have now an accumulated order backlog for the end of quarter at two hundred and thirty four million six. Obviously, that serves as a very good base for for further further net sales development over the coming periods. You have probably also noticed that by the end of the quarter, we concluded the T08 warrant package and we had a very nice pickup rate on that one, 98% participation. And as a consequence of that, it meant that Clavister was brought 50 million SEK approximately before transaction costs. And as we previously communicated, the entire proceed is used to pay down our EIB debt. With that, leaving to you, David, to talk us through the metrics.

Thank you, Jan. So looking at then starting with, as usual, stability in the trend, if we look at the Trend line in the upper part of the graph, you see that we continue to be on a good order growth trend. Also comparing Q3 last year to this Q3, we see a healthy 31% growth. been following Clavister during the quarter, you see that there's been quite many orders press release, a good inflow of, I would say, mid-sized orders in this quarter, helping us growing. In the same time, we've seen a good stability and good growth of many smaller orders, especially in the civilian firewall business. So all in all, that leads to a good order intake growth in this period. And if we move over then to I would say same thing there. We see that the trend line of growth, it is there, growing with 16% in reported numbers and 21% in FX adjusted growth. We can also see that we have an ambition to be above 20% growth on net sales numbers in reported net sales. Q1, Q4 last year as well. Didn't fully reach that in Q2, not in Q3 either. But I think then that we see we are solidifying kind of our base of growth that is quite resilient being on the above 15% growth levels. And I think we are clearly saying that we are aspiring to come back to and be above 20% net sales growth in the near term also. But the stability in the performance, I would say. Then ARR wise, double digit growth with 10% growth of ARR. Q3 is a kind of a challenging quarter for the perspective that it is a vacation period, a bit of a slowness in July and August, meaning that a lot of the sales happens in the later part of the quarter. Meaning also that for us to record ARR, that means that we have to have sold the contract and the customer needs to have started that contract. So in a period, a quarter like Q3, when you tend to have because of you know vacation reasons more activity by customers in the later part more sales there meaning then activations of licenses tend to to a higher degree than in a normal quarter be in the quarter after so i think there is uh quite a lot indicating that we would see a little a bit of a better uh growth for arys in in cube uh q4 but absolutely good numbers with double digit growth gross profit See here, a 17% growth compared to then a 16% net sales growth. That clearly indicates better gross margins in this quarter compared to Q3 last year. That, I think, is something that we're quite pleased with, given the fact that we have had a quite strong increase of hardware sales. I mean, number of shipped appliances are up 25% compared to last year. That creates pressure on the gross margin. So being able to grow it from 79.3 last quarter to 80.4 in this quarter, well, that means that we also have a good mix of profitable software contracts here in the sales mix, leading to a better gross margin and then also growing gross profit which is if we then also look at the cost side of things and we look at OPEX, well, this delta that we have now been demonstrating quite many consecutive quarters over and over, stability in the growth numbers, OPEX being under control means that, you know, for the first time in the history of Clavister, our OPEX is in this quarter below 80% of sales. It's at 77%, meaning we are growing with profitability. So this delta of higher growth and lower growth and a significantly lower growth rate in our costs creates a better and better operating leverage for us. So looking at EBITDA, well, in this quarter, we land with a 25% adjusted EBITDA margin, which is our highest EBITDA margin so far. Growing that with 47% compared to last year. And those who participated in the Q2 presentation, you might remember that we were a bit displeased with the EBITDA margin in Q2. So glad to see that the trend line is back with strength there. Coming in with, as I said, our best EBITDA margin so far. The ambition is to go higher than that. But glad to see that the trend line is in direct direction. So I think I will stop there and pass the ball back to you, John.

Thank you, David. We'd like to go through a little bit more insights into some of the characteristics of our base business, starting with Absolutely on top of mind for many of our customers right now, and that's the new NISTU directive. And I think everyone is probably aware of the NISTU directive, but as a slight repetition, this is an EU directive that has an ambition or has an aim to strengthen European cybersecurity or the level across the European Union. Since the NISTU directive was established and now moving into concrete legislation in the individual European Union states, we start to see a much higher interest in cloud-based products and solutions, specifically from two sectors, and that's the public sector and the energy sector. If we look at the energy sector specifically with any sector, obviously, we're talking about the the energy grids, the energy suppliers, the power plants and so forth. Obviously, this is a so-called high profile target industry. When we look at cybersecurity, if you would like to paralyze a country or region. As a hacker or a threat actor, obviously, you would target the energy system. That's clear. That's what we've seen happening in Ukraine and in other parts of the world as well. So there's no business and industry that is gearing up for more and more cybersecurity investments. What are the key drivers? Well, obviously the geopolitical situation is one of the drivers, but also another driver being the so-called converging technological environments. And what do we mean with that? Well, practically, In most of the energy systems across the globe, there is quite an advanced, far-reaching installation of systems within the so-called OT domain, operational technology domain. These are control systems that essentially control the daily operation of the energy grids. Now, what's happening over the past few years, and increasingly so right now, is those systems being connected or opening up to more open or internet-based systems. And you will have a practical challenge then. You have older systems that are inherently insecure being opened up to public internet, which is, of course, a hotpot for attacks. So this, by all means, is opening up or increasing the attack surface for hackers. You might recall in previous reports that we talked about Clavister starting to also expand on our solution offering, looking at our existing technology base or our software IPR base, forming new packaging solutions. solutions that would address specific problem areas in the market. OT security is one of those areas. So we are now offering or launching a new Clavister solution, the OT security solution that is specifically addressing those challenges, cybersecurity challenges that happens now when OT systems are being connected to public internet or to more insecure systems. Our first specific product in this area is the Clavister NetWall 200R. So it's an industrialized product running our standardized software from Clavister. So that means that with very small marginal cost or marginal investments, we are able to then leverage the platform we already built, but making small market adjustments to make it relevant for the OT security market. In the quarter, we had the opportunity to win a first customer contract on this solution, and that is for a very large European energy provider that sees these type of security challenges in their network. Initial order value around two million SEC. So it's a it's a as David alluded to, a mid range. mid-range type of order, it is expected to grow to around 10 million SEK. So it's absolutely a key customer for us, and especially fun, of course, that it's in a fairly new domain for Clavister. Moving over to defense, we've received quite a lot of questions over the time regarding NATO, to what extent NATO would be helpful or not for Clavister. I think as a conclusion to that, an overall conclusion is that NATO and Sweden's membership in NATO is indeed a key catalyst for us and for our sales. I think one of the key events that happened in the quarter was the NCI agency's decision to include Clavister products in their NATO information assurance product catalog. What is this? Well, this is essentially a internal product catalog by NATO. And whenever a NATO member state or a NATO organization by itself needs some kind of a security product they turn to this product catalog and looks at what are the products that are already approved by nato and obviously this is a a way to simplify and to streamline the the selection of suppliers for nato so this is indeed a very important for clavister to be you know included in in future projects related to nato Looking at some concrete wins in the quarter within defense, we announced earlier in the quarter a defense systems manufacturer. We're not able to disclose the name, but they are a major one operating in multiple European countries. They are producing a number of different defense systems, and one of them, which is being produced in southern Europe, has now decided to integrate the Clevester software into one of their systems. It is a software only deal, and that is, I think, an important distinction from what we've seen from, for instance, BA Systems so far when we are combining hardware and software. And I think we alluded earlier to the fact also that even though we have somewhat lower gross margin on our combined hardware and software sales, for instance, to BA Systems, Our expectation has always been that we will have over time a fruitful mix of products also within the defense space with, for instance, pure software sales that will adjust or positively compensate the gross margin. And I think this is a good example of a software license deal with obviously a very high gross margin for us. The growth potential with this specific first deal with this customer is, of course, increased volumes. The number of specific system instances they are building has a direct correlation with our sales. And we, of course, have the great expectation to also expand with this corporation into other systems that they are producing. They are producing some 50 different systems of different kinds. Also within the defense sector, we were able to secure a deal with the defense ministry of a NATO country. Again, this is where we see that the Swedish NATO membership and the inclusion in the NATO product catalog is important for us. So we were then selected to provide our identity and access management solution to ensure authentication and identification of all the workforce of the civil defense of this NATO country. Initially, it's a order that covers a few thousand of users. It is expected to scale to over 100,000 users over some 36 months. So given that this is also a software, pure software deal, it is a recurring deal. It is a very good foundation for future stable ARR for Clavister. So we're expecting this deal to reach tech in annual recurring revenues after the scale up period. Then we have, of course, the existing defense contracts that we have won already and they continue to be delivered as planned. So we see no significant, at least no delays in any project plans and so on. Worth noting is that the large contract that we won with the systems as of end of last year, is following project plan. It does not show any impact on our P&L. That's worth noting so far because the serious deliveries is starting to happen during 2025, during middle 2025. So that's worth noting that, you know, lead times and so forth, but the project is running according to plan. Moving over then to telecom or 5G business. You've been following us for a while, knowing that the 5G business overall, the macro perspective has been quite chill. There has been restructuring in our larger telecom companies of the world, and we haven't really seen a concrete growth or a tangible growth for a while in the 5G business. concluded in earlier reports that we did start to see some signs of recovery, but the rollout pace of new 5G network, especially the standalone networks where Clevester solutions is predominantly included, that those build outs of those networks still was at a very slow pace. Now, Finally enough, or good enough, we were in this quarter able to sign our first new 5G security win for a while. Especially fun that it is actually for a Nordic mobile operator, so it's a home market win if you like. It is part of a larger service contract through Nokia, so Nokia is our partner in this. And this operator are building a completely new 5G mobile network. And it is actually one of the first commercial standalone networks being built now in the Nordic region. So that's, of course, extra fun. If you recall from our business model for telecom, we charge our customers based on the data usage or the capacity of data. So even though this order initially is modest, it's two million SEK, but it follows our standard business model and it's recurring. So basically, as the data from the operator's customers continue to increase, it means also increased license fees to Clevester. So it's a highly scalable model. And the key takeaway, it's a new 5G deal. Whether this is a breakthrough or not for our 5G business, that's, I think, still to be seen. We have to be honest with that. But it's at least an important new flag for us to win. Also worth mentioning, we disclosed a business opportunity in this area valued at 20 to 40 million SEK. In mid-June, we had to disclose that due to regulatory requirements. That is a deal that is neither won nor lost. So it's still open for final decision by the customer. And of course, as soon as we have a decision, we will announce the outcome. David, if you'd like to talk us through the financial ambitions.

Yes. So... You know that we have an ambition for having a 20% or above average sales increase for the years 2023 to 2025. We're at 16% in this quarter, so a little bit below the trend line, but the trend line would say it's improving. But there is then some more to do in Q4 and in 2025 to reach that target, which we're determined to reach. Gross margins, as we said, 80.4%. So we are a little bit above target, even though a lot of hardware in the sales mix, which is good for future software sales. So happy with that. EBITDA margin comes in at 25, so I would say significantly above the target. And we see operational cash flow in the business. And being at EBITDA or EBIT positive is, I think, a clear indication of these moving to operational profitability, which then supports operational cash flows. I stop there. Back to you.

Thank you. I think most of you who have been with Clavister for a while, you recognize these bullets. But for anyone being new to Clavister, we start seeing, of course, a larger interest for Clavister, given that we're improving our performance quarter by quarter. But as a repetition, the market we are operating on is non-cyclical. I think that's important. It's seasonal, however, so as many IT or tech companies, we see Q4 having the strongest quarter, although the seasonality is less than in some other companies. Absolutely favorable, of course, the geopolitical tension, how sad it is from a human perspective, it is for sure driving the market for cybersecurity. Worth iterating is that all Clavistry business is based on our own proprietary software with very high margins at the base. We include hardware packaging, for instance our new OT security product, which is of course an adopted hardware that is well designed to be sitting in a power grid or an unfavorable environment, if you like. as core of our business is our proprietary software. With the customer base we've been building up, we have Of course, a good mix. We have the blue chip customers, the high profile customers that are great to work with, BAE Systems, Nokia are two examples, of course. But also, as I think David alluded to, a big, solid base of much smaller customers that are recurring and that are constantly building up and growing our revenue base. The business model, especially since we changed our business model from our perpetual sales model back in 2021 to a recurring term-based model, it is a much more stable, much more predictable model, and it's also much more scalable. So as of today, the majority of our sales bandwidth can be spent on winning new deals, growing business with existing customers rather than repeating business with already won customers. And the financial profile, of course, with the business model is highly attractive. I mean, when we sell pure software, we are close to 100% gross margin. When we package with hardware, for instance, the one in the picture, we can still maintain a very healthy 80% gross margin in average. I think the strategy platform that we've established over the past years with an increased focus on a fewer European markets only and a fewer industries within what we refer to as mission critical applications. So in our case, public sector, energy, telecom and defense, that type of focus is really important. helpful in us maintaining a focused strategy and driving sales growth for the company. And last but not least, of course, a highly motivated team with decades of experience and a lot of ambition to really drive this company to a highly successful one. So with that, leaving back to you, Jenny, for Q&A.

Yes, thank you. We have actually received a few questions, so I will begin with the first one. Can you talk a little about your new packaging of the product? What has the reception been? Absolutely.

If we just zoom out and look at the broader perspective to understand, also explain why we're doing this. We have at the heart of Clavister a very competent, very powerful technology platform. So software that has been incrementally developed and augmented and expanded over many, many years. That's super good from one perspective, meaning that we can solve very many problems for our customers. The challenge that we maybe have seen in the past has been that it is a Swiss army knife of functionality, and that makes it quite complex to sell and to convey the sort of the key selling points and the key reason and the key values of the product. So in order to become more relevant and more viable for our main customer groups, we decided some time back to make sure that we have more market adopted solution packages around our technology, which makes it much more Well, it makes it much more clear and it makes it easier for our own sales team, our partners and our customers to really grasp the key values. So there are a number of solution packages happening. OT security is one of them and the first one that we are taking more public to the market right now. The reception has been good. The fact that we were able to quite quickly land a big deal already in Q3, I think that's a testament to that. I think for the ones who are interested in the details of OT security, there is a very good OT security blog. I think we can potentially post links to that one on our social media. Otherwise, just Google it and you will see within very soon review of our product on that blog. So far, the reception is very positive. The conclusion is that the fact that our technology is so powerful makes the product and the solution stick out on the positive side. towards other OT security vendors. With the improvement that you could do similar things or the same things with the product also before, but then it was sort of masqueraded in a bigger palette of many functions, and that made it a bit hard to navigate. We believe that these type of solution packages will make it much more crisp and clear to both sell and buy.

Perfect. You have previously mentioned that you want to grow the base business and those are by 20%. You are some way from there now. What's your view on this?

I mean, the ARR is a direct function, more or less, of our net sales growth. As of current, our recurring revenue is around 70% of our total business, and that has increased quite significantly over the past years, of course, since we changed business model. We will never be at 100% because we have perpetual sales in the mix. We have hardware sales in the mix. We have some professional services engagements as well, which we do not count as ARR. So, I mean, growth rates from ARR will slowly but surely pick up. There is a lag. There is a trail because of lead times that David mentioned, contracts being started later and so forth. I think if we look at the pure net sales trend where we have the ambition of growing it with 20 percent, we've been going from single digit growth to double digit growth to be some quarters above 20 percent and a few quarters. We've been exposed to some headwind in currency, obviously, because we're selling in both euros and US dollars as well. And that in some quarters, of course, has a negative impact on the growth rate. My personal belief right now, if we look at the trend, if we look at our pipeline, it should be possible to continue this trend with increased growth rates. If that continues according to our plan, then the average growth might very well be on par with that 20% target. Still to be seen. I mean, that's one more year to go and one quarter more to go. But I believe we have good chances to meet it.

Yeah. Just adding one thing. I fully agree with what you say. But in the question, it says that we're, as I read the question, I understood it from Jenny phrasing it. not reaching a 20% growth target on ARR. That is not true because we have not expressed that as a target. We've said the target is growing 20% net sales. We're very near that target. ARR, as John says, it is a lag. And that will, of course, as net sales grow, it will grow with it. But we have not expressed the 20% target for ARR. So there's no misunderstanding there. Just clarifying that part. Correct. Yeah.

I will move into the defense solution. Can you talk a little about how your pipeline of defense business has developed during these years?

Absolutely. I mean, if we start on sort of helicopter perspective, looking at sort of what our aim is, what our ambition is, defense market, cybersecurity market in defense as such, we're looking at a multi, multi-billion dollar industry. That's That's the overall market. Our addressable market, however, is, of course, a bit smaller, still very big for Clavister to address. We have deliberately selected a smaller niche within the defense market, and that's the niche that we refer to as the tactical defense market, essentially equipment. computers, soldiers, soldier equipments that are on the field. Basically, we're not talking necessarily about data centers in army headquarters. I mean, we could serve that as well. But in our defense business, we're looking at the tactical security. That means security that gets integrated on defense platforms such as the CV-90 or competitors to the CV-90 or other systems, technological systems that are on the tactical field level. So that's our strategy. So to come the furthest would be systems, of course, because we started with them earliest. We have secured the design win with them that turned into a framework contract, which turned into a first commercial contract for the Dutch army and subsequently into contracts for the Slovakian army and the Czech Republic army. And it's no secret, it's public in the media that BAE Systems is zooming in and soon to be contracted for also shipments to Sweden, to Denmark and to Ukraine. Naturally, us being part of the design, we have high expectations to be included also in those type of deals. So that's sort of that's the strategy. Moving then over to other opportunities within defense, a part of the strategy is to continue to drill within the existing contracts that we have established. So, of course, with BAE Systems, keep in mind that the CV90 is one out of perhaps 30 different vehicles that is produced by the BAE Systems group. So a natural next step for Clavistry is to continue to explore other systems, other platforms within the same group. So that's ongoing. Moving outside of these systems, we announced a design win last year with General Dynamics, European Land Systems. This is a fairly fresh design win, so we still have some mileage to cover until we see concrete business coming out of it. But we have secured the design win. Whenever there is a concrete program happening, Clavister has a good likelihood to be included in those defense programs. Recently, or quite recently, we announced a system win with Thales, a memorandum of understanding with Thales. Thales is the major French defense technology group. And specifically for them, we announced that we And we will have our software included in one of their systems, the SOTA system, which is basically a tactical communication system for vehicles, soldiers and so on. It's a system that's been sold to Sweden, to Brazil, to I think maybe 20 or 30 nations. And similar to what we've been doing in all other defense cases, it starts with some kind of a design win and then moves into subsequent commercial processes. And that's where we stand with those. And then, as you've seen in the quarter, We have been able to announce concrete deals with other platform manufacturers, systems manufacturers. Unfortunately, we cannot announce the name or disclose the name. But, you know, customers, producers that are on par from a system and complexity point of view with BE Systems and General Dynamics and those alike.

Any chance that you get a foot into the U.S. defense ecosystem in the future via a partner?

Absolutely. I mean, from our own sales and marketing perspective, it's very clear that Europe is our focus market. So we are not talking about establishing a clavister footprint with our own cost base in the U.S., absolutely not, not in near term anyway. But of course, as for instance, BA Systems is an international company with a lot of operations in the US and a lot of systems being produced in the US, it's a natural step for us to explore those opportunities. And just as one example on that specific note, we were invited by BAE Systems to their international supplier fair at two times already this year, one in Minneapolis and one in Detroit just recently, to explore if there are any other vehicles or systems within BAE Systems where our technology would fit with quite good interest. And of course, early days, but good interest. So I think the answer is yes, we can absolutely be part of the U.S. defense. system, but through partners.

David, can you talk a little about the debt side and how you intend to pay it off going forward? Is it possible to early amortize the EIB loan?

Well, yeah, so good question. um as you know the majority of of the depth consists of of debt to eib the european investment bank since back since 2017 with a 20 million euro loan that has been amortized uh a bit uh we have reno renegotiated that repayment plan uh around this time frame last year during q4 landing on a significantly better amortization profile for clemson giving us time to build our cash flows, extending that duration of the loan back into 2028. Then, of course, with the successful rights issue we did at the beginning of this year, which is with a strong cash position, there are two warrant programs associated with those shares, T08 and T09. T08 matured now in end of September. leading to an inflow of cash in October of gross roughly 50 million SEC, depending on how the share price evolves. But we think there is a fair chance of good possibilities to landing at least 50 million or possibly more with T09 in March next year. That gives us an ability to repay the EIB loan ahead of plan. And yes, it is possible. So our aim here is to finalize agreements with the EAB to do accelerated repayments on the back of the T08 cash injections and then again on the back of the T09 cash injections. And this is in line with what we communicated in the prospectus before the rights issue. And my view is that EIB and Clavister has the same view. It is beneficial for all parties to do voluntary repayments. So yeah, then it takes a bit of time. EIB is a big institution, but I'm positive that we will land on a good agreement between the parties here. And then of course, get back and update everyone on that as soon as possible, of course.

What kind of growth in OPEX should we expect for 2025?

Well, that's a hard question to answer with a lot of detail, but put it like this. We have been successfully bringing OPEX down and then having OPEX under control with only small growth. As we also write in the report, one of the bigger contributing factors to increasing OPEX is actually growth. The ongoing legal situation with the company Fortified ID, which we believe have infringed our IPRs. That is something that is impacting OPEX for this year with quite significant amounts for us, explaining a big part of the growth into next year. We will continue to grow EBITDA and EBIT. That's very important for us. But of course, also to create long-term growth for Clavister. So I believe we will see some more OPEX growth in 2025 than we've seen in 2024. But on the condition that growth is there, paying for it. So OPEX growth will be very important. Now, it will be tightly connected to driving more growth. And before we add an onboard more OPEX, well, the condition is that we have more growth paying for that driving EBITDA and EBIT improvements and, of course, cash flow. So, Jon, anything you want to add on that?

I think that's a good summary. So strategy OPEX under control. I think that's key. But to invest in growth drivers, but selectively doing so. Yeah.

Continue there. What does the duration of the order book look like in terms of scheduled deliveries for 2025, 2026 and beyond?

The majority of our order book relates to defense contracts because that's where we see the prolonged projects. With the current order book, we have a horizon until approximately 2029. So it's quite extensive. And if we would hopefully then soon to be add more defense projects into that, we would be seeing, you know, extensions up until 2030, probably 2031, maybe even.

To reach 20% CAGR for the years 2023 to 2025, you will need to accelerate growth to around 30% for 2025. Is it possible to do this and what will drive that growth for you? You talked about this earlier, maybe an update here.

Yeah, I think, you know, we can break it down into what are the sort of concrete growth drivers that can contribute to that type of growth. And I mean, to start with where we just ended, a significant order book that will drive net sales growth. And that is on top of the type of business that we are generating as of today. So that's one clear growth driver. Another one is what what David alluded to going through the numbers where our base business has moved from, you know, quite slow growth in the past to be significant growth today and where it is all coming from an installed base with first of all recurring business which is very important because you know what it essentially means is that our sales team and our partners can focus entirely on driving growth so every single hour spent by our sales teams are geared against growth, not against maintaining business. That's that's a very important change. Then, of course, you have the macro perspective, you know, the the growth drivers that are impacting cybersecurity industry in general, like, for instance, this directive that we just spoke about or geopolitical tension that drive defense budgets and so forth. That's another key aspect. So I don't know, David, if you would like to add something, but I think in general there are many

you know co-insiding growth drivers that all can help stimulate that type of growth yeah yeah but i can no i agree fully what you say i can add one i think one one important thing you said what has been driving growth for us no this last year you know why is the growth trend higher and there's one more thing except all the things that john said we are more focused meaning that we have salespeople much more actively engaged in certain verticals, building pipelines. So the pipeline that we carry with us now compared to the volume of our pipeline a year ago, it is higher. And we also build more and more specialized skills and engaging with customers in certain verticals where we are more likely to, to land the meeting, and that meeting then is turned into also a commercial win. So we engage with more and more organizations, and we are specializing more and more, meaning we talk to more relevant customers, and we're more likely to convert those conversations to actual deals. So I think that's important also, so a better pipeline with us.

Back to defense solution again. Has any competitor a comparable offering like cyber armor combining AI and firewall for the defense industry?

Not really, not that we have seen, because it's worth mentioning, worth noting that the segment that we are targeting, the tactical security within defense, it's first of all a quite new segment. The digitalization of equipment on the battlefield has just recently started. BA Systems was one of the early adopters, if you like, with highly digitized platforms. But everyone is following, so it's happening. That type of market is niched to the extent where, although it's huge for Clavister, it seemed quite small compared to the civilian enterprise firewall market, for instance. So our large, typical American incumbent competitors like Palo Alto or Fortinet or the likes, they don't place any particular interest in, for them, quite small niche markets. So it is a big opportunity for us. The fact that we have Both the AI and the firewall component and the associated sort of technologies that we bring in, identity for instance, that is quite unique. We have not seen any commercial packaging that is similar from anyone else, to be honest. Of course, there are firewalls, of course, there are small data diode components and so forth, but the complete package, no, we have not seen that yet.

We saw that you got a grant from Försvarsmakten to develop jamming countermeasures for drone deployments. Can you elaborate on that news?

Yep. This goes back A few years back when we won a beauty competition, if you like, with the Swedish Defense Materials Administration, where they selected our AI technology as a runner-up technology or an interesting technology that could be used for various kinds of deployments within the Swedish Defense Forces. At that time, it was used in that project for detecting anomalies on satellite or on defense or military satellite communication. So essentially communication between the Swedish defense satellites and the land systems controlling them. And we were very successful demonstrating that we could our technology could essentially distinguish between noise in the traffic that was induced by an attacker or. weather-induced noise and that's quite capable and realizing that in the past you had you know specific dedicated signal analysts you know people that were basically looking at data data recording after the fact and spending days even weeks to try to analyze what happened and now we could demonstrate that with technology we could detect that in real time and take action in real time this project that we're recently announced that's to be seen as kind of an extension of what we did before. It's the Swedish Defence Forces being one part of it. It's Vinnova being another part. And we're working with another industrial player to combine this. And at this stage, we're looking at drones and making sure that we can protect drones from jamming. So it's a very similar technology. And the reason is of course to prove our viability within defense and to expand our footprint in defense and expand our footprint with the Swedish Defense Forces.

Yeah, and I think one thing to think about also, because that depicts the difference of the Clavister AI, the effectiveness of the algorithm that it can run on a device like a drone. It does not have to sit in a massive data center somewhere crunching a lot, a lot of data using massive CPU power. It can sit on a drone. And that says a lot about the efficiency of our technology. I think that's something to think about.

John, what are you most proud of this quarter?

I mean, obviously the fact that we finally were able to reach a positive EBIT, I mean, that's been a goal for a very long time for this company. So, I mean, that goes without saying. But I think more, you know, scratching the surface below that, the fact that reaching that came from not, you know, a single one-off deal that happened to push us over the threshold, but rather from, you know, consecutive quarters of hard work following a strategy. And maybe this is a cliche. I'm sure it is. It's a teamwork. It's sort of the consequence and the result of a team that's been following a strategy now in focusing. And now we start to be able to see the positive consequence of that. So I think that's what I'm proud of.

David, anything you would like to highlight?

Yeah, it's more or less a copy of what John said, but adding a little bit, I mean, We set up a plan in the autumn of 2021 to turn Clavister profitable. And we said back in 2021, we will reach EBIT positive numbers the second half of 2024. And we did that. So I think it's the result, as John said, of hard work for quite a long time period to set Clavister on a different course. And we are bang on that plan. And I think that is something I'm proud of.

And with that, I would like to conclude this Q&A session. Congrats on a great quarter. And thank you, John and David, for participating here. Thank the audience for participating. Thank you.

Thank you, Jenny. Thank you. Thank you, Jenny. Thank you, everyone.