Clavister Holding AB (publ.)

Good morning and welcome to our Clavister Q4 interim report presentation. My name is Aurore Gotthard and I will be your host for today's session. And presenting the report today are Jon Vesperi, Clavister CEO, and David Nordstrom, Clavister CFO. We will start today's session with the presentation of the Q4 report and we will then have time for questions. So please use the Q&A box on the right to submit your questions throughout the presentation, and we will get back to them at the end. So now, without further ado, I would like to hand over to you, John, for the presentation.

Thank you very much, Aror. And again, welcome to this seminar. As usual, I would like to start with providing a bit of a summary of the quarter. So this quarter saw a very strong order intake. We reached 134 million in order intake. Extra positive is that the contribution of order intake came from all our business areas in previous periods. It has been always one or sometimes two business areas that has sort of fallen behind. But but this time we have all business areas running on all cylinders, so to speak. That meant that our net sales grew with 23% and ended at 59 million SEK. Important to mention as well is that our annual recurring revenue from our software subscriptions continue to grow in this period with 14%. So that provides obviously a solid base for our net sales generation going forward. This means as well that we have at the end of the quarter, consequently at the end of the year, an order book of 300 million SEC, mainly related to orders within the defense and telecom sectors. From a balance sheet perspective, we also agreed an accelerated amortization plan with the European Investment Bank during the quarter with the purpose of faster reducing our net debt and reduce the impact from our financial costs. If we look at one of our key market segments, the public sector in Europe, this is a sector that continues to represent one of our most important customer groups or customer segments, especially in these times where, of course, the continued geopolitical unrest including nowadays the uncertainties about the impact from the policies from the new US government, clearly drives demand for domestic European cybersecurity solutions. In the pie chart to the right, you will actually see the the importance rated by the public sector in EU on cybersecurity being produced in Europe. And as you can see, more than 65% actually considers this an important or even very important aspect. And we continue to see this in the business discussions we're having within this sector where previous years or going even further back, this was basically not a topic at all, but it has moved to one of the top priorities looking at security vendors, which obviously is a very positive news for Clavister. A few examples within the public sector. So we were able to secure an important win from a law enforcement agency in Europe. It's a software license win for 3 million SEC worth of licenses for firewalls, with also an expectation from both sides to continue to expand with this customer also with other products from Clavister's larger solution and product portfolio. Within our identity and authentication solution group, we also source quite several, quite many licensing agreements on that software within the Swedish public sector, especially within the municipalities, regions and selected state authorities or state agencies. If we look at an adjacent sector, the energy utility sector, this is actually a sector which quite recently has started to grow significantly from a cybersecurity investment perspective. So in recent reviews or research, we consider energy utilities to be actually the fastest growing cybersecurity industry segment in Europe. So we're looking at close to a 20% CAGR or 18% CAGR from this year through 2035. Valued this year at 30 billion SEC in our target geographies only. So that would be, of course, Western Europe. Why is this important? Well, I mean, if we look at the growth drivers, we have talked previously about the... the regulations the increased regulations such as nistu that drives not only awareness but also strong demand on additional cyber security another growth driver is of course the the technical convergence between the the operation technology systems within energy sector and the more common it systems and when you open up the typically unsecured or insecure operational technology networks towards the public internet, for instance, you also open up for a completely new set of attack vectors. And this is one of the areas where OT security becomes highly, highly relevant. We're addressing this with new solution offerings. And in this quarter, we also launched our Cloudister NetWall 200R product, which is our first OT-specific cybersecurity product. It builds upon many, many years of our software development, shares the same software as all of our other Firewall products, but it's more you know purposely built packaging wise and hardware wise to suit the characteristics from from that industry within the energy and utility sector our primary customers include the local regional and as well the nationwide energy providers so the energy sector is an important upcoming customer group for for clavister still within our focus being mission critical customers If we move to another mission critical sector, the defense sector, one of the important news from the quarter was an additional contract that we managed to sign with the systems. for cyber securing the CD90 infantry fighting vehicle. The contract was worth 53 million SEK approximately and concerned deliveries to one Scandinavian country and an Eastern European nation. We're not able to disclose the names of those nations. The contract extends over three years, so this means that the initial deliveries are scheduled to start later this year, second half this year, and then span for approximately three years. With this latest agreement, we now have our security products integrated into CV90s that are delivered or being delivered to six different nations. So this has quite rapidly become an important revenue driver and revenue generator for CleverServe. And with that said, it's also important, I think, to emphasize that as up to this point, only deliveries to one nation has had an impact so far on our revenues and earnings. So additional nations, deliveries to additional nations will start providing revenue support for us from the second half of this year. That's, I think, an important thing to remember. Still within the defense sector, we see more and more interest for our cyber security products for the defense industry. One of the reasons for this is traditionally, if you look back a few years when you had a lot of time and maybe not too much money, not too much budget. The industry was accustomed to building tailor-made solutions, purpose-built just to fit maybe one specific use case or one specific customer. Now, obviously, with the war in Ukraine and the increased spending and the need for accelerated deliveries, this has basically changed dramatically. Nowadays, customers, the defense industry and the end users, they prioritize standardization rather than customization. This is good news for Clouster for a very simple reason. We are a standard product company. We're not building bespoke or tailor-made solutions for our customers. So our products for the military domain are designed to be standard products. So this has gained quite a lot of interest when we address new prospects and new customers. Sometimes with an impressive question mark from the customer, wow, you have a product already. We can buy it already. This is great news. We're not used to this. So that's an important benefit. Another defense-related news from the quarter was our initial entrance into the naval or marine domain. So up until this point, we've been mainly located within the so-called land-based applications, be that vehicles or other types of land use cases. However, during the fourth quarter, we had the benefit of getting approved as a supplier to a very large Nordic defense company. Can't disclose the name, unfortunately. and entered a first contract with them for cybersecurity for a naval or marine application. First contract worth 8 million SEK, deliveries starting already now, this first half. And we see this as an important step where we can basically start also replicating our cybersecurity technology to the naval domain as well. If we look at the telecom business historically, as you all know, it has been a bit of a troublesome market with a lot of consolidations, a lot of restructuring happening with the consequences that there hasn't been too much growth in the telecom domain. And that has, of course, spilled over to our sales as well. I think we have highlighted in previous quarters that we've started to see early signs of recovery. And I think this fourth quarter continued on that trend. So we did see even more signs of recovery and consequently for the business we have as well. More practically, we saw a new contract for a North American mobile operator for our firewalling software, as well, hardware shipments and consulting. We have also been active, we're still active in converting our legacy telecom installations that were mainly based on perpetual licensing contracts over to the more modern term based or subscription based contracts. That's a quite lengthy type of work, but it obviously fuels recurring revenues for us going forward as we continue to success with that transition. So in the period, we had the opportunity to convert two of our Asian mobile operator customers to the new licensing model with also a subsequent order value of 4 million SEC coming in the quarter. In June last year, we announced a business opportunity in UK. We had to announce that opportunity. It was an early opportunity. We had to announce that for regulatory reasons. The customer at hand was 3UK, the large mobile operator in UK. And since the announcement of that opportunity, there has been a merger process going on in the UK between 3UK and Vodafone. Since a number of months back, the competition agency in the UK has been reviewing the merger and late in December or in December, they approved the merger. That's that, of course, changes the dynamics with this operator quite a lot in terms of new organization, updated technology platforms and so forth. So we can just conclude that the way that opportunity was structured last year is no longer the case. So we will lower the expectations on that deal. at least in its original form, and take one step back and look at sort of how this merge evolves and what type of new business opportunities this translates to. With that, leaving the word to David to walk us through the numbers.

Yeah, thank you, Johan. So let's start with order intake. Only looking at the numbers, we see a decrease of 38.4%, but let's deep dive into that a little bit to give some more explanations to the underlying performance. As you know, we had quite large or very large BAE contracts in Q4 2023, roughly 170 million SECs. We managed, importantly, to get one more, as Jon talked about, a BAE contract of 53 million SEK in this quarter. If we adjust for them to see how is the underlying business performance, you will then see a 72% increase of order intake in the underlying business, meaning that this quarter, if we look under the large BAE order, we're doing 80.7 million in order intake, which is, if we compare it to previous quarters, well, that is our best performance in the underlying business by a large margin so far. So I would say then a a good order intake from the business. We see order intake increases in all parts of the business. We haven't really seen that all parts are delivering so clearly in the previous quarters this year, but in this quarter, all parts are doing that. So glad to see that. We can move forward. They're looking at net sales. There we see that the order intake growth that we are having is translating into a clear net sales growth of roughly 23%. Again, that growth is coming from all parts of the business, leading to clearly our strongest net sales quarter so far, almost reaching 60 million sec of net sales growth. Clearly, the trend is there and the trend is slowly but steadily bending upwards in terms of the growth trajectory. So pleased to see that. Continue with that. Then looking at the gross profit. Sorry, the ARR. ARR-wise, increasing the growth trend, landing a 14.4% increase in ARR. We talked about this a bit in Q3 where ARR growth was a little bit slower. We then said that we saw quite clear growth in Q3 and especially in the later half of Q3. And just as a reminder, we record ARR when a customer have started a license. So from the time when we sell a license until the customer have installed the license and then started it, it is a time lag of roughly 30 days. So we said that we expected ARR to increase in time. in Q4 on the back of the development sales wife in Q3. And we're then moving into 2025 with a solid foundation of ARR contract, but also with sold but not yet started contract. So glad to see that then we're moving into this year with our largest ARR base so far. combined with our largest order book so far, which creates a good foundation for delivering growth in 2025. And then we talk about gross profit. So gross margin-wise, we land around 77% in this quarter, a decrease of roughly 0.5%. Gross profit wise, we see a clearly growth with more than 25%. So we are translating our order intake growth to net sales growth, turning that to both improved ARR and improved gross profit. Then from a gross margin perspective, let's look a little bit into where our growth predominantly coming from. It is our more margin weak parts of the business that stands for most growth in Q4. We see a lot of growth from the defense part of the business, but also from our civilian firewalls. And these are the business areas with a little bit weaker margin profile. So if from a Cleverson perspective, our IAM business is with the on average, the strongest gross margins. Followed by telecom, where we typically have more software in the sales mix than hardware. Then comes civilian firewalls. And lastly, up until today at least, our defense sales where we see a more hardware-centric delivery profile, even though we have pure software deployments as well to our customers. So given that sales mix, I would say that a 77% gross margin is clearly quite strong. And as you know, when Clavister is growing, we have a short-term impact on gross margins as we are leading with hardware to enable new customers to run our software. And here the hardware centric businesses are leading our growth. So hence we see this operating leverage in this quarter. We see some more cost increases increasing with 16.3%, clearly growing slower than our net sales that's growing with 23. But I think let's talk a little bit about the OPEX increases because When we have this big order intake increase in the underlying business of 72%, that has an impact on sales commissions. So the clearest cost driver in this quarter are related to one-off effects due to sales commissions based on high sales growth in the quarter. The second impact, which is also a one-off, is the fact that we had our court proceedings related to the lawsuit of what we believe are IPR infringements in our identity and access management business. We had court hearings in October. That led to, of course, costs related to that of roughly 2 million SEK. They are also not structural costs that we carry with us. They are one time effects in this quarter. So there are some underlying cost increases, of course, as clavister is growing. But the majority of the costs are one time effects. Then talking a little bit of what are we seeing ahead of us? We have been talking about ourselves for quite some time as a turnaround case. That turnaround from our perspective is going well. We're clearly taking steps and making Clavister more profitable and we see more and more stability in our growth. So we are clearly on a growth journey. We are not yet relabeling ourselves to a growth case, even though we're nearing that point. So you that have been with us for some time know that Clavister has been in a Cost reduction phase that then moved into a cost control or cost stability, maintain cost phase. And now we are moving over into a phase that was more, say, call it focusing on profitable growth. And in order to reach that, of course, cost will be a high focus to make sure that we have control over cost. But in order to grow and grow with profitability, we will do selected investments in sales, predominantly sales and marketing going forward. So you should expect to see growth growing a little bit, but slower than our net sales growth. It's clearly slower, but still growing. And EBITDA. growing with almost 56% in this quarter. As you know, there is a seasonality in our business where Q3, I would say always shows the best EBITDA profile, depending on on the cost structure of the business. But comparing quarter to quarter, we see that the EBITDA growth journey in Clavisier continues. We're landing on on roughly 11 million in in adjusted EBITDA and raising our adjusted EBITDA margin to 17 percent, comparing to 14 from last last quarter. So I would say the trend line of of improving EBITDA, it is it is clearly there, even though this quarter is weighed a certain to a certain degree with one of cost as we talked about and maybe a little bit unscientific. But still looking at the rule of 40 mark as a quality stamp of a SaaS business, this is worth mentioning that this is actually the first time that the combined net sales growth and the adjusted EBITDA margin in Clavisor is at that 40 mark. So glad to see that because, of course, if we say that we're chasing growth, Profitable growth, seeing that we're growing the business and also growing the gross margins. I'm sorry, the EBITDA. Well, very important. So glad to see that. And then looking at, OK, our performance versus our ambition. We have had a target of saying that we would reach 20 or above 20% net sales growth. In this quarter, we're landing on 23. So reaching and overperforming versus the target. Gross margins, not entirely on the 80 percent mark, a little bit under. But as I said, we are delivering a solid growth in the quarter and the growth predominantly comes from our hardware centric businesses of civilian and military firewalls, which dampens the gross margins a little bit. We had a target of 20 or above 20 adjusted EBITDA margin, reaching 17. So not fully reaching that target, but the trend line is there. So we're step by step growing our EBITDA margin. And operational cash flow, we said it would be positive, and it is positive. So reaching that target. Saying yes very shortly, though. that the growth has impact on our operational cash flow where we're binding quite a lot of accounts receivables. But that is a temporary growth effect. So we should see more support in coming quarters from that. So I stop there. Thank you, David.

So let's leave back to you, Aror, to see if there are any questions from the audience.

Yes. a few questions from the audience. So let's start with the numbers while we're talking about them. Impressive order intake and growth, but do you see profitability coming soon?

That Well, yes, I mean, first of all, I would say as we just talked about EBITDA, we see that we are in a growing EBITDA trend. So I would say profitability is is is constantly growing. If you're looking at profitability from an EBIT perspective, Q3 was our first EBIT positive quarter. If if we maybe we could go back to the EBITDA picture, just look at that for very, very, very briefly, because I think that could help in the explanation. You see that the first quarter that we that we shown positive EBITDA was in Q3 2021. Then it took three quarters until Q3 2022. Then we came in and became EBITDA positive and we have been EBITDA positive ever since. Not saying that we should see exactly the same kind of cycle with EBIT, but it's still likely that you can draw some conclusions from how EBITDA went from negative to be then steadily positive. I think EBIT will follow a certain kind of trend. So I expect us to, and we say that also in the report, that we aim to be EBIT positive for the full year of 2025. This is something that we firmly believe in. And then talking about profitability as in showing net profitability also after the financial net. I think a likely scenario is that we will see that in 2026. And given the large amortizations we have done on our debts, especially the EIB debts during Q4, and we aim to do that, and back of the TO9 warrants, we'll do further repayments. Of course, the financial net will be burdening us less. So I think based on that, 25 clearly landing on positive EBIT, 26 very likely landing of positive net results. So I hope that quite a bit lengthy, but I think that question also, we need to kind of talk that through. So if that wasn't a good enough answer, but then come with a follow-up question.

Right. We have several questions about OPEX that is a bit higher than expected. So someone wanted to know the exact sales commission during Q4, the extra sales.

Yeah. Well, we can start to sell at this that we have typically as a salesperson in Clavister have a fixed part and then you have a smaller flexible part. That part is associated with typically it depends a little bit between the sales teams, depending on what is the profile of the sales in that sales team. If we take the civilian firewall team as an example, you have that divided into the flexible part into ARR growth and order intake growth. And you have a target to say, OK, in order to reach your full compensation through the full year, ARR needs to grow with this amount and order intake with that amount. And of course, if the team is overperforming in reaching better and for better growth than what the target is, the commissions are also then growing correspondingly. My personal view on that is as long as the targets are set on a relatively appropriate level and you have overperformance versus that targets, which we had in clearly in Q4, then sales commissions will be higher. But then also we sit with very motivated sales staff who clearly is chasing the And of course, when we then go into 2025, the targets are adjusted and higher, meaning to only maintain the sales level we had during 2024 will not generate the same commissions. Then you need to grow more. So I hope, John, you want to add something there?

No, I think that's a good explanation. I mean, clearly. we tend to benchmark our sales commissions with the industry in general. And I think we're at a reasonable level. And of course, I mean, we'd like to premiere salespeople that are carrying a lot of weight into growing the business. So completely natural effect in Q4, I would say.

And just adding one thing, because of course, we have been adjusting sales commissions. I mean, throughout the years. I think today that we are landing on flexible compensations that are driving the right behaviors, that are creating value for the company, but also stimulating salespeople to go the extra mile to trying to close as much business as possible.

Another question about OPEX. How do you see the legal and court costs going into 2025?

I mean, I could start and you could compliment David. So clearly, as David mentioned, we had the court hearings, court proceedings on the legal case we have been running mainly in 2024. The court ruled against us to our surprise and to our advisors' surprise and to actually many legal advisers surprise. So it should come to no surprise that we are intending to, of course, appeal the verdict. That will drive some further costs, not on the same level we anticipate because of all the preparation and all the work that went into 2024. But we feel that this is a way too important issue to just leave the court order or court verdict hanging as it was. It's important not only for Clavister, but basically for the entire Swedish software industry. Because if the verdict stands, then basically anyone could behave very, very bad, to say the least, in the software industry and get away with it. And we don't want that to continue. So we're most likely appealing the case and it will drive some cost.

thank you john a question about arr that took a big step during q4 do you see the same momentum in in 25 or was it a seasonal or is it usually a stronger quarter for adding new contracts well i think typically we have strongest sales in q4 so meaning if

But everything we sell in Q4 is typically not started in Q4. That means that you will go into the next year with sold but not yet started contract. That will give us support in the coming period. To talk about seasonality, I think what we can say is there is one quarter that is weak from an ARR perspective, and that is Q3. That is a vacation period. We tend to sell less, especially when we sell less in July and August. And, of course, people are away, so they're not starting that many contracts. And since a typical lag of 30 days, the sales we have in September has not yet kicked in. So Q3 is a weak ARR quarter. The others, there you don't see the same seasonality, I would say.

I can just compliment as well that if you look at the ARR development historically and you compare that with our net sales growth trend, you see some similarities in those curves. And I think it's reasonable to claim that if we maintain a fairly similar product mix going forward, the ARR growth will follow the same trend as the net sales growth is doing. However, some quarter, maybe two quarters behind, given when contracts are sorted and so forth.

Can you give some more information on the 4% churn? What is the main reasons that customers churn and what churn level are you aiming at?

I start from the end. We have not clearly expressed a churn target. So hard to answer exactly that part of the question. Reasons for customers churning is, there are a couple. You might be aware that we are doing a bigger focus on selected geographies in Europe. Historically, if you go back a couple of years, Klebser had sales representatives in other markets outside of EU. We don't have that, meaning if we look at our sales team, the biggest churn is in markets outside of EU. because we are not focusing on that. We don't have presence. We maintain that business at the lowest possible cost from Sweden. So that is churning more. I think that's quite logical. I think those churn levels are also coming down because the transition has been going quite well to Europe. Not saying that we're not helping customers in other parts of the world. We do, but our focus and where we have staff is in Europe. Then Other reason for shurning typically, I would say, is we have an indirect sales model. We'll sell through partners. So say for the sake of argument, we have a local municipality. They are procuring firewalls through a local partner. They do a tendering process, change the partner. That partner have no competitive competence, but have their competence on a competitive basis. the brand of a competitor, then that represents the most likely churn risk for us. So then, of course, it depends on how strong is the relationship with the end customer and do they have a champion. They're clearly requiring them, the partner, to keep the installed firewall base. And that differs from case by case. I think this... The political tension in the world, and we clearly articulate our values of being Swedish, European, not Israeli, not Chinese, not Russian, and not American. Well, that helps. I think that will, to a higher degree going forward, protect against churn.

Thank you, David. A follow-up question about the lawsuit. In case you finally lose the legal case, do you see an impact on Clavister sales going forward?

Obviously, we hope that we don't lose, but we have to be prepared for that potential. I think it's important to be clear that The legal case is not about whether or not Clavister holds the rights or the immaterial immaterial rights to the software. It is about someone else has been infringing on our software. So even in the case we would lose, it is still our product. It's still our software. We have still all the flexibility and all the motivation, of course, to sell it. The the drawback will, of course, that there will be a competitor on the market that has been able to build a similar product or a competing product with less investments. I mean, that's that's the clear consequence. In that case, we have and I think it's important as well to to remember that we have a good brand, especially in the Swedish market for for identity solutions. And that brand remains, of course. So I think the clear answer is that it will not limit our possibilities to sell, but we have to be as good as we were before and even better to improve our growth rates in that area.

Another question about OPEX. How should we view OPEX costs and by how much will financial costs decrease after the repayment?

Yeah, so OPEX, as we, I think, tried to say, a lot of them are one-offs. The underlying cost in Clavisier will likely grow during 2025 a little bit faster than they did 2024. We're not talking about dramatic increases in cost, but in order to drive more sales, we will be looking at selected sales investments in having some more salespeople investing more in marketing so we can drive the Clavisier brand more, build more brand awareness to generate more sales, doing also kind of, you know, telemarketing, SDR services and so more to drive more sales pipeline. So, and of course that have some OPEX impact. The very large, the larger impact we saw in Q4 That was related to, I was saying, an overperformance sales-wise with 72% order intake growth in the underlying business. Well, if we are delivering consistently on that level, well, that will have a higher impact of cost, but an even higher impact on that sales. So then on the financial part, on the financial costs, A, we repaid, we did pre-payments to EIB, accelerating repayments of 6 million euros, and then doing also the contracted repayment of 800,000 euros that we had previously agreed with EIB that would be in Q4. So total then 6.8 million euros. The impact on the financial net from that on a full year basis is roughly 8 million SEK. Then we will see some additional decrease as interest rates are dropping. So that will have an additional positive effect of maybe in the range of one million on a full year basis. And then depending on the outcome of T09, that will further decrease the EIB debt with, I would say, 4 to 5 million euros. But that's totally dependent on, of course, what is the valuation of the share at that time and the uptake from investors. And that then will have an additional impact positively on financial costs.

Thank you. Let's take a break from the numbers question and talk about a nice growth in the energy and utility markets. Can you describe how you work to position yourself to be a major supplier and what targets do you have?

One of the reasons why energy and utilities is a selected focus market for Clouser. It's not a new one, I have to say. If we move back a couple of years, we started our focus journey looking at the various type of industries that are within the critical infrastructure, if you like, or the mission critical applications market. Public sector clearly stood out as one important target for Clavister, given the customer base and the geopolitical situation. But adjacent to that came energy. Quite a number of reasons, one being purely structural, where many energy providers, especially in the Nordics, as well to some extent in Germany, are owned or partially owned by government or by local municipalities. So that makes an excellent case for upselling or cross-selling into that industry. So we have already quite a strong presence within the municipality sector, for instance, and by then complementing that sales with products and solutions that are more geared for their energy companies. That's one of the reasons and one of the possibilities we have to position ourselves there. Secondly, I think one of the strong positions for energy and utilities that goes across all the target customers is again, the geopolitical situation and the fact that Clavister is one of the few European vendors. So talking to an energy company in Europe, It is a strong argument having a completely European product and software development and product development being carried out in Sweden. So that's not only a lip service argument, it is a real consideration for those customers. Another thing we're doing is that, of course, we're selling to a great degree through partners and several of our existing partners, they have quite a strong inroad into the energy sector already. But we're also complementing that with partners that are more niched towards the energy market. And we see more and more uptake in interest on that. So I think that's in essence what we do. We're not disclosing or exposing a monetary target for that sector, but it is an important one and a growing one.

Thank you, John. On to the defense sector. I see you delivered to six nations for the CV90. Can you please elaborate a bit about competitors and market share?

Absolutely. If we look at the defense sector in general, if we sort of zoom out a bit outside CV90, there is some addressable market in total for the cybersecurity industry of some 60 billion US dollars in defense by, I think, by 2034. That's not what Clavister can aim for clearly because it includes a lot of different other type of cybersecurity technology. We have selected to chase the tactical security market, which is in essence where cybersecurity is positioned closer to the battlefield, if you like. So not not the traditional racks installed in server rooms where you could as well put them, you know, a typical civilian firewall from one of the large American vendors even. But the further out on the tactical side, you get even closer to the individual soldiers. There is less competition from the traditional firewall vendors for many reasons. One being that it's quite a niche market. So the big U.S. vendors doesn't really care too much about that market compared to the huge enterprise market. but also from a technical and product perspective where our products are more suited for those type of environments where you need to have small footprint, you need to have super fast startup times and those things that are typically not attributed to large data center type of products that you typically find. There are some other competitors, of course, otherwise there wouldn't be a market. But there are a few European competitors that sell products into this market. We have yet to see a vendor that combines firewalling, military grade products and AI into the same package that we do. So that's not only an important icebreaker in our customer discussions, but it is actually a key differentiator in terms of market share. Or if we zoom in a little bit on the infantry fighting vehicle market, the land based market. I would claim that with the rate of digitalization happening in the industry where the systems has a pole position in that trend, and I would basically stick my neck out and saying that the CV90 is the most digitalized vehicle on the market. In that context, Clavister is in design. We're designed into that architecture. As long as we continue to be a good supplier to BE Systems, we are all but not exclusive from a contractual perspective, but we are designed in. And it would take not only a lot of effort, but a lot of purpose to basically change our product to something else. It would cause a major redesign to quite low value in the end for the end customer. So I think we have a very strong position in that sense. And, you know, as you've seen in previous press releases, we're slowly but surely expanding that footprint into other vehicles and in Q4 also into the naval domain. So I think we have a fairly strong market share here. It is a quite fresh market still. That's important to say. Digitalization in defense has barely started if you zoom out and compare to the civilian market. So it is a fresh market, young market. We have a good, really good starting point with what we've done so far.

Thank you. Will the 8 million SEC order for the Navy be delivered in Q1 2025, given its connection to the NATO exercises?

It is actually not connected to the NATO exercises. This is something else, and it starts being delivered during the first half year in 2025, and then the project continues for a while. We could potentially see something of it in Q1, but it's distributed over a bit longer period.

What portion of this quarter's sales came from CV90 deliveries?

That's a David question.

Yeah. Yeah, I would say roughly 10%.

Right.

I mean, bear in mind there, as you're repeating what Jan has said previously throughout this presentation, We are only seeing deliveries from one nation so far. The accelerating revenues from BAE engagements will come gradually throughout this year, starting mainly from H2.

And a bit related about the strong order intake and adjusted for the large CV90 order. Do you see this level as sustainable?

From my point of view, I believe so. If you look at the order intake data historically, you of course see the seasonality where Q4 always is the strongest quarter. I think that's quite a general thing in the IT industry. the momentum we've built up across all our business areas points towards that we can have a sustainable level of sales this way. One important reason, it's absolutely not the only reason, but the change we made to a recurring business model and the subscription-based business model means that more or less our entire sales crew can basically work on building growth and you know, gaining new customers rather than chasing our own tail as we did a few years back where, you know, every growth came with a lot of effort just to sort of regain the previous level. That has completely changed. So, yeah, from my point of view, it is a sustainable level.

And about this VAE contract, was it a one time thing or do you foresee more VAE contracts coming up?

I think, you know, one way of looking at that, if you see the increased budget spending and the increased, you know, really, really strong increased demand for defense deliveries across the board. I mean, in general, not only in CB90, but across the board. I think, you know, any... The only logical conclusion you can draw, especially in the light of the CB90, also is really successful in the market. The only logical conclusion you can draw is that BAE will naturally, logically sign more contracts with armed forces across Europe and potentially outside Europe as well. And as I said before, Following that, we continue to be a good supplier and demonstrate our value, delivering good products with good quality. I see no reason why we shouldn't be in those future orders. A bit humble statement. Again, we're not exclusive. There is no exclusivity anywhere. But from a relation point of view and the position we have, I feel that's quite likely.

Thank you. We have some follow-up questions about churn. If price is a major factor in churn, could you raise prices more aggressively?

um yeah i i agree with with i think it's a very good question so it's i would say it's true price is not a major share factor clavister tends to be typically uh uh price competitive uh depending a little bit on which market we're in it could we could have more price aggressive competitors in some markets but generally Clavister is competitive from a price point of view. And yes, I believe that quite aggressive price increases is part of our growth and profitability strategy. Then, of course, it needs to be done at such a pace that we do not alienate the customer base we have. It needs to be on a level which is justifiable. But that said, yes, I think it is more likely that we are raising prices 5%, 6%, 7% on an annual basis rather than 2%, 3%. If that answers the question.

And finally, could you walk us through the plan for profitability on an EBIT level for 25?

It is to a high degree, you know, maintaining and gradually continue what we're doing, bending the growth trajectory upwards. That is that is key. I truly I mean, we truly believe in that we will succeed in that. We have now the 13th consecutive quarter of sales growth behind us. We will continue in growing. We do that with profitability and we do some selected investments in more sales and marketing capabilities. That is the key strategy. So growing with control over cost. And I think we have demonstrated that we can do that for quite some time. And I think, I mean, going back to kind of the analogy to EBITDA, Looking at that seasonality, I think we see a similar trend, and I truly believe that we will succeed in landing on positive EBIT for the full year 2025, as we say in the interim report as well.

Thank you, David. That was all for the questions from the audience. So now it's my turn to ask. John, what are you the proudest of this quarter?

Yeah, I think, you know, what really made me proud was to see that all our businesses contributed so strongly with, you know, order intake growth and deliveries in this quarter. And I think I started mentioning in the beginning of the call, previous periods, there is always one, sometimes two areas that fall a bit behind. But when we have a quarter where basically the engine is running on all cylinders, it's really interesting to see the leverage it really brings on top line. So I think that's what I'm most proud of.

Thank you. And David, anything you'd like to highlight?

I have to choose one. I think, OK, we didn't fully reach the target of gross margin of 80 percent. But still looking at the level of growth and looking where the growth comes from in defense and civilian firewalls, I think still we have a resilience in our gross margins. And even though we sell a lot of hardware and military hardware, we can maintain gross margins on those levels. So I think that is a positive takeaway that I wouldn't say surprised me, but I'm glad to see that we can achieve that. So that resilience, I would say. Yeah.

Thank you. Well, thank you both for the presentation and answering all the questions. Thank you, everyone, for attending and asking so many questions. This interaction is really, really valuable to us. Recording of the session will be available on our website shortly and on LinkedIn. And with that, I wish you a wonderful rest of your day. Thank you for joining.

Thank you.