Clavister Holding AB (publ.)

Welcome to our Q3 interim report presentation. With me today is our CEO John Westberg and our CFO David Nordstrom and we're going to present the Q3 report to you. So we'll start with a presentation with John providing business updates and followed by David's part on the financial details. And after the presentation, we will have a Q&A session. So you will be able to answer any questions, post any questions you have before, and we will answer the questions in that session. So please feel free to post the questions during the presentation in the question box, and then we will get back to the questions after that. So yeah, with that, I would like to hand over to you, John.

Thank you very much, Kate, and warm welcome, everyone, to this Q3 presentation. As usual, starting off with a summary of the past quarter, starting with actually what we refer to as a key profitability milestone. So this is an interesting, important milestone. where all of our profitability metrics are showing good performance. So we were able to demonstrate our highest ever EBITDA margin at 26% ever, also showing positive EBIT and positive net result, all together combined with a strong gross margin. From a business perspective, we continue to expand on our European footprint. We do this mainly through new partnerships. And as a reminder for those who might be new to Clouster, the Clouster's route to market is typically through partners. That's why we place extra emphasis on important partnerships, such as the one we announced shortly after the end of the quarter, an extended distribution agreement with Arrow Electronics, which I will talk more about in a while we see overall a strong momentum in the business defense being no exception the flip side of that coin is some supply constraints that the overall industry experiencing and and also affecting clavister to some extent also getting back to that in an upcoming slide All in all, as a summary to start with, we believe that we still are in a very strong position for future growth. The demand as such for European cybersecurity with an emphasis on European is increasing by the day. And we sit as one of the very, very few European cybersecurity vendors that can demonstrate the type of product portfolio with the width and depth and capabilities that are really appealing to the target markets we're addressing. If we look at some key metrics and sort of the underlying importance of those with the headline resilience in the business model, what do we mean with that? Well, starting off with our order intake amounted to 31 million SEC. It's actually a slight decline, 9%. stemming most most or primarily from the timing effects from larger orders in the defense sector so as a reminder as we saw both the civilian and the defense sector i think we have a good good hybrid mix of characteristics in our business, whereas the civilian business typically is dominated by quite a high volume of contracts with smaller average deal sizes, but distributed over very many partners and very many end customers. Whereas in the defense sector, it's more or less the opposite, larger contracts, longer lead times, and more lumpiness. And this is a quarter where that type of lumpiness comes into play. Despite that small decline in order intake, we were still able to demonstrate 15% growth of net sales, 17% adjusted for currency effects. And I think this is a good example where it demonstrates both the hedging capabilities we have in the business model and that the business model as such stays very resilient, even in a quarter with slightly lower order intake. As such, the order backlog we have now stands at 361 million SEC. It's more or less on the same levels as the previous quarter. And it keeps extending into 2029, which means that we have extremely good visibility, good predictability from the deliveries coming from the order backlog over the next coming years. Moving on over to a bit broader perspective, looking at the market situation and some macroeconomics. What we've learned from looking at, maybe not colleagues in the business, but other IT areas complementing or adjacent to the cybersecurity industry, seeing that we are, as an industry, experiencing a bit of a cautious investment behavior. when talking to the industry, when talking to industry peers, it seems like the common denominator is the overall geopolitical uncertainty. I mean, the tariff conditions from the US is probably one of the best examples. So some kind of hesitation that postpones IT projects to some extent. I believe we are affected as well of this environment, but to a much lesser extent. I think the situation is hedged from the perspective that cybersecurity is such an important investment area. So even though you have to postpone some other type of projects, you're not postponing cybersecurity in the same degree. It's too risky, basically. So that's an outlook into the economy. If we then look at another important aspect is still from the sort of bird's eye perspective, looking at the European digital sovereignty. What we're seeing and have seen for quite some time, but in an increasing pace right now, is a Europe that steadily moves towards a so-called European digital serenity. In essence, the ability to be less dependent or independent from non-European technology. It goes without saying that this type of move is of course extremely positive for the entire European vendor ecosystem, cybersecurity being no exception to that. There is one very concrete example for those who enjoy some nice bedtime reading. This number referred to now in the screen, it's the EU's report on European technological sovereignty and digital infrastructure. This is a report that was actually adopted by the European Parliament this June, and it points out some very interesting recommendations. I picked up three of those. One being that the EU actually proposes in this report that a share of public procurements should be reserved for European companies. If we take this into perspective looking at how other nations or other continents are doing this, In the US, strategic procurements are reserved to 70% for American companies. In China, maybe to no surprise, it's reserved to 100% to national companies. And this to be compared then with the European Union, where only 10% of procurements, the strategic ones, are going to the European vendors. So there is a lot of growth potential coming from a recommendation like this. For a security vendor like Clavister, potentially the second recommendation here is even more important. So the report actually recommends the European Union to introduce a so-called cyber security criteria for public tenders. In essence, the idea is when you have a public tender and the public tender relates to or concerns sensitive data or security critical data, You should be able as a public tender to appoint only European vendors from a cyber security perspective. So in essence disqualifying non-European vendors. Naturally that's extremely important for the European cyber security business. And finally, there are many, many comments or recommendations in this report, but a third one, which I found very interesting, the recommendation is to introduce actually tax incentives for private investments into European technology providers. So all in all, when these recommendations are turned into legislation, might take a year, might take a few years, but I'm certain it will come, then this changes the vendor landscape entirely in Europe on a positive note. Talking about our partnerships and the continued expansion, so we announced short after the end of the quarter that we have extended our distribution partnership with Arrow Electronics. Arrow Electronics is one of the largest IT and electronics distributors in the world. Up until this point, we have been having Arrow as our distributor in Sweden. With the new agreement that we've extended now with Arrow, we are adding additional 11 countries to our distribution collaboration. So we're adding the other Nordic countries, we're adding the Benelux countries, we're adding Poland, and we're adding the Baltic states. And this, just to clarify, sits on top of the already established, albeit smaller distribution partners we have in the other Western European countries. It's important to say that since we engaged with Arrow in Sweden some years back, our collaboration with them has been really important to drive the double-digit growth we're seeing on the civilian security sales in Sweden. So goes without saying that our anticipation with this extended partnership with Arrow is to drive the same type of growth going forward in the other European countries. Moving on to defense sector, titled high activity. And I think that's a good framing of what we're seeing in the defense sector right now. So all in all, we see strong interest and demand for our cybersecurity solutions for defense. We're both expanding and deepening our existing relations, already existing contracts and partnerships, but we're also entering into new ones. To no surprise, everyone knows this, the investments in the defence sector is of course growing dramatically by the year. To just showcase some examples just within the European Union, last year 343 billion euros were spent on defence initiatives and this number is expected to rise to 381 billion euros this year and continue to grow significantly thereafter. There is an initiative that was launched by Ursula von Leyen, so-called Readiness 2030 plan. This plan aims to allocate 800 billion euros additionally for defence investments in Europe. And also at the previous NATO summit in the Hague in June, the member nations of NATO agreed on a quite aggressive goal, reaching 5% of the GDP by 2035. So obviously that translates into huge defense investments. Cyber security specifically is of course an investment area that is growing as fast, probably faster, given that the defense industry is starting from quite an immature level of cyber security. So all in all, this should present good and strong growth opportunities for us going forward. This is also, of course, one of the reasons why we're broadening our product portfolio. Apart from our military-graded firewall products, the joint product development we announced earlier this year with Saab on the TactiGate cross-domain product, that is one example of us broadening the product portfolio to take and capture a larger share of the upcoming market expansion within defense. The flip side of the growth in defense is the challenge of supply chain. So what we're seeing, what we're learning, and this is an industry-wide challenge, that the production, the scale of production is really not picking up and scaling fast enough to meet the high and increased demand. So this is a situation starting to look a little bit like the COVID situation with supply chains being impacted in this case presumably on a positive business reason with the increased demand and not because some virus, but regardless, it is affecting the entire defense industry. Specifically for Clevester, we've experienced, we're seeing that some of our military hardware suppliers are struggling now to meet the required delivery timeframes we have in the short term. So even more specifically, we have quite a significant set of deliveries that we're planning for the fourth quarter this year. Those deliveries are facing a high risk of being pushed over to Q1 next year, and that would naturally impact the growth level and the EBIT level for the full year. So to be transparent and clear on that, we have decided to remove or withdraw our full year growth and EBIT targets for 2025. But very important, though, to state and to emphasize that this is purely a timing issue. The underlying orders and the underlying business are not at risk. We're looking at a quarter of shift in time. With that, over to you, David, to talk us through the numbers.

Thank you, Jan. So as always, we start with order intake. And as Jan alluded to earlier, we see a slight decline in order intake. And he has to get some perspective of that if you kind of look at the bars in the picture you know you will clearly see that q3 stands out being the order intake weakest quarter for Clavister so this quarter follows kind of a seasonality trend and then let's know and it might also the question then why well our main business is in Europe and throughout q3 you know Both our employees, but more importantly, our customers and resellers are on vacation, meaning that the activity levels, especially within the civilian business, is lower in Q3. And when working with larger projects, they tend to focus on, even though we were working on projects in Q3, they are tending to close in Q4, which you will also see if you look at the seasonality in the business, which is typically always highest in Q4. So I think this follows the trend. And in this quarter, we have had a lack of larger orders, especially within defense and telecom, which are lumpy by nature. So I would say that explains the slight decline in order intake. in the quarter. If we move forward then to net sales, the decline in order intake have a certain impact on net sales as well, because a certain degree of the orders that we generate are also turning to delivery very quickly, especially within the civilian network security business. But here we're demonstrating a 15 percent net sales growth just for FX impact at 17. So slightly below our trend line, we would have liked to seen somewhat more growth. But I think knowing that this is in Q3, which is a more challenging growth quarter based on the vacation effects, I think we're still looking at a quite decent growth in the quarter and then adding our 16th quarter of consecutive growth here. And keep pushing the growth trend line upwards. So the growth trend continues. And I think Q3 has always been a little bit under the growth trend. That doesn't mean any impact on the trend itself. I think we are well positioned for continued growth in coming quarters. So this is a new picture for those of you who have been following Clavistry for some time. We are often getting the question and I would say to a certain degree the misconception that Clavistry is mainly delivering defense business and civilian business to a lower degree, but it's actually the opposite. So I think this is us providing some new information here in the presentation, but also in the interim report itself. stating how much of the business volume is coming from defense. And we see that those volumes are growing, following a quite good trend line of growth in the defense business, combined with the civilian business, which trend-wise is also growing. currently 82% of the clavister sales are coming from the civilian business. However, if you're looking at the order book, the mechanics are the opposite. Then you will find in the order book that the majority of the order book is defense related, meaning that it's likely that defense sales in absolute numbers will grow in the coming periods. Then of course, the civilian business is growing as well. So the proportion of defense sales versus civilian sales going forward is a little bit hard to have a clear view on. I think what we can say is it's likely that the defense part of the sales mix will likely increase going forward. But I think the civilian part is still the lion's share of our sales. ARR wise, The growth trend of ARR is continuing. I think in Q3, kind of what I alluded to before, it is a little bit more challenging to grow ARR with double-digit numbers. And then why? Well, there are two answers to that question. One is business is generally a little bit slower in Q3, as it is, again, a vacation quarter. And then for us to record ARR, we need to have a sold contract. Then we record net sales and order intake. But for us to also record ARR, we also need to see that the contract is started. And then you have a lead time in average of 30 days. And during summer, less contracts are started because people are not working as actively as they do in other quarters. So that has a dampening effect on ARR growth specifically in Q3. Gross profit wise. landing on a, and I think this is now interesting because if you look at the picture of defense sales in the sales mix, these were growing in Q3. And despite the fact that defense sales were growing quite a lot as a proportion of total sales still managing to to provide an 80% gross margin. I think that is, I would say, a strong margin given that sales mix. And I think what we can conclude from that is there has also been a misconception that defense sales equals low margins. That is not necessarily the case. We have defense deliveries that are pure software or defense deliveries utilizing our civilian hardware, but uploading a perpetual cyber armor license. But then we generate much stronger gross margin. So I think this shows that we can have growth in defense and still produce strong gross margins and the defense business in itself can be margin strong. So I think these are key takeaways from this quarter. operating leverage looking then at i think this is something that we are quite pleased with uh this is the quarter so far where opex in proportion of net sales have reached 72 that's the lowest uh opex to sales ratio so far uh throughout the history of of of clavister i think showcasing that we are able to utilize our cost base more efficiently generating uh more business from from our from the costs that we already having uh we did investments in a growing uh organization quite now doing quite you know selected investments especially in sales and marketing during the first half of the year these were good investments i think during q3 our focus has been on ensuring uh a good you know delivery capacity and good efficiency uh from these investments i think this is something that we're showcasing also in these numbers for this quarter and then If we then look at our EBITDA levels, reaching our so far highest adjusted EBITDA level, the adjustments are low in the quarter, only 0.4 million SEX. So the delta between adjusted EBITDA and reported EBITDA is low, but adjusted EBITDA reaching 26%. I think i am showing that we are continually you know pushing the the profitability trend upwards so pleased to see that yes john Yeah, sorry.