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.

So moving forward. So thank you, David. So with that, going into the final part of the presentation, just summarizing with our outlook for the future. So again, a bit of a repetition. So we strongly believe that we are well positioned. I think we're showing that from our track record over the past few years on this market that are interesting for several reasons. I mean, not only the overall underlying growth of cybersecurity investments, but also the current, I wouldn't call it a trend, but the strong movement towards the European digital sovereignty. That together plays very well for Clavister and of course for the other again very few european cyber security vendors um we've built over these years a platform which we believe is really solid now to to to build additional growth it's not done done we still have to do selected investments in in in in sales naturally to drive growth and to some extent in additional r d to fulfill um our delivery plans but But all in all, the product portfolio is already strong. Keep in mind that over these years we've invested in the magnitude of 100 million euros in software R&D, most of which have, you know, most of which are still a strong contributor to our sales generation these days. Very, very small amounts of sunk costs. Quite unique in the software industry, to be honest. But then with the partnerships, we're expanding, growing our presence internationally, mainly in Europe, that is. And through those partnerships, deepening the relations to the point where both they are not only relevant for us as a vendor, we are increasingly becoming relevant as a vendor to them, especially in the context of the European digital sovereignty, where many partners traditionally have built their business with American vendors, seeing a future now where that might be a choice that needs to be revised and finding alternative suppliers. And commonly, we see in our dialogues with customers, prospect customers, that Clavister is showing up on the radar, even for customers and partners that we have had previously no relation, no experience with at all. And that's a strong and good sign. Naturally, we will do this with a focus on profitable growth. I think it's clearly demonstrated on the EBITDA slide that David just showed that we continue to drive our profitability metrics. This quarter is a strong proof point that we are succeeding with that. We are not at the end game. We're not at the final target of EBITDA margin, even though it was the highest ever. But it's a milestone on the way. We need to focus more on the delivery capability. We are getting questions naturally with regards to the supply chain situation, what Clavister is doing to mitigate those issues going forward. I think we can be fairly confident that the defense growth, the defense industry investments will continue. So it's really important for Clavister to to take ownership of that situation. And we're doing that by broadening our supply base, by investing and optimizing our own operational execution abilities so that we can act as the product owner that we truly are in the defense area. So all in all, I think we're geared for a strong position for building additional growth. With that, I think, Kate, we're leaving over to Q&A.

Perfect. Thank you very much, John and David, for your presentation. We have a few questions, but please write any questions you have in the question box. We're happy to answer. anything that you might want to know more of. We have one question from the defense sector. So, Germany and general dynamics. signed a contract for 247 Lux too recently, and we at FindEF communicated our partnership with General Dynamics. So the question is, what are the opportunities here for Clavister? What does this new agreement bring for Clavister?

So I mean, I think everyone can understand that we can't comment on individual opportunity, individual deals that we have not ourselves talked about or announced. But I think I can answer this question in a more generic way. So a bit of a repetition, we started building our engagement with General Dynamics as one out of many defense platform providers that we aim to collaborate with. We started that collaboration a few years back and have continuously moved our position stronger and stronger in that collaboration, starting with initial dialogues, trials into being a design win within the systems and moving to a point where a a customer nation with demand for general dynamics platforms also requiring cybersecurity, then Clevester is naturally then well positioned to be part of those deals. When slash if those materialize to real deals for Clevester, naturally we will be the first to announce those. So I think in general, alluding back to the strategy we have in defense, we've demonstrated good leverage of our technology in certain areas with certain customers, continuing to expand with other system providers or defense platform providers. And General Dynamics is clearly one of those we want to do more business with. I think we can over time.

Thank you, John. So we've got a few questions around financial details, a lot popping in. Let's start with one. Can you highlight the magnitude of the potential miss in Q4 at sales and EBIT level from the supply chain issue?

I can start. I think no, because it's hard to to have a concrete view on what the impact may be. I think what we're saying is that we're seeing an increased uncertainty. And since we're seeing that increased uncertainty, hence we wish to remove the guidance on the EBIT and growth target, because since visibility is lower, I think it's prudent to remove that in just being transparent with how we communicate. But hard to give an exact number. I can't really do that.

Okay, thank you, David. What EBITDA margin levels are you aiming at if 26 is not maxed out 26% is not maxed out?

But that's, it's a very good question. I think what we can realistically aim for, you know, you can aim for very high targets. But I think what we would be aiming for is there in the range of 35 to 40% of EBITDA margins, I think higher than that, I think then You can always go for profitability to maximize that, but then you have a trade-off in investment capability and growth. I think, Clavister, we will be aiming for a healthy, profitable EBITDA margin. Reaching that level, I think it's more value creating for shareholders to reinvest in growth. If growth was less important, of course, you could maximize the profitability metric further, but I don't think that's value creating.

What did alt cash flow positive mean in terms of range in the first place, i.e. prior to the profit warning?

The aim clearly was to generate profitable cash flows. And we have been saying for quite some time that Operational cash flow and EBIT has more or less a one to one ratio. Of course, there are some fluctuations in working capital levels that could have a short term impact. But if you if you look at it when a little bit of a longer time period over a few months, EBIT and operational cash flow is the same. And when we then say that the EBIT target short term come under pressure, hence it is prudent to have the same cautious view on the cash flow metric, meaning then we are very near you know we had operational positive cash flow in in the last quarter we have it in in in this quarter uh and i and i think um we might as well have it in the fourth quarter but then reaching it for the full year i think might be challenging due to if if the uncertainties around defense lead times materializes that might have an impact on the full year but then that negative potential impact in Q4 as the corresponding positive impact on Q1 26. So we're talking about quite small deviations in time, but a target for the 31st of December becomes very binary. So I think it depends on how you view that. Over a course of a few months, we believe that all that business will be in and that impact will be there. The positive impact will be there.

So what orders in defense can be expected in Q4?

That's a very forward looking question and statement. So I think it's prudent not to give guidance on what exact orders to be expected. So I think, again, this question deserves unfortunately, a more generic answer. So as you know, we are working with several different defense customers. And as I alluded to in the presentation, we're deepening the relationship with with customers we have already and we're extending with additional customers as we go. We are, of course, nurturing a number of business opportunities with those defense customers. And of course, we anticipate that we will be able to close some of them in the near future, whether that happens in Q4 or later, that's to be seen. challenging thing with with defense compared to the civilian market uh which again i alluded to given the the size of the orders and the lumpiness is that typically we are not in the driver's seat being able to influence exactly when the orders even if we are you know we are chasing and pushing it is at the end of the day a decision that is taken typically at the minister of defense level somewhere and and that's naturally a bit hard to to influence so as you mentioned defense tends to be one to be one of projects whereas the rr growth comes from uh the civil segment so how will you balance these two revenue streams to sustain margins Maybe I could start and David can pitch in. It is correct that what we've seen so far with the larger orders we have in the order book from Defense and the ones we've been delivering on, they mainly relate to one of projects or let's not call it one of projects. That's actually wrong. But it's true that we're looking at more perpetual type of revenues. But that said, those type of engagements are not one of to the extent that you ship once and then you walk away and then you move to the next customer. We're typically looking at many, many, many years of engagements, in some cases, 30 years of lifecycle management of the platforms we're shipping to, which means that there are continuous deployments, continuous deliveries. There are continuous extensions of those projects. And once you reach a certain milestone, the projects get converted into after sales opportunities with support contracts and maintenance contracts and professional services engagement. So there is a lot of also recurring type or recurring profile type of revenue that can be gained from even those perpetual type of licenses. uh that being said what we are also seeing and i think david also alluded to this when we looked at the gross margin um our defense sales also sees a mix of of some recurring revenue or subscription-based sales we see especially in areas where the uptime is extremely critical where it sits in in a system where the uptime is is you know It can't be questioned. You need access to the latest software. You need to be patched. You need to have the latest security fixes in place. And that of course means that the customers are increasingly willing to sign mandatory support contracts, which then adds a recurring element. So those combinations with a recurring type of profile, a software sales in the mix and recurring elements in the mix and subscription-based licenses, I think all in all that gives an interest mix even in the defense area that then blends into the more subscription norm, which is in the civilian side. I don't know, David, if you would like to compliment something more there.

No, but I fundamentally agree. I think let's reiterate. I mean, you could have single quarters. I mean, the impact on margins mainly comes from the product mix. So the higher growth levels you have, in hardware centric uh deliveries in a certain quarter that generates a lot of revenue because hardware is a good carrier you know it you know if you get an instant revenue recognition from the hardware element so it's good for growth and i think that's that's the most important part but of course if you sell a lot of hardware centric deployments in a certain quarter that get that could put margins under pressure in that individual quarter but again you're adding a lot of recurring revenue contracts to that because in civilian side, everything is recurring, which means that you have a better foundation to sustain margins going forward. And I think that's also where we're seeing that the business is much larger than if you go one or two years back, meaning that even though you have a lot of growth with hardware in a single quarter, the base of recurring software contracts in the bottom is also bigger. So that can act as a cushion for the margin where we have, you know, I myself have been a bit surprised by the resilience in the gross margins, and it's highly thanks to that.

So with a strong backlog, how much of the backlog do you expect to convert into revenue in 2026?

Yeah, I mean, this is actually, now we're not talking about 26 specifically. We added, because this is, it's a good question. It's a question that we get more often. So this is something that we added in the interim report actually in this quarter and information about how much of the order backlog based on what we know when we issued report is expected to be delivered within the next 12 months. So this is something you find in the order intake section of the interim report.

And I think we're saying... Close to 100 million for the next 12 month period. 92 to be exact.

Yeah. So reading on page 5, 92.5 million. But that's not 26. It is the coming four quarters. And that's how we will disclose this information. So we're not talking about a specific year, but the coming four quarters.

Can you elaborate on how the delays in deliverables for Q4 will affect the cash flow and the risk for strains in your cash position?

But I think the cash position is under control. And of course, I mean, just being very transparent here, and this is something also communicated with the supplier of the military hardware, would the delays have an impact on cash flows? that impact will also be mirrored versus the supplier of military hardware, who is the source of the delay, where we then, of course, we need to defer payments to them in order to receive a neutral impact for us. I think that's how we would handle that. I don't know if you wish to add anything, Jan.

No, I think you're correct. We're sitting at a cash position today at the end of the report, end of the quarter with 40 million SEC. And with the profitability metrics we are showing, it means that the operation is self-sustained from an operational level. We're not burning that much cash. so i mean naturally delays and deliveries always will will cause an impact on on on on cash flow but as david alluded to not that dramatically and we have hedging mechanisms in place so following along this line how high is the risk of new issues of shares I think as any company all the time, we are always evaluating how we optimize our balance sheet and our cash situation. But right now, really our focus is on the overall execution of the business. And I think what you're seeing in this report is a good testament that we have so much going for us and driving growth and driving profitability in this business. That's where our focus is right now.

In this quarter, you reached your highest habitat. Should we see that as an early sign of operating leverage you can achieve once volume picks up again in 26?

I think to some extent, David, already, already answered this um the 26 we have it's it's a good and strong number um but given the underlying uh scaling of the business and i think this again deserves a a a comment and a somewhat a repetition for those who follow closer for a while um keep in mind that the Clavistry business is built entirely around standardized products. We don't do any bespoke development, any custom development for any single customer. We might have a situation where a single customer asks for certain capabilities in our product portfolio and the customer is willing to finance that. That's all good. And naturally, if it resonates with our roadmap in general, we will typically accommodate such requests, but under the premise that it will become our intellectual property and that we can sell it then, of course, to other customers, that it forms a part of our standard portfolio. This has been the strategy from day one. And I think it's important seeing that one of the challenges that software companies might have is that you tend to be very, very opportunistic, you know, creates various software branches for different customers. And at the end of the day, you sit with a maintenance that that becomes a really, really challenge and an apex driver for a software company. So we've been very persistent, not having bespoke development. We have, you know, one, one, one common set of products that we sell to our entire customer base the consequence the positive consequence of that is of course that the scaling is extremely good so essentially every single deal we make has a very, very small, apart from the cost of goods sold, of course, but the actual OPEX marginal cost for adding more business is super, super slim. And we sometimes use the example of the large orders we have received so far from the defense industry. How much hasn't that driven in terms of specific OPEX? It has driven one headcount. that that is the type of cost drivers that that are required to to fuel more growth um so that's why we can be you know quite bold when we say that 26 is nowhere near what this company can demonstrate in terms of bottom line yeah exactly and i mean if i may add to that because i think you can look at that in the interim report for this quarter opex is growing with eight percent

fx adjusted net sales with 17. so the net sales growth is more than twice the opus growth in this quarter another perspective just adding to what john said and i fully agree that is the foundation of the company is there the tech department is there the hr department finance and so forth these are in place and you need as many, Clavister is a quite, you know, it is a capable company. You need, you know, have a certain cost base in order to drive quite a complex business like this. But as you add growth, the base, the cost base and the foundation of the company, it's there. You don't need to invest so much in that one, meaning that you're freeing up, you know, initially freeing up more profitability, because the profitability need to grow from the point where it's now to a resilient EBIT and operational cash flow that creates a good sustainability for the business, a proven profitability. But over that mark, reaching that level, and it's not that far away, these funds will be reinvested in fueling an additional growth. I think that's how we view the case. And I don't think, I know that's how we view the case, being more direct there.

Thank you. We have one more question around financial numbers. Will you set new financial targets for 2026 and onwards?

Yeah, but let's do that in the, typically when we set targets, it's in the Q4 report. When we close a fiscal year, looking ahead in the next, I think that's where new targets would come. And I think to be But also to be a bit humble here, we have just said that we are removing certain targets because of uncertainty. And I think it's not a good timing for adding new targets. Let's showcase what we can deliver and then base our targets based on that.

Thank you, David, for elaborating on that. We haven't got any more questions at the moment around any financial numbers, but we've got some more business-related questions. I think there's more clarification around the new Arrow deal to be made. You've got a question here. Can you talk more about the agreement with Arrow? Are they now exclusive partners for the new countries? What about the countries which you still have smaller partners in, et cetera?

Yeah, no, Arrow is not exclusive. Our strategy sounds maybe a bit cocky, but we don't enter exclusivity agreements unless there is some extreme interesting opportunity, of course. But in the case of our regular business, we don't enter into exclusivity. So Arrow is not our exclusive distributor from a legal point of view. Naturally, we are a small company. We want to devote our bandwidth and our sales resources to few dedicated partners rather than many non-dedicated partners. So we view Arrow as our de facto main distributor in the countries we have now established the partnership with them in. we have in those countries that we have extended the agreement with Arrow, we have not been having any distributor, not any significant one at least. We have had and we still have reseller partners. Those reseller partners are still active. Those are still valid and they will continue to buy but from Arrow. So we're not changing the dynamics in the countries we are entering into with Arrow. We're rather sharpening our distribution and making sure that we have an organization which is extremely capable, in the case of Arrow, of not only typically people tend to associate a distributor with a wholesale actor that just ships boxes. Arrow and the distributor in the IT industry is, of course, much, much more than that. It's a market enabler. It's a door opener. They give us access to the vast partner networks that sits in those countries where we with our limited bandwidth and our smaller sales organization can't reach them directly. So this is all about expanding our presence and not about giving exclusivity.

Thank you, John. We have another business related question about how is the interest for the cross domain products with Saab? Are there any leads so far?

Yeah, absolutely. I think I'll actually start with providing a little bit of an update or information on, you know, where how is this product positioned in the overall cyber or security ecosystem within defense, making the comparison with the The Clavister Cyber Armor products are military-grade firewall products that we sell to the defense industry. Those products are firewall products. have a very, very clear rationale. They protect against threats, threats towards a defense platform or a weapon system where you essentially purchase, procure, install, and deploy those products as part of a risk management strategy. That is all good and it's a growing business and there's a growing interest, but it comes from the fact that you're investing into something that you hopefully don't need to use it's an insurance still a very good business but it's an insurance the good thing of adding the tactigate product to the product mix is that it comes from another angle you don't invest in a cross-domain product because of risk management or an insurance you need it because of compliance reasons The NATO requirements, the various ministry of defenses across the globe, including Sweden, naturally, have very, very strict requirements that any information that passes from a classified domain, be that NATO secret or NATO restricted, or any of the national classification levels, to another domain, which is of less classified nature or higher classified nature, in that circumstance you need by definition you need a cross-domain product so this is you know the rationale of buying this product is completely different from the you know the firewall business So that's why we saw it as an extra interesting opportunity to collaborate with Saab on bringing this new product to the market. So I think that's a background that is important. To the concrete question, yes, absolutely. We are picking up leads. We are driving this business opportunity together with Saab. And as a reminder, the nature of this joint collaboration with Saab is that both Clavister and Saab are capable and willing, naturally, to take this joint product to market. So it's not that Clavister is sourcing components or technology from Saab, and Clavister needs to do the entire groundwork of selling this. It's the other way around as well. So Saab with its much, much, much, of course, much larger sales force is able to take this joint product to market as well. So all together, we're picking up leads both from the Clavister side and from the Saab side. that we, of course, hope to be able to convert to business.

OK, we only have a few more minutes left in the session, so I would like to ask my questions to you. So, John, what are you most proud of?

I think overall, looking a bit back now, having had the The opportunity to be with Clevester for a long time, seeing that the changes that we initiated some years back now, four or five years back with a strong focus on mission critical customers, strong focus on Europe, strong focus on building profitable growth that day by day, quarter by quarter, we see that strategy materializing and becoming, you know, becoming what we hoped it to be. Am I satisfied? No, but I'm proud. I think I'm satisfied when Clever3 is the dominating, in a positive note, dominating European vendor of cybersecurity. I think we are We're picking up so much interest with so much inbound leads, again, from partners and customers that we didn't even talk to before, that we've sort of passed some kind of interesting tipping point where the previously completely unknown Clavister brand is suddenly a brand. And people are reaching out, albeit, of course, on a limited scale. We're still a small company, so nothing there. But I think the tipping point has been passed, and it's really, really interesting to see what coming quarters, coming years will bring.

Thanks for sharing your thoughts on that. David, over to you. What are your highlights of the quarter?

Well, I... I would say, and I continue where Jan was, I think, when we talk about the tipping point, things changing. One such example is that two of the largest parties in the Swedish parliament have a session about cybersecurity and dependencies on non-Swedish security solutions. The company invited as the speaker sharing knowledge within parliament around that. I think that's one thing to highlight underpinning what Jan said. And this is something agreed on during the quarter and it will be now in mid-November. I think these are things happening because I think more and more people see that when we're talking about geopolitical risk, a digitally sovereign Europe, a sovereign Sweden and so forth, that generates interest. And we have a clear position and that leads to a situation where parliament members in the defense committee are inviting us to share that knowledge in parliament as one example, or the level of inbound requests that we're seeing both in volume and from the size of potential end customer is on. Okay. I haven't been here since the nineties, like Jan, but I've been here for five years and we haven't seen that before. So I think it is. The narrative that we have been pushing is gaining much, much more traction. And it's not only a clever narrative, but spreading into EU or parliament or among important customers. I think that is a big change. And I think that change will generate higher sales levels going forward. I think that's the key takeaway.

Perfect. So thanks, David and John. Thanks to both of you for sharing your insights today and for the presentation. Thanks to everyone who attended our session today and for the questions you've posted and asked. If you have any further questions, please don't hesitate to reach out to us any time. This recording will be available on our website together with the report. So yeah, you can find everything there. And with that, I would like to close for today. Thank you very much again and have a great day.

Thank you.