Net Insight AB (publ)

Good morning everyone and welcome to the Q1 report from NetInsights. My name is Krister Fridsson, the CEO of NetInsights and together with me tonight or today I have Annika Meskantor, our Interim CFO. So the agenda for today is that the quick summary of Q1 and then we are moving into the media update and time synchronization update and then Annika will go through the financial numbers and let me know more in detail. And all of you can send in questions that we will answer at the end of the call. So if we start with the Q1 then, after a record Q4 last year and a record Year 2023, we are starting very strong in 2024. We have continued revenue growth in Q1 and by winning a number of certificates customer in media, which definitely gave us a very strong position in the market. And it shows that our investment in product and in our organization have driven our IP product and the time synchronization portfolio that we have. And we have been very, very successful so far with the product, and it's been really good proof when we have the Mobile World Congress in Q1 for the synchronization product, and we have just finished up the NIB show in Las Vegas last week for media. And we have had really good response from the customer. We have broadened our cloud portfolio and launched a new product that we call Connected. And we had delivered Synta to exist in a new customer during the Q1. This was the short summary of the Q1. And I continue a little bit into the summary of the financial numbers. We can see that the net sales amount to over 142 million compared with last year, just over 126. And that's an increase of 12.5% year on year. And this is the 14 consecutive quarter with growth. I think that's been very impressive. So we have more or less over three years have continuous growth in the market. We had an operating margin that is just close to 11 million compared to last year, 12 million. And if you adjust for items affecting comparability and currency differences, the amount is close to 60 million compared with just over 30 million last year. And we're glad to see that the pipeline is still strong for the sync product, the sync type product. And we ended the quarter with a pipeline of 195 million. It's the same level that we have in the end of Q4. So we have a strong order pipeline still. And as you can see in the report, we are shipped. Sintar product around 10 million in Q1. If I then just continue to do the upgrade on media, as I say, we continue to grow. And it's great to see that we see that our existing customer continue to invest in our product. and then continue to invest in the IP-based solution that we have launched the last two years. And it's an easy investment for our customers because we are agnostic with IP and our MSR platform. So the customer can gradually move into the IP solution without replacing all equipment in the networks, which means it is a very efficient, easy, and cost-effective way for the customer to continue invest in new features, functions, and IP solution that we have launched. Yeah, I think that definitely demonstrates how it's a success in strengthening our product portfolio in IP and cloud that is a growing part of the market. And it's a technology move forward to IP, and we see that it will continue many years from now. As I mentioned earlier, we have launched a new IP product. And IP is a cloud-based product. And we see in the study increasing the model of the cloud-based services. And we see a number of customers moving over to the cloud services. Even though that's in the first phase of launching or adding a new platform, a new network for our customer, which is the cloud. And the product that we have launched is like an easy way for customer to entering to the cloud products. So the easy first step in is take like a few minutes to launch that product, which means that the customer can gradually move, gradually increase the capacity, gradually learn how to use the cloud, and we see that it's a very good first step for the customer. When they then see an increased demand for capacity or they will extend feature and functions, they can easily move over to the existing Nimbra Edge product. And it's a seamless transition, so they don't need to reinstall or change They can easily move over, and we had a very high demand for that product, and it will help our customer to gradually move into the cloud business. We have also launched a new gateway product that connects well into our cloud product. It's an internet media transport product that we have launched. It is in the 400-series product platform that has been upgraded and launched through the NMB last week in Vegas and then connect well into those the edge product that we have and connect it as well. We will support our growth in a cloud space. I mean we have a long-term engagement with our customers. And the customer life cycle, I will just try to describe how the life cycle looks like because it's very interesting, stable, and our customer can gradually grow very easily with our product. Normally, it starts with a hardware installation for the customer. That is the first step. We call it the rack, which means that you can add more cards into the rack and install more software while you're expanding. And the beauty of this is the customer can gradually increase capacity, efficient function, and they do it like software-based. And normally the software have a higher margin than initially the hardware first phase. So the installation of hardware, it's a little bit less margin, but with, of course, with the software that the customer will add on, have a higher margin. Additionally to this, we have also revenue stream coming from support and software licenses that normally is like an annual agreement or up to three years agreement that we have with the customer. That's the normal way of doing it. It's a quarterly-based invoice, and it's normally one to three years contract that we have with the customer. And we can see that the new features that we have launched, like the IP-based features that we have launched, is based on the our existence hardware platform so when the customer would like to move over to the ip they use the exact same hardware equipment that they have bought in previously even with them when the double capacity on the 1060 is a software upgrade which means that we can have a very long term engagement with our customer And of course, it gives us a very solid position with the customer because the investment going forward for the customer to invest more in capacity features can stay with us. They don't need to move over to another competitor. They can easily continue with our product. One of the growth initiatives that we have is really try to capture new customers. That's one of the focus we have when we now have launched a new IP based solution is to grab new customer moving into new market segments. And we are glad to see that we have several new customers, large strategic customer in Q1. Both in Europe and in APEC. One is in APEC is a large national wide network. And it's great to see that they have selected us after extensive testing and comparison with competitors. And we were coming out as the winner. And it's based on our IP solutions that we have launched, and it's really showing that we have the right product, functional features, and we are very competitive in the market. And we're also glad that we have, with our partner, DMC in Denmark, yes, installer we are in the way of install and network in Denmark support and support in the Danish football league and it's a remote production installation that we have done but the Nordic region we are extremely strong with with those in Sweden and Denmark we have ice hockey in Sweden we had a football in Denmark to develop position in the Nordic area and and give us a good good long-term revenue screen for those customers then moving over to to the time synchronization as you know we have the center had developed and launched as planned And the rule out of Synta to existent and new customer has been going on in the first quarter. And it's going, it's on track. And we're glad that we have secured another customer in Nordic, Denmark, in Denmark. It's the operated three that has start already in queue, want to take delivery from us and installing that in the 5G network in Denmark. We have, as you know, established resources in APEC, and they are based in Singapore. And through that increase of resources, we expanded or we have launched new proof of concept in the APEC region. We have also expanded our presence in India, one of the absolute most interesting telecom market in the world. and we have resources based in India that of course get support from head office, but it's important to be present in that market to be able to be a strong player in the market. So India is one of the more that we did in Q1 and increased resources into that market. As it is right now, we have more than five ongoing POCs, and it's primarily used now Sintai. A few of the existing POCs that we had from last year have now moved over to Sintai. The order that we received through GearTech for leading operating in Canada in pilot order They have moved over to Sintai in Q1. That's just an example of the customer that we have that now moving over to Sintai from our old product, which is a more immediate product that we used last year. And that gives us, of course, a much better position, and hopefully we can move much more quicker, faster forward with the customer when they have the final product to test. We are also planning to expand our proof of concept during Q2 and we are planning to start three to five new POCs during Q2. As you probably have seen, we have commercially launched our product at the Mobile World Congress in Q1. And I'm glad to see that we have a strong market presence right now that we have like been able to communicate our product and our uniqueness in the product. And we had a number of business-driving customer meetings during the Mobile World Congress. As we have communicated earlier, we are now planning to start standardization of the product, Syntai, or TimeNet technology through the ITU. And that's moving forward as planned. I hope that you have seen the 5G magazine article that was produced or sent out or issued in Q1. Really showing the Swedish model. The Swedish model has been a way of communicating how Sweden has done with time synchronization that the regulator has put in demand the operator, the telecom operator to have an alternative GPS synchronization. And we see a lot of movement from the regulatory bodies to push a high pressure onto the telecom operator to have an alternative to GPS. And we see that like in Europe, Northern Europe, Nordic, is affected of GPS jamming, and we definitely see it as well in the Middle East and other regions that are affected of GPS jamming and that, of course, also affect the 5G network. So that's like a push and give us a much stronger position and increase the awareness among the operator that this is an issue to using the GPS. because it can affect the network, and we see that operators have communicated that they have a problem with the network, and sometimes even the network gets a severe problem, and in some areas it's going down. So that's something that's really pushing our product, and the Swedish model is something that's been communicated, and many of the different countries are trying to adopt that. same model in the regions or in the countries that they are operating. I think I'll stop and hand over to Annika and please send in questions if you have and we should try to answer as many as we can.

Thank you, Krister. I'm pleased to have the opportunity to walk you through the Q1 financials. So let's start with net sales. So, net sales grew to 142.5 million to be compared to 126.6 million in Q1 of 2023, which corresponds to growth of 12.5% reported, as Christa mentioned. And that is equivalent to about 12% on the currency adjusted. That means that the past quarter is the 14th consecutive quarter with year-over-year growth and resulting in a rolling four-quarter growth of 16.9%, i.e. exceeding organic growth target for rolling four-quarter that was set to 15%. As Christopher already said, the growth is driven by orders from existing as well as new customers in media, as well as from the newly launched SYNTYPE offering. Moving on to operating earnings. where the reported operating earnings for the quarter amounted to 10.6 million, which is, as reported, slightly below the 12 million reported for the corresponding quarter last year. However, excluding items affecting comparability and foreign exchange rate differences, operating earnings amounted to 15.8 million for the current reporting period That should then be compared to 13.3 million in Q1 of 2023. I'm sorry, I think we're getting lost on the slides here. I think we're staying on this one. Yes. Which is actually an improvement of 2.5 million. So in operating margin terms that translate to a reported operating margin of 7.4% and an adjusted margin of 11.1%. So to make a like for like comparison, the 11.1 should be compared to 10.5 in the first quarter of last year. are you both in the range of fluctuations seen in previous years and contributed to a rather steady four quarter rolling margin as shown in the report and on the slide. If I can ask you to turn slide. Let's talk about operating expenses that in total increased to 72.2 million from 61.8 in the comparative quarter in 2023. which correspond to a reported increase of about 10 million from last year, or about 7 million when adjusting for non-recurring items affecting comparability. For the change between quarters to make sense, we need to look at individual items on OpEx. So let me try to shed some light on that. So if we first look at sales and marketing that amounted to 41.3 million, to be compared with $35.5 million last year. That is an increase of about $6 million, which is almost in its entirety attributable to the strengthening of the Sync organization and investments in cloud and IT expertise, i.e., fortifying the organization. Administration, then. amounted to 17.4 million to be compared to 15 million last year as reported. However, when taking a look at that on a like-for-like basis, administration has remained almost constant if we adjust for the majority of the variance, which actually relates to an accounting-driven revaluation that has a corresponding counter posting on that financial item. So, with that said, all in all, that means that what looks like an increase in expenses on OPEX has basically no material effect on net income. The tail end of the projects discussed in Q4 relating to such items as the successful installation of the ERP system, startup of the ESG reporting, and recruitment account for the rest of the variance. Which brings us to development. that has also remained constant when adjusting for costs related to the relocation of development from the U.S. to Sweden, the move that we decided to finish there to lower future runs of operations. So now on to from development expenses that needs to be viewed in the light of the combination of CAPEX and expenses for the period. So if we take a look at development expenditures, which amounted to 42.2, and it's an increase of about 6 million. Again, from that, you have to deduct the same 2.5 million that was one of cost for the relocation from the U.S. to Sweden. And basically, the main part of the remaining variance relates to timing difference in sourcing for components for R&D, really leaving a really minimal variance when compared to last year. Hence, with that, we can conclude that the increase is mostly attributable to secure and future competitiveness and growth over time. This can ask you to turn to the next page. I would like to talk about my favorite topic, cash. So if I can turn your attention to the cash flow, where we can conclude that the cash and cash equivalent at the end of the period amounted to 252 million to be compared to 266 million on December 31st in 2023, and 278 million at the end of Q1 in 2023. We can conclude that the total cash flow for the first quarter amounted to minus 15.1 million to be compared to minus 29.9 million in the last quarter. If adjusted for share buybacks, the cash flow for the first quarter amounted to minus 6.9 million to be compared to minus 21.4 million. Now, where the change in the quarter is basically driven by improved cash flow from operating activities of 25.4 million in the quarter versus 7.3 million last year, where the change is mainly attributable to change in working capital, as you can see there, with 1.8 million compared to minus 24.5 million. And basically, if we take a look at the balance sheet that relates to reduced levels of inventory and liabilities partially offset by increased receivables and all in all driven by timing of orders. Which leaves us with change in investment activities of minus 29.6 million versus 26.2 million last year. both mainly attributable to capitalized development, as discussed just a slide back, and financing activities. There are basically costs that, as reported at minus 11, including this, in this case, share buybacks of own shares of 6.9 million this quarter and 21.4 million in the corresponding quarter last year. And I hope that sheds a bit more light on the figures in the report. So with that, I hand back to you, Christoffer.

Thank you, Annika. And we are moving over to questions. We have a number of questions. Some of them I think we have already answered in the presentation. So let's see. Yeah, we have, like, had questions around the POCs, and we reported the number of POCs that are ongoing and what we are planning to do in Q2, and so we're communicating if it's moving or not to use this entire product instead of the old media product that we used last year. And I think Annika were describing the cost, which can attribute to sync, in the presentation. We had a question on the product mix within the NIMBRA family. And as I've already mentioned, we are launching a new product in the NIMBRA 400 family, an upgraded product. And we still have like 600 and 1,000 series. And the main two products that drive the business is the 1000 series and the 600 series. The 600 series is the volume product, and the 1000 series is very large capacity and density and the number of features that you have for building a larger network. So the 600 and 1000 will continue to drive the business through the year. but also, of course, in upgrading the existing base of product that they have in the market. We use software features like the IP that I just presented that will also, of course, drive the business going forward in the next coming quarters. We have, like, a very good, like, balance between a huge installed base. We use software functions that the customer are upgrading the existing network with. And, of course, the aim that we have to gain new customers as we did in the Q1 with three really strategic customers that we launched. It's a balance between new customers that we are trying to grab in the market and continue to use the new product to upgrade the existing network that we have because we have a huge install base in the market. We try to explain the difference between hardware and software, and in the first phase, as I mentioned, it's like the hardware phase initially, and then it's the software coming, like rolling after the first installment of the hardware. And how big is the difference? I mean, it's hard to see exactly the differences between the hardware and software, but it's a substantial difference between the hardware margin and the software margin, definitely. But we have in community, communicate the exact numbers on those. Supported service, I mean, we are like adding now. Previously, we have used a support fee for our product, but we are dividing that up in support with this hardware support in 24-7 and services that are the license fee that you have. And we have an increase days of software means that the support fee for services will increase going forward. So that's something that we have pointed out in the new business model that we are using. We had a question around the project cost and the admin cost, and I think that Annika really described it well in the presentation, so I don't think we need to go into that more deeply. And you can find the numbers in the report and also the presentation you can look into after the call. Yeah, the time sync order book is flat. Yes, correct. It's flat from December, but you should also take into consideration that we have shipped product during Q1, which means that we have increased the order book, of course, with the amount of the shipment that we have done during Q1. So that's flat. It's a coincidence. It's exactly the flat, but that's the case. Yeah, I mean, I have a question around the sync tie and the rule out. I mean, it's to rule out the national network and install product in a 5G network takes time. And it takes time to plan and thoroughly need to have all the resources ready to install the product into the network. It takes time to launch a full network and we see the The customer in Sweden, they will roll out the network during the year, the Terraform and the three. So it takes time. Even though that they have like close to 200 million order book, it will not be delivered immediately. It will be through over time that we will ship that into the market. The competitive environment in 5G and synchronization, we don't see a similar product as we have in the market. So we have a unique position in the market with unique features that no one has been presented an alternative to. So we have a very strong position in the market, and we have a number of operators, as I've described, that are really testing our product and see the benefits. So still we have the same strong position in the market, no change as we can see right now. And I think one thing that is really important that we're going through, and we're seeing positive reaction from the centralization of our technology, that will give us like a good stamp. And already when we are into that process that we have colleagues in the market that are working with us to do the centralization, both operator and hardware suppliers are into that process. and work together to do the standardization of the time synchronization technology. So we see that it's an important step forward for us really to have that stamp ready and it's going according to plan. Okay, I think that was the last question. So thank you for listening and if you have an additional question, you can of course forward them to me or Annika. and so see you in in july then again okay thank you all for listening bye bye