Net Insight AB (publ)

Good morning and welcome to NetInsight's Q4 results. Together with me today, I am Cecilia, our CFO, and I am also Linda, responsible for investor relations. My name is Christer Fridsson, I'm the CEO of NetInsight. So let's look into the agenda for today. We will go through the highlights and the business overview and we will cover media and time synchronization. Cecilia will cover the financials and then we will end up with an outlook going forward. And we will also have questions in the end. So if you have any questions, you know that you can send them in and we will have a Q&A in after the presentation today. So let's move into the first slide and look into the overview. We have a successful year behind us with a number of new important customer wins within media and a strong growth in our focus market, America. And we have a high conversion rate from POCs to commercial order in the sync business. We have a stable quarter in Q4 in the light of a very tough comparison number from last year and a seasonal volatility in media coming from unpredictable budget orders. So Q4, normally we see budget orders coming in as last year, 2023, but this year we have less budget order coming in. It's maybe coming from that our existing large customer have significant investment in previous quarter, 2024. We saw a strong increase in sales in the same times in Q4, reaching up to over 14 million And the full year net sales growth is over 13% last year. And we have excluded MRE support from Turk Telekom on the R&D investment that we have done on the Sintai. One of our main focus in media is to gain new customer. And we are very glad to see that we have three additional, very strong, large customer within media. And we received an order on Syntag from the leading operator in Europe. And we signed our first time as a service deal in South Africa. We see a continuous growth from growing interest in the Sintai for large operator. This is the change the last six to nine months that we see larger operator getting interest into Sintai in all regions. And we have started new POC with large operating Q4 and it continues in in even in into one so that is really strong and good trend that we see that we see in higher interest in general but definitely from large operator we will ex we expect that the contribution to our growth in 2025 will come definitely from from from uh same time And it's a little bit difficult to predict exactly which quarter the increase in sales will come with SynthEye. It's depending on when the POC will move over to commercial orders. But we estimate an acceleration during the year and mainly in the second half of this year, we will see an increase in sales of the SynthEye product. Moving on and coming into the business overview and just start with the sales and the margins then. Our strategic focus results in solid growth in 2024. As I just mentioned, it's over 13% excluding the NRE. The growth is coming from upselling existing customer. We know that we have a very good solution for the existing customer. It's easy to go from our DTM technology or the IP is a seamless move from the different technologies. But we also see a strong customer acquisition during the year. If we look at the CAGR and look between 21 to 24, the CAGR is always 16% or close to 70%, so it's strong. And you know that financial target that you have in growth is to be in an average of 15% per year. We have a stable and good operating margin. despite significant investing in the synchronization product, but also in the media product. We have accelerated investment in both those product segments, but we're also increasing investment in the front end to secure long-term growth of our business. So the operating improvement, earning improvement in 2024 is coming, of course, from increased revenue and a growing software and the license sales also strengthening the EBIT. I'm comfortable with our financial targets. of an average annual net sales growth of 15% and reaching an operating margin of 20% in the end of the 2027. Moving over to looking into the sales in the regions. Again, as you can see, a fantastic year for EMEA. with a strong sales and EMEA have had for the last two, three years, a very strong stable sales. But our focus had been clear and we have a clear target that we need to grow the American market. We have invested in IP based product. And that's been specifically for the US market that are very IP-based focused. And this has paid off. You can see that the American market during 2024 was growing with over 40%. So very strong growth in America last year. And we see a continuous positive outlook for America in 2025. A little bit more specific on the media. As you know, our focus is on live event and in the sports segment. And that is definitely a growing segment. And we see also new players entering into that segment. Large players are investing in content and also on top of that, investing in the media product that we are supplying. So that is the driver in the market and that's our focus area. We will continue to focus on sports during 2025 to be even more focused on the larger leagues in all regions to really gain the growth in that segment that's growing very fast. I'm glad to see that our long term investment in IP and cloud is paying off and we see that we have strengthened our position in the market dramatically the last two to three years in the light of the investment that we have done in those two segments. Now we can see that we have a mature IP product. even though that we continue to increase functionality in the IP. We see that the cloud is slowly but surely increasing in sales, and we are increasing in unmanaged to support the cloud product. So the growth last year is coming from existing customer that are investing in the IP based product and also in the cloud. But we also so happy to see that we are entering in with new customers. As I mentioned in Q4, we have three major customer coming in. One is the major US media company. And one large nimble edge order in Europe. It's very encouraging to see that we are moving in the edge segment that is a long-term investment. And we see going forward that edge cloud will be more important going forward. And our long-term investment in Middle East that we have increased our SAIS resources in Middle East like two years ago, really paid off with a large order in Q4 from an operator in from the telecom sector. Okay, we understand that we had a problem with the transmission, so I will go back to the Sintai presentation and then Cecilia will come back with the financial. So coming back to the Sintai, we see a continuous increase in interest in Sintai. And we see several leading telecom operators initiating proof of concept in Q4, while previous ones are gradually transitioning to commercial orders. So that is a trend that we have seen and it's continuous. It's glad and it's coming from all three regions. So it's very important for us to sign up large operators that we have discussed. that the large operator can give a comfort in the market and lead the way and take down barriers for other telecom operators to use SYNTI. And we see that that's a trend that's coming when we have signed a large European operator. So that's very, very encouraging. And that will also give a clear message into the telecom market that our product is very, very competitive. And we also signed up our first time as a service customer or provider in South Africa. Yes, a little bit. Yes. Explanation was time as a service is actually it will not compete with like the telecom market or other larger market like power grid. The time as a service is more focused on smaller installation. It can come from data centers or a number, two, three, four data centers that need to have a time synchronization. This is a super interesting solution for them to take time as a service. It can be like a radio stations that have a number of different station in a country and they need to have like time synchronization between them. And it's very easy for them to take a service or in the fintech industry. There's a number of industries that are really interesting in time. Time will be like a crucial components in many, many different industries. And we see this is a great solution to easy, very cost efficient, get time as a smaller company or a smaller installation. And we see interest for a number of regions and countries that are looking in to have this service. So we're glad to see that South Africa was the first country doing just that service. The service integrator or partners is a crucial part of the telecom market and this is a crucial part for us also in our go-to-market strategy. The integrator is the companies that actually help in the large operator for installation in the network and they are key components for us in our go-to-market strategy. So we are glad to see that we have signed up more than 10 partners in all three regions in different countries like we have in Turkey and other countries. So that's an important part of our go-to-market strategy. We have been focused on that the last 12 to 18 months and we now have strong local regional partners. We're also looking into large global integrator that can be interesting for us going forward to use. We see that the investment appetite in a global telecom market is slowly coming back. And it's driven by increased demand of functionality or demand for new functionality in the 5G network. And it's mainly coming from industries and other companies that would like to use the 5G functionality that are in the network. And that will drive simple sales. If you have like an installation like that, you would like to have a robust service. And one crucial part is of course that have GPS independent. So that is a driver for us and we see that's coming in more and more. Okay, hopefully you have heard this now, and if you have any questions, you can take them later on after Cecilia's presentation. So I'll hand over to Cecilia, and we need to move the computer to Cecilia.

Sorry for the mistakes in the transmission, but now we go into the financials. And as previously noted, the four quarter tends to be more volatile than other quarters. And this year we saw a softened sales dynamics with fewer orders related to customers remaining budget capacity than 23. While timing of incoming orders also was less favorable. As a result, our net sales declined with 17.8% compared to the same period last year. If we look at full year 24, our net sales increased with 8.7%, mainly driven by our focus region Americas. If we look at our product group and product mix, we see that over time, we have a stable mix, though it can be somewhat volatile from quarter to quarter. But over time, we'll see a slow shift to a growing share of recurring revenue coming from license fee from cloud-related media products and time synchronization. The gross earnings decreased on the back of weaker net sales in the quarter. Our gross margin before amortization in the quarter was 74.7 which is above our three-year average and that is due to a temporarily higher share of support and service revenue in the quarter. Gross margin including amortization was 61% and that is below last year and explained by a combination of the lower net sales and higher amortization of capitalized developments. Looking at full year 24, our gross margin before amortization was 71.9%, and that is slightly above our three-year average. And over a long period of time, we expect this trend to continue due to the shift in product mix. But this shift, we do not expect it to come rapid or significant in near time. Looking at EBITDA, we have a positive profitability trajectory with EBITDA margin improving along our net sales for growth for recent years. Looking at full year 24, EBITDA increased from 143 million and a 25.2% margin, 260 million and a 26.5% margin, a sign of the scalability of our business. Looking at the right hand side we see our long-term value creation in developments. During the year we have invested 24% of our revenue in R&D and a large portion of our development expenditures are being capitalized, a sign of long-term value creation in the company. During the year we have gained efficiency by relocating development from the US and India to Sweden. Our operating earnings amounted to 5.2 millions with a year-on-year decrease related to the lower net sales in the quarter. As we have a high gross margin, any fluctuations in revenue will have a large impact on our operating earnings. Operating margin decreased to 3.9, alongside weaker sales and continued investments in a strengthened organization, both in media, cloud, IP expertise, as well as time synchronization. Looking at full year 24, we have a stable margin of 13%. Now to our cash flow. And our cash flow for the quarter was before excluding share related transaction was 4.1 million. Cash flow for operating activities was 35.6 million and this was with a positive reduction of working capital. Cash flow for investment activities was minus 28.7 million and the result of our capitalized R&D expenditures. Cash flow from finance activities amounted to 14.8 million, primarily attributable to 12 million in reapers of shares. Our net cash possession at year end was 233, and that means that we have a solid financial flexibility to seize emerging opportunities and fund further growth, including potential acquisitions. Looking ahead at capital tied up in inventory of programmable circuits, FBAs, this will increase over the coming years and cash flow wise we expect the majority of the cash flow to related impact in the second half of 2025. So that was Point Financials and now moving back to Krister.

To sum up, I would like to point out our key strategy, the growth strategy that we have. We have been very focused on investing in expanding the market and we have been expanding the market through IP and the managed network that we are saying that's been the main investment that we have done. We are still in the growth path of that. We see still that Americas will be the focus market. We have a strong growth last year and we continue like a strong continuous expansion in the US. So that is really... great to see that you also can attract new customer as i mentioned we have attracted three in a quarter and we if you look at on the full year it's over 15 new customers within the media sector and majority of them have been moving through the ip product that you have if you look at the unmanaged which is mainly the cloud but also related hardware product and unmanaged is more using the internet the open internet to transport is a different type of products we see going forward that unmanaged will be more and more important in market even though that is fairly small today and it will also gradually move together with managed and managed with gradually growth together and it's a great thing for us because we have a huge installed based of managed product like the 600 and the 1060s and that can also be used for cloud services going forward And that's also its cloud is definitely recurring revenue that you can see further on that is one of the focus areas to really increase the recurring revenue. Roaring market footprint is definitely the time synchronization product that we have that we launched in second, first half last year. We have a new Syntar product. And the great thing with us is that we're using the existing technology that we have used since 2008 and we're moving into new market segments. And as I've been saying, that's really a very, very big and very big opportunity for us to really grow going forward. Recurring revenue, that's something that we have been focused on and we have a large portion of recurring revenue as right now, but we would like to continue growing that. And it's coming from like the cloud product that I mentioned, license sales, but also the time synchronization. The time synchronization product have like a larger portion of license than in the media product. So we see definitely those three elements is the driver for increasing the recurring revenue. But we see also that we would like to expand in adjacent markets or technologies. And it's like the complement or an addition to our organic rules that we're also looking into acquisition. That is still ahead of us. We haven't really focused on that, but it's something that we will look into in the future. and scaling the the our business i mean we have been talking about that a lot previously but we have a global footprint we have like relation with large telecom operator we have relation with large media operators who and we have like a high gross margin So increasing the top line will really drive the EBIT level as well. So we see that we can scale our business with high potential. Okay, yes, let's sum up this presentation before we move into the questions. I mean, we have a successful 2024 behind us. Net sales growth was over 13% and driven by America's growth of 40% and a very stable sales in Europe. So we are very happy with that growth last year. Operating margin is stable, around 13%. And with a continuous high pace of investment in the sync product and in the media product, and we are building out the front end, mainly in the sync part of the business, we are building out the front end. With our investment the last two to three years, we have definitely strengthened our media position. We have a strong position now. We continue selling our DTM technology, but we also have a strong position within the IP market. And the good thing is for existing and new customer, it is seamless that you can move between the technology depending on what type of service that you would like to have. You can use the most efficient way of producing your content. Continuous growing interest in Syntai and definitely from large operating in all three regions. and we see that we will have a strong growth in in sync tie this year mainly in the second half of the year so we have a very long term growth perspective all by the somewhat cautious market in EMEA and APEC in Q1. We see some cautious signals in EMEA and APEC, while America showed good development. So that was like a sum up of the presentation. So I suggest that we move over to Q&A and thanks for listening. So we move over Linda to Q&A.

Thank you. Yes, we have a lot of questions on the call here. Let's start with the media business. The media orders you highlighted in the report taken in Q4, is the revenue also recognized in Q4?

All three orders of new customers that we received in Q4, the first initial order from all three is recognized in Q4. We see all three customers, that's strategic customers because they are large. So we will anticipate that we will have going forward all three customers. And the large order edge is recurring revenue. So that will like move on gradually and increase over the years. But also the large customer US, large broadcaster, one of the largest, we expect that they will be a good customer for us going forward. And I'm also glad to see that we have been breaking into the Middle East with an order from one of the largest operators in the region.

You mentioned timing of incoming orders was also less favourable. Will this reverse in Q1 2025? What can you say about the demand in Q1 and generally about the visibility into 2025 in media?

We see a little bit cautious in the markets in Europe and in APAC and we are of course looking into that like really crucial to understand. We see at the moment we see like an observer caution attitude in the market. We think it's a little bit inflated of the global uncertainty that we see, but we see that the orders are in the market, the big projects are in the market, but we see a little bit cautious in APEC and in Europe in Q1. But we see if you're looking into like the full first half of the year, we see like a strong pipeline in Q2. So we don't think it's like a change in the market. We see just a little bit cautious in the market right now on investment. America is like a good trend and they will continue to deliver strong. But APEC and Europe, we see some cautious in Q1.

Any insights into the reason why customers decided to save more of the budgets in 24?

I mean, we know that some of our existing customers invested heavily during the year. So probably they have less room for doing budget orders in Q4. But if you go back we have seen that Q4 are very volatile because of the budget. It's more budget orders. It's less build out or it's less new sport events that get started or moving from one service provider to another service provider. That's not the quarter. It's more like in Q3 that that will happen. So last year we were happy that we received in the end of Q4 2023, we received two very large orders. And we didn't see that coming in this year. But if you look at the underlying in the business, we have like a stable Q4. And the reason why we have a lower sales in Q4 compared with Q4 2023 is the budget orders. So we don't see any change in the market in Q4, but we see like a little bit hesitant in the market track in Q1 for APAC and Europe.

What can you say about the reception of the newly launched media products from customers?

As I say, I mean, a good sign is that we signed up 15 new customers last year and three in Q4. I think that's the best sign saying that we have a very competitive product. We have actually been taking deals from our competitors. We had outperformed them in those 15 deals. and incumbent supplier, we have been able to have a stronger offering and they have been choosing us. So I think that's the absolutely strongest signal and make really comfort for me to see that we have a strong position that we have so many new customer. But we anticipate that it will continue this year. So focus still is to gain new customer. So long-term growth will come from new customer in the media and that our existing customer like the Tata and the rest of them that they also grow the business and then we will grow our business. It's important for us to be with the right customer that have growth and last year as we saw that our existing customer were very very successful.

What can you say in general about the gross margin in the different product groups, hardware, software support? And given what you see in terms of revenue mix today, hardware, software support, do you see a continuous stable gross margin in 2025?

Sorry for us needing to change computers. Regarding the product mix, we see quite stable gross margin over time. As I said in the presentation, we will see it slowly a positive trend, but that will be really slowly. If we look at the year, we have had some quarters with a higher gross margin than we should have had in a normal business. And that was Q2. We had a higher margin related to the software order. We took 30 million with a high margin and then also a higher margin on gross margin before amortization in Q4 related to the higher share of service and support revenue. But otherwise it's quite stable, but a slow trend and positive.

And back to you Krister again, you've previously announced the upcoming launch of the 400 gig IP platform at the turn of the year. What impact will this have on the current installed hardware base? Will software updates be available to enable this increased capacity?

When we move from our 1060 to 100 and 200 gig, 1.2 terabyte, that was like a software. It's the same rack as we had had previously. We see the same way that with the 400. which will be like a software or a card that you will use within an existing rack, which will mean that it will be a very easy and seamless move over to upgrade existing 1060 to 400 gig. So that's the way that we have been doing previously, like the 600 product, that's our volume, the highest volume, the highest revenue coming from, that launched 2008. and it's more or less the same rack still, but we have new functions, it's fully IP today, and it's take down cost for our customer to move over to new technology or to new features. And it's, of course, very sticky for us. Our product is very sticky because it's a lower barrier to move over to new functions or new technology so that we will continue doing that. And we see that the 400 gig it's increasing interest in the 400 gig in our main with our main customer they would like to see 400 gig because they need only capacity because it's we're going now with the full hd new new more and and and high capacity needed to really serve the new features and and like full hd is definitely taken a lot of capacity and we see now that's coming in as a feature All of us probably have a full HD TV in our living room, but still it's very few that actually are transmitting full HD.

If we move over to time synchronization, why doesn't the Sintai order from a leading European operator show in the order book?

The order is coming from one of our integrator that I explained in my presentation called Seacom in Turkey. and they have seen that order coming so they actually had already placed that order in earlier than Q4 but the order with the large operator resigned in Q4.

Any insights into the potential size of the ongoing Syntai POCs once they materialize into orders ballpark not an actual figure?

I mean, it's hard really to estimate like the volume on various operator. I mean, we have announced like two numbers that I can just give you, like three in Sweden. When we signed the deal in end of 2023, the frame agreement was 30 million. compared with Turk Telecom that we signed an order for 25 million in total and in order value yes below 200 million so that's the range I mean three in Sweden are the smallest operator in Sweden and a small operate if you look like in Europe Turk Telecom is like a mid mid high or mid-sized large operator. And then you can see like the difference between them and hopefully you can estimate all the operating between them.

All right. Thank you. And if we remain on the synchronization area a bit longer, how are you progressing within the power grid with Sentai?

Yes, I mean, we have announced that we have a PUC with one of the power grid companies in Europe, and that's continuous, continue. So we are still in progress of working together with that operators, it is continuing. So we see still an opportunity in the power grid sector, even though that is slowly moving, they are just moving over from analog to digital. And it started in Europe, a little bit more ahead in Asia, and haven't started in the US yet. So it will come, and we are in the first phase. But as you understand, the Power Grid company that we have the relation with, they are extremely interesting. And we are jointly investing in testing and making sure that we have a product that fit a Power Grid network. So I think that is a good signal.

How is the Sintai demand from Swedish operators now considering the GPS independent regulation?

As you know, we have signed two of the four operators in Sweden, TerraCom and N3, and we have announced that. We haven't announced anything more from the other two, even though that we have a relation with them and they know our product. So we will see going forward if they are moving in and using our product. But so far we have signed two of four.

In the report you mentioned that you expect the growth contribution from time synchronization to increase in 2025 and primarily in the latter part of the year. Could you provide some more clarity on the factors driving this expectation?

It has been a quite lengthy process of starting with the first lab test in POC and then they have a POC in the active network. So it has been a lengthy process of moving from POC to the first commercial order. But we see a high conversion rate on the existing POCs that we have. we anticipate that the PUCs in time will go down and hopefully over time when we have more customer like leading customer that I just mentioned in the presentation that if more operators are using our product hopefully we will be able to move at least from the network POCs maybe a lab test is making sure that the product is working together with the the existing supply that operators have so we can shorten that time from POC to orders But when they had done the first commercial orders is need to be into the network planning and still operate the telecom operator. They are still very focused on the budget years and need to have a budget to really to roll out our product. So it's a little bit. As I think I mentioned, it's a little bit hard to really estimate exactly when the POC will move over to commercial order and exactly when we see the growth coming from the operator that are moving in with our product. But as I mentioned, we see that it will accelerate in the second half of this year and it's based on the existing POCs that we have ongoing. So that's like the measurement that we have and try to estimate when they are ready to rule out or really new our product into a network.

And if we leave time synchronization and talk about M&A shortly or quickly, are you looking into Bolton acquisitions or more in general terms, what are you looking at in terms of M&A?

We are not fully ready with the strategy exactly which segment or market segment or product segment or customer segment or where we are really moving, but we see that that we have a possibility of broadening our product portfolio and we are focusing on product that addressing our customer, existing customer, mainly in the media. So we are just in the first phase of looking into that. But we see that we can probably find a decent or product that's very close to our product portfolio that can attract the same customer and even the same people that we are working with today, which will be easier for us to move in a new product. we see that we can use our global footprint and the relation with plus 500 large customer globally and we can be a good like push for products that need to be distributed like in a global market that might have like an iridium strong position or in country strong position and we can be the that can really broaden the distribution. So that's what we are looking into. We are not looking into like trying to integrate with large costing with existing product. We are more looking into like have synergies in the front end rather than in the back end. So that will take away like large and long investment in integrating them into our existing products.

Can you give some color on why the board of directors are proposing that no dividend for the financial year 2024 would be given?

Good time. We have just announced that we are doing a large buy of FPGA because we see that the time of that product is shortened and we would like to secure that we have FPGAs for the next coming years. So that will take a little bit out of the cash flow, the free cash flow that we have. So the decision from the board was to not have any dividends this year. And that probably will come up on the annual general meeting. That will be the time for the board to present that.

Do you expect the potential US tariffs to affect your business or otherwise the Trump administration in general to affect your business?

It is extremely hard to see. what will happen so i don't think i have any insight in that so i think everyone needs to try to see what happened in the market so i mean that one thing that we see is a number of canadian competitors that we have so so that can definitely affect the canadians we don't know what will happen with europe so so i don't know actually

And a last question. The share is down heavily today. What can you say about the long-term value in the company and the investment case?

We haven't changed our view on the long-term perspective. We have iterated that we will reach the 50% growth annual and that we are on our way of reaching the 20% EBIT margin. So you shouldn't see that the little bit slower sales in Q4 that it changed the prospect of growing the business. And I mean, it's normal to have some quarters is a little bit slower because we cannot anticipate exactly when the large order or the order coming in in Q1 or in Q2. So it can be a little bit volatile between the quarters. But we are still iterating that we see that we will reach the target that we have set, the financial target for 2025 and the long term for 2027. So we are very confident that we will reach the targets that we have been communicated And I don't know how many quarters in row that we have been growing. And it's, of course, a pity that we missed the Q4, the first, I don't know, 16 or 17 quarter in row that we are growing. But we don't see any change in the market. I think that's the important. We see a little bit more cautious in Europe and APEC, but that will not affect, hopefully, the effect of a long-term growth. And we see that our growth markets, America, that we're really focusing on, it's doing well and a good prospect of growing. in 2025. And remember, they were growing 40% last year. And still, if you look at the total market, US market is much larger than Europe, but still Europe in our books have a high sale than US. Then you can understand the potential that we have in US. okay that was the last one okay thank you for listening in and i think that we have one more slide just to remember the calendar and then your report will be published the 22nd q1 report will be in 29th of april and annual general meeting is 14th of may in solna at 10. and the q2 will report in mid july so thank you to listening and have a great day thank you