Net Insight AB (publ)

Good morning and welcome to Net Insights Q1 report presentation. I'm Linda Lytt, Investor Relations Manager, and with me today I have Krister Fridsson and Cecilia Höygård-Hök. Krister Fridsson, CEO, and Cecilia Höygård-Hök, CFO. We will begin with discussing the numbers and the business in general, and then we will move over to Q&A. Krister, the floor is yours.

Thank you and welcome to NetEnsight Q1. At the end of the day, as Linda mentioned, we are going through the highlight business overview for media and time synchronization, and then we will move into the financial numbers and outlook and we will end up with Q&A and you can send in any question you like into the chat. So if we start with the highlights for Q1, So the first quarter began with a strong growth in our focus region, Americas. As we previously communicated, investments level in EMEA and AIPAC region showed more hesitation. During the quarter, we strengthened our media product portfolio with several new feature launches for the NAB show in Vegas. We are also accelerating investment in our media solution on unmanaged networks that we see a strong growth. Growing awareness of the need for GNS at independent time synchronization among government have increased dramatically the last few months. Several initiatives aimed to reduce GNS-GPS dependency have started. We see a general market uncertainty from the geopolitical situation that we see, and the current geopolitical situation has made short-term dealing timing hard to predict. Given this, we have decided to initiate a cost-saving program. A little bit on the numbers. The net sales growth has been slower the last two quarters, even though we see a growth the last 12 months of 4%. We have a very strong gross margin. And over the last 12 months, it has increased with one percentage point. We see a huge growth potential in media and synchronization. And it's important to continue to invest on a high level to secure the future growth. We have a solid EBIT on 10% the last 12 months. So we have a very strong position in the financial situation, and we continue to grow the gross margin, and it's important point to reach the long-term financial targets. If we go into the business overview and start with media. First of all, we see the live sport and pay TV are very resilient to downturns in economy cycles. We can even see in some of the markets, the pay TV revenue increase in when the economy is going down. we see the key demand drivers in the market remains. It's no change. So it's a continued transition toward IP and cloud, which continue, and growing market for remote production. And this is important, drivers to lower costs for our customer and broader the market. is we see a continued high activity in the industry, a high number of business discussions going on, and an activity level have not changed. But the increased geopolitical uncertainty causes short-term hesitation, and timing of business deals are hard to predict. We are coming back from a very successful NAB in Las Vegas, and we launched a number of new product features, confirming our strong product portfolio. We have a very strong position in the market, and we extension our position with new features launches during the show. In line with our strategy we are accelerating investment in our unmanaged offering and we see an increased interest in solution for unmanaged and it's the cloud and of course the hardware connected to the cloud. So we are accelerated at investment and we have a very strong position and unique position that we both have the cloud and the hardware. We are working hard to strengthen our relationship with our existing customers like Tata, NEP, RedBee, Globetrotters and many others. At the same time, we have a high focus to attract new customers. And we are glad to see over the past three years, we have added around 21 major new customers. And in 2024, we added 11 new customers. increase revenue from these new accounts from 1% 2022 to almost 15% of the total revenue in 2024. And that's definitely secure our long term growth, that we get new large customer in to our customer base. And that's also show our strength in our product portfolio that we can attract new customers. Moving over to time synchronization. At the Mobile World Congress, a telecom and technology fair in Barcelona in late March, we observed a clear increase in interest in DNS and GPS independent synchronization. So that's increasing. And that's, of course, driven by geopolitical uncertainty. and the growing security of the 5G network, because that is a critical network and it's really essential to have a high security in that network. But we also see a growing awareness of GNSS and GPS independence among governments. We see several international initiatives aimed to reduce dependency of GNSS and GPS. Some examples. In the US, FCC have requested alternative for positioning of timing from the GPS and GNSS. India's strict requirements have been proposed by the Department of Consumer Affairs, and countries across Europe and Asia are also placing greater emphasis on this area. So it's the same thing that we have seen in Sweden, now going broader globally. The standardization process with the ITU is progressing according to plan and expect to be completed late this year, beginning of next year. We are also very glad to see several promised large POCs and field trials ongoing successfully, complete once entering into the negotiation phase. In the second half of Q1, we started new POCs. So that was the outlook and we are moving into the financial numbers.

Thank you. So we start looking at our net sales and in recent years we have focused on our core areas and we have made important strides in product development and growing our market share. This has resulted in a net sales CAGR of 12%. And this has been done by upselling to a 16 customer and, as Christer said, accelerated customer intake. Looking at the quarter, we have a temporarily hesitant market on the back of increased geopolitical uncertainty, resulted in a net sales decrease of 19.6%. And if you look at the right-hand side, you can see that the more subdued net sales level is also putting pressure on profitability levels. With an unadjusted margin of approximately 70%, we have a good scalability, but we also see a notable impact on the result when volumes are lower. For the quarter, the lower revenue resulted in an operating loss of 9.1 million. So now to the regions and the overall soft and sales demand dynamics was driven by hesitant market in EMEA and APEC. Those regions had a negative sales with 15, respectively 78%, while focus region Americas grew with 46% year on year. Gross margin. Our unadjusted gross margin for the quarter was 66.2%, whilst for the last 12 months we had 71.6%, which is close to our three-year average. Gross profit amounted to 57.3 million and a gross margin of 50%. And the profit and the margin is lower profit and margin is primarily driven by the lower net sales in combination with the continued investment in future growth. So over a longer period of time, we can have had positive profitability trajectory with EBITDA margin improving along our net sales growth. However, looking at the quarter, our EBITDA amounted to 14.5 million, with an EBITDA margin of 12.6%. This is a year-on-year EBITDA decrease, primarily attributable to the lower revenue in the quarter. If we look at our EBITDA, and that is our EBITDA, including the cost that we capitalized, we have a negative EBITDA of 10.2 million as we have maintained investment in innovation and technology advancements when the EBITDA has been lower. For the last 12 months, our EBITDA increased to 147.8 million with a margin of 25.5%. And there's a long-term sign of our business scalability along with growth in net sales. So now to innovation. During the last 12 months, 24.5% of our revenue has been invested in R&D, and 66.5% of those has been capitalized, and this reflect NetInsight's focus on long-term value creation. During the last year, we have had efficient gains by relocating development from US and India to Sweden. So now to our EBIT, our operating earning. And the top line weakness temporarily impacted profitability with a negative gross profit effect of 28.2 million. At the same time, we have had cost control with OPEX level at the same level as last year. In total, we had an operating loss of 9.1 million. And this was, as you can see, primarily driven by the lower revenue. On the back of this top-line weakness and the increased geopolitical uncertainty, we have decided to initiate a cost-saving program. We will also continue to monitor the prevailing demand situation in order to adjust the measures if needed. Net cash. So net cash from operating activities was 31.6 million, and the lower cash flow is attributed to the lower sales, but also increase in working capital, where we have a negative effect by extending payment terms for a number of orders. If we look at cash flow from investment activities, those amounted to 24.8 million, and those are mainly a result of our capitalized expenditures. Cash flow from financing activities amounted to a negative of 13.3 million, and they are primarily attributable to our reperch of own shares. In total, we have a net cash flow of minus 66.4, excluding share-related transactions. Our net cash position for the quarter is 156.3 million, and this is still a robust financial position for seizing opportunities looking further. So now to some trade tariffs and an update on the impact that those have on Net Insight. And at the current position, our product is currently exempt from the US tariffs that was introduced in April. And we are only subject to those that was previously enforced. So, however, should the situation change, the company will of course become subject to additional tariffs, and our profitability could be impacted due to the risk of price pressure of hardware sales in the US. If we look at 24, our hardware sales to the US amounted to 12% of our total group's net sales. At this time, it's very hard to predict how high the tariffs would be and if they will come, but we're probably taking countermeasures to mitigate risk of higher tariffs, including a review of our value chain. In long term, we expect a gradual reduction of exposure to the risk through an increased share of software sales.