Net Insight AB (publ)

Good morning, everyone, and welcome to this quarterly presentation with Net Insight. It's the third quarter of the year that we will present today. My name is Andreas Jolson. I'm responsible for the coverage of Net Insight here at DNB Carnegie. And as usual, I have CEO Krista Fritsson with me, as well as CFO Cecilia Högård-Höök. You will present the quarter, and after we will have a Q&A session, and you are very welcome to send in your questions through the web. We already have a couple of questions, which is nice, and feel free to enter more of your questions. With that, I leave it to you, Christer.

Thank you, Andreas, and welcome to the Q3 report for NetInsight. We have a standard agenda. We start with some highlights, business overview, and Cecilia will cover the financial, and we do a summary. And as Andreas was saying, we ended up with a Q&A. So, Q3. After a challenged start of the year, we are glad to see that demand in the market has stabilized. And we have seen that in high sales during the quarter. And in comparable currency, we are in line with the revenue from last year Q3. We have a significant improved earning compared with the first quarter this year. And it was mainly driven by increased sales. The cost-saving program has given us a good effect already that we started in Q2. And we have some seasonal effect in Q3 as well. And we are glad to launch the first 400-gig media-ready solution, which takes us to the highest density in the market, highest capacity in the market. And we have been leading this capacity race since all the way back to 2018 when we launched 100 gig. That was also the first product in the market. The good thing with that is this has lowered the total cost of ownership for the customer, and I will come in a little bit more to that later on into the presentation. And if we move over to time synchronization... We are seeing continuous strong momentum in that product segment. And it's still a growing customer engagement and an increasing market interest. And during the quarter, we had two new mobile operators that are moving into a test phase and we're evaluating our synchronization solution. A very key important event during the quarter is that the Turkish 5G licenses have been auctioned, and Turk Telecom, of course, has received a wide license, and they have started to ramp up the rule of the national time synchronization network. So that started in the beginning of Q4 and will continue during next year. If we then move in a little bit into each product or market presentation, we start with the media. We are focused on to be the partner that enable our customer to produce and distribute live content flexible and cost efficiently. And during the quarter, we had launched a 400 gig platform that definitely strengthened our position in the transport of media, live media. The important part with this is probably not just the 400 gig. It is that lower cost per service for the customer. So the total cost of ownership will go down for the customer. And that is a really important part and strengthen our competition in the market. This density can be used in an existing product as well, the 100 gig product, with the same density, which gives us a very, very strong position in the market and protects our position that we have and we are leading in the transport. And we see all the demand from several major customers, our own customer, major customer, and we will deliver a start around year-end. The cloud product, the unmanaged product portfolio is an important part because that's the growing part of the market and we have a strong position. And during the quarter, we have launched new features and several new features. One is more efficient video compression that are really important for the customer and a strength in our competitiveness towards other similar solutions. And we are glad to see that we are winning the best of show with this product. Network security is also, of course, an important part because this is distributed over the open internet. So security is crucial for our customer and we have built even stronger security around this product. So the new combination with high capacity solution that we have and flexible cloud-based solution broaden our customer offering to our major customer and give us a strong opportunity to grow further into new market segments and take, of course, and grow our business with new customer. So that is a key position that we have, managed and unmanaged, and it will be more and more combined as an offering to our customer. And that was the customer asking for today. If you move over to time synchronization, we definitely see that the need for GPS independent time synchronization continue to grow. And our solution are fully meet the growing demand from operator and other public authorities. And they will like have security, precision of course, and reliability for the network that they are running. So we see an increased demand for this, and you probably have seen that in papers and in media, that the jamming of GPS is continuous and increasing definitely. And I just mentioned previously that we had two new mobile operators starting to evaluate our time synchronization solution. So now we are close to 30 customers that have testing or are testing our product. And half have moved over to pilots or network installation. The customer dialogue that we have and the pilot project that were initiated since we launched our final product Q2 last year, has been progressing well. And several operators move into commercialization phase. And we have communicated and we expect some of those customer to begin to roll out in the end of this year or beginning of next year. One actually quite interesting event have been during quarter is that the Yammer test in north part of Norway. And we launched a number of new features at the same time during the jammer test. One is GPS attack detection. It's important for customer to notice if they are jammed. And we have a probability to detect that. The JAMA test actually is a huge event. I will just mention some. It's over 100 different companies during the event coming from 24 different countries. So it's an opportunity for us to showcase our product, of course, to potential customer. And it's the first time that we as a company are joining that. Previously, it had been other that have testing our product, but we were participating in this this year. So it was a great opportunity for us to show our product. By that, I will move over to... Hello to Cecilia that covered the financials. Yeah.

And with the financials, we see that demand is now stabilising and returning to more normalised levels. And revenue for Q3 amounted to 147 million, a sequential improvement from previous quarters and the softened markets we have seen, global uncertainty and currency headwinds. In comparable currencies, revenue for Q3 is on par with last year. Moving on to gross margin, we're starting with unadjusted gross margin, and that was 66.3% for the quarter, and for the last 12 months, 69%, close to our three-year average, despite persistent FX headwinds and impact from high-volume deliveries that we have done during Q2 and Q3. Gross profit for the quarter amounted to 77.7 million with a margin of 52.8%. So to R&D, and we continue to invest around 25% of our net sales in R&D. And this shows our commitment to innovation. Of these, we capitalise around 65%. And by that, we are laying the groundwork for long-term value creation and future product launches. The strategic focus ensures that we will remain in the forefront of technological advancement in our industry. Moving on to result and starting with EBITDA. Ibitafu Q3 amounted to 46 million and margin rebounded to 31%. The improvement is driven by increased sales, cost savings and seasonal effects. Looking at our Q2 program, cost saving program, it is on track to deliver 30 million annualized savings by year end. For the last 12 months, our adjusted EBITDA amounted to 112 million with a margin of close to 21%. Finally, looking at EBITDA, that is EBITDA, including capitalization of development expenditures. And for the quarter, our EBITDA amounted to 29 million with a margin close to 20%. And this is a year-over-year improvement from the 17% we had last year. Moving on to operating earnings. And operating earnings for Q3 amounted to 22 million with a margin of close to 15%. This is a clear improvement compared to the last two quarters. Alongside increased sales and effects from cost saving program, Q3 tend to be the quarter with the highest margin, a result of seasonal effects with lower costs during vacation period. Last 12 months, results and margin remained pressured by earlier quarters with an operating earning of 18.3 million and a margin of 3.4%. Looking at our cash flow, starting with operating activities, we have a positive amount of 21.7 million. Then we have our investment from activities, mainly from capitalization expenditures of R&D, and that amounted to minus 17%. As a total, our cash flow for the quarter was minus 0.5 million and cash at the end of the period was 96 million. During the last quarters, our changes in working capital has affected our cash flow negatively. And as you can see, our working capital at the end of the period was 148 million. The increase we have seen during the last quarters is mainly due to increase of accounts receivable, but also due to the strategic component purchase of FPGAs we have done, and where we in the quarter has done partial payments. Final payments will be done during Q4. This strategic component purchase will secure future cost advantages. Looking at our available cash, we have a strong position with a cash including credit facility of 181 million. So that was all for me.

Okay. Thank you, Cecilia. Just to go to the summary before we move into the Q&A. Just a quick summary. So a significant improvement of earning compared to the first quarter this year. And that's as we have been communicating by increased sales. The cost-saving program is giving effect. And we have some seasonal effect compared with the first two quarters this year. And during the quarter, we launched a 400 gig platform, really securing the position in the market, very strong competitiveness around that product. And it's really showing our technology leadership within the transport of live media. So this will lower the cost for the customer, and we know that the customer are looking for lowering the cost, and we can offer that with a new platform that we have launched. And we will start to deliver in around year-end. So despite the stabilization that we have seen during the quarter with result of highest result, We see still geopolitical uncertainty continues to impact our market, which means that to maintain a strict discipline therefore remains on cost. even as we continue to invest for future growth. So we balance that, very focused on the cost, but also make sure that we continue to invest to get growth in the future. The key event that we have been waiting for is, of course, the Turkish 5G license. And we see a ramp up from TurkTelekom that started in Q4 will continue in 2026. And the launch of the 5G is planned to be 1st of April next year in Turkey. For time synchronization, we see a positive progress with customer in the evaluation phase or early pilot testing. And we expect that some of those customers will select our solution during the second half of the year and begin to deploy in the beginning of this year or beginning next year. So as a summary, with a robust product portfolio, increased competitiveness through the 400 gig product, and we anticipate as well the decision from time synchronization customer, and they will move into the rollout phase in this year, beginning of next year. So this is really drive value and growth for the company. So thank you for that. And should we move over to Q&A?

I think that is a good idea. Again, if you have questions, please send them in through the web. There should be a square where you can write the questions below the screen, so to say. Maybe I can start with where you sort of ended with the 400 gig. If you could explain a little bit more what it does that you haven't had before and also maybe Even though you say deliveries will start at year end, what type of sales cycles are we looking at?

We see that this has been an ongoing demand for high capacity because there's more content delivered, more service delivered, more live sports that should be delivered. So it's the content's need for more high capacity, for more content delivered from our customer. and we see in like in eq2 that we the 100 gig product is move over to the venue which means that they're increasing the demand in the core with the 400 so that's the evaluation the relation we've seen in in in the market so it's a contents drive for more capacity But on top of that, it's not just the capacity, the 400, it's also that we can offer more service on the same platform. The density have gone up, which means that we can offer more service in the same product, which take down the total cost of ownership for our customer. So we are leading that, and we are the partner that really can offer that solution for our customer. We did that with 100Gig 2018, and we do it again. So that is an important part for us to protect the position that we have in the market, so that investment is really protecting and secure the market, and we can also grow that part in the market or the position that we have in the market with new customer.

And the business model is the same as for the others. You have an initial installation fee or capex, and then you have maintenance on top of it.

Absolutely the same, yes.

Very good. We have some questions both from the web and also from other places when it comes to the IPO today of Peer, which is working in the same area as you are doing. Could you just explain... the difference between them and NetInside, and where you meet them in terms of competition.

I mean, we are in the same market, but we are in different market segments. We are in the transport, and they are more focused on the encoding, decoding part of the market. And of course, this is like, we are very close to each other, but we are in two different market segments. So what we have done is that we protect the position that we have with the 400, that investment that we have done. So we will continue to have the growth in the market segment that we are in. But we are also now moving into the market that up here is now present in. So during next year, we will launch product that are moving into that segment or that market segment. So that's the strategy that we have. Protect positions, strengthen our position where we are. And now we will move into the market segment that up here is mainly have the business.

And that segment is growing faster at the moment versus the segment where you are?

It's hard to say because it's very small segments, but we see that the overall market is growing like with 4%. That's the managed. The unmanaged that we have, which we have a strong position, that's increased like with 10%. and the combination of managed and unmanaged is very strong proposition to the market and there we of course have an advantage toward up here because they don't now have the the cloud-based product i mean they i think that i communicated that made me move into that or we launched that but we have the boost product and have that in the market so we we can strengthen our position toward the customer because managed and unmanaged is going together. In the production, they're using both managed and unmanaged. So that's a key advantage that we have. And the new product that we're launching, extension of the cloud product, moving into the segment that Appear is present, we see definitely a good potential to grow during next year.

And we have a question from Patrick on this topic. Given that Appear has grown by 40% in the first half of this year, while you have been declining and are now flat, has that growth... come at the expense of Net Insight?

No, I mean, definitely they are selling product to our customer, but we have been protecting our position with our customer. To my knowledge, I cannot guarantee, but I haven't seen any of our existing customer moving over to up here. So our major, large customer is staying with us, and we are showing that definitely, like in Q2, when we were having a $6 million order, and we continue to protect that position in the market. So we don't see that they have moved in and compete with us directly head-to-head. But we would like to increase our investment in the peer segment, and over time, we would like to go ahead and help them in that market segment.

Very good. And then I was thinking about this large order that you took in Q2 and started to book also in Q2. I guess you have continued with that in Q3, but is it fully recognized at this point?

Yes, it's completely delivered to the customers now in Q3.

And is it possible to say how much it has impacted the gross margin? You mentioned that you have had high volumes.

Yeah, I think that one can see that we have slightly lower gross margin due in both Q2 and Q3. So that is some percentage that has gone down due to that order and also some other larger orders. So a combination.

Perfect. Another question from Patrick on the inventory build-up. You mentioned this at the call, but just to be clear, is that only attributable to the FBGs or are there some Syntai effects also from Turk Telecom starting to initiate their rollout again?

Yeah, the big numbers are, of course, from the FBAs. As we announced earlier, over last year, it's around seven, eight million US dollars. But the Sentai has also some smaller effects, but that is much smaller.

And also from Patrick, and I guess this is the million dollar question, when will business area time sink be larger than media?

It's a good question. The only thing that we see is that we estimate that the time synchronization market is larger than the media segment that we are operating in. So let's see what the future will have. We don't have any forecast on that. But there's a huge potential, of course. I mean, we see Turk Telekom. They were placing an order for $25 million, and they are starting to ramp up. And we had an order book here. of like 130, I think, when we were coming into end of Q3. So, of course, it is a huge potential of signing up large customer operator because the volume is extremely high compared with the volume to a customer in the media segment. So a few of those Turk Telekom size operator will, of course, drive the the revenue dramatically.

And you continue to be optimistic regarding additional orders coming in late of this year, early 2026. Is there a slight delay in this? Because I think we talked about the second half before. And timing is, of course,

We have tried to explain the long process of selecting suppliers like us in a very critical technical area for an operator because they will be like... not locked in, but they will use our product for the next 6, 7, 10 years. It is very important for them to select the right product. So that takes time, and it's crucial. If the sync will not work, the network will go down. So that's a key product for the operator. At the same time, they should do the network planning. They should do the budgeting. They need to have resources really to rule out the product into the network. So it's a number of steps that they go through that are quite lengthy. And many of the operators that we are into, I mean, like Turk, they are at the same time building the 5G network, at the same time they're building the network. So it's quite the sync network. So it's quite a lot of different things that they need to prioritize and make sure that they're doing the right thing. So it takes time. And the good thing with this is that, I mean, for TurkTelecom, they will rule out for the next maybe two to four years Syntire product. And so it's a lengthy relation that you will have with the customer, and it will be like a quarterly revenue coming from that. We see that from the customer that they start to rule out, like in Sweden. I mean, they are constantly buying each quarter number of Syntire that they're installing in the network. So, and on top of that, we will see next year that also the service and license will go up around the SYNTRIDE product because now we are starting to get the installation and then we have the support and license. which is more or less double compared with the media. So that will start to kick in next year as well when we now have an installed base. So that will grow also over time. So I think it's a very attractive business and it's very attractive going forward because we will have recurring revenue.

it of course increased the margin and we will see some margin increase on the same time next year based on that we get more revenue coming from support and licenses and the sequential improvement from q2 to q3 is that related to the turkish auction or is that something that we will see in in the fourth quarter

No, I mean Turk Telekom have been purchasing product during the year, but they are increasing volume, of course, right now when they have received the license. But we have other customers well in Q3 that have been taking product. I mean, we have definitely the first media customer that were taking products, entire product in volume in Q3.

And a question from Anders Thomson. Has there been additional proof of concept projects in the quarter than the two that was revealed at the Capital Markets Day?

You mean more than the two that were revealed? Yes. No, I mean, it's the number that is close to 30 right now. So that's been increasing with the two during the quarter.

And is the new Syntai time node, the 3100E, has that been developed together with an Indian or Turkish customer? Also from Anders.

It's also a detailed product, so I don't know exactly what he's looking for. Maybe he's looking for that we have the Navic, the satellite product for India. They have their own satellite, so we have developed that for India, and that we have launched this called Navic. So that's a specific product to cover also the Indian satellite system. Maybe that's what he's looking for.

And will NetInsight announce to the market ahead when you sort of call off from the order book on the time sink?

No, we are reporting the order book quarterly and we will continue doing that. And so that's the same procedure that we have previously. We will keep that. So that's something that we report quarterly.

And then a question from Tony. When do you expect software and licensing revenue to exceed hardware revenue? What are the main drivers and timeframes behind the shift in that mix?

Over time, we don't see that the license and support will be higher than the hardware, because still we would like to grow, and the installation of the hardware is still much larger than the license income. But of course, over time, we are building up an installed base of product. So the license is based on the total installed base that are used, so that we are mashing year by year. Some older product maybe should be scrapped out, but we are building up the overall installed base that's steadily growing and we see steadily increase of the revenue coming from support and license. On top of that, we will also see that coming in from the Syntai product, as I mentioned earlier.

Another question from Petter. Could you tell us more about the reason for developing the new version of Syntai that was just launched? What are the customer-driven developments?

I mean, the new features that we launched, it was like to detect the jamming. And that's a feature that operators are asking for. So that's been the amount from the market that they would like to have that to make sure that they can detect if they are jammed. So that's an important part. Is that a software application that you can just add? Yes. All the new features that we have, it's always based on the software. The Navic part, that's for the Indian market, of course.

Another question from Anders Thomson. How does the demand look for the 400G model?

It has attracted huge interest from existing and new customers. And we are glad that we launched it during the IBC, and we see all the demand from the existing large customers that are waiting for the product to be delivered. So it's a great signal from the market that they are looking for that product. And we have been in close collaboration with our large customer during the development of the product because that had been asked for for the last one to two years. So we are really securing, protecting and increasing our competitiveness in our core market.

And a follow-up from Tony on this. You mentioned that you could combine the 400 with the existing 100. And the question is, will the 100 gig solutions continue to be sold in parallel or will they be phased out as the 400 gig becomes more widely adopted?

No, definitely they will be sold in parallel. And we have the 600 that being the volume product, if we look back a few years or quite a few years, the volume on the thousands here have increased the last two to three years. So we see like it definitely an increased demand for higher capacity in the market. So the 100 gig is an extremely important part of our offering. And on top of that, we have the 400 gig. So it goes a little bit to different customer segments. It's not that they all need a 400 gig platform. They can have the 600 is 20 gig, and they can have 100. So we have a broadening of our portfolio. And we are looking into the unmanaged as well. That will be like a part of our product, but that can also be used in managed network as well. So the 400 products that we have will be used in unmanaged and managed. So it further increases the flexibility for the customer. Yeah, and broader portfolio. And you can combine managed and unmanaged in a much easier way than in the past.

Sorry for jumping back and forth here. Now we have another question on the time sync from Petter. Do you see interest from big telecom integrators for collaborations?

Yes, we do. And we have dialogue with large global integrator that are interesting to use our product in the relation that they have with operators. So that's definitely something. And I think we presented that on the Capital Market Day, exactly where we are moving. Local and global integrator over time is an important distribution channel for us. And we are working on that.

And Per Klint wants sort of confirmation that your goals of 15% growth by 2027 is still in place? The financial goal, yes, is still in place. And continuing from Per, now that the 5G licenses are ready in Turkey and the rollout has started, do you think that the rollout will be completed in 2026 or will it spill over into 2027, as you have flagged before?

It will spill over into 2027 as well. And that is underlying what I communicated or saying earlier. The rollout of a national network will take a few years. You're not doing that in one year.

And a follow-up on this. If understood correctly, the order you receive from Turk Telekom does not cover the entire country. Between your thumb and forefinger, how many percent of the country will be covered when the entire order is delivered?

No, we don't have an exact number for that, but definitely it's potential to have more order coming in from Turk Telecom when they are going forward. But so far, we see that they have for the next coming years volumes that they will use, and then we will have, of course, a new discussion with them if they would like to continue to expand in Turkey, the 5G network in Turkey.

Another one from Petter. At the CMD, you said that a big operator would place orders between 75 and 200 million SEC. It seems low since there are much larger operators than Turk Telecom out there, but they placed an order of around 200 million SEC.

Yeah. And we should remember that the order that they were placed in TurkTelecom would include an NRE, plus that they were also using the existing 300 product, the media product that we have. So that's a part of the overall order that they have. But I fully agree that Turk Telekom, if you compare with the largest, the top 10, they are not in that level. So definitely we can see a much larger operator in the market.

Then we have the same question from Henrik Bengtsson and from Patrick. Any updates on the ITU process?

No, no update. It's still that we anticipate that it will be ready like in mid-next year, that will be communicated. It's a little bit delayed. I think we will communicate like in the end of Q4, so it will be delayed. I mean, it's a process and many different suppliers are involved in that process and working with that standardization. So, I mean, we have some document already approved, but not all of the documents that needed to be approved.

And then we have, do you see any interest from Turkcell regarding Syntai?

It's nothing that we can communicate. We have communicated that SEACOM have been taking an order in Turkey. That is a press release that I think we sent out last year and the last year, I think.

Good. And then another one from Anders Thomson. NVIDIA and Nokia fits Net Insight like a hand in a glove. Do you talk to each other? I don't think I can comment that. Just from my side as well, now with the 400 gig being launched, you have this inventory build-up through the FPGs. Is there any, should we expect a further inventory buildup as you now start to deliver the 400 gig product or has that already been sort of reflected in the cash flow and working capital?

No, I don't think that it will be a further built up for the 400 gig. And then the FBAs that we have purchased, they will, of course, help our cash flow going forward. So no more build up for the 400 gig.

And is that the same for potential Sintai products, that you will recognize revenues and get paid sort of as a normal process?

The Sintai inventory is so low, so it's not going to affect inventory levels that much.

I meant if there are orders, will that impact then that you need to build up inventory and we will have a negative?

If it goes very higher, yes. Yes.

I mean, the FPGA that we purchased in Q2 was a unique situation that we were securing the volume for the next coming years. So that was a unique one. All the rest are the same process that we have, the same business model that we have with our EMS suppliers.

I think we are ready for a final question from Patrick. When ITU initially communicated, you mentioned potential for royalties. Can you elaborate on this opportunity?

No, I mean, it's a standardized process. If you get like the standards through the ITU, it can be that other companies can use that technology. But you should remember that it's a very small part of the whole of our product. The secret... source that we have in the in in our syntax is not being standardized so it's this it's called ptn so that's what we have so so yes it can be royalty coming in but they cannot just use that directly to compete with us very good

Thank you very much for doing this and helping investors understand a little bit better. I will work on my ability to structure the questions for next time. And hope to see you then again in the Q4 report, which is 11th of February, right?

Yeah.

2026. Yeah. Thank you so much. Thank you. Thank you all.