Yubico AB

Good morning everybody, sorry for the delay. Welcome to the Q1 report presentation for Ubico. And as mentioned it will be me, Mattias, and my colleague Camilla, Ubico CFO presenting today. We'll start with a recap and an overview for those who are new to the company, talking a little bit about Ubico and our business and then we'll get into the updates for the quarter. And so several of you will recognize this but at least we've updated the number so some of this will be news. What hasn't changed is that Ubico is the proud supplier of Ubiquice solving one of the major threats in the cybersecurity landscape by providing a strong multi-factor authentication, phishing resistant multi-factor authentication. Our core product is the Ubiquice, so we're a hardware based company and in spite of being hardware a lot of our focus is of course on the software provided on the key and connected systems and because of that we've been able to maintain healthy margins. Historically, Camilla will talk a little bit more about how the margin definition has changed according to IFRS but as you can see on this slide we are at about 80 percent gross margin. Last 12 months we posted approximately 1.9 billion Swedish kronor in revenue and what we are most proud of is of course the fact that we address a major security problem. Those of our customers that have implemented the modern protocols of the Ubiqui have experienced exactly zero account takeovers. We'll talk a little bit about our product shortly and the second thing that I'd like to highlight is that we have an excellent set of customers, loyal customers with Solar solution to more than four and a half thousand enterprises and government customers. We have deployed a little bit more than, sold and deployed a little bit more than 30 million Ubiquis and we boast some 30 percent of the Fortune 500 as our customers so there is a clear focus in our market, a go-to market on larger enterprises and government agencies. And today Ubiqui has a little bit more than 400 employees, I think we ended the quarter with 438 employees. So let's do a little bit of a deep dive on the part about our customers. On the next slide you can see a subset of our customers and if you look at these brands that have agreed to us, being public references we started out with a very heavy focus on high tech companies working with some of the industry leaders done. The fastest growing sectors today are financial services and government, different government agencies across the world. So we have a very broad set of customers but with a focus on large enterprises and some of the major household brands that you're all familiar with. And if we move on to the next slide we've been able to expand our footprint continuously. If you take, I talked earlier about the Fortune 500, if you instead look at the global 2000, i.e. the 2000 of the largest public companies, we already work with more than a quarter of those. However in most cases we only work on a very limited use case, so our average penetration among the customer base is relatively low. We only have a subset of those who have deployed Ubiquis to more than half of their employees. So there's definitely a lot of upselling potential within our existing customer base. And we do have very loyal customers. This is one of the updated numbers in the presentation. If you look over a five-year perspective and look at our major biggest customers in 2018, you could see that the annual average repurchase rate is a full 119%. This means that if a customer had bought 10,000 Ubiquis in 2018, the average customer bought 11,900 in 2019, another 11,900 in 2020. So that's how you should interpret that number. And this customer loyalty exists on both of our business models. The majority of our sales, some 80% of our sales, is still in perpetual mode, i.e. that we sell a Ubiqui with a perpetual license to use it. But about 20% of our customers buy it on a subscription basis, which kind of by default means that there's a recurring revenue, but we see a lot of repurchases also from our perpetual customers. And as I mentioned, we started out with a very heavy focus on tech, working on the leading players in that industry. Since then, we've expanded both across industries and geographically, and now cover a much broader set of customers. So that's what we're very proud of when it comes to customers. The second thing I'd like to highlight on the next slide is of course our product and the problem that it solves. Fundamentally, what we're selling is a key. There needs to be a lock at the end, and we've invested a lot in making sure that our key unlocks all the relevant locks in an enterprise use case. More than a thousand different applications today support Ubiqui. Initially, it was us reaching out to individual applications and making adoptions so that it would fit into all these different locks. To an increasing extent, it's instead we learn after the fact that different applications have now provided support for Ubiqui, because their customers want to be in the safest and most convenient way. So this is really a key to our success that we have a Swiss army type key that fits into all the relevant locks for an enterprise environment. That's the short recap on some of the highlights of our company. And if we start to look at the highlights for the quarter, we of course are, Kamila will explain in more detail or go into details of the numbers. But of course, we were very happy about the growth that we're seeing in bookings. We saw order booking growth of about 65% year over year in Q1. And it came from a wide set of customers across different industries and geographies. So no individual orders really stood out. But it was a large set of mid and large sized customer orders. We keep having a high profile as an industry innovator. We highlighted already on the previous call that we got recognition in Wall Street Journal and other magazines and received another recognition there by being recognized by Fast Magazine as an industry innovator, a fast growing company. Another thing is worth noticing when we look at the report is the conversion to IFRS accounting. I won't go into details there, but I'm sure Kamila will provide more details. Another thing which doesn't really relate to the company's performance, but it's worth noting that during the quarter, specifically March 18th, we had a lock up expiration for the previous shareholders in Ubico AB. As you remember we had a lock up for Qubura in 23. And the first lock up expired at the six months approximately March 18th, which means that there was more liquidity in the trade. And the final lock up expires on September 18th this year. After the quarter, which is of course after this quarter, but two other things I'd like to highlight is that we released an upgraded firmware. We announced it on May 6th and it will be available at the end of this month, which means that there's additional features and making sure that we stay one step ahead of the competition of course. Most importantly that we provide the best protection there is for our customers. So that's important for our long sales growth of course. On a more practical note, today marks the day of the first AGM for Ubico as a publicly traded company. So please feel free to join at the... Well I think you need to pre-register, but we're going to be meeting with shareholders who have pre-registered today this afternoon. Yes, and with that I'll hand it over to Kamila who will talk a little bit more about financial numbers.

Thank you, Mattias. Yes, so the quarter, we think it was a quite good quarter. Mattias commented on the order bookings, which we have a very good growth. Looking at the next phase, we see a growth of .4% and this quarter we have a very low impact from local currencies when we measure the growth. So .5% in local currencies. Looking at the gross profit, we have grown the gross profit a little bit more than the net sales. So thereby also we are improving our gross margin a little bit. Gross margin of .9% versus the 80.1%. To note here on the gross margin is then as we have changed our P&L format into a functional based format, that means that we are building up the P&L on cost of sales, R&D, sales and marketing and administration. And thereby we now in our gross margin have also allocated indirect costs related to supply chain, manufacturing and so forth. So that has impacted the gross margin on around 5%. So if you think recognize this as a pretty low number compared to our previous reports, so that is the fact. In the report on that note, so in the report you find the full details about the conversion both on the IFRS transition and also this functional P&L change. Just a short comment on this transition. So they're just commenting on the office leases, which is something that I guess most of you expect to see effects from. So that is implemented and it's very very small effect on the P&L. You find the lease liabilities and assets in the balance sheet, but on the P&L is very low. The other IFRS which you can think should affect is the capitalization of R&D. We have done a thorough analysis of that and of course it will affect. But historically or where we are now, we haven't found any development projects that are actually fulfilling the requirements for capitalization. And that's not that we're doing things, but depending on where in phases we are and what we are actually doing, we are spending quite much on continuous upgrades, maintenance and things like that. But then it's more exploratory and early phases when it comes to R&D. So right now we don't have any impact with this does not mean that we will not have any impact in the future. That will probably become a project that will be capitalized in the future. So that's what a sidewalk on the IFRS, but another gross profit we were here. So it's stable. And then looking at our profitability, we are satisfied with seeing that we have a positive effect in the profit. The EBIT margin is going up from 17.6 to 18 percent. Small steps towards our long-term target. On the ARR side, we have been growing the ARR year over year with 26 percent. So now running on a portfolio 277 million Swedish kronor. We will look deeper into that later in the presentation. So a quick deep dive in the bookings where you noted that we have very good growth 65 percent in the quarter to 579 million. And this growth comes from good spread of customers and both on geographies and on different segments. So we continue to widen the customer group which gives us a very good foundation going forward. Notable is that we have a long-term financial services contract for a subscription. It's actually a five-year subscription which is affecting the order bookings now in Q1, but will affect the ARR in Q2 because the contract is actually starting in Q2. Subscription bookings, as I said, is then corresponding to 18 percent of the bookings. It's very much higher than last year, 7.7 percent of the bookings. Looking then at the net sales development. We're continuing a good journey here. Notable is when you read the report you will see that Americas, the region Americas looks like it has been growing very much compared to the first quarter last year. I would rather say that the Q1 last year, Americas was unusually weak or slow and the split we had between the regions in this quarter is more representative and also more in line with what you saw full year 2023. So this is more normal. On the ARR side you see here the dip we had in Q1 and this relates to a large renewal. We contracted in December but is starting to affect ARR in January this year. But we already see, as I said, that we have good order bookings on the subscription so this ARR development will turn upwards again when we see Q2 coming out. We generally see a good interest for our subscription offering and we'll see that this will continue with a positive trend in the future. On the profit side, we said we have when you look at the P&L you will find this new format where it's functional based instead of cost by nature. We think we are developing well. Of course, we said despite that we actually had quite high costs related to commission. As we commented in Q4, if you recall that, we had also when we had high order bookings, we have high commission costs. This is also the fact in Q1 as we're taking the commission costs when we close the dips. For those large orders that we get, we will see that the revenue is coming through and thereby also the profit coming through during a much longer time. We will see effects from the order bookings here now in Q4 and Q1. Also being visible in the net saves and in EEBs both in Q2 but also during the second half. We also had an unrealized currency effects of plus 13 million Swedish kronor here. That is related to that QB has quite much US dollar in the balance sheet and as you have noted we have a quite good cash position which is also then contributing to this as we keep quite much in US dollar. Short on that, we are looking at the cash flow. We had an operating cash flow on 33 million positive in Q1. Last year, if you remember, we had super boost in the first quarter related to large amounts of invoicing in Q4 2022. That is why it's super high. This is more normal but we also continue to see the buildup in the inventory. We invested 67 million more in the inventory. We see now that this will flatten out so that the growth we have in net saves will be more balanced towards the levels we have in the inventories. It's important for us to have good levels here as you know both for secure our ability to deliver towards the customers and the high demand we see and also securing availability of components but we are there in a good position. We also had strong ending of the quarter and thereby also having strong billing so that is also contributing to a net negative change in the working capital. We have a good cash position cash and cash equivalents to of 577 million and net cash of 541. At the end of the quarter, we have a small loan of 35 million something towards a credit institution but here you see also the effects of the IOPRS conversion. So in interest bearing liabilities, we now also have the liabilities of office leases as you see here. So half of what we have approximately in that item is related to the offices and not then a real debt so to speak. Yes so that's on the numbers note Mattias so leaning over to you.

Thank you Kumela and as always there will be an opportunity to ask questions at the end of the presentation. Something that we wanted to highlight as we talk about market conditions is that as I think you're all aware there is a very high level of cyber threats out there. Recently a report was released by the International Monetary Fund highlighting the importance of cyber security for financial institutions and this is really what we're seeing translating in high level of interest and strong sales growth to financial services actively because there is both on the individual actor level, sorry on the individual bank and financial institution level there's of course risk associated with the fact that there's a high pressure of phishing attempts and other cyber attacks trying to access individual customer funds and information but also on a systemic level there is a threat because a lot as you know there are in several markets very high concentration some cases oligopolies effectively on the bank side which means that if you see a major cyber attack on a financial institution that has systemic effects which is actually a threat at the macro level or to society and because of this IMF is issuing recommendations on updating cyber security policies and ensuring that you have good governance and of course that you have a solid stance when it comes to ensuring that you invest in cyber security measures to counter the attacks and this is driving a lot of our a lot of our growth another indication of the importance the growing importance of cyber security for financial institutions is a recent directive issued by the white house very much equating the conclusions that IMF has shown the importance of of keeping a high stance when it comes to cyber security within this important sector so i think there's plenty of room for growth in the sector and others you could to some extent say that if the initial targets were governments and tech companies the second wave now is very much hitting the financial institutions at a very high level with that said i think we're in a good position to continue on on a journey as is mentioned in the report we reiterate our long-term financial guidance but we feel that we have strong momentum importance of cyber security of course and the fact that we offer a world-leading solution which is addressing the biggest attack vector i.e. compromised long credentials we built as i bragged a little bit about in the at the start of the call we built a unique position where we have a built a strong product which addresses the customer needs and we've built an excellent set of customers to grow from both within those customers and using that as a bridge to winning new customers we have a solid sales performance for the quarter and similar to the situation in q4 it's not just one individual order or one customer that stands out it's actually from a very wide set of of customers industries and geographies as i also mentioned the vast majority of our sales is to existing customers and we're able to scale that business and build partnership long-term partnership with major customers which is important of course and part of our efforts is of course making sure that this is high on the agenda of policymakers working proactively with regulators and policymakers in the u.s to establish proper cyber security and proper cyber security stance so a lot of tailwind on the market and it's up to us to start today unless camille has any final remarks we'll open up the floor for questions

if you wish to ask a question please dial pound key five on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key six on your telephone keypad okay the next question comes from eric lindholm rogestel from seb please go ahead

yes good morning matthias and camilla a couple of questions from from me if i may so starting on the exceptionally strong order growth here in q1 as you said this is this is driven by a wide set of customers geographies and industries what have you seen here at the start of q2 is it is it fair to say that this broad strength is continuing and yeah how should we think about the remainder of the year i'll start there thank you thanks

eric it's a great question and and as you know we don't issue forecasts for individual quarters we we remain committed to our long-term financial targets but what is encouraging as i mentioned is that we're seeing a strong sales momentum it is not just one customer one industry one geography it's across the board and i think that's reflecting the importance of of both the cyber security threat and also that our products is very relevant for this market so um yeah i i think i'll um i'll take that really good position for future growth

all right yeah perfect and um secondly i think you said that the vast amount of sales is driven by existing customers but is it possible to to quantify sort of how much of the the order growth that we're seeing here is driven by existing customers upselling and how much is driven by intake of new customers

i mean what we typically see is that over a full year some 80 to 90 percent is from existing customers i.e. as we enter a year we know that some 80 to 90 percent of our sales will be existing customers during the next 12 months that swings individual quarters i think in this quarter we saw a higher degree originating from new customers that could partly be driven from the attacks going on and that typically leads to a quicker deployment than and perhaps a bigger initial deployment than we've seen in the past but there are no it's too early to talk about a trend there really

yeah perfect and i think camilla you explained the dynamics on err there but it was down slightly sequentially as you said is it possible to quantify the impact of the the large contract at lower volumes and also thinking in general of the renewals that you have seen so far have been have this been at lower volumes in general or or have they been at higher volumes in in general thanks

in general i would say they they have been on higher volumes of the value of values this is not the the effect we see from this renewal is not the normal that it's going down and so it's a it's a good opportunity for us to upsell and increase scope of course for all renewals that are coming up and i would not comment more on the irr developments and as we know already now that from the bookings of q1 the irr for q2 will come up in a positive trend again

all right that sounds good that's all for me i'll go back in the queue thanks yes

the next question comes from joakim gunnell from dnb markets please go ahead

it feels like you just said encouraging to see the the breadth into this bookings number but can you just discuss the eventual convergence between bookings and and the net sales uh i think that the main deviation here was was the strength on the subscription side and that obviously will be recognized over a longer period of time but but the the larger perpetual deals were they one late in the quarter and then basically just what this implies for for q2 acceleration of net 10th

and i would say that the good order bookings that we we have on the actual deals both from q4 and in q1 are set up for longer delivery and they you will see impact from them both in q2 but also in q3 and q4 this year

understood perfect and raising the the line of sight a bit here so so there's been some some several severe cyber attacks here targeting for instance us medical infrastructure here in in q1 okay can you say anything whether whether these high profile breaches were customers of ubico or or have they become customers of you after the beach where we're recognized and ultimately how you see this opportunity to translate for for ubico

yeah we of course want to avoid being ambulance chasers but we've noticed in a number on a number of occasions during the quarter that the ambulance are calling us let's put it like that yeah i mean sometimes customer conversations really get highlighted and prioritized based on that there has been a recent high profile breach and then because of our by at this stage relatively good brand recognition we we do see quite a lot of incoming traffic from that of course you typically don't change your authentication solution at the flick of the switch so it does take some time from that initial call until we have a significant rollout in most cases but but yes it definitely you see some some reaction when cyber security threats are realized and then you have a a live hack

understood and perhaps on that similar topic about this new scc ruling or regulation have you seen that the disclosure rule driving new business for you uh we are seeing some uh custom i mean some some hacker groups are using this as i mean this basically weaponizing this disclosure rule to to to to highlight this so has this translated into new business for you yet

i have only anecdotal uh evidence that this is driving business and and it has come up but i can't talk about whether it's that particular regulation or requirement for public companies to disclose hacks that is is the main driver that this and i think it's really a kind of the overall threat landscape which which is generating it's hard to single out that as the biggest contributor but there has been some anecdotal evidence of that

great and then just finally we have seen how how some of the larger cyber security players out there are increasingly driving a debate about or around platformization so can you say anything about how how you envision that platformization strategy as opposed to your more best of lead type of uh uh strategy untold for you over the coming years

that's a great question i mean we have historically had two approaches one is that we want to have one key that fits into all relevant logs and also that we want to be a level server i.e. that we want to work across all platforms of course sometimes we we work in partnerships with with other suppliers to make sure that we have more of a turns key solution but we don't want that to come at the expense of working crawl across all platforms i think i definitely see that trend in some cases and you even see kind of build-ups especially within the p.e sector that they're requiring different components in file in in providing a fully fledged solution i still think that our approach of working across all platforms and loving all serving all is is the one that enables us to to address the biggest markets so so yeah we're we're we're going to continue being best at we what we do and i think that really is so far paying off

very clear thank you both matthews and camila and have a great day

thank you thank

you

the next question comes from predrax of inovitch from carnegie please go ahead

hi good morning thanks for taking my questions again congrats encouraging results so very very nice to see some follow-up questions on the financial sector you call this out in q4 you're calling it out again as a driver in q1 is it possible to quantify this a little bit more now that you're seeing orders coming through and you spoke you spoke about the regulation uh it's coming through on u.s banks security and we we know a lot of banks are also using very old systems there's a security liability potentially somewhere in every one of these systems talking about the systemic risk from paper it appears as as there should be a big opportunity here and you know it accelerates from the fourth quarter so can you give us more detail on this opportunity if possible

i'll try to first as i mentioned early on historically our biggest industry vertical has been high tech i think given the performance today it looks like that's going to be eclipsed by financial services this year that doesn't mean that high tech isn't growing but financial service is growing in importance and of course it takes some time before you kind of get to critical mass in an industry and i feel now that we've at the cusp of that within the financial services which is very promising the other part which is again something that we spoken a little bit about in the past is that it's important to note that the vast majority of our deployment within financial services so far has been for internal enterprise use it's only in a very limited set of cases that we are providing that extra security to the end users that presents a huge opportunity it's partly up to us to well it it's up to us to realize that because i think we're in a the fact that people are within banks are using our is using our product internally at least should validate it as we enter into discussions about protecting the end users which is of course very close to the best interest of both the banks and its customers so i even if we're seeing good traction i think there's so much more potential within the sector and but so far very very limited part of our business but we're gonna have to change that

and that sounds sounds interesting thank you and let me rephrase a question you got earlier in terms of new customers if we think of new customers you gained over the last six months could you give some color on how much they are driving sales this quarter of you know percentage of the net sales in this quarter without

disclosing a specific number because we don't report that i i would say point to one thing which is interesting we've seen an additional an increasing number of customers that actually go for a bigger deployment day one i that they go not from the typical land expand that we've seen in the past where they deployed with a small subset say previous access management users and then expand from there we've seen an increasing number of customers that go big early on when they're using our subscription offering because that lends itself to a planned rollout where we sign up a commitment for typically a three-year period and start with a small deployment but already know what the end game looks like so that business model actually lends itself to a bigger initial deal which means that more of the revenue will come from new customers i that we don't we're able to scale customers more quickly with the subscription model sorry for being not not being more precise to that but that's actually from my perspective an interesting trend

okay okay very good and then i think finally on the margin which i think is quite good in the quarter and it kind of suggests that your scalability of the business can be you know quite a bit better than where you're trending currently and at the same time you have you know retreated your financial targets so maybe some debate around the opex development going forward what kind of r&d plans do you have because you have flag there are certain investments that could be of interest any plans on hiring more salespeople and and so on

so as kimmy i mentioned short term this will be a this q1 i should say not this quarter but but the report quarter q1 was one where we saw a bigger increase in order bookings than in net sales and means that the commission cost would be higher because we take that cost at booking with some modifications for subscription but but a larger part of booking before the the net sales actually hit our books so that means that the margins are depressed when you see a stronger order bookings growth compared to net sales growth so this means that we there's a short-term effect there which we should set sell straight over time long term the reason why we reiterate our financial guidance is of course we could go more into harvest mode if that was was deemed appropriate however given all the market dynamics we think that it does make sense to invest and continue to invest our free we have a more rich product and that we stay ahead of the game and secondly developing our sales motion hiring more salespeople but also being a little bit more leveraged in our in our -to-market effort so that's why we reiterate you're right we could have more i mean that the business does lend itself to to to scale quite nicely but we're still investing in in building this market and and providing our solution to a broader set of customers

are you clear thank you very much guys

thank you very much the next set of questions that i can see are written questions that we got i'll start with the first one and that's i don't know if i should congratulations from q1 with the growing identity market in europe in the eu particularly driven by new upcoming regulation is ubica planning to complement its offering with software solutions for identification idv or id proofing idp with the various id scheme currently in development across europe hardware walls could complement this new software offering exhilarating arr thank you that's a great question you clearly know a lot about this industry we talked in earlier reports about the fact that we're engaged in the eu eu id wallet project again that's an open standard so we want to make sure that our hardware solution fits into that lock too so to speak even if we're talking about eventus here again it comes down to a question of we want to make sure that we don't lock ourselves to a solution which only serves a subset of the market we want to make sure that offering is relevant in this particular case across across the landscape both in terms of applications and and countries so i can't give you a straight answer there it to us it's very important that we offer a solution based on the ubica that covers all the relevant markets and there's lots to be sprint this is a marathon this is a massively complex project but we're engaged heavily there and we want to make sure that we can support this effort both because we want to sell more you because of course but it's also very well aligned with our company's mission to make the internet safer for everyone and to do so we need to support identity and the use of identities in a safe way across across different services more to come there but we definitely see this as a very interesting market development all right oh i think we had okay that was it okay we'll we'll leave the floor open then if there are any final oral or written questions otherwise we'll thank everybody for for attending this call please feel free to reach out to to us with any additional questions alexandra our IR person kamala and i would be happy to take any questions and also hope to meet many of you at today's atm