Yubico AB

I'm happy to have you on the call and to share our full year 2024 report and the results. And as usual, we'll start with a quick overview of Ubico as a company and to give a little bit of background. This will be the last quarter that we'll use these slides to give this update. So bear with us if you've seen this messages a couple of times before we've updated the numbers though, of course. Ubico is a leader in modern authentication. If we look at the overview, the key to our success pun intended is the Ubiqui, which is a key to all relevant logs for login and authentication. So what we're in is the market we're in is securing logins for our customers. And the key to our success there has been that the versatile key that fits into all relevant logs and it also provides the highest level of protection. So those customers that have implemented the modern protocols with our using our key have experienced exactly zero account takeovers, which is of course the foundation of our success. We've sold and deployed some 35 million Ubiquis to date and we already have approximately 30% of the Fortune 500 companies as our customers. However, in most cases, these customers have only deployed our product to a subset of their employees. So there's still a lot of room for growth there and we'll get back to that shortly. We primarily sell to enterprises and public sector across the world, but you can even use our product as a private individual. To date, we have close to 5,000 business customers and millions of consumers using our products. We're a proud hardware company, but since the majority of the focus on development is focused on the software, on the key and associated software, we've been able to maintain very healthy gross margins, consistently in excess of 80%. The size of the business today is about 2.3 billion Swedish krona and we're slightly above 470 employees to date, about two thirds in the US, about 100 people in Sweden and the rest across the globe. Great. So what is it that we offer? As I mentioned, we offer a key that fits into all the relevant locks. Why is this important? Well, it's important for our customers because most large enterprises face a wide array of different application, software and systems and you don't want different methods for all these. You want the highest level of protection and they're able to get that with our Swiss Army Knife type key, the Ubiqui, which covers all of these different ways to authenticate and to securely log in. As a reminder, when you talk about authentication, we're a multi-factor authentication. The most common way to log into any system or software is still username and password, where the username is the identity, the password is how you authenticate that you're the legit user. Over the years, a number of different multi-factor authentication methods have been introduced, often software-based or based on one-time messages. However, if you want the highest level of security and insurance, there's a growing consensus that you need to have a hardware-backed solution. We are the leading in that segment, offering the highest level of security, but also a very user-friendly experience for the Ubiqui. As I mentioned, we're very proud of the customers that we've attracted. Right now, we're showing a few of the public reference customers that we have. You can see that they span across a broad set of industries. We started out focusing on high-tech sales in the US. We have now broadened our footprint quite substantially. 2024 was the first year when high-tech wasn't the biggest sector for us. It's now been secluded by public sector and financial services. Don't get me wrong, we still get a lot of sales to our high-tech customers and it's growing, it's just that other sectors are growing even more rapidly. Finally, I'd like to make a few remarks to understand our business. We mentioned earlier that we have had a focus on large customers and already today, some 29% of the global 2000 customers, so close to the 30% I mentioned for Fortune 500 companies, are customers of the Global 2000 companies, I should say. This is a significant increase from five years back, where we had about 14%. We also have a very high customer retention rate and see a lot of repeat purchases. We haven't updated this number yet, but if you look at it in a five-year perspective and our biggest customer in 2018, you could see a close to 120% yearly repurchase rate, even for what we call our perpetual customers, i.e. before we introduced our UBQ as a service offering. So very high repurchase rate and a very low penetration rate among our existing customers, leaving a lot of opportunity for growth because we want to make sure that we protect all users and all employees within our customer base. And as I mentioned, we now see bookings across and orders across a very wide set of different customers. Some highlights for the quarter. We had tough comparables this quarter, but still we were able to deliver a growth in order bookings. To be clear, it's order intake or order bookings, not order book. So new orders grew by 13% compared to Q4 2023 across a very wide set of customers. Still growth in high tech, but we're seeing public sector telco industry as strong drivers of growth this quarter. As you probably know, we transitioned from the first North growth market to the Ubico share being traded on the Nasdaq main market on the 7th. Unfortunately, we'll have to announce an update to the management. Camilla, my close partner over the past almost five years, has decided that she wants to retire. Camilla being a troop trooper has offered to stay on until we have fully unboarded replacement. I'm grateful for that. But of course, sorry to see Camilla leave. One thing that we're very proud to announce is our collaboration with T-Mobile. We signed a contract with them already back in 2023, and with them we've deployed over 200,000 keys to all of their employees. This is a great customer reference and a basis of continued success in telcos. We'll talk a little bit more about this towards the end of the call, but I'd like to highlight that one of the major shifts that we're seeing and one of the major opportunities that we're seeing going into 2025 is that we're moving from only protecting logins to protecting identities and users based on our customers asking us to do so. I'll get into a little bit more detail of what that means in terms of product offering, but before we get there, I'd like to hand over to Camilla. It was a little bit of a rough throat, but I think she'll get through this.

Thank you, Mattias. And as Mattias said, we had a strong year behind us. It was a really good year, and it's also a good quarter, though not on the same growth level as previous ones. As mentioned also, Q4 last year, 2023, was a very strong quarter, and therefore we had tough comparisons this quarter. And we got some large orders in Q4, which were pushed over for delivery now in Q1, and this has of course affected the growth in net sales, and it also affects the levels in our inventory. So when we look at the bookings, we have a bookings growth of 12.8%. Local currencies is .5% to 771 million. Net sales, we saw a growth of 12.2%. Local currencies, 11.2%, and growth to 623 million. We had a strong gross margin, and the gross profit growth of .3% to 524 million, and a gross margin of 84% this quarter, and year to date we are on 82%. Adjusted EBIT, we also strengthened our profitability. So we grow the EBIT with 31.7%, reached a gross margin of, sorry, EBIT margin of 17.8%, an improvement for 15.2%, and thereby we have an EBIT of 111 million for this quarter. Looking deeper into the bookings, our order intake, we have a full year bookings growth of 43%, and remember we have a financial targets of growth of 25% over time, so we think this has been a really good achievement for this year. We see, as I said, you see here in the chart very well that we, in Q4 2023, started on a new baseline more or less, and have then kept that level during the quarters in 2024, throughout the year. The growth was driven by diverse customer base, again, and with the largest orders from the major tech companies, the public sector, and the telecom industry. Subscription bookings amounted to 146 million, and that is .9% of the total bookings, which is actually the same share as we had Q4 2023. We had a growth in the subscription bookings of 13%, and looking at the renewal part for this, so in the subscription bookings we had 96.9 million of the total, which is actually related to renewals, but it's positive to see that we saw quite many of those contracts also including expansions. Looking at the net sales, we increased with .2% to 623 million, and the full year's sales amounted to 2.3 billion and 26 million, and a growth of 27.6%, again about our 25% growth target. And the subscription sales was 11.4%, a reduction compared to the .3% when we compare that of the total net sales, and this is due to the perpetual offering has been growing more. The growth was here driven by high tech and the public sector, and we see that America's has grown proportionally more than last year, while Asia-Pacific had a lower growth this quarter at the net sales, and if you go back to earlier reports you can also see that specific Asia-Pacific, which is quite small, varies a bit over the quarter, so we are not worried about that, rather contrary. The ARR, so this is the annual recurring revenue from our subscription portfolio, and we see that it has been trending positively during the quarter, and compared to last year we have grown with .1% to 324 million at the end of the period, and the increase in the quarter can also be seen as new contracts, and also from renewals, rather the expanded usage from renewals. Looking at the profitability side, we see that we have a strong gross margin, as said, this was supported by the development of the US dollar-sec ratio during the quarter, which also impacts the value in our inventory, therefore boosted by that, also the adjusted EBIT was 110.9 million, corresponding to the 17.8%, and we had this quarter adjustment, EBIT adjustment from 2023, and last year, so that was related to the merger we made with the ACQ in September last year, and this quarter we had a positive effect, there was an adjustment in the merger result in 2023, just to be clear, it was not adjusted 2024, sorry for messing that up. Our LTIP programmes amounted to 90.8 million, this is slightly higher than Q3, as new PSUs have been awarded to new employees during the quarter, so this was the last allotment from the 2024 programme. Sales and marketing costs are also a bit larger, and we also had a cost-related commission, both that we had this good order booking, and we also usually see year-end effect on the commissions, when we have a higher share, a higher commission as a percent of the bookings, when you come towards the end and reaching your quota. We also made some strategic marketing investments in the APJ, to support the further expansion in those regions going forward, and we also saw an e-unrealist currency effect, which was positive this quarter of 12.6 million, the comparable quarter last year was minus 14.2 million. And finalising this part, we're looking at the cash flow. We had a strong operating cash flow, plus 128 million in this quarter, minus 1.2 million a year ago, net cash in working, net change in working capital was also positive, 19.4, compare that to the minus 98.8 last year. You see the chart to the right here, where we are measuring our inventory, in relation to rolling 12 months net sales, and we ended the year with .7% here, and this was also affected then by this delayed shipments of the orders that was pushed over to this quarter, where the customers wanted to receive them after the year end. Cash at hand, end of the quarter, 824 million, net cash, 787.6 million, comparing to 473 a year ago, and now the only debt we have left is what's related to leasing debts related to offices. We have during the quarter amortised the last part of our external loan, which we have had for some years, so the only debt is now the leasing debts, and so therefore we think we have a very good financial position and strong cash flow in this. And thereby, Mattias, I hand over to you again.

Thank you, Camilla. So as I alluded to earlier, we want to talk about how our mission evolves. Our vision remains intact, we want to be supporting a safer internet for all. Our primary focus during the last 16 years has been to ensure that you can protect your login, and the updated mission is that we want to protect the digital view, protecting users' identities. This may sound like a subtle thing, but it's actually very important. It's our customers asking us to help them what we often call life cycle management. How does someone get on board? How do you tie the Ubiquiti to a specific identity? How do you deal with account recovery and offboarding? And we're, of course, working across several different platforms, and we're very proud of the corporations that we've launched during the year with Okta and in the makings with Microsoft, but we want to make sure that this doesn't just cover their platforms, it's a robust solution for enterprises to secure the identities of their users, employees, and end users. And we see an opportunity and request from our customers to evolve our product offering to support this updated mission. Taking a little deeper on that, then, what does this mean? Well, as we look on some of our strategic focus areas going forward, I would put them in three different categories, expand, simplify, and evolve. What do we mean by expand? Well, the most obvious expansion opportunity for us is what we talked about early on the call, making sure that we get a wider deployment among the existing customer base. We also want to cover new markets where we have limited presence today. Camilla said that we're not worried about long-term growth in Asia, and we see a lot of growth opportunities in Asia Pac as one example. We also want to make sure as we expand that we don't do all the heavy lifting ourselves. We want to evolve our -to-market partnerships, and on the simplifying part, we want to expand our global channel model. We want to support our customers in reducing the thresholds involved with deploying the most secure authentication method out there, removing the hassle involved with deploying hardware. So there's lots to be done to making it easier for our customers to onboard and maintain a fleet of GubyKeys for their customers. On the business side, we also want to evolve and support new business opportunities. We talked about a few of the successes we've seen during the year when it comes to supporting our customers and users, particularly within banks. We are very proud to cooperate with Poland's largest bank, PKO Bank, and there are other banks that are also rolling out GubyKeys to their end users. And we want to make sure that we support that business method. So three different buckets, but it's really about expanding our product offering not into a completely new area, but really supporting our customers as they protect their identities, the identities of their employer employees and users, and then making sure that we get more leverage in our -to-market effort. And with that, I'd like to sum up the year, what I feel has been a very successful year. We, on the full year, we grew our order bookings with more than 43% reaching 2.6 billion. We grew our net sales or revenue by more than 27% reaching 2.3 billion. We had a strong year in terms of profitability reaching almost 19% profitability well aligned with our long-term target of reaching 20% profitability. So we saw a 64% increase year over year in our EBITs. And we had very good, we had improving and what I feel is good, cash conversion during the year, seeing that we see also a strong cashflow setting us up in a good position and a strong balance sheet as we invest in building our market further. And with that, I would like to finish the presentation part of this meeting and we'll open up the floor for questions. And I think there are already some people that have lined up to ask questions. So over to you.

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. The next question comes from Joakim Gunel from DNB Markets. Please go ahead.

Thank you and good evening to you. So I have a couple of questions. Let's start off with the delivery slippage into Q1. And just can you just help us understand the impacts of this and whether, I mean, you commented that the bookings figure here obviously is a figure for net new orders and it's not an order book. So just unpack the moving parts here and ultimately if you can quantify how much that deal slippage is worth. So ultimately the deals that was not delivered in Q4, they are not like optically raising that bookings figure, right?

Correct. So much like you say, we're talking about order bookings, I did net influe of new orders during the quarter, irrespective of when they get delivered, whether they were delivered during Q4 or get delivered in Q1 2025. Actually, if you look at it and compare it to last year, you could see that the growth in order bookings was very similar to the growth in net sales comparing to Q4 last year. So it's not uncommon that customer towards the end of the year prefer having orders delivered next year. And there are different reasons for that. I mean, it could be that you want to make sure that you incur that cost the same year that you actually get the benefit from using our product, i.e. a matching in terms of revenue and cost for our customers. Another reason could be that you have rollout plans that are set to start at the beginning of a new year. So it's not an uncommon pattern, but it was a pretty significant one this quarter, and it has a direct impact on our profitability too. Because the direct, I mean, we've, except for the final delivery, we've incurred all of the related costs on these orders. We paid commission for our sales and we've had all the company supporting so that we can secure these orders. And since our gross margin, our direct gross margin is about 85%, it means that it has a very, it's 1 to .85% impact the revenue number compared to the EBIT number when you hold off on delivering an order. Perfect, but it's fair to assume

that that number on the net sales level is, that number on net sales, the impact there would be quite significant here, I assume. Is it closer to, let's say, 100 or is it more in the 50s range?

So we don't share order book details, but as you say, there is a clear gap between order bookings and revenue this quarter, and yeah, that translates into orders that should be taken to revenue next quarter, right?

Thank you. So on inventory, so I would assume that if you were to have had these deliveries in Q4, inventory to rolling 12-month sales would actually trend downward continuously. But just to help us understand here also that, you have said before that, you build inventory ahead of a cycle, of course, but just talk a bit about what makes you comfortable with regards to the demand to support this inventory situation into 2025.

Yeah, and as you said, this was a little bump in the road as we moved down for what we overshot a little bit in terms of inventory compared to last 12-month sales. I think we peaked at something like 31%. We've seen a progressive growth, sorry, decrease down to 20% in Q3, and now we're up at 29%, and it's exactly what you say. These keys are already manufactured and ready to ship, but they're now in the inventory instead of being out for the customers. So this means that we had a short-term increase there, but like you said, longer term, we see a small downward trend there, and without it being an explicit target, we think that the right level is probably in the 25 to 27% rate when it comes to inventory compared to last 12-month sales.

Okay, and is there anything that you can say with regards to what you hear from your salespeople and customers and how they eventually think about cybersecurity as a budget priority also into 2025 and basically how you feel about the spend environment?

Yeah, we still feel that there's a lot of market tailwind, and of course, the underlying trend underpinning that is that there's a real cybersecurity threat across all industries and even for public sector and private individuals. And that means that there's definitely a lot of demand for our product, which addresses one of the biggest cybersecurity concerns in a very tangible and cost-efficient way, and now it's up for us to deliver on that tailwind.

Perfect, and finally, can you comment a bit about the traction that you've seen so far with regards to the enrollment suite and the pre-reg with Okta and Microsoft so far?

So the enrollment suite with Microsoft is, to the best of my knowledge, not live yet, so no revenue impact there. With Okta, it's still only offered for a subset of the customers. It's an important and growing part, but it doesn't move the needle a lot. In terms of direct order bookings and revenue this quarter. The long term is very... Thank

you, I'll get back in the queue.

Thank you Joakim.

The next question comes from Eric Lindholm-Royestol from SEB. Please go ahead.

Yes, thank you. Good morning and good evening, everyone. You obviously had a fantastic 2024 in terms of order growth, but net sales growth was roughly in line with your targets. Refraising Joakim's question a bit perhaps, but do you expect to be able to deliver on your 25% sales growth target here in 2025? Thank you.

Thanks for that question and thank you, Eric. Yeah, like you said, we had order bookings growth for the year at 43% and we only saw a 27% and change increase in net sales. Now, there are two reasons for that really. One is as we transition more business into our UBK as a service model, this means that we'll see order bookings that translate into revenue over the duration of that contract, which is typically three years. So there's, as we expand among existing customers and as we add new customers, there's a delay inherently with that business model, meaning that there's not an immediate link between order bookings and revenue in the quarter. The other part was what we experienced towards the end of the year, order bookings towards the end of the year, where the customer asked to get delivery early in 2025. We don't issue guidance on a quarterly or a yearly basis, but again, as Camilla said, we feel that we've established a new level from where to grow from, so we don't see any reasons for revisioning our growth targets of on average 25% and we see a lot of market tailwind.

Perfect. Thank you for the good clarification. Then I wanted to ask if we look sort of throughout the quarter, was there any dynamics where one month was especially strong or was it sort of spread throughout the year, both in terms of, or mostly in terms of order bookings, I'm thinking?

Erik, you've covered us for some time and I think I mentioned on this call this time last year that in Q4 2023, when we actually reported 83% order bookings growth compared to Q4 2022, it was one of those quarters where all the stars aligned. So in this quarter was more of kind of a normal quarter. Yes, we saw a lot of success, but some of the orders also slipped into the future. So nothing really that stands out other than what I'm very proud to note is the fact that we've moved from tech being our biggest customer segment into a broader set of customers with other sectors, public sector and financial services specifically now being even bigger than tech. And I think that's only the start of a journey where we can get a lot bigger customer success and penetration among those customers in these really huge industries. But nothing out of the ordinary, I'd say. A strong quarter, but not one where all the stars aligned when it comes to order bookings, but solid and broad based.

Perfect. And perhaps a question for Camilla. In 2024 you had quite high growth in receivables. Can you elaborate perhaps a bit on what road this and do you expect it to reverse now in 2025? And have you made sort of any changes in how you do revenue recognition throughout this year? Is this just related to timing? Thanks.

Thank you. It's as we are doing business with very large companies, we have a lot of companies and we get large orders and in this case we have one large invoice which is paid in January. So it's related to year end billing on large order that is actually shipped during January. So it's not even hitting the revenue in December. So we get the cash before we ship in this case. But we haven't received the cash in... Yeah. So it's an exceptional order you can say.

Perfect. So you haven't taken revenues for that order but you have received the cash. Do you understand that correctly?

We invoiced before the year end. That's why you see the high... ...comersive.

Thank

you. And perhaps slightly more...

No, just clarifying what Camilla just said. Invoiced before the end of the year but we don't recognize revenue until 2025.

Perfect. Thank you. Maybe a slightly more exciting question to finish off with but you mentioned your three new strategic focus areas and what do you think is most meaningful here and most important that you deliver on in 2025 to be able to deliver on your targets of the three focus areas? Thanks.

So short term in 2025 in making sure that we meet our targets in 2025 will be expanding within existing accounts. Every year we see between 70 and 80% of our revenue or net sales being generated from already existing accounts. So ensuring that we can increase that penetration of the user base is going to have the biggest impact in 2025. However, we want to make sure that we set ourselves up for long term growth and from a long term perspective I would actually argue that it's most important that we get...that we continue remaining the market leader in that segment and develop our product offering and get more leverage in our sales through partnerships and channel models. That will be very important to get done in 2025 but it won't have the biggest revenue impact in 2025.

Okay, perfect. That's all for me.

Thanks Eric.

The next question comes from Thomas Nilsson from Nordia. Please go ahead.

Okay, thank you for taking my question. When it comes to the subscription offering, do you still expect to see subscriptions grow to the surroundings of 40% of sales over time in a few years and what does churn look like among customers that are on the subscription offering? Thank you.

That's a great question Thomas. Thank you. Yes, we say that again we offer two business models and we want to make sure that we service our customers in the way that they want to get served. We think that our Ubiqui as a service, our subscription offering, is the enterprise-grade offering but we want to add more services and unique features to that so that...because from a user perspective it means that you get a commitment from our end to protect your users and to have a working authentication solution over a period of time so we support the customers and we want to have closer dialogue with them which we think the customers do benefit from. Now, that is a journey and we started that one but it's going to take a number of years to move a larger part of our customers to prefer that business model. Sorry, was there a second part of the question that I missed? I'm sorry for...it's getting late here in Arizona so I may have missed the second part of the question Thomas.

No worries. I was just wondering if you could shed some insight to what churn looks like among customers on the subscription offering.

We've had very low churn frankly. There were only...I think we got a similar question early in 2024 and the pattern remains intact. We see a very high renewal rate. The only where I see...where we see customers either discontinuing their UPS service or asking to move to a perpetual model is when there have been some changes in company ownership where there's been a merger or divestiture that would be the typical scenario where we see some churn. Otherwise, we have a very high renewal rate. We're talking about that how we can update our financial reporting so you can get better handle on that on what the renewal rates look like. We're not there quite yet and we want to make sure that we get it presented in a fashion that doesn't confuse more than add clarity. So bear with us on that one. But yes, we do see high renewal rates. And expansion as Camilla mentioned.

Okay, thank you. Thank you so much.

Thank

you. The next question comes from Julian Hull from DragonEye. Please go ahead.

Hi, good morning. I just had a question about your cash flow and the comment you made about a new office lease cost of 33 million SEK. It seems to appear in both the investing and financial reporting. So you're talking about financing cash flows.

Yes. So this is IFRS accounting standards where all leasing contracts, so office leases and car leases or machine leases and so forth. But we only have office leases. And according to IFRS accounting standards, you are accounting for that as an asset. And as a lease liability. So when we contract a new, start a new leasing contract, office lease, we get an asset which is equal to the full contract value of all the payments we will do during the contract. And on the other side, we get the same amount on the debt side. So that is just how the contract is starting. And then we are depreciating the asset and we are reducing the lease.

And we did sign a new lease for our Stockholm office during 2024. So therefore you see a difference there.

So exactly. So we enter that office during Q4.

So is the annual cost of that office annualising that quarterly rate?

I think it's a three year, three or five year, I don't remember now, office lease. So it's just a total office, total contract that you are capitalising the value of in the balance sheet. And you have the same leasing debt.

Yes, but no. Apologies, but this is talking about the cash flow statement.

Sorry? Say again, please.

I was asking about the cash flow statement. Because this is going through the cash flow statement all in one go.

So when we capitalise the contract from the start, then that is seen as an investment from the cash flow point of view. And we are financing that investment by a lease. So that is a loan, so to speak, a lease, which is just a fictive lease, but as a lease. And then that ends up as a positive effect on the cash flow, on financing part of the cash flow. So as if we would have bought a house and lent money, borrowed money, which we haven't. That is IFRS account.

And just a question on the perpetual bookings. I'm going back to the earlier question. Has there been any change in the rough timing of release of those bookings? How should one think about the average time to... Because previously you talked about two to three quarters. Is that still the case? Or are most of these bookings likely to flow directly

next

quarter?

Most of these bookings are likely to flow directly into next quarter. I mean, there hasn't been a change there. I mean, if you look at it from a full year, over the full year, not just towards the end of the year, you typically see most order bookings being delivered and turned into net sales during the same quarter in terms of volume. But for larger perpetual orders, typically delivery happens over two or three quarters, which means that you see a lag in it translating into net sales. Now, we have a year in effect here to some extent where customers prefer to take delivery and therefore when we can recognize the net sales after the end of the year. It's the same pattern actually as we saw last year, kind of the relationship between order bookings and net sales. So not really a change, but it's something that we probably should highlight more clearly going forward that you typically see these types of swings towards the end of the year as customers prefer to take delivery early in the new year. Okay. Thank you very much. Thank you. I think we have some written questions.

Great.

We received two written questions at this point. The first one is two questions in one. I'll start with addressing the first one. I'll ask Camilla to comment on the second one. Let's see. We'll try to cover it. Over the year, inventories rose 40% and accounts receivable doubled to nearly 50% of sales. How to explain this? For the first part, you have to be able to see the numbers of sales that are coming in. Yes, we did see an increase in inventories during the year. Comparing it to last 12 months, it was actually not a big increase. So it's a matter that we want to keep components equivalent to forward-looking 12-month sales and then we need to have ready products. And as our sales scale, our inventory does scale in absolute numbers too. I think when it comes to accounts receivables, that increased. That's a short-term effect, as Camilla explained, where we had a customer that got invoiced for services provided in 2025 and paying it early 2025 too. So that's more of a one-time effect.

Absolutely.

Great. And the second question is these sales which were pushed over to Q1, all of that is now fully delivered and adjusted for this, the inventory as a percentage of sale would have declined sequentially. They're pushed over into Q1. Not everything has been delivered today because we're still early in, well, in the first half at least of Q1, but I'm confident that everything will be delivered before the end of the quarter. According to the plan, we have a very clear set of delivery schedules for these larger orders with customers. And you're right, the inventory as a percentage of sales for the last 12 months would not have increased if there hadn't been for this effect. And then we have a question I'm definitely going to leave to you when it comes to the IFRS accounting of lease cost or lease as an asset and a liability on the balance sheet. The question is from Jamie, Just to be clear on the lease cash out, is that an upfront payment for the entire office upfront? 33 million seems a lot for an annual payment. No, it's not an upfront payment. It's just that we need to recognise it on our balance sheet according to IFRS. And under IFRS 16, shouldn't that be under financing activities? And that's the question that I deferred to Jamie.

Exactly. So when we enter into a new contract and start the IFRS accounting for that, there is both an investment and a financing activity. So we are not paying out anything. We are just investing and financing the investment by this lease. So there is no payout. The payout will be the monthly or quarterly payments that we are doing according to the underlying rental or office rent. So that is where the real cash is coming out. And then during the contract period, when we receive our invoices and we pay, then we also move that down to depreciations instead of actually having it as an OPEX cost. So it's depreciation. Yes, it's an OPEX, but it's not as a rental cost. It's a depreciation. And at the same time, the debt is reduced as we are actually paying our office rents often on a quarterly basis. Does that make sense? I hope so. It's a written question. No, here we've got a follow

-up.

So what does it run through the cash flow statement if there is no cash out? Yes, that's a very good question. It's an adjustment because it is put on the balance sheet. Exactly. So it's just as it is. So it's two activities. We are acquiring, so to speak, an office contract in that sense, but we are financing it with a lease. So in the same way as if you have acquired something and you are financing that with a bank loan, and then everything comes into the cash flow statement.

And then we have a follow-up question on the accounts receivables. Please explain how big customer paying an invoice early explains account receivables money owed doubling. To be clear, this was not a customer paying early. For a UBKS account, as a service, we invoice going into the year. We recognize the revenue then for during the next year, so to speak, and typically the customer would pay early in the year. So we had a big invoice for a customer for the services provided going into the year. It didn't get recognized at that point, of course, because we haven't delivered the service and the customer hadn't paid it yet, which means that it shows up as an account receivable.

And if this was related to the previous question where we have with the customer receivables, as this was not even a subscription, so it's actually something that we will deliver during Q1. So when we send out the invoice in December, it increases the account receivables, but we also increase deferred revenue on the debt side, and thereby we don't have any revenue, and it's an asset or receivable, but it's also a liability in the balance sheet. And we receive the payment during January, actually. And we will take the revenue when we ship the goods. How big is the receivable from the big customer? We are not commenting on these kind of details.

But it's big enough to have this impact on the growth of accounts receivables.

I think that was all the questions.

Give it a minute. Those are all the questions that we received now. And with that, thank you for listening in. Please feel free to reach out to our IR with any follow-up questions. We're happy to do that. And final question on the budget accounts receivables. Exactly. And this was related to a significant customer invoice. Yeah. So without... And

of course, increased volume. As such as well, of course. But that

it was doubling is related to this big one. Great. With that, we'll close up the call for now. Thank you for listening in and look forward to connecting with you at the end of Q1 2025. And please feel free to reach out to us with any questions or comments.