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Yubico AB

Q22025

8/14/2025

speaker
Mattias Danielsson
CEO of Yubico

and let's call for connected to the Q2 report for Yubico. Beautiful day here in Stockholm. Next to me is Camilla Öberg. I'm Mattias Danielsson. I'm the CEO of Yubico. And several of you may know us already, but we, and I know, I expect that there will be a lot of questions related to the just released interim reports, but we'd like to start off with a quick introduction to the company. So, Looking at Yubico high level, we typically like to highlight two things. First thing is the important mission that we have. Our mission is to make the internet safer for everyone, and we're targeting to do so by offering the most secure multi-factor authentication out there. What does that mean? Well, it means that customers using our product can be sure that their accounts don't get hacked. We've actually had zero account takeovers for customers who have implemented our product, something we're extremely proud of. And we, of course, work very hard to keep it that way. Since the start of the company, we've sold and employed some 40 million Yubikeys, protecting accounts worldwide for the other thing that we're really proud of, which is our customer lists. We've been focused on working with some of the largest organizations and companies in the world. We have about 5000 professional customers overall and millions of consumers using our products but the focus has been on working with the world's largest companies and the public sector and this includes some of the most prestigious companies in the world very security conscious but we're also very happy to see that to an increasing extent more It started out with tech companies but to an increasing extent we're seeing a very wide adoption of our technology because it offers that strong protection which is needed by everyone today. in terms of the company we were started in sweden about two-thirds of the business and the employees are currently in the us in total there's about 520 employees in the company and during the last 12 months we had sales of approximately 2.3 billion sex so about 250 million We're a hardware company. Fundamentally, our YubiKey is a hardware product. We're proud of that. And in spite of being a hardware company, we've been able to maintain healthy gross margins pretty consistently in the vicinity of 80%. And that has enabled us to continue to invest in building the best product out there for multi-factor authentication. That's a real quick overview into the company, and we'll talk a little bit more just about the product and the market before talking about the quarter. So what's the market we're in? Well, in a broader sense, we're part of the identity access management market. And specifically, we're in the multi-factor authentication market, MFA. And there are several different ways to do multi-factor authentication. And just to step back, the most common way to log in is still username and password, where the username is the identity and the password is how you authenticate. Everyone knows today that password doesn't really offer good protection, even if it's a very complex password that you're using. So you want to have an additional factor for authentication, not just something that you know, a password, something that you have or something that you are. And over the past decade or so, it's been popular to implement different software solutions for MFA including phone apps however if you want the highest level of security you need there's a growing consensus that you need a hardware backed multifactor authentication. And we are the leader in the segment for modern multifactor authentication. The existing products out there in this segment for advanced authentication are typically smart card implementations. That's the biggest direct competition that we're seeing. And our unique offering is that we offer at least the same level of security as a smart card implementation, but we offer it in a more convenient way, which is more user-friendly, and perhaps even more importantly, with a form factor which enables you to use this strong MFA across platforms and across devices. So the market we're in, the addressable market is estimated to be at about $5 billion today. It's growing at about 14% per year and we're consistently winning market share in that market. So if we then move on to talk a little bit more about our product. What I highlighted before was that it offers a unique combination of good usability with the highest level of security. And what's extremely important to understand as you think about our product is that fundamentally what we're selling is a key. It's only as relevant and as good as its ability to unlock locks in a secure way. And we've invested a lot in making sure that you can use a YubiKey in a wide variety of locks. i.e that it can be used in all the different environments and with all the different applications that you see in a typical enterprise environment so that's where we've spent a lot of time over the past 15 years developing this ecosystem Talk a little bit more about our customers. I mentioned earlier on that we initially started selling primarily into tech companies and that we have been very focused on selling into large accounts. Already today, some 25 to 30% of the Global 2000 are existing customers of ours. However, and we're very proud of that. However, for most of those customers, they're only using our product for a subset of their users. So our sales strategy is one of land and expand, i.e. to get it, start working with that account, protecting their most sensitive users. And as the customers realize that this doesn't offer just great security, but also is very user friendly, that's when we start a conversation about rolling it out to a broader set of users within the organization. Because of that, we've seen a very high repurchase rate. If you look at our biggest customers any given year, we consistently see yearly average repurchase rate in excess of 100%. Just to be clear, a big part of that is explained by the fact that we start with a small footprint and then expand within the organization. And a final comment on our customers. It used to be very tech focused. Last year was the first year when the tech sector was only our second biggest industry segment. Our biggest one was financial services. And the three biggest sectors that we have are tech, financial services, and then public sector. We can move on to the next slide, please. so how do we think about growth going forward we have communicated long-term growth targets of on average 25 growth per year and attaining a 20 ebit margin well it's about expanding our offering it's about simplifying it and it's about evolve evolving it another way to cut it is to talk about what do we do in terms of our product well What we've been really good at and what we've been very focused on is making sure that if you use our product, your logins don't get compromised. So we're protecting logins. However, what most of our customers are really interested in is protecting users. So to make that tie between login between a key and a user, that's a critical link. And we see a lot of opportunity for growth there. Not just offering more users YubiKeys so that they can log in securely, but tying in a safe way their identity to that login solution. The other part is, which is very exciting, is on the go-to-market side. As I mentioned, we have been focused on large companies and our typical sales model is a direct sales model where we interact directly with large accounts. We're increasingly now working with channel partners and with partners driving sales. And it's both cybersecurity specialists and broader IT consultants now including the use of Yubikeys in their offering. next step there is making sure that we have better programs for partners to sell and also to be able to sell to some of our customers and users including banks and tech companies so we feel that there's a lot of room for growth and we have a unique market position which sets us up well for the long-term growth targets that we have next slide please Turning them to the quarter, when we communicated the Q1 numbers, The financial numbers were quite okay, but we did highlight that we saw a drop in sales activity, or specifically that we saw that larger deployments and larger orders were taking longer than is usually the case. Essentially, that we saw a good momentum with small and mid-sized deals, initial deployments, but when a big customer was going to push the button and make a larger deployment, that's where things had slowed down. And this was visible towards the end of Q1 and during the first half of Q2. And we're very happy to report that during the second half of Q2, i.e. from end of May onwards, we saw a return to that sales momentum. Because of the slow start to the quarter, we only saw an increase measured in local currencies of 3%. But if you look at the composition of the quarter, the vast majority of that growth happened during the second half of the quarter. And we carry that momentum into Q3. So we feel that the underlying sales momentum is back. As you look at the numbers, you also want to keep in mind as with many other Swedish companies, that for once the Swedish krona has appreciated quite strongly to the US dollar. Almost more than 80% of our sales is in US dollars and the remaining parts are in euros. So there is a considerable FX impact on top line and an impact even on EBIT because of the krona appreciation during the quarter. The final part to consider when looking at the financial numbers is that we saw a breakthrough in our subscription offering. Worth mentioning before we get to there is that we do have two different business model. One is what we call a perpetual sale, which is an out trial sale of the hardware and all associated software on a perpetual license at no additional cost. So then you recognize all the revenue upon delivery of the fiscal product. The other model that we introduced a couple of years ago is a subscription model, what we call UBK as a service. And in that case, the customer instead buys for protecting a set of users over a time period, typically a three year period. And in that case, We report the order bookings, i.e. the value of the order during the quarter when the order gets placed, but the revenue gets typically recognized over the next 12 quarters. And this quarter we saw some big wins when it comes to UBK as a service, meaning that we saw a higher number for order bookings than revenue. Of course, over time that will translate into revenue, but the short-term impact is negative for revenue and EBIT. So in terms of specific successes, we highlighted already that we were very pleased to see that we saw a significant increase in subscription during the quarter, i.e. UBK as a service. And looking forward into the second half of the year, we see that a substantial part of the biggest opportunities for the second half of the year is also in that fold, i.e. subscription or UBK as a service opportunities. And another thing worth mentioning is that We have been working with some of the traditional tech companies for a long time, and it seems like the next wave when it comes to technology companies, the AI companies are also realizing the value of using YubiKeys. So we see large customers both on the services and on the hardware side using YubiKeys, which is to us a great indication that even in the world of AI, you need a hardware route of trust and YubiKey offers the best protection there is. With that I'll hand it over to Camilla to talk a little bit more about the financial numbers for the quarter.

speaker
Camilla Öberg
CFO of Yubico

Thank you very much, Mattias. Yes, and as I said, the quarter as such is, of course, somewhat disappointing to us also from earnings perspective, although that we see this underlying momentum coming back on the sales side. And there are a couple of factors I would like just to mention before we go into the numbers. to understand the mechanics in the numbers. And we see the lower revenue that we have here is affecting all the way down to the EBIT as we have a very high or very good gross margin. We are around this 85% approximately when it comes to the direct gross margin, the one that is directly related to the volumes. And so, of course, that has a major impact. We also saw the lower bookings in Q1. And then, of course, that we said at that time also we have not so much with us into the second quarter. And the strong SEC, Swedish krona, that we have had throughout the full quarter here, which also puts pressure on the gross margin. And of course, it's very visible when comparing the year-over-year growth in Swedish krona. On the positive note, though, when it comes to numbers, is the ARR development due to the subscription breakthrough that we have seen, where the order bookings was more than 30% of the total order bookings related to subscription. And the negative effect of that, as Mattias mentioned also, is that it directly has a declining effect on the net sales as it takes longer for the net sales to be realized in the P&L, which we see also the effects of now this quarter. So those are the big factors to have in mind when looking at the numbers you see here on the slide. So the net sales, perpetual and subscription came in on 499 million Swedish krona, and that was a decline to close to 19%. Measured in local currencies, a decline of 11% year over year. The gross margin you see is 79% compared to the last year of 80%, though it's a small pickup versus the first quarter in this. On the EBIT you see a more drastic drop from the 21.3% margin to the 4.2% margin, which is then totally related to the large effect we see when we have a drop in net sales. And the ARR development of plus 37% up to close to 400 million now then. So then ARR is the value of the subscription portfolio measured on a yearly basis for the contracts that we have at the end of the period. So the contracts we have In our books as per 30th of June. And thereby also we have contracts thereby who has not yet started to fully affect the net sales. So, and then going into the bookings, which is an interesting metrics this time, we can see a sequential growth also. So it's not only that we see a small growth in local currencies compared to last year, but we see the pickup from Q1 here with close to 19%. And you also see the large share of the subscription, the green part of the chart, where we have a significant growth. So year over year, we grow the subscription booking by 41%, and now then represented 32% of the bookings. the perpetual bookings though it was declined year over year in value but we saw also during the quarter that the number of deals are increasing but the size is smaller and thereby we saw fewer large deals related to this what we talked about in q1 with the delays of larger deals and more coming back now rather. So that is also affecting then the bookings in Q2. We also see that the EMEA region is where we see the largest gap percentage-wise year over year, although EMEA is not the biggest contributor to the group. But there we have had the more effect of the turbulence and also some macroeconomic challenges in that region, specifically the Dutch region or even Germany to be even more specific. The largest part of the subscription bookings are the new contracts and add-on contracts. So of the large part of subscription bookings, close to 200 million, it's only 43 million which are renewals. And if you remember that the renewal part that we see of subscription bookings is not really adding to our ARR. and not adding to new net sales. So the largest part very much is the new contracts and add-ons. So that is really good for the future. And we will see continued interest from the high tech, from finance and public sector. And also we see now in the IA space and in the European defense industry, a lot of interest going forward. Looking at the net sales, where we had the decline, as you see here, we saw on the net sales side a subscription growth of 32.5%, which now then represents 15.9% of the total net sales, and comparing that to the 9.7% last year. So we already see good effects from the subscription development and, of course, what we have seen in the AR development also during last year we see this this what do you say growth why then on the perpetual side there is where we also see the decline related to the net sales so that's related to perpetual due to that we didn't have those large deals which we have from time to time. They were lacking in this quarter from the perpetual side, but we saw on the other side them coming in as subscriptions. The low bookings in Q1 is also of course impacting here. Yeah. And also just to mention the subscriptions that we have been able to close during the quarter has, of course, been closed fairly late in the quarter, and thereby we see minor contribution to the net sales, which if we go over to the ARR, then you see a big step up in the ARR so that there is also then forecasting for some further increase of subscription net sales for the coming quarters. So quite much of this big improvement in the ARR will come to be through the P&L in the future. And just looking at the ARR, we had a growth of 37.1% year over year. And the growth we see in the quarter, the 49, close to 50 million Swedish kronor, there were several new deals and of course among them this major contract was signed with a high-tech company which Mattias mentioned earlier as well. And then a few words on the profit side. And as I mentioned, the drop in net sales has a significant impact on profit due to this high gross margin we have. And thereby we see these fluctuations and the EBIT, the profit and the margin is very sensitive to the fluctuations we have in our net sales related to bigger perpetual deliveries. The gross margin, as said, came in at 79%, slightly lower than last year, but slightly higher than Q1. We see still a negative impact from the currency exchange rates, so the strong Swedish krona is putting pressure on the gross margin because we have, as I said, 80% of the revenue, at least 80% is US dollar and the rest is Euro. While we in the direct cost and also the indirect cost for COGS, we have a mix of US dollar and Swedish krona. So we see an impact there on that margin. On the EBIT side, we see a margin of 4.2%. decline i said we still investing in in our continued growth and our strategic journey it's important for us we have a the build up of sales and marketing engineering investing in marketing activities we have done that also continuously since last q2 and thereby we see a headcount growth of 15% versus last year. At the same time, we see that the personal expenses only grew with 8%, but that is underlying. Yes, our cost base is growing in line with how we expand the organization and grow that. Here it's a bit odd because we then see a positive effect, so to speak, of the US dollar depreciation here, as we have a large part of our people in the US, and thereby comparing the cost year over year in Swedish krona Then you see here the depreciation of the US dollar around 10% versus last year, 9.5% to be exactly in here. So it's a bit odd, but underlying, we are growing, the organization have been growing. Going forward, continue to be cautious on spending, but focus on the marketing and sales side and our product journey going forward. The LT programs, as you remember, we have a couple of PSU programs in the AGM in May. We had a new program approved by the AGM and which was launched in June. So we have some more costs also for that program in Q2. But just for one month is the new one. Comparing to last year, we have the similar effect there. So 2024, we also launched a new program in June. which is now then of course in Q2 2025, we have a full cost of that. and we have our unrealized currency effects which are related to working capital items in the balance sheet from for the parent company as also ubico ab which is reporting and have a functional currency in swedish krona have has of course mostly us dollar and euro Balances related to customers and also to some extent to a supplier debts and also some intercompany transactions that is in there or balances which are in there. So this is items like going up and down, but within the group, it's not really exposure, but we have to report them in this way as it's for the parent company. uh going over to the cash flow and our financial position we had a working capital positive effects from the working capital of 81 million and this is as we had a good ending of the q1 from net sales perfecting and and billing perspective so we have received Of course, good inflow from customer payments from Q1 net sales and also some subscription billing, which has been received. We also see some positive effects actually from a reduction in inventory, which also gives positive effect on the cash flow. I'll come back to that further down. So the operating cash flow is then 123 million Swedish krona. We have cash and cash equivalents at the end of the period of 945 million. Net cash of 900 million. Our interest bearing liabilities are still only related to our office leases. 43 million this period. And then coming back to the inventory, you also see the KPI we are measuring regarding to our inventory in relation to our rolling 12 months net sales. And we are striving for reducing that. We are this time, despite we have actually reduced inventory in absolute terms we have a slight increase compared to first quarter so from 29 to 29.5 percent of the rolling 12 months net sales and then that is related to the the decrease in the net sales rather than anything else so we see that when when we Anyway, looking to continue growth going forward. We see that this will also, in the future, continue to go downwards again. With that said, I leave over to you again, Mattias.

speaker
Mattias Danielsson
CEO of Yubico

Thank you, Camilla. We should start by saying, when we summarize the quarter, we should start by saying, yes, we recognize that the financial numbers for this quarter were not satisfactory. Of course, we're not happy about seeing a decrease in net sales and the profit is off. But what is satisfactory, though, is that we see a return to sales momentum. So compared to Q1, we had decent financial numbers, but we were concerned about the sales momentum. And now as we record Q2, well, the week end of Q1 and the week start to Q2 bleeds into the financial numbers that are reported for this quarter, but we see an underlying trend. a return to the underlying sales momentum, which is very encouraging. And as we mentioned, the re-ignition of our sales momentum happened towards the second half of the quarter. And when you look forward looking, we can see that we have a strong pipeline and we are seeing a good start to Q3. We're happy to see that the slowdown that we saw towards the end of Q1 and going into Q2 seems to have been a temporary one. There's still a lot of macroeconomic uncertainty, but it seems like we're back on a growth track. So we're very happy about that. The second part is, yes, we are pleased to see an increasing share of subscription sales, UBK as a service. And in particular, that we're now able to attract high-tech companies to purchase in this mode. This is something that we've been trying to achieve over a number of years and it seems like we now have a product design which means that this offers value for big tech companies and for existing customers. We're pleased to see that. Short term though, a transition over to more subscription sales has a negative impact on both top line and bottom line as Camilla has explained. Just to keep in mind, if we continue to see this A high share of subscription and a fast transition short term that will have a negative impact on the top line and the bottom line. But over the three year period, the revenue and the margin is actually a little higher for our subscription customers. So it's good for the longer, longer run. We're very happy to see that the renewed momentum in sales is coming from growth sectors. We seem to be relevant for the most security conscious organizations, even in the brave new world. And the value of having hardware backed multi-factor authentication is visible to the thought leaders, not just in tech, but in AI and across public sector. So that's very encouraging. We mentioned that we feel that we have a strong pipeline going into the second half of the year. However, we are aware that there was a big gap between the numbers and the analyst consensus. So clearly, we haven't done a great job in setting expectations and the impact of, say, a slow order bookings quarter like Q1. What impact would that have on Q2? Or what's the impact of the FX effects? So we take that upon us, and we want to make sure that we can explain both the market, the product, and also how the business operates in a better way. So we're inviting everyone to an investor day in November 19th. It will be held in Stockholm, but it will be in hours that will permit Americans to participate too. So we'll get back to you with the details on that. And hopefully that will mean that there's more transparency and more understanding of what our business model looks like. Finally, as you may have noticed, I want to highlight this. This is not in the quarterly report, right before the markets opened we issued a press release that the board today has resolved to use its mandate to repurchase shares or buyback as you may recall we got the AGM approved a buyback of up to 5% of the outstanding equity in May. And now the board has resolved to use that mandate to purchase up to 200 million worth of shares in the market. And that will set us up to, that will enable us to finance future acquisitions through shares. and also give flexibility when it comes to our balance sheets. So it's not related to the quarter, but since we released it this morning, I think it's worth mentioning. With that, we'll hand it over to the Q&A session.

speaker
Operator
Conference Operator

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 Eric Lindholm Rojessel from SEB. Please go ahead.

speaker
Eric Lindholm Rojessel
Analyst at SEB

Yes, good morning. I wanted to ask on the accelerated shift towards subscription bookings here. You speak of an accelerated order momentum and a healthy pipeline into H2. I mean, how would you say that this pipeline looks? Is it mainly composed of subscription deals, or do you have larger perpetual orders that you hope to close here in the second half as well? I'll come back with another question. Thanks.

speaker
Mattias Danielsson
CEO of Yubico

Thank you, Erik. Yeah, it's right. When you look into the pipeline and the opportunities for the second half of the year, there's an increasing share of subscription opportunities in there, especially for the larger opportunities. In the US, it's actually a majority. In aggregate, I don't think it's yet at a majority. But if you look at the biggest opportunities, especially in the American markets, across several industries, the majority of the larger opportunities are in the UPK as a service fold. Which is our subscription offering.

speaker
Eric Lindholm Rojessel
Analyst at SEB

Right, that clearly helps. Yeah, exactly. That's helpful. And just, I mean, taking into account this new momentum in subscriptions, I mean, is it fair to say that you should see sort of negative sales growth here in H2 when you hope that this accelerates into 26 and beyond then, given that you reiterate your financial targets?

speaker
Mattias Danielsson
CEO of Yubico

Could you repeat the question? Because I got lost somewhere midway. Sorry. Would you mind repeating it?

speaker
Eric Lindholm Rojessel
Analyst at SEB

Sorry. I'm just thinking of accelerated momentum in descriptions. I mean, is it fair to say that you should see negative sales growth here in H2 and that you hope that sales growth then accelerates into 2026 given that you repeat your financial targets?

speaker
Mattias Danielsson
CEO of Yubico

Oh, yeah. OK, so then again, I got lost there. You talk about how order bookings translate into net sales. We don't, as you know, we don't provide individual guidance for quarters and years. We feel confident that we so we remain confident in our long term growth targets. But as you say, with an increasing share of subscription, there's a negative pressure on net sales growth. And if we see a fast transition, it could well be that that means that you see a strong growth in order bookings, but even a decline in net sales, it's really too early to tell whether that will be the case. But just to reiterate, over the contract period, which is typically a three-year period, the revenue from a UBK as a service customer on average is a little higher than if they were to outright buy on a perpetual basis per user. So longer term, it should be good. And after some time of the transition, you see net sales catching up because then you bring in a kind of a quote unquote backlog of ARR that you live off every quarter.

speaker
Eric Lindholm Rojessel
Analyst at SEB

Okay, perfect. That's helpful. And I just want to ask you on your sort of investment plans here. You mentioned that headcount is up 15% year-over-year. You continue to invest here, clearly. But have you made any sort of changes to these plans, given the weekly momentum that you saw heading into the quarter? Or have you made any decisions to sort of protect your margins, or is it full steam ahead?

speaker
Mattias Danielsson
CEO of Yubico

I'll put the hiring in three different buckets just to simplify. One is on sales and marketing, and there the hiring plan was very front loaded. So most of the plan hiring for the years have already happened during the first half of the year. So there would be very limited hiring in that arena during the second half of the year. And this is all according to plan, even the plan going into the year. The second part, second bucket would be R&D or product and engineering. That's not as front loaded, so it's more kind of a continuous hiring over the year. And in that arena, we also continue to stick to the plan. The third one is what we call gna general admin and there we are we are seeing a reduction compared to original hiring plans so we're hiring a little bit more slowly there being mindful that we invest in the right areas and given that we need to since since we have such high gross margin our business is very volume dependent and we want to make sure that we don't sit with a big overhead of course

speaker
Eric Lindholm Rojessel
Analyst at SEB

All right, perfect. I'll leave it there and maybe come back with some more questions.

speaker
Mattias Danielsson
CEO of Yubico

Thanks. Thanks, Eric.

speaker
Operator
Conference Operator

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

speaker
Thomas Nielsen
Analyst at Nordea

Thank you for taking my questions. What do you think is the reason for the sharp rise in subscriptions as sharp bookings in Q2? Have you made any changes to this offering or are there other circumstances during the shift?

speaker
Mattias Danielsson
CEO of Yubico

Thank you, Thomas. It's an interesting one. Especially since we're seeing now subscription orders from segments that previously haven't bought on a subscription basis. I'm talking about tech companies. And it's not about a change in pricing or anything. I think it is that we've figured out what is really important to these customers, that they see a partnership. If there's new technology coming out, If there are new threats appearing, how do we partner with the customer to make sure that their implementation of YubiKeys is the most secure way to authenticate? So it's that partnership that has been evolved. And that's not really a different piece of hardware which is being supplied or a different price which is being charged. It's about having that partnership so that they have direct contact with some of our best and brightest, making sure that we can support them as they implement and use our technology. So I think it's really about us having figured out what does it take to succeed in segments outside of the ones where we've seen success in the past. Because historically, as I think I've mentioned, most of the subscription sales has been to financial services and public sector. And now it seems like we've figured out how to make this offering relevant and compelling to other industry segments. So it's not just it's not a silver bullet. It's more on figuring out how do we build a partnership with other industry segments where this is a product which makes sense.

speaker
Thomas Nielsen
Analyst at Nordea

OK, thank you very much. And as a follow-up to that, there was a multi-year agreement with one large tech customer in Q2 in terms of subscriptions. Could you give some indication of the magnitude of that deal?

speaker
Mattias Danielsson
CEO of Yubico

Yeah, the guidance we can give is that it's in excess of $5 million. So we did accrue for commission expenses for this individual order for the quarter in line with what we've done once in the past. So it was well above $5 million.

speaker
Thomas Nielsen
Analyst at Nordea

Okay, thank you very much.

speaker
Mattias Danielsson
CEO of Yubico

Thanks, Thomas.

speaker
Operator
Conference Operator

The next question comes from Georg Atling from Pareto Securities. Please go ahead.

speaker
Georg Atling
Analyst at Pareto Securities

Good morning, and thanks for taking my questions. So the first one is just on the guidance here for Q3. You mentioned that the momentum is picking up a bit. So just to set the expectations right, if you can compare that to the 3% bookings growth in local currencies in Q2, are we talking about an acceleration here to double digits or is it lower than that? And also maybe you can comment that in light of comps in Q3 where 10% of bookings last year was from renewals. Thanks.

speaker
Mattias Danielsson
CEO of Yubico

Just on the final question, if I'll start with that, I think in Q3 last year, I'm not sure if 10% of the total order value was renewals, wasn't it 10% of the subscription orders that were renewals? I hope I got your question right. Returning to the bigger question, in local currencies, the growth in order bookings during the quarter was 3%. However, as we communicated in, as we released Q1, we saw a drop during the first first half of the quarter and then a significant pickup during the second half of the year and without putting an exact number to it that momentum remains going into q3 it will be important though that this is not we can't offer a precise guidance for the remainder of the year but we we are noticing that We remain committed to our long-term targets, but there are variations on a quarterly and a yearly basis. And the second part to factor in, of course, as you think about how our order bookings translate into net sales and EBIT is what you just brought up. What share of that is really subscription? And if we see an acceleration in subscription sales, well, short term, that actually means a lower growth. in net sales and weaker profitability as we've talked about. So I can say that we see the same momentum going into Q3 as we saw at the end of Q2 and the average for Q2 was 3%, so it's definitely higher than that.

speaker
Georg Atling
Analyst at Pareto Securities

Yeah, that's helpful. Second question, just coming back to this high tech customer in the subscription segments you talked about five million or excess of five million dollars for that contract so just trying to figure out how much of that is coming into the ARR intake this quarter so if you could just comment on is this a three-year contract or a five-year contract any more color there would be helpful thanks yeah you're talking about Q2 or Q3 then

speaker
Camilla Öberg
CFO of Yubico

The major part of our subscription orders came in fairly late in the quarter and thereby we see minor effects on the net sales from the ARR increase that we saw. So that's what I can say. So looking at the ARR and the ARR growth, then you get an indication in total of what we could expect in growth and net sales coming quarter, approximately.

speaker
Georg Atling
Analyst at Pareto Securities

If I just rephrase that, of that 49 million sequential jump in ARR, how much is from that new large high-tech customer?

speaker
Camilla Öberg
CFO of Yubico

Well, we cannot comment on that without actually telling the value, which we cannot do.

speaker
Georg Atling
Analyst at Pareto Securities

But in excess of five million dollars, is that per year or over a three-year period or over a five-year period?

speaker
Camilla Öberg
CFO of Yubico

That is on a total contract value, so that could be three or five or one year. No, not one, but two years in that sense. So we have not communicated how long it is, if it's three years or if it's five years. We have said it's multi-year. So unfortunately, we cannot comment more on that, but you should see the indication in the ARR growth anyway.

speaker
Georg Atling
Analyst at Pareto Securities

Yeah, understood. Just a final question on these buybacks that you announced. Some of that might be used for acquisitions. If you could just give us some more detail on what you're looking for in terms of acquisitions here in the short term and also if you have a pipeline of companies that you're looking at or if this is just preparing if opportunities were to arise.

speaker
Mattias Danielsson
CEO of Yubico

So this is preparatory work. We're not committed to making an acquisition, but we have highlighted that there is an area that we're particularly interested in. And as we expand our product offering from protecting logins to protecting users, a critical component there is what's called ID verification. And we've got our head around the more the pieces that would be more difficult or take longer for us to build internally. I mean, at the end of the day, it comes down to by-built partner conversations. And we have seen a few interesting potential quote-unquote targets there that offer complementary technology and that have good teams. But again, it's really, it's still in an evaluation phase. That's very clear. Thanks.

speaker
Georg Atling
Analyst at Pareto Securities

That's all I had. Thank you very much.

speaker
Mattias Danielsson
CEO of Yubico

Thank you.

speaker
Operator
Conference Operator

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

speaker
Mattias Danielsson
CEO of Yubico

All right. So the first question is, can you tell more about the transition to subscription? Do you expect the negative growth to continue because of this? I think this was covered by the question from Erik or perhaps from Thomas. But just to reiterate then, it's really like you note, when an order booking comes in as a subscription, it doesn't translate into net sales. next quarter or the incumbent quarter it takes three years so if you see a very rapid transition then on paper you could have a positive order bookings growth and a negative net sales growth during a quarter so it really depends on the speed of the transition I think it would take a lot to Yeah, even though we see a lot of subscription opportunities in the pipeline, I don't think you will see any dramatic effects of this, but unless you call what we saw this quarter a dramatic effect, of course. Jone Peter Reistadler, A next question is, can you elaborate more on the improving momentum towards the quarter and sure. Jone Peter Reistadler, When we reported Q1 in in mid May, I think it was May 13 or 14 last quarter, we noted that we saw a slowdown for larger deals. towards the end of Q1 and that continued into the first six weeks of Q2. Now the old silver lining there was that it was quote-unquote only larger deals we saw good velocity on the small and mid-sized deals i.e. typically initial deployments however when it came to customers pulling the trigger on rolling it out to a to the entire company or to a larger employee base that's where we saw a yeah, delays in pretty much every customer conversation. Fortunately, that's changed. We saw business picking up again and we saw the same velocity that we typically expect towards the end of Q2 and that momentum continues into Q3. So now we're in the more fortunate situation of seeing good momentum for small midsize order and back on a good cadence when come to the larger deployments. And it's broad based. We see it in most geographies and in most industries. I think the German market is a little challenging over the next quarter or so realistically, but otherwise we see it pretty broadly based. Have you seen any changes in the competitive landscape? Not so much. Well, if we talk broadly about competitive landscape, I mean the biggest competition is arguably passwords only. The biggest MFA competition are different software apps. When it comes to hardware-backed MFA, i.e. our solution, similar solutions based on passkeys and smart cards, I think there is a visible shift for at least high security applications away from software to hardware, and that continues. When it comes to the competitive landscape in terms of what we're seeing on individual deals, yeah. I think I mentioned that if you asked me what competitors we see the most of a couple of years ago, I would have probably pointed to low-cost manufacturers out of China. That has changed a little bit. Now I think more and more companies in Western Europe and the US doubt whether it's a good idea to trust cybersecurity to a Chinese vendor. But we're seeing increased activity from some of the incumbents. typically incumbents in the smart card industry that are now offering products based on pass keys so competing with one of the protocols that we offer on the uv key so we see perhaps them leaning in more in and several of the customers that we're working with have been using smart smart cards in the past so they have existing relations which means that it's But these are competitors that I have a lot of respect for. But I think we are agile and we are the leaders and recognized as the leaders in our space. So I think we have an edge. Do you pay US import tariffs? Turlar. Yes. Most of the fiscal manufacturing of YubiKeys happens in Sweden. However, most of the value creation, i.e. when the YubiKeys are programmed, happens locally. But for the hardware that gets shipped from Sweden to the US, we are now paying import tariffs to the US. However, the impact is not that big. It's to the tune of... perhaps 1.5 percentage points, 1 to 1.5 percentage points on our gross margin. And short term, we don't see a significant impact because we have a large part of our inventory already in the US, which was imported before tariffs were implemented. But as we go into the second half of the year, and in particular in 2026, we do anticipate an impact of the tariffs on the cost of goods sold probably to tune to one and one and a half percent and then we'll have to figure out how to cover that additional expense or additional cost unless there are any last minute questions I think that's a wrap for today's sessions five minutes or four minutes ahead of time uh again camilla alexander and i are available for any follow-up questions so please get in touch with us if you have additional questions thanks everyone for attending and wishing everyone a great day thanks everybody

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