Yubico AB

Welcome to Yubico's Q3 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Matias Danielsson and CFO Snehana Koliva. Please go ahead.

Good morning everybody and welcome to Ubico's U3 report call. I'm Mattias, CEO of Ubico, and with me today is Nizhana Kalyava, our new Chief Financial Officer, and we'll take you through the material. And several of you have probably been attending these calls before, but as always, we'll start with a quick overview of the company before we get into news and details of the financial report. So in terms of the agenda, we'll start with a company overview. So Yubico is a proud hardware company and our core product is the YubiKey. And what we typically like to stress when we talk about our growth today is the fact that we are the world leader in modern multi-factor authentication. And our customers who have deployed our keys and the modern protocols on the keys have experienced zero account takeovers. And of course, we want to keep that way. So that's the basis of our success. We're a hardware company, but as part of that, we've been able to maintain healthy gross margins pretty consistently in the 80% range over the past number of years. Second thing we'd like to brag about is the customers that we're working with. We've been selling to about 5,000 different business customers, but our focus has been on selling into the largest companies in the world. And as we get back to, we cover almost 30% of the global 2,000, so almost 30% of the global 2,000 companies are existing customer bars. In most cases, they've only deployed YubiKeys to a subset of their employees. And of course, our journey is to make sure that they protect all of their users using YubiKeys. We've been growing at a pretty consistent rate. Our average growth rate over the past five years has been 40% a year, but it's been variable year by year. But we've experienced a healthy long-term growth. Since the start of the company, we've sold and deployed about 40 million YubiKeys. And today, in the last 12 months, sales amount about 2.3 billion Swedish kronor. And today, there are approximately 520 people working for Yubico. About two-thirds of them in the U.S., about a quarter in Stockholm or in Sweden, and the remainder in different sales positions across the world. So that's Yubico in a snapshot. Okay, I mentioned very briefly the market we're in, which is multi-factor authentication. What does that mean? Well, the most common way to access any online service or system or device is still username and password. Where the password is the identity and the, sorry, where the username is the identity and the password is how you authenticate that you're the legit user. And everyone knows that username and password is not a safe way to authenticate, so what you want to have is MFA, multi-factor authentication, not just something you know, a password, but something that you are by metric, something that you have, like an app or a device. And we're in the most advanced form of MFA, the highest level of authentication, and that market for Multi-factor authentication is estimated to amount to about $5 billion per year. How can we claim that we're the leader in that market? Well, we're the leader when it comes to modern advanced authentication. There is a lot of legacy technology out there, but gradually modern forms of MFA is taking over and we're the market leader in that segment. This market of advanced authentication is estimated to grow at about 14% per year over the next couple of years. So it's a big market where we have only so far a very limited market share and it's growing quite rapidly. What the YubiKey has as its unique features is a unique combination of achieving the highest level of security together with its being very easy for user to use, which sets it apart from other ways which are much more cumbersome when it comes to advanced authentication. And another key feature, pun intended, of the YubiKey is that it's a key that fits into all the relevant locks. Fundamentally what we're selling is a key, and it's only as usable as the number of locks where it fits. And we've invested a lot in making sure that we have this Swiss Army knife type of key that fits into all the relevant locks. It used to be us doing all the heavy lifting in terms of building support for different systems, but now increasingly it's their systems realizing that their customers want to authenticate in the most safe way and therefore provide support for YubiKeys. Part of it is the software that goes on the key and part of it is how it gets integrated into different environments, which is something we'll have a reason to get back to later in the presentation. Now, talking a little bit about our customers, as I mentioned, We're actually in excess of 30% of G2000 companies in terms of coverage today. So, if you look six years back, we worked with 14% of the global 2000, now we're at the full 32%, so that's growing. We're adding new customers continuously. What's also very encouraging is that we see a very high loyalty and repurchase rate from our customers. We have two different business models, one which is an outright sale of YubiKey, and the other one is a subscription model, where you instead sign up for the use of YubiKey to ensure that your users are protected with the best technology, and then you instead pay on a recurring annual basis. No matter the business model, we see a very high repurchase rate. We've been measuring this over different periods of time, but you typically would see an annual repurchase rate among our biggest customers in excess of 100%. How can it be that high? Well, a lot of it is about the fact that we typically land expand with customers. We win a new customer and it's typically a limited set of users within that enterprise or a government organization that use our keys. And then as people realize that it offers the best protection, it's also very convenient for the user, that's when we start a conversation about expanding into more groups so that the entire organization gets protected. We started out within tech and it's still a very important sector for us, but now we have a pretty diverse customer base working across a lot of different geographies and a lot of different industries. So on a very high level, our sales strategy is to land accounts and then to expand within those accounts. That was it for Canada overview. Some highlights for the quarter. As we reported, as we released early, what's called a minority press release or a profit warning, we saw softness in terms of order bookings. So year over year, we saw a decline in order bookings by 17%, 8% of that was attributed to FX, but an underlying order booking decline of about 9%. A little comment on that, what we see and what we highlighted in the quarter was that we saw a decline when it came to the larger orders. We saw a good Continued good momentum and winning new customers and doing smaller sales. So small and mid-sized orders grew quite nicely, but the large orders, which are important for making sure that we meet our numbers, we saw softness there. High level, it should be noted that we saw some currency headwinds. We had year over year about 10% appreciation of Swedish krona, which is our reporting currency, compared to the US dollar, which is the currency where we conclude the vast majority of our deals. About 80% of the remainder is in US. where we will also see an increase in the switch through. Another thing that we highlight is the fact that we are making steady progress when it comes to our product roadmap and that was made even more specific as we release new functionalities which are planned to be released at Authenticate in California in mid-October. One is targeting Digital signatures, making sure that you can sign transactions using the YubiKey, not just use it for authentication. And the other one, which is a little bit more long-term, so it won't be released next quarter or anything, is the ability to run post-quantum cryptography on the YubiKey, which is important as we want to make sure that we have the most resilient authentication solution, even when quantum computers are a reality. So high level, we continue to expand our market reach, expanding new geographies, setting up a new office in Singapore and continuing focusing on recurring revenue through our subscription model. And we feel that this and the underlying growth in small and mid-sized deals puts us in a good position to continue growing this market and delivering long-term sustainable growth. One thing that we could highlight in particular is the fact that we've been available on Best Buy online stores in the past, but in Q3, sorry, at the start of Q4, I think, we announced that we're now actually even in the physical stores of Best Buy, which means that we can get access to a new set of consumer users with a different set of packaging and simplifying that they can protect their digital selves using the keys. However, the vast majority of our sales goes into large companies and government organizations. That remains unchanged. So that forms the basis of our revenue base still. With that, I'll hand it over to Najana, who will talk more about the numbers for the quarter. Thank you.

Thank you, Matthias. Let's start first with the key figures for the quarter. So net sales dominantly declined with 7%, but the entire change was actually driven by negative currency impact, as Matthias mentioned. 80% of our sales are in dollars, the rest is in euro, and the SEC, our reporting currency, has depreciated year over year. So in excluding currency effect, our sales are flat versus last year, and our subscription sales are actually growing very nicely. Gross profit nominally has decreased with 10%, but gross profit margin is relatively stable. It has some effect from currency as well. Looking at the EBIT, it has decreased with 4 percentage points versus last year Q3. Primarily, as our gross margin is relatively stable, then the rest of the decline in the EBIT margin comes from increased expenses. As our growth ambition, we are increasing somewhat our headcount to meet and deliver on our growth ambitions. ARR is increasing very nicely, 32% versus last year's quarter, very much driven by adding new customers in our subscription model and renewing our existing installed base. Also, it shows that there is an increasing demand and adoption of our subscription model. Sorry, the pages are moving a little bit. Now, let's take a look at, a little bit closer look at the bookings. The bookings declined 17% year over year, where of 9% was actually the underlying change and the rest was a negative currency impact. The order bookings came a bit short of expectations, which we have as well announced in our earlier communications. We've seen fewer high-value perpetual bookings. We had a very strong Q3 2024. where we have multiple large public sector contracts, which we didn't see coming to fruition in Q3 2025. Subscription bookings, however, developed well. We see a nominal decline of 3.2% versus Q3 2024, very much driven by currency. Now it corresponds to a larger share of the bookings, 17% versus 15% in Q3 2024. We see that the overall subscription activity and demand and adoption continues to increase, so we see that reflected in both the bookings and then further on in the net sales. From a net sales perspective, as I mentioned, 7% nominal, but actually flat if we disregard the currency impact. Increasing share of subscription sales, now it's 16% of the total net sales for the quarter, versus 12% in Q3 2024. Total 87 million SEK of subscription sales in the quarter. From a geographical perspective, Americas is now 64%, while EMEA and Asia are increasing somewhat in the mix with 25% and 10% respectively. From an AR perspective, as I mentioned, 32% increase versus 2024-2023, driven by good renewal rates and adding new customers to the portfolio of subscriptions. When we look at EBIT, as I mentioned, gross profit has decreased 10% nominally, margin-wise somewhat decreased versus Q3 2024. Overall margin decrease is 4 percentage points versus last year. We see that the costs in the quarter are driven by higher personnel costs, reflecting our continued expansion ambition. Of course, we're very mindful how we grow, but we see that impact versus last year. The LTIP program costs this quarter were about 30 million SEK, last year they were 23 million SEK. And we have very small currency effects in debit this quarter, only 0.3 million SEK, while last quarter it was about 9 million. From a cash flow perspective, the cash flow for the quarter from operating activities was 32 million SEK. Overall, good cash flow before the changes in working capital of 105 million SEK. The changes in working capital were about 17 million SEK. The majority of that came from changes in inventory, where we have received the last order for our security component. now in Q3. The cash and cash equivalents at the end of the quarter are 875 million SEK, which is an increase versus last year. And excluding the interest-bearing liabilities, the net cash at the end of the period is 835 million SEK. Our interest-bearing liabilities are primarily leases. Inventory has increased as a percentage of the last 12 months sales to 33%, again, primarily driven by the last shipment, as I mentioned, for our security chip in the quarter. And with that, Matthias, back to you.