Cyviz AS (CYVIZ) Earnings Call Transcript & Summary

Hi, and welcome to the Q3 earnings call for Cyviz this time from the beautiful city of Stockholm, Sweden. My name is Espen Gylvik and with me, the company's CFO, Karl Peter. We will take you through today's agenda and numbers. So I think let's just kick it off.

All right.

So we will go through Q3 in a brief. I will take that, some sort of aggregated view from 2020 to 2025. The business highlights inside the quarter, Q3 financials, of course, in detail, a little bit more in depth on the outlook side. And then at the end, as we always do, open up for questions. So with that, let's just kick it off.

All right.

So Q3 for us was a good quarter when it comes to order intake. First half was quite soft, driven by multiple different parameters in the U.S. market, especially in the government sector. First half was quite soft. Very few things happened. I think you will see when we get further into the presentation that U.S. is picking up again, and it's starting to get back to the position it was 2 years back. And of course, a strong ARR growth in Q3. This is the first quarter, as we have talked about in Q1 and Q2, that we'll start reporting on ARR. So Karl Peter will go more in depth when we get into that. But overall, very strong quarter on order intake, which is, for all purposes, the underlying proxy on how the underlying business is going with NOK 243 million, which is up NOK 50 million from similar quarter last year. And isolated probably the strongest quarter the company has had when it comes to order intake since we went public. ARR, NOK 67.5 million, up 38% year-to-date, which is in line with our plans and the expectation this year. Gross profit, relatively strong on a relatively soft revenue quarter, largely driven by support and maintenance agreements and also installations and delivery of Cyviz specific components, both hardware and software, with relatively high margin compared to third-party components that normally comes as part of the project business we do as a company. EBITDA, still on the positive side, with NOK 2.3 million. It's down NOK 6.8 million from Q3 last year. But I think as a reflection on that, we also had a couple of deals, significant deals that was planned to be delivered and installed in Q3 that slipped into Q4. One relatively large one with an energy company in U.S. that is now picking up in Q4 and also one defense deal inside Europe, impacting the EBITDA for the quarter. And as I mentioned, revenue relatively on the soft side with NOK 95 million, but it's also a reflection on slippages of NOK 30-plus million into Q4 and a relatively soft order intake in H1.

All right. I think order intake is one of the key messages for this report. As Espen mentioned, the quarter-on-quarter increase was 26% on a 12-month rolling basis, it's a decrease of 15% to NOK 659 million. I'll get back to the composition of that in a minute. Gross profit stable compared to last year, again, closely related to the margins, which were high since we did not deliver a lot of third-party hardware. And then the EBITDA is down [21%] on last year on a 12-month rolling basis, closely related to the order intake in the first half and also the slippages into Q4. Going into the weeds of the order intake pattern, it's worth mentioning that for the quarter itself, it's an annual increase of 26%. Looking at the longer picture, isolating the large multiyear deal in Q4 2023 from Aker BP, it is the highest order intake on record, which is 16% higher than the previous all-time high. And that takes us to an order backlog, which is also the second highest in company history, of NOK 428 million. reflecting both the order intake and also the order slippages that Espen has explained. Going over to annual recurring revenue. That's a strategic goal for the company to increase that share substantially. We went into that on the Capital Markets Day and have promised to come back with formal reporting, which we are now doing. Compared to the beginning of the year, we have an increase of 38% in annual recurring revenue from NOK 48.9 million to NOK 67.5 million, primarily driven in absolute terms by multiyear support agreements, but looking into the SaaS component of it, which is the management software, we see a more than 50% increase since the beginning of the year. So it has good traction, which is one of the primary goals that we have.

Yes, I think an important comment here is this is the single most important element of the pivoting we have talked about as a company that we are doing. So gradually moving more and more towards like becoming a very clear platform and technology company and gradually move away from dependencies on the larger project sales business, which swings by quarter and also are largely much more influenced by different happenings in the world as such. I think the important thing here is building a platform is a never ending type of approach. It never has an end. But the traction so far, we will see that when we look at, I mean, the partners that have signed on to bring this out in the market, the platform itself, the components that are connected to it, it starts to like move definitely in the right direction. And I think maybe the single most important thing to mention here is that two of the largest global accounts we have are now in process of finalizing the migration over to our new software platform, which I think both from a marketing point of view, referral point of view, is significant and super important for, I mean, the future accelerated growth with the platform and connection to customers to that platform.

And it's also worth mentioning that for the partner ecosystem, we are also developing the platform with some UX and API enhancements, which we think will accelerate partner sales once it's ready in the beginning of next year.

Yes, and if it shouldn't be any doubt, this is the most important product we have to like really go after the NOK 250 million ARR target that we shared during the Capital Markets Day. And we are definitely on trajectory with the numbers today and what we think will be the outlook of the year to deliver on that. Yes, this is just a high-level snap on the partner status. So for Cyviz Core Tech, which is the sum of Cyviz components of the platform, hardware, et cetera, we have now 15 partners signed on. We have built three tailored partner packaging because we saw during the first type of entry into the market with partners that there was a need to tailor this for different use cases and different customers. I think that fit the purpose of better, makes it easier for partners to bring it out to their customers and apply, I mean, the right type of package for the use case with their customers. And we are continuing to build partner pipeline as well as activating partners to go out and sell more. On the Software Management Platform side, 24 partners signed. We are doing trials now with more than 10 additional partners. We have 7 end-customers on the Cyviz Cloud. As I mentioned just a couple of minutes ago, the most important thing is to migrate the two largest global accounts we have, and you can speculate who they are, over to the software platform. I think that's the key thing now in Q4 to finalize that and get that up and running. And of course, building the customer pipeline on the platform side together with our partners.

Right, so it's worth mentioning the gross margins and the gross margin trend. We've been talking about this for quite some time. And there is a negative correlation between revenue and margins because of the shipment of third-party goods. So it's worth particularly mentioning this quarter where the margins are exceptionally high and that correlates directly with revenue. So we do expect a normalization going forward as revenue picks up based on the order backlog. So that's a key message to keep track of for this quarter.

Yes, all right. Just briefly on some of the highlights in the quarter. I think Q3, as we have said, from an order intake, signing contracts have been significantly good. And one of the larger deals was with one of those larger energy companies in the U.S. market, accounts for NOK 140 million. So a quite significant deal for us. Probably even more important to mention is the work that is going on, in particular in Europe towards the defense sector and not at least together with NATO. We have spent a lot of time this year to like get those type of formal signatures from NATO and tick the boxes, I mean the ticket to play. All of them are in place. We are now, I mean, certified to work with NATO directly and NATO customers. And I'm happy to say that the first type of NATO driven deals started to kick in, in Q3. And I would like to underline the fact that we believe beside the partner play and the platform play, the defense sector going into Q4 and not at least into 2026, especially in the European market, is going to be one of the most significant additional verticals for the growth of the company. And I think the pipeline that is there already today shows very, very strong indications that defense sector will be a dominating vertical in 2026. And maybe lastly, I mention that we finally have managed to open -- I mean some small holes in the Indian market, very light efforts in the market with partners. But we signed the first deal with the largest energy company, ONGC, in India. And I think that is like something to start with and to develop together with the partner. And I think the opportunities to go deep and wide with that customer going forward is quite significant. So overall, quite good spread across different industries. You can see in the type of chart down in the right corner, that North America is by far the largest one. I think for those who remember the last couple of years' quarterly presentations, you would have recognized that North America has been quite small compared to the market potential for a lot of reasons. And Middle East and APAC has normally been one of the biggest ones. I think Middle East and APAC today is a very, very honest reflection on the reality in that marketplace. As you can read from the Q3 report as well, I think close to NOK 140 million has been moved from Q3, Q4 this year of order intake into next year due to delays in projects driven by the war that has been going on in Gaza. So a bit hard to sign deals sitting in meetings indoor when bombs are dropping, but none of the deals are gone. I was in Middle East a week ago, confirmed the deals. They will start kicking in from Q1 and onwards. So we'll see MEAP probably gradually coming back to the normalized size of the diagram when we enter 2026.

And I think it's also worth mentioning for North America in particular, that it's driven by one very large deal, so if we skip to the year-to-date charts, there's a more normalization of the underlying business.

Yes. And you can see that here North America is still the biggest one. Subset of new logos and one significant large deal in the energy sector is driving that. Europe, stable as 1/3 of the business. And as I described earlier, Middle East and APAC, that normally has been at 30%, 40%. It's now down below 20%, and that is largely driven by a very, very unstable market situation this year in that region.

Geopolitical.

Purely geopolitical, but it's starting to pick up again for 2026.

Okay. So moving over to the Q3 financials. Looking at the quarter itself first. We've touched upon this in quite a lot of detail already in the presentation. Q3 revenues down on last year, driven by the low order intake in the first half, similarly for gross profit and EBITDA. And then I think the pivoting point in the numbers here is the order intake, which takes us in a different direction and which affects backlog and what's coming in the future. So on a P&L -- from a P&L perspective, a soft quarter. And then the order intake is kind of the opposing force which is the most important thing to focus on here [indiscernible]. And similarly, for the year-to-date financials as well driven by the exact same things. So I won't go into further detail there, but it's worth mentioning again the order intake, which from the first 9 months perspective is the highest on record also looking at the historical figures.