Huddly AS (HDLY.OL) Earnings Call Transcript & Summary

Hello, and welcome to the Q2 presentation. My name is Rosa Stensen, and together with me, I have Abhi Banik. The key highlights of the quarter is that we have now seen 3 consecutive quarters with revenue growth. Q2 reports NOK 57 million compared to NOK 39 million last year. The revenue is driven by growth both in the Channel and Strategic Partner segment. We report gross margin of 43%, 45% if you exclude one-offs. The key highlights on the go-to-market side is that we continue the momentum with Shure. And in the quarter, we signed a memorandum of understanding with Barco as well as we continue to pursue more strategic partnerships. When it comes to Huddly C1, our audio-video AI-driven video bar, we are on track towards first customer shipment in September. When it comes to the outlook, we are adjusting the outlook to NOK 240 million to NOK 280 million for 2025. And as of this morning, we have announced a private placement of NOK 50 million to NOK 75 million, whereas NOK 50 million is fully guaranteed. And to iterate on our business plan, we start and have continued to deliver our business plan, which is built up of 3 main pillars: increasing the revenue, monetizing on our products whilst we keep strict cost control and investment. On the revenue side, we said -- as we said, we continue the momentum with Shure, which had their first end customer shipments in the quarter. We do see that the momentum will continue to grow in the coming quarters. We are, of course, very pleased with the partnership with Shure and in our humble opinion, believe this is one of the best bundles you can have in the market. When it comes to Barco, Barco and Huddly have had a long-standing relationship. However, as of June, we announced that we are strengthening that partnership and relationship even further. First of all, with our go-to-market efforts, we have, as of June, entire Huddly portfolio certified on Barco ClickShare. This includes now Huddly Crew and C1. And we also agreed that we are going to continue the cooperation when it comes to the Barco Hub and Hub Pro, which are Microsoft [ MDAP ] devices that will allow Huddly customers now to enjoy the Huddly product on Android as well. And as stated, part of our strategy is to attract more strategic partner revenue, and we are in dialogue with several partners. And as of today, we are in final negotiation with a global player in that space. When we look further at the channel revenue, we see a very good growth in the 3 consecutive quarters in a row. This is mainly driven by 3 main things. In addition to have a very strong and broad partnership throughout the channel, we do have strengthened and work more strategically with some key partners such as AVI-SPL. In addition, we have gone through the ways of working and have been working more efficiently with regards to systems, processes, routines and so on. And part of the growth is also driven by increased adoption and momentum for products such as Huddly Crew. And to iterate on the product road map, in 2024, we announced and came to the market with Huddly Crew, a state-of-the-art, one-of-a-kind Huddly -- multi-camera system that is easy to deploy and install. In '25, we are working towards bringing the Huddly C1 audio, video, AI-driven video bar to the market. And looking into the future, we will be working further with the audio and video to expand into even larger rooms. As stated, much of the channel growth, but also the strategic partner growth is due to Huddly Crew is getting better momentum and adoption in the market and now starts to be a significant part of the total balance for Huddly. We are, of course, very pleased to see the market endorsing that product so well. And when it comes to the Huddly C1, our AI-driven video bar with 20x the AI capabilities of our previous products. This product was launched at InfoComm globally together both with Barco and Lenovo. And it has got a great reception so far, both by end customers, distributor, resellers and industry analysts. And most importantly, we are on track for first customer shipment in September. Looking forward to what Huddly C1 is and is going to be is that we are going to be enabling the Huddly C1 hardware towards the Huddly Crew software platform. Huddly Crew is not only a camera system and hardware system. It is actually a software platform. Now we are going to be enabling the both video and audio from the C1 on as of next year. And how are we bringing the Huddly C1 to the market? We had an introduction of the product at ISE in February this year with good reception. As well, we continued that motion in Europe with our partners in Lenovo and Microsoft with a European roadshow in multiple cities. This just before we had a global launch at InfoComm in June. In the second half of the year, we are going to be continuing the roadshow with Lenovo and Microsoft, expanding to more cities in Europe, but also added some key locations in the U.S. And we look forward to bring the product to our customers in September. And with that, Abhi, I'll give the word over to you.

Thank you very much, Rosa. So far in this presentation, we have been discussing details around sales, marketing and products, and I will now shift gear a bit and focus on financials and operations. In our previous quarterly announcement, we shared our insights on the newly imposed US tariffs. And since then, quite a bit has changed. What we're now seeing is presented on this slide here, where we do see a 15% tariffs between EU, Norway and the U.S., and 30% between China and the U.S. The latter is based on a trade shows, which is announced to end on the November 10. So what will happen after that is still unknown. This obviously has an impact for us as a company. And to recap a bit, we ship our products from Poland and Norway to the U.S. And generally speaking, it is the U.S. distributors who carry the cost for duty payments and shipments. As a consequence of this, we have increased the prices to the end customers, thereby protecting our own margins and preserving the margins of the distributors. Before the hike in the tariffs from 10% to 15% from August 1, we stocked up goods worth NOK 8 million in the U.S., and this number is reflected also in the Q2 revenue. Huddly seem to currently benefit from a favorable relative cost position. And the reason for that is that many of our competitors, they have their production based in Asia, in China, Malaysia, Vietnam, which generally have a higher tariff level than Europe. I will now summarize a bit our business plan, what we have done and what we are looking forward. So as mentioned by Rosa, we have 3 strategic pillars. So the first one, growing Strategic Partner and Channel revenue. We're seeing a quite strong momentum and growth here. In Channel, very strong 3 consecutive quarters of growth. And with Strategic Partners, we have momentum with Shure. We added Barco as partner through an MOU in June, and we are in negotiations with another partner. In addition to that, we have strong alignment with Microsoft, which is very important for technology validation. Second, maintaining healthy gross margins. With the new C1 product, the video bar, we are changing our position from being a video provider to being a complete solution provider with both video and audio. That is a very important move for us, which will help us to preserve our margins and grow the business case going forward. Third and finally, strict cost control and disciplined investments. We implemented a cost-saving program in spring this year with annual savings of NOK 12 million. And with the tariff situation easing a bit, we do see reduced risk in comparison to what we saw just 1 or 2 quarters ago. What has changed since last time is that we do see a deferment in Strategic Partner revenue. So hence, we have adjusted the expected revenue for 2025. We communicated previously NOK 270 million to NOK 320 million for '25. That has now been adjusted to NOK 240 million to NOK 280 million. Gross margin changed to 45%. However, if we look at '26 and '27, we keep the revenue estimate and have changed the gross margin expectation to 45% to 50%. Translating this into profitability, we have an ambition to get to cash flow positive in 2026 with a healthy cash generation from 2027. As a consequence of these changes, the company has a financing needs to bridge the company to cash flow positive in 2026. And as a consequence of that, we, this morning announced a contemplated private placement of between NOK 50 million to NOK 75 million, of this NOK 50 million is guaranteed. The uses from these proceeds is going to be used on continued investments in R&D, onboarding new strategic partners, expanding channel sales and of course, for general working capital requirements to support growth. On a final note on this slide, the company currently has a NOK 55.5 million in shareholder loan. And that is due on June next year and lenders representing NOK 24.75 million of the total, they have committed to extend their portions of the loan for 12 months into 2027. Let's now go towards the financials and discuss a bit more details here. Revenue, as communicated, was very strong in Q2. We do see a continued growth driven by both strong momentum in Channel and Strategic Partners. Revenue was NOK 57 million in Q2, representing a 45% increase over Q2 '24 and 25% increase in comparison to Q1 '25. Sales to Channels was very strong. That is driven by solid performance across all products, and the number also includes NOK 8 million in U.S. stocking in anticipation of higher tariffs. Sales to Strategic Partners, also seeing quite a strong growth here, gradual growth of sales to Shure in addition to revenue from Microsoft and Lenovo. And we do expect to see increasing sales to strategic partners in the next coming quarters as we are adding additional partners to our mix. Moving towards the gross margin. We had 43% gross margin in Q2 2025. The change is mainly due to change in product mix as well as certain one-off items. The one-off items is, number 1, related to concluding sales of a maturing product with relatively lower margins; and number 2, scrapping of certain components. So if you exclude these 2 effects, the gross margin for Q2 was 45%. It is important to note that the change in gross margin is not driven by market-specific or supply chain-related issues, such as rising component prices or supply shortages. Looking at first half year basis, gross margin was 47%, which is in line with what we expect towards '27 and also an improvement versus 43% in same half year last year. Looking at the summarized P&L statement. We have already discussed the revenue and the gross margin. So I'd like to focus now on the OpEx here. The OpEx has reduced significantly, and that is due to 2 changes. Number one, a reduction in costs related to a cost saving program, which was fully implemented in spring this year. And number two, reduced costs related to employee share incentive program. So hence, both on a quarterly basis, Q2 and half year basis, we do see a significant year-over-year reduction in losses. We talked about the C1 and the product being launched and shipped to end customers from September this year. So all of our investments into the company in R&D goes into product development such as C1, Crew and other software-enabling enhancements. So capitalized R&D for Q2 '25 was NOK 14 million. That is an increase versus same quarter last year. However, it should be noted that in Q2 last year, it was a relatively high degree of maintenance. So Q2 this year has returned to a more of a normalized level. Our organization consists of, amongst others, 57 engineers with approximately 45 with extensive experience in AI, machine learning and software development. So we're going to continue to invest into the talent, the product development capabilities to ensure that we will defend our leading technological position and to enable future revenue growth. Finally, I will now go through the cash flow statement. Cash end of June was NOK 52 million. However, we did see a significant improvement in operational cash flow. This category was minus NOK 33 million in Q4 '24. It was minus NOK 21 million in Q1 '25 and was reduced down to minus NOK 18 million in Q2 this year. As already communicated, due to the changes in the business plan and the need for additional financing, the company has just announced a contemplated private placement of NOK 50 million to NOK 75 million. And with that, I would like to conclude the presentation for this quarterly announcement, and we will now move on to the Q&A session, where we will open up for questions from the audience.

Hello, and welcome to the Q&A session. Together with us here, we have Jon Øyvind Eriksen, our Chairman of the Board; Abhi Banik, CFO; and me, Rosa Stensen. [Operator Instructions] We have the first question. Which shareholders have pre-committed to the private placement? And Jon Øyvind, I think that's a good one for you.

Yes. I'm very glad to see that the shareholders that have agreed to pre-commit in the private placement are found among Huddly's largest shareholders, Board members and the management. And of course, the complete list will be made public in the later date. I'd like to say that the fact that we already before the launch of the private placement, see that the offering is pre-committed, that signals a long-term commitment and confidence in the company and the report that we are presenting today.

So how confident is Huddly in mitigating tariff impacts when assuming end customers will absorb the price rises? How material is the U.S. exposure in 2025, given that 56% of the revenue in '24 was in the U.S. and 60% already in first half '25? Abhi, this is a great one for you.

Yes. So I think there are many factors playing into this question here. So we have chosen to increase the prices to the end customers, and how they will respond to this, this is a bit too early to say. However, we do know that our customers, they are generally quite big B2B customers, which typically have a different behavior from more price-sensitive consumers. But whether that means that will translate into a relatively small change in demand due to change in price, that remains to be to be seen. So we will, of course, monitor this continuously, and we might also do other changes to the price or other mechanisms depending on how the situation develops. And with regards to the question to exposure, we do have a slightly higher sales to the U.S. so far in this year in comparison to last year. And it's a quite good proxy, the sales revenue that we have to the U.S., which is presented in the interim report that shows you a quite good number of our exposure to potential U.S. tariffs.

The third question, will there be a repair offering? Jon Øyvind?

Yes, the company may carry out repair offering of new shares at the same price as the price in this offering. And that will be directed towards the small shareholders who are qualified to participate in this offering. Whether we will carry out the repair offering will be decided by the Board later. But in order to be a qualified shareholder, you would need to then firstly hold less than 1% of the current shares in the company. And secondly, not have been allocated shares in the private placement that is taking place now. And thirdly, not be a foreign resident in a jurisdiction where taking part in the offering would require Huddly to release a prospectus filing or registration or a similar or otherwise be in conflict with the law of that country.

There's a question with regards to the shareholder loan. There is still an internal loan of NOK 55 million on the balance sheet with further material drawdowns soon expected. With the business now targeting cash flow positive in '26, are there any concrete plans to convert, restructure or reduce this loan in the near term to strengthen the capital structure? So this was actually one part of the announcement we came out with this morning, Jon Øyvind, so you can maybe elaborate.

Yes. Actually, yes, there are several parts to that question. Further drawdowns are not planned. And when it comes to the actual loan, we have communicated that NOK 24.75 million of that loans have already been committed in writing to be extended for 12 new months until June 2027. And we have still not completed all the discussions. So the final result will be announced at a later date.