Micro Systemation AB (publ) ($MSABB)

So good morning, and welcome to MSAB's Interim Report for Q1. Presenting today will be our CEO, Peter Gille; and our CFO, Tony Forsgren. If you have any questions, so please put those into the chat, and we will answer all questions at the end of the presentation. So without any further ado, I'm going to hand over to Peter Gille.

Good morning, everybody. So let's go to the first slide. And I think we have a good first quarter. It was solid. The currency adjusted growth was almost 15%. We still have good high margins. The operating profit EBIT was, of course, hurt by the currency effect with almost SEK 7 million. So it's not where we want it to be. On the other hand, we have increased the cost during the year, and we had really low cost in the quarter 1 last year. So the comparison quarter 1 over quarter 1 really isn't adequate in this setting. So maybe better to look at quarter 4 last year and compare with the costs now. It's a slight increase in cost. We have also introduced a new metric, the annual contract value, to give investors a better view of where the business is going. Tony will talk more about that, but it's a good number. I think we are really growing our contract value compared to last year. If you look on the strategy side, we have worked hard with the strategy now for over 18 months, and we are really where we want to be. But we continue, of course, to work with the different challenges we have. We have a good foundation now to going forward on based on what we are doing, but we need to continue to invest in our products because that is the key to growing the business. We feel that the market position we have has really been strengthened during this year, and we hope that, that will -- you will see the results in the numbers this year. We have also strengthened the organization with our recent leadership team is now fully equipped. And we have Marten on board as our new sales manager. And we continue to professionalize how we work within the company. And that is an ongoing work all the time. If we look on the product side, as I said, we continue to invest in our products, and we have increased the timing of our product releases. So we release much faster now, and we release a lot more features within the products. With XRY Pro, we have a momentum, and we continue to keep that momentum by also releasing new things. Like, for instance, support for GPS devices, which we are the first vendor to deliver to the market. We have also delivered something for the front line, which is the XRY Pro Express. It's only aimed towards very educated user and a limited number of users that has the need of having more advanced extraction possibilities in the front line. But it's a really useful tool, and we think it will be very appreciated by our customers. It's been a signal we got from the customers that they want to have this also advanced tool in the front line. We have also enhanced our workflow capabilities across the whole product portfolio. So XAMN Pro and XEC, they are all now involved in different workflows. So we just continue to work with the workflow and expanding it towards the product. We have also continued to invest in the products across the portfolio. So that's something we continue to do. We are a lot more people today in the development department than we were this time last year. And that means that we continue to invest in all the products. If you look on the regions, EMEA had a good quarter. I would say, a stable quarter. Continue to sell mostly XRY Pro. And we can see good movement in all the markets basically. We also have a strong belief that we have opportunities within the defense segment. We are the only European supplier among the top vendors in this space. And we think that the European defense segment should really invest in our solutions because it's very useful also in the battlefield. In APAC, we had a slightly weaker quarter, mainly due to that some of the procurements didn't come in. It's a sensitive business. We're still a small business. We don't see any risk for not fulfilling the year in a good growth. It's just that the deals didn't come in the numbers this quarter. XRY Pro is also there being the most wanted product. So that's really what we see that the customers are buying. And it's a good demand across the all, and we have had good development also in New Zealand during this quarter. In the Americas, yes, it's been a tricky year, I would say, last year, but it starts to see the light in the tunnel now. There's still uncertainties around the budgeting and so forth and also with people and processes and all that stuff, but it starts to clear out. So we see that America will come back this year. We grow the business organically in U.S. also in currency adjusted numbers last year. But this year, we think the growth will increase even more. We also have some good wins in Latin America and Canada during this quarter, which is good to see. And also there, the growth is really driven by mainly XRY Pro and also new sales. With that, I leave the word to Tony to explain the financials.

Thank you, Peter. So let's run through the financials for the quarter. So we continue to see a growth. And actually, we did a record sales in isolated Q1. The first time we are reaching 3-digit numbers for a quarter 1. So as mentioned, the net growth is 7.6%. But FX adjusted, it's 14.7% in the quarter. So we are losing SEK 7 million in the net sales compared with last year. And looking at the rolling 12 numbers, we actually gained some further sales. So we reached up to SEK 469 million compared with SEK 462 million last quarter. So a net growth of 15.7% in Q1 versus the same period last year. But FX adjusted, we keep on growing. So we are at 23.5% FX adjusted for the rolling 12 months. As mentioned, we have a strong momentum in EMEA. We are seeing new customers, which you can see on the diagrams to the right. And we are also improving a lot with the product XRY Pro. It's cautious in Americas, which also shows in the numbers. And there are some delayed transactions in APAC. We have not lost them, but they are delayed in the momentum. Our new sales are growing. That's good for the contract base, which I'm going to present later in this presentation. So last year, we reached -- exceeding that one and filling the contract base with new sales of 60%. It's primarily driven by XRY Pro. Approximately 70% to 75% of the growth is XRY Pro. Next slide, please. So we are keeping on investing in the company, and that is also showing slightly in the OpEx, but we are designed to establish a foundation for scalability, which we are improving as well. Starting with the gross margin. We had a gross margin of 95.4% in the period. Rolling 12, we are still about 93%, ending at 93.4%. As you can see on the yellow line in the table to the left, we have a stable gross margin now looking back 2, 2.5 years back. So we are not doing any isolated hardware sales as we did previously. We are investing, as I mentioned. And looking at in the OpEx, you can see a shift between other external costs and personnel costs. The other external cost was inflated by consultants last year. And on the vice versa, the personnel costs were very low because layoffs, and we took the cost in Q4 the year before that. So the comparison number is not to be compared with this Q1 number. It's better to look at the Q4 number for last year, as Peter mentioned. We had a core personnel cost of SEK 71 million in Q4, and now it's SEK 74 million. It's mainly driven by the salary increase, which effects from January. So all according to plan with OpEx, but the shift between other external costs and personnel costs. And also, we did some investment in external exploits, which we balanced last year to the balance sheet. Now we have signed a service and support contract with the same vendor for 1 year ending in December this year. It cost us close to SEK 5 million a quarter, and that is recognized in other external costs. Yes, we have moved. We have a new office. It's really nice. We are sitting at Sveavagen. It's really appreciated, but it's also affecting our cost and our balances. But we are gaining a lower rent all according to IFRS then, so it's balance and taking over depreciation. So we are saving like SEK 2 million a year on a yearly basis for the Sveavagen office now. [Technical Difficulty] Now I can see the next slide, sorry for that. So balance sheet. Normally, there are not so many changes in the balance sheet. There has been not -- I'm going to explain them a little bit further, but we still have a stable platform for continued growth, and we still have a net debt-free balance sheet. So no debt is taken. We activated intangibles, you can see a big shift there. We haven't activated anything now in '26, but it's down [indiscernible] 25%. We are gaining some tangible fixed assets due to the office move. It's installations with IT, furniture and infrastructure in the new [Technical Difficulty] Leased assets. So we moved up the [indiscernible] office agreement, and we moved in a new 7-year agreement for Sveavagen. That's why you see the big change in these fixed assets. And cash, we have a good cash situation. So we're gaining cash, and we have good momentum in converting cash EBIT to cash still. The strong cash flow. However, in Q1, it was affected by the investments balanced and some -- yes, we have higher accounts receivable, but no customer loss receivables. Looking at the debt side, you can see we are also moving up to other short-term noninterest-bearing liabilities, and that is due mainly to the good sales in Q3 and Q4. So the 16% of the revenue that we balance and split over the contract period is brought to the debt side and moved in as revenues on a monthly basis when fulfilling the contracts. Final slide, please. And let's run through our new KPI, which we have followed internally for a while and decided to release to the market this quarter. The KPI is active -- it's showing the active contract software base as it is. And I'm going to try to explain what is the difference between recognized revenue and this measurement. So as you know, the quarterly result is subject to volatility due to the way that we report revenue. And the new KPI is to present the underlying trend in the current software base. So let's have a look at the table up in the right corner then and the circle to the left. So the way we recognize revenue today is that day 1, we take 84% revenue and we move 16% on a monthly basis split over the contract length, meaning we have a big revenue in the first day. And if we sign, as in this example, a 12-month contract, we split the 16% over 12 months. So the first month is a big revenue, second month not so big. That's the way we recognize our revenue. But looking at the circle to the right then, so what do we do to measure this in another way. So in this example, we still have a 1-year contract and a base of, let's say, 100%. So we split the revenues evenly over the contract period. So each and every contract is split over the contract length. So the contract length doesn't [Technical Difficulty] and even parts over the contract value. So looking at the table below that to explain this in a theoretical example. So let's say we have all contracts, we have seven contracts and the contract value is [indiscernible] SEK 100 million for all of them. It's different length on these contracts. The first contract is 1 year. So we split the 8.3% over 1 year. And the second contract is 2 years. So we split the SEK 100 million over 2 years gaining 4.2% evenly every month for 24 months. So we do that with each and every contract that is active and that we have. And then we do a snapshot in a period as we have done now in March 2026. So we take the value of each and every active contract and summarize that, what is the active contract base and then we multiply it by 12 to get the number which we are presenting in the report, SEK 436 million in the report, in this example, SEK 467 million. And then we take that number and compare a snapshot from March last year -- the year before in March 2025 and see what is the value of the active contract base. And as we have reported, we see a really good growth of 38%. And as mentioned before, that is mainly driven by XRY Pro. But it's -- the growth is also driven by product mix, pricing and the new sales versus renewals, et cetera. We don't give out the churn number, but the churn is very low. So now you're thinking how can I bridge this towards our recognized revenues. I can tell you that it's going to be hard because there are so many factors in this. In the way we recognize revenue, we have the FX factor. We don't have that when we split this evenly over the contract base. We have the product mix. We have different pricings. We have contract length, et cetera, and et cetera. So even though we have all the numbers, we cannot do a bridge. So please challenge me in doing that. That is it from me. Thank you.

Okay. So to sum this up, my view is really that we are in a good place with the company right now. We have a good management team in place. We have a good strategy that we have executed on, and it seems to be working well. But we still, of course, need to continue to work with improving our processes, improving everything we can in the company and it's continuous work that we do and also to deliver [Technical Difficulty] continue to invest in the products. What we also will do is according to our strategy is to intensify the efforts we have in the military segment. We think that is a good segment for growth for us, and we hope to see some results now already in 2026 on that. And then our focus is on emerging markets where the competition not has established itself so well yet, but also on increasing the market share in the mature markets like EMEA, which we see we really are doing right now and expand our existing customers' engagement. But to sum it up, I think we are in a good place. We have a lot of challenges in the market and outside the market, but I think we're handling them in a good way. And I'm looking forward to present our next quarter. Thank you. And don't forget to visit our Capital Markets Day on May 7 in Epicentre in Stockholm. We will present 9:00 to 12:00, and then we have a small lunch where you can ask the staff questions and so forth. Don't miss this fantastic event where we really will have a lot more insight into our strategy, our products and also get a presentation from our customer. So looking forward to meet you all there. Thank you.

Okay. So if you have any questions, there don't appear to be any questions at the moment in the chat. So with that, I think we wind off, and thank you all very much for -- okay, here we have a question here. So you flag for increased investments to weigh on profitability temporarily. However, also say that you want to maintain stable level of profitability for the remainder of 2026. How does one square those two comments? Do you expect just a small negative effect on EBIT this year versus in 2025? Please take that one.

Yes, absolutely. It's a good question. And what we really mean, I would say, we have a fantastic scalability in MSAB, but we will not get the full effect of the scalability this year if we -- of course, we need to continue to do some investments. But they are the short term, and then you will see the scalability going forward again. So we don't expect to reduce the [Technical Difficulty] we expect the EBIT, but it will not grow in the scalability that I really like in MSAB, the full scalability. Do you want to add?

No, that's correct. So 2026 will be investment year, and we're looking forward to scalability after that.

Yes. Let's move on to the next question then, which is the service and support costs for the third-party iOS product now run as an OpEx until December 2026. Do you expect to extend this for the next couple of years as well in OpEx? Or will you see another upfront CapEx investment such as that seen in 2025?

I think we will expect it to continue, I would say. That is the kind of nature of the agreement. Then it will, of course, depend on what will happen in the market. But we don't expect it to be -- we expect it to continue.

And then a question on the product mix. Do we still expect 92% to 93% gross margin looking ahead?

Yes. That's [Technical Difficulty]

And then the final question that we have here is what was the organic growth of the [Technical Difficulty]

In the earlier annual contract value, we don't have any FX effects at the number that we are presenting. Why? Because when we enter a contract, we do it with a fixed amount and a fixed FX entering the full month and the full period with the same amount. So if we signed, for example, 24 months contract 12 months ago, it's going to be the same value in that. So it's no FX effect in the annual contract value presented.

Okay. Thank you, Tony. That appears to be all of the questions we have for now. So again, thank you very much for joining this presentation, and we hope very much to see you at the Capital Markets Day on May 7. Thank you.

Thank you.