Net Insight AB (publ) (NETIB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Q2 presentation from Net Insight. My name is Andreas Joelsson. I am, as usual, responsible for the Net Insight coverage here at DNB Carnegie. And with me today, also as usual, I have the Net Insight CEO, Andreas Eriksson; and CFO, Cecilia Hojgard Hook. We will start with a presentation of the quarter and then open up for Q&A. And you are most welcome to send in questions via the website. I know some of you have already sent in a lot of questions. So thank you for that. But first, I leave the word to Andreas.

Thank you very much, Andreas. Good morning, everyone. And yes, let's get into the Q2 2026 report. So we'll go through an overview. We'll then deep dive a bit into business review, looking at the media as well as the sync side, and we'll then go Cecilia will then cover the financials, and then we'll wrap up in a summary and then as Andreas mentioned, open up for Q&A. So if we start with the overview. So this quarter 2, net sales amounted to SEK 91 million for the group compared to SEK 143 million for previous years. And the shortfall for -- between Q2 last year and this year is really driven by the absence of larger media orders in the quarter. And we thought we'll unpack this a bit because I think this is a question that many might have and what's driving this difference. And I think if you assume out a bit looking at the net inside business and the revenue and customer base, we have a very large installed base, many customers around the world, which gives us a really strong foundation. For the most part, these customers have chosen us the technology from Net Insight, and we continue to support them when they build out the network, extend the network, refresh the network and so forth. That's sort of the one thing that's important to know than the breadth of the customer base. The other thing to note is that our revenue base and is significantly impacted by large projects. Which means -- and this is driven by predominantly our -- a few of our largest customers, which the large -- also they come in with large media orders to us at the back of large projects. This project will be driven by different things. There could be some major uplift in their infrastructure. It could be driven by -- and that could be related to capacity uplift and so forth and made a refresh. It could be driven by if they win a large deal, it could be at the back of a media right that they need to do some major uplift of their infrastructure, can also be driven by new services that they launched, the different drivers that drive large significant media orders. The situation then is that these large media orders because of the sort of swing effect they have depending when they occur, that means that there will be a sort of thing -- will be -- could be significant difference between quarter-to-quarter when you do the comparison. And if you look at Q2 this year, compared to Q2 last year to Q2 this year, as we stated here, we didn't have any of these large media orders in the quarter. Whereas last year we did. So that sort of explains the -- it's the majority of the difference here when you compare quarter to quarter. I think it was important to state, though, when you think about this large media orders, is that they're not sort of -- they haven't disappeared in a way. We still expect sort of large media orders part of our business. That's been part of the business for the last few years. But again, the timing of them and so forth is the challenge in a way when you look at sort of a quarter-to-quarter comparison. If I then move on to the EBIT side, again, amounted to minus SEK 26 million. As many of you know, we have a very -- there's a lot of leverage in the business. So that means obviously a very high gross margin, which means if we have a lower revenue base that slows down very much a very big impact on the bottom line. So that's just -- and obviously it works the other way around as revenue growth. If you look at the quarter, we really feel that we have some really good progress in terms of the strategic priority we have set both with the media side as well as for the sync side. On the media side, we have launched the Nimbra 520, which -- and I'll talk a bit more about where that fits in. That's been progressing well. We've got the first customer orders for that during the quarter, and we continue to have some good progress on the times Synchronization sales funnel, as I'll explain more in detail. The available liquidity amounted to SEK 165 million at the end of the period. And again, as I mentioned, the focus action we've taken to strengthen commercial execution. Drive a broadening of customer base and then it improves conversion, in particular, on the sync side is what we are focused on at the moment, and we'll continue to do so. If I then summarize what we talked about before, again, the focus actions that we're taking is driven around 3 areas, and the one is to enhance the media portfolio. As I mentioned here, we have launched the 520 where we're starting to get the first customer orders. We've also brought on a new version of the JPEG XS. So JPEG XS is one of the major compression technologies that we have in our product. We now have made a major uplift to that, which means that we now kind of the market leader in that specific area. And we've already -- also they have seen some first customers coming on board on that technology. If you look at the middle one, increased sales efficiency. Here, the focus is very much on the North American market, where we think we have a really good opportunity. We think it's on the third for us. We think we have underlying potential there. We want to get into new customer segments outside our traditional customer segments. And then, of course, as we now build a good market interest for our products at the back of launches and the back of future launch, we want to make sure that we get customers on those over time. As we stated here, second customer for 400-gig solution is 400 gig at this moment is relatively niche. It's sort of really our largest customers. That'll change over time because the capacity requirement will be increasing throughout our entire customer base. But at the moment, it's relatively sort of a few that sort of see the big demand for the 400 gig. But getting a second customer is very positive for us. The second thing is to, again, growing into new customer segments. As we said, we now have 2 of the global media and tech segment as our customers, which is really pleasing to see how we can continue to grow with them. If you look at the last part and on the time synchronization side, again, as we've said before, really this year is about driving commercial of the opportunity we have in the pipeline, make sure they progress, the trial is part and then moving on to customer rollouts. It is really the core there, where we see, again, as I'll deep dive a bit later, we see good progress. So that just gives you a snapshot of the improvement areas that we are driving and the progress we're making in each of them. If I then go in a bit more detail, and we'll start with the media side. Again, as I mentioned, the media revenue was low this quarter, as I explained in the absence of large orders through the quarter. However, the work we're doing and expanding before is really working. We've launched the 400 gig. We have the launched 520. We're getting customers on those, which is really pleasing. And we also, for 520 have a number of customers at the moment are testing the technology and the product, and we have gotten a very positive response from that product from the market. So that's a positive for us. And then as I mentioned, the JPEG XS is other compression technology, we made the major uplift this year. We have then it's been used now for a major international sporting event throughout this summer. So that's really exciting for us that the latest tech is being used already now into some of these very high-end sporting events around the world. So to summarize, I guess, the expanded portfolio, it's really 3 areas in the high capacity, obviously, 1 area the Internet to cloud connected there. So this is again where the 520 fits in. And then the distributor production environment, and again, remote production. And when you don't do production at the venue, but actually from Homebase or from a central place, again, the solutions that we are developing is continue to support those core trends in the market. So again, we feel that the product launches and the focus is to convert them now into more and more customers and repeatable revenue, but then also, of course, to make sure that we are expanding our customer base. So if I just sort of zoom out a bit and think about -- we think about our growth strategy, as we talked about before, the portfolio growth plan is really around of course, strengthening where we are, but going deeper into the areas where we are already present plus then grow outside into new markets. So if you look at the lower left, what we call managed fiber, that's sort of the current core market. So what we're doing there is to make sure, of course, we want to grow the installed base. So the customers we have want to sell more to them. So that's sort of, I guess, obvious. But then also, we want to work with them to be able to serve use cases that we do not cover today. So there are certain situations where we might not be able to be kind of present in a stronger way or not be competitive for certain use cases. So that's part of the portfolio expansion. For example, we're towards the end of the year, we'll be launching a smaller version of series, which will fit into sort of use case, again, where we are not so competitive today. So again, going deeper, and increasing our market share in that area. Again, same there, we want to grow into the new customers within the segments we already serve, one. Two, we're going to go outside the current customer segments that we that we serve today. Again, as I mentioned, one being this global media and tech customer segments. So that's sort of the strategy there. If you go to right then Internet and cloud. So this is again, when you use Internet or cloud as an underlying carrier. And on top of that, we build live media services for transporting live sport. So that's really a fast-growing segment. So we're going to get -- we've been reactive there, but we haven't been so competitive. What we see now with the 520 launch and the traction we're getting is actually now we can in a much more meaningful and powerful way, be active and win business into that fast-growing areas. So that's really exciting for us. We want to then make sure we continue to do that, so we can scale that business up in addition to the managed fiber area we have. So that just gives you a bit of a snapshot on how the strategy, what we're doing fits into the TAM growth and also the traction we are having in the market and what we're trying to achieve as a business. If I then jump on to time synchronization, tonnes in creation revenue increased to SEK 12 million compared to SEK 4 million in the previous quarter last year, Q2 2025, $4 million. Turk Telecom rollout that continued well. We now have over 1,000 nodes installed. So this is really exciting because, obviously, that gives us a really strength and reference value in the solutions, other operator look to our technology. It's important to have a really strong reference case not just at the certain customers using it, but they're using it at scale, which is quite a different thing, which is really where we are strong. And the third point here, partner ecosystem. We now have 23 sync partners, which are really partners for channel resell partners. They also will help us with integration and rollouts as a customer want to do that. So we get the muscles to be able to deliver at scale as well over time. One of them is the WWT partnerships, which we have, and that's quite an exciting one, predominantly WWT, it's really about exiting customers in the U.S. market, but also elsewhere, but in the U.S. and Americas, it's where they are particularly strong. And as some of you might know, we also -- they also brought some of our technology into the future labs that they -- where they test and trial new technology solutions for the future, which is also sort of a part of that. But predominantly, WWT is really about the resell and the channel to market for us. On the commercial trials, we've been doing outside the 5G market. It's been exciting to see that we have had some commercial trials also on the media side, and we're getting some on the defense through partners. That's a bit sort of, I guess, we won some media customers, as we highlighted last year or last quarter, sorry, but then also getting into defenses in other area which we see a little bit more interest. On the standardization side, there's been some good progress there, where with the technical work in the ITU standardization body for PTS standard supplement has been now sort of technical work has been completed and agreed in that forum, which is a good step. And then now what will happen is that you now need to sort of document this technical work and document down, what has been agreed and then you approve formally the documented endorsement. So that's sort of the next step. So we expect that the IT approval will be at the next plenary meeting in February. So there will be work then to do this final editorial updates and document the agreement and then that will be for many doors then. So again, just to summarize, I think, on the time synchronization side, positive long-term outlook remains. Again, as we said, our short-term revenue contribution is expected to build gradually. As we progress more customers throughout the sales funnel. And doubling down a bit on the sales funnel. Here, you can see the movements since we reported last time. So another 2 proof of concepts. Another 2 customers in field trial phase and another 2 in the pilot installation phase. And the 1 sitting in rollout is the media customer that we talked about in last quarterly report that is currently being rolled out. So with that, I'll hand over to Cecilia to take us through the financials.

Thank you. So starting with net sales. And net sales for the second quarter was weak, as Andreas said, and amounted to SEK 91 million compared to the SEK 143 million in the second quarter last year. decline was driven by media and media revenue amounted to SEK 79 million and it did not include any larger order, whilst the comparison period included 1 of Net Insight's largest orders in history. Revenue from time synchronization increased to SEK 12 million compared to the SEK 4 million in the same quarter last year. So now to profitability and starting with gross margin. Our gross margin for the second quarter was -- remained high at 68.6%. And this reflecting our scalability in our business model. Our operating expenses declined with 4% year-on-year. And then our high gross margins and our relatively fixed cost base with the shortfall with revenue, this has a significant impact on our earnings and the earnings for this quarter, we had an EBITDA on a minus SEK 3.8 million. So now to operating earnings and operating earnings for the second quarter was minus 26% compared to breakeven if we exclude the one-offs last year. And the low result is driven by the low revenue in the media. It's important for us to have these activities that we are now doing so that we can turn this revenue and increase it in the future. Cash flow. Our operating cash flow for the quarter was SEK 3 million compared to minus SEK 35 million last year. And the difference is mainly movements in working capital. If we deduct the investment activities of SEK 22 million, our total cash flow for the quarter amounted to minus SEK 19 million. At the end of the quarter, we have a cash of SEK 80 million and an available liquidity of SEK 165 million if we include our unutilized credit facility. After the year period, we have in July, signed a SEK 130 million revolving credit facility, and we have incorporated the previous credit facility in that one. And we have done this to strengthen our financial flexibility and to support our ability to continue executing on our growth initiatives. So Andreas?

Thank you, Cecilia. So just to wrap it up. And so as I talked about before, when you look at the strategic road map, where we address the current challenges we have, but set us up well for seizing them in the long-term opportunities. They really come in 3 areas. Again, on the sync side, it's all about driving conversion of the opportunities we have in the pipeline. On the media side, it's a two-pronged approach, as I've highlighted before. On one hand, enhancing the media portfolio, strengthening it, as I explained on the previous slides. And then on the sales side, it's really about driving sales efficiency. And it's to a large extent, focus really on getting into new customers and new customer segments. That's really the output we want. Of course, we want to upsell as well to our existing customers. We really have quite a special focus on this new customer and new customer segments. And I think it's also important to, obviously, media, the portfolio and how you bring things to market, that's a very tight collaboration between the product the marketing side and the sales side. We're doing a lot of work to make sure that, that sort of revenue machine that we have within the business is working really well in harmony together so that when we develop new solutions, that's they're well tested and so forth. We bring them out in an efficient way, make sure that our sales partner, our sales force in-house is well equipped to go on and win customers on this new technology. And then, of course, that we have a really strong sales team and good ways of working. But the number of components that we're working on for them to come together in S1. So if I just sort of summarize the key points here. Again, Q2 was weak mainly due to the absence of large media orders. We really feel we're making some good strategic progress in both the area of live media and time synchronization, although I appreciate that we don't see it fully kind of -- we don't see it in the numbers, but we can see that the progress is happening. As Cecilia said, we are really tight on the cost side, so they continue to be in place. again, on the media side and the positive effects on the portfolio, the work we're doing on commercial execution. This is really important, again, will happen will have significant impact over time. The time synchronization very similar good -- there's progress in the pipeline, as you could see. But again, of course, we want things to move to roll out where it becomes more meaningful revenue contribution. We expect it to build gradually. In terms of the long-term financial targets remain unchanged. But though, as we've said, the timing towards 2027 is challenging. So that's the highlights. So I think over to some Q&A, Andreas?

Yes. And we have quite a lot of questions. So thanks for that. And I will take them in order. When we look into the autumn, it feels like time synchronization will compensate a little bit for the weakness that we see in media. But with regards to the target that you mentioned, how should we put that target for '27 in perspective, given what you see in the market right now.

Yes. And I think as we said, I think we look at the targets, the numbers to remain unchanged. But of course, the 2027 is looking very challenging. I think that's fair to say. But I think we're not building towards putting things in place to really kind of be able to bring the business back to really some good growth again as well as some solid good profitability. That's what we working on at the moment, but the 2027 is challenging.

Is there a discussion in the Board to update those financial targets and maybe a more long term beyond 2027?

Yes. I mean, of course, this is something that's being reviewed as part of the Board works. So I think absolutely something that is being discussed, but I think we -- that's sort of what we're communicating at the moment.

Then ITU ended their conference in Montreal a couple of weeks ago or 1 week ago. How did this important meeting for Net Insight.

Yes. As I mentioned, so the ITU work that I was referencing was at this Montreal meeting where the technical work, there was agreement around the technical specification and works. And then what needs to happen is, obviously, you need to document that to make sure that you're agreeing on the exact wording on the actual documentation of it. So that's -- so the agreement was done at the Montreal Summit and our next step is to document and make sure the editorial aspect that you make all the edits for actually how it's been document, that's the next step. And that will -- we expect that to be we then formally approved and agreed in February.

So it's [Technical Difficulty] that explains the long sales cycles if it takes to February to edit documents, I guess.

I mean, it's driven by meetings because obviously, this is governance bodies and standardization bodies where the industry come together and talk about things that should be standardized. So there are some regular meetings happening like the Montreal meeting, there will be another meeting so forth. So that's basically is the cycle. But of course, that you can also say that it's taking some time. But that's, I guess, how the standardization body works in the telecom industry. So I think it's very -- it's the way.

How important is that standardization. What does it mean for you in terms of easiness to get execute on orders.

I mean I think it's definitely a plus and a positive if that is in place. But we should also remember that we have customers that we have won that are in the telco industry that have gone and chosen our technology without this in place. So I don't think this is not -- it's not a blocker. But of course, it might help. And it will be different from customer to customer. Some are more particular about this and some are not. But I think it also comes back to the driver. The customers have chosen us already. They have the very strong financial and business drive to be able to solve the problems they have and where our technology helps. And I think that will continue to be there. We can -- again, we look around us now with the geopolitical uncertainty continue to remain, they will need to build resilience in their network, and we can help them. So I wouldn't say it's, again, a blocker. I think the business driver will be there. but it certainly will be a good step forward and a positive for sure.

And given that you are in the industry of transporting data and video and also in security, is there a business case for Net Insight in data centers and all the AI rollout that we are currently investing in.

I mean, at the moment, we are not sort of active in that area, but you can -- of course, they need time synchronization and so forth, then they also need a similar thing. It's -- but when you get down into the detail, it's not just obvious that on the highest level, is a need, then you go into data center, then -- it's different use case. If you're in a data center, where we made or is more on a wide area network when the network is spread out there you can see use case between the data center, for instance, of course, I'm not ruling out that there is a role for us to play there at some point in time. But at the moment, we're really quite focused on getting traction into the 5G market at the moment. But of course, we're looking, as I highlighted on other things. Media, the defense area. So we're definitely not just -- we're looking into other areas, which could be active. And and data center could be one of them. But for me, it's been very important to make sure we get some traction and we get focus in the organization to make sure we break through and dig a bit where we stand to get traction because good traction in this industry is easier to come into another industry, if we got some established presence. And you know that the technology has actually been deployed across the world for multiple 5G customers, you have some strong reference case. And it was also not just you run from one thing to the other, but you stay a bit focused certainly in the short term, I think that's been our priority.

There has been ongoing discussion of a better communication with shareholders. And given the profit warning, you might I want to know more about how does the visibility look like in a business like this, for instance, how large part of the quarterly sales is generated in the very last few weeks of a quarter and so on. Is there any better way to communicate that kind of visibility because it feels like the downturn in Q2 took us all by some surprise.

Yes. No, and I understand that. And I think when you think about -- obviously, we have our -- the quarterly report when we report and try to bring out some detail and be transparent around, first of all, how the business works. The revenue buildup and so forth, the dynamics around it to make sure it's well understood and people can ask questions around this. So we have established the same view on the world. I think that's sort of step one. And then in between, of course, we have press releases on major updates and then other updates that we want to do. And I think that's sort of the baseline for it. But of course, we continue to see could it be a bit more that we could do on top of it. But that's sort of, I guess, the fundamentals of it. And I think we also want to make sure we remain focused on fixing the fundamental problem and doing that work because I think, again, breaking through on sync and really getting media to a strong place. Again, it's obviously where we really spend the brain time and try to drive that at the moment. So also that aspect to take into consider range.

On the media side and the downturn that we saw in the quarter, you highlighted that there is a lack of large orders and that existing customers are maybe a little bit more hesitant. But could you explain a little bit the environment that they operate in and why they are hesitating and why they are maybe focusing more on cost reductions and maybe not so focused in investing in new technology.