Yubico AB (YUBICO) Earnings Call Transcript & Summary

Welcome to Yubico Q4 2024 Report Presentation.[Operator Instructions]. Now I will hand the conference over to CEO, Mattias Danielsson; and CFO, Camilla Oberg. Please go ahead.

Good morning, everybody. Happy to have you on the call and to share our full year 2024 report and the results. And as usual, we'll start with a quick overview of Yubico as a company and to give a little bit of background. This will be the last quarter that we'll use these slides to give this update. So bear with us if you've seen this messages a couple of times before we've updated the numbers, though, of course. Yubico is a leader in modern authentication. And if we look at the overview, the key to our success, pun intended, is the YubiKey, which is a key to all relevant locks for log-in and authentication. So what we're in is the market we're in is securing log-ins for our customers. And the key to our success there has been that a versatile key that fits into all relevant locks and it also provides the highest level of protection. So those customers that have implemented the modern protocols without using our key have experienced exactly 0 account takeovers, which is, of course, the foundation of our success. We've sold and deployed some 35 million YubiKeys keys to date, and we already have approximately 30% of the Fortune 500 companies as our customers. However, in most cases, these customers have only deployed our product to a subset of their employees. So there's still a lot of room for growth there and we'll get back to that shortly. We primarily sell to enterprises and public sector across the world but you can even use our product as a private individual. To date, we have close to 5,000 business customers and millions of consumers using our product. We're a proud hardware company but since the majority of the focus and development is focused on the software, on the key and associated software, we've been able to maintain very healthy gross margins consistently in excess of 80%. The size of the business today is about SEK 2.3 billion and we're slightly above 470 employees to date, about 2/3 in the U.S., about 100 people in Sweden and the rest across the globe. Great. So what is it that we offer? As I mentioned, we offer a key that fits into all the relevant locks. Why is this important? Well, it's important for our customers because most large enterprises face a wide array of different application software and systems. And you don't want different methods for all these. You want the highest level of protection and they're able to get that with our Swiss Army Knife type key, the YubiKey, which covers all of these different ways to authenticate and to securely log in. As a reminder, when you talk about authentication, we're a multifactor authentication. The most common way to log into any system or software is still user name and password where the user name is the identity, the password is how you authenticate that you're the legit user. Over the years, a number of different multifactor authentication methods have been introduced, often software-based or based on onetime messages. However, if you want the highest level of security and assurance, there's a growing consensus that you need to have a hardware-backed solution. And we are the leading in that segment, offering the highest level of security but also a very user-friendly experience for the YubiKey. As I mentioned, we're very proud of the customers that we've attracted. Right now, we're showing a few of the public reference customers that we have. You can see that they span across a broad set of industries. We started out focusing on high-tech sales in the U.S. We have now broadened our footprint quite substantially. And 2024 was the first year when high-tech wasn't the biggest sector for us. It's now been included by public sector and financial services. Don't get me wrong, we still get a lot of sales to our high-tech customers, and it's growing. It's just that other sectors are growing even more rapidly. Yes. So finally, I'd like to make a few remarks as to understand our business. We mentioned earlier that we have had a focus on large customers and already today, some 29% of the Global 2000 customers, so close to the 30% I mentioned for Fortune 500 companies are customers of ours of the Fortune of the Global 2000 companies, I should say. And this is a significant increase from 5 years back, where we had about 14%. We also have a very high customer retention rate and see a lot of repeat purchases. We haven't updated this number yet, but if you look at it in a 5-year perspective and our biggest customer in 2018, you could see a close to 120% nearly repurchase rate even for what we call our perpetual customers, i.e., before we introduced our YubiKey Service offering. So, a very high repurchase rate and a very low penetration rate among our existing customers, leaving a lot of opportunity for growth because we want to make sure that we protect all users and all employees within our customer base. And as I mentioned, we now see bookings across and orders across a very wide set of different customers. Some highlights for the quarter. We had tough comparables this quarter, but still, we were able to deliver a growth in order bookings. To be clear, it's order intake or order bookings, not order book. So new orders grew by 13% compared to Q4 2023 across a very wide set of customers. Still growth in high tech but we're seeing public sector and telco industry as strong drivers of growth this quarter. As most of you probably know, we transitioned from the First North growth market to the Yubico share being traded on Nasdaq main market on the 75th. Unfortunately, we'll have to announce an update to the management. Camilla, my close partner over the past almost 5 years, has decided that she wants to retire. Camilla being a true trooper has offered to stay on until we have fully onboarded a replacement. I'm grateful for that. But of course, sorry to see Camilla leave. One thing that we're very proud to announce is our collaboration with T-Mobile. We signed a contract with them already back in 2023. And with them, we've deployed over 200,000 YubiKeys to all of their employees. And this is a great customer reference and a basis of continued success in Telcos. We'll talk a little bit more about this towards the end of the call, but I'd like to highlight that one of the major shifts that we're seeing and one of the major opportunities that we're seeing going into 2025 is that we're moving from only protecting log-ins to protecting identities and users based on our customers asking us to do so. I'll get into a little bit more detail what that means in terms of product offering. But before we get there, I'd like to hand over to Camilla, who has a little bit of a rough throat, but I think she'll get through this.

Thank you, Mattias. As Mattias said, we have a strong year behind us. It was a really good year, and it's also a good quarter, though not on the same growth level as previous ones. As mentioned also Q4 last year, 2023 was a very strong quarter and therefore, we had tough comparisons this quarter. And we got some large orders in Q4, which were pushed over for delay delivery now in Q1. And this has, of course, affected the growth in net sales, and it also affects the levels in our inventory. So when we look at the bookings, we have a bookings growth of 12.8%. In local currencies, it's 11.5% to SEK 771 million. Net sales, we saw a growth of 12.2%, local currencies 11.2% and growth to SEK 623 million. We had a strong gross margin and the gross profit growth of 21.3% to SEK 524 million. and a gross margin of 84% this quarter. And year-to-date, we are on 82%. Adjusted EBIT, we also strengthened our profitability. So we grow the EBIT with 31.7% and reached EBIT margin of 17.8%, an improvement of 15.2%. And thereby, we have an EBIT of SEK 111 million for this quarter. Looking deeper into the bookings, our order intake. We have a full year bookings growth of 43%. And remember, we have a financial target of growth of 25% over time. So we think this has been a really good achievement for this year. As I said, you see here in the chart very well that we, in Q4 2023 started on a new baseline more or less and have then kept that level during the quarters in 2024 throughout the year. The growth was driven by a diverse customer base again and with the largest orders from the major tech companies, the public sector and the telecom industry. Subscription bookings amounted to SEK 146 million and that is 18.9% of the total bookings, which is actually the same share as we had Q4 2023. We had a growth in the subscription bookings of 13% and looking at the renewal part for this, so in the subscription bookings, we had SEK 96.9 million of the total, which is actually related to renewals but it's positive to see that we saw quite many of those contracts also including expansions. Looking at the net sales, we increased with 12.2% to SEK 623 million. And the full year sales amounted to SEK 2,326.2 million and a growth of 27.6%, again, above our 25% growth target. And the subscription sales was 11.4%, a reduction compared to the 13.3% when we compare that of the total net sales. This is due to that the perpetual offering has been growing more. The growth was here driven by high-tech and the public sector. We see that Americas has grown proportionally more than last year, while Asia Pacific had a lower growth this quarter as the net sales. And if you go back to earlier report, you can also see that specifically Asia Pacific, which is quite small, varies a bit over the quarter. So we are not worried about that, rather contrary. The ARR, so this is the annual recurring revenue from our subscription portfolio and we see that it has been trending positively during the quarter. Compared to last year, we have grown with 13.1% to SEK 324 million at the end of the period. And the increase in the quarter can also be seen that the new contracts and also from renewals or rather the expanded usage from renewals. Looking at the profitability side, we see that we have a strong gross margin, as said. This was supported by the development of the U.S. dollar SEK ratio during the quarter which also impacts the value in our inventory, therefore, boosted by that. Also, the adjusted EBIT was SEK 110.9 million, corresponding to the 17.8% and we had this quarter adjustment, EBIT adjustment from 2023 and last year. So that was related to the merger we made with ACQ in September last year. And this quarter, we had a positive effect. There was an adjustment in the merger result in 2023. Just to be clear, it was not adjusted 2024. Sorry if I missed that. Our LTIP programs amounted to SEK 9.8 million. This is slightly higher than Q3 as new PSUs has been awarded to new employees during the quarter. So this was allotment from the 2024 program. Sales and marketing costs are also a bit larger. Of course, related to commission, both that we have this good order booking and we also usually see a year-end effect on the commissions when we have a higher commission as a percent of the bookings when you come towards the end and reaching your quota. We also made some strategic marketing investments in EMEA and APJ to support the further expansion in those regions going forward. And we also saw an unrealized currency effect, which was positive this quarter of SEK 12.6 million. The comparable quarter last year was minus SEK 14.2 million. And finalizing this part, we're looking at the cash flow. We had a strong operating cash flow, plus SEK 128 million in this quarter, minus SEK 1.2 million a year ago. Net change in working capital was also positive, SEK 19.4 million compared that to the minus SEK 98.8 million last year. You see the chart to the right here, where we are measuring our inventory in relation to rolling 12 months net sales. And we ended the year with 29.7% here. And this was also affected then by this delayed shipments of the orders that was pushed over to this quarter where the customers wanted to receive them after the year-end. Cash at hand end of the quarter, SEK 824 million. Net cash, SEK 787.6 million comparing to SEK 473 million a year ago. And now the only debt we have left is what's related to leasing debts related to offices. We have, during the quarter, amortized the last part of our external loan, which we have had for some years. So the only debt is now the leasing debt. And so therefore, we think we have a very good financial position and strong cash and cash flow in this. And thereby, Mattias, I hand over to you again.

Thank you, Camilla. So as I alluded to earlier, we want to talk about how our mission evolves. Our vision remains intact. We want to be supporting a safer Internet for all. Our primary focus during the last 16 years has been to ensure that you can protect your login. And the updated mission is that we want to protect the digital view, protecting users' identities. And this may sound like a subtle thing but it's actually very important. It's our customers asking us to help them what we often call life cycle management. How does someone get onboarded? How do you tie YubiKey to a specific identity? How do you deal with account recovery and offboarding. And we're, of course, working across several different platforms and we're very proud of the cooperations that we've launched during the year with Okta and in the makings with Microsoft. But we want to make sure that this doesn't just cover their platforms. It's a robust solution for enterprises to secure the identities of their users, employees and end users. And we see an opportunity and request from our customers to evolve our product offering to support this updated mission. Digging a little deeper on that then, what does this mean? Well, as we look on some of our strategic focus areas going forward, I would put them in 3 different categories: expand, simplify and evolve. What do we mean by expand? Well, the most obvious expansion opportunity for us is what we talked about earlier on the call, making sure that we get a wider deployment among the existing customer base. We also want to cover new markets where we have limited presence today. Camilla said that we're not worried about long-term growth in Asia, and we see a lot of growth opportunities in Asia Pac as one example. We also want to make sure as we expand that we don't do all the heavy lifting ourselves. We want to evolve our go-to-market partnerships. And on the simplifying part, we want to expand our global channel model. We want to support our customers in reducing the thresholds involved with deploying the most secure authentication method out there, removing the hassle involved with deploying hardware. So there's lots to be done to making it easier for our customers to onboard and maintain a fleet of YubiKeys' for their customers. On the business side, we also want to evolve and support new business opportunities. We talked about a few of the successes we've seen during the year when it comes to supporting our customers' end users, particularly within banks. We are very proud to cooperate with Poland's largest bank, PKO Bank, and there are other banks that are also rolling out YubiKeys to their end users. And we want to make sure that we support that business method. So 3 different buckets but it's really about expanding our product offering, not into a completely new area but really supporting our customers as they protect their identities, the identities of their employees and users and then making sure that we get more leverage in our go-to-market effort. And with that, I'd like to sum up the year what I feel has been a very successful year. On the full year, we grew our order bookings with more than 43%, reaching SEK 2.6 billion. We grew our net sales or revenue by more than 27%, reaching SEK 2.3 billion. We had a strong year in terms of profitability, reaching almost 19% profitability, well aligned with our long-term target of reaching 20% profitability. So we saw a 64% increase year-over-year in our EBIT. And we had improving and what I feel is good cash conversion during the year, seeing that we see also a strong cash flow, setting us up in a good position and a strong balance sheet as we invest in building our market further. And with that, I would like to finish the presentation part of this meeting, and we'll open up the floor for questions. And I think there are already some people that have lined up to ask questions. So over to you.

[Operator Instructions] The next question comes from Joachim Gunell from DNB Markets.

So I have a couple of questions. Let's start off with the delivery slippage into Q1. And just can you just help us understand the impacts of this and whether, you commented that the bookings figure here, obviously, is a figure for net new orders and it's not an order book. So just unpack the moving parts here. And ultimately, if you can quantify how much that deal slippage is worth. So ultimately, the deals that was not delivered in Q4, they are not like optically raising that bookings figure, right?

Correct. So much like you say, we're talking about order bookings, i.e., the net inflow of new orders during the quarter, irrespective of when they get delivered, whether they were delivered during Q4 or get delivered in Q1 2025. Actually, if you look at it and compare it to last year, you can see that the growth in order bookings was very similar to the growth in net sales comparing to Q4 last year. So it's not uncommon that customer towards the end of the year prefer having orders delivered next year. And there are different reasons for that. I mean it could be that you want to make sure that you incur that cost the same year that you actually get the benefit from using our product, i.e., a matching in terms of revenue and cost for our customers. Another reason could be that you have rollout plans that are set to start at the beginning of a new year. So it's not an uncommon pattern but it was a pretty significant one this quarter. And it has a direct impact on our profitability too because the direct except for the final delivery, we've incurred all of the related costs on these orders, i.e. we paid commission for our sales and we've had all the company supporting so that we can secure these orders. And since our direct gross margin is about 85%. It means that it's 1% to 0.85% impact the revenue number compared to the EBIT number when you hold off on delivering an order.

Perfect. But it's fair to assume that that number and net sales level is that number of net sales, the impact there would be quite significant here, I assume. Is it closer to, say, 100? Or is it more in the 50s range?

So we don't share order book details. But as you say, there is a clear gap between order bookings and revenue this quarter. And yes, that translates into orders that should be taken to revenue next quarter, right?

So on inventory, so I would assume that if you were to have had these deliveries in Q4, inventory to rolling 12-month sales would actually trend downward continuously. But just help us understand here also that because you have said before that you build inventory ahead of a cycle, of course. But just talk a bit about what makes you comfortable with regards to the demand to support this inventory situation into 2025.

Yes. And as you said, this was a little bump in the road as we move down for what we overshot a little bit in terms of inventory compared to last 12-month sales. I think we peaked at something like 31%. We've seen a progressive growth sorry, decrease down to 28% in Q3 and now we're up at 29%. And it's exactly what you say. These keys are already manufactured and ready to ship but they're now in the inventory instead of being out to the customers. This means that we had a short-term increase there. But like you said, longer term, we see a small downward trend there. And without it being an explicit target, we think that the right level is probably in the 25% to 27% range when it comes to inventory compared to last 12-month sales.

And is there anything that you can say with regards to what you hear from your salespeople and the customers and how they eventually think about cybersecurity as a budget priority also into 2025 and then basically how you feel about the spend environment?

Yes. We still feel that there's a lot of market tailwind. And of course, the underlying trend underpinning that is that there is a real cybersecurity threat across all industries and even for public sector and private individuals. And that means that there's definitely a lot of demand for our product, which addresses one of the biggest cybersecurity concerns in a very tangible and cost-efficient way. And now it's up for us to deliver on that tailwind.

And finally, just can you comment a bit about the traction that you've seen so far with regards to the enrollment suite and the Pre-reg with Okta and Microsoft so far?

So the enrollment suite with Microsoft is, to the best of my knowledge, not live yet. So no revenue impact there. With Okta, it's still only offered for a subset of the customers. It's an important and growing part, but it doesn't move the needle a lot in terms of direct order bookings and revenue this quarter.

The next question comes from Erik Lindholm-Rojestal from SEB.

You obviously had a fantastic 2024 in terms of order growth, but net sales growth was roughly in line with your target. Rephrasing Joachim's question a bit perhaps but do you expect to be able to deliver on your 25% sales growth target here in 2025?

Thanks for that question, and thank you, Erik. Yes, like you said, we had order bookings growth for the year at 43%, and we only saw a 27% and change increase in net sales. Now there are 2 reasons for that really. One is as we transition more business into our YubiKey as a Service model, this means that we'll see order bookings that translate into revenue over the duration of that contract, which is typically 3 years. So as we expand among existing customers and as we add new customers, there's a delay inherently with that business model, meaning that there is not an immediate link between order bookings and revenue in the quarter. The other part was what we experienced towards the end of the year, order bookings towards the end of the year where the customer asked to get delivery early in 2025. We don't issue guidance on a quarterly on a yearly basis. But again, as Camilla said, we feel that we've established a new level from where to grow from. So we don't see any reasons for revisioning our growth targets of, on average, 25% and we see a lot of market tailwind.

Perfect. Then I wanted to ask, if we look sort of throughout the quarter, I mean, was there any dynamics where 1 month was especially strong? Or was it sort of spread throughout the year, mostly in terms of order bookings I'm thinking?

Erik, you covered us for some time. And I think I mentioned on this call this time last year that in Q4 2023, when we actually reported 83% order bookings growth compared to Q4 2022, it was one of those quarters where all the stars aligned. So in this quarter was more of kind of a normal quarter. Yes, we saw a lot of success but some of the orders also slipped into the future. So nothing really that stands out other than what I'm very proud to note is the fact that we've moved from tech being our biggest customer segment into a broader set of customers with other sectors, public sector and financial services specifically now being even bigger than tech. And I think that's only the start of a journey where we can get a lot bigger customer success and penetration among those customers in these really huge industries. But nothing out of the ordinary, I'd say, a strong quarter, but not one where all the stars aligned when it comes to order bookings, but solid and broad-based.

Perfect. And perhaps a question for Camilla. I mean 2024, you had quite high growth in receivables. Can you elaborate perhaps a bit on what drove this? And do you expect it to reverse now in 2025? And have you made sort of any changes in how you do revenue recognition throughout this year? Or is it just related to timing?

Thank you. As we are doing business with very large companies and we get large orders. And in this case, we have one large invoice, which is paid in January. So it's related to year-end billing on large order that is actually shipped during January. So it's not even hitting the revenue in December. So we get the cash before we ship in this case. But we haven't received the cash in Yes. So it's an exceptional order you can say.

So you haven't taken revenues for that order, but you have received cash. Do I understand that correctly or..

We invoiced before the year-end. That's why you see the high receivables.

Ok. Thank you. Slightly more. Yes. Sorry.

No I just I am fine what kind of what I just said. Invoice before the end of year but we do not recognize revenue until 2025.

That's perfect. Thank you. May be a slightly more exciting question to finish off with but you mentioned your 3 new strategic focus areas. And I mean, what do you think is most meaningful here and most important that you deliver on in 2025 to be able to deliver on your targets of these 3 focus areas? Thanks.

So short term in 2025 and making sure that we meet our targets in 2025 will be expanding within existing accounts. Every year we see between 70 and 80% of our revenue or net sales being generated from already existing accounts. So ensuring that we can increase that penetration of the user base is going to have the biggest impact in 2025. However, we want to make sure that we set ourselves up for long-term growth. And from a long-term perspective, I would actually argue that it's most important that we get, that we continue remaining the market leader in that segment and develop our product offering and get more leverage in our sales through partnerships and channel models. That will be very important to get done in 2025 but it won't have the biggest revenue impact in 2025.

The next question comes from Thomas Nilsson from Nordea. Please go ahead.

Okay. Thank you for taking my question. When it comes to the subscription offering, do you still expect to see subscriptions grow to the surroundings of 40% of sales over time in a few years? And what does churn look like among customers that are on the subscription offering? Thank you.

That's a great question, Thomas. Thank you. Yes. We say that, again, we offer 2 business models and we want to make sure that we service our customers in the way that they want to get served. We think that our YubiKey as a service, i.e. the subscription offering, is the enterprise-grade offering but we want to add more services and unique features so that because from a user perspective, it means that you get a commitment from our end to protect your users and to have a working authentication solution over a period of time. So, we support the customers and have closer dialogue with them, which we think the customers do benefit from. Now, that is a journey and we started that one, but it's going to take a number of years to move a larger part of our customers to prefer that business model. Sorry, what's the second part of the question that I missed? I'm sorry for it. It's getting late here in Arizona, so I may have missed it.

No worries. No worries. I was just wondering if you can shed some insight to what churn looks like among customers on the subscription offering.

Oh, yes. Thank you. We've had very low churn, frankly. I think we got a similar question earlier in 2024 and the pattern remains intact. We see a very high renewal rate. The only where we see customers either discontinuing their YubiKey as a Service or asking to move to a professional model is when there have been some changes in company ownership where there's been a merger or a divestiture. That would be the typical scenario where we see some churn. Otherwise, we have a very high renewal rate. We're talking about that, how we can update our financial reporting so you can get a better handle on that, on what the renewal rates look like. But we're not there quite yet and we want to make sure that we get it presented in a fashion that doesn't confuse more than add clarity. So, bear with us on that one. But, yes, we do see high renewal rates and expansion.

The next question comes from Julian Hull from Dragoneye.

Hi. Good morning. And I just had a question about your cash flow and the comment you made about a new office lease cost of S$33 million. It seems to appear in both the investing and financing cash flows.

Yes. So, this is IFRS accounting standards where all leasing contracts, so office leases and car leases or machine leases and so forth but we only have office leases. And according to IFRS accounting standards, you are accounting for that as an asset and as a lease liability. So, when we start a new leasing contract, office lease, we get an asset which is equal to the full contract value of all the payments we will do during the contract. And on the other side, we get the same amount on the debt side. So, that is just how the contract is starting. And then we are depreciating the asset and we are reducing the lease.

And we did sign a new lease for our Stockholm office during 2024. So, therefore, you see a difference there.

Yes. So, exactly. So, we enter that office during Q4.

So, is the annual cost of that office annualizing that quarterly rate?

I think it's a 3-year, 3 or 5-year, I don't remember now, office lease. So, it's just a total contract that you are capitalizing the value of in the balance sheet and you have the same in debt.

Apologies, but this is talking about the cash flow statement, not...

Sorry?

I was asking about the cash flow statement because this is flowing through the cash flow statement in one go.

So when we capitalize the contract from the start, then that is seen as an investment from the cash flow point of view. And we are financing that investment by a lease. So that is a loan, so to speak, a lease, which is just an effective lease but as a lease and then that ends up as a positive effect on the cash flow on financing part of the cash flow. So as if we would have bought a house and lent money, borrowed money. Which happens in IFRS accounting.

And just a question on the perpetual bookings. And going back to the earlier question. Has there been any change in the rough sort of timing of the release of those bookings? How should one think about the average time previously, you've talked about sort of 2 to 3 quarters. Is that still the case? Or are most of these bookings likely to flow directly next quarter?

Most of these bookings are likely to flow directly into the next quarter this time. I mean, there hasn't been a change there. I mean if you look at it over the full year, not just towards the end of the year, you typically see most order bookings being delivered and turned into net sales during the same quarter in terms of volume. But for larger perpetual orders, typically delivery happens over 2 or 3 quarters, which means that you see a lag in it translating into net sales. Now we have a year-end effect here to some extent, where customers prefer to take delivery and therefore, when we can recognize the net sales after the end of the year, and it's the same pattern actually as we saw last year, kind of the relationship between order bookings and net sales. So not really a change, but it's something that we probably should highlight more clearly going forward that you typically see these types of swings towards the end of the year as customers prefer to take delivery early in the new year.

There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

Great. We received 2 written questions at this point. The first one is 2 questions in one. I'll start by addressing the first one, I'll ask Camilla to comment on the second one. Let's see. We'll try to cover it. Over the year, inventories rose 40% and accounts receivable doubled to nearly 50% of sales. How do you explain this? For the first part, yes, we did see an increase in inventories during the year. Comparing it to the last 12 months, it was actually not a big increase. So it's a matter that we want to keep components equivalent to forward-looking 12-month sales and then we need to have ready products. And as our sales scale, our inventory does scale in absolute numbers, too. I think when it comes to the accounts receivables, that increased, that's a short-term effect, as Camilla explained, where we had a customer that got invoiced for services provided in 2025 and paid it early 2025, too. So that's more of a one-time effect. The second question is about these sales, which were pushed over to Q1, all of that is now fully delivered. That's the question. Adjusted for this, the inventory as a percentage of sales would have declined sequentially. They're pushed over into Q1. Not everything has been delivered today because we're still early in the first half at least of Q1, but I'm confident that everything will be delivered before the end of the quarter according to the plan, we have a very clear set delivery schedule for these large orders with customers. And you're right. The inventory as a percentage of sales for the last 12 months would not have increased if there hadn't been for this effect. And then we have a question I'll definitely going to leave to you when it comes to the IFRS accounting of lease cost or lease as an asset and a liability on the balance sheet. The question is from Jamie. Just to be clear on the lease cash out, is that an upfront payment for the entire office upfront? SEK 33 million seems a lot for an annual payment. No, it's not an upfront payment. It's just that we need to recognize it on our balance sheet according to IFRS. And under IFRS 16, shouldn't that be under financing activities? So that's the question that I referred to.

So exactly. So when we enter into a new contract and start the IFRS accounting for that, that is both an investment and a financing activity. So we are not paying out anything. We are just investing and financing investment by this lease. So there is no payout. The payout will be the monthly or quarterly payment that we are making according to the underlying office rent. So that is where the real cash is coming out. And then during the contract period. When we receive our invoices and we pay, then we also move that down to depreciation instead of actually having it as an OpEx cost. So it's OpEx, but it's not as a rental cost, it's a depreciation. At the same time, the debt is reduced as we are actually paying our office rent often on a quarterly basis. Does that make sense? I hope so.

It's a written question. So, have we got a follow-up?

So what I should run through the cash flow statement if there is no cash-out? Yes, that's a very good question.

It's an adjustment because we put it on the balance sheet.

Exactly. So it's just as it is. So it's 2 activities. We are acquiring, so to speak, an office contract in that sense. But we are financing it with a lease in the same way as if you had acquired something and you are financing that with a bank loan. And then everything comes into the cash flow statement.

And then we have a follow-up question on the accounts receivables. Please explain how a big customer paying an invoice early explains account receivables money owed doubling. To be clear, this was not a customer paying early. For YubiKey as a Service, we invoice going into the year. We recognize the revenue during the next year, so to speak. Typically, the customer would pay early in the year. So we had a big invoice for a customer for the services provided going into the year. It didn't get recognized as revenue at that point, of course, because we haven't delivered the service and the customer hadn't paid it yet, which means that it shows up as an account receivable.

This was related to the previous question where we had with the customer receivables as this was not even a subscription, so it's actually something that we have will deliver during Q1. So when we send out the invoice in December, it increases the account receivables, but we also increased deferred revenue on the debt side and thereby, we don't have any revenue it's an asset or receivable, but it's also a liability in the balance sheet. And we received the payment in January, actually. Yes. And we will take the revenue when we ship the goods. How big is this receivable from the big customer? We are not commenting on this kind of detail.

But it's big enough to have this impact on the growth of accounts receivables.

Yes. I think that was all the questions.

Those are all the questions that we received now. And with that, thank you for listening in. Please feel free to reach out to our IR with any follow-up questions. We're happy to do that. And Final question on that your accounts receivables doubled exactly. And this was related to a significant customer invoice. So without...

And of course, increased volumes as such as well, of course.

But it was a doubling related to this big one. Great. With that, we'll close up the call for now. Thank you for listening in and look forward to connecting with you at the end of Q1 2025. Please feel free to reach out to us with any questions or comments. Thanks. Bye-bye.