Yubico AB (YUBICO) Q4 FY2025 Earnings Call Transcript & Summary

Welcome to Yubico's Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to acting CEO, Jerrod Chong; and CFO, Snejana Koleva. Please go ahead.

Hello, everyone. Thank you for joining for our Q4 2025 presentation. I'm Jerrod Chong, the acting CEO of Yubico. And with me, I have Snejana Koleva, who is our Chief Financial Officer.

Good morning.

We want to cover a few topics here on the agenda. A brief quick overview of the company, our Q4 '25 highlights, a bit of the financial deeper dive, and then I'll provide a set of concluding remarks, and we'll have the Q&A session open to the floor. I'll start first with a quick glance of our company. We have been in business for 19 years. And one of the things that we are very proud of is our customer base. As you can see, we have over 4,500 business customers and millions of consumers around the world. We are also really proud of being able to grow our business. We have our net sales last 12 months at SEK 2.2 billion. We see a strong continued growth over a period of time with our CAGR at 30%. We also are growing rapidly our ARR. Our subscription business is really growing by adding more value and services around our subscription business. We see that growing very significantly over the last 4, 5 years. And really, I'm really proud to talk about the technology where we protect millions of users around the world with the open standard we created, FIDO open standard, and a lot of you might know it as passkeys. We are the co-creator of that technology and that standard, and it's really a remarkable standard because it really creates a very strong phishing-resistant organization and reduces account takeovers significantly. Next slide, I wanted to give a quick view on where we are and where we're going. We play in the advanced authentication market. We have the YubiKey, which is our flagship product that is a hardware security device. We have been building this product line for many years. We are in the fifth generation. We'll be getting our sixth generation product by later this year. And with that, we are also expanding our product portfolio into -- expanding into digital identities. Advanced authentication is part of the identity and access management ecosystem, and we see a lot of momentum that our customers want us to provide products as we expand protecting digital identities, and we want to offer more products as we move into the digital identity space. In this picture, you can see on the left side, a picture of the YubiKey in black with the gold disk that is our flagship product. And we have a variety of different form factors from very small devices that sit neatly into your laptop and you don't even know you're using it. But one thing that is very, very clear, this is the highest level of protection that a user and an organization can use to protect against various phishing attacks that we see very widespread, particularly now with a lot of AI attacks. And this is a clear need to have these type of technologies to prevent some of the most sophisticated attacks in the market today. On the right side, as we created the open standards, we work with many, many different technology partners and applications. And you can see this is just a swath of the applications that works out of the box. And it's really important when you think about enterprise adoption, they don't want to spend time configuring things and like installing different agents and things like that. They just wanted to work. We wanted to work with the things that they have every day. So we're really proud of all the different integrations, business applications, consumer applications alike to be able to protect them out of the box. This slide, we're really proud when we look at our overall portfolio of where we have a presence. We see a much more balanced portfolio of industries that adopt the technology, particularly if you look at from the '25 portfolio perspective, really seeing a balanced portfolio from financial sectors, the governments of the world, high-tech sectors, including cybersecurity companies and AI companies that adopt the technology. And we also see a good growth in the manufacturing side of it in terms of manufacturing and the retail side of the business. So a very balanced portfolio, really excited to be able to diversify our portfolio from what when I joined 12 years ago was pretty much only one sector of the business, which is the tech sector. So really, really excited to see that progression continues as we move into 2026. A quick glimpse of our Hall of Fame, and it's certainly not all of them, but certainly, you can see a reflection of the different industries reflected here in terms of both very large organizations, international business as well as a swath of smaller but also very impactful companies that we've helped protect and they continue the journey with our company as we grow and scale our product line. Let's get to the meat on the highlights of Q4 2025. I take a step back. And when you look at Q4 2025, one thing that really stands out is that this is our best bookings quarter ever at Yubico. If you remove the currency headwinds, it's really important to recognize this milestone, cutting through the noise, getting it done in Q4 '25 is a really important milestone for us. Well, if you peel back the layers a little bit and what is going behind the scenes, we know that we have strong subscription and ARR growth. And this is important because it not just sets us up for like the current quarter, it sets us up for the entire next 12 months. It's a really important indicator of some of the longer-term growth that we want. One of the key highlights of that strong growth was a big subscription deal that we closed in India, which is a new market for us or we invested -- it's a fairly new market for us, and we invested some boots in the ground, and we see these results when we invest in the region with the people and the amplification of what we do to the market. Also reflected here, we talk about generally what we're going to do as we get to 2026. We want to make sure that we are accelerating our product offerings. There are many things that we are planning to do. I'll call out one of the products that we announced or released 2 days ago, a very specific capability for the Spanish market. And that is a very important deliverable that we need to do to make sure that, that market is meeting the requirements or meeting the requirements of the market. So we're going to continue to see a lot of product velocity with scale and quality as we head towards the rest of the year. One thing that's not reflected here, and I'll call it out is we see a strong base of our small and medium businesses as we grow the overall pipeline as well as the execution of our go-to-market strategies. A bit of self-reflection of where we are right now. I took over this on December 18 to lead the organization. I've been at the company though for 12 years, and I spent an enormous amount of time with our customers, and I plan to continue to do that. I think it's important to make sure we understand or I understand where they're going, what pains they have and how can we develop products and capabilities to help them mitigate some of the new risks that they are seeing. Very focused on product innovation, as I've described and be able to bring that out to the market so that our customers can realize and protect themselves better. Of course, I want to make sure I focus on the customers, but more specifically, we actually have a very strong customer base. And one of the things that we start to see is that we want them to be very proud of using our technology and come out and talk about not about the product necessarily, but about the partnership that they have developed with us over the years and why do they continue to use our products. I think that's really important for us. And obviously, the new customers as well, we are very excited to talk about their use cases when they deploy our product. And finally, I think it's really important given that I've been at Yubico for some time that while I make adjustments to execute on our strategy, I keep a focus on making sure we retain the best talent of the company, being focused on the mission, keeping that really North Star, how we built the company that we will bring that into the next era of our growth trajectory. Finally, I'll give a quick highlights here and talked about the bookings already. I think if you look at the numbers here with FX, we ended up lower. But if you take away the currency effects, it's a growth for us. It's really important that we recognize this milestone. A lot of the bookings did happen towards the end of the quarter. And so that has also an effect on the net sales because there are 2 elements to that. The first element is we have a subscription business. And so that entire revenue is recognized over the duration of the contract. So we sign a 5-year deal, then revenue is spread over the 5 years. And the other thing about bookings converted to net sales, we have perpetual deals and nobody wants to be receiving keys during Christmas Day if you made a good booking the day before. So there is a bit of the effect on deliveries tied to deployment schedules and how they run to deploy the technology with the teams ready to receive the YubiKeys. We've shown the ARR growth. I think this is a clear sweet spot for us to continue that. But of course, we see some pressures also with the gross profit from FX, but we even see even much, much more -- and we acknowledge that in terms of the EBIT itself with some of the investments that we made and also the pressures from the FX. And so we definitely recognize that, and we're working as a team to make sure that we are an efficient organization. With that, I want to hand it over to Snejana to talk through and deep dive a little bit more.

Thank you, Jerrod. So let's deep dive into some of our key metrics. I'll start with the order bookings. And Jerrod mentioned that in fixed currency, this is the largest quarter for Yubico ever in the history, which it's indeed a big milestone. However, we are very exposed to the USD FX rate as 70% of our business approximately is in the U.S. So nominally, we see a decline in the order bookings, but in -- excluding the currency, it is a healthy growth of 4.6% versus a very strong Q4 last year. In Q4 2025, we have a very, very healthy underlying activity with demand from various industries, financial services, technology, retail, the public sector. Jerrod showed as well kind of how we have diversified our industry portfolio. So that's really good. In terms of geographies, Americas were the ones that mostly were impacted by a lower number of large orders, while EMEA and Asia Pacific, we delivered solid momentum there. The other factor that we are very proud of is that the subscription bookings are increasing continuously. The subscriptions are very important for us as this provides kind of deeper commitment, deeper partnership with the customers, but it also provides a stable recurring revenue base. The renewals represented SEK 96 million, so approximately half of the subscription orders. If we deep dive into the order sizes, last year, in Q4 2024, we've had a very sizable big orders of SEK 197 million. And this year, we have less than that. But what we are -- what is very good is that our small and mid-sized orders are continuing to grow. And that again provides more diversified customer base and fuels our growth going forward. When we look into the sales numbers, again, it is very impacted by the FX rates. In -- excluding the FX impact, it's more or less flat, minus 1% decline versus last year. We continue to grow the share of subscription sales. So that increased to 26% versus the quarter last year and now represents 70% of net sales. And again, this continues to strengthen our recurring revenue base. Just as a reminder, when we book subscription orders, we book the total contract value and then the revenue recognition happens over time of the contract duration, while perpetuals when we book the order value more or less it flows as per delivery schedule in the net sales. From a geography perspective, Americas continue to have the highest share currently at 63% almost. They were at 67% last year. EMEA is stable and Asia Pacific is having a good growth momentum and now it represents 9% of the net sales, primarily driven by growth in India. India is a very big market for us, and we are very happy to have this big order that we announced in Q4. If we look into ARR or annual recurring revenue, we see a very healthy growth between the quarters, year-over-year growing with 21%. And this is even higher if we clean out the FX impact. We have net retention rates that are above 100% renewal rates, as I mentioned, very healthy. So all of that is very positive. And ARR is a forward-looking indicator. This represents our next 12 months of booked annual recurring revenue. So that indicates basically continued growth in our net sales going forward from subscriptions. Now to the more difficult part. The EBIT and the profitability took a hit in Q4 with 1% EBIT margin. It was driven by 2 main factors. First of all, our gross profit decreased significantly, corresponding to a gross margin of 75%, 76% versus last year of 84%. The majority of that impact is driven by currency headwinds. The reason of these currency headwinds, again, we have a very negative impact on the top line from currency. At the same time, our product cost is a mix of USD and SEK. So it gets more sort of expensive in U.S. So the margins in the U.S. are somewhat pressured. We expect this gross margin to be in the range of 75% to 80% during 2026. We are taking active measures to offset partially with -- working with pricing structures and managing tightly the entire supply chain. The second part of the EBIT decline was caused by increase in overhead costs below gross profit. We have deliberately invested during 2025 in our sales and marketing and go-to-market organization. And this is visible in our quarterly figures. We do have a negative currency impact of SEK 22 million in EBIT and nonrecurring expenses of SEK 6.6 million. So that is basically explaining the EBIT hit or turn down during the quarter. If I go into the cash flow, the cash flow was positive despite the lower cash flow from operating activities. The positive change is in the working capital. This is primarily driven by inventory reduction, driven by our careful planning of sourcing and manufacturing volumes, and this has continued to -- expected to continue during 2026 as we are, again, very carefully planning. We have a lot of inventory. We plan carefully where do we source, what do we manufacture, so we have the right products at the right time. CapEx or cash flow from investing activities includes investments in some machinery equipment for our supply chain and production, but also capitalized R&D of SEK 6.6 million. We continue to have a very strong cash balance in the balance sheet, which will continue to support our growth ambitions in 2026. And with that, I'll give the word back to Jerrod.

Thank you, Snejana. I want to close it out with looking at our plans, not just for '26, but really the long-term goals that we want to hit. It is really about continue to invest in -- I consider a very strong part of the entire ecosystem, our YubiKey, which is a really, really secure root of trust, and we have many organizations around the world that this is their backbone, the security backbone that keeps them in business. So we want to continue to advance with the state of art to get the best YubiKeys out there. We have described a next-generation version, the sixth generation YubiKeys that we are planning to roll out later this year. It's really important that we bring those new innovations to the market. The second area of the product line that is really important for us is to make sure that the services to adopt YubiKeys really, really help the organizations deploy. What do we mean by that? If the YubiKey is sitting on the shelf and they're not being used because they couldn't be delivered to the user, that is not very useful. So by providing services to deliver, improve the adoption and usage, which is a better customer experience and user experience, these really accelerate the adoption. And when you accelerate adoption, then obviously, the customers see the value and they continue to invest in our product portfolio. The #3 area, which is what we described also in the Investor Day, we're moving into new services around digital identities that we want to bring to the market. I described earlier in the total addressable market where we want to head if we offer new services and products in this ecosystem, we will see growth coming from a new direction. And fourth is to make sure that we refine our go-to-market investments. As Snejana mentioned, we have had some cost overhead in sales and marketing, which is necessary to grow the business internationally and globally. But what we also want to do is to make sure that we can realize these investments in '26. But what we also want to do is to make sure that we can leverage some of the business partnerships we have to be part of larger deals, larger projects. And finally, I think for us, it's a no-brainer to make sure that everything we do is a smooth and wonderful experience as our customers work with us. Many of our customers are long-time customers over many, many years, and they continue to work with us because they trust us as the market leader for the technology that we provide. With that, we'll go into the Q&A section of the presentation.

[Operator Instructions] The next question comes from Simon Granath from ABG.

I think last quarter, we talked about you having very limited visibility with the public U.S. customers. Has that visibility increased? And if so, what are you currently seeing with them?

The U.S. public customers, we are definitely seeing some adjustments in the way that they interact with the commercial companies. From our perspective, we haven't seen major movements in terms of how they change their pattern. But what we are focused on and to make sure that we are focused on the ones that have adjusted the way that they do the budgets and have been working with us for a while. So we want to make sure that we make every effort to see those conversations and opportunity materialize. So from our perspective, we are not like removing investments in the area, but we are really refining where the conversations are happening and creating the outcomes that we want.

And on the gross margin guidance into 2026, the 75% to 80% range it's relatively wide. But at the same time, you are not expecting a decline from the Q4 level of 75.5%. Can you talk a bit about the moving parts into that range? And would you expect Q4 to mark the trough? Or could it come down even more into Q1 and then gradually improve given the changes you are making, as you mentioned during the presentation? I think that would be very helpful to understand.

Yes. I can comment on that. So the moving pieces in the gross profit, if I start with the currency impact is the share of business that we do in the U.S. If we grow more in EMEA and Asia Pacific, then the currency impacts are a bit more limited. But in the U.S., they are more prominent. The other moving piece is the share of subscriptions. I think I went through the logic during the Investor Day that especially in the initial stages of subscriptions, the gross profit is lower as we deliver keys while we're recognizing revenue on a bit more gradual basis. So that is the other moving piece that can impact -- we're seeing an increased share of bookings. It will gradually go into -- will impact the revenue, of course. But it is a rolling effect. What I mean by that is that initially in the subscriptions, the gross profit is somewhat lower. But as we are building the subscription kind of tenure, then the gross profit actually becomes higher once we have recognized the cost of the product. So these are the moving pieces within the gross profit. And we are very much kind of managing both on the supply chain side, as I mentioned, on the pricing side as well so that we can -- that this is kind of -- the Q4 is the bottom, so to say.

Very colorful answer. And then I had a question on the recent progress in APAC, particularly in India. Is this a market we will hear you talk more about going forward? And if this is a potential growth market, is this supporting or diluting the margins, i.e., will this require more costs?

So India as a market is a big market, and let me give some color to that. And one of the reasons why it's a big market before we even had boots on the ground is that we have a lot of U.S. customers that have BPOs in the region. So this market has been slowly adopting the technology independent of whether we had the boots in the ground, right? But of course, that those are segmented industries. If you look at just how the business was growing. And so we made a very conscious decision to invest more with our team in India. And I think the results are very impressive for the short amount of time that we've got the team in place. What we know from a historical perspective is that focus gives us the result. So when the team is comfortable talking to customers at this level for large deals, then clearly, there's a path and a trajectory for opportunities to continue to expand and grow in the region. That said, I think every region in Asia is very different. We can't make all the investments we wanted, right? Because you have to be very deliberate in where the investments go because it does take up overhead cost to be in that specific country, for example. But what we're doing though is that we are setting up headquarters for Asia Pacific and Singapore. I've discussed this with you. I'm going to be flying there to open that hub in 3 weeks. And it's really exciting because it sends a signal to the region that we are open for business. It's hard to do that if you don't have a base in the region. And so that's a clear signal that we want to work with our customers, build up our relationships in the region. And I think that's the results would follow and we have to focus.

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

Sorry, it appears I was muted. I hope you can hear me now. So yes, I wanted to ask you on the ARR dynamics to start with. Your subscription bookings number was encouraging. But I guess ARR is being held back by FX. But is there any degree of churn as well impacting ARR in the quarter here? I'll start there.

So there is always some small churn, but it was sort of our renewal rates are very healthy. And as I mentioned, our net retention rate, so expansions plus renewals minus the churn is positive. It's about 100%. If that answers your question?

Yes, definitely. And then just you mentioned converting a significant share of bookings -- sorry, getting a significant share of bookings in at the end of the quarter, which has not yet converted into sales. I mean, is it possible to quantify sort of how much you feel that this impacted the net sales in Q4 here?

We monitor this very closely. We are not disclosing the shipments or the fulfillment rates. But we do have some backlog that we will invoice during Q1.

Okay. And then just a final question here. Jerrod, I wanted to ask you, I mean, looking into '26, you spoke about small and mid-sized orders being solid here, but what are sort of the key things that you think you need to get right to start getting those larger orders again here in '26?

Yes. There are 2 very fundamental things that gets us back on track with the large deals. First is to build products that adds more value. And again, it's more than just YubiKey, right, providing new capabilities, new use cases that we solve. Being really focused with the additional services and products that the customers will want to invest in the entire portfolio of our product base. Second, it's really important that we continue to establish the business relationship. So what we know a lot of times when we go into a customer with a large project, we always end up really at the top when it comes to the technical win. But that doesn't always translate to the large deal. And so we need to build stronger relationship from the business side of it. And it's really a focused effort, right, being able to find where these decisions are -- makers are, connect with them, build the relationship, build the trust. So they are going to be willing to invest in our company and our product portfolio. So it's really 2 things that need to happen to really get to a lot more of the large deals. It's being very, very focused with that type of effort.

The next question comes from Thomas Nilsson from Nordea.

First, you saw record Q4 bookings. Does this reflect some fundamental improvement in demand? Or was it a closing of large-scale enterprise deals behind this? And how sustainable is the momentum in order bookings going into the first half of 2026?

I'll answer that. If you give back the layers, we saw the chart that Snejana showed previously, we really see the strong base of the small, medium deals. Maybe we can go back. We just show that again. I think super useful to...

I can move it.

Yes. So if you really look at this super carefully, we didn't have that many large deals as we described it. So the question we had asked previously was like what are we doing about it, right? So we're going to do something about that. But if you just look at this chart a little bit and look at the kind of the growth numbers where we are with the deals below $1 million, it's really a strong growth there. And to us, this is what's going to continue because if you look back again, if you look at the chart, look back and you can even go back even to 2022 and further, right? This is a strong indicator of the growth trajectory. In fact, we also see, of course, some of the $1 million to $3 million deals starting to pick up a little bit. But again, fundamentally, we're missing -- this is what we call the mega deals. And that as I described, we have to really invest in that at a different level to build a relationship. So trending, the data shows it. We don't see any fundamental difference in terms of the trend lines for the $1 million deals, it's going in this direction, going up. But the large deals, right, it's very lumpy today. And so it gives us the volatility, and we don't want that. And the way that we can smooth it out as well is to think of a longer-term contract, which helps smoothen out some of these conversations and then obviously build more pipeline for the large deals with the relevant stakeholders.

Okay. And a final question, if I may. You have a very strong cash position at Yubico. Are there any opportunities for acquisitions? And what does your M&A pipeline look like? And what type of acquisition could be of interest for Yubico to make?

Jerrod, do you want to comment on that?

Yes. So what we -- if we look at where we're going, this is the pillars that we have. If you look at the buckets that we have on #3, there is some opportunities we're looking to expand our portfolio. We're not going to comment on our pipeline. It's something that we don't want to review too much, not necessarily because we don't want to talk about it, but it gives other people some indication even with our peers and things like that. But if you look at 3, there is a directional piece for us to be able to expand into the digital identity ecosystem and that particular market. And so we will look for ways to be able to accelerate our deliverables and execution.

[Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

So now let's go to the written questions. And the first one is for you, Jerrod. How long does it generally take for a newly hired account executives to become productive and reach baseline sales?

The sales executive in terms of where they are hired has a different trajectory. So for example, when we look at some of our sellers that are selling to super large enterprises, there is usually a longer ramp-up time. The sellers that are focused on the small and medium deals, they generally ramp up faster and also because it's more transactional, right, that kind of the volume matters. But the ones that are -- the large deals that we just talked about, they -- it's solution selling, right? Solution selling is complex sales. So they need some level of competence with our product lines, our messaging, our portfolio to be comfortable talking to customers that have obviously multimillion dollar deal opportunities for large contracts. So it does vary with our teams. But generally, most team members as a range between 6 months to a year.

And next question, how does demand from the biggest tech customers look if you think about Microsoft, Google, Amazon, et cetera? Are you seeing increasing penetration among those?

Increasing penetration. I think that is an interesting question. Some of these organizations have passed what we believe as their internal employee count. But what we do know is that these companies, we want to protect the end-to-end organization, but also a number of them protect their supply chain. So that is an additional growth area for us as they expand their business and protect their supply chain. In terms of where we are heading, they still continue to be a large part of our portfolio. We've seen the industry side. I think we bring it back to that again. The industry side, we're not seeing them disappear. I mean they just continue to be part of our portfolio, but balancing out our overall strategy. So they're still a big part of how we grow the business.

Next question. Small orders are increasing. How much of this is due to the larger orders becoming smaller? In other words, are you down selling on your bigger customers?

From the perspective of transactions, there's definitely much more transactions. So it would not make sense to then equate therefore, the large company bought a lot of many small orders. I mean sometimes it does happen. But in general, because we also see volume increases in the number of transactions, that does indicate to us that it's not just big orders becoming small orders, right? From what we obviously understand, we also have a mass market business. So that also means that the transactions are faster, going through different channels. As some of you may know, we launched an in-store retail product in the U.S. for Best Buy, which is one of the top consumer electronic retail stores. So we do see this groundswell where people are buying where they're comfortable with in different marketplaces. But what is really important and exciting is that these customers, a lot of them are also businesses that they can try out without necessarily having a long sales cycle. So it gets really rapid to just get the product in hand and use it. And then they become leads to the enterprise team because when they buy at a certain volume, they say, you know what, I think I need to go talk to someone because I want to get better discounts than just paying some of these prices that they see. So we see this as a good fuel and lead to the enterprise business. So in general, some of it does happen that way, but I would say just the volume of transaction does not indicate that is the trending.

And next question, you said India is a very big market for you. Can you indicate how big it is? What type of customers are they? How does the growth look like there?

We're not going to give the comments on the growth numbers for the region. But what we can say is I've explained the awareness of the technology has been building for several years now. And the difference in the numbers are because we've actually put boots on the ground to build the local relationship with other businesses, and they are partnering with us to then commit to long-term contracts. We also built a strong channel partner ecosystem in India. And so that's also paying off because we need to work with a lot of the local partners to bring the scale of delivering all the products to all the different customers. And so we continue to see that development happening in the markets where we invest in the people and the resources to give it the full amplification of the results.

And a question to you, Snejana. Could you repeat how you think about converting bookings into sales quickly?

Depending on what quickly signifies. But a quick comment. The subscription order bookings, we recognize or we report them as total contract value as perpetual, by the way. But the subscription total contract value then is spread out over the course of the duration of the contract. So meaning if we book SEK 90 million, let's say, subscription order, then each year, we will -- and it's a 3 year order. Each year, we will recognize SEK 30 million of sales. Perpetual is booked as total contract value. It's typically linked or entails a shipment schedule, especially if it's a big order. And then there, we recognize the revenue over the duration of the shipment. But typically, the shipments are within a quarter or max 2. So that's kind of the quick. If the quickly meant, are we able to recognize revenue quicker, then it all depends on the agreement with the customer on the shipment schedules for perpetual orders. For subscriptions, it's typically we start -- once the contract is signed, it's very typical that we start recognizing the revenue more or less from the quarter after.

Next question, back to you, Jerrod. Could you elaborate more on the U.S. public customers? There was talk of delayed orders in previous quarters. Have you received those? Are they still delayed? Or do you expect them not to come?

I think the market continues to evolve in the U.S. public sector. I wouldn't say they're gone. I think it's -- the delays will be still present in certain parts of the adjustments. And they think that the entire ecosystem of public sector is adjusting to a new normal. But what we can say is that we have very close conversation with all the customers, right? So those that are -- that we have our customers continue to invest in us. And also, if we look at the overall sector, our brand and our recognition of our product line is really, really very clear. For example, we have the guidance coming out from the U.S., I guess, Department of War, Department of Defense, whatever the guidelines continue to change, calling out YubiKeys by product name in the report. So the awareness is really, really high within the public sector and the government in the military space in the U.S. We continue to focus on that because we actually are a recognized brand in that space. But of course, there are budgeting scenarios that they have to work through with the current administration that they need to get sorted out. So we continue to be very closely aligned with how that develops.

And next question, Yubico chose to move to a subscription model, yet this is now blamed for the poor reported growth. Was moving to a subscription model a mistake? Why did you do it?

Maybe I can start, Jerrod. We definitely don't blame the subscription for a poor reported growth. We just need to call out kind of the dynamics of that. The subscription model, again, provides a deep partnership with the customers. It provides stable, predictable recurring revenue. And from a profitability profile perspective, over the long-term, as we add actually and provide to the customers value-added services, the profitability profile of a subscription over the long-term is more favorable. Jerrod, maybe you can continue on that.

No, I agree with you. I mean we're not blaming that for sure. And we don't actually look at it as a negative. I think -- and also we shouldn't just look at the subscription. Like what are we trying to do here? What we are trying to do is to help our customers protect the organization for a very consistent period of time. So the service that we provide, we want to future protect them, right? So for example, if the customer -- one of the benefits of the subscription model is that they have some employee churn. And so in the modeling, they will get the additional keys they need to protect the customers. Now they don't have to take all of the entitlements, but that is a benefit. So they want to work with us because they see the value. So it isn't about like all subscription is good or bad. What value do we provide to the customers? And customers buy the product subscription because they see the value. And the other thing with the subscription is we also accelerate a number of things that help deliver products to the customer. And they also look at it at how do you can help me enroll the users to use the YubiKeys. So these are additional capabilities. And then without it, the customer has to invest somewhere else to go solve this problem. And so I wouldn't look at it as just a black and white like subscription is causing this effect on the profitability. This is a thing that the customers see value. And when you see the customers see the value in the product, they will continue to invest more as we release more products.

And Snejana, can you give any color on your thoughts on headcount? Will the low double-digit growth we have seen for long time trend downwards if sales do not pick up sufficiently?

Yes. So we have indeed invested in our people during 2025. During 2026, we will be much more selective on the headcount growth. We think we have an organization in place now that will deliver on our priorities. So we will continue primarily investing in R&D resources to deliver on our accelerated product and services road map.

And the next question to you, Jerrod. If you expand into digital identity services, are you at all worried about cannibalization?

I think there's always a possibility. But the way that I look at it and the team looks at it is that we don't do this, then we're going to be [indiscernible] by somebody else. So again, if the customer wants a certain set of products that we can deliver, we need to deliver it. Otherwise, it's just going to go somewhere else.

And last question, how big is the average order in the less than $1 million category?

I think it's a very big variety in this category as we have mass market in there, Amazon sales. So it could be anything from people buying 1, 2 keys to actually small and medium enterprises buying below $1 million. It's a very big range.

But what we can say, though, is that the deal sizes in general is trending up. If you notice one of the things that we've done in the release of the product line in the Best Buy, we have a 2 pack now, right, 2 YubiKeys. So the average cart size is growing because of the way that we are positioning -- actually, you need 2 keys because you -- a lot of the customers complain, what was if I lost my YubiKey, I would say, you get 2 of them. So the overall movement is to be able to bring up the average deal size for each segment of our buyer.

That concludes the written questions.

All right. Thank you very much.

Thank you, everyone, for joining us, and have a great rest of the day.

Thank you.