Yubico AB ($YUBICO)

Welcome to Yubico Q1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Jerrod Chong; and CFO, Snejana Koleva. Please go ahead.

Hi, everyone. Thank you for joining us for our Q1 2026 briefing. I am Jerrod Chong, the CEO of Yubico, and with me is Snejana. We are going to walk through the agenda. I'll give a quick recap of our company overview. I'll talk through our Q1 highlights. Snejana will focus on the financial overview and deeper insights to the business. I will then close up with our remarks, and we'll be opening up for questions and answers. Quick overview. I think most of you are aware we are expanding our organization. We made adjustments to our workforce to be more efficient as reflected in numbers. We want to really commit to the investors that our growth trajectory is priority, and we also want to make sure we are paying attention to our gross margin as well as our EBIT. Quick market update trends. I think most of you are very familiar with what we've announced 3 days ago with OpenAI and the partnership. What we see is clearly in terms of how the AI-enabled world is impacting the cybersecurity world. We can see that attacks are being much more scaled and precise in the way they are targeting accounts and how they take over accounts. What we also see is that while there's great tools for a lot of organizations to be able to defend themselves, what we see is that the tools are not even, which means the attacker actually have the advantage of the tools versus defenders. And the reason we say that is that when you identify a problem, it usually takes the attacker (sic) [ attacked ] much longer time to find a solution and fix it rather than attackers, who can just attack right away. So what this means is that we are going to see or we are seeing a massive amount of increase in attacks, specifically very, very targeted and scaled phishing attacks. And we believe that with the announcement, not just about the partnership, but clear message from OpenAI that they themselves are using our technology. It is really clear that the foundation for how companies need to protect themselves and defend against attack is with our technology. Highlights from the quarter. I think it's always important to talk about development as it pertains to how we grow our business from the perspective of product innovation and product capabilities that we provide to the market and key partnerships as we accelerate the business. As discussed, we have already announced the OpenAI partnership, and isn't just about, again, the program itself, it is a long-term commitment with OpenAI to protect more users in this fast-changing AI world. We've also announced other partnerships with big organizations like IBM and Auth0, which is part of Okta, in terms of how we work with the broader ecosystem to protect more enterprise users. We've also made some operational efficiency decisions. We have to take accountability for the investments we made in '25, not as successful as we intended, making the corrections to be much more effective and efficient as we scale the organization to produce capable new products and penetrating new markets. And finally, I'm very proud to be appointed as the Chief Executive Officer in the permanent role, but also very excited to have Poupak Enbom, who joins us as the new Chief Marketing Officer to really help us expand and accelerate our go-to-market activities. A quick 1-year look back. As I've described in a previous briefing, my focus is to really deepen relationship with customers. I think Yubico's foundation for the future of how we protect many organizations starts with our strong customer base, and I'm very proud that we're building very strong customer deeper relationships as evident by the OpenAI partnership. But beyond that, we're also very excited to continue to launch more new products. And it isn't just about launching new products to launch a product. It is about adding a lot of new capabilities that our customers want from Yubico to make sure that they can protect their organization and their users much, much more effectively and accelerate the adoption of the technology with as little friction as possible. So you can see in the milestones wherever the word YaaS, which is Yubico (sic) [ YubiKey ] as a Service, that is a huge expansion of the ability to reduce friction to adopt the technology. And what you also see is that we've established additional capabilities to be very relevant for certain markets where they need something specific for regulation and compliance. We've launched the CCN product series, specifically for the Spanish market in Europe. Europe is a huge opportunity for growth for Yubico's 2026 ambition, so we are providing capabilities that are very relevant to that market. And finally, we've continued to expand on our broader ecosystem for channel and distribution so that we can cover and expand globally with not just effective more troops on the ground, but more effective enablement where they can understand the value proposition of our products in the field. Q1 saw a huge uptick in our public sector. There is a war that we are facing in several parts of the world, and this has increased defense spending and we see some of that investments in that sector. We continue to see a strong pipeline in the public sector and defense sector as things continue to get very heightened because of cyberattacks as part of overall warfare. So we are very much invested to make sure that the defense sector and governments and militaries all over the world can successfully use our technology. Obviously, there's no indication of not investing in the other industries and areas of growth. We still see very strong demand in finance and technology with retail and manufacturing flow -- following very closely behind. Some of the figures here for Q1. We continue to invest in YubiKey as a Service, and that is evident in our growth in ARR. We continue to be much more refined in the way that we produce products and go to market as what we try to focus and build upon on what we've stated before, which is to bring our gross profit in line with our expectation. And the profitability itself continues to be an area that we want to focus to do better. Overall, with the announcement of OpenAI, it gives us really the product relevance for not just with the top AI companies, but every company that is going to invest in AI has to pay attention to what the most influential companies in the world are using to protect their workforce and their users. So we're very excited to continue the partnership and also continue to work with new partnerships that we will announce as well throughout the year to accelerate and bring awareness to our technology. With that, I'll hand it over to Snejana.

Thank you, Jerrod. So let's deep dive a bit further into the financial results for the quarter. I'll start with sort of quarter-on-quarter development of our order booking, net sales and EBIT. As we saw in the key figures slide, the negative currency impact continues this quarter as well, both on order bookings and net sales. The organic change in order bookings is 14% down and net sales is 10% negative organic change. When it comes to EBIT, we have in the quarter SEK 14.9 million or 3.1%. If we compare to the Q1 2025, we have a negative currency impact of SEK 26.5 million and the cost for the reorganization program of SEK 21 million. So the like-for-like change organically in the EBIT is negative SEK 30 million or 5 percentage points we are missing. If we look into the order bookings, this quarter Q1, we still see the small and midsized transactions are the majority of our order bookings. The larger enterprise deals are taking still longer time to close and we don't have large deals above SEK 3 million in this quarter. On the positive side, EMEA has developed very strongly, delivered solid bookings and YubiKey as a Service represents now 12% of the total bookings. One step deeper to look into the perpetual bookings. The perpetual bookings are 15% down versus Q1 last year. You see again continued trend of small and midsized transactions in perpetual orders. We see in these orders strong growth actually in e-commerce and EMEA as well performed well, while the large enterprise deals in Americas were -- take longer time. The sales follow closely the perpetual bookings. And we're happy to see also that the repeat purchases from existing customers are representing roughly 80% of the perpetual enterprise order bookings. This is clearly sort of an evidence or testimony of our strong customer relationships and deepening these relationships, as Jerrod already discussed. If we look into our business model with subscriptions, the subscriptions bookings are more volatile. And in Q1, it's typically a bit of a slower quarter for subscriptions as customers are sort of taking multiyear commitments. So we see -- in this quarter, also, we don't have like big subscription orders above SEK 3 million, but we do have midsized between SEK 1 million and SEK 3 million in subscriptions. It's very worth mentioning that SEK 22 million of the SEK 47 million bookings is renewals, which we are very proud and satisfied. That means that our customers continue to renew their subscriptions on a multiyear basis. The quarterly net sales from subscription actually has increased with 29%, excluding the currency impact. And this is very much driven by our increase of annual recurring revenue that we have booked or that we have reported during the previous quarters. So if we look at the annual recurring revenue development versus the last quarter Q4 2025 and adjusting for the currency impact, on a like-for-like basis, we are growing with 4%. We have a gross retention rate of 99.1% and a net retention rate above 100% at 102.6%, which is great in terms of kind of securing that we continue growing in our subscription sales going forward.

And I will add one comment on this part. So it's really important as we -- the reason for such a strong retention rate is the capabilities that we're delivering with the product. As you saw earlier -- I described a new -- almost every quarter, we're delivering something with our subscription. So it really isn't subscription necessarily. It's the value that we add to the product that then translate into customers not just wanting to renew, but then also expand their deployment. So for us, the value creation is much more important from a product launch and release perspective, obviously, than just saying subscription or ARR. So that's why we see that strong focus on the growth, very, very low churn and the continued expansion. Obviously, our focus now is to make sure that this capability is available throughout all the markets that we do business. And that's been one of the gaps that happened in '25, this capability of product offering was not available everywhere. So we're really expanding to all -- a lot more markets where customers can realize the value of the product.

Thank you, Jerrod. Moving to our profitability, gross profit and EBIT. Gross profit has been fairly stable, and this quarter, it is within the expected range of 75% to 80%, at 76.8%. We do have some fixed costs in the gross profit. So it is impacted a bit downwards when we have lower sales. The expenses below gross profit, if we compare, if we look quarter-over-quarter, they developed favorably, especially if we sort of take into consideration that we have SEK 21 million costs related to the reorganization program. The reorganization program is expected to deliver gross savings of about SEK 95 million on an annualized basis, and we expect these savings to start already in Q2 2026. EBIT, as I started with, it's SEK 14.9 million, 3.1%. It is impacted by the lower sales volume, of course, on an organic basis, but also SEK 26 million in negative currency impact and SEK 21 million cost for the reorganization program. So sort of on a drop-through from sales volume, it shows kind of the a bit favorable development on the expenses side. Cash flow. From a cash flow perspective, we had actually quite a strong cash flow generation of SEK 70 million in this quarter, very much supported by the changes in working capital. Both inventory releases and accounts receivables are reduced as compared to the previous period, and hence, the strong cash generation. The investing activities include R&D development costs for our R&D, very prominent projects. And we continue to have very strong cash position. With that, I will hand over to Jerrod.

We are very focused on the key areas of growth for us as described in the -- since last year, we had an Investor Day. This year, we have focused on how to really get the position on delivering on all the things that we've communicated. A quick recap on the 5 areas that we are really, really doubling down on. The first pillar is about the YubiKey. The YubiKey and everything that is making, delivering, creating is our core for how Yubico continues to grow. We are investing heavily in our next-generation product. You will hear much more about that as we get towards the second half of the year. But with that also, we invest in certifications, which is relevant to different markets where it requires specific validation. As I've described, the CCN certification is specifically for the Spanish market, and we'll continue to do certifications to be relevant for compliance-driven customers for purchasing. The next pillar and strategic area is the YubiKey as a Service. You see that abbreviated in the presentation as YaaS, Y-a-a-S. That is our offering to reduce the friction for receiving, managing and delivering on the hardware security key, YubiKey, in terms of how to adopt faster. There's a lot of friction sometimes when customers are wanting to deploy the technology around the world, and this specific capability is to reduce the friction all over the organization for easy adoption. Area #3, which we are very excited as well, which we will provide much more color and description as we move into the second half is our digital identity services, a part of the Yubico ID solution which is more focused towards how do we protect users and provide them capabilities beyond just the YubiKey and technology itself, which is about digital identities, digital wallets and digital identity verification. So I'm very excited to invest more in this area, and we'll share more in upcoming briefings. The fourth area, which is where we have also started to invest very heavily as announced, we have a new Chief Marketing Officer to really focus on educating the market, bringing in awareness and also reeducating in certain areas so that everybody understands the value of the technology and relevance, especially now with more phishing attacks throughout the world. And 5 is really very dear to me. I've spent a lot of time with customers and hear about their pains and I hear about their challenges and how they want Yubico to help. So for me personally, it's about working closely with companies like OpenAI, companies that have huge, huge user base, huge internal workforce and providing them with solutions. But also when we solve some of these big challenges for them, they are our strongest advocates and strongest champions, so they understand and help other organizations be protected. With that, we will open it up to questions from everyone.

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

Congrats, Jerrod, to the permanent CEO role. Could we initially just touch again on the subject on how AI is impacting demand for your products, especially in light of recent industry discussions around models such as Claude Mythos? Have you seen any changes in the customer dialogue since this Mythos discussion started about 1 month ago?

Yes. Thanks for bringing that up. If you have noticed the OpenAI announcement, which is about the Advanced Account Security, you will notice one specific callout, which I think a lot of media did not pick up, and I will explain that to you. As part of this account Advanced Security -- or Advanced Account Security, they have announced that in their Trusted Access for Cyber, which is OpenAI's equivalent to Mythos, they are mandating that every account accepted to the Trusted Access for Cyber must be using the Advanced Account Security. And obviously, we are the recommended solution if those customers use the hardware security key. So we are part of this Trusted Access for Cyber program, which is OpenAI's equivalent to Mythos. And I can tell you that there's a lot of buzz in the industry because the current access for Mythos is not, we believe, at the highest level for access. And that is not where the industry needs to be. Because if you think about access to these very, very capable tools and if an attacker got access to that tool and become you, they would -- can do some very serious damage to an organization. So we believe that OpenAI's approach to really lock down access to these very powerful models for cyber defenders is very critical. We call that security by default setting that industry needs to follow.

Appreciate it. And then I had the question on the cost base following the ongoing reorganization. Could you do more cost adjustments if demand does not pick up? Or would that then impact the long-term position of the company?

So I think we've done -- in quarter 1, we've done quite a sizable reorganization to make us both more sort of efficient cost-wise, but also efficient execution-wise. I think it's part of our sort of management oversight to continuously be very mindful of our cost base development. But I think for the time being, it is -- the reorganization is what we have executed. We need to land in the new organization. And we, of course, continuously monitor our costs.

Okay. And just a final one from me, if you don't mind. You have now started to see some signs of recovery from the U.S. public sector. How far have we come? And do you expect this trajectory to continue?

I think nobody can predict how the administration would continue to work through their approach. What we can say is that the customers that we have in the public sector are very well aware of the gaps when you underinvest. In terms of the funding, we cannot give any comments because we actually don't know. Obviously, there are some areas that have moved faster and have positive movement there. But it's very hard to say in terms of like is this the direction every month, every quarter. But we know for sure that our customers have felt the impact of underinvesting in cybersecurity. And that is one of the things that can impact national security, which then helps reprioritize funding when it's available.

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

A couple of questions from me. So just circling back to maybe Simon's question, but I mean AI as a threat really is happening right now and really increasing the volume of attacks as we speak. I mean, given this, why do you think that customers are postponing their purchasing decisions? Shouldn't there sort of be a sense of urgency? And also maybe on that point, I mean do you feel confident that you're not losing any deals to competition and that customers will come back to you?

Yes, in terms of urgency, I think customer voice is much more impactful than Yubico's voice. So the impact of the announcement isn't just about the announcement itself, it's really to show relevance of the technology. And that the foundational piece of AI that OpenAI has created is such an impactful global phenomenon and the fact that they are using our technology to protect their own workforce and supply chain is evident that everybody needs to pay attention. In terms of how overall the market is perceiving it, I think there's still a lot of considerations for good enough. And that's -- to some extent, whether you consider a competitor or not -- I mean, good enough means just I don't really want to do anything unless I have to do something. And sometimes they're just using not very good technology. So the call to action is, again, not so much about we can say this as a vendor all the time, but our goal is to make sure that we amplify our customers' voices and why they're doing it. And so you can start to see some of these customers coming out to really talk very positively about why they do it. And so this is evidence on how we can get other organizations and companies to invest and not wait, which is usually the status quo.

All right. Great. I had a follow-up on the OpenAI partnership. Could you perhaps shed some more light just on exactly how this works? I mean, do they get any cut from the YubiKey that customers buy when they use the link on their platform? And also perhaps if you can elaborate a bit on what your hopes are in terms of sales from the partnership. That would be great.

Yes. The first comment I have is this is not just a launch and then we are all moving our separate ways. So there's a continued conversation on additional use cases with OpenAI. But more importantly, I'm working with their stakeholders as a longer-term partnership to help protect more users. We won't comment exactly on how all the mechanics works in the commercial teams, but I can assure you that expanding the use of the technology to protect more users is the best interest for both companies. And for that matter, it's more than OpenAI. I think the industry has realized that just using the not-so-good current solutions to log in for many, many different services like SMS is not a good solution. So being able to push phishing-resistant technology, specifically with hardware security keys like YubiKeys are the most impactful, most secure option available. So I would say stay tuned. We will continue to work with more organizations, but also with OpenAI specifically, more use cases that we will announce.

Okay. Great. And then just cost -- on the cost savings program, it would just be great if you could elaborate on which areas this is targeting? And then perhaps -- I mean, is it reasonable to think that this will have a full effect already from Q2? Or is it more so a H2 impact?

We have taken a look and actions basically across the organization. So there is -- all departments have to look into their sort of needs, resources, et cetera. So it is not only one department. It is across the board. The processes or the program as such is largely completed. So the savings should be realized already from Q2.

The next question comes from Predrag Savinovic from DNB Carnegie.

And also congrats to Jerrod for -- on your new role. And on bookings, so what do you think it takes to see bookings on an aggregate level return to double-digit organic growth rates? Is it the market improving? Is it the launch of new products? Is it your selling execution? What do you think is the most important factor here?

I think it's all that. I think you hit it. So thank you for your congratulation note. We look at it as multipronged to grow the business. You must have a strong customer base, because if you don't have a strong customer base, then they won't invest with more products you deliver. You have to deliver on new products because there are new growing threats that you have to address and reduce the friction of adopting the technology. And sales execution has to be more precise, being able to provide the information in a way that customers can understand and adopt and deliver around the world. And then finally, I think the broader ecosystem is necessary to support our strong growth ambitions. So one of the things that I reflect a lot is we should be in certain markets much more than where we are today. So we also have -- again, we've opened up our Singapore HQ as we discussed in the last briefing. And then being able to support the region in a much more intimate way has always been our goal. So we need to really realize the investment for the region and expand our business. So I do believe it's all things that we've communicated and then being able to deliver very, very precisely on all the things that we have committed to the community.

That's very clear. And with the launches for new products like the Quantum Key, for example, what does that mean for your chip supply inventory level as an overall level? Is there any effect we should be aware of on COGS, gross margins improving or same level, lower? What can you say there?

A very good question. The new key is going to be on a different platform, which means that we will -- the plan is to start ramping up manufacturing during the second half of the year, including buying the new chips. So from that perspective, we'll be ramping up on that level. But at the same time, the idea is that we are reducing the inventory on the previous while we're ramping up on the new platform. From a COGS perspective, we don't expect a major difference basically.

Okay. And then back to bookings again. In Q1, has there been some deal slippage? And what was the size of it? And can you discuss somehow how Q2 so far has started, if it's on the kind of same trend as the last few quarters, above trend, under? Any general comments there?

A general comment is that the Q1 had one of the sizable deals slipped to the next quarter, and then it did close shortly after. In terms of the overall trending, I think from a pre-OpenAI announcement to the post-OpenAI announcement, activities are slightly different. But in terms of how we look at the business, certainly, what we see is activities happening in terms of volume. But of course, that is not reflective of obviously closing. But we are confident about the relevance, which is really, really important, and then the realization to not just settle for good enough. So we see that interest peaking for sure, given the recent announcement.

The next question comes from Thomas Nilsson from Nordea.

You have a very substantial net cash position. Do you see any interesting opportunities to expand your product and service offering through M&A? And what could be of interest to you in terms of adjacent product and service opportunities?

Yes, we are aware of our strong cash position. We are exploring different options as an organization. And then I would call attention to the Item #3 in our discussion of strategic areas. In terms of like what type of companies, we're not at liberty to share, but you can infer that the item -- strategic Area #3 is where we see areas of new growth and new markets where we can add value. We see that clearly because our customers have -- existing customers' installed base has indicated a strong interest in our expansion.

Okay. And a final question from me. The booking decline was most pronounced in Americas. And was this mostly timing, macro hesitation or a structural change in enterprise demand? And what evidence do you see that larger enterprise activity can recover in Americas in the second half of this year?

I think from an overall growth perspective, what we see in Americas is a very strong demand for YubiKey as a Service. And strong demand for YubiKey as a Service creates different way of interpreting what we measure because from the perspective of YubiKey as a Service, the contract cycle to review is longer, but also the way of investing is also a little bit different. What we can say is that the type of pipeline that we are seeing from Americas has now surpassed 50%, which means there's a very high interest in that technology and that product offering in a, what we consider, maturing significantly market. Whereas, in Europe, I think it's getting started. So strong evidence that the value that we're creating for the subscription or YubiKey as a Service and companies buying the offering through subscription is a huge driver.

The next question comes from Georg Attling from Pareto Securities.

I was just wondering about -- I mean, we have the YubiKey 6 coming up for the new platform, whatever you're going to call it. Do you feel in any way that, that upcoming launch is holding back enterprises from placing large orders on the current platform? And then second question related to that, when you do launch a new line of keys, a new platform, so to speak, what do you typically see from your existing customer base in terms of replacement rate? Do they all buy the new product? Or are they usually happy with the one they already have?

So the answer the first question. So one of the key benefits of the YubiKey as a Service is the ability to upgrade to the new platform, and, obviously, not all tiers, but the highest tier. So we are seeing that customers are -- we are moving our customers to go to the higher tier as they want to realize the benefit. In terms of how our customers view the new technology, I think there's variations in how our customers view transition. So one of the key focus areas for us is to make sure that when they do want to transition, that they have the ability -- that we can help them with the ability for the transition. And it's not just about buying the new platform because the deployment is as important as the new platform devices. So we are -- obviously, we haven't finally released the name yet, but we can think about YubiKey 6. It's not just about I have the YubiKey 6 in my company, but how are you going to get that new product in the hands of all the users around the world. So what we want to do is to make sure we really accelerate that friction -- or reduce the friction to adopt the technology.

Yes. That's good color. And on order bookings, I mean, you again state that conversations are taking longer. Are these the same conversations that you've had with the same customers for, what, a year or so now? Or those old discussions didn't they render any deals and what you're talking about now is new discussions, let's say?

I think there's always new discussion with new customers and existing customers that want to get more value with new things. So as long as we keep on releasing new products, then we keep on getting more conversations about expansion. So I will say it's new prospects as well as existing customers.

Okay. Are there any of those prior conversations that have ended without an order? Or do you feel like most discussions that you had are still ongoing without the decision?

Most conversations are still ongoing.

Okay. And on the visibility in terms of order bookings, how good is that? I mean I expect it's quite difficult to predict when they're actually going to place the orders. But do you have any feel for timing of those larger orders coming back? Are we talking first half, second half this year? Or impossible to say?

I think we're not going to comment on it right now. Everyone will know when we have those orders. Again, I think one thing to take away is that the demand is very strong and our customers are engaged.

Yes. Just a final question on Yubico ID. I mean you talk about this a lot. How should we think of the timing of the scale up? Is it also something that we should expect in coming months? Yes, any color here would be great.

We will provide more information when we announce the product line.

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

I want to thank everyone for joining us today's Q1 briefing. We want to close out by saying that we're very excited with what we are offering to the market with some new focus on our company based on the OpenAI announcement, and we will continue to invest in the product and the capabilities so that more users and customers around the world can adopt it. Thank you, everyone.