Hello, and welcome to the second quarter earnings call for Cyviz. I am Espen Gylvik, and with me, I have the company CFO, Karl Peter, and we will take you through today's agenda. We'll talk a little bit about the quarter in a brief, some overall performance, the business highlights, Q2 specifics and H1 financials, and also say something about how we perceive the market going forward and some of the things we do as a company, as part of the outlook session. Then we will, of course, finish off with questions and answers, and try to respond to all the questions that might come. With that, let's kick it off.
Let's roll.
So second quarter, at least defined by us, is a mixed quarter. The underlying business continues to go quite well. When we talk about underlying business, it's like the speed of what we do from signing new contracts, what we define as order intake, and it continues to grow. It's up 27% compared to similar quarter last year. That is the indication of, like, future revenue development. Revenue came in below our internal expectations, at NOK 139. It's a decline of 12.9% compared to last year, largely driven by a slippage of 40% of estimated Microsoft deal, so the majority ended in June. But more than 50 million, in bookings that will be also converted into revenue, landed early July, hence a NOK 139 .
That is also reflecting the EBITDA that landed at 2.2, down from 9.4 last year. The impact of slippage was probably in the range of NOK 4-6 million , and then Karl Peter would talk a bit later about elements we do as a company to professionalize and clean up that also had an impact on the EBITDA in Q2, specifically. Gross profit at 69. We are still very happy to see that the margin stays very close to 50%, in the quarter, meaning we are capable of growing margin on the deals and the volumes we provide as a company, and we are still running with the, I would say, the best margin in the marketplace, on what we do today.
So overall, slightly mixed quarter, little bit below our personal expectations on the revenue and EBITDA side, but very happy to see that the underlying business across most of the regions is running quite well. And I just wanna emphasize a little, we talked last year about a slowdown in the U.S. market. Really happy to see that we see a positive pickup, especially inside private enterprise. There is, right now, a slowdown in the public sector.
Mm.
Not very dramatic, but we see some sort of, like, slowdown in certain cases, largely driven by the remaining three, four months of the election period. We do think that that will pick up when the election piece is gone, but it's more than compensated by an uptake in the private sector, and Europe, especially the northern part of Europe, continues to perform well, as well as the Middle East, so we are still quite positive to continue the journey of growing and improving the order intake through Q3 and into Q4.
Yep.
Then I leave it over to you.
Thank you. All right, so continuing with the order intake. Now, looking at the 12 month rolling development, ended with the NOK 676 million , which is an increase of 7% year on year. To Espen's point, there were quite significant orders which carried over to July. They are now signed, but. And then an EBITDA decrease on a 12 month rolling basis, again related to the performance on this quarter, specifically. And apart from the carryover of orders, which Espen has already mentioned, we have also done a review of legacy projects in the balance sheet. It's part of the professionalization journey that the company's undertaken. So we have an EBITDA and revenue effect of NOK 5 million directly related to that, which is a one-off.
Yeah, and I think it's important also to, like, just state that it's a little bit the nature of running a project-driven basis. I mean, we talk about projects in the quarter or sliding over.
Mm.
We talked about Microsoft just, like, a couple of minutes ago. I mean, the portion came in mid-June.
Mm
... and the other portion came early July.
Mm.
It was assumed to come as one deal.
Mm. Mm.
Both of them are flagged. We have done press release on them, so they are signed.
Mm.
but those things will potentially and sometimes have an impact. Also, how, if you look at things in a 12 month rolling perspective, so going out of Q3, it might look very different again.
Yep.
Yeah.
And then, as I know you will be getting back to in a little while, we're also doing work to enhance the recurring revenue-
Correct
... which will kind of flatten out, these swings quite significantly, in the future.
Yep.
Yeah. All right. Business highlights. That's you again, Espen.
Yep. So just focusing on the larger scheme of things, really, really happy to see that Microsoft continues to invest in Cyviz technology and to, like, build their customer and partner arenas on our technology. So as you can see here, we pulled in, as part of the overall deal that came June and July, $8.5 million in June, and hitting positively the order intake in the quarter. Our business in Middle East and in the Saudi market is continuing to go quite well.
Mm.
It's not just that we sign deals and deliver, but we have also managed now to sign frame agreements, which means that we have a two-year agreement where we would continue to sell and deliver without being, like, forced to participate in competitions with tenders and everything, and really happy that we have managed to throw out, and I say throw out, our largest global competitor.
Mm
... in that region from that customer, both on advanced meeting rooms and now with this, on the operation centers and control room. So for us as a company, fantastic achievement. Really well done by the team, and it is a platform for development and growth in that region-
Mm
... with multiple customers, that I think would be very, very prosperous for the company, and even though small, really important for us to, like, get a crack with Equinor. It's been a long journey. We have tried multiple angles. Really happy to see that we now have managed to sign the first real contract with them.
Mm.
Continues to grow, and we expect more contracts globally with Equinor in the quarters to follow, and new logos. We should-
Yeah, shall we jump to the next slide so we can-
Give me a second.
Sorry.
So we talk about new logos. Important to build a base. We started three, four years ago to look at vertical strategies to provide a bigger market for us, but also to reduce risk. Same with new logos, to get the baseline to work with.
Mm.
So, I mean, getting in new logos and new companies is super important, and signing strategic alliances with IBM and Avanade, that will also directly go out and sell to customers, is an important add-on for the global type of framework we have as a company. And lastly, Accenture continues to buy and invest-
Mm
... in Cyviz technology. It started off in 2014, and it continues to move in a good direction. I think it's a testament to the quality of what we provide and the value we provide to them as a customer. So overall, some large companies and customers continue to buy, and we work, and we work relentlessly to add new logos so that we build a bigger base. That's the key message on the highlights.
Yeah
... on this, and then maybe we move to the next slide.
Yeah, where we have some of the logos.
Yes, we have.
Yes.
I think one of the interesting things to see here is, again, back to the order intake. So from 247- 362, it's a good proxy that the underlying business continues to move in the right direction. There is no trends in Q3 that indicates anything else, so we are quite positive when it comes to order intakes through the third quarter.
Mm
... and the fourth quarter, which is building up, I mean, future revenue for the company and also to drive a more profitable business. All-time high backlog at NOK 452 million by July 31st. Very happy with that. And as you can see here, Aker BP, one large strategic account, continue to buy. They are investing more and more on top of the $20 million
Mm
... deal we signed late December last year.
Mm.
Microsoft, we already mentioned, but probably even more important is to see some of the new logos with Visa, Swiss Airlines, IBM, KPMG, Veidekke, across multiple regions.
Mm
... but also across multiple verticals.
Yeah.
And that's part of the plan we put in place a couple of years ago to expand our footprint into new verticals and new regions. So overall, on that point, quite happy with the quarter.
Mm
... and the development on the customer side.
Yep, and I might also add in terms of the backlog, which at the end of July was NOK 452 million, which is an all-time high, is after the revisions that we did in the quarter.
Correct. Very important.
So these are actual numbers-
Yep
... post revisions, which is an important point. All right?
Yep.
Coming to the Q2 financials. Starting with the quarter itself, Espen also already touched upon that in quite a lot of detail. We saw a 12.9% decrease year over year related both to the balance sheet review that we've done. That's an effect of about NOK 5 million. And then, I think Espen covered in quite a lot of depth the kind of commercial side of it, so I won't go into the details there. EBITDA and gross profit both kind of follow the trajectory of the revenues. 49.6% the gross margin for the quarter, and the 12 month rolling trend of NOK 286 million, compared to NOK 280 million last year.
Bookings is one of the key messages this quarter, going well, and as we've touched upon in quite a lot of detail already, it does not include the quite significant order intake, which we realized in July. Moving over to the first half, we see a revenue decline of 17%. Already covered the background for Q2. Then covering Q1, as some of you may recall, we shipped quite significant amounts of what we call high-margin, but low-revenue items. So we had a gross margin, which were exceptionally high in the first quarter, but it did take a toll on revenue.
And this is clearly visible from looking at the gross profit, where the revenue decline is 17%, but the gross profit is only down by 2%. Also affecting the EBITDA, we mentioned the one-off effect of NOK 5 million , so the underlying EBITDA development, if you will, for the first half, is down NOK 2 million compared to the same period, first half last year. Bookings, we mentioned as well, very good bookings in the second quarter. First quarter, as was discussed during our last quarterly presentation, were affected by very high order intake in Q4. And I don't think I'll go into further details, so we discussed that quite-
Yeah, we did.
Quite substantially last time. Moving over to operating cash flow, a key area of focus, particularly for me, but obviously for you as well.
Yep.
Starting with the quarter, we have a neutral operating cash flow. It's driven by a pre-tax profit which is more or less break even, slightly in positive territory. We have a buildup of accounts receivable. This is related to kind of a skewing into different regions where collection is a bit more challenging. I guess you can comment a bit more on that later, but it's
Yeah
... showing positive development post-balance sheet in terms of collection. We have a quite significant inventory buildup of NOK 25 million . This is related to some of the very large project, which are quite complex, and where that have been necessary to deliver these projects in the manner that is agreed. So that's, I'd say the inventory buildup is perhaps the most important driver also of the payables. Looking at the first half, we see similar trends, except an opposite direction of the change in accounts receivable, which is related to the very large orders we saw in Q4, which were skewed then to regions where collection is easier.
So, other than that, I'd say the highlight here is that the operating cash flow for the first half is positive, with around NOK 30 million, a bit more. I think that covers cash.
Yeah, maybe I can add one-
Sure
... sentence here. Again, back to we talk about professionalizing everything we do. I mean, we have been as a top-line growth company for a lot of years to build critical mass. And then you start looking at, okay, how do you transform your company more towards, like, software-based, services-based type of elements to drive more subscription and recurring revenue? How do you, like, look at every single piece of how we operate as a company? And one of the things, I would say one of the challenges or flip side of doing business, especially in Middle East, is that when you succeed, it's high impact-
Mm.
High booking, high revenue, but the challenge is largely to collect cash on time. We have been working for a while now with our partners, especially in the Saudi market, to set up a solution that would make this more predictable, reduce time for collection.
Mm-hmm.
And I'm quite happy to see the development actually over the last two weeks, with also putting in LCs in place, both for specific projects, but also overall, that would enable us and allow us to put our fingers-
Mm
... into the LCs and pull money way earlier-
Mm
... and hence also reduce the risk of outstanding or collectibles.
Mm
... and also improve the overall cash flow.
Yeah.
For most other markets, these, these elements are not a large challenge. Might be swinging a little bit if some projects that was assumed to be delivered in this pace move a little.
Mm.
But overall, the biggest challenge has been the growth we have done in the Middle East, and particularly Saudi. And I think going forward, we will see an improvement in the cash development.
Mm
... and cash collection from that region as part of professionalizing everything we do.
Yes. So moving to outlook.
Yeah. So if, again, back to how we see the market. The market trends are still continued to be positive. There is a good demand for advanced next-level collaboration solutions across meeting rooms, operation centers, control room, and those more larger type of envisioning theaters. I don't see any other company than Cyviz better positioned to capitalize on that. So we are still very positive when it comes to the future outlook, to continue to grow way more profitable-
Mm
... than we've done. I'm not saying that we don't have focus on top line growth, but it's a much more balanced approach to everything we do now, hence also the type of professionalism we are putting in place across everything we do. And one of those new important things, I think, makes sense for us to share today, because, I mean, we are not that far away from 1st of September. We have worked for a long, long time to see how is the optimal organizational design and structure to continue our journey and to improve how we run our business. And historically, we have done things largely in, like, corporate silos.
From 1st of September, we will move this into much more market-driven organizational design with three regional hubs that will also be in charge of their own P&L, so Middle East and APAC, Europe, and North America. We do that because we see our competitors is moving more and more into the markets. The decisions to buy happens very often locally and regionally, besides some of the large global accounts. Competitors are there, partners are there. We need to have a better, more efficient setup from sales to delivery to project management, to continue to win more customers and compete better, but also to secure that we drive better margins on everything we do by reducing lead times and complexity, so really happy with the new setup, really positive to the outlook from that, so I think it's important for us to mention that as part of the professionalization.
It's not just like cash collection and cash management and optimization, it's also the organizational design and structure that will allow us to do more of what we do well, better.
IT systems supporting what we do as well.
Exactly
... so which is also a significant internal focus. So we're doing a lot kind of on the inside of the company to position ourselves for the growth, which is coming.
A lot of things happen under the hood.
Yes.
As I said, the expectations for continued growth is still there. The pipeline looks good for the remaining part of the year. The order backlog looks good. We see positive development on both new and existing clients across Europe, U.S., and Middle East. Expect also to see a positive development over the last months of the year from the Indian market-
Mm
... after like a year of investment and trying to, like, build that ecosystem. So quite positive when it comes to, like, finishing the year on a good note on order backlog. And not least, we talked about the transformation over to a more software-driven, technology-based company. And we have been working a long, long time now, finalizing our first ever-
Mm
... pure software-based platform for management, monitoring, support, et cetera. That will go out officially as a launch now in September.
Mm.
We have moved a lot of pre-partners into formal partner agreements. I think as of today, we have seven global and regional-
Mm
... and local partners signed up to bring this out to their customer base.
Mm.
This platform allows partners and customers to, like, connect legacy systems, competitive systems, and Cyviz systems into one unified software-based platform.
Mm
... to do management and monitoring and all the stuff.
Mm.
Provide a completely different set of values.
Mm.
For us, it is a subscription-based.
Mm.
It's the first real subscription-based solution we provide to the market.
Mm.
Has a yearly fee for the platform, and of course, monthly fees for all the agents and plugins-
Mm
... that goes in. Really looking forward to see how that develop-
Mm
... and the feedback we can collect now for the next four months of this year, and then really do a massive market push-
Mm
... going into 2025 as part of transforming Cyviz more towards like a partner-driven software and services company.
Yeah. I think it's fair to say that, while we're launching it, and we have signed quite a significant number of agreements, it won't have significant financial impact this year, but going forward. And I think, well before the end of the year, we'll be more concrete in terms of how the financials will work.
I... Yeah, and I sincerely hope that when we are here for the Q3 presentation-
Yeah
... we can talk more specifically.
Exactly
... about how we, how the trend is, the feedback we have, how it pans out, and how the market respond to that platform.
Yeah.
But from an internal point of view, for the next 2-3 years, it is a significant, important shift in investment-
Yes
... from us as a company to, like, move in a direction of software, services, and recurring revenue. And also enable a partner ecosystem to reach out to a lot more customers than we can do with our own people.
Without disregarding the current, kind of base, the what we call the kind of turnkey business, is still going strong and will continue to do so. So this is kind of an add-on-
Correct
... where we continue to build on software development that we've already done.
Yeah.
Yeah.
So with that, I think we open up for questions.
We will. Let's see. Let's see if there are any. So there are. As far as I can see, I think we covered things currently. No specific questions to us so far.
Okay.
So, um-
That's good.
Then apparently we covered what we should.
So if there's no questions-
Yeah
... we just say thank you so much for joining in and participating, and we wish all of you a happy Thursday. So thank you.