Hi, and welcome to the Second Quarter Earnings Call for Cyviz. My name is Espen Gylvik, and with me, I have the company CFO, Karl Peter , and we will take you through today's agenda. We're going to go through Q2 in a brief, some sort of aggregated view from 2020, that's the time when we went public, to 2025. Some of the business highlights within the quarter, the Q2 and H1 financials. I think we agreed today to also do a short recap on the strategic priorities that we presented at the Capital Markets Day. I think it's a good opportunity for us to just give some sort of directional guidance on where we are and where we are heading, and are we on track? Then just summarize with the outlook, and at the end of the day, do the Q&As.
Hopefully, there are a lot of good questions, and we are more than happy to respond to that. Let's move on. The second quarter was, I would say, a soft quarter in a sense. Not necessarily because the underlying business was underperforming, rather the contrary, but more due to the impact on timing on some significant large deals, in particular in the U.S. market, that was planned to come early June, that we now have signed in August. They've had a significant impact on largely all the financial KPIs. As you can see, the revenue ends at NOK 129 million, which is down NOK 10 million compared to a similar quarter last year. Gross profit is still quite good, with a good gross margin of 53%, partly also because the mix of what was delivered and recognized as revenue in the quarter had higher margins.
Again, back to some large projects sliding into the third quarter. EBITDA of NOK -2.6 million, which is down NOK 4.8 million versus last year. The order intake or booking ended at NOK 123 million, which is NOK 32 million down compared to last year. Again, quite a soft quarter.
As we mentioned, those large deals, which were in final stages of negotiations at the end of the quarter, which were closed in August, also affect the 12-month rolling development on order intake, which ended at NOK 609 million, which is a decrease of 10%. We'll get back shortly to what it looked like as of yesterday, which is significantly different. Gross profit, a different story, continued to increase to NOK 315 million, up 10% on last year, related to the gross margin Espen just mentioned. I'll also get back to that later.
Lastly, EBITDA on a 12-month rolling basis continued to increase and landed at NOK 28 million, which is an increase of 32% on last year.
Just a side comment on that. I think we gave a guidance when we went public around 30% CAGR year -over -year. I think despite those significant deals moving into the third quarter, we are ballpark around the target we set with 30% CAGR on order intake, a little dip on the revenue side, and quite close on the gross profit side. Looking at it in a larger type of scheme of things, the underlying business still performed well. Since a significant part of our business still is project-driven, we are somewhat impacted by when the large significant deals end, if they end inside a quarter that is planned, or if it's for certain reasons slide over to the following quarter.
This holds for both order intake and also revenue recognition. It's both. This quarter is kind of affected in multiple ways by that. We mentioned those deals, so we thought it relevant to break it down and show you the total picture. As of yesterday, the company had a year-to-date order intake of NOK 399 million. That's 10% up from the same date last year and is also an all-time high for this time of year for the company. That takes the backlog to more than NOK 400 million compared to the NOK 281 million at quarter end. The differences here are major, and that's why we're focusing so much on after quarter-end events. Order intake by brand year -to -date, as you can see, is quite well diversified, both in terms of geographical regions and also in terms of the different verticals.
You'll dive into the different verticals in a minute. As Espen was saying, the underlying business is performing well. Q2, for multiple reasons, came out financially on the softer side. Gross margin, you touched upon it, affected this quarter by timing of large projects and how the revenue recognition happens. Also, the order intake exacerbates the margin picture. There is an underlying positive margin drift, which is driven by larger projects, economies of scale, and also more recurring revenue. We'll talk a bit more about the recurring revenue also later. It is worth mentioning that the gross margin is elevated and has been for quite some quarters for accounting particularities. We do expect some reversal in the second half, but the underlying trend is still on the positive side.
Yeah, let's look at some of the business highlights. As Karl Peter mentioned, I think one of the things that has been important for us over the last years is to really diversify the portfolio both regionally, vertically, and solution-wise. I think this quarter, as literally the last six, seven quarters, is good evidence that we are still capable of attracting inside new verticals, but also balancing in between verticals and regions. If there are incidents or certain things happening inside regions for different reasons, we now have a much better base to balance any unforeseen type of incidents. If it happens in the U.S., driven by unpredictability related to tariffs or whatever, or the war in Gaza that has sometimes impact on certain deliveries in the region of the Middle East, we now have that flexibility and that type of opportunity to balance.
Q2, as most of the last quarters, is a good mix of continuing to sell to existing clients, which is a sentiment and an evidence that what we deliver is really, really good and appreciated by customers and provides the value they pay for, but also the ability to go out and attract new clients and new logos to enhance the base that we are working on. It's a mix of control rooms, operation centers, some software-driven sales, and advanced meeting rooms across actually all the regions. Europe in particular, quite significant in the quarter, largely driven by both, again, new opportunities with Aker BP, but also now we start to see attraction inside the defense space. We talked about that a little bit in the Q1 earnings call. The defense sector, with the increase in budgets across NATO countries in Europe, is starting to pick up.
The interest is increasing significantly. I think as a company, we are probably better positioned, both on the technology side, the security side related to our technology, and also the new certifications that we have regarding framework for going directly after NATO business is good indications for a positive projection of future growth inside that vertical in Europe in particular.
Mention here that we have now, for the first time, split out defense separately. If you look at the pie chart to the left, it used to be government and defense, and we now split those two. If you combine them, you see a substantial growth compared to previous periods, which is driven by defense. A lot of defense traction, both in the pipeline and also closed orders.
Yeah, as you can see, the energy sector still continues to have a significant portion of the business. I think we, at least internally, see that defense and energy are probably the two most significant verticals for growth for the next two, three years as well inside our industry. Okay, let's move into more data-driven financials.
Yes, we've touched upon it quite a lot. It's a quarter which is affected by both the timing of revenue recognition and also by the orders that came in in August. I'll be quite brief. Revenues, year- on -year, down 7.1%. 12-month rolling trend, quite the opposite, with an increase of 15% compared to the same period last year. Gross profit stable, kind of again relates to projects and slightly elevated margins. Even though revenues were down, gross margin unchanged. EBITDA down NOK 4.8 million compared to the same period last year for the quarter. 12-month rolling basis, to the contrary, up 32%. Bookings, which we talked a lot about, I'll just skip going into the details there. Half-year results on the revenue side, up 8%.
Gross profit again stable compared to the same period last year, with a decline on the EBITDA side of NOK 8.7 million related to the same things that we've talked about. Q2 is the primary driver. Lastly, bookings again down 5% compared to the same period last year, driven solely by the Q2 performance. Operating cash flow, we achieved a positive operating cash flow in the quarter of NOK +3.6 million, driven by improved collection efforts and particularly letters of credit in more challenging regions. We're able to recuperate funds on time, and that offset the operating loss completely. For the quarter, I won't go into details. We covered this in Q1, but it looks a bit different but trending in the right direction.
Okay, let's see if we can spend some minutes around the half-year recap and relate that to the Capital Markets Day and our four-year strategic plan. This is just like a picture that some of you have seen before. We spent significant time on that during the Capital Markets Day. I think the left side of the picture is just a visual indication of the components that sum up what we do as a company and what we deliver to clients. The inner circle is the gross margin share today, and the other larger circle is the expected gross margin share inside those categories when we reach 2030, depending on delivering on, of course, the strategy we have carved out and that we are delivering the operational part of it. The essence here is just related to the two new business lines.
We have 27 years of legacy, fantastic technology, incredibly happy customers across 84 countries at the current stage. I think an essence of what we are doing is to capitalize on that legacy and that technology. Finally, allowing partners to take Cyviz Core Technology, which contains the video processor, the operating systems, the software, and the controller, and of course now the new Software Platform, and give them the opportunity to take that and go out and attract new customers and build Cyviz solutions without Cyviz involvement.
It's an important strategic part of our scale-up, the ability to reach out to a lot more customers with way less cost and risk, paired up with what we anticipate and plan to do on our new Software Platform, which is going to be a very, very partner-driven play and the key element of the subscription revenue growth for the company going forward. Those two things paired up are literally the essence of why we are confident and also talking about driving improved profitability and also improved share of recurring revenue going forward.
Stability in earnings.
Of course, it helps also build a much more predictable business model than we have today when 98% is project-driven and quite unpredictable.
Yes.
Okay, and the uniqueness, I think I touched upon it when I talked about the first slide, but we have an in-house developed software component and a hardware component. I think the beauty of it, if you can talk about it in that sense, is that Aker BP uses Cyviz technology to like literally modernize and run their business across control rooms, operation centers, drilling, production, this and that. The same building blocks, the same technology, without any change whatsoever, is used by Microsoft to run their technology centers. The only difference is how the customer and we configure the setup for the user experience and the user purpose. It gives us competitive benefits of being able to enable existing technology across any type of use case, any type of vertical, without adding a lot of manual work related to like config and coding and adjusting to solutions.
Hence also why we scale faster, we can deliver faster, more reliable, and also collect better margins on the projects we do than anyone we compete with. It is a scalable model that we are now also allowing partners to go out and sell to their customers.
It is good for the customers as well. One thing is the scalability for us as a company, but for the customers, it's quicker to do changes and also do the installs. It is good for customers, it's good for us.
Yeah, any type of new service or solution or application we built or function we built, we can share that with any customer across the world.
Exactly.
Through the web, without having to send people out and do physical install on site.
Amendments can be done remotely to a large extent as well, contrary to sending install.
Okay, let's look at the growth priorities.
Yes, and this is a slide which is a recap from the Capital Markets Day, but it shows how we predict things will change over time. The dark blue color on the plot, that's kind of the base, that's the turnkey business which we're running today. Gradually, more and more revenue and contribution margin will come from the new product lines. I think the essence of this slide is that by 2030, we expect more than half of the company's contribution margin to come from new product lines. It will increase margins, more recurring revenue, more stable earnings. As you can see, it takes time to build. 2025 is kind of building the fundament. This is where we're building a partner ecosystem. This is where we're doing the final kind of fine-tuning on the product according to what feedback we're getting.
Commercialization is happening essentially this half of the year with the building pipeline and then converting it over to orders and deliveries in 2026. A bit of a status. We are, I'd say, well ahead on both the Cyviz Core Technology, that's the hardware component, and also the Software Management Platform. Currently, we have 11 partners signed for the Cyviz Core Technology. The full-year target internally for 2025 was six, developing well. We now have three tailored packages, small, medium, and large, for different solutions. We're actively building the pipeline, and it's looking fairly well, I'd say.
Just to add to that, I think what we experience is quite a positive response when we are out talking to partners, potential partners. I would guess that we, at the end of this year, would have a partner portfolio on the Core Technology kit anywhere close to 20, with an ambition when the year started at six. I think that builds a solid fundament for the scale-up and the type of sale of those types of kits going into 2026.
The Software Management Platform, likewise, we have 24 partners signed. The full-year target was 15. We are in advanced negotiations with an additional 10 more partners, late trials there. I'd say the incoming interest is a lot stronger than we anticipated. We also have converted seven end customers into our cloud solution, with even more pending. Some of the large global corporates that we have as existing customers are moving their entire solution to our cloud, which we're very happy about.
Yeah, I think when we get to the earnings call for the third quarter, I do anticipate and hope that we can talk a lot more about customers migrating over to our cloud platform and also some of the significant large global customers that have signed and started to use that and the type of referral that comes with it.
I think also it's worth pointing to the map on the right-hand side in terms of the Software Management Platform, where you can see that the partners are well distributed between regions. It's not only kind of European interest or U.S. interest, but it's kind of split between the Atlantic, which I think is great.
Okay, let's see. I think to summarize what we have talked about, second quarter, slightly on the soft side. As we explained, and probably people have seen since we have done announcements of deals, significant deals over the last weeks. I think when we get to the Q3 earnings call and present the Q3 numbers, we would be well aligned with the full-year target of this year. You just balance Q2 and Q3. The pipeline is there. We have closed close to NOK 200 million already within Q3. Quite confident that we will be on track balancing Q2 with Q3. This is good or bad, the living of doing project-based business. The partner ecosystem is building for our Core Tech business going forward, faster and better than we anticipated, which is good. The same with the Software Platform.
I think the key essence for future success when it comes to predictability, improved margins and profitability, and reaching the 25% type of recurring share of our business is largely driven by the Core Tech kit sold through partners and partners taking the new Software Platform out in the marketplace. We are quite happy and positive as of today on the traction on that. We are continuing to build new applications and new plugins on the platform as well, opening up an even larger marketplace for the platform going forward. Overall, a quarter as expected, soft because of deals moving into Q3. The majority of them already signed. We will activate those deals within 2025. The majority of those bookings that came now in August will turn into revenue and profitability during the year.
As we have talked about for six months now, the defense sector inside Europe is going to be critical, but also fantastic for future growth for the company, and especially for our European type of region that is now engaging with multiple countries and multiple divisions inside the different branches of defense to provide the best-of-breed control rooms and operation centers, either fixed on site or as one of the few companies on the planet in a mobile container. We are still confident, quite positive. Q2 doesn't change anything. We are looking forward to present a fantastic Q3 when we get there. With that, I think we open up for questions.
Yeah, there are quite a few of them. Let's see.
Let me change my glasses.
I'll read them out loud. Let's start from the top. It's a question in Norwegian. I'll try to translate it. A negative net result of NOK 26 million in first half 2025. What can we expect for the full year?
You want to start?
I'll start. We've been quite transparent that the first half was below expectations, and we've also talked a lot about the orders that came in after quarter end. Just for having the current backlog that we do have and the order intake to date should indicate a change in how we're trending. We do not guide specifically, but I think the numbers which are there, and particularly the backlog and the order intake, should indicate, as you just mentioned, with Q3 and Q4, a more positive territory. We are a project business. Things are hard to predict, kind of whether things will fall into Q3 or Q4, but generally speaking, I'd say the outlook is brighter than what we delivered for.
Yeah, I think it's important for people to understand. We are working with and monitoring the order backlog and pipeline on a weekly basis. It's part of how we run our business. Looking at what's in the order backlog, what's in the pipeline, what is expected to continue to close during the remaining part of Q3 and Q4, we are still confident that we will deliver this year in line with our plan. We will also recover some of the delta that was produced in particular versus our internal targets during the second quarter, largely driven by a deal of NOK 140 million moving into Q3. We are still quite confident. We have significant enough order backlog and pipeline to convert into revenue and profitability to regain the year as planned.
I agree with you. I'd say the pipeline is strong. What we haven't talked about much now is that we have, so the current environment in the world and the geopolitical situation creates a lot of opportunities in the defense sector, and we're seeing incoming interest. It also creates some challenges on the other side, and that's hard to predict. Maybe you want to mention a bit with what's happening with two ongoing wars.
No, I think we have been working on the elements, potential risks, and elements related to tariffs for a long, long time, both internally and with our partners. We have enhanced and broadened our partner ecosystem inside Europe, inside the U.S., to reduce the impact on tariffs and maintain the competitiveness that we think is important in today's climate. We are doing more assembly on products, third party, etc., paired with our stuff inside Europe for European customers. We do see the defense sector in Europe is now asking for more specific European manufactured and provided solutions, especially in the defense sector. We have all of those bits and bytes in place, so we are not dependent on getting things from the U.S. market into the defense sector in Europe and vice versa. The impacts of the wars are still hard to predict.
We see in certain cases in the Middle East that some projects outside Dubai and Saudi in the region, closer to the Gaza border, are less likely to happen this year. We are now converting more opportunities to work inside those markets where we know that the projects will happen. I think we have a good view, and we have a plan A, we have a plan B, and a plan C to mitigate those types of potential risks that are there. Whatever unforeseen things that might happen in the rest of the year is really hard to prepare and plan for, but I think we are at least in a place now where we have more opportunities to play with inside the different regions and verticals. That should serve at least as a base for protecting the outlook of the year.
Agreed. This kind of taps into the next question. Do you expect order intake momentum to continue going into H2? I think that's essentially what we talked about for the last couple of minutes.
Yeah.
The pipeline is looking healthy.
Yeah.
We have the kind of the risk which every company is facing in terms of.
Based on what we see and what we know today, I think the order backlog looks good. The pipeline looks good. We had like a six-hour session. I had that with all the EVPs for the regions and the salespeople on Tuesday this week. It's not that many days ago. We have gone through case by case by case, and I think the pipeline is healthy across actually Europe and U.S. There are still four months or three and a half months left to even increase the pipeline. I think we should have a good opportunity to recover and deliver as expected.
Agree. How should we think about revenue recognition going into the second half, and what is the average duration of projects in the backlog? Should I have a go?
Yeah, start.
The average duration typically is around six months. If we include recurring revenue on the project side, it's typically eight months. The recurring kind of tail is pretty long. It changes a bit, the average duration, but we do have some large projects, and we have had that for quite some time, different projects, but still kind of what we call a multi-period project. I think it will change based on the order intake and the delivery times for those projects, which are a bit on the shorter end. I think that's kind of the outlook. What's happened in Q2 specifically is that we had a lot of installs. We had two pretty large projects where a lot of the project shipments happened in Q4 and Q1 with relatively low margins. The entire install happened in Q2 where we don't have any COGS on the install.
We only have more service revenue.
Exactly. That will probably not happen in Q3 and Q4, but it depends on the order intake and how it all pans out.
The majority of things that have been booked now, through Q2 and also now in August, we have talked about at least a couple of significant large deals. All of them are due to be delivered and installed in this side of 2025. I think we see more and more projects that have shorter time from signing contract to expected type of installation. Just to be very transparent, I think that large deal we announced, I think a week ago, has an eight-week timeframe of install. From when we start to finish, the expectation contractually is actually no more than eight weeks.
The install time is more driven by the customer side and the readiness of their facilities than how much time we need. It is very much customer-driven and not driven by us. All right. What levels of investment into product development and ERP systems do you expect moving forward? I'd say a fairly stable level and in line with what we had last year. That's the anticipation, and we're trending pretty much on last year, wiggling a bit between the quarters depending on how much activity we have. For the year as a whole, more or less in line with last year, that's the anticipation. How significant do you expect the gross margin downturn to Q3, Q4 to be?
I think I kind of touched upon that in terms of the amount of install that we had now in Q2, and we expect a more normalized margin going into Q3 and Q4.
Yeah.
What steps are you taking to optimize the cost base? I think looking at operating expenses, COGS is kind of a separate thing. We're doing things there as well on supply chain and trying to get more economies of scale in purchasing and so forth. I think the big driver is operating expenses, and there are essentially two things. It's salary costs and it's professional fees. Looking on operating expenses this year compared to last year, it's, I'd say, fairly diligent in terms of the development. There's not much increase. There are a few extra headcounts related to the new product lines that we are developing. Other than that, there is not much increase.
No, I think it's a good question. I think just to be clear, we are doing a complete assessment of all people across all departments in the company to look at capabilities and size related to our 4-year plan. There will be adjustments. Moving into 2026, it might be capability changes. It might be roles moving into other roles. It might be a balance on that and reduction there and an overinvestment somewhere else. It largely depends on where we are taking the company. We have talked about investing in partner-driven business and the software platform. I think when we are heading into 2026, it's also going to be a reflection on where we are heading and what's needed to get there.
The last question. Given the covenant breach, do you foresee any need for raising equity in the near term? Before you start, it's worth mentioning that we anticipated this long before the end quarter. We had a long dialogue with the bank, and we have received a covenant waiver, and it relates to the equity covenant, which is 30%, and we had 28.8% just kind of as a backdrop.
Yeah, I think the short answer on that, for us to deliver on plan and what we expect during Q3 and Q4, we don't see that we have any need for additional cash. It will always be an open subject for discussion internally, depending on if there is an opportunity to do A or B or C. We might have conversations internally and see if that's something we should do or not do. To run the business as is, delivering on the expectations and the plan for Q3 and Q4, I think we are quite okay.
The last question, how large are the receivables within the 90 days as per the RCF covenant? Most of it, and it has improved substantially since last year. I don't remember the percentage top of mind, but we're not near a covenant breach.
Significantly better.
Yeah, we're well within the covenant requirements, so no worries.
Correct.
I think that sums up all the questions. Yeah.
Thank you, everyone, for joining in, participating, and thank you for providing a lot of good, valid questions. We appreciate that and are looking forward to seeing you when we come here to do Q3.
Yeah, thanks, Peter.
Have a nice day. Bye-bye.