Hi, and welcome to the Q3 earnings call for Cyviz, this time from the beautiful city of Stockholm, Sweden. My name is Espen Gylvik, and with me, the company's CFO, Karl Peter. We will take you through today's agenda and numbers. I think let's just kick it off.
All right.
We will go through Q3 in a brief. I will take that. Some sort of aggregated view from 2020 to 2025. The business highlights inside the quarter, Q3 financials, of course, in detail. A little bit more in depth on the outlook side. Then at the end, as we always do, open up for questions. With that, let's just kick it off.
All right.
Q3 for us was a good quarter when it comes to order intake. First half was quite soft, driven by multiple different parameters in the U.S. market, especially in the government sector. First half was quite soft. Very few things happened. I think you will see when we get further into the presentation that the U.S. is picking up again, and it's starting to get back to the position it was two years back. Of course, strong ARR growth in Q3. This is the first quarter, as we have talked about in Q1 and Q2, that will start reporting on ARR. Karl Peter will go more in depth when we get into that.
Overall, very strong quarter on order intake, which is, for all purposes, the underlying proxy on how the underlying business is going, with NOK 243 million, which is up NOK 50 million from similar quarter last year. Isolated, probably the strongest quarter the company has had when it comes to order intake since we went public. ARR, NOK 67.5 million, up 38% year-to-date, which is in line with our plans and the expectation this year. Gross profit, relatively strong on a relatively soft revenue quarter, largely driven by support and maintenance agreements, and also installations and delivery of Cyviz-specific components, both hardware and software, with relatively high margin compared to third-party components that normally come as part of the project business we do as a company. EBITDA, still on the positive side, with NOK 2.3 million. It is down NOK 6.8 million from Q3 last year.
I think as a reflection on that, we also had a couple of deals, significant deals that were planned to be delivered and installed in Q3 that slipped into Q4. One relatively large one with an energy company in the U.S. that is now picking up in Q4, and also one defense deal inside Europe, impacting the EBITDA for the quarter. As I mentioned, revenue, relatively on the soft side, with NOK 95 million, but it is also a reflection on slippages of NOK 30 million+ into Q4, and a relatively soft order intake in H1.
All right. I think order intake is one of the key messages for this report. As Espen mentioned, the quarter-on-quarter increase was 26%. On a 12-month rolling basis, it's a decrease of 15% to NOK 659 million. I'll get back to the composition of that in a minute. Gross profit, stable compared to last year. Again, closely related to the margins, which were high since we did not deliver a lot of third-party hardware. The EBITDA is down 21% on last year on a 12-month rolling basis, closely related to the order intake in the first half, and also the slippages into Q4.
Going into the weeds of the order intake pattern, it's worth mentioning that for the quarter itself, it's an annual increase of 26%. Looking at the longer picture, isolating the large multi-year deal in Q4 2023 from AKBP, it is the highest order intake on record, which is 16% higher than the previous all-time high. That takes us to an order backlog, which is also the second highest in company history of NOK 428 million, reflecting both the order intake and also the order slippages that Espen has explained. Going over to annual recurring revenue, that's a strategic goal for the company to increase that share substantially. We went into depth on that on the Capital Markets Day and have promised to come back with formal reporting, which we are now doing.
Compared to the beginning of the year, we have an increase of 38% in annual recurring revenue from NOK 48.9 million to NOK 67.5 million, primarily driven in absolute terms by multi-year support agreements. Looking into the SaaS component of it, which is the management software, we see a more than 50% increase since the beginning of the year. It has good traction, which is one of the primary goals that we have. Yeah.
I think an important comment here is this is the single most important element of the pivoting we have talked about as a company that we are doing. Gradually moving more and more towards becoming a very clear platform and technology company, and gradually move away from dependencies on the larger project sales business, which swings by quarter, and also are largely much more influenced by different happenings in the world as such. I think the important thing here is building a platform is a never-ending type of approach. It never has an end. The traction so far, we'll see that when we look at, I mean, the partners that have signed on to bring this out in the market, the platform itself, the components that are connected to it, it starts to move definitely in the right direction.
I think maybe the single most important thing to mention here is that two of the largest global accounts we have are now in the process of finalizing the migration over to our new software platform, which I think both from a marketing point of view, referral point of view, is significant and super important for, I mean, the future accelerated growth with the platform and connection to customers to that platform.
It is also worth mentioning that for the partner ecosystem, we are also developing the platform with some UX and API enhancements, which we think will accelerate partner sales once it is ready in the beginning of next year.
Yeah. If it should be any doubt, this is the most important product we have to really go after the NOK 250 million ARR target that we shared during the Capital Markets Day. We are definitely on trajectory with the numbers today and what we think will be the outlook of the year to deliver on that.
All right.
Yeah, this is just a high-level snap on the partner status. For Cyviz Cortec, which is the sum of Cyviz components, software, platform, hardware, et cetera, we have now 15 partners signed on. We have built retailer partner packaging because we saw during the first type of entry into the market with partners that there was a need to tailor this for different use cases and different customers. I think that fit the purpose a lot better, makes it easier for partners to bring it out to their customers and apply, I mean, the right type of package for the use case with their customers. We are continuing to build partner pipeline, as well as activating partners to go out and sell more. On the Software Management Platform side, 24 partners signed. We are doing trials now with more than 10 additional partners.
We have seven end customers on the Cyviz Cloud. As I mentioned just a couple of minutes ago, the most important thing is to migrate the two largest global accounts we have, and you can speculate who they are, over to the software platform. I think that's the key thing now in Q4 to finalize that and get that up and running. Of course, building the customer pipeline on the platform side together with our partners.
All right. It's worth mentioning the gross margins and the gross margin trend. We've been talking about this for quite some time. There is a negative correlation between revenue and margins because of the shipment of third-party goods. It's worth particularly mentioning this quarter where the margins are exceptionally high, and that correlates directly with revenue. We do expect a normalization going forward as revenue picks up based on the order backlog. That's a key message to keep track of for this quarter.
Yeah. All right.
Just briefly on some of the highlights in the quarter. I think Q3, as we have said, from an order intake, signing contracts have been significantly good. One of the larger deals was with one of those larger energy companies in the U.S. market. It accounts for NOK 140 million. Quite a significant deal for us. Probably even more important to mention is the work that is going on, in particular in Europe, towards the defense sector, and not at least together with NATO. We have spent a lot of time this year to get those types of formal signatures from NATO and tick the boxes, I mean, the ticket to play. All of them are in place. We are now, I mean, certified to work with NATO directly and NATO customers.
I'm happy to say that the first type of NATO-driven deals started to tick in in Q3. I would like to underline the fact that we believe beside the partner play and the platform play, the defense sector going into Q4, and not at least into 2026, especially in the European market, is going to be one of the most significant additional verticals for the growth of the company. I think the pipeline that is there already today shows very, very strong indications that the defense sector will be a dominating vertical in 2026. Maybe lastly, mention that we finally have managed to open, I mean, some small holes in the Indian market, very light efforts in the market with partners. We signed the first deal with the largest energy company, ONGC, in India.
I think that is something to start with and to develop together with a partner. I think the opportunities to go deep and wide with that customer going forward is quite significant. Overall, quite good spread across different industries. You can see in the type of shot down in the right corner that North America is by far the largest one. I think for those who remember the last couple of years' quarterly presentations, you would have recognized that North America has been quite small compared to the market potential for a lot of reasons. Middle East and APAC has normally been one of the biggest ones. I think Middle East and APAC today is a very, very honest reflection on the reality in that marketplace.
As you can read from the Q3 report as well, I think close to NOK 140 million has been moved from Q3, Q4 this year of order intake into next year due to delays in projects driven by the war that has been going on in Gaza. A bit hard to sign deals, sitting in meetings in Doha when bombs are dropping. None of the deals are gone. I was in Middle East a week ago, confirmed the deals. They will start ticking in from Q1 and onwards. We'll see MEA probably gradually coming back to the normalized size of the diagram when we enter 2026.
I think it's also worth mentioning for North America in particular that it's driven by one very large deal. If we skip to the year-to-date charts, there's a more normalization of the underlying business.
Yeah. You can see that North America is still the biggest one. A subset of new logos and one significant large deal in the energy sector is driving that. Europe is stable as one-third of the business. As I described earlier, Middle East and APAC, that normally has been at 30-40%, is now down below 20%. That is largely driven by a very, very unstable market situation this year in that region.
Geopolitical, not for our customers.
Purely geopolitical. It is starting to pick up again for 2026.
Yep. Okay. Moving over to the Q3 financials, looking at the quarter itself first. We've touched upon this in quite a lot of detail already in the presentation. Q3 revenues down on last year and driven by the low order intake in the first half. Similarly for gross profit and EBITDA. I think the pivoting point in the numbers here is the order intake, which takes us in a different direction and which affects backlog and what's coming in the future. On a P&L, from a P&L perspective, a soft quarter. The order intake is kind of the opposing force, which is the most important thing to focus on here in our view. Similarly for the year-to-date financials as well, driven by the exact same things. I won't go into further detail there.
It is worth mentioning again the order intake, which from the first nine months' perspective is the highest on record, also looking at the historical figures.
Yeah. Without saying too much about, I mean, how we think Q4 would pan out, even though we are halfway there, I think the trend we see in Q3 when it comes to uptake in order intake continues also in Q4. We do believe that, I mean, geopolitical conditions have normalized a bit more. I think the U.S. market has figured out how to maneuver inside that unpredictability. We should expect a relatively strong order intake also in the fourth quarter of the year.
Operating cash flow, also a strong both quarter and year-to-date figures, driven both by enhanced collection and also large order intake in the quarter, which is converted to invoicing and, again, collection. For the quarter, we have a positive operating cash flow of NOK 45 million. For the year-to-date, NOK 31.1 million.
Yeah. I think the only comment to add here is I think it's a good combination of the type of professionalization we applied a couple of years ago, gradually building more and more structure and routine into everything we do, is also now starting to show off when it comes to controlling the cash flow for the company. I think a good job from everyone internally to drive customer money into the company earlier than historic.
All right. Outlook?
Yeah. It might be people thinking, "Okay, that's the same slide that was there last quarter." Yeah, when we think about outlook, we try to be a bit more long-term than quarter- by- quarter. We are trying to be very prudent and stick to the strategy and plan that we carved out and presented at the Capital Markets Day. Profitable growth and cash management is key. I mean, that's why we are here. The other two are more enabler to actually deliver on that. We are not wiggling from the fact that scaling through the partner ecosystem, regardless if it's turnkey business, our Cortec business, or the platform, is key for future type of growth and profitability. It has less risk, less cost, and a much higher potential impact than trying to do everything with our own people.
The same goes for, I mean, the defense opportunity, especially in Europe. I mean, EUR 8.8 billion over the next four or five years to be invested in, I mean, anything from planes and weapons and ammunition, but also to digitalization and technology. We are quite well positioned. We are working on some very, very interesting, cool new concepts with different defense branches around Europe, but also NATO. Hopefully, within a relatively short time frame, we will also have the ability to talk about what we are doing and how we are going to scale this up to make this the new type of master vertical, especially for our turnkey business for the next three or four years. The plan sticks, the path is there, and the focus is on partner, on the platform, and on the defense sector in Europe.
That is how we're going to capitalize and drive the company to the type of targets we have described with a NOK 250 million EBITDA and NOK 250 million ARR business before we see 2030. I think we open for questions.
Yeah. Let's do it. So it says, I need to semi-translate here, growth in turnover and profitability has stopped the last couple of years for a small listed company with weak balance and profitability. This has made the company uninteresting for some investors. What will it take for a considerable lift in 2027?
Okay. It's a very generous question, quite open. Of course, it gives room for both facts and speculation. It's like some sort of possible future type of scenario. I think we would probably not change too much when it comes to the strategy as such. I think we are quite sure that the path we have carved out around the partner ecosystem with our Cortec and the platform side is the right path going forward. I think if you have an investor that were willing to put a significant amount of money as a short-term investment for future capital gains into the company, I think we would probably look at some sort of strategic acquisitions, especially on the software content side that we could add on to existing customers, but also enhance the type of overall value of the platform out to customers.
I think that would possibly rapidly increase the opportunity to go quite deep and wide when it comes to subscription-based and ARR-based revenue. Adding a bit more dedicated type of AI software development capacity into the R&D team, specifically focusing on ramping up the content around the platform ecosystem.
All right. How do you experience other companies' interest in your technology and customer base? Strong, I'll say. Do you want to emphasize or?
I mean, over the last three years, I think we have had multiple conversations, I mean, with both other companies, potential competitors, and competitors. I think in general terms, quite good and quite strong. We are, even though 2025 has been so far a quite challenging year with shutdown of government in the U.S. and the type of geopolitical battlefield of the Middle East with everything that influences. I think if we compare to our competitors in those markets, we are still gaining market share, I mean, quite significant market share in the Middle East. We are adding a lot more new logos in the North American market.
I think we are growing faster, even though we are not growing that fast, but we are still growing our market share across those type of three core regions that we operate in compared to the majority of our competitors from Barco to Crestron to those system integrators that do similar stuff like we do.
Yeah. I think it's also worth mentioning you said new logos. Looking at the order intake for the quarter, it's kind of a balanced mix between existing customers that we've had for years, for some of them decades, and then new logos as well. There is both a repurchasing pattern from existing customers and new customers. Generally speaking, good interest. I think also from the partner ecosystem where we're continuing to build the number of partners that we are working with is also testimony to the same thing.
Yeah. Just a short, before we go to the next question, just short on the customer base. I think I talk to the executives across all our competitors quite frequently. I think if there's one thing they are envious about, it is our customer base. I think we have a fantastic customer base if you look across verticals, regions, and not at least logos. We are also seeing a lot of them coming back now. They might have had a relatively soft year when it comes to how they run their business. Now we see things picking up. You will probably see messages even today on global customers that have had a slow period of investment, starting to invest again, doing more on the technology side and the innovation type of center side.
I think the customer base is by far the topic of envy from all our competitors in the marketplace. That base, and I need to underline that, that customer base is there for all the right reasons. It is there because there are 160+ passionate people that go up every morning to make customers satisfied and build really, really brilliant solutions.
Can you elaborate or clarify a bit on how the Gaza conflict affects decision-making in the wider Middle East region?
Yeah. I can do that very shortly because I was in the Middle East a week ago and had meetings with all the key customers we have there. When it comes to the large ones, very open in Saudi, there was a budget planned. We had a project for doing additional stuff across the region for some of these customers. Due to the conflict in Gaza, they just put all the brakes on. They had some fear of doing projects distributed in the wider region of the Middle East. We have tried to see if we could lure out some projects in Q4. I think we have landed and agreed with the customer and committed on a relatively significant number to start those projects that were planned Q3, Q4 this year from Q1 next year. None of the projects are gone. They are there.
It's not going to be a tender process. We have a direct agreement with these customers. That goes for the two most significant customers in that region. When it comes to the projects we have been working on in Qatar, to be very honest, sitting in meetings, having bombs around you makes decision-making quite difficult.
Which literally happened.
It literally happened. We had people there in meetings with customers to finalize projects. These are not gone. They also decided to pick up conversations again early Q1. Of course, it has an impact in that region by itself. You can see that from the numbers as well. Normally, the Middle East counts for like $25 million-$30 million in order intake in a year. This year, I think we will be anywhere in the range of 60% of that. If you add those $13 million-$15 million projects that have now moved to next year on top of that, they would actually be more or less in line with what they have had the last two years.
I think that concludes the questions. I guess we can then wrap it up.
Yeah. If there are no other questions, I just want to say thank you for participating. Thank you for providing very, very good, valuable questions. Feel free to challenge us at any given point in time, not just during the earnings call. I mean, Karl Peter and I are available. If any of you want to come and get more in-depth knowledge around what we do and how we do things or have ideas on how we can do things smarter or better, feel free to reach out. With that, I wish all of you a joyful day. We will continue our day here in Stockholm. Thank you. Bye-bye.