Hi all, and welcome to the third quarter earnings call for Cyviz. Thank you for joining us this Friday morning. I'm Espen Gylvik, the CEO of Cyviz, and with me I have the company CFO, Marius Skagen, and we will take you through today's agenda and also the highlights and content of our third quarter performance. Let's kick off. Beyond just going up in the morning and doing what we do well every single day, we are also working on optimizing and trying to find ways of improving the way we run our company and how we position ourself in the marketplace. For some of you, this might be quite new. The colors and the logos you see here is part of our new brand and positioning strategy.
We also tried as part of this to define in a very simplified way what Cyviz is as a company, so that we can reach out to a much larger audience and customer base globally than we have done so far to secure the path for the future growth of the company. I'm just gonna go through this quite quickly. Cyviz is next level collaboration, and in that, you can interpret innovation in forefront, that company that gives the customer the best possible experience when it comes to technology and collaboration. We do that by bringing communication, control, and interaction together, powered by advanced technology, largely built by us as a company, working with the most significant and best third-party companies to provide the best solution to our clients. Most importantly, it is driven by one important thing, our own people.
That is what makes us better and different. We make life better by making complex simple, ensuring work is more immersive, productive, and at the end of the day, more enjoyable. From now, this is Cyviz. We are the future at work right here, right now. I'm gonna give you just a sense, the high-level view on some of the key KPIs for the third quarter, and Marius will go through a lot of these in more depth a little bit later in the presentation. We were standing here after Q1 and quite confident telling you that Q1 would be the last quarter where we would bring a presentation with a negative EBITDA.
For those of you who participated for the Q2 earnings call, you can remember that we did deliver a positive EBITDA, and I'm proud to say that we continue to do that by delivering an EBITDA of NOK 4.7 million, with an all-time high order intake of NOK 208 million. The reason for why we again manage to deliver a positive EBITDA is a mix of different things. It's of course an increase in our revenue, but also an improved gross margin driven by optimizing and getting effects of the scale and optimization we have been working on for the last year, pulling out more margin by every single deal, and of course, having control on the OpEx spend that Marius talked a lot about in the last earnings call.
The consequence of increased revenue and increasing our margin is of course that our gross profit improves as well. I think personally it's quite impressive that we have managed to lift our gross profit up with 108% compared to Q3 last year, and end this at NOK 55.1 million for this quarter. Order intake is important because it is a proxy for future revenue. Delivering an order intake of NOK 208.2 million, which is up 127% compared to similar quarter last year, is in my book quite impressive. Maybe the most important thing, the thing that stood out probably among several of you as a big question mark after the Q2 earnings call was the cash situation.
I think Marius explained quite well last time, very fact-based, point by point, the rationale behind the challenging situation on cash after Q2 with an intent of providing trust that we, through Q3, would reset and stabilize the cash flow. I think what this indicates is that it removes any doubt, if anyone had that we as a company had to go out and pick up some sort of additional injection of money from investors at a very, very low share price. I think this is one of those points that Marius will elaborate a lot when we go forward. I think I hand over to you, Marius.
Thank you. Cash is a good segue to the business highlights during this quarter. Let's just restate the obvious, but also what makes us proud. We are now in a position where we have delivered, once again, an all-time high order intake, bookings of NOK 208 million. To set that in context, that is 72% growth compared to the last all-time high set in Q1.
It's not all about that. We like to talk about the underlying performance. We do not like to sort of isolate one single quarter and extrapolate that into eternity. We will sort of give you some insights into the massive $14.5 million deal made this year. That is a new record for us and a significant deal in our industry. Let's just pause that for a minute because the key in this story is that the diversification of the portfolio continues. We made that as a point during Q1. We reiterated that during Q2. The story continues. This quarter, we have for instance seen a door opener in Bangalore with Boeing India.
Yeah.
For their campus. Good deal for us. We have seen Fortune 500 customer returning after some years out of the Cyviz portfolio within the oil and gas industry. To take the pharmaceutical company GSK, they have now placed a third order for their Shopper Science Lab, this time in Shanghai. During Q1, we did Sydney. Q2, we did Tokyo, now it's Shanghai. It's all about diversification of the portfolio. Now, as the pie chart shows, Q3 might not be sort of the perfect example, but it is.
If we sort of take that into a year to date perspective, you will see that we have sort of elaborated and expanded the footprint within government and defense, not driven by the one single contract, but throughout all the regions within defense, within air force bases, within government, within large financial institutions, we have sort of step-by-step took that step. It makes us proud.
Yeah, I think one comment. I think one of the things that, I mean, is evident here around the diversification part is, it really shows that the concept and core technology of Cyviz paired up with the right third-party solutions is relevant to a very broad, large audience. It's not like one or two single verticals. It is actually possible for us to package and position this with our technology and provide the best possible and most effective collaboration solutions across a lot of different use cases and verticals. I think that's the key message.
Exactly. Apart from sort of just signing the deals that we're seeing here, we also sort of sneak peek during Q1 and Q2 the strategic partnerships deal that we have signed. Now we have started to sort of exploiting new revenue models, new business model or alternative business models compared to the sort of the traditional Cyviz way of doing the high-end solutions. Probably would you sort of give some insights to those deals before we deep dive into the large deal?
I can. Thank you for giving me a very, very easy, I mean, opportunity to talk about that. We talked about strategic partnerships on some of the core new future Cyviz technology, our core platform, which is a cloud-based technology platform where we have the ability to integrate our own software solutions, but also include and integrate third-party solutions if that is a requirement from customers. I think both Atea and Techlit, two relatively large system integrators, one in the Nordic market and one covering the Italian market, that sign an agreement and bet on the Cyviz platform with Cyviz Easy Agent to take that out to their Teams customers and the Teams Room customers to provide more value and more of the same type of benefits that clients get with the Cyviz solution happened in Q2.
In Q3, I'm happy to say that both of these partners have now started to get traction and started to go out in the market to their customers and sell that. This is a very important parameter for us as a company. It is the future strategy of moving more of our business over to cloud-based subscription solutions driven by partners. There are two very, very important things to mention. One, the partner ecosystem allows us to scale that business way faster with a lot less cost. It's perfect for our profitability in the future and also the margin picture. Secondly, it is allowing us to reach out to a much larger audience, but also with new products and solutions built on the core essence of 24 years of really proud history and good technology.
I do expect to see a lot more partners going forward, embracing the opportunity to take the Cyviz platform and the Easy Agent out to customers around the world. There is a lot of Microsoft Teams Rooms out there already. We are quite optimistic, and we see this as part of the prosperous growth in the future, but also one of the important parameters for us to move more of our business towards recurring and subscription.
Exactly. Let's sort of restate the icing on the cake in this quarter. We signed a $14.5 million deal.
Mm-hmm.
We call that a game changer.
Yep.
Apart from the absolute size in dollars, what is game changing about that contract?
I can make an attempt to try to like elaborate and put that in context. I think first and foremost, I mean, one single deal with one single customer in the range of $14.5 million is a significant game-changing deal for us. I think historically, for people that have followed us at least the last couple of years, you have seen me announce a lot of deals in the range of $800,000 million -$2.5 million. I think the previous record was in the range of $4 million -$5 million.
Correct.
Just in size, it's a game-changing. I think the most important thing is it is with a defining client in that marketplace, a defining client that largely would define the majority of future projects where technology and modernization would happen in that region, and it is in a region where we, and probably everyone else, expect the growth to be significant the next five to ten years. It is a willingness to modernize and invest beyond what we see and hear from any other region around the planet. In that context, it is the right door opener to like it's the ticket to be allowed to participate for future revenue in that region. That's one thing.
Secondly, it proves our ability and capability, not just from a technology point of view, but also from an organizational point of view, to be able to go out and bid with confidence and use it as a referral to win similar large strategic deals across all the four regions we operate in. I think it shows that the Cyviz solution and the platform with all the type of connected bits and bytes that we provide is relevant beyond the traditional business we have had historically. I think it is by far a game-changing deal for us on multiple levels.
Good. Let's take a brief look at the Q3 financials and the KPIs there. We focus on revenue.
Yep.
We have a large focus and emphasis on gross profit, EBITDA, obviously, also bookings. This quarter, we are growing revenues by 82% compared to the same quarter last year. That is good isolated. We went public December 2020, stating that the annual growth rate would be above 30%. We're sort of keeping that pace at the moment and above that. Year to date, it's strong. It is plus 37%. I use this word a lot, the diversification of the portfolio. It's important to understand that what sort of NOK 116 million this quarter composes of. It's large projects within the corporate sector. It is startups of the energy sector and also, needless to say, the government and defense vertical this quarter. We have right now or this quarter, 43% stemming from Middle East and Europe being the second largest region this quarter by 28%. That's a really good performance.
Gross profit. Well, we have increased by 108% compared to same quarter last year. Underneath that, we are also sort of enhancing the gross margin by 6 percentage points compared to last year. That is also important to sort of understand. You stated some things two slides ago. It is a better sort of portfolio management, meaning we have reduced sort of the tail of low-margin projects. We qualify projects in a different manner than we used to do. We have increased recurring revenues. And also, we have a sort of accretive effect right now of the weakened Norwegian krone compared to the U.S. dollars. EBITDA, w e like to sort of keep our promises.
Like you said, Q1 probably would be the last quarter we are standing here presenting negative EBITDA. The second quarter in a row, we have a positive EBITDA, driven obviously by increased revenues and improved gross profits and operating expenses under control. Still, we are not resting on our laurels. We reiterate sort of the ambition of a full year 2022 positive EBITDA. We're not there yet. We're not over the finish line.
Not even close.
No. We are just gonna use this pace, this sort of speed our vessel has right now to exploit new opportunities.
Yep.
Be good at what we are good at, sort of continuous improvement on that part. Bookings, we will sort of give you some deep dives into that. We are growing 127% right now compared to last quarter. We have a rolling twelve-month trend surpassing half a billion dollars in NOK, and the backlog right now at NOK 311 million. Growth of, yeah, almost doubled or above doubled compared to last year.
Yeah. I think for people, I mean, looking at this for the first time, I think one of the, I mean, messages that at least we would like to, like, bring forward is we deliver on the promises we give to ourself, our shareholders, our board, and the market. We show you an indication that we are growing way faster than the market does. We have just like scratched the surface. Of course, going forward from Marius's part, my part, and everyone in the company's part, the focus will be more and more around profitable growth. The focus will be on revenue, it will be on increasing EBITDA both in value and percent, and also managing OpEx so that we drive the right level of gross profit. The booking and order intake should be seen as a future indication on future revenue and growth.
In that context, bookings is important for us, but I think from a communication point of view and what we will like talk about going forward, it will largely be around revenue, EBITDA, and constant growth.
Yeah, on that note, bookings. Me and you are simple persons.
Yep.
We needed to sort of do this step by step. After the second quarter, we had a growth of 45%. After this quarter, we have a growth of 64% driven by this vertical.
Yep.
Now, let's not sort of overdo the $14.5 million deal because the growth was actually 32% before this quarter. This, the NOK 237 million right now from that vertical is, we can dissect that into several regions and several sort of both governmental and defense sectors. That, I think that is important to understand, so the underlying performance that Cyviz has at the moment.
Yeah, a comment to that, I think we have been traditionally very, very strong in, I mean, the energy sector, and we have really managed over the last two, three years to pick up pace and interest in the corporate segment with Accenture and Microsoft and KPMG, large global, very strong referral customers that buys multiple solutions over and over. Also clients that over time becomes more of a partner, where we do a lot of development and interesting things together. I think there shouldn't be any doubt that we do see, also based on relevance and some other type of feedback we have been given this year, I mean, in the sense of winning contracts. The government and defense sector, especially in times where things are a bit volatile and challenging in the global marketplace, is an area for growth.
We will go after that vertical as we do with all other verticals with full speed and everything we have to continue to grow our business. I do expect this vertical to be an important vertical also for future growth into 2023.
Yes. You stated some minutes ago that we are now entering sort of the phase of profitable growth. Well, on that note, we need to have sort of our binoculars on the Operating Cash Flow.
Yep.
That was negative from after Q2. We also stated in this studio that we will turn that trend.
Yep.
We have. This quarter, we deliver a positive operating cash flow of NOK 71 million. Now, two, sort of three parameters on that part. It is important to have commercial and operational performance, and we have.
Yep.
Right now, NOK 1.7 million in a positive profit before tax. Number two, control and governance on the accounts receivable. We have. We exited Q2 with NOK 119 million. We have now reduced that to sort of a normalized level, around NOK 50 million, NOK 51 million at the moment. Important to understand. Also, we took a qualified bet, like we stated during Q2 presentation. We had a large and have a large backlog. We need to secure critical components.
Yep.
Hence, we increased the inventories by almost NOK 7 million in Q2. We have sort of that focus, but we have a qualified focus on that. We will always have that to secure the supply chain.
I have to say, I mean, we could have done NOK 15 million.
Absolutely.
It was still a very, very smart decision to make because if you look at the marketplace today, I mean, we are the only company today providing this type of solutions based on our own technology, developed on traditional Microsoft architecture. Compared to those we compete with, doesn't have to name them, but even the big global ones to the local ones that has a tailor-made solution built on a different framework, we have had and we still have the ability to continue to commit to customers that we are capable of providing and delivering within like the expectational timeframe customers have, compared to those we compete with that has anywhere between 70-90 weeks delivery time. Of course, that's a competitive advantage, also driven by making smart decisions to secure supply on critical components that we did six months ago, nine months ago.
Yes. Exactly. What did we spend the money on? Well, number one, we repaid the overdraft facility. That's zero at the moment. We increased the cash position.
Yep.
From NOK 9 million to NOK 24 million. We are now cash generating. That's important. Again, we are not resting on our laurels. Year to date, it's a zero-sum game.
stated at the bottom here. We have a continuous focus to improve the operating cash flow. One of the most important metrics there is the balance between accounts receivable and payables, meaning we need to sort of mirror the payment terms that we provide.
Yep
To our customers compared to the payment terms we accept from our vendors. That we have had sort of a history of not focusing that much, the last five years on that. That era, if there ever was one, is over.
Yeah, I think if I can add one thing to that, I think there are different reasons why it was like that. I mean, if you go three years back, four years back, five years back, I mean, it was discipline, but also, I mean, the size of the company was quite marginal. I think over years, as long as we grow and we grow with the right type of customers, with the strategic value for our partners that we buy and work with as well, we will have much more leverage to negotiate better and better terms that would optimize the type of cash flow model that we operate with.
I think the mix of the internal operational adjustments we do, I mean, the eyes we put and the dedicated people we put eyes to follow this, mapped and paired with our ability to negotiate much longer payment terms with our vendors and shorter payment terms with our clients because they want our stuff.
Yep.
Will help us gradually over time to improve this forward.
Exactly. Again, remember, we have a backlog now, about NOK 300 million.
Yeah.
That is customer needs that we will deliver the next quarters.
Yep.
Hence, we need to balance that. With that said, let's have a nice look on our outlook.
Yeah. Let's look in the crystal ball. I think I mean, we said Q1 should be the last quarter where we present negative EBITDA. We have done two quarters in a row now. We're quite confident that when we get back for the fourth quarter, at some point next year, we will have the ability to also have the same story, and then also through that, provide a positive full year 2022 EBITDA for the company, for the first time in the history of the company, in reality.
We see a market that is, like, impacted by a lot of things that we don't control, and we have chosen to, like, pay attention but not a lot to that, but focus our energy on what we do and what we can do best, which is going to work every day, delighting customers by giving them the best possible collaboration solutions over and over and over again. I have to be honest, I mean, 2022, I said that during 2020 and 2021, the moment for Cyviz will come on the way out of COVID, when people have started to realize what they missed during COVID, and more and more people gradually comes back to the office, either in a hybrid fashion or in a fixed fashion, and they need more advanced, better, more effective tools to work with.
One, because the competition in the global space is more fierce, but also to be attractive to bring people back to the office place and recruit new talent. I don't see today any evidence for any slowdown in the marketplace when it comes to what we do. I do expect a positive development through Q4, and I'm also quite confident that we will see a positive 2023 for us. If our competitors continue to have 70+ weeks of lead time, it's just a fantastic opportunity for us to go and grab and pick that marketplace and continue to deliver. We will continue to capitalize on the demand, and of course, we will have a backlog entering 2023 that is, like, more than 50% larger than the one we had when we entered this year.
That is like money in the bank that will be converted to revenue, and of course, building new deals on top of that to secure that we drive a profitable growth next year. Of course, stick to our commitments that we made when we did the IPO. We will grow aggregated more than 30% every year, and we will deliver an EBITDA margin in the range of 15%-20%, and we will, through 2023, show evidence of things we have talked about this year, the shift and the move towards software, cloud applications, and services that drives a lot more predictable recurring revenue stream for a company. We will do that without jeopardizing what we actually do best of all, which is delivering the most advanced, best, most effective collaboration solutions to clients around the world.
In short, quite confident, quite positive, happy with, I mean, the Q3 performance. Q4 looks good, and there is nothing that we can see today that should indicate that 2023 should be anything else than a positive year for growth for the company. With that, I think we open up for Q&A.
Let's do. A lot of sort of all-time highs this season. Bookings, gross profits, but also participants in the earnings call. I've never seen this number before, so it's good. Thank you for tuning in. With that, we also had some good questions. Let's take the operating cash flow.
Yeah.
One question here, "How sustainable is the NOK 71 million operating cash flow in one quarter?" I can start and then sort of pass it over to you, but obviously not. You cannot extrapolate that into eternity. Again, we are not isolating quarter and then taking that performance. We are looking year to date and rolling 12 months. With that being said, positive operating cash flow definitely is sustainable with our business model.
Mm-hmm.
We're entering next year with the ambition to show you profitable growth. Operating Cash Flow is obviously a part of that.
Yeah, I think, I mean, one of the things we really work hard looking at is also the type of time it takes for us from when we sign a contract until we have, like, finalized and delivered that with the client. I think we had an interesting discussion last week with the management team, and instead of, like, looking at this on a high level, we dissected actually all the type of steps. It looked quite a lot more positive than I actually anticipated when we started that discussion. Just like reducing that with one or two months from where it is through 2022 will also have a significant positive impact in the way we can manage our operating cash flow. I do think that we are heading in the right direction.
We are doing stuff that will improve that, and I don't see today any need for going out and trying to, like, pick up a lot of money to support, I mean, the core business of Cyviz as it looks right now. We might have to go out in the marketplace if the opportunity to do acquisitions or other type of strategic things happen, but, I mean, that would be a different separate case.
Good. All right, next one. How can you explain the six percentage points increase in gross profit compared to last quarter? You mentioned that, but probably it's worth sort of reiterating those points. How did we do that?
I definitely think it contains of a multiple set of things. Let's begin with some of the easier things to look at. I think, I mean, luckily, we become smarter and better as we move along, and at least we can show to ourselves that we are capable of learning from stuff we did before and make things better. I think what we have done internally in the way we, like, now facilitate and drive the type of operational part of our business, I mean, across sales, then operations, and with you and me, and the process we have now on, I mean, executive level, where all, I mean, strategic deals of any sort of size and strategic value have to go through a deal desk with relatively clear criteria, where we dissect every deal, we challenge every deal.
We even ask people to provide a cash flow indication for the deal. That has made a significant positive impact in our ability to, like, lift the gross margin by itself. We have now become bigger, not just in size of our own people, but in the marketplace. We are growing way faster than our competitors and the market by itself, and we have built more and more large strategic accounts that continues to buy. We have that type of luxury to be a bit more critical when it comes to deals that we might not necessarily go after. I mean, when you are small, and you always have to show growth, you might actually take some decisions that there and then was right.
Mm.
In the overall scheme of things might be the wrong decision to make. I think the sum of discipline, processes and framework, and also the competition's issues with delivery have, in sum, given us a place to lift the gross profit in percentage significantly from where it was previously.
Let's try to consolidate this one. Two questions regarding market conditions. Number one, so do you see any signs of slowdown in our industry with the clouded macroeconomy, supply chain issues, et cetera? Number two, on that note, any insights on how competitors are doing?
Sure. I can try to make an attempt on that. I think if you look at it in a bigger picture, not seeing any sign of slowdown, I mean, in our type of industry and what we do. I think you would see. It's also not just because the market, I mean, in general, is not slowing down. It is a mix of still a positive market with increased demand, not necessarily across all verticals at the same time. I mean, if one vertical slows down for some financial reasons or others, with the diversification we have done over the last year and a half, we have now put ourself in a position where we can compensate for that slowdown from other verticals that continues to invest, like government and defense.
I mean, it is also an evidence that having large global account that continues to buy gives you that type of safety net or buffer that continues to just roll in and roll in, like Microsoft continues to buy. I mean, we talked about them a lot last year. This year has been a little bit more quiet, but it goes in waves. I can say we are not done. There will be more Microsoft opportunities, I mean, at the end of this year, going into next year. We have that base to secure the growth.
Returning customers.
We have customers.
You stated returning a few types of customers.
Exactly. Those that were, like, sitting a bit still during COVID, and they saw that they were missing stuff to work effectively.
Yep.
Of course, as long as we continue over time to provide the best value to these customers, they will go to us again when they need to, like, rebuild or buy new stuff or upgrade. There will still be supply issues. I mean, I can speculate as good or bad as anyone else. I've just said when people ask, I do believe, based on the few signals I can see, that there might be a positive uptake in supply, I mean, at some point summer, late summer 2023. I think our benefit is the choices and decisions we have made over the last year and a half to provide critical components, allowing us actually to convert those NOK 311 million we have in order backlog into deliverables and then revenue. Our competitors, sometimes you bet on the right horse, sometimes you bet on the wrong.
I'm not going to be cocky on our own behalf because we might be in a situation in the future where things have changed. They have had and still have serious delivery issues on a lot of components. When you run with plus 70-week delivery, it's not just a customer issue, it's actually a company issue inside these companies because it has an impact on their sales staff that work their ass off. With more than a year delivery, and their bonus scheme is like within the 12-month timeframe, they will largely not get any type of compensation for that. That gives us an opportunity to also go out and pick and hire some of the best talent from our competitors. I mean, I do see that we are sitting quite well in today's ecosystem.
We will continue to hire if we find the right people in a prudent way, because we have said that we need to map OpEx with revenue. We're not going to do the same run in 2023 that we did in 2021. We are capitalizing on what we have. I think compared to some of our competitors that is now letting 10, 15, 20% of their staff go because of supply issues and challenges then on revenue, I think we are in a better position than ever in the marketplace.
Good. On that humble note, that concludes the broadcast. Thank you for watching. Thank you to our colleagues for allowing us to present positive figures.
Yeah, I mean.
That is important.
This story would never be possible.
No.
... without like 160+ people that goes to work and do their best with that level of passion every day. Also to the shareholders that have been with us either for a week or 10 years, for trusting us and believing us. Just, like, make sure that you keep us accountable and push us. With that, thank you all.
Thank you.