Good morning and welcome to Hotel Continental in Oslo. To those in the room, and also welcome to all of you who are joining us on the web today. We are here to present Q4 2024 financial results for Smartoptics. As usual, I will start with highlighting some numbers from the quarter. Undoubtedly a very, very good quarter with 22% growth to $16.9 million recognized revenue. That is very close to being a record quarter for the company. I believe it is number three in the history, but as I said, very, very close. There are other numbers here we specifically highlight, the invoicing, which is absolutely a record quarter from an invoicing standpoint. The conclusion is that we are selling more software and services and longer contracts for supporting our software.
You can see this in the balance sheet that we are reporting, where our deferred revenue, which is where we tuck away the longer contracts, has gone up by about $1.5 million in the quarter. Very good, very good trend. It is clearly a turnaround, and it is the turnaround that we have anticipated and that we have talked about over the year. We have talked about an expected turnaround basically due to three things. Number one, macro, which is of course not in our hands and probably not in our competence area also to analyze in too much detail. What we can analyze in very high level of detail is of course the activity level in the market and the activity level in the conversations we have with our customers. That is number two.
As you remember, it has been very high for at least four quarters in Americas, where parts of Europe caught up about two quarters ago. We can now see that all of Europe is back at a very high activity level. The third reason why we anticipated a turnaround was of course the products that we have released through the year, which is making us very, very attractive in new segments of the market. I will come back to that. Gross margins up, so very good. These are, you know, from a business standpoint, these are small changes. I realize that they have a big effect on the result, but those are small changes and therefore it is not obvious exactly what we do.
We have a general ambition to increase our gross margin, but not at the cost of declining or stop growing and continuing to act as a challenger. I will come back to that when I talk about our long-term aspirations. We have continued to invest in the company, and we are continuing to invest in the company for the growth that we see ahead, the target that we have talked about for a very long time and beyond that target. Specifically in Q4, it's been a very interesting quarter for us where we have recruited top talent. We have strengthened the management team of the company, reorganized the company to better fit our current aspirations. We have also released some of the most advanced software and hardware releases ever in the company successfully.
We have implemented a completely new backbone in the company, a new ERP system, which went live 1st of January, and it has been a successful journey for us. A lot of activity through Q4, continuing to invest for bigger things, as I mentioned. Smartoptics in brief. Today I would like to focus on the drivers that we see ahead of us here for continued growth in the company. It is a slide that has been with us now a couple of quarters. We have made minor changes to it between the quarters to reflect the most current reality. I would like to start to talk about our large account strategy.
Here, look back a little bit at 2024, where we have announced quite a few wins, quite a few important customers that we now see are coming to a point where we can confidently say that these will contribute in 2025 to our revenue and onwards. These things take time, and it's important to continuously add larger accounts to our customer base. The strategy and our focus is unchanged. We are still juggling around 10. We have always said around 10. In reality, it's probably a few more larger accounts where we are closer to the customer, having advanced discussions around solutions, being in labs, participating in tenders with higher win probability than usual, et cetera. We are in the final rounds of vendor selection in several of these. I'm kind of expecting that 2024 was good.
We announced a few, and we should continue with that going forward. As they start contributing to our revenue, they will of course contribute greatly to our growth. I mentioned the second box here earlier. We are now at a stage where we see a very high activity level in all the markets that we are addressing. Whatever is left of any economic or macro downturn, it is really not affecting our day-to-day business and the conversations we're having with customers anymore. Our new products, they are allowing us to build larger networks and to address larger projects and to address larger accounts. We have released products through 2024 that is dramatically improving our capability to compete, particularly in these types of projects. Those are regional networks, longer reach networks, higher performance networks, et cetera.
Good example of that is in Q3, we announced a customer called WIN Technology out of Wisconsin, a very good example of such a network. That is going to contribute onwards, and it is instrumental in Q4 too, that the new products, as usual with Smartoptics, we are selling our new products early when they come out of the gate, and they contribute to our growth and revenue early on. Yeah, AI. Please do not forget what is in the ticker on the bottom of the slide, the ever-growing demand for bandwidth. That is what is driving the need for our products and the continued investments by our customers. AI is obviously talked about widely. We have discussed AI as kind of a three-stage thing happening where the early stages of AI is hyperscalers, very large companies building huge data centers basically to train the AI models.
Phase II would be when that sort of behavior migrates into the enterprise community and we see a more distributed view at AI as a technology. The third step is when AI really starts to contribute to the ever-growing demand for bandwidth. That is when instead of just sending simple text messages and text files back and forth between the AI engines and the user, you start sending 20-minute long movies in 4K quality and such. We have yet another Netflix, YouTube, et cetera, on top of the Netflix, YouTube, et cetera that we already have. I am looking forward to that, and I truly believe in that.
What has happened recently is that we are seeing our customers, really a lot of them are now talking about supplying services to the hyperscalers, delivering capacity between data centers, to and from data centers, connecting other people such as ISPs into this cloud environment, really driving their business. Consequently, when the hyperscalers are investing in their very, very large data centers, which they are doing everywhere, that is indirectly driving our business. It is very important also for us, although we are not delivering products directly to the hyperscalers. I want to dig into Q4 and look at the numbers. Let me start here. As I said, Q4 2024, we turned a corner that we have talked about for at least three quarters. That second half would be the timing. When you look at Smartoptics now, it looks pretty much like three flat years.
It's not. It's four quarters we are talking about. It is from Q4 2023 through to Q3 2024 where we have negative growth. All other quarters are positive, and a lot of them are, yeah, very positive to say the least. Hence, I believe in the growth journey ahead, and I think that these four quarters should be an exception, and we should now have an opportunity to move forward at a new pace. Through this four-quarter period, when we look at what the industry analysts are saying about the market, it is clear that Smartoptics is among the top performers. That's very good. In theory, we are therefore winning market share. I don't think we are winning market share in all markets. Obviously, hyperscalers being a very, very important piece of this market that has grown quite dramatically over this period is kind of affecting that number.
If you look at the segments that we are targeting rather than the whole market as such, there is no doubt we are winning market share. Right. Why has this happened? Just to go back and reiterate what we have talked about over this period, we have said that our core business, which is effectively enterprises, smaller tier two, tier three data center operators, and smaller regional operators, that market has actually performed really well. We have seen growth in many of these quarters. What has been lacking are those bigger projects that we saw in 2022 and 2023. With a pent-up demand in the market, those should now start materializing again going forward. Every year we show this slide looking at the number of customers that we send invoices to.
It is important to continue to grow the number of customers that buy Smartoptics products every year. What we want to show with this slide are three things. Number one, we are adding new customers, no doubt, about $8 million, $7.8 million to be precise. Million dollars of our revenue is coming from customers that we did not have in 2023. Interestingly, in 2023, the corresponding number was $8.0 million. Very, very stable flow of new customers coming in in the last couple of years. That is one thing we want to show. The other thing we want to show is that of our revenue, 50% of the revenue is coming from customers that we had before 2020 in this case. Last year, we showed the same slide. The number was exactly the same. The year was then 2018.
We have very long customer relationships, very low churn, and customers are growing with us. That's important. The business model of the company hasn't changed. It is still the indirect business, is still very important to us. About two-thirds of the revenue is coming from indirect business, and that will continue our focus on our business partners around the world. Geography. When I show this slide, I always say that please don't overanalyze what's happening in a quarter. You have to know quite a lot in order to make any conclusions from this. The revenue between the regions will go up and down from quarter to quarter. The important thing in this slide is that we have two very strong markets being Americas and EMEA. This quarter, EMEA is really outperforming everyone else in the company. That is, of course, very, very nice.
Coming from a pretty dark situation in parts of EMEA a year ago, a good example is UK Ireland, which is a market that we have talked about as being the dragger in Europe for several quarters. We see now 160% growth in UK Ireland in quarter four. Another example, Nordics. And that growth is on invoicing then rather than recognized revenue. We see Nordics above 100% growth. So Nordics is clearly awake too. We see the DACH region with over 50% growth, clearly awake and business is happening. Europe is very, very positive. To be perfectly honest, a little bit surprising that it was this good. I'm happy for that. The other interesting thing here is APAC, which is now starting to contribute with substantial revenue into the company. It is low compared to Americas and EMEA, yes.
It is starting to be revenue to be counted on. Another with 54% growth up to $1.6 million. That is a record quarter for APAC. Another interesting thing is that our revenue profile in APAC has been at least half coming out of Australia and New Zealand. This quarter, it is only about 20% that is coming from Australia and New Zealand. The other 80% is coming from about 15 customers in different geographies such as Singapore, Indonesia, Malaysia, Japan, and the markets that we have talked about earlier. Very good news. We are starting to spread our wings across some geographies in APAC. Products. I would characterize Q4 as a return to normal in the sense that solutions, software, and services, which, as you know, are business areas that are tightly coupled to each other. We hardly ever sell solutions without software and service.
We never sell software and service without solutions. They belong like this together. We can see that the growth is back in that area, which is basically what the company has been looking like between, I would say, 2018 and 2023. A very long period ahead of the problematic four quarters with good growth in that market. We are also growing devices. Devices is an area that we will actually have recruited new leadership. Mr. Björn Andersson is coming in to lead those efforts. We have reorganized the company and we have started to build our punch list and our strategy. We are not quite there to present what we are going to do. That will come through 2025. You will see initiatives being presented. Already now we see good growth in that. That should, of course, be higher as we go forward.
I would like to hand over to CFO Stefan Karlsson to take us through some numbers.
Thank you, Magnus. I'm Stefan Karlsson, CFO. I want to present some financial numbers. Revenue increased, as Magnus said, with 22% to $16.9 million compared to $13.8 million last year. That's partly driven by a strong EMEA where we had $8.4 million in revenue. We have a stable high gross margin on 49.0% compared to 50.5% last year and trending up from previous quarters. The EBITDA is good and is on $2.4 million compared to $2.3 million last year. We see the small increase of $0.1 million is made up by $1.3 million increase related to revenue increase and a slightly margin drop. $1.2 million is a result of increased cost levels from $4.7 million to $5.8 million. That OpEx is driven by the organizational growth. The average number of employees has grown from 140 last year to 131 in Q4 2024. That's mainly in R&D.
The cost per employee is, however, stable quarter-over-quarter. The EBITDA margin is 14.4% last quarter compared to 16.8% last year. On an annual basis, 2024 we had 10.1% compared to 18.5% last year. That was driven by catch-up in Q4 this year. The operating cash flow, we have a positive cash flow from operations in the quarter of $0.6 compared to $2.1 last year. The full year cash flow from operations was $6.8 compared to $11.9. That is good considering slight decrease in revenue and the operational growth. Trade receivable was built up in Q4 after good collections in Q3. Inventory has decreased due to high deliveries in Q4, as expected. The balance sheet is a strong one with an equity ratio of about 58% compared to 61% last year. Non-current assets of $7.1 consist of capitalized development cost, tangible assets, leases, and deferred tax assets.
Current assets is $33.9 million. It's mainly inventory of $12.6 million and trade receivables of $19.9 million. The cash is $8.0 million compared to $9.3 million last year and is down with $1 million the last quarter. Cash from operating activities generated $0.6 million. That's driven by good result and decrease in inventory, but increase from trade receivables with $5.1 million. We have still available credit facilities of $6.6 million, equivalent to NOK 75 million. Non-current liabilities is $0.8 million, of which lease liabilities $0.3 million, which is mainly office lease, and favorable loans from Innovation Norway of $0.2 million.
Current liabilities is $10.7 million. It's mainly trade payables, tax liabilities, and personal related liabilities. We have consumed our loss carry forwards, but have not yet started paying preliminary taxes. Deferred revenue, as Magnus mentioned, is up to $9 million from $6.6 million last year and $1.1 million in the quarter.
That is a result then from the higher sales from business area, software and services. The working capital amounts to $14.9 million, and it is down from $16.5 million last year. The inventory decreased to $12.6 million compared to $14.2 million, and it is down from $14.6 million last quarter. We have shorter lead times, but still commitments in forecast periods towards our suppliers. We are constantly working with the inventory, and we have that in control. Trade receivables increased to a record high, $19.9 million from $17.0 million. That is due to high invoicing in Q4, and that is concentrated in the end of the quarter.
We have more than 50% of invoicing in December. Trade payables increased related to higher purchases and timing of due dates in the quarter. The net other short-term liabilities increased to $12.5 million, and that is mainly related to increase in deferred revenue. That is $9.0 million from $6.6 million.
The board intends to propose a dividend of NOK 0.6, 60 øre , compared to 50 øre last year. The board foresee a stable to increasing dividend over time. The board has done considerations based on financial parameters. The dividend is, of course, pending AGM approvals. The new updated policy reflects intents and the considerations the board has done. You can see that in our financial report. Back to Magnus.
Thank you very much, Stefan. Long-term aspirations. You can see that the $100 million stays. This target has been with us for many years now. I would like to start by commenting on 2025 and reiterate what I've said over several quarters. I'm confident the opportunity is there, but I also have to be honest and say that in order to reach this target in 2025, many small miracles would need to occur. It's not likely, of course. We are working in the market, and we are seeing opportunities out there that can accelerate this. We think we have turned the corner, as we have said through this presentation. Our focus will be to build confidence in the growth journey ahead. That is important.
When we reach this target, to me, what matters more or just below or just above, what matters more to me is what level of momentum have we built up at that point to allow us to clearly see the next target in the company. That is more important than the exact timing and the exact number here to continue to build for growth. Thank you. Now we have time for questions.
Thank you. Markus SEB, I can start with a couple of questions. It seems like the strength in EMEA is quite broad. Are there any specific projects that's impacting that number, or is it just a lot of pent-up demand?
I would say a lot of pent-up demand. We have done in EMEA, we have one larger project with a German operator. It's in the range of $700,000 recognized revenue in the quarter. It is not remarkably high as previous projects have been. I would say in general, it is pent-up demand and market waking up.
That's good. The second one is on the Americas. If you've seen any impact of the new administration, if that's impacting the discussions with potential customers, how that might impact the BEAD program and some of the discussions that you're having, or maybe it's even pushing forward some demand and your reflections on that?
The new administration, there are parts of these new policies that we have been discussing for quite some time, as for instance, the BABA Act, Build America Buy America, where we have talked to our customers. How important is that versus the cost of the product? As an example, should we start moving production into the U.S., or should we stay made in Sweden as we are on our solutions offering? So far, the conclusion together with customers is not to change anything. BEAD, we have looked at that. It's very difficult. We probably don't know all of our customers who have received BEAD funding. We think it's about $1 million last year in total that is BEAD related. Not at all instrumental.
Also, the way BEAD works is that it's distributed from the federal government out to the different states who are then distributing the money among BEAD participants. A lot of that work has been done, effectively moving the money out to the different states. It's not necessarily, even though you are stopping BEAD payments from the federal government, that may not be a 100% impact if you see what I mean by that. Of course, we have tariffs. On about 18% of our revenue, we have been paying tariffs ever since Trump period number one was 15%, went down to 7.5%. Now it's back to 17.5% since last Tuesday. That will, in the short- term, put a little bit of pressure on our gross margin because we don't intend to, as for instance, change already placed purchase orders.
We want to take our responsibility in that. In the near- term, long- term, of course, we will push that into our customers. I am expecting a very small impact. Of course, it could be since we are charging, or when we are charging tariffs as a line item on a quote, that is revenue that we have no margin on generally. There will be a small push on our gross margin in percent, not in actual money. We will see. I mean, we are monitoring this all the time. We know how to move our production into the U.S., at least for a large part of our product offering. We also know that it is at least 20% more expensive to produce in the U.S. The tariffs have to be pretty high and pretty stable for us to move forward with that.
There are no competitors to our knowledge that are producing anything in the U.S. Some of them are producing in Mexico. That is not better than Sweden. Some are producing in Canada. That is not better than Sweden. All in all, neutral to mildly positive for us at the moment.
That's clear. Final for me, if you can unpack the Q4 revenues in terms of you have signed some new large customers through the year and you've launched new products. Possible to elaborate a bit how much that contributed to your Q4 revenues, those two elements?
On the products, I actually don't have the number. It is big. I mean, we have previously, if we roll back one year, I recall kind of 30%-40% of the revenue being related to new products. It's probably very, very similar this quarter that we are winning business because we have better products. It is fairly instrumental, so important in that sense. Big accounts, not dramatic. I mean, in the quarter, we have a couple of larger projects. I mean, as for instance, the one I talked about in Germany then, we have a similar one in the U.S. with one of the accounts that we have talked about earlier. They are contributing. I'm expecting them to contribute more as we move forward now.
You expect that to be a gradual ramp up such that Q1 will be higher than Q4?
Yes.
Okay. Thank you.
Thank you.
Any other questions in the room? Good. We will go to the call. We have Christoffer Wang Bjørnsen from DNB. Please unmute yourself and ask your questions.
Yes. Hi. Can you hear me?
Yes.
Yes. Great. Thanks for letting me on. I was just wondering if you could help us understand how you would typically think about the seasonal pattern of a typical year, given that we do not have too many years of historical numbers, just how you think about the pattern of the year in a normal year.
You mean the revenue seasonality?
Yeah. Just how that would be looking in kind of a normal year.
Okay. Yeah. We haven't had, as you point out, Christopher, thank you for the question. We haven't had a normal year for quite some time. We've had, yeah, I would say specifically the seasonality has been off normal behavior. The normal seasonality is that Q1 is normally the weakest quarter in a year. Q2 and Q4 are normally the strongest quarters of the year, where Q4 is stronger than Q2. Q3, we'll see. Some years Q3 are up there on par with Q2, some years not. We've also seen years where Q3 has actually been bigger than Q2. We tend to think as a Scandinavian organization that Q3 is highly affected by vacation periods and such. That is not the case in the U.S., as an example. Right. I think the normal seasonality in the market is strong Q2 and strong Q4.
All right. Thanks. Can you confirm you said now on the previous question that you expect Q1 to be bigger in revenue than the current quarter in Q4?
No, I cannot confirm that.
What was your comment on Q1?
I don't know. Which comment are you referring to?
Okay. Maybe I got it wrong. Sorry. Just two quick ones. I'm just looking over your historical presentation materials. There was a comment there, I think, in Q2. You referred to this as this kind of first pilot order from a global cloud operator, more than 800 data centers. Can you give an update on that relationship?
Absolutely. We are now moving into a, so we have delivered products, nothing dramatic, say a few hundred thousand dollars over a number of orders, tactical builds. We are now moving into a more proof of concept phase for our more advanced products. I'm expecting that to be done here in Q1. I'm hoping that we will start deploying from Q2-ish and onwards.
Okay. Thank you. Finally for me, before I jump back in the queue, I think it's totally appreciated that you want to be a bit cautious on kind of reaching that $100 million in 2025, which seems like a stretch target. On 2026, given that you're not putting out any caveats on 2026, does that mean you're kind of pretty confident that you'll be at $100 million already in 2026? If yes, it would require a material acceleration in the annual revenue growth. Where do you see that coming from beyond just like the 16% CAGR you've been at over the last four years?
Absolutely. Yeah. No, I am not confident that we will reach it in 2026. I can't be. We are in Q1 2025. I have, as I said, just turned the corner. We have good growth in Q4. We need to see now and stabilize that and continue to build confidence in the new growth journey. What I can confirm is that the opportunity is out there to reach this target or ambition, I should say. We can see those projects. We can see those customers. We need, of course, as you point out, pretty good growth to reach that target. I want to reiterate what I said when I presented this slide, that to me, the momentum in the company and the momentum in the growth is more important than whether this turns out to be, I don't know, 90, 100, 110.
It's a financial ambition. It's a long-term ambition that we have been working with for some time. Momentum and continued growth beyond this is more important over longer periods.
Thank you.
Thank you.
Good. Any other questions from the call? Okay. Good. We have Øystein Lodgaard from ABG on the call as well. If you unmute yourself and ask your question.
Thank you very much for taking my question and congrats on the return to strong growth again. I have some follow-ups on things that you've touched on before. Just to clarify, you have, of course, had a very strong quarter in EMEA. Are there any follow-up orders related to those projects in Q1? Should we think of, say, a normalized Q1 for EMEA? That's the first question.
We shall see is my answer. I would not say that we have any direct follow-ups in EMEA on those particular projects. Parts of EMEA are still at a very high activity level. I look positively on EMEA, but it is a little bit too early to say at this point.
We talk a lot about these big U.S. client wins that you've had, which are, of course, very interesting. How should we think about the 2025 outlook for EMEA? Are there enough projects here for, say, EMEA growth to keep up with the growth that we hope to see in North America? You hope to see in North America this year? Will this be a year due to these big client wins where North America drives the growth and EMEA is more stable? How should we think around that?
EMEA surprised me a little bit in a positive way in Q4. Of course, we are aware of large projects and good business in EMEA. We are continuously winning more and more accounts, as an example, in the CSP space that will continue to drive revenue. I think the answer to your question is, yeah, EMEA should be able to keep up. America is a very, very good market. If we hit the big accounts there, of course, that can accelerate much faster, no doubt. Instead of calling it an expectation for EMEA to keep up, it is at least a strong hope from my side.
That's very interesting. Thank you. Also, coming back to the same thing that both previous analysts talked about for Q1, typically Q1 is down 10% quarter-over-quarter compared to Q4. Are there enough projects in the market now and ramp-ups on new customers, etc., that there is a possibility where you deviate significantly from that historic pattern? Should we think Q1 is most likely down compared to Q4?
Yeah. You know, Øystein, we normally don't provide that detailed guidance. I think your question is very well put. Are there enough projects? The answer is yes. Will we win? And will we be able to deliver that in time? That remains to be seen. Yeah. We shall see. The opportunity is there. That's the only thing I can sort of easily confirm.
Okay. Thank you. Lastly, on cost development, can you say you've hired a lot during 2024. Now you're going to maybe slow down hiring a bit following that. You also have this external R&D project that you're phasing out. How should we think about costs, taking all this into account? How should we think about costs in 2025 versus 2024?
Yes. Agreed. A little bit of a backdrop to the growth in FTEs in 2024. We had a great opportunity to find top talent in 2024 as a result of changes in our market. We took that opportunity, which to an extent was saying that let's take some of the growth that we expect in 2026 and do it earlier because the opportunity is there. That's how you should read that. Consequently, you should read into 2026 that our ambitions to grow is a little bit more modest. We will grow FTEs and we will continue to invest, but not at the same pace. We should be safely below the revenue growth in OpEx growth. That's our plan.
Okay. Thank you very much.
Thank you so much. Okay.
I'll go over to the chat. There's a couple of questions here from Gabriel Anderson. The first one, from 2022 to 2024, the revenue is flat, but FTE has increased from 90 to 131. Can we expect that you will slow down with hiring FTE going into 2025 and that we will see EBITDA improve while you're back in growth?
I think I just answered that question. It's effectively the same one as Øystein's. What I would like to add to the first part of that question is we are investing in this company not for what's going to happen in Q1 or Q2 or Q3 in 2026. We are investing in growth over a long period of time. The growth that you have seen, the investments that you have seen over the three years where the question read three flat years, I think it's really, as I have pointed out, it's four bad quarters. Those investments are made for bigger things. I think, as I said, it will slow down a little bit because we took a little bit of the plan from 26 and moved it into 20 sorry, the plan from 25 and moved it into 24 earlier this year because the opportunity was there.
Good. Okay. The second question, can you give any guidance for the first half of 2025 regarding revenue and EBITDA?
As I said, we have never provided that level of guidance near- term. And we're not going to start doing that this year.
Good. That was the last question in the chat. It looks like you have one more question, Øystein. Or is that still your old question?
No, sorry. I just didn't take down my hat.
Okay. Perfect.
Any other question in the room? Yeah.
Just ask one on devices that we haven't talked that much about. If you could elaborate a bit more on where you see the largest opportunities there to accelerate growth.
Do you mean from a geographical standpoint or in general?
In general, also from a product perspective.
Right. I think where Smartoptics, we're strong in the high end of that market segment. We have always been strong on the high end of that market segment, the most advanced devices in the market where our competence as a networking company really matters and where we really stand out from. I mean, this is a world where there are numerous competitors, local, and focusing on the low end of the market for the most part. I believe that our growth is going to come in that precise segment of the market, the more advanced devices where our competence and our IPR in the capability to program and produce and test and qualify these types of technology is going to matter the most. From a geographical standpoint, I believe that America is going to be leading the way here.
Thank you.
Thank you.
Yeah. That was the last question, I think.
I would like to thank you very much for joining us and see you again in a quarter. Have a good day. Thank you.