Hi, welcome everyone for the next presentation at ABGSC Investor Days. My name is Daniel Thorsson, analyst at ABG, covering IT and technology stocks. For the next presentation, we have 4C Strategies with CEO Jonas Jonsson. Feel free to go ahead, present the company. I'll have a couple of questions in the end.
Thank you, Daniel, good morning everyone, and thank you for taking the time to listen today. I'm going to take you through a brief presentation of 4C Strategies. We're trading as 4C Group on Nasdaq First North. 4C is a company, we've been around for approximately 25 years, and we build predominantly a software platform that is used for training and exercise management within the armed forces around the world. We also deliver services in terms of consulting services here in the Nordic, in the total defence realm, and we also deliver software within resilience, as in crisis management and incident management. Our main bulk of our business and our focus as we move forward is within the defense technology space. As you can see here, as I've said, we've been around for 25 years. We were founded in the south of Sweden.
We are currently represented here in Sweden, in the U.K., in the U.S., and in Australia, with local offices and customers basically around the world. We have today support to around six NATO nations, a couple of additional allies around the world, and we support more than 250 military exercises every year. I'm going to go into a little bit more detail about what it is that we actually do and why that's relevant and how that sits in the current defense cycle with additional funding coming in from the governments around the world and how that is then funneled through into our business area. Before I actually go in to talk about what it is we do, I'm going to give you a little bit of insight around the numbers. For those of you who have followed 4C, we went public around four years ago.
We are operating in an environment with quite high seasonality, quite bumpy quarters, as you can see here as well. We know from history that the first and the second quarters of the year tend to be softer, whereas the third and the fourth quarters of the year tend to be quite strong recovery quarters. As you can see, it varies quite a lot between the different quarters, and this is something that one needs to take into account when looking at a company like 4C. That comes from the kind of customers that we work with and the way that we sell our products, which is predominantly in a long-term licensing model. In terms of 2025, and the first quarter of 2026, we're still in quite an uncertain world, as everybody's aware.
The macroeconomics of what's going on around the world in terms of uncertainties in the United States from a political perspective, uncertainties around the world, uncertainties here in Europe in terms of rising tensions, et cetera, is obviously something that is underpinning the long-term macro effects, in the areas of which we operate. From a short-term perspective, it can deliver quite a lot of constraints and especially quite a lot of shifts between the different quarters and an increased unpredictability in terms of when we are able to close deals. The fundamentals, as you can see, if you look at the bottom two lines, which is order intake and order backlog, is that we see quite a significant increase in terms of interest in our products.
We go out of both 2025 but also 2026 or into 2026 with our biggest order book and order backlog that we've ever carried. This comes from a shift in buying behavior. Our customers buy bigger, longer-term contracts, but they've also shifted in terms of going from buying products in terms of we want to buy a perpetual software license into more buying a subscription model and something that accentuates and develops over time. This is good for us from a long-term perspective because it gives us predictability in terms of where we're going over the years. It can have a short-term impact compared to how they bought things previously. We have a couple of decent recent wins on the bottom right-hand corner that you can see spread around the world.
Increased business with our defense customers, ranging from the United States through the Swedish Armed Forces, Canada. This is just a few that we've sent out press releases on. There are obviously a significant amount of others that have come in, also working really hard to progress that throughout 2026. If we go into a little bit more details around what it is that we actually do to try to explain, because it's important when looking at a company like 4C to actually try and understand what it is that we do and where does that come in. For someone who doesn't necessarily every day operate in the world of military training and readiness, it's reasonably abstract. I'm going to try to take you through a couple of aspects of it.
We have a product that we call Exonaut, which we've been delivering to, among others, the Swedish Armed Forces, the Swiss, the British, the Americans, the Australians for now around 20-25 years in different countries. This is the orchestration layer that sits around how you deliver training. Before I go into the specific details, I just want to mention something around this big defense uprising and the defense spending cycle that we're currently in to give you a little bit of context about if you look at a company like 4C, okay, why hasn't your sales skyrocketed? Why haven't you had the order intake that we can see from other defense companies and so on? In the current climate that countries like Sweden and the Nordics and European countries are in, the first thing that's happened is you replenish supplies.
You rebuy everything that you gave away as aid to Ukraine predominantly. Also everything that you've downsized over the recent 10, 20, 30 years. In terms of ammunition, body armor, small arms, et cetera. You start looking at how are we going to expand our presence as a national defense force? How are we going to do that through new weapons platforms, new systems? How are we going to grow our presence? That's what we've been seeing over the last couple of years. That's what we're still seeing in terms of large new programs. There were frigates announced last week. There are a lot of counter-UAS drone purchases that are going through large weapon systems. In parallel with all of this, what's also starting to happen now is the buildup of actual readiness. We start to hire more soldiers, more sailors, more airmen.
We start to build up the force in terms of more people. You start to deliver the only kind of deterrence that a country that is not at actual war can deliver, which is exercises. We start to deliver more exercises, we start to build that force readiness, and we start to assess what is it that we actually can do. That's when you come in to the fourth wave in terms of taking all of that material and taking all of those new conscripts and sailors and soldiers and turning them into something that the Armed Forces can actually use, both as a deterrent, but also in a deployment in the Baltics, for example, where both Sweden and other countries have troops at the moment. Where do we sit in all of this?
I've tried to take out this picture to give you a little bit of context about where 4C sits. You'll see a lot of familiar logos. We're stealing some of our friends' thunder in terms of where we are in this ecosystem. Companies like BAE, Rheinmetall, Saab, all of them operate in the underpinning area. They deliver the tools that the armed forces use to deliver effect. You've got companies like Palantir and Anduril who operate in the actual operation space when you're already in combat. The layer in between in terms of how are we actually going to turn this thing into something that we can use to fight, is where 4C delivers value to the armed forces. Why is this more relevant now than it's been before?
Well, we come from an era where Armed Forces had a lot of time and no money, going into a position where they have a lot of money, but no time. There is significant requirements being put on these organizations to deliver force effect. When you look at the way that exercises are delivered today in terms of multinational exercises like the Aurora exercise, which was delivered here in Sweden a couple of weeks ago, the complexity of these things today means that if you're going to be able to assess that and actually answer the question, what kind of value did we deliver for all the money that was spent in this exercise, you need systems that are designed to do that.
You can no longer survive on trying to do this with pen and paper and Excel spreadsheets, and after the exercise say, "Oh, I think we increased our capabilities here." If you need to deploy these forces, you need to be able to say, "This is the capabilities that we have today, and this is how good we are, and this is where we tested it so that we can prove that we ended up in this situation." What is it that we actually deliver? Well, as I mentioned, it's a software platform. It's a software platform that is designed to help armed forces and large organizations orchestrate how they build these capabilities. It's not a simulation system. It's not a learning management tool.
It's not something that you use to actually log in and learn how do I shoot a weapon, or how do I dismantle a rifle, or how do I build a bomb? It is something that you use to orchestrate all of these different events to make sure that from a battalion, brigade, even up to an army level, this is the capabilities that we have. We operate starting in the planning process, where we deliver, among others, NATO's planning tool, where they orchestrate all their exercises for the next five years. What are we going to do where? Who's going to take part, and what kind of deterrence is this going to deliver? Into then the detailed exercise management. What are we testing?
When we are doing this part of the exercise, we're doing this hasty attack, or we're doing these defensive positions, what capabilities are we assessing as we go through this? I spent a long time in the Swedish Navy as a navigational officer, and we did a lot of exercising driving ships around the archipelago. That wasn't necessarily because we were bad at driving ships around the archipelago, but it was a lot to do with it was the nicest part of the job. Now, what we didn't do was probably all the other things that we should have done. Now, I'm very hopeful that this has changed since I left the armed forces, but it is an inherent position that you like to exercise on the things that you're good at. Now, what this system forces organizations to do is to look at where do we have risk?
Where do we not know what we need to be able to deliver? The complexity that comes from delivering these kind of exercises now is an area that drives demand from organizations in terms of how do we actually deliver this force effect. Exercise management in terms of assessing all of those things. The third box up there on the corner, it's called unit training, which is something which is for countries like Sweden, and other conscript-driven nations where you're looking at, okay, so we need a lot more people to be trained very quickly. That's hard because you don't have the instructors. You don't have the capacity that we did in the 1970s and the 1980s when we were able to churn through a lot of these conscripts every year.
Which means that we need to give them digital tools to be able to do this in a more effective and efficient way. That's something that we're building out. We have a very quickly growing demand area where we configure the software to deliver not assessments against people delivering capabilities, but against material delivering capabilities. I mentioned counter-UAS, tools that are built to be able to shoot down drones. Every country in Europe right now, and in the U.S., is looking at which system is best to deliver this, how do we build this? They're spending a lot of money doing those assessments leading into future procurements, which is also going to then deliver the effect.
When you do that in a better, more structured way, you're able to deliver more taxpayer value, you're able to deliver better products to the armed forces, which needs them to be able to deliver the force effect at the end of the day. Finally, we're working with a number of the world's leading special forces in terms of helping them select who should be their operators as they move forward, simplifying that selection process, and turning it into a better, more data-driven process. Something maybe a little bit on a side note to what it is that we're actually doing. How do we sell this? We sell it through subscription licenses. We sell it based on site licenses into individual training commands around the world. I mentioned some of the countries that we're working with, the Canadians, the Americans, the British Armed Forces, the Australians.
When we go into a country, we start with one beachhead, and we then expand, both in that specific organization, but also then out into adjacent organizations within those countries. We have opportunities for multidimensional growth within each area where we operate. Finally, as a concluding slide, if you've tracked 4C over the past four years on the stock exchange as a publicly traded company, we've had a bit of a bumpy ride that's gone up and down. I think that is part in terms of not necessarily understanding what we are as a company and how we do, and the volatility that comes with that. It's also because since we went public, we have made a lot of investments, and not all of those have panned out in the way that we were hoping.
What we've done in the last year, predominantly in the last six months, is that we've changed our strategy, we've pulled back our positions, we've quite drastically reduced our costs compared to our cost base and our staff costs. We've done that to focus in on our core business areas, which is defense and defense sales within the Europe, U.S., and APAC. In terms of cash conversion and in terms of improving our cash position, we currently have a current contract assets position of about SEK 285 million. That means that we have delivered products to our customer which is yet to be converted into cash. That is future license payments.
Important to understand about this is, A, the fact that we've already signed the contract with the customers in terms of them having the software, and B, more importantly, the customers we're talking about is government organizations. It's the armed forces of the U.K., it is the armed forces of the U.S., Canada, Sweden, Norway, the Netherlands. It's NATO as an organization that sits on this contract assets that they're going to pay me for in the next year or the two or three years out in the future. We know that that money's going to come in, and that is going to significantly improve our cash position through just conversion of our current contract assets. We have a growing backlog, as I've said. This is the order book that sits outside of the contract assets that we already have.
This is what we have on contract, which we have yet to deliver and yet to take up as assets. Currently, that sits at SEK 364 million. Last year, we had an order intake of over SEK 500 million, which is a record for 4C, which means that we signed contract for over half a billion SEK. A large majority of this is software related and comes out of the defense space. I've talked already a lot about the defense tailwind and where we come from. I think it's quite clear that the defense spending cycle isn't going to stop. We all want there to be peace in Ukraine, we all want there to be stability in the Middle East, we all want nothing to happen in Taiwan. Unfortunately, that is unlikely in the near future.
Even if it were to happen, we're not going to have a position where the European countries say, "Right, okay, we're now going to stop defense spending again and go back to where we were five years ago because that made sense." That is not going to happen. We are going to continue to see a rise in defense spending. We are going to continue to see a build-up in deterrence through exercises and through force generation, hopefully in peace time. That's the whole point. If we do this right now, we don't need to end up in a situation where these soldiers and sailors actually need to go into actual combat. On a final note, in terms of what we've also done to improve our position, as I mentioned, we have got a significantly leaner cost base where we are right now as a company.
We've reduced our OPEX by approximately SEK 40 million on a 12-month rolling basis, without actually impacting our top line. What we've done is we've reallocated resources from resilience towards defense. We're focusing in our areas, we made sure that our overall organization is as lean as it can be while still delivering effect. Now, we're not going to see continued cost-cutting in 4C. We're going to see reinvestment, we're going to see reinvestment in terms of our sales effort, in terms of our AI effort, in terms of our engineering efforts as well. From where we are right now, we've reduced our costs. We've got a significant both contract assets that we're converting, also an order backlog. We've got a pipeline in a way that we've never seen before an interest on the market. Yeah, I think I'll stop there.
Perfect, Jonas. Thank you very much. I have a question on the four levels of defense spending that you showed, that you are active in the fourth one. Has that started to happen? Are we seeing larger crews and soldiers around the world so that they can actually start to train? When do you expect that to happen?
I've been looking at that slide. Portray it in a way that makes sense because obviously these things are happening in parallel, right?
Yeah.
In terms of the bulk of it is starting to happen.
Okay.
We're seeing the increased demand. We're getting questions in terms of, how do we make sense of all of this? The questions are being asked, and there's also a lot of election years around Europe right now. Questions will begin to be asked, what are we getting for all the money that we're spending? I think it's quite interesting both here in Sweden and in other areas where you see, okay, everybody's positive to increase defense spending. We're going from SEK 40 billion -SEK 100 billion -SEK 140 billion -SEK 200 billion. That money needs to come from somewhere.
When that money starts coming from somewhere else, then the strain is going to come on the government and society to be able to say, "Okay, for all the money we're spending on defense, this is the capability we're actually delivering." To stand up and say, "Well, we've got 4 new frigates." Right? What does that actually deliver, right? I think we'll see a continued uptake during 2026, but I think actually, in terms of the real increase in large exercises, et cetera, from what we're seeing within the armed forces and in NATO is that the schedules for 2027 and 2028 is looking really busy.
Okay, interesting. As you also showed here related to Q1, you saw some delays.
Yeah.
Revenue recognition in the quarters, and you said that should come back in Q2. Is that still the plan, or how should we think about seasonality in 2026?
No, but absolutely. Two things around Q1. One is we saw a number of delays in terms of deals that we were forecasting to close, which were pushed predominantly out of the U.S., but also some here in Europe.
In Europe, it was around capacity within the procurement organizations. In U.S., it was around complexity in the procurement organizations. We also shifted the way that we look at revenue and the way that we recognize our licensed revenue. We had a SEK 12 million approximately decrease of our top line, and obviously then also all the way through, right, in terms of revenue that we pushed into the future.
That's contracted revenue, which we historically would have taken in that quarter, but we've now shifted the way we look at these assets a little bit. It spread out more over time. We did have some delays in terms of exercise support delivery on our people side, which also hit Q1, and there we've seen an uptake already now in Q2 in terms of significantly increased activities around the world. A lot's coming back in Q2, even more is coming back in Q3.
I see. That's perfect. You are a software company. Your product is a software. How do you view the AI threats or risks or opportunities around your software offering and also dependent on your customers?
Yeah.
They may not be that willing of buying software from a startup.
No, absolutely.
How do you view your field?
Great question. It's the question that all software companies grapple with now that build tools that are bespoke to something, and you see Sebastian from Klarna saying that we don't use CRM systems anymore. We build everything ourselves, and so on and so forth, right? I think that that has merit in some areas. I think it's hard to do that in defense. When we see a new player saying that we've raised a number of millions to build a tool to deliver something within training and exercise management, I say, "Great." It raises the awareness, it raises the issue, and it draws more attention to it. I'll wait a couple of years until I see your accreditation and your security arrangements and your ability to get past the first, second, and third level of accreditation within these organizations.
The moat around what we do compared to what you do in corporate or even B2C is significantly bigger. For us, we are building AI into our tool set to be able to deliver it to our customers, both in terms of exploiting data predominantly on the customer side, but they're not ready to use it yet.
Okay.
There are so many security issues on their side where they say, "Well, we're worried about data integrity. We're worried about data leaks between different units or different sessions, and how does that blend together?" Especially in an international context, it becomes really complicated. We have the tool set. We're ready to deploy it, and we're doing a number of trials. For us, the real benefit that we're seeing right now is internally to our own business where we are deploying a lot of AI tools to help us build software significantly faster at a better quality, using the same base of coders that we've had in the past.
Perfect. That makes sense. In terms of your balance sheet and cash flow, you touched upon it yourself a bit. You said in Q1 that you expect some improvements in Q2, are there any specific improvements, like any customer receivables that you expect to be paid, or any other actions helping the cash position?
No, as I said, it's about converting our contract assets, and then obviously signing new deals as well. We're working both those tracks in parallel. We've done the savings that we've been looking to do. We have a reasonably good visibility of payments coming in. We had quite a lot of payments come in just after the end of Q1 which is obviously not good from a reporting perspective, but it's good that the money's coming in, right? It's also something that from our type of customers, it's really hard to go to a government organization in the United States and say, "Can you please pay a month early because that would help me?
They're like, "No, we're going to pay you when we're going to pay you." Right? Yeah, we're looking at continued improvements on that. There is still lumpiness and seasonality, but obviously our ambition is to organically improve our cash position as we go through the year.
Perfect. Time is up. Thank you very much, Jonas, for presenting 4C.
Thank you.