Welcome to Yubico Q3 earnings call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to CEO Mattias Danielsson and CFO Camilla Öberg. Please go ahead.
Good morning, everybody, or actually, it's good evening, where Camilla and I are at. We're in California, following today's board meeting in Yubico, and we're excited to share some background and then dive into the results from the interim report for the third quarter.
I know that we have several participants that have been listening into presentations earlier, but I'd like to give just a quick overview of Yubico as a company before we dive into the specifics for the quarter. Just as a quick reminder, Yubico is a leader in the multifactor authentication industry. With our key product, the YubiKey, and we've been growing over the past 15 years. On a rolling 12-month basis, our annual turnover is about SEK 1.8 billion. We're about 430 employees.
We're, w e have a very nice set of customers that I'll return to shortly, and we work primarily with the world's largest companies and organizations. Some 30% of the Fortune 500 companies are already our customers to varying degrees, some just initial deployments, whereas others use it pretty much wall-to-wall within their organizations. As I mentioned, we're a hardware-based company, but because of the big software component of our offering, we are able to maintain very healthy margins and continue to deliver that in this quarter, more than 86% margins. Since start, we've deployed more than 22, I think it's about 23 million YubiKeys.
And the other number, which is significant to mention, that we've deployed some 23 million YubiKeys, but we've had zero account takeovers following a full integration of the YubiKeys with among our customers. So we're very proud of that. Flipping over to the next slide here. As I mentioned, we work with some of the leading brands. This is a subset of the companies that we're working with, and you can see that we started out very strong in the high-tech sector. That remains our biggest industry vertical, but we're seeing an increasing range of customers from within several different industries that are now big customers of ours, and we're growing within the public sector, both in the U.S. and Europe.
We feel that this positions us well for future growth. The final slide then as an introduction is that we're fundamentally selling a key. It's the YubiKey, and we've spent a lot of time and investments into ensuring that our key fits into all the relevant locks. On this slide, it's kind of a mouthpiece, but we're talking about the fact that our key fits into most of the relevant locks, which means that our enterprise customer can use our key to access all relevant systems in their operations. It's different types of hardware, software, and we've done a lot of integrations over the years, ensuring that we can have both a very secure and easy access for users across the globe.
With that as a backdrop, I'd, I would wanna, present a few highlights from the quarter, and then Camilla will share more, detailed numbers. Start by noting that this is the first quarterly results that we present following the completion of the transaction between ACQ Bure and Yubico, and the renaming of the company to Yubico. And, the picture shown today is just, this happened on September twentieth. Time flies, so towards the end of the quarter. And, what we'd like to summarize then is, okay, so what happened during this quarter? And a few milestones then, we, as I just mentioned, we completed the merger, and the new merged entity's name is Yubico. In connection with the merger, there was a placement of shares to a limited set of investors.
A lot of that was because several preexisting Yubico shareholders could not get payment in the form of shares. They otherwise we'd have to register with the SEC. So a placement was made, and then there was a number of warrants exercised. So this was an exercise which meant that we placed successfully shares for about SEK 340 million with institutional owners. And if you look at the set of shareholders that we have today, after the merger, Bure is the biggest shareholder in Yubico, followed by AMF and then the founders in Yubico. But we have several institutional and VC o wners in the U.S., including, for instance, Andreessen Horowitz.
Another thing which was completed during the quarter was that we updated the board, and we added a few members, and one left from the previous board, which means that we feel like we have a good set of competencies within the board today, a mixture of U.S. and Swedish board members and seasoned professionals. The final thing I'd like to highlight was that in connection with the completion of transaction, we got approval for a long-term incentive program. The rules are that it will get rolled out later this month. Sorry, yeah, this month.
Mm-hmm, mm-hmm.
But it was approved by shareholders, which means that will, and it will entail a dilution of about approximately 0.8% at full usage. Talking a little about what we did on the technical side, I'd highlight three things. There's ongoing tech development work going on, of course, but one of the important things that didn't have a significant impact short term, and it was announced as late as in October, was a pre-registration cooperation that we launched together with Okta at their Oktane Conference in early October. This is another effort to ensure that it's easier. As I mentioned before, our hardware authentication solution is super secure, and it's also easy for the user.
We wanna make it easy to deploy to, and this is a significant part of that, ensuring that, as an enterprise rolls out or as an organization rolls out YubiKeys, internally, that they can do so, and it kind of works out of the box. We're starting that cooperation with Okta, and we see a lot of interest in that. Another project that I'd like to highlight, which will not have an impact on our sales in the short term, which we feel, but we're still very excited about in terms of long-term development, is, an initiative, initiated by the, European Commission, ensuring that there is a, digital identity wallet that should cover all member countries.
Yubico has now been included in that project as a contributor, and we wanna make sure that there's support for YubiKey and that it's a convenient way for EU citizens to secure their online identity going forward. More to come on that. The project aims at rolling it out to all EU citizens by 2026, but there's a lot of work that needs to happen before that. And finally, in terms of development work, I'd like to highlight our what's today still a niche product, which is really protecting secrets stored on servers, our YubiHSM hardware security module product. We're launching a new functionality there in November, so it hasn't been launched yet, but we're announcing it in connection with the report.
We feel that this will be a clearly improved offering and will set us up for growth in this market. The HSM market globally is estimated at SEK 18 billion. Today, this is about 1%-2% of our turnover, but we're setting us up for growth within that market. That was a little bit on the technical side and on the market side, there are a number of trends, and it's encouraging from our perspective to see, given the high level of cybersecurity threats, that government and financial services company are taking action.
More regulation, which may sound as a limiting thing, but I think it actually makes a lot of sense for there to be more regulation in this market to ensure that users, companies, and citizens are protected.
Two initiatives to highlight here is the Securities and Exchange Commission, which are now setting up strict requirements for public U.S. companies on what they need to do in terms of authentication, which is, to a large extent, mirroring the federal requirements for, for public organizations. So that's interesting. Another great example is Goldman Sachs, one of the leading banks, as, as you all know, who are now, doubling down on the use of FIDO Security Keys, where YubiKey is, of course, a leading vendor. Moving then to the numbers and the quarter. The numbers are out, in the report, and, and in terms of net sales or revenue, we saw an increase in the quarter of about, four percent, and in local currencies, that was two percent.
I'd like to highlight, and this is something that we mentioned in the, as we released the Q2 report, that, some of the comparisons, in the Q2 report were distorted by the fact that we had an unusually large order in Q2. That meant that we didn't, that the comparable numbers for order bookings were a little skewed in Q2. That order was delivered in Q3 and Q4 2022. So if we had difficult comparables when it came to order bookings in the first half of 2023, there's some of that in Q4. So we saw a stronger growth in revenue or net sales during the first half of the year as we delivered this unusually big order in 2022. That meant that it boosted revenue during the second half of the year.
Still growth, but just as an explanation for why the growth was perhaps a little lower than some might have expected. Gross profit, we posted profit. I think what we have. Sorry, for the gross profit, we actually posted a very strong number at almost 88%. We're seeing, and to explain a little bit more about that, we're seeing a very solid gross margin on our product, which is based on that we have implemented very cost-efficient manufacturing, but there are also some seasonal things there. For instance, we had strong e-com sales during the quarter. That's our highest margin business, and also product composition has a small impact on this number. But we're continuing on a very healthy trend there.
We talk about EBIT, and I would wanna highlight that when the numbers that are on display here are the adjusted EBIT numbers, 'cause we had some transaction-related costs to the tune of about SEK 94 million Swedish krona, which meant that if we don't adjust for EBIT, we posted a small loss, but those were simply related to the merger. One comment also on the adjusted number, that number does entail one-off cost, which was not really related to transaction, but as we've highlighted in the report, we did a company event and a company conference in mid-September in Prague, where most of the company's employees attended. So that had a short-term, negative impact on profitability of about SEK 20 million when it comes to additional cost during the quarter.
Another KPI that we're tracking very closely is our annual recurring revenue, and we'll talk more about that. That grew from compared to last year by by about SEK 70 million in Q3 to SEK 55 million, compared to SEK 184 million the previous year. One of the things that we track very closely is our bookings numbers. Q3 2022 was more of a normal quarter, and compared to that, unlike Q2, and compared to Q3 last year, we saw growth of a little bit more than 19%, close to 20% in local currencies. It comes from a broad set of customers.
Two sectors that we would highlight this quarter that contributed to growth were telecom companies in the U.S. and the public sector in the U.S., which is kind of natural 'cause the federal fiscal year ends in Q3 in the U.S. And then we saw a lot of interest and a lot of demand and orders from the Polish markets, from both private and government institutions. As everyone knows, Poland is under a lot of security threats, including in the cyberspace, and we're very happy to be part of the solution there, supporting our customers in Poland. Talking about subscription bookings, they were at about SEK 58 million, so about 14.5% of the bookings.
And again, as a reminder, when you look at the year-to-date numbers, keep in mind that we had an extraordinary order in Q2 2022, but a more normal pattern in 2023. With that, I think I'll hand it over to you, Camilla, to discuss the other numbers that we presented in the quarter report.
Thank you. Yes, so as Mattias mentioned, we had a relatively low growth rate this quarter, also the net sales, especially in August, September, and related to the enterprise segment. But we also saw that the e-commerce was growing with actually 24% in the quarter. And notably this quarter is also that we have less impact of currency exchange rates. For the first half year, we had in average approximately 10% positive effect when translation into to Swedish krona, and this quarter, we only have 2.6% that kind of effect. So that was also affecting the growth numbers, of course.
On the ARR side, the ARR increased with 30.2% versus Q3 last year, and amounts then to SEK 255 million at the end of this quarter. And thereby, we added SEK 12.5 million on net new ARR in the quarter, and SEK 50.7 million since the start of the year. Looking at the EBIT side, we are now starting to look at the adjusted EBIT, as we have introduced just that due to these quite big costs that we had related to the transaction and the merger. We will look into the merger costs later in the presentation. But this is to give you the feeling of how the underlying business is actually going.
The adjusted EBIT amounts to SEK 19.51 million , and that led to an EBIT margin of 4.7%, which is substantially lower than the last year, as you know. We continue to show a strong growth margin, as we, as Mattias said. Comparing the 87.6% this quarter with H1, we also did better. H1, we had 86.1%. Basically, that relates to the mix in sales channels and products. The currency is also less impact this quarter, also from profit side. The last year, we had positive effect from unrealized currency effects of SEK 28 million , while we, in this quarter, see a negative impact of SEK 1.7 million . So it's quite a big difference as well.
So in total, almost SEK 30 million effect in difference there. But of course, the biggest impact on the profit level is the lower growth on net sales in combination with increased run rate of OpEx, and then especially related to employee costs, both the one-time costs related to our all-company conference here in September. But we have also been growing with more employees during the last 12 months as well. If we remember, we had not so much in growth of people during the first half year, but we also said that we will recruit more during the second half of the year. So we have also done during the Q3.
We are now 13% more employees this quarter compared to last year, which is also, of course, then driving the OpEx run rate. Looking at the cash flow and the financial position, you recognize the graph here with our inventory. We had our operating cash flow -SEK 19.8 million this quarter, compared to -SEK 9.9 million last year. We continue to build up the inventory, not so much this quarter as we did first half year, but anyway, it's still SEK 61.3 million more in this quarter. And this is related to that we secure the availability of our components and also our delivery capability to the customers to ensure that we can deliver also large orders when we get them.
Year to date, we have increased the inventory to SEK 242 million. You see here that we have increased the percentage, the inventory percentage as a percentage of last twelve months net sales, and we are now close to 24%. It's probably approximately where we will be. Related to costs in the transaction, accruals have increased with SEK 51.3 million. We have costs related to transaction, which was not paid at the end of the quarter, but paid here now during Q4. Those two components, items, the inventory and this accrual, it basically builds up a net change in working capital of SEK -5.7 million. That is a positive cash flow effect then.
So the cash at the end of the period amounted to SEK 581 million, where the merger contributed with approximately SEK 184 million. And we still have a loan outstanding with Svenska Exportkredit, amounting to SEK 42 million at the end of the quarter. So the net cash at the end of the quarter was SEK 539 million. So we have a quite solid financial position. We have had quite some work to do when we closed this quarter, as we did this merger and the transaction. And we have in the report a specific note added, where we try to explain also accounting-wise, what happened with this merger.
But the short story, so, the merger was made as a reversed merger from accounting perspective. So ACQ is still the surviving company, the legal entity, so to speak. But accounting-wise, we have did it the other way around, and thereby, we don't get so big effects on the total balance sheet. Otherwise, we would have ended up with a super big, goodwill and a big, equity, and so forth. And so the net equity effect is only SEK 229 million. And, when looking at the numbers, it's the old Yubico numbers that you recognize, and that is the Yubico numbers that we carry with us also as comparable, comparing numbers, in our reports going forward. Transaction-related costs or expenses.
We have reported to be very clear, so we have reported that on a separate row in the P&L, P&L report, and it amounts to almost SEK 94 million. And that is, of course, then the item affecting a comparability with this adjusted EBIT. And this cost, it consists of advisory costs and employee-related costs, accounting, amounting to approximately SEK 43 million. And in addition to this, we also have a cost for cancellation of incentive programs, our old stock option programs, and the merger loss when we added the ACQ balances into the Yubico balance sheet. And that totaled to SEK 50.9 million, those two last categories, and those two does not affect cash flow. It's only technical.
And then looking at the net cash contribution as well, when you look at the cash flow statement, it looks also a bit strange, or so to say, trying just to explain what happens. So the net cash contribution from the merger was SEK 184 million, and that consists of both the cash balance in ACQ before the merger, which is SEK 3.4 billion, and cash consideration paid out to the Yubico shareholders in the transaction of SEK 3.8 billion. And then adding to that, the share issue part of this placement, adding available cash for us in also to pay to the shareholders of SEK 133 million.
Then also we had a Yubico's option and warrant holders were exercising those into shares in relation to the transaction, and that added also SEK 430 million in cash to the company. So there were quite many unusual transactions, so to speak, in this. So, I hand over to you now, Mattias.
Thanks, Camilla, and please feel free to reach out to us with questions. We realize that when it comes to our how the transaction gets treated in our balance sheet is a little complex, but it all adds up, and this is a one-off, of course, for this quarter, with the exception then that we're making payments for some of the costs and have done so in Q4. So we feel that this quarter, which has been an intense one from a number of perspective, sets us up for continued good growth. The business is performing well and in line with our expectations. In full calendar we had actually set the bar even a little higher in Q3 in terms of order bookings. So we saw some—Sorry, in Q3.
We saw some of the orders slipping into Q4, and therefore, we're particularly happy to see that we're off to a great start in Q4, including a significant order from a long-standing high-tech company to the tune of SEK 86 million, which means that we're off to a great start. Another fact that bodes well for the future is that we've really broadened our customer base, and we have a very healthy sales pipeline going into Q4 that we're now executing on.
We're working on a lot of interesting product and business development initiatives. Some of them will actually probably pay dividends already this quarter, but the other ones that I've highlighted are also for the long haul, which will have a big impact. For good and bad, cybersecurity has never been more important.
We're happy to be part of the solution there and working with the good guys, so to speak. It is a rapidly growing market because of the trends going on in the world, of course. So to summarize, we feel that this quarter means that we're in line with our guidance that we provided for 2023. So the guidance for the year remains unchanged. And with that, the plan was to hand it over to questions. I think we'll start with those who want to ask questions live, and we have a small queue there. So I'll, I think Predrag from Carnegie is first in line.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Predrag Savinovic from Carnegie. Please go ahead.
Good morning, Mattias and Camilla. Thanks for taking my question, or good afternoon, rather, for you. Starting off with net sales, and I appreciate what you said there in the closing remarks of Q4, beginning quite strong. But if you could reason a little bit about the percentages, I mean, now that Q3 sales dropped from Q2, so some color on how it started so far in Q4. Is it possible to say in percentage terms, or if not, you could maybe say in compared to year to date or compared to H1 or so, if that's possible?
Yeah. I think I understand what you're aiming at here, Predrag. What I can tell you is that, as you said, comparing to Q2, we actually saw a small decline in order bookings in Q3, or a decline in order bookings in Q3 to the tune of, if I remember right, 7% or 8%. So some of the orders that we saw early Q4, we had actually expected those to land in Q3. But as mentioned, we have a lot of events happening in September. We had the company going public, and we had the company event in the middle of September. So perhaps we didn't spend enough time ensuring that we got quite a few of the orders across the line.
This means that but the good story, the good part of that is that it wasn't that the business disappeared; we were managed to execute it on in October. What I can tell you about October so far, it is by far the best October we've had ever, even, I think excluding this individual order. So we're off to a good start, but we'll have to get back to you with the actual numbers for the full quarter as we deliver our Q4 report.
That's very encouraging. Thank you. And on bookings then, the guidance you have is to have bookings growth for 2024, shy of the long-term financial targets. Could we reason a little bit similarly there? Because all else equal, it should indicate then quite a nice pickup in the booking in Q4, right? And, and can you say what shy means to you?
Ah. Yeah, no. Because of some of the orders being rather significant, like the one we saw from Q3 that slipped into early Q4, it’s hard to be more precise. We’re talking about growth for the full year, but we don’t want to put out a very specific number. It’s gonna be somewhat short of the, e expect it to be somewhat long of the long-term target and just repeat our long-term target is to see growth in order bookings of at least 25%, but this year we expect it to be somewhat short of that. But I’m afraid I can’t narrow down the exact percentage more than that. That, I don’t think I’m in a position to do so yet.
Okay, that's so. Then moving on to the partnership with Okta, how important is this for you for your forward growth? And does it include existing Okta customers to upgrade their IM platform with YubiKeys or predominantly for new sales? And do you have any color of how important this is for Okta in their organization, how much this might get pushed out to their salespeople and so on?
No, that's a great question. One of the important aspects of the YubiKey is that we wanna work, love all, serve all. Okta is as an important player in the identity access management field, the largest specialized company in that field, I'd argue. So they are definitely an important partner and an important platform for us, even before we announced this. What this enables us is to work together with them to offer a better solution to some of their customers. It should be noted that in the initial launch, we're only targeting a subset of the customers 'cause they need to have signed up for their most, let's say, the package that they have with the most bells and whistles.
So that's a good start for us to test out this more advanced service together with them. It won't have a significant short-term impact, but I think a closer cooperation with some of these important identity access management players is important to lower the thresholds for enterprise customers to get the best security out to their users. So I think this will be of growing importance, our ability to do pre-reg or a route to passwordless as it's communicated in this messaging will be increasingly important to drive our sales.
Okay, super. And just one final. I think it was interesting what you said about one of the major banks in the U.S. And from your experience, going back to other sectors, what would you say is the typical behavior if one major company or institution in one sector, from a regulatory perspective, you know, then starts adopting or deploying YubiKeys? Is it common then for others to join on the same alternative or, yeah, what are your experiences there?
Yeah, I mean, I, to me, that's an ideal use case for the YubiKey, and it, it's hassle-free for the end user, and it provides the highest level of security. We're hoping that we're at the cusp of a big trend there. And it's interesting to note that one of the major orders we got in Poland was actually also from a bank that is now rolling out passkeys and recommending YubiKeys to all of their users, not mandating it, but recommending it. And I think if that catches on, that is a very interesting market for us. It, it's of course a big difference between a Polish bank and Goldman Sachs, but it's interesting to see that there are players across this vertical that are adopting passkeys as a solution and recommending YubiKeys.
Brilliant. Thank you so much.
Thank you. I think next in line is Erik from SEB, if I read the-
The next question comes from Erik Lindholm- Röjestål from SEB. Please go ahead.
Hi, hi, Mattias. Hi, Camilla, thanks for taking my questions. So, a couple of questions from me, and I'm gonna take them one at a time here. So, you mentioned the YubiHSM, and sort of new, some new features there, which you expect to drive growth. Can you perhaps dig a bit deeper here and, and give some more details on how this business looks today, and, yeah, when, when do you expect this to have an impact on, on your sales growth? Thanks.
Sure. I should start by saying that this is today less than 2% of our sales, so it primarily, it won't have a major short-term impact on our numbers in Q4, but we see that this is an interesting growth market. Our unique product there is that we actually enable folks to use hardware security models at a fraction of the typical cost associated with that and with much less complexity. So even if it's a small revenue generator for us today, if you look at the use cases, it's actually protecting huge assets and values. For instance, some of, some of the cryptocurrency exchanges use this to protect their cryptocurrency values.
That's one, perhaps on the one hand, on the other hand, it's used by industrial companies to ensure that they have authentic parts in their supply chain cycle. So there are a number of use cases for this. The specifics of the product development there are at a level where I find it hard to describe it in layman terms simply because I'm a layman. This enables the new feature primarily means that you can have several HSMs working across several servers and do that in parallel. It's a quite detailed technical thing, but it opens up for a number of new use cases.
I'm actually, I think we have a fantastic product there, and we need to put a little bit more now of commercial muscle and marketing behind it to see that grow. It won't have a big impact again, neither short term, but I think this is a very interesting market to explore long term. And the beauty of it is that we're using the exact same hardware as we're doing for the regular YubiKey. It's just a different type, just firmware on the device.
All right, perfect. That's, that's very helpful. So, then a bit more short-term question, perhaps, but you mentioned the, the EBIT margin guidance for the year. I guess it's fair to say that you're trending towards the higher end of this, this guidance, but-y eah, do, do you still see this landing at the upper end of the, the range for the, for the year? Thanks.
Yes, so we have the guidance here between 5% and 15%, and we agree with you there, that we will, we also see that we're more probable to end up in the higher end of that range.
All right. Perfect. And just a final question from me. So you did some hiring in the quarter, as you mentioned, about 20 more employees versus Q2. Can you talk about sort of in which areas you're doing this hiring, and, yeah, how you view this space going forward? Thanks.
So the areas that we always wanna prioritize is dev and sales, but it's been pretty broad. One thing to note is, as we go into Q4, is that we've had an unusually low employee turnover during kind of unnatural low. So we may see some fallout now that the transaction is completed in Q4. But it actually meant that we had a higher employee, a bigger employee roster than we anticipated at the end of Q3, because we've done hiring, but we didn't see the same turnover, as in people leaving during the quarter. Usually, that's a good thing, or I should say it is a good thing, because it means you don't need to spend a lot of resources finding and attracting, and hiring, and then training people. You can be very efficient working with existing resources.
And also it, I think it's an indication that we're a good employer, but that has meant that because of the lower employee turnover, we won't need to hire as much, unless there is change to that in Q4.
All right. Thank you for taking my questions.
Thank you. I think we have another question from DNB Markets, Joachim.
The next question comes from Joachim Gunell from DNB Markets. Please go ahead.
Thank you for that. Good day to you, Mattias and Camilla. So, two questions, one more broader picture here. We can start off with that, perhaps. Can you just talk a bit about how much more room you think there is to grow with your very large tech customers? Obviously, it's encouraging to see this order here in Q4, but can you just talk about where you are in terms of penetrating share of wallet at these larger customers?
Great. So we've highlighted a few times that we're working with some 31% of the Global 500 , and - sorry, Fortune 500 s, and some 26% of the 27, I believe it is now, of the Global 2000 customers. That means, in most cases, to be candid, that we've got our foot in the door, and that we have high security users using the YubiKey, so there's a lot of room for growth. If you look at the aggregate number of employees within those customers that are already existing, typically, our average penetration is in the 5% range. So there's a lot of room for growth if you only limit it to already existing customers.
Now, if we talk about high tech specifically, that's the sector where we've had the most initial success, so we have a slightly higher penetration rate or users compared to the number of employees within this sector. I don't actually have an exact number then, but I would guess that it falls more in between the 10%-20% range for on average for that type of customers. But what's interesting there, and what we're seeing is that it's not just o nce we are, even if we have wall-to-wall penetration within some customers, there's still room for growth, not just attrition and new use cases, but also that these companies start recommending it to their suppliers, or even in some cases, requiring it from their suppliers and their network of companies.
So I think there's still huge potential within our existing customers, and in particular, frankly, within the high-tech customer space. Because one example that I think I've highlighted earlier, Amazon is a big customer of ours. They're handing out key literally to some of their AWS users, recommending it as the safest way to access their servers. We're not hands-on involved in that effort, but it's, of course, a great thing for us that they're seeding the market that way.
So I think it's not like we've at all have emptied the growth opportunities within high tech. We can grow both within them and with them to their users.
Thank you, Mattias. And then just a final one. I think there, at least from my side, was some misunderstanding in today's results and how to interpret it. So, thank you for highlighting that off-site in Poland. So, for a relative perspective, one could say that it's cost conscious to do that in Poland, but then again, some SEK 20 million on a kick-off here, just help me understand here. For you to retain top talent, I would assume that you would need to keep your employees happy and motivated. So, is this to be seen as like a one-off, or is this, call it, this o r are similar types of kickoffs to be expected into, call it Q3, also in the coming years? Thank you.
That's a great question, and just for clarity, it was in Prague, not in Poland, so Czech Republic. But, and it was, like you said, it's not Monaco, but it's Prague, which is a beautiful city. Historically, we've had all company events like this, perhaps every second year on average, over the past couple of years. So of course, we had a pandemic when there was a break.
The reason why we decided to have it now was that there was so much change going on. We felt it was important to get everyone in the same room. There were some concerns and worries among our U.S. employees, in particular, about the implications of going public, and in particular, in the Swedish market, which is perhaps not the most what people are most used to.
So, even though I agree that this was a high cost, and we typically try to be very cost-conscious, and this incurred a lot of extra cost, I think it was money well spent this time, or invested even, to ensure that we've got everyone aligned with what we wanna accomplish. Making people understand that if anything, going public solidifies our position as an independent player and makes us independent and, I mean, in control of our own destiny. So, we got excellent reviews and feedback from that event. And, just to be clear, it was a packed program. We had three full days of both broad sessions and then specific sessions. So it wasn't just, i t was a small part of it that was entertainment.
Most of it, it was really hard work and a lot of communication and interaction. But yes, we may do it in the future. There's nothing planned right now. I, I don't think it's realistic to expect this to happen every year, but from time to time, we, we will probably get the entire team together.
Understood. Okay, thank you for a good product and welcome to the stock market.
Thank you so much, Joachim. Appreciate that. We have, we don't have a-
There are no more questions at this time, so I hand the conference back to the speakers for any written questions from the web or any closing comments.
Great. So as I started mentioning, I have no doubt it got through. There were no further questions in line from the live audience, but we do have. We have received two online questions. So we had the first one is regarding, if I try to translate it, the question was posted in Swedish. The increase in expenses related to the company event, approximately SEK 20 million in Prague during the quarter. That's the area of the question. It's really a request for clarification. Is that included in the SEK 94 million transaction related in the quarter, or is it outside of that? And to be clear, it's a one-off thing, but it's not considered as a transaction cost.
So the SEK 94 million is related to transaction cost, whereas the SEK 20 million is taken as an operational expense, and that cost is included in even in the adjusted EBIT.
Exactly. Mm-hmm.
Great. The other one, there's another question written in English, from a nd it says, "Hi, regarding the SEK 86 million order you highlighted in the report, can you educate me and the market how big this order is compared to other orders you received? You have earlier talked about a big order in Q2. How do the two orders compare?" This one is a big order, but it's not a, we see them from time to time. It, if you compare the size of this order to the order we had in Q2, it's about a third of the size of the order we had in Q2, to be specific. I hope that answers the question. Then we just received a new one. It was a new all-time high on gross margin. Is it a new trend? Thank you. Great question.
I'd like, I don't know if we mentioned this, but we see a very healthy trend when it comes to the gross margin. We are pretty consistently now for some time, even above 85%. Part of that is a trend that we're very cost-conscious in manufacturing and have a high level of automation. But in this quarter, there were also some on the margin, like a few tenths of a percentage point, was also impacted by the fact that we had a relatively strong growth within e-commerce, which is our highest margin sector. There are no discounts there. Another thing which impacts the gross margin on an individual quarter is the composition of products sold.
As you know, we have some single protocol keys that are less costly, whereas their manufacturing cost is pretty much for the hardware is pretty much identical. So that, this quarter, we sold more of the more expensive type. Sorry, more higher priced types of products, but also high value, of course. Yeah.
Yeah.
Right now, there are no further questions, so I think that's a wrap for now. Thank you, everyone, for attending, and as always, Camilla and I are happy to take any follow-up questions on an ongoing basis. You know how to get to us, I hope. And looking forward to connecting with everyone, either if you have questions, and then we're going to have, of course, a similar session at the end of Q4. And thank you for also submitting interesting and very educated questions. It's really great to have an interactive session like that. Thanks from our end.
Thank you very much.
Have a great weekend once we get there.