Smartoptics : Q1 2024 report

Q1 REPORT 2024

Q1 2024 RESULTS

CONTINUED INVESTMENTS FOR GROWTH AND STRONG CASH FLOW

•	Revenue of USD 12.6 million compared to USD 14.1 million in
	the same period 2023. Deline caused by challenging market
	condition sin EMEA, while Americas grew
•	Gross margin of 48.6% compared to 50.7% same period 2023

GEOGRAPHICAL SPLIT OF REVENUE Q1 2024

5.5%

•	EBITDA of USD 1.1 million (8.4% EBITDA margin), compared to
	USD 2.6 million (18.5% EBITDA margin) in 2023, as growth in-
	vestments continued
•	Operating profit (EBIT) of USD 0.5 million (4.0% operating mar-

43.6%

50.8%

gin) compared to USD 2.2 million (15.5% operating margin) in

2023

Americas		EMEA		APAC

• Operating cash flow of USD 2.5 million compared to USD 5.8 million in 2023
• First order with new, large US regional operator signed in April
• Well positioned to benefit from market reacceleration

Amounts in USD 1,000	Q1 2024	Q1 2023	Change
	Jan - Mar	Jan - Mar
Revenue	12 649	14 079	-10.2%
Gross profit	6 147	7 139	-13.9%
Gross margin	48.6%	50.7%	2.1 p.p
EBITDA	1 062	2 602	-59.2%
EBITDA margin	8.4%	18.5%	-10.1 p.p
Operating profit	504	2 182	-76.9%
Operating margin	4.0%	15.5%	-11.5 p.p
Profit & loss for the year	1 120	2 479	-54.8%
Basic earnings per share NOK	0.121	0.281	-57.1%
Diluted earnings per share NOK	0.120	0.278	-56.7%
Basic earnings per share USD	0.011	0.026	-55.4%
Diluted earnings per share USD	0.011	0.025	-55.0%
Operating cash flow	2 452	5 794
Return on Capital Employed	5.6 %	25.9 %	-20.3 p.p
FTEs	118	102	16

2 | Quarterly Report Q1 2024

Q1 2024 RESULTS CONTINIUED

EBITDA MARGIN AND REVENUE LAST 5 QUARTERS					RETURN ON CAPITAL EMPLOYED
MUSD									MUSD
20								50%									60%
				17.0						40			34.6				35.5	35.9
												31.5	33.0
								40%									50%
15		14.1			13.6	13.8
			30
			12.6
																			40%
								30%						33.0%
													27.4%
10										20			25.9%					30%
							20%
																17.9%			20%
					19.8%
5		18.5%	18.7%					10
		14.7%
					10%									5.6%		10%
0								8.4%	0%	0											0%
										Q1	Q2	Q3	Q4	Q1
		Q1	Q2	Q3		Q4	Q1
		2023	2023	2023	2023	2024					2023	2023	2023	2023	2024
				Revenue			EBITDA margin					Capital Employed			Return on Capital Employed

3 | Quarterly Report Q1 2024

CEO COMMENTS TO THE Q1 REPORT

The ever-growing demand for bandwidth continues across the globe, and the exploding use of various cloud based artificial intelligence applications is the latest huge trend expecting to add to and prolong this development. As this materializes, Smartoptics should see additional opportunities for growth on top of existing market opportunity. Our task is to deliver simple and flexible ways of increasing capacity in the fiber networks with increased fuctionality at an attractive cost. Our open networking solution with maximum flexibility is the choice of ever more operators of corporate data centers, metro and regional operator networks, inter- net content providers and internet exchanges.

In the first quarter of 2024, we have continued to develop Smartoptics along our strategic path. We are constantly strengthening our product portfolio and improving our marketing and sales capabilities, broadening our addressable market. We see the total market for fiberoptic equipment amounting to USD 16bn, of which 4-5 billion is addressable for Smartoptics.

During last year, we saw an accelerating uptake of 400G technology, and we believe this will continue to be an important driver in 2024. We also see our offering gradually becoming more relevant for large network operators, and in April we received the first purchase order from a larger regional US operator for 400G services. This is the result of our strategic work to position ourselves as a relevant vendor for larger players in the market.

Our revenue declined by 10 percent in the first quarter, which reflects the soft sentiment of the general telecom equipment market, caused by weak macro, curbing the investment spendings in the industry. While we compare ourselves with a strong first half of 2023 with certain large projects, the first quarter was, like the previous two quar- ters, dominated by steady development of smaller projects in Smartoptics' core markets Enterprise and Smaller service providers. Clearly, these market areas are growing, which proves our attractiveness.

Our EBITDA margin remained acceptable, though lower than normal, resulting from the relatively low revenue num- ber. At the same time, it is satisfactory to conclude that we continue to deliver high gross margins and a strong cash flow.

Magnus Grenfeldt, CEO Smartoptics Group AS

We have taken important steps to further improve the way we are positioned for profitable growth in the years to come. The underlying demand, driven by the ever- growing demand for bandwidth and continuous need to upgrade and expand networks, remains strong. In 2024 we expect several factors to contribute to a reinstallation of growth.

Markets to regain momentum in 2024

• Early signs of AI driving demand of bandwidth in networks interconnecting data centers
• High activity level in Americas, and early signs of an improvement in Europe

New product launches through 2024

• Good progress with planned major product launches in 2024, significantly improving our competitive- ness in the more advanced parts of our addressa- ble markets, as we to a much large degree than before will be able to serve large, regional network deployments

New markets contributing to growth

• The first quarter was a record quarter for our bu- siness in LATAM, contributing meaningfully to our Americas revenue

4 | Quarterly Report Q1 2024

Attracting major accounts

• Received the first order from a larger US regional operator
• Signed a general supply agreement with a global Cloud provider with presence more than 800 data centers across the world

Despite a soft first quarter of 2024, and assuming the market sentiment in our main markets return to normal during 2024, we maintain our long-term ambitions of growing our revenue up to USD 100 million by 2025/2026 and continue to produce strong profitability with an EBITDA margin of 17-20 percent and EBIT margin of 13-16 percent.

I am particularly excited about our ongoing dialogue with	For further information, please contact:
larger accounts, which primarily is driven by our ability to
improve cost efficiency, innovation, and responsiveness	Magnus Grenfeldt, CEO
to rapidly changing requirements and customer expecta-	Phone: [phone]
tions. Most important is IP-over-DWDM and adoption of	E-mail: [e-mail]
400Gbit/s (and emerging 800Gbit/s technology), enabling
lower CAPEX and OPEX for customers. These topics have	Stefan Karlsson, CFO
been driving the above-mentioned wins and will continue	Phone: [phone]
to be the center of such discussions in the foreseeable	E-mail: [e-mail]
future.

5 | Quarterly Report Q1 2024

FINANCIAL REVIEW

Q1 2024

REVENUE

Revenue declined by 10.2% in Q1 2024 to USD 12.6 million compared to USD 14.1 million in Q1 2023.

GROSS PROFIT

Direct cost of sales (COGS) was USD 6.5 million in Q1 2024, resulting in a Gross Profit of USD 6.1 million. Gross Margin was 48.6%, compared to 50.7% same period 2023.

OPERATING EXPENSES

Employee benefit expenses was USD 4.1 million in Q1 2024, compared to USD 3.5 million in Q1 2023. Employee benefit expenses is increasing primarily due to continued increase of mainly R&D resources.

EBITDA AND OPERATING PROFIT

EBITDA in Q1 2024 was USD 1.1 million (EBITDA Margin of 8.4%) compared to USD 2.6 million (18.5%) in Q1 2023.

Operating profit was USD 0.5 million, or 4.0%, compared to USD 2.2 million (15.5%) same period 2023.

NET FINANCIALS ITEMS

Interest payments and foreign exchange gains/-losses are the main components of Net Financials Items.

The group has a natural hedge in having both Revenue and COGS to a very large extent in USD.

CASH FLOW

The Operating Cash Flow was USD 2.5 million for Q1 2024 compared to USD 5.8 million same period 2023.

REVENUE SPLIT

Solutions revenue accounted for 53%, Devices for 33% and Software & Services for 14%.

OUTLOOK

Long term ambition to reach USD 100 million in 2025/26 timeframe is maintained.

DIVIDEND POLICY

Goal is to propose a yearly dividend of 25 - 50% of Smar- toptics' profit for the previous financial year.

When proposing dividend for a financial year, the Board of Directors will consider Smartoptics' financial position, one-off item impacts, growth trajectory, investment plans, financial targets, and flexibility.

6 | Quarterly Report Q1 2024

FINANCIAL STATEMENTS

CONSOLIDATED PROFIT AND LOSS STATEMENT Q1

Consolidated statement of profit or loss	Q1 2024	Q1 2023
Amounts in USD 1.000	Jan - Mar	Jan - Mar
Revenue from contracts with customers	12 648	14 078
Other operating income	1	1
Total revenue and other operating income	12 649	14 079
Direct cost of sales	- 6 502	- 6 940
Employee benefit expenses	- 4 063	- 3 502
Other operating expenses	- 1 022	- 1 035
Total operating expenses	- 11 587	- 11 477
Depreciation	- 477	- 351
Amortization of intangible assets	- 81	- 69
Total depreciation and amortization	- 558	- 420
Operating profit/(loss)	504	2 182
Financial income	2	1
Financial expenses	-101	-44
Net foreign exchange gains (losses)	1 061	1 040
Net financial items	962	996
Profit/(loss) before income tax	1 466	3 178
Estimated income tax	-345	-699
Profit/(loss) for the period	1 120	2 479
Earnings per share in USD
Basic earnings per share	0.011	0.026
Diluted earnings per share	0.011	0.025
Weighted average number of shares
Basic	97 459 212	96 286 593
Diluted	97 618 927	97 250 275

Consolidated statement of comprehensive income

Profit/(loss) for the year

Other comprehensive income:

Items that might be subsequently reclassified to profit or loss: Exchange differences on translation of foreign operations Item that are not reclassified to profit or loss:

Exchange differences on translation to another presentation currency

Total comprehensive income for the year

1 120	2 479
30	-164
-1 781	-625
-631	1 690

7 | Quarterly Report Q1 2024

CONSOLIDATED STATEMENT FINANCIAL POSITION

Consolidated statement of financial position	31.03.2024	31.03.2023
Amounts in USD 1.000
Assets
Non-current assets
Intangible assets	1 287	904
Property, plant and equipment	2 876	2 014
Right-of-use assets	1 699	2 342
Other non-current assets	-	-
Deferred tax assets	1 002	1 248
Total non-current assets	6 864	6 508
Current assets
Inventories	13 532	15 368
Trade receivable	15 489	11 495
Receivable to related party	-	0
Other current assets	1 047	1 097
Cash and cash equivalents	11 488	10 419
Total current assets	41 556	38 380
Total assets	48 419	44 888
Equity and liabilities
Equity
Share capital	180	184
Share premium	13 060	12 049
Other paid in capital	19	143
Foreign currency translation reserves	442	24
Retained earnings	17 121	16 895
Total equity	30 822	29 295
Non-current liabilities
Lease liabilities (non-current portion)	1 075	1 685
Contract liabilities (non-current portion)	3 322	2 663
Other non-current liabilities	699	987
Total non-current liabilities	5 096	5 334
Current liabilities
Lease liabilities (current portion)	694	717
Trade payable	4 137	5 174
Contract liabilities (current portion)	3 006	2 173
Current tax liabilities	2 689	606
Other current liabilities	1 975	1 588
Total current liabilities	12 501	10 259
Total liabilities	17 597	15 593
Total equity and liabilities	48 419	44 888

8 | Quarterly Report Q1 2024

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Consolidated statement of changes in equity				Other	Transla-
				Share	Share	tion dif-	Retained	Total
				paid in
				capital	premium	ference	earnings	equity
				capital
						reserves
Amounts in USD 1.000
Balance at 1 January 2023			195	12 801	152	188	14 269	27 606
Profit/(loss) for the period							2 479	2 479
Exchange differences	on translation	of foreign	operation				-164		-164
Exchange differences	on translation to another	presenta-	-11	-751	-9		147	-625
tion currency
Total comprehensive income/(loss) for the period	-11	-751	-9	-164	2 626	1 690
Balance at 31 March 2023			184	12 049	143	24	16 895	29 295
Profit/(loss) for the period							4 991	4 991
Exchange differences	on translation	of foreign	operation				387		387
Exchange differences	on translation to another	presenta-	5	355	4		-473	-108
tion currency
Total comprehensive income/(loss) for the period	5	355	4	387	4 518	5 270
Repurchase of warrants					-127			-127
Dividend								-4 391	-4 391
Balance at 31 December 2023			189	12 404	20	411	17 022	30 048
Profit/(loss) for the period							1 120	1 120
Exchange differences	on translation	of foreign	operation				30		30
Exchange differences	on translation to another	presenta-	-11	-747	-1		-1 021	-1 781
tion currency
Total comprehensive income/(loss) for the period	-11	-747	-1	30	99	-631
Issuance of ordinary shares			2	1 403				1 405
Balance at 31 March 2024			180	13 060	19	442	17 121	30 822

*The currency translation differences arising from the translation to the presentation currency is not included as a translation differences reserves, but presented as part of the different categories of the equity. These translation differences cannot be recycled through profit and loss.

9 | Quarterly Report Q1 2024

CONSOLIDATED CASH FLOW STATEMENT

Consolidated cash flow statement	Q1 2024	Q1 2023
Amounts in USD 1.000	Jan - Mar	Jan - Mar
Cash flows from operating activities
Profit/(loss) before income tax	1 466	3 178
Adjustments for:
Depreciation and amortization	558	420
Interest	80	120
Change in inventory	666	55
Change in trade receivable	1 464	4 419
Change in contract liabilities (deferred revenue)	-236	721
Change in trade payable	-346	-657
Change in other current assets and other liabilities	-1 204	-2 463
Interest received	2	1
Net cash inflow from operating activities	2 452	5 794
Cash flows from investing activities
Payment for property, plant and equipment	-522	-391
Payment for development cost	-112
Net cash (outflow) from investing activities	-635	-391
Cash flows from financing activities
Proceeds from issuance of ordinary shares	1 405
Repayment of borrowing	-134	-68
Paid interest on borrowing	-83	-20
Repayments of lease liabilities	-211	-203
Net cash inflow from financing activities	977	-291
Net increase/(decrease) in cash and cash equivalents	2 795	5 112
Cash and cash equivalents beginning of period	9 321	5 660
Effects of exchange rate changes on cash and cash equivalents	-629	-353
Cash and cash equivalents end of period	11 488	10 419

10 | Quarterly Report Q1 2024