Clavister : Earnings Document

INTERIM REPORT

CLAVISTER HOLDING AB (PUBL) OCTOBER - DECEMBER 2022

CLAVISTER HOLDING AB (publ.) - INTERIM REPORT OCTOBER - DECEMBER 2022

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SUMMARY OF PERIOD OCTOBER - DECEMBER 2022

Quarterly Key Highlights

• Positive and greatly improved EBITDA.
• Positive cash flow from underlying business.
• Reported OPEX decreased with 20%.

FINANCIAL SUMMARY OCTOBER - DECEMBER 2022

• Order Intake amounted to 43.3 (44.3) MSEK.
• Net Sales amounted to 39.6 (36.0) MSEK. FX adjusted Net Sales amounted to 37.9 (35.9).
• Recurring revenue grew with 0 (43.3) %.
• Gross Profit amounted to 34.2 (31.5) MSEK, corresponding to a gross margin of 78.9 (85.1) %.
• EBITDA amounted to 0.4 (-11.6) MSEK.
• EBIT amounted to -10.1(-20.7) MSEK.
• Net Profit amounted to -32.4(-29.3) MSEK and earnings per share to -0.57(-0.53) SEK.
• Cash and cash equivalents amounted to 42.4 (49.9) MSEK.

No material post-closing events have occurred.

FINANCIAL SUMMARY JANUARY - DECEMBER 2022

• Order Intake amounted to 136.3 (191.6) MSEK.
• Net Sales amounted to 142.7 (129.3) MSEK. FX adjusted Net Sales amounted to 138.6 (131.1).
• Recurring revenue grew with 7.1 (26.4) %
• Gross Profit amounted to 121.7 (114.8) MSEK, corresponding to a gross margin of 81.4 (85.7) %.
• EBITDA amounted to -11.0(-20.8) MSEK.
• EBIT amounted to -51.4(-57.2) MSEK.
• Net Profit amounted to -112.8(-91.1) MSEK and earnings per share to -2.00(-1.67) SEK.
• Cash and cash equivalents amounted to 42.4 (49.9) MSEK.

Comparative figures are according to the adopted Annual Accounts of 2021. Numbers within parentheses refer to the corresponding period or date of last year, unless otherwise specified.

*Change in net sales refers to FX adjusted net sales.

We continue to drive growth and for the second consecutive quarter, we reported positive

EBITDA.

The period saw a positive and significantly improved cash flow from operations.

The firewall and IAM businesses developed strongly, and commercial deliveries have

started in the defense sector.John Vestberg,

President and CEO, Clavister

Clavister Holding AB (publ.), Sjögatan 6J, 891 60 Örnsköldsvik, Sweden | Org No. 556917-6612| Tel: [phone] | www.clavister.com

CLAVISTER HOLDING AB (publ.) - INTERIM REPORT OTCOBER - DECEMBER 2022

COMMENTS BY THE CEO

We continue to drive growth and for the second consecutive quarter, we reported positive EBITDA. The period saw a positive and significantly improved cash flow from operations. The firewall and IAM businesses developed strongly, and commercial deliveries have started in the defense sector.

THE QUARTER IN SUMMARY

We end the full year 2022 with a quarter that, in my opinion, we have every reason to be proud of. We continue to drive growth and achieved net sales of 40 (36) MSEK in the period, which corresponds to an increase of 10%. Including our externally financed R&D projects in the defense sector, our total revenue for the period grew by 17% to 43 (37) MSEK.

For the second consecutive quarter, we report a positive EBITDA result - an improvement of 12 MSEK compared to the same period the previous year. This is our first EBITDA positive fourth quarter ever.

However, even more important is that the cash flow from our operations was positive at 7 MSEK, an improvement of as much as 14 MSEK for the quarter. With a cash position of 42 MSEK at the end of the quarter - in combination with significantly improved cash flows - we feel confident about our liquidity situation.

The order intake in the fourth quarter amounted to 43 (44) MSEK. The slightly lower order intake is mainly due to the transition to the new business model with a greater proportion of shorter contract lengths. The total contract value per customer over time is expected to be higher in the new business model.

FIREWALL BUSINESS ENHANCED WITH CLOUD SERVICES

In the fourth quarter, our firewall business had a strong performance, with an increase of over 60% in the number of hardware units delivered. There were no disruptive orders during the quarter - the growth came from our regular sales operations.

In the same quarter, we launched the first commercial version of Clavister Cloud Services, our cloud-based cybersecurity solution that is the result from a year and a half of product development. Rather than creating a whole new business area, we decided to offer the solution as an additional service to our firewall business to reduce costs and risks.

Clavister Cloud Services is based on the SASE (Secure Access Service Edge) concept, which enables companies and government agencies to access extensive cybersecurity capabilities via a convenient cloud service.

Clavister's service is deployed on Swedish infrastructure, unlike competing SASE solutions which primarily use American cloud services. Swedish delivery is a pre-requisite for Swedish authorities to be able to use cloud-based cybersecurity without compromising on privacy and data storage policies. Furthermore, Clavister's solution is developed in a way that makes it possible to scale up the offering to other countries with low marginal cost.

The first version of Clavister Cloud Services provides security management including analysis and reporting, as well as password-less strong authentication.

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Over time, the service will be supplemented with additional cloud-based capabilities based on both existing and upcoming Clavister IPR.

STRONG END TO THE YEAR IN THE IAM BUSINESS

The Identity and Access Management (IAM) business, operated through the wholly-owned subsidiary PhenixID, also had a strong end to the year with both high order intake and extensive deliveries.

A large customer group for our IAM solution is the Swedish public sector, where the solution is deployed at a large number of regions, municipalities and agencies.

The IAM business is currently concentrated on Swedish customers but has no technical limitations that hinder a gradual European expansion.

COMMERCIAL DELIVERIES TO THE DEFENCE SECTOR

The strong interest from the defense sector for our solutions continues, driven by the digitalization of defense platforms and increased defense spending.

In the quarter, we have initiated commercial deliveries within the framework of previously won defense projects. Further and more extensive deliveries will be carried out during the years 2023 to 2025.

We have built up an extensive pipeline of business opportunities, and we are optimistic about winning additional significant deals within the defense sector in the near future.

5G BUSINESS CHARACTERIZED BY DEPLOYMENTS

In the 5G business, the quarter has been characterized by the design and deployment of previously sold licensing contracts. We note that the lead time from initial sales to deployment is in most cases several years, which requires endurance but at the same time creates an installed base that drives licensing and consulting revenue over long periods going forward.

We expect the 5G business to continue to grow in 2023, primarily driven by an increased rollout pace of the so-calledstand-alone 5G core networks from the operators' side.

THE YEAR IN REVIEW

We look back on a year with a clear focus on optimizing our operations. We have chosen to steer our sales focus towards mission-critical businesses within the EU, primarily towards customers in the public sector, critical infrastructure, defense, and telecom - customer groups where we have clear competitive advantages given our strong product portfolio combined with a Swedish technology background.

The past year has also been characterized by the extensive cost optimization program we have implemented with the aim of achieving positive cash flows during 2023. The program aimed to reduce ongoing operating expenses from a level of 196 MSEK to a level of no more than 164 MSEK.

We have reached further than our goal, which means that for the full year 2022, we report operating expenses, adjusted for onetime effects of the program, of less than 164 MSEK. Further activities have been carried out during the fourth quarter, which will result in further reduction in the cost base in 2023 as well.

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CLAVISTER HOLDING AB (publ.) - INTERIM REPORT JULY - SEPTEMBER 2022

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For the full year, net sales increased by 10% to 143 (129) MSEK, which was in line with our stated goal of moderate growth for the year - based on the knowledge that the transition to the subscription-based business model entails a distribution of revenues from new customer contracts over a longer period of time.

For the full year, a gross margin of 81 (86)% was achieved - slightly above our stated target level of 80%.

OUTLOOK

We expect an increase in sales growth in 2023 compared to 2022. We believe that the growth can gradually increase to an average of 20% for the years 2023 through 2025 (CAGR).

As a result of the cost optimizations carried out, we expect to reach a lower level of operating costs in 2023 compared to 2022, which, in combination with increased sales volumes, will lead to a significant improvement in cash flow and positive EBITDA for the year. Our ambition is to achieve a positive operational cash flow in the second half of 2023.

I would like to thank all colleagues, resellers, customers, and shareholders for their commitment in building Clavister into a European leader in cybersecurity!

John Vestberg, President and CEO Örnsköldsvik, Sweden, 16 February 2023

Clavister Holding AB (publ.), Sjögatan 6J, 891 60 Örnsköldsvik, Sweden | Org No. 556917-6612| Tel: [phone] | www.clavister.com

CLAVISTER HOLDING AB (publ.) - INTERIM REPORT OCTOBER - DECEMBER 2022

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COMMENTS ON CLAVISTER'S INTERIM FINANCIAL STATEMENTS

ORDER INTAKE

Total Order Intake for the quarter amounted to 43.3 (44.3) MSEK, a year-on-year decrease of 2 %. The decrease is primarily explained by the transition to the new business model with a larger portion of contracts with shorter contract lengths.

(TSEK)	ORDER INTAKE (T12M)
210 000
190 000
170 000
150 000
130 000
110 000
90 000
70 000

50 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018	2019	2020	2021	2022

The order book balance on 31 December 2022 amounted to 74.2 (86.6) MSEK. Deferred revenue from pre-paid contracts and prepaid consulting services amounted to 64.5 (60.2) MSEK on 31 December 2022, whereof 41.9 (40.5) MSEK will be recognized as revenue during the coming 12-month period.

NET SALES

Net Sales for the quarter amounted to 39.6 (36.0) MSEK, a year- on-year increase of 10 %. Adjusted for currency effects Net Sales amounted to 37.9 (35.9) MSEK, an increase of 6 %.

(TSEK)	NET SALES (T12M)
150 000
140 000
130 000
120 000
110 000
100 000
90 000
80 000
70 000
60 000
50 000
Q1 Q2 Q3 Q4	Q1 Q2 Q3 Q4	Q1 Q2 Q3 Q4	Q1 Q2 Q3Q4	Q1 Q2 Q3Q4
	2018	2019	2020		2021	2022

The subscription-based business model, launched during the fourth quarter 2021, has a short-term negative impact on recognized revenues as more of the contract value is linked to software license recognized over time. The new contracts in the subscription-based business model will, after the initial transaction, contribute with higher recurring revenue and cash flows during the contract period compared to corresponding contracts in the previous model.

Recurring revenue from software subscriptions and other term- based contracts grew by 0 (43.3) % in the quarter and represented 66 (72) % of total net sales.

In the quarter, revenues from the revenue category product and perpetual licenses increased by 44%. The increase is explained by commencement of serial delivery on the large defence order received in the second quarter of 2021.

NET REVENUE BY TYPE
(TSEK)	2022	2021	Y/Y	2022	2021
Oct - Dec	Oct - Dec	(%)	Jan - Dec	Jan - Dec
Recurring Revenue	26 020	26 035	0%	94 806	88 520
from subscriptions
Product and perpetual	5 212	3 630	44%	20 485	21 644
license revenue
Professional services	8 322	6 356	31%	27 412	19 136
Net Sales	39 554	36 020	10%	142 703	129 300

NET REVENUE BY TYPE

Product and

Perpetual

Licenses

13%

Recurring	Professional
Services
Revenue	21%
66%

GROSS MARGIN AND GROSS PROFIT

Gross margin amounted to 78.9 % (85.1%). The change in margin is primarily explained by the growth in hardware sales, in volume, measured as the number of units, increased by 63% compared to the comparative quarter. In the new business model, the margin for initial delivery of new hardware is lower, which has a negative impact on the gross margin, during the remainder of the contract period the margin is higher as the pricing of the software component has increased.

The increased hardware costs due to component shortages and the current macro-economic situation weakens the margin in the quarter. Access to hardware components has been secured for the foreseeable future. Pricing on hardware has been adjusted from January 1, 2023, to counteract the increased costs on hardware.

The change in margin is also explained by nominal variations in product mix.

GROSS MARGIN

95%

90%

85%

80%

75%

70%

65%

60%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018	2019	2020	2021	2022
			Gross Margin	Target		Gross Margin (R12M)

Gross profit for the quarter amounted to 34.2 (31.5) MSEK, an increase by 8.6 %.

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