Clavister Holding AB

STO:CLAV

Earnings Call Transcript 2020-Q2

[Jenny Ramkrans, Chief of Staff]

Good morning, everyone, and welcome to Clavister Interim Report Q2 2020. I'm Jenny Ramkrans. And with me, I have John Vestberg.We will start this webinar with a presentation by John, and then we will move into the Q&A. So over to you, John.

[John Vestberg, Co]

Thank you very much, Jenny. So good morning, everyone. Happy to talk to you again. So as Jenny mentioned, this is our interim report for Q2. And obviously, this has been an extremely eventful and interesting quarter from so many perspectives. Clavister, as possibly any other company on the world, has, of course, implemented work-from-home policies and other COVID-19 related mitigations and driving business and having new perspectives in new ways of working is clearly an interesting perspective. But from that, we'll jump right into our interim report presentation. And starting with the executive summary for the quarter, with a fantastic all-time high order intake level. So for the first time in Clavister history, we're above SEK 50 million for a quarter in order intake. So this corresponds to a year-on-year increase of close to 50% or 49%. I'll come back to some of the growth drivers in a while.In the quarter, we were also able to sign and win important customer contracts. A couple of them of significant importance for Clavister is with BAE Systems. Another one is with International Workplace Group. I'll come back in a while, explain a little bit more about those contracts, what they mean in the short term and in the long term for Clavister.We also saw in the quarter a positive operating cash flow, of obviously, super important. This cash flow is mainly attributed to the fact that we have an improved invoiced sales billings in the quarter, we have improved our gross margins further, and we have had a strict cost and cash management discipline within Clavister. Due to delays in projects, corona-19, or COVID-19-related delays, the actual recognized revenues, and I'll come back to that in a while, is down with 9%, despite the increase in orders and sales.Our level of recurring revenues, however, have grown to 61%. And this is to a big part, thanks to a very high level of retention rates. So the amount of customer contracts amount of licenses that are being renewed in a given period of time. So almost 95% of our contracts are being renewed. So obviously, that's a strong testament to our customer loyalty. Some of the key metrics, you'll find those in the reports as well. I'd just like to highlight the recurring revenue, again, the very strong order intake growth and the operating cash flow. Those are, in my opinion, the 3 strong metrics for the quarter.If we take a short detour, looking at some recent trends on the cybersecurity market, and especially in these times of the corona situation, it could be interesting to just compare the world finance or the impacts on the world economics from the corona impact versus the possible impacts and the known impacts from cyber attacks and cyber threats. This is the latest updated quadrant the global risk report from World Economic Forum, where they, as usual, highlight the big possible threats to world economy, the likelihood and the corresponding impact.And as you can see, what we've highlighted in red here is, obviously, the likelihood and the impact of infectious diseases, such as corona, and for obvious reasons, that has a big impact on world economy and a decent likelihood as well. And we know it's not just a risk. It's a realized risk nowadays. But looking then a bit further up to the right, we see that cyber attacks and breakdown of information and infrastructure has an even higher likelihood of happening. And when it happens, it has an even higher impact on world economy. So given now when we all know the impact from corona on the world economy, we can sort of put that in perspective and just understand what a massive cyber attack outbreak would lead to in terms of impact.The market is still growing. It's growing fast. SEK 251 billion anticipated by 2023. So obviously, we're operating on a both fast-growing and sizable market. That's no doubt. If we zoom in a little bit on the European market, the EU cybersecurity market, which is Clavister's home turf, obviously, with our focus, especially in the Nordics and in Germany, the German-speaking countries. The EU part of the market represents a very sizable part of the world market. So it's expected to grow to USD 65 billion by 2025. This corresponds to an annual growth of 13%. So it's actually a bit faster growth than the world market growth. There are some very interesting and very strong macro level investment drivers in this market and a few of those are listed here, among others, are compliance-based drivers. And EU has established quite some strict cybersecurity measures, including the NIS Directive, which is directed to critical infrastructure in EU. We have the very recent EU Cybersecurity Act that was launched last year. And the new cybersecurity agency ENISA in EU have recently published the first draft of a completely new European Union cybersecurity certification, where they will certify products for being used or recommendations for the European Union. Clavister is one of the companies that are right now in the process of certifying their products with this new standard.Another important segment here is public administration, one of our key verticals where, as you can see, public administration is really anticipated to be a big, big part of the EU security spending by 2025, even 25%. So that's obviously a very good signal for us.If we look at some of our submarket segments, we are addressing a few different submarkets within cybersecurity. One is the so-called traditional network security equipment being firewalls and advanced threat protection products and similar. That's a market that is anticipated to grow with between 5% to 10% over the coming years. The other segment, Identity and Access Management with strong authentication with identity federation and similar technologies is expected to grow even a bit faster with up to 12%. And the biggest growth driver is within cloud security. So securing assets in the cloud, but also driving security and managing security from the cloud. And that's where the big growth is supposed to happen in the coming years, up to 50%. Going forward, just a reminder on our 3 different routes to market, complementing and combining these routes to market to have the -- in our opinion, the best combination of short-term transactional-based sales with large account sales where the sales cycles might be longer, but the reward is even higher. So to the left, our multi-tier channel sales through distributors, through partners. We have listed a few examples of partners and distributors we're working with currently. We have a network of over 500 resellers throughout mainly Europe, but also outside Europe. We are complementing that with direct sales, where our sales and marketing people have direct relationships and direct engagements with larger clients. And again, we'll list 3 of them here, International Workplace Group, NTTBP and Tata Communications, all representing very solid, very big customers and customer opportunities for us. Then the final route to market is where we license our technology, where in fact, we are an OEM, original equipment manufacturer, and deliver our technology to larger brands who have the ambition to build or complement their offerings with security technology. This is, for instance, what we're doing for Nokia. This is what we are now starting to do through BAE Systems and through others, as you can see in these examples.Going ahead, looking at the concrete business for Q2. I mentioned already the very strong order intake. So again, the order intake for the quarter grew with 49%, and we reached close to SEK 55 million, that's up from SEK 38 million corresponding quarter last year. If we look at the long-term trend since beginning of 2017, we see that we have an order intake growth of, on average, 23% annually. So we're obviously super happy with this trend and the expectation from the companies that this type of trend will continue. This also means that we have now built a substantial order book balance, where our contracts with our customers are signed. We're delivering on this order book, and as such, that generates both cash flow invoicing and revenue going forward. So this is a solid base, solid platform for future revenue recognition.In the second quarter, almost all markets contributed with really substantial growth. So that goes across the Nordics. It goes in our rest of world market. It goes for our global key accounts as well. The exception is Germany, where we saw a slight reduction or a reduction of orders. And this is entirely attributed to the strict COVID-19 lockdown in Germany. And as you might recall, a lot of our sales in Germany is transactional-based, partner-based sales, where it's really a quite a substantial volume. And without the ability to meet customers and meet partners, there is, of course, an impact. Now the good news and the flip side of that is that we were able to compensate that reduction with an increase in all other markets.If we then look at invoiced sales and this is sometimes in the industry referred to as billings, meaning the actual invoicing and the actual cash flow generated from these type of orders, that's also a metric that increased quite good in the quarter, increased to SEK 37 million and corresponding to 15% overall growth.I mentioned already the COVID-19 impact on revenue -- recognized revenue. And this is just to shed some light on why the revenues can be down while invoicing and order intake is so strong. And this is obviously based on project delays. We are not able to recognize revenue, obviously, until some of the activities have been carried out, some of the work has been carried out. One example is, of course, the travel bans impacted by or influenced by COVID-19, where a substantial part of our business, as you know, comes from professional services, where our consultants, our experts in our products are physically meeting customers and physically supporting our customers and partners with deployments, with advanced installations, with advanced configurations and so on. Obviously, with travel bans, this becomes a bit hard. And this has a clear impact on obviously on recognized revenue.We also saw in the quarter that there is a general sentiment in Q2. There was a general sentiment in Q2 of doubt and fear with regards to the corona situation, where investment decisions are delayed. They are pushed outside of the quarter. And as a result, we saw quite a lot of late orders in the quarter. And late orders in the quarter means recognized revenue in upcoming quarters and not in the current quarter. So that's the technical accounting-wise explanation on that.The recurring revenue. As mentioned, we have an ambition to move stronger into the so-called subscription-based economy with more recurring revenue, more as a service type of potential for the company. And the good news for this quarter is that we were able to grow that part of the business where the recurring revenue increased and represents actually 61%. Previous quarter, it was just north of 50%. So that's a good sign. That also means taken together that the revenue from prepaid contracts was also known as deferred revenue in our balance sheet has now grown to a new peak level or a new all-time high level, I should say, with over SEK 60 million sitting on our balance sheet and waiting to become revenues in upcoming time periods.Our gross margin is -- continues to be strong and is increasing year-over-year. So for the second quarter, we reached 83.7% of gross margin, that's an increase from 81.9% last year. And we see the same reasons for this improvement as we did in the first quarter of the year. So we have lowered third party costs. We see an uptake based on the divestment of the Chinese operations. And the general product mix is driving us towards larger deals, larger product sales, larger license sales. And as a consequence, a bigger or improved gross margin. We increased our gross margin target at the end of last year from 70% plus to 80% plus. And given this trend and given this development, we maintain this target going forward. And that takes us to a gross profit of SEK 24 million.Some quick comments on the financial summary then. We've been through most of the metrics. There are a couple of metrics that I would like to place certain attention to you. One, again, being the operating cash flow that is positive in the quarter with plus SEK 9.2 million versus minus SEK 9.2 million last year. And for the full quarter, the full cash flow, the change in cash position is almost neutral for the quarter, minus SEK 0.6 million, and that leaves us with cash by end of period at SEK 68.4 million.We have also included in our report, and we'd like to highlight one material post-closing event, and that is that we are in negotiation with one of our lenders with regards to addressing the short-term liabilities of the company. And as soon as we have more information on that, we are, of course, happy to share that.I would then move from the financials and give you an insight into 2 of our critical or strategic, I would say, customer wins in the period. Starting with IWG. IWG or International Workplace Group is actually one of the world's or maybe even the world's largest managed office provider. So similar to CONVENDUM or WeWork or similar, it's really managed offices and short-term leases for companies that need co-working space or distributed office space. As you can imagine in times of corona pandemic, the IWG is very well positioned to really accomplish for clients that have short-term needs that need to scale down, scale up in a much more rapid fashion than if you're on a regular lease in a bigger contract. IWG have currently over 3,300 sites or locations worldwide. They operate in more than 120 countries. We have since a while, a very good position with them as a supplier to IWG. So we have Clavister products deployed in every single site, every single location, and our products are being used to serve more than 2.5 million tenants. And what we do for them is it's IT service connectivity, it's security, of course. Our products are being used for quality of service. We do provisioning. We do Wi-Fi support. We do quite a lot of operational support for their customers with regards to IT.What we've been doing recently is to expand our collaboration with IWG. So we entered into a new updated contract with them at the end of June. So it's a 36-month contract. It's both an extension in time, but it's also an extension of services. So we will do more. We will be even more attached to this customer with technical integration services and further support and maintenance services to our products. The commercial side of a customer like this, just to shed some light on how is Clavister earning money on a customer like this. It's, first of all, through product sales, obviously. And as IWG is growing with additional locations and additional sites, they have an extremely aggressive growth plan going forward. And obviously, the ambition and the design is that Clavister products will be then used in any new site as well. So incremental product sales per new site is an important component. And as we grow our footprint with them and our franchise with them, we have as well a growing support and maintenance fee. And that level is based on the accumulated sites and products. So as we grow with more sites, the support and maintenance level grow as well. And then as a very important component in this customer is professional services revenues. So as we continue to integrate our products and our solutions with their other systems, it's more and more work that's being carried out by our engineers and our professional services staff in Clavister. So that's IWG, a very interesting customer, absolutely.Moving ahead to the next strategic win in the quarter, BAE Systems. Most of you are familiar with BAE Systems, at least the brand. But worth mentioning is that BAE Systems is actually Europe's largest defense contractor and even the third largest on a global perspective. They produce, of course, a lot of defense material. Two examples are the Swedish combat vehicle, which you see in the picture here and the very classical bandwagon or the all-terrain vehicle that's being used for civil and military operations. These products classically or originally or historically are, of course, massive steel and engineering products. But lately, there's been a strong transition towards integrated electronics, towards IP and Ethernet-based networks in the systems and even NATO are driving strong demands on cybersecurity due to all the electrification and digitization of these type of systems. We've been following BAE Systems for a while, and we were able to, at the end of the quarter, enter into a supplier contract with them. What we do is basically to augment our existing products with some specific NATO and BAE specific requirements and package this in a very ruggedized and military-grade product, as you can see in the picture here. We are then integrating this product into BAE Systems' vehicle systems, which means that at the end of the day, the CV90S and the all-terrain vehicles that we see here on the picture, they are each equipped with between 1 and 3 of these products each, depending on customer configuration. There is a design and development project that is starting this autumn. And the first serious deliveries to end customer is planned to start in 2021.If we look at some of the commercials regarding this one and to also shed some light on how could this fan-out for Clavister going forward and in the mid- to long term. Yes, the development project as such is somewhere around SEK 5 million for Clavister. And the first planned end customer delivery project, which is for a European armed forces, that is estimated to between SEK 50 million and SEK 90 million for Clavister. And this is, of course, pending and customer procurement procedures and depending on the actual configuration in each vehicle. Then there is, of course, a pipeline of subsequent end customer projects, additional or other armed forces around the world, where each project has the potential of between SEK 20 million and SEK 100 million each for Clavister. Granted, these are long tail business, long-term business. But the good news of that or the flip side of long tail business is that it's steady, predictable and very reliable type of business for us. On the top of that, of course, there is support and maintenance fees as well. And similar to IWG, this is based on the accumulated value of all the products being sold. So also the recurring support and maintenance fees over time will grow to substantial revenue for us. So all in all, BAE Systems is a very, very strategic win in the quarter and a customer relationship that we have a lot of expectations on going forward, not only with the specific projects that we see here, but also in other areas of this vertical and with the same customer.Moving ahead, looking at our ambitions. And in general, our idea is that as we grow our company, as we mature our business, as our revenues become more and more predictable, we will be able to deliver more and more granular ambitions and outlooks. For this report, we have identified short-term, mid-term and long-term ambitions, where the short-term ambitions are for the remainder of this year. And basically, our ambition is that we will improve our EBITDA, EBIT and operational cash flow compared to last year. And we're basing this on a number of planning assumptions. One is the obvious one, increased revenue growth. We see that second half of the year is stronger than the first half due to the rollout plans and the customer engagements. As mentioned, we maintain our 80% gross margin target, knowing that there can be variations over the quarters, again, due to the product mix. And we have set out that we will keep our operational -- operating expenses on the same level as for last year, even though we have strengthened and improved and increased our go-to-market staff and our sales resources, we are still maintaining the same level of operating expenses. We have as an effect reduced our capitalized development expenses. And we believe that there will be a controlled mid-term impact by the COVID-19 pandemic. Obviously, the pandemic drives uncertainty into the market and the planning becomes, of course, much harder. But so far, what we've seen, what we've experienced and the general narrative on the cybersecurity market, we believe that the impact can be controlled.Looking then ahead on the mid-term. Our ambition for the mid-term is to outperform the underlying market growth. That's clear. And if you recall from the previous slides, in EU, we're looking at 13% growth in EU alone, some submarkets like cloud security with much stronger growth, obviously, and the world market growth at around 11% blended for the entire cybersecurity market. We will outperform market growth. That's our ambition. We will reach sustainable EBITDA profitability during next year, 2021. And we will demonstrate positive free cash flow from the year thereafter 2022. And this is obviously super important for us. We need to service our future debt or our current debts with future maturity. And at the end of the day, pay dividends to shareholders.Looking even further ahead, and this starts to be the crystal ball, but anyway, we have set up an ambition that long term, we will absolutely strive for providing industry-leading profitability and free cash flow. That's very clear. So again, we will -- in the short to mid-term, we will continue to invest our operating profits or our gross profits into driving more sales, driving more growth and driving more technology innovation. But we will do this in a sustainable way, where the first important profitability metric is our EBITDA profitability.So with that, I'm handing over back to Jenny for hosting our Q&A session.

[Jenny Ramkrans, Chief of Staff]

Thank you. [Operator Instructions] Congratulations to a very strong order intake, John. Can you explain a bit more what's behind the growth?

[John Vestberg, Co]

Absolutely. So what I mentioned is that we've seen a substantial growth or strong growth even from most of our markets. I mentioned Germany as an exception due to the lockdown in Germany. But apart from that, all the markets, Nordics and rest of the world and our global key accounts, they have supported with substantial growth in the period. That growth comes then from both the sales pipeline, the sales funnel that we have been building up over quite a significant amount of time. But then obviously, in this quarter, as part of our strategy, it's been augmented as well with the strategic wins and the larger deals, IWG and BAE Systems being very 2 concrete examples of them. So that blend is something that drives the strong order intake for the quarter.

[Jenny Ramkrans, Chief of Staff]

Thank you, John. You write in the report that there are some operational impacts for COVID-19, can you elaborate a bit on that?

[John Vestberg, Co]

Absolutely. So in general, the cybersecurity market, and I think we alluded to this also in our first quarter report that the cybersecurity market is less affected. It's also estimated to be less affected than most other industries in the world. Reason being, as we know, the strong drive for remote working, for secured infrastructure, secured communication in these days. So that as a base, we saw some very concrete, small but distinct examples on the COVID-19 impacts. And I think this goes for the entire industry. And one is the one I already mentioned with travel bans. We are -- our ambition is, of course, to be able to deploy, manage, configure and support our customers as much as possible remotely, and we're doing that to quite a lot of our customers. But even so, a big part of our professional services revenues, they are coming from on-site consultancy engagements in Europe. And as we all know, the travel bans in Europe have effectively prevented us to travel. And as such, a lot of those professional services projects, they get delayed. And as a consequence, revenues get postponed into later quarters.The good news is that as far as we know right now, none of those projects have been completely canceled. They are delayed, postponed, but not canceled. So that's one part. And secondly, just a general, slightly a bit of doubt and fear when it comes to investing in new CapEx. We see a clear distinction between customers renewing service contracts, license contracts, contracts where there is an OpEx implication are much, much easier to renew and to get revenues out of than completely new CapEx-based infrastructure investments for obvious reasons. So the type of projects where we are seeing a lot of new product sales have a tendency or had a tendency in the quarter to be pushed to very late in the quarter. So that's a big -- the main impact that we saw. Limited, but still some.

[Jenny Ramkrans, Chief of Staff]

Thank you. We got a question. How does the pipeline with Nokia look?

[John Vestberg, Co]

Yes. Very good question. So our engagements with our large customer base in general, Nokia no exception, is strong and it's growing. So what we've seen over the past quarters. And we mentioned this also in our previous reports is that we are taking steps together with our customers, Nokia one example, to increase our franchise with them, increase our footprint, being part of even more designs and blueprints. And this is work that we're seeing results of. So the quick answer is that the pipelines with all our global accounts is growing. And Nokia is not an exception.

[Jenny Ramkrans, Chief of Staff]

We have an anonymous caller that has raised his hand. Can we -- do you have a question? So no, I can't get hold of him. I will wait a few minutes if someone wants to ask any more questions. [Operator Instructions] So we received a question. Can you talk about your go-to-market? And what you are seeing from the direct sales channels and the partner out there, including between landing net new customers versus expansion versus churn?

[John Vestberg, Co]

Absolutely. So again, our go-to-market strategy is based on 3 complementary routes to market. We have our channel sales, where our work is mainly building and supporting and growing a partner network, a reseller network. The second component is our sales and marketing staff, engaging with typically larger end customers. The transactions to those customers might still in the end be effectuated through the channel, but the sales engagement is directly. And then the third component being technology licensing where we can approach the global market funneling our technology through a major player, such as Nokia, such as BAE Systems, right? We have deliberately set out to work with these 3 routes to market in parallel. Reason being that it's -- they have different attributes to them. They have different growth potential and growth perspectives, but they also have different risk levels or risk profiles. In our channel-based sales, we are typically managing 3,000, 4,000, 5,000 customer orders per year and distributed over quite a substantial amount of partners and a big amount of end customers. As such, and as you can imagine, the average deal size is fairly small. But on the other hand, the risk level is very small. We're not depending on any bigger customer in that case or any one partner.In parallel, of course, we're driving the direct sales and the OEM engagements because those have a potential of bringing or driving much higher growth prospects to the company than the channel-based sales. But on the other hand, the lead times and the initial sales and to some extent, as -- product development efforts are heavy, meaning long lead times and as such, also bigger risks. So in our book, we found a good balance between short-term transactional-based sales with low risk, and high-risk, high-rewards business on the other hand. We see good tractions in all of these areas. There is not one area that is exploding on the behalf of the other. But on the contrary, all of the areas are growing for us. And especially our second quarter demonstrated that big sales in the quarter and volumes of transaction sales growing in the quarter as well.And as we can see from our retention rate with close to 95% in the quarter, most -- really, most -- almost all of our customers are staying with us. They have deployed their products, they have active service contracts with us. And they do appreciate the level of support, the level of technology we bring them, and as such, they remain our customers for a very long time. So the churn is, I would say, minimal to us. And that's obviously a very good thing for us with ambition to grow our recurring business.

[Jenny Ramkrans, Chief of Staff]

One more question. Curious of how much of the order book that will be delivered this year?

[John Vestberg, Co]

Yes. Again, a very, very good question. A big part of the order book will be delivered this year. I can't give you an exact number. It's both a trade secret, but also totally dependent on some customer engagements and some customer rollout plans. But it's a substantial part. It's not a very small part, I can say that.

[Jenny Ramkrans, Chief of Staff]

Has average contract length changed as a result of COVID shorter contract lengths or?

[John Vestberg, Co]

Yes. Very relevant question. I think it's a little bit too early to see any concrete evidence or trends in that area. Yes. The contracts that were renewed in Q2, they had, I would say, a typical blend of 12 months and 24 and 36 months of length. So I think we have to wait until the end of the year to make some qualified conclusions on that. But it's a very relevant question.

[Jenny Ramkrans, Chief of Staff]

And one more, John. How would you say that if we call them cloud-native companies like CrowdStrike, Okta, Sailor, Cloudflare has changed or affected the competitive landscape and business dynamics?

[John Vestberg, Co]

Yes. So it's very obvious, and we've seen this trend for a while, that some of the -- let's call it, some of the more basic use cases in cybersecurity is transitioning to cloud-based services because of its simplicity and its scalability. There are a vast amount of more complex use cases that require on-premise devices, on-premise appliances, on-premise software. There are also compliance reasons why, especially in the EU with public administration, where cloud-native services are either banned or strictly restricted. What we see as Clavister going forward is we see a big potential for tapping into that type of as-a-service economy with cloud-based services being a very natural component and a very natural delivery mechanism for us. We have already and the ones who have been with us for a while know that in last year 2019, we launched a much larger Aurora Security Framework, which is our response to being able to deliver not only niche type of products, but a comprehensive set of components and solutions that could garner or cater for a much wider threat landscape. In this framework, we have already cloud-native products and solutions, one being our Management Center, another one being our Advanced Threat Protection product.And the trend is very clear. Some of our business is absolutely moving in that direction. What we believe, and this is absolutely, I think, a strong and very relevant competitive edge for Clavister. We have also the technology to be the hybrid supplier. Cloud-native can only do cloud native. That's clear. We can do cloud and we can do on-sites. And we can do that with the same technology platform. We can do that with the same support contracts. We can do that with the same type of deployment scenarios. And the world is not either-or the world is a hybrid. And we are positioned to do that hybrid, especially in Europe, where our positioning is strong.

[Jenny Ramkrans, Chief of Staff]

There are many questions coming in. Which company would you see as your fierce competitor and why?

[John Vestberg, Co]

For sure. Looking at the general competitive landscape, looking at the brands where we typically meet them, would include the key big U.S. incumbents, like Check Point, Fortinet and Palo Alto Networks. We see them in many cases, in many deals. We have as the previous question alluded to some cloud-based or cloud-native players like Zscaler and Okta and others. We have Sophos, of course. And then there are certain areas, certain verticals where we find from time to time, some really niche competitors. But the ones I mentioned are the prime competitors.

[Jenny Ramkrans, Chief of Staff]

A quick one. Quick on your hiring target or hiring plans going forward.

[John Vestberg, Co]

Yes. What I mentioned in our ambition and the planning assumptions is we have a -- we're operating on a market that is big and growing. And that's a quite interesting combination. Most markets are not growing as much when they reach this size, but cybersecurity is continuing to grow. Anything else, but tapping into that growth would be an unwise choice of Clavister. So our strong ambition, our clear ambition is to grow and grow faster than the underlying market. We have invested, as you know, heavily in sales and marketing in 2018 and also in 2019. We see the outcome, and we see the return of that in these type of quarters when we have a super strong order intake. We do -- and I strongly believe that we have still a lot of untapped potential coming from those investments in sales and marketing. Of course, there will come a point in time where we will hit the glass ceiling and where the next growth steps will be through additional investments in sales and marketing. I mean that's very natural and quite clear.So looking ahead in terms of hiring, on the horizon, we will grow with more salespeople. We will grow with more marketing knowledge and trying to build as strong position as possible in the key verticals we have, and that will entail hiring. But it will be with what I mentioned in our ambition that it will be from a sustainable profitability level.

[Jenny Ramkrans, Chief of Staff]

And one more question -- actually, two more questions from one other viewer. He says congratulations on a good report. I got two questions. Will there be a new rights issue? And why do you have difficulties in attracting bigger shareholders to improve the shareholder list?

[John Vestberg, Co]

Absolutely, very good questions. We have no plans on raising capital at the moment. As you've seen in the second quarter report, our cash position is strong. We have been working over a period of a couple of years improving our shareholder base. We love our shareholder base, but there is room for improvement. When we entered 2018, the big majority of our cap table was based on private retail investors, good so, but we then started an active work on driving more institutional and more family office investors into the company. If we look at the cap table now 2 years later, we have seen a quite a significant shift with more institutions, more family offices, but there is more to do. That's clear. So we are continuing that work. We're doing road shows. We're doing activities on a regular basis to support that. So the question is very relevant, and we're absolutely working in that direction.

[Jenny Ramkrans, Chief of Staff]

So there's no more questions. With that, we would like to conclude this Q&A. Thank you for participating. Thank you, John, for all the good answers, and actually, for a quite good report.

[John Vestberg, Co]

Thank you, Jenny.

[Jenny Ramkrans, Chief of Staff]

Thank you.