Clavister Holding AB

STO:CLAV

Earnings Call Transcript 2021-Q3

[Unknown]

Good morning. Welcome to our Live Session to Present the Financial Report from our Third Quarter. My name is Ida LeRuyet, and I am the Manager of Corporate Communications here at Clavister. Presenting the report is our CFO, David Nordstrom; and our CEO, John Vestberg. We will start the presentation, then follow with the Q&A. [Operator Instructions]So with that being said, I'll let you take the stage, John and David.

[John Vestberg, Co]

Thank you, Ida.

[David Nordstrom, Chief Financial Officer]

Thanks, Ida.

[John Vestberg, Co]

Again, welcome, everyone. Our purpose today is to guide you through the Q3 interim report. My name is John Vestberg, CEO and President of Clavister. Starting with the summary. We are looking at a recurring revenue growth for the quarter of 24%. If we look at our first 9 months of the year, we're looking at a 20% year-on-year growth. I will, in a few slides from now, come back to the importance of recurring revenue for Clavister, which is also the reason why we have highlighted it specifically in this report.The order intake amounted to SEK 27 million, which is a decrease from last year. This decrease is mainly due to some substantial perpetual so-called onetime license deals that happened in Q3 last year, which obviously affects the comps very heavily. And as those typically software license deals are with, as you know, very high gross margins, they fall through the entire P&L and subsequently affect also our EBITDA. However, looking at our pipeline and looking at the underlying business as such, if you adjust for those onetime deals, the business is developing well and is growing. That is an important message. And an important component in this is, of course, our order book balance, which provides a quite solid base for deliveries and revenue recognition over coming periods. The balance amounted to SEK 82 million at the end of the quarter, which is a substantial increase from the same quarter last year, SEK 60 million of increase. Worth noting is that a very big part or a big part, substantial part of the order book is to be delivered during year 2022.Net sales, again, a slight decrease, following the same logic as from the order intake, mainly attributable to those nonrecurring license deals last year. With that said, we were also able to slightly improve our OpEx, which means that all in all, taken together, we could still derive positive EBITDA results for the quarter, SEK 2.8 million, again, impacted negatively by those nonrecurring deals last year, but nonetheless, positive. Our operating cash flow before working capital changes is also positive. So we have a positive effect of SEK 1.2 million or a positive contribution of SEK 2.2 million in operating cash flow, which we're, of course, happy to see this despite that we were lacking those larger onetime deals this quarter.If we then move ahead to a little bit more inside into the operations and the business, how it's developing. Starting off with looking at our service provider vertical, service provider customer group. We are again happy to see that we are increasing our footprint within 5G security projects. We had 2 important 5G security contract wins in the quarter. First one in Australia. This is now our second 5G design win in Australia. And this time, it's for a so-called private mobile network, basically a mobile network that is designed and deployed for a specific customer for use. In this case, for the railway infrastructure in Australia. As an interesting side note, this is then an interesting combination, actually, of 2 of our verticals, it happens to combine service provider and public sector at the same time. So it's obviously a critical infrastructure, public sector infrastructure, but deployed in the 5G security fashion. Second design win is in Southeast Asia. And this time, it's a so-called 5G standalone or SA core network that's being deployed. And Clavister was selected to deliver their security components. Important design wins. So we keep on increasing the footprint.Moving over to the defense vertical, one of our 3 focus verticals. And we are happy to see as well continuous advancements apart from the already running projects, which we continue to develop and deliver upon. We are also winning new engagements. Specifically in this quarter, we announced a new engagement related to so-called national security, which means NATO classified security-related to an EU member state. This specific project has an initial order of SEK 3 million for Clavister. We expect a ramp-up period of more than a year approximately, but then we're looking at a run rate business of north of SEK 10 million per year after the scale-up or after the ramp-up period. So all in all, important proof-points that the deal sizes and the scalability within our focused verticals are very high, especially in defense, with of course, long lead times, as we all know. But again, several proof-points that the business is developing in the right direction there.We have since some time back as maybe most of you know, investing and scaling up our commercial organization, including our go-to-market team. During Q3, we were able to complete a number of critical gaps that we had identified in our organization. Those included specific sales team leadership, product marketing and very important as well lead generation capabilities. We have now closed and secured those positions in the third quarter. And all of those enhancements are really critical for continuing to driving and accelerating our growth in the coming periods. Really key recruitments and really key additions to the team. All in all, we can also conclude that the investments we have been making now in go-to-market year-to-date and even before year-to-date, are yielding results. We see a business opportunity line, which has grown really substantially over the last 3 to 6 months. And coming from different underlying reasons really, one is, of course, the team itself that has been expanding and the critical enhancements that I just mentioned, but also the change of our business model that has resulted in a more competitive offering. And as such, we see an inflow of opportunities to our pipeline. So all in all, we are super-positive with having a pipeline that is now substantially larger than just 6 months back, and it span across all our 3 focus verticals, which is also encouraging to see.Speaking of the new business model and coming back to the reason why we emphasize recurring revenue so much in this report and going forward. There are a number of benefits of this business model, many benefits, I would say, benefits both to our customer base, to ourselves and to our shareholders. The background is that we designed the implementation of this new business model earlier this year and we completed the implementation during the third quarter. And obviously, now it's live and applicable to most of our solutions. The benefits to our customers, first and foremost, is that we have significantly lowered the threshold for acquiring or for using a Clavister solution. In the previous model, there was a quite heavy CapEx investment upfront, where the supporting contracts or the recurring contracts were a smaller portion, and it was not mandatory for the customer. The new business model completely, in some cases, removes the CapEx investment. In many cases, it lowers it to a point where the threshold is nominal for the customer to get access to Clavister solution. And the remaining part is an OpEx component, which in most cases, for most customers is more suitable to fit into their budgets.We have also adjusted the business model. We have created a tiered model with different layers for different use cases and different customer sizes. With that, we believe or we have proof-points already, feedback from the market that the model is better aligned with the actual value that the customer is perceiving. And finally, we have in removed some certain specific barriers that was previously causing us or requiring us to give either extensive discounts or in some cases, even give away certain features or use cases or even products for free just to win contracts. Now we have changed the model in a way where those barriers are removed or at least diminished.What are then the Clavister benefits? Well, first of all, and maybe most important, it is now a very competitive pricing and packaging. And this is again something we see having an uptake already in the sales opportunity funnel. So the clear benefit, obviously, is that it will drive more sales. If we look at the so-called LTV or long time value on our customer contracts, by changing this model by moving from CapEx to OpEx, by making our licensing mandatory and our support contracts or contracts mandatory, we expect more than 40% higher value on the recurring revenue component on our customer contract. It's a very substantial improvement for Clavister. The third important thing, especially from planning perspective, is that with this model, we will now have much higher visibility, much more predictability on our revenue streams. If we, as in the previous model, our down to specific one-off or perpetual license deals that typically happen quite late in the quarter as well, the visibility and the predictability is limited. This is definitely changed with this new model.The other component in this coming from the fact that contracts are mandatory, licenses are mandatory to continue using the product, meaning that we can change or shift our sales costs instead of using expensive sales resources or maintaining customer retention, we can now use those costs and use those personnel to create new businesses instead. And this also ties into the final bullet, where our churn rates will be reduced, again, coming from the fact that we are now deploying term based licensing, the products will not work if you are not on a contract as a customer. And we have employed an auto-renewal functionality as well, which basically means that as a customer, you need to actively opt out of the contract. If you don't do that, it continues to run. And that, as a consequence, obviously, will reduce the churn rates.There are a number of benefits to shareholders as well. And in this context, obviously, in the interim report, they are important to highlight. With this, obviously, attached to the higher visibility and predictability comes less volatility as a consequence. So both the order intake and net sales will have less volatility. We're not saying that we have no volatility, because keep in mind, we will still see the larger type of deals, for instance, within defense and other verticals as well that might, from time to time, give an extraordinary peak in order intake, and that's good. That's fine. We want that. However, the base business and the underlying business will have much less volatility.Then maybe more important or most important is that if we look at the trends on the market, if we look at peer comparisons and if we look at statistics, it's super clear that the valuation of recurring revenue business is significantly higher than the revenues that come from perpetual. And the reasons are obviously clear. Recurring revenue means less sales cost, more predictability, reduced risk and all of that, and that comes with a premium valuation. So that is probably the most important reason why we now and going forward will play some extra specific -- some extra focus on our recurring revenue metrics. And of course, with all of this comes also reduced risk, where the churn rates are down, the customer retention are up, and the recurring revenues are growing. So all in all, a number of good benefits to customers to Clavister and to shareholders.Finally, even though this is an activity that happened after the quarter ended, it's still very important, of course, and that is the exciting AI capabilities that we added in terms of an acquisition of a small but very exciting Swedish security company called Omen Technologies that brings AI-driven cybersecurity technology to Clavister. What this acquisition does in a nutshell is that it enhances our product portfolio in general, so basically making the entire portfolio more competitive. It as well will allow us to tap into this fast-growing market on its own, but even more important, it brings a number of attractive growth opportunities, both as part of our existing customer base, but also outside our existing customer base, which I will get back to.Some of you might wonder what is the purpose, what is the reason for having AI in cybersecurity. To make a long story short, the complexity of cybersecurity is now at the levels where the more sophisticated threat actors or hackers, if you like, they have started to deploy machine learning or artificial intelligence capabilities to create malware, viruses, attacks that are so sophisticated to basically evade current cybersecurity mitigation or threat mitigation platforms. As a consequence of that, obviously, the cybersecurity vendors need to step up and need to provide a similar countermeasure by deploying artificial intelligence in cybersecurity products or solutions. So basically, what it means in more practical terms is that instead of basing cybersecurity protection on known facts, we are now instead with AI able to look at patterns, even traffic or threats that hasn't been seen before can now be identified by looking at how the patterns vary, how the behaviors are changing. And that is a super-important mitigation factor for the future. As a consequence, it means obviously that cybersecurity teams be at partners or at end customers can, as a consequence, be more proactive, prevent threats before they have happened and responds to attacks even in real time. So good and important addition from that perspective. The market alone, even though this is not the primary reason why we acquired Omen Technologies, the primary reason is our self to make a more competitive product than to explore concrete business opportunities. But also looking at the cybersecurity market alone, it comes with a fantastic growth opportunity. And it allows us to tap into that market, although, again, it was not the main reason for the acquisition.Talking about the growth opportunities, what are they? Of course, we will not be able to name specific customer prospects in this context. But what we have learned over the past year is that there is specifically in defense given the very mission-critical nature of those applications and use cases, there is a strong demand. I wouldn't even just call it demand, I would call it, requirements even from certain customers within the defense space from existing customers and from prospect defense customers as well. So this is by far the most near-term growth opportunities for this acquisition. The use cases that we are able to deploy for those type of customers and in those type of opportunities include specifically what we refer to as Zero Day Threat Protection. In other words, protection against threats that have not been well spread on the Internet that are so-called Zero Day. They are newly born just to specific attack to certain customers, or certain product. We support 2 protocols on a technical level, Ethernet IP and CAN bus, CAN bus is a de facto protocol being used for communication in vehicles, including, for instance, combat vehicles and all-terrain vehicles, for controlling of engines, controlling of vehicles, controlling of basically everything in the machinery. This solution that we deploy is quite unique from that perspective that will support both the Internet IP protocol, and also specific CAN bus protocol.We also actually come here with a value-add use case. It's not core cybersecurity, but it has a significant value-add for the customer still. With this type of technology by being able to detect behavior change as a positive side effect of that is that we are able to detect behavior change coming, not only from an attack, but also from malfunction in components in, for instance, a vehicle or in other types of equipment. And this leads to a proactive maintenance capability where the users, specifically in defense, again, can save massive cost by detecting the need for maintenance before something breaks. So this is a significant value add, which is an extra benefit coming from this technology.With that, I'm leaving the word to David to talk about the financial summary in more detail.

[David Nordstrom, Chief Financial Officer]

Thank you, John. So if starting with the order intake, we show a decline of 25% year-over-year. And as John previously said, and as written in the report, this is primarily driven by onetime deals in the comparison period. And if you adjust for that, we have a small growth in the underlying business. And I think this is important to emphasize. And the transition of the new business model that was completed in end of Q3 and went live in Q4 and then building up on giving more strength in our ambition to grow our recurring revenues.Looking at net sales, we're seeing the same effects here, even though a bit minor than in the order intake. And that is we have a decline of 17% if you adjust for FX, and excluding FX, the decline is 16%. And what you see here is all again, the onetime perpetual deals in Q3 2020 are showing an impact here because we have no such corresponding deals in this quarter. So again, adjust for that, and you have our growth in the underlying business.Recurring revenues are growing strongly. So up to now 64% of our total net sales in Q3 compared to 43% in the corresponding period. So there is good growth of our recurring revenues, and this is definitely in line with our strategic ambition to shift away from onetime deals, from perpetual revenues and building a more stable recurring revenue base. And remember, this is before launching the new business model who goes live 1st of October, so first day of Q4. So we are able to keep on demonstrating the ability to grow our recurring revenue base.Looking at gross margins. We're maintaining our high margins in this quarter. The comps are a bit tough, as again, we had large onetime deals in Q3 2020, which boosts the gross margins. But looking at this quarter, we have, I would say, very strong and healthy gross margins of nearly 87%. There -- is some increase in COGS, but I would say that's mainly driven by product mix in the quarters where we have more COGS in certain use cases, less in others, but I would say that this is still in line with our trend.OpEx, they're well under control in this quarter, showing a small decline compared to last year. If you look at the full 9-month period, we have an increase of only SEK 200,000 in OpEx in the first 9 months. And that is, if you would adjust for inflation, then we also have the fact that last year we were receiving government support in form of short time working. We've had a push down of our OpEx. There are no such effects in this quarter or for that matter in the first 9 months of this year. So looking into that, there is actually an underlying decrease of OpEx is actually larger than you see here. So I would say that OpEx is definitely under control, and there are no onetime effects there neither in this quarter nor in the comparison quarter other than the short time working effect in 2020.Financial items, I would say, in line with what we have seen for quite some time. And I think this is something that we need to keep repeating that most of our financial items are non-cash. It's either the accounting effect of warrants to our lenders in EIB, which affects our -- on accounting perspective, it's affecting financial net, but it will never lead to an outflow of cash from Clavister. The other large part is long-term interest on our EIB loans, but they are not being paid out in the period. And I would say the large decrease of financial items actually impacting cash flow, that is, if you remember the Q3 last year, we had bridge financing in place to bridge the need of liquidity while waiting for the funds from the capital raise, and that was impacting cash flows -- sorry, not cash flows, but the financial items in the third quarter, and we have no such financing in this quarter.Moving over to some balance sheet and cash flow effect. So looking at our CapEx investments, they are somewhat higher than in the comparison period. And I would say there is mainly 3 drivers there in the investment in SASE. That was launched early this year. So this was not something we invested in, in the comparison period. Some investments in the Cyber Armor solution. And then we also have seen some accelerated development efforts to support further growth. We had that in Q2 and having that in Q3 as well. And that is saying the same thing, as we said in Q2, that we have seen that there are some small technology gaps needed to be closed to make sure that an otherwise ready-made solution is actually fully pledged to take the market. So we don't have gaps in features, functionality that is blocking a good product from being able to sell goods. So we have to make sure to close such gaps. And this is shown here as a small increase in CapEx investment.Cash flow from operation before working capital changes are positive SEK 1.2 million, a bit smaller than last year, but then again, there were large onetime perpetual revenues, which we don't have in this quarter. So I would say positive that we see a positive cash flow contribution before working capital changes. And then if we take the working capital changes into account, it is a bit tougher in this quarter, and then I would say, keep looking at the row above, seeing how does the cash flow look in our operations before working capital changes, they are flat between 2020 and 2021. So the worsening effect that is seen here in this quarter, that's only driven by balance sheet changes. So we have a buildup of operating receivables, which is mainly accounts receivables and a large reduction in operating liabilities in the quarter. That's mainly reducing in vacation debt. It's less prepaid revenues. And it's also a quite large final down payment of a third-party license we bought in 2020 in order to push down our COGS cost because that was a quite costly royalty license that we were using in many of our deployments and still use, it's a very important license. We bought that to improve our margins.So I think that was a good acquisition, and that has now been fully repaid and take the full effect of that into account, then you can see that in the first 9-month period, we have nonrecurring payments of SEK 29 million this year, which will not reoccur. And looking at them, they are payments of fees to the capital raise, one of the capital raise made in 2020. The fees were paid in 2021. And so we're comparing 2020-2021. 2021 comes out negatively in this comparison, but that relates to '20. Its repayment of COVID support in the form of deferred tax payments so we were deferring tax payments in 2020 to mitigate effects of COVID-19. That's another SEK 12.4 million -- SEK 12.5 million, sorry, that we now have repaid fully in 2021. Again, affecting the comparisons between 2021 and 2020 negatively, but it has nothing to do with performance in 2021. And then this final down payment of a license bought in 2020, now fully repaid.And I think it's important here when looking at cash flows that bear in mind that during 2020, there was COVID. We had a lot of cash preservation programs running in Clavister during Q2 -- especially Q2, Q3 last year to have to support the business from a cash flow perspective. And at some point in time, such program have to end and you have actually to pay the debts you build up under such a period. And this effect is shown in our cash flow in 2021. So I think this is vital to remember, it's not drawing the wrong conclusions on cash burn in 2021 because, again, lots of the outflow of cash here is not related to operations in 2021.Then looking at our full-time employees equivalent. And these numbers are a bit skewed, again, by the COVID comparison. So we had quite a lot of our staff last year was on a short time working contract, meaning they did not work a full work week, but they work less. And some of that decreased salary was paid by the government in the form of support, and some of that cost was borne by the employee. So the average number of employee when that effect is taken into account was 119 last quarter. And I think it's more stable comparison is you can get that by looking at, okay, what was the full-time number of employees during 2020, and that was 132. So there are no major shifts in the number of employees between the periods here. But the comparison figure might make one to draw that conclusion, but you shouldn't, look at the 2020 full figure is 132 and now it's 134 million. So the only small changes in the number of employees there.So I stop myself there. And I think we are -- if you don't want to add anything, John, we can move into Q&A.

[John Vestberg, Co]

I think it's a good time to move into Q&A.

[Unknown]

Yes. Excellent. Thank you so much for presenting both the highlights, John and also going into the financial summary, David. So looking at the Q&A now then. [Operator Instructions] And then, first, I'll start by asking, what do you see is a highlight of the past quarter? What are you proud or see as a strong point?

[David Nordstrom, Chief Financial Officer]

If I can start, I would say, I mean, I think from a cost perspective, I'm glad to see that we are able to have a firm control over cost. As I said, cost is declining compared to the comparison period. And then again, the comparison period was somewhat supported by COVID support from the government in the form of short time working. We have no such effects. And even so, we are costing -- the operations are costing less than we did a year ago. So I think that's a positive.

[John Vestberg, Co]

Yes. And if I can complement, with the CFO obviously looking at the cost, which is fine. As a CEO, I would, of course, like to focus on the underlying business and the business opportunities build up going forward. And I would say that's what I find the most compelling thing actually in Q3 despite the lack of bigger onetime deals, seeing that the underlying business, seeing that the pipeline is growing heavily, seeing that all those investments we've made finally seem to bear fruit and continuing that momentum is, of course, super-important, but also what I find the most or positive in the quarter.

[Unknown]

Could you please elaborate a bit the current outlook in the 5G market? The rollout seems to have been negatively impacted by the pandemic. Have you seen an acceleration in the 5G security market this fall? And what do you expect in coming quarters? The 5G order in Australia for railway infrastructure was the first order of that kind, for example, for a private network? Or have you received similar orders that combines the service provider administration. So that's 2 questions, elaborate.

[John Vestberg, Co]

Okay. Good questions. So starting with the first one. Absolutely, 5G market, 5G security market or 5G market in general was, of course, negatively impacted by the pandemic. I believe we mentioned this in previous reports, especially last year, that a few of our 5G security and customers or operators had quite some tough times during the pandemic and one of them even went Chapter 11, which was one of our larger clients, larger end customer clients. That specific operator has resurrected and is now forming quite a substantial part of our 5G security pipeline. expansion or coming. So there is re-bounce after the pandemic, that's clear. And we see 2 interesting things. One is the continuous increase of our footprint and what we saw in this quarter, we saw a similar thing last quarter where we add new 5G security deployments, be that public operators, like the one referred to in Southeast Asia here or private networks like the one in Australia. And I'll come back to that question as well. So all in all, we see -- I'm sorry, that's one side of the coin, one part of the equation where we see that the number of footprint, number of networks, number of deployments are increasing. But the other thing we see is customers who already deployed their 5G security solutions from Clavister are coming back to us requesting either additional features, use cases or additional capacity, which, of course, adds additional contract value on top of those customers. So I mean, we continue to see really positive outlook for service provider market. And that's, again, one of the reasons why we selected service providers as one of our 3 focus verticals.The order in Australia specific for the railway infrastructure, it is actually not the first order of that kind, we have a couple of previous orders that were related to so-called private mobile networks. We had one also in Southeast Asia, actually, which is a so-called Blue-light system or a public safety network. So that's a network that is built by the government for private use by the Blue-light personnel, basically ambulances, police and so on. And the similar type of project was deployed also in Australia. So again, a public safety network. So that's interesting. And it does combine the 2 verticals, public, admin critical infrastructure with service providers. So that's an interesting marriage. And I think it's an interesting and good tribute too that those operators are making a big leap of trust in Clavister and our products because, obviously, then you're not having only on the consumers that are using the networks for their private calls, you have first respondents that need to act and need to work and/or reliant on our products to work. So big, big, big confidence in our products, which we are super grateful for.

[Unknown]

Thank you, John. And next question coming up here. Can you please elaborate on the transition period to recurring revenue? Will all contracts from now on be recurring revenue and more onetime revenue from license deals in future reports. That question is to you, David.

[David Nordstrom, Chief Financial Officer]

Yes. And I will try to be as crisp as possible in this because it's -- so the short answer is, yes, as much as possible because we're looking at the new contracts that are taken to market now from Q4, they will be recurring revenue contract with a focus there. But then, of course, we have ongoing contracts with customers in the old business model, where, for example, someone 2 months ago, bought a firewall from us under the old business model, we will not just kill that in one day. So it's quite a long transition period. And those contracts of course have quite a lot of recurring revenues as well, but not the same profile as the new model, and they will be up for -- the customer will be able to renew those for some time. So we uphold our engagements to those customers. That's one important thing to remember. So we take care of the customers that we have, the new ones, but also the historic ones. And then, of course, there are parts of our business, which is more perpetual, we call it that, in the revenue profile, and that is primarily defense, who has a different revenue profile, where we sell more hardware with a license associated with that, which is more of a one-off which support components attached to that. Then, of course, we believe that these long contracts, long engagement we can upsell more service engagements to them over time, but they are more perpetual of nature. So we will still see a mix. And then, of course, to the question is, will we see large onetime deals? Well, it's not the plan but -- so it's not something that's in our strategy to sell one-off licenses. But I mean, I don't want to make promises that we will never ever, even if it's good, if it would be a good deal at that stage, then let's look at that. But it's not something that we plan to do. It's not the business model to sell licenses and then walk away. We are looking for recurring revenue models or than the business model we're having in defense. So I hope that somewhat lengthy answer, hope answered your question. John, do you want to add anything there?

[John Vestberg, Co]

No, I think that's to the point.

[David Nordstrom, Chief Financial Officer]

Yes.

[Unknown]

And kind of on the same topic here going into the question. Beginning of the year, you said the funnel never been stronger. In today's report, you adjust for big deals, but still barely growing. Why have the funnel not delivered growth and you're close to your ambition? Call it again? Can you elaborate?

[John Vestberg, Co]

You think I can start. So I mean, it's true. The funnel was strong in the beginning of the year. It was the strongest funnel we have done, and the funnel has increased since and is stronger even now. There is, of course, as in the verticals we are targeting, long lead times. We were, of course, expecting to bring even more of those funnel deals to reality or to close as in this quarter or in any quarter, bringing them as soon as possible to close. But sometimes deal take longer time. It doesn't mean that they are out of the funnel, they are still part of the funnel. We have made a thorough job on making sure that our funnel and our order backlog are quality deals, call it opportunities only, which they are now. So the growth ambition is still there. It's still valid, and the funnel supports it. Then the actual closing of deals happening before or after quarter end, that's the timing issue that any company with large deals or working with large deals or suffering from, unfortunately.

[David Nordstrom, Chief Financial Officer]

And just to add, if I add something, and you mentioned that in your presentation earlier that what has happened since the start of this year, and I will then look at what we will say during the Capital Markets Day, well, we introduced our focus on verticals, our focus on solutions. And with that enhanced geographical focus as well, investments in our go-to-market organization to be able to realize and actually execute on that strategic refinement. We're seeing that, and that is contributing to the pipeline growth together with the support from a new business model, which now John explained and which we believe is more competitive.

[Unknown]

Thank you. So based on what you've seen now and what we elaborated on for the third quarter, what are our focus going forward? What are the most important both that will be very difficult in Q4?

[John Vestberg, Co]

I mean, I can start and David can complement. We set out our strategic pillars to drive our growth agenda. We're not deviating from those. Those are the pillars we're following. And David mentioned a few of them. We can complement with -- again, we have the focus on the industries and that becomes more and more crisp. The funnel we have is mainly consisting of deals in those verticals. The solution selling aspect is a very important one, where before this, our sales was oriented around individual products, individual product sales. And from time to time, we were able to attach additional services like professional services or training and so on to those deals. But realizing last year that there is a big untapped potential in those type of services. So with the solution packaging, the solution selling, all the professional services, all the education, all the training, everything we do around our solutions or our technology has been put forward and closer to the customer and now forming a part of the bigger offering, which obviously increases deal value, increases stickiness with the customers and increases the funnel, of course. The recurring revenue pillar, we spoke about that lengthy, that has now been executed and implemented. Now we will see the effects of it in future periods. We have the M&A component, where we have now, as the company, completed our third acquisition with Omen being the latest. So all in all, going forward, the focus is to continue to execute on that strategy.

[Unknown]

Continue with that we have quite exciting Q4 ahead of us, and we'll see continuation of the kicked off projects for the year.

[David Nordstrom, Chief Financial Officer]

Yes, I mean I agree, I mean the focus area is definitely execution on our growth strategy and capture as much sales and growth as possible. And then, of course, being the CFO, with good cost control.

[Unknown]

Thank you so much. The questions have start coming in. So we'll take that as a sign that you have answered all the -- or asked all the questions.

[John Vestberg, Co]

What's the new question there coming.

[Unknown]

Right now, it's been time for closing. So this will then be the last question. The market currently seems to be perfect for selling cybersecurity products. Now when you have finished expanding the sales team and redone the business model, what would you say now your biggest bottleneck/problem increasing the sales growth going forward?

[John Vestberg, Co]

I'll start with just commenting on that we will never be -- hopefully, never be finished expanding the sales team, but expanding sales and organization should always be on the back of growth and growth opportunities. The business model is redone, that's correct. We will probably continue to tweak and adjust small things in it, but the majority of it is done. So that's all good. Now it's about driving leads, making sure that the vast funnel we have continue to grow, having an inflow being able to properly qualify to be able to onboard new people, new sales resources in an as efficient way as possible. Keep in mind that we are still a small company. We will always be, in this size at least, we will always be limited by the individual capacity, either by individual salespeople or the organization's capacity in general to onboard and make the organization productive. That, in my view, might be a bottleneck for us that we're, of course, working on to mitigate, but it's still a reality for a small company.

[David Nordstrom, Chief Financial Officer]

Yes. And just to add something to that, it's what's been done during the year is refining, focusing on where do we have our biggest growth potential, let's do that, don't deviate and do other stuff, do only where we have the biggest potential to grow. And I think sticking to that and keeping our eyes on the ball to make sure that we are very selective in what we do with limited resources, we are a small company and focus on those deals that we are most likely to win and don't deviate. I think that's also important to make sure that the change to implement that you stick to that. So yes.

[Unknown]

Thank you so much. I think that is the wrap of today's session. So thank you so much for presenting. John and David, and thank you to all who have been listening in and participating and asking questions. Thank you so much, and have a great rest of the year.

[John Vestberg, Co]

Thank you.

[David Nordstrom, Chief Financial Officer]

Thank you.

[Unknown]

Bye.