Smartoptics Group AS

Quarterly Report • May 8, 2024

Q1 REPORT 2024

Q1 2024 RESULTS

CONTINUED INVESTMENTS FOR GROWTH AND STRONG CASH FLOW

GEOGRAPHICAL SPLIT OF REVENUE Q1 2024

• 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
• EBITDA of USD 1.1 million (8.4% EBITDA margin), compared to USD 2.6 million (18.5% EBITDA margin) in 2023, as growth investments continued
• Operating profit (EBIT) of USD 0.5 million (4.0% operating margin) compared to USD 2.2 million (15.5% operating margin) in 2023
• 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

50.8% 43.6%

Americas EMEA APAC

5.5%

2 | Quarterly Report Q1 2024

Q1 2024 RESULTS CONTINIUED

EBITDA MARGIN AND REVENUE LAST 5 QUARTERS

RETURN ON CAPITAL EMPLOYED

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, internet 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 quarters, 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 number. 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 evergrowing 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 competitiveness in the more advanced parts of our addressable 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 business in LATAM, contributing meaningfully to our Americas revenue

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

I am particularly excited about our ongoing dialogue with larger accounts, which primarily is driven by our ability to improve cost efficiency, innovation, and responsiveness to rapidly changing requirements and customer expectations. Most important is IP-over-DWDM and adoption of 400Gbit/s (and emerging 800Gbit/s technology), enabling lower CAPEX and OPEX for customers. These topics have been driving the above-mentioned wins and will continue to be the center of such discussions in the foreseeable future.

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.

For further information, please contact:

Magnus Grenfeldt, CEO Phone: +46 733 668 877 E-mail: magnus.grenfeldt@smartoptics.com

Stefan Karlsson, CFO Phone: +46 766 344 504 E-mail: stefan.karlsson@smartoptics.com

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 Smartoptics' 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.

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	1 120	2 479
Other comprehensive income:
Items that might be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations	30	-164
Item that are not reclassified to profit or loss:
Exchange differences on translation to another presentation currency	-1 781	-625
Total comprehensive income for the year	-631	1 690

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Consolidated statement of changes in equity	Share capital	Share premium	Other paid in capital	Transla tion dif ference reserves	Retained earnings	Total equity
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 tion currency	-11	-751	-9		147	-625
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 tion currency	5	355	4		-473	-108
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 tion currency	-11	-747	-1		-1 021	-1 781
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.

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

SHARE INFORMATION

TABLE OF THE 20 LARGEST SHAREHOLDERS AS 31ST OF MARCH 2024

#	Shareholders	Holding	Stake
1	Coretech AS	31 783 599	32.61 %
2	Kløvingen AS	15 850 429	16.26 %
3	K-Spar Industrier AS	13 426 422	13.78 %
4	Danske Invest	3 522 164	3.61 %
5	Handelsbanken Fonder	3 300 000	3.39 %
6	Janus Henderson Investors	2 571 701	2.64 %
7	Avanza Bank AB	2 180 530	2.24 %
8	Nordnet Bank AB	2 155 882	2.21 %
9	Rasmussengruppen AS	2 150 000	2.21 %
10	Swedbank Robur Fonder	2 136 800	2.19 %
11	Magnus Grenfeldt	1 857 489	1.91 %
12	John Even Øveraasen	1 504 600	1.54 %
13	Ålandsbanken Fonder	1 376 631	1.41 %
14	Mirabaud Asset Management	1 363 103	1.40 %
15	Toluma Norden AS	1 000 000	1.03 %
16	Varner AS	963 391	0.99 %
17	AS Clipper	963 391	0.99 %
18	Schroders	690 000	0.71 %
19	Nore Invest AS	537 598	0.55 %
20	Karl Thedéen	493 078	0.51 %
	Others	7 632 404	7.83 %
	Total number of shares	97 459 212	100.00 %

NOTES

GENERAL

These interim condensed consolidated financial statements for the period ended 31 March 2024, have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for 2023, prepared in accordance with International Financial Reporting Standards (IFRS).

EXCHANGE RATES

The interim financial statements are all translated from NOK to USD. For the Profit and Loss statement the monthly average exchange rate published by Norges Bank is used. For the balance sheet, the monthly ending exchange rate is used.

Balance Sheet	2024	2023
Mar 31	10.82	10.47
Profit and loss statement	2024	2023
Jan	10.4083	9.9506
Feb	10.5463	10.2231
Mar	10.5857	10.5425

NOTE 1 - DEFERRED REVENUE

Service revenues are invoiced in advance and covers a contract period of typically 24-48 months. The service revenue is recognized during the contract period. "Current Deferred Revenue" will be recognized within the next 12 months.

Deferred Revenue	Mar 31. 2024	Mar 31. 2023
Amounts in USD 1,000
Contract Liabili ties (Current)	3 006	2 173
Contract Liabilities (Non-current)	3 322	2 663
Total Contract Liabilities	6 327	4 836

NOTE 2 – RESEARCH AND DEVELOPMENT

Parts of the development cost is capitalized and depreciated over 5 years. The principle is to capitalize no more than 30% of direct salary costs in selected development projects reduced by expencted goverment grants. Net capitalization for the period Jan - Mar was USD 112 thousand.

NOTE 3 – FINANCIAL ITEMS

Currency effects come from the cash position, which is made of NOK, SEK and USD, Trade Receivables and Trade Payable which is predominantly in USD.

NOTE 4 – LIABILITIES TO FINANCIAL INSTITUTIONS

There are two loans from Innovasjon Norge of combined USD 0.9 million. The loans are repaid on a quarterly basis and will be fully repaid by 2026 Q3. The group also has a credit facility with Nordea of NOK 75 million (USD 6.9 million) and a non-current loan of USD 0.3 million scheduled to be fully repaid by 2026 Q2. As of March 31st 2024, the credit line from Nordea was not utilized.

NOTE 5 – OTHER WORKING CAPITAL CHANGES Other working capital changes relates to pre-payments of certain components, inventory and pay-out of variable compensation related to 2023.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT SPLIT

Property, plant and equipment	Mar 31. 2024	Mar 31. 2023	Change
Amounts in USD 1,000
R&D equipment	1 229	878	351
Production equipment	230	271	-41
Office & warehouse fur niture and fixtures	665	280	385
Demo pool equipment	752	586	166
Total	2 876	2 014	862

NOTE 7 – DEPRECIATION AND AMORTIZATION SPLIT Fixed assets are depreciated over a period of 3 to 5 years. There is no goodwill in the group.

Total	558	420
Right of use assets / leasing	193	186
Product development	81	69
Property, plant and equipment	284	165
Amounts in USD 1,000
Depreciation and amortization	Q1 2024	Q1 2023

ALTERNATE PERFORMANCE MEASURES (APM'S)

GROSS PROFIT

Total revenue and other operating income deducted with direct cost of sales

Gross profit	6 147	7 139
Direct cost of sales	-6 502	-6 940
Total revenue and other operating income	12 649	14 079
Amounts in USD 1,000	Q1 2024	Q1 2023

GROSS MARGIN

Gross profit divided by total revenue

Amounts in USD 1,000	Q1 2024	Q1 2023
Total revenue and other operating income	12 649	14 079
Gross profit	6 147	7 139
Gross margin	48.6 %	50.7 %

EBITDA

Earnings before interest, tax, depreciation and amortization

Amounts in USD 1,000	Q1 2024	Q1 2023
Operating profit	504	2 182
Depreciation and amortization	558	420
EBITDA	1 062	2 602

EBITDA MARGIN

EBITDA divided by total revenue and other operating income

Amounts in USD 1,000	Q1 2024	Q1 2023
EBITDA	1 062	2 602
Total revenue and other operating income	12 649	14 079
EBITDA margin	8.4 %	18.5 %

RETURN ON CAPITAL EMPLOYED

Annualized EBIT for actual period divided by average capital employed at beginning and end of period. Capital employed equals total assets deducted current liabilities.

Amounts in USD 1,000	Q1 2024	Q1 2023
Operating Profit (EBIT)	504	2 182
Annualized EBIT	2 016	8 728
Average capital employed
Capital employed at beginning of period	35 522	32 782
Capital employed at end of period	35 918	34 629
Average capital employed	35 720	33 705
Return on capital employed	5.6 %	25.9 %

Smartoptics Group AS Brynsalléen 2 NO-0667 Oslo, Norway

www.smartoptics.com