Smartoptics Group AS

Investor Presentation • Aug 23, 2023

Financial Presentation

Q2 2023

August 23, 2023

Today's agenda

• Q2 2023 highlights
• Smartoptics strong position in a large untapped market
• Q2 2023 financials
• Wrap-up and outlook

Continued growth and solid profitability in Q2 2023

Highlights of Q2 and key initiatives for 2023

Key events during Q2 2023

• Continued good momentum in Enterprise and typical Smartoptics customers. 400 Gbit/s demand is still strong
• Supply chain fully healed, and good inventory of components. Delivery times are considerably shorter
• Growth during in 1H despite lack of 5G related projects in 2023
• Progressing discussions with a handful of larger accounts

Building a stronger Smartoptics in 2023

• Continued to strengthen organization with focus on R&D to capture larger accounts
• Investments in new features, new products and more complete software offering
• Increasing focus on business area Devices

Today's agenda

• Q2 2023 highlights
• Smartoptics strong position in a large untapped market
• Q2 2023 financials
• Wrap-up and outlook

Founded in 2006 Smartoptics is a challenger in optical communication – addressing a global market

• Ever increasing demand for bandwidth
• Open Optical Networking growing quickly
• Disruption in the 8 BUSD addressable market (Metro WDM)
• Americas, EMEA and selected markets in APAC
• Broadband infrastructure funding in the US and EU
• Introduction of 400Gbit/s services
  • Replacement of legacy platforms
• 5G drives advanced optical towards the edge

Market and Key Trends Products and Solutions

• High-capacity optical transport solutions
• Software support and rich service offering
• Wide range of optical devices for any application
• Software suite for network orchestration, planning and simulation – SoSmart

One of three families of open line systems: DCP-R

Optical devices: Delivered ~300 000 optical tranceivers in 2022

The SoSmart software suite

The market for fiber optical network equipment is worth 16 billion USD worldwide

• 16 billion USD world market

• 50% is Metro
• 50% is EMEA and North America
• In total Smartoptics addresses about 30%

• Key driver is data growth

• Cloud migration & new data centers
• Migration to 400Gbit/s
• 5G roll-out
• Fiber access roll-out

• Government funding

• Open and disaggregated solutions

• Shift toward more cost-efficient networks

7

– IP over DWMD

Smartoptics gaining market share steadily in a field of 6-7 significantly larger players

Market shares 2023 YTD (June 30) Metro WDM EMEA and North America Smartoptics market share development 2019-2023 YTD Metro WDM EMEA and North America combined

Source: Cignal.AI Aug 2023. Partly preliminary data with adjustments from Smartoptics with reported numbers

Smartoptics is well positioned for long term growth

Key assets	Milestones
• Attractive and future-oriented technology – open and cost efficient	• Improving product offering addressing the service provider metro market:
• Well positioned in small and medium-sized customers – expanding into larger accounts	– Expanded offering in Open line systems – New versions of Layer 1 Transponders and Muxponders
• Strong footprint in Europe and Americas and unique market position • Solid financial position	– Complete product offering integrated in SoSmart SW suite • Increased growth rate in customer segment Enterprise and product area Devices
	• Win new major account every 12-24 months and continuously develop existing accounts

Ambition to continue gain of market share in metro segment in key markets (NA, EMEA, CALA, parts of APAC)

Continued strong financial development

Revenue and profitability development Key milestones

• Continuous expansion of product portfolio creates foundation for sustained growth
• DCP-M (launched 2017)
• DCP-F (launched 2020)
• DCP-R (launched 2022)
• DCP-404 Muxponder (launched 2022)
• Transceivers
• Software and Services
• Last twelve months revenue is 62.0 MUSD
• Operational situation more favourable in 2023, enabling shorter lead times

Today's agenda

• Q2 2023 highlights
• Smartoptics strong position in a large untapped market
• Q2 2023 financials
• Wrap-up and outlook

Strong growth in business areas Solutions, Software & Services

Revenue by business area Q2 specific development

• Software and Services showing very strong growth
• Solutions again above 30% growth
• Devices not growing following a strong Q1. YTD flat development vs 2022
• Software & Services shown after reduction of deferred revenue, i.e. numbers shown is the recognized revenue

EMEA drove the growth in Q2, growth in Americas despite lack of 5G related projects

Revenue per Region and Quarter – Last 5 quarters

Solid financial position – reduced inventory levels

Balance Sheet Jun 30, 2023 Working Capital Development past 5 quarters

Continued revenue growth and solid profitability

Note: Return on Capital Employed (ROCE) defined as EBIT divided Capital Employed. Capital Employed is defined as Fixed Assets + Current Assets – Current Liabilities

Today's agenda

• Q2 2023 highlights
• Smartoptics strong position in a large untapped market
• Q2 2023 financials
• Wrap-up and outlook

Long term ambitions stay firm

	2023 Q2	2025/26 aspirations
Revenue	17.0 MUSD (LTM 62.0 MUSD)	~100 MUSD
Gross margin	49.2%	~45%
EBITDA margin	18.7%	~17-20%
EBIT margin	16.0%	~13-16%

Profit and Loss Statement

Profit and Loss Statement Q2 2023

		kUSD
	2023	2022	Change
	Q2	Q2
Total revenue and other operating income	16 989	14 608	+16.3%
Direct cost of sales	8 637	7 713
Employee benefit expenses	3 889	2 845	+36.7%
Other operating expenses	1 285	703	+82.8%
Total operating expenses	13 810	11 261	+22.6%
Depreciation	386	292
Amortization of intangible assets	66	82
Total depreciation and amortization	452	375
Operating profit/(loss)	2 727	2 972	-8.2%
Financial income	2	0
Financial expenses	- 52	- 99
Net foreign exchange gains (losses)	367	550
Net Finance Items	316	451
Profit/(loss) before income tax	3 043	3 423
Estimated income tax	- 670	527
Profit/(loss) for the period	2 374	2 897	-18.1%
Shares outstanding (Basic)	96 286 593	96 286 593
Shares outstanding (Diluted)	97 415 655	96 286 593
Earnings per share (Basic)	\$ 0.025	\$ 0.030
Earnings per share (Diluted)	\$ 0.024	\$ 0.030

Comments to Q2 events

• Continued strengthening of the organization with focus on R&D drives employee expenses

Cash Flow Statement

Cash Flow Statement for Q2 of 2023 Comments

Amounts in USD 1,000	2023 Q2	2022 Q2
Cash flows from operating activities
Profit/(loss) before income tax	3 043	3 423
Adjustments for
Taxes paid
Depreciation and amortization	452	375
Interest	28	80
Change in inventory	1 245	- 1 343
Change in trade receivable	- 6 454	- 543
Change in contract liabilities (deferred revenue)	603	- 64
Change in trade payable	- 834	1 740
Change in other current assets and other liabilities	348	- 1 653
Interest received	2	0
Net cash inflow from operating activities	- 1 568	2 015
Net cash (outflow) from investing activities	- 951	- 192
Net cash inflow from financing activities	- 4 718	- 302
Net increase/(decrease) in cash and cash equivalents	- 7 237	1 520
Cash and cash equivalents at the beginning of period	10 419	5 077
Effects of exchange rate changes on cash and cash equivalents	- 264	- 848
Cash and cash equivalents at the end of period	2 918	5 749

• Dividend pay out of 4.4 million USD in May 2023 included in "financing activities"

Balance Sheet

Balance Sheet for Jun 30, 2023

	kUSD
	2023	2022
	Q2	Q2
Intangible assets	897	826
Property, plant and equipment	2 654	1 301
Right of use assets	2 149	1 693
Noncurrent receivables against related party	-	-
Deferred tax assets	1 215	2 880
Total Non Current Assets	6 916	6 700
Inventories	14 123	13 220
Trade receivable	17 949	10 085
Recaivables to related party	0	0
Other current assets	1 472	1 586
Cash and cash equivalents	2 918	5 749
Total Current Assets	36 462	30 640
TOTAL ASSETS	43 378	37 341

	kUSD
	2023	2022
	Q2	Q2
Share capital	179	193
Share premium	11 715	12 665
Other paid in capital	139	151
Foreign currency translation reserves	36	169
Retained earnings	13 745	11 373
Total Equity	25 815	24 551
Lease liabilities (noncurrent portion)	1 243	1 201
Contract liabilities (noncurrent deferred revenue)	2 958	1 974
Other noncurrent liabilities	1 517	1 673
Total noncurrent liabilities	5 719	4 848
Lease liabilities (current portion)	695	535
Trade payable	4 340	4 593
Contract liabilities (deferred revenue)	2 480	1 427
Current tax liabilities	2 057	607
Other current liabilities	2 272	780
Total current liabilities	11 845	7 941
Total Liabilities	17 563	12 790
TOTAL EQUITY AND LIABILITIES	43 378	37 341

Thank you