Smartoptics Group AS

Quarterly Report • Oct 23, 2024

Q3 REPORT 2024

Q3 2024 RESULTS

SIGNS OF IMPROVEMENTS IN CHALLENGING MARKET, AND NEW STRATEGIC ACCOUNT

• Revenue of USD 13.0 million compared to USD 13.6 million in the same period 2023
• Gross margin of 47.4% compared to 50.0% same period 2023
• EBITDA of USD 1.1 (2.7) million, equivalent to a EBITDA margin of 8.3% (19.8%), an acceptable level given continued investment and the revenue development in the third quarter
• Operating profit (EBIT) of USD 0.5 (2.2) million, equivalent to an operating margin of 3.8% (16.3%)
• Strong operating cash flow of USD 5.6 (5.5) million
• Long term partnership with WIN, a major US regional network operator
• Strong quarter in EMEA and continued positive development in APAC

Amounts in USD 1,000	2024 Q3	2023 Q3	Change	2024 YTD	2023 YTD	Change
	Jul - Sep	Jul - Sep		Jan - Sep	Jan - Sep
Revenue	12 994	13 603	-4.5%	38 634	44 673	-13.5%
Gross profit	6 158	6 798	-9.4%	18 451	22 291	-17.2%
Gross margin	47.4%	50.0%	-2.6 p.p	47.8%	49.9%	-2.1 p.p
EBITDA	1 073	2 697	-60.2%	3 145	8 479	-62.9%
EBITDA margin	8.3%	19.8%	-11.6 p.p	8.1%	19.0%	-10.8 p.p
Operating profit	498	2 213	-77.5%	1 468	7 123	-79.4%
Operating margin	3.8%	16.3%	-12.4 p.p	3.8%	15.9%	-12.1 p.p
Profit & loss for the period	537	1 169	-54.1%	1 778	6 023	-70.5%
Basic earnings per share NOK	0.058	0.147	-60.6%	0.190	0.711	-73.3%
Diluted earnings per share NOK	0.058	0.146	-60.2%	0.190	0.704	-73.0%
Basic earnings per share USD	0.005	0.012	-54.9%	0.018	0.063	-70.9%
Diluted earnings per share USD	0.005	0.012	-54.4%	0.018	0.062	-70.6%
Operating cash flow	5 539	5 503	+1.9%	6 108	9 732	-36.6%
FTEs	124	108	+16	119	105	+14

Q3 2024 RESULTS CONTINUED

GEOGRAPHICAL SPLIT OF REVENUE Q3 2024

BUSINESS AREA SPLIT Q3 2024

GEOGRAPHICAL SPLIT OF REVENUE JAN - SEP 2024

EBITDA MARGIN AND REVENUE LAST 5 QUARTERS

CEO COMMENTS TO THE Q3 REPORT

Smartoptics delivered revenues of USD 13 million in the third quarter, unchanged compared to the second quarter. Although many customers remain cautious given the challenging macro backdrop, we see the sequential stabilization as a clear indication of the anticipated turn around towards the end of 2024. Note that the third quarter normally is weaker than the second from a seasonality perspective.

Our gross margins remain stable and high, and we have maintained our operating expenses relatively stable throughout 2024, leading to a sequentially flat EBIT margin development.

Well positioned for growth

The soft market has primarily been related to new projects such as large network expansions or renewals. Our core business, addressing enterprise customers and smaller service providers, remain solid due to their more customer driven nature. This means that we have a firm basis for profitable growth and margin improvement when the market picks up.

The long-term growth trends are more robust than ever, with the rise of AI serving as an additional expansion driver for interconnect data traffic between data centers, and contributing to the ever growing demand for bandwith, both being factors driving the need for fiberoptic solutions. So far in 2024, Smartoptics has been very active both with respect to market activities and product launches. New high capacity 400G and 800G technology, 34-degree ROADM as well as our improved SoSmart software platform have strong appeal in the market and will be important growth engines going forward. Additional product launches are planned for the fourth quarter. All in all, we are better positioned than ever to capture contracts in the exciting segment for medium-sized and large metro and regional networks.

New long-term partnership

The targeted strategic efforts are bearing fruits. Today, we are announcing a long-term partnership with one of the most important state wide US operators, WIN Technology. WIN owns and operates over 32,000 km of fiber while providing IT services to organizations across Minnesota, Wisconsin, Iowa, Illinois and Michigan. Smartoptics will help WIN strategically expand and modernize their network over

Magnus Grenfeldt, CEO Smartoptics Group AS

the coming years. This win showcases the vast growth opportunity in regional US networks. These are often medium-sized operators that find Smartoptics' future-proof, open technology combined with a flexible and customer centric approach attractive. They all need to expand their networks going forward, catering to the ever-growing demand for bandwidth with lower cost per gigabyte.

Consolidating market

During 2024, the competitive landscape has been dynamic, with continued consolidation among our large competitors. This is positive for us, as customers end up with fewer alternative vendors. In addition, we see that the giants of the industry focus even more on Tier 1 service providers and hyperscalers. It also leaves more space for us to compete efficiently for tier 2 and 3 network operators as well as for medium sized cloud and hybrid cloud players. We have already seen direct positive effects as customers with a dual vendor strategy end up with only one vendor.

Outlook

Looking ahead, we note that market activity has been high in the Americas throughout 2024, while Europe and APAC also showing positive trends now. 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 in 2025/2026 and continue to produce strong profitability with an EBITDA margin of 17-20% and EBIT margin of 13-16%.

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

Q3 2024

REVENUE

Revenue declined by 4.5% in Q3 2024 to USD 13.0 million compared to USD 13.6 million in Q3 2023, mainly related to Americas. Revenue in Americas amounted to USD 5.7 (6.8) million. Revenue in EMEA increased by 3% to USD 6.2 (6.0) million. In APAC, revenue grew by 27% to USD 1.1 (0.9) million.

Revenue split by business area for the quarter was Solutions 56.1% (57.5%), Devices 28.5% (31.8%) and Software & Services 15.4% (10.8%).

GROSS PROFIT

Gross profit in Q3 2024 amounted to USD 6.2 (6.8) million and resulted in a gross margin of 47.4% compared to 50.0% the same period last year.

OPERATING EXPENSES

Employee benefit expenses amounted to USD 3.8 (3.2) million in Q3 2024 and FTE grew from 108 to 124 during the same period. Increased cost is related to new employees. Other operating expenses increased to USD 1.3 (0.9) million, mainly related to higher marketing costs.

EBITDA AND OPERATING PROFIT

EBITDA in Q3 2024 was USD 1.1 (2.7) million and the EBIT-DA margin was 8.3% compared to 19.8% in Q3 2023. The reduction is mainly related to higher operating expenses and slightly lower revenue.

Operating profit was USD 0.5 (2.2) million and the operating margin was 3.8% compared to 16.3% the 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 5.6 (5.5) million for Q3 2024. The strong operating cash flow is mainly a result of high collection of trade receivables in the quarter and increased trade payables. The net cash flow for the quarter was USD 3.7 (5.2) million, resulting in an ending balance of USD 9.0 million for the quarter.

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 Q3

Consolidated statement of profit or loss	2024 Q3	2023 Q3	2024 YTD	2023 YTD
Amounts in USD 1.000	Jul - Sep	Jul - Sep	Jan - Sep	Jan - Sep
Revenue from contracts with customers	12 968	13 602	38 607	44 671
Other operating income	26	1	27	2
Total revenue and other operating income	12 994	13 603	38 634	44 673
Direct cost of sales	- 6 835	- 6 805	- 20 183	- 22 381
Employee benefit expenses	- 3 772	- 3 188	- 11 909	- 10 578
Other operating expenses	- 1 314	- 913	- 3 397	- 3 234
Total operating expenses	- 11 921	- 10 906	- 35 489	- 36 193
Depreciation	- 495	- 408	- 1 437	- 1 145
Amortization of intangible assets	- 80	- 77	- 240	- 212
Total depreciation and amortization	- 575	- 484	- 1 677	- 1 356
Operating profit/(loss)	498	2 213	1 468	7 123
Financial income	1	5	3	7
Financial expenses	-72	-66	-242	-162
Net foreign exchange gains (losses)	311	-652	1 185	754
Net financial items	240	-714	946	598
Profit/(loss) before income tax	738	1 499	2 414	7 721
Estimated income tax	-201	-330	-636	-1 699
Profit/(loss) for the period	537	1 169	1 778	6 023
Earnings per share in USD
Basic earnings per share	0.005	0.012	0.018	0.063
Diluted earnings per share	0.005	0.012	0.018	0.062
Weighted average number of shares
Basic	98 045 518	96 286 593	97 471 055	96 286 595

Consolidated statement of comprehensive income
Profit/(loss) for the year	537	1 169	1 778	6 023
Other comprehensive income:
Items that might be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations	-176	37	-159	-115
Item that are not reclassified to profit or loss:
Exchange differences on translation to another presentation currency	401	481	-1 381	-1 621
Total comprehensive income for the year	762	1 687	238	4 287

Diluted 98 045 518 97 293 383 97 819 563 97 323 053

CONSOLIDATED STATEMENT FINANCIAL POSITION

Consolidated statement of financial position	30.09.2024	30.09.2023
Amounts in USD 1.000
Assets
Non-current assets
Intangible assets	1 607	1 082
Property, plant and equipment	3 534	2 560
Right-of-use assets	1 500	1 973
Deferred tax assets	1 032	1 230
Total non-current assets	7 673	6 845
Current assets
Inventories	14 559	12 958
Trade receivable	14 740	15 585
Other current assets	1 316	1 006
Cash and cash equivalents	8 963	7 829
Total current assets	39 579	37 378
Total assets	47 253	44 223
Equity and liabilities
Equity
Share capital	187	181
Share premium	14 182	11 879
Other paid in capital	-	141
Foreign currency translation reserves	252	73
Retained earnings	13 324	15 227
Total equity	27 944	27 501
Non-current liabilities
Lease liabilities (non-current portion)	784	1 107
Contract liabilities (non-current portion)	4 251	3 099
Other non-current liabilities	436	1 361
Total non-current liabilities	5 471	5 567
Current liabilities
Lease liabilities (current portion)	789	679
Trade payable	4 167	3 339
Contract liabilities (current portion)	3 242	2 649
Current tax liabilities	3 299	2 539
Other current liabilities	2 341	1 949
Total current liabilities	13 838	11 155
Total liabilities	19 309	16 722
Total equity and liabilities	47 253	44 223

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					6 023	6 023
Exchange differences on translation of foreign operation				-115		-115
Exchange differences on translation to another presenta tion currency	-14	-922	-11		-674	-1 621
Total comprehensive income/(loss) for the period	-14	-922	-11	-115	5 349	4 287
Dividend					-4 391	-4 391
Balance at 30 September 2023	181	11 879	141	73	15 227	27 501
Profit/(loss) for the period					1 447	1 447
Exchange differences on translation of foreign operation				338		338
Exchange differences on translation to another presenta tion currency	8	525	6		348	888
Total comprehensive income/(loss) for the period	8	525	6	338	1 795	2 673
Repurchase of warrants			-127			-127
Balance at 31 December 2023	189	12 404	20	411	17 022	30 048
Profit/(loss) for the period					1 778	1 778
Exchange differences on translation of foreign operation				-159		-159
Exchange differences on translation to another presenta tion currency	-6	-327	0		-1 047	-1 381
Total comprehensive income/(loss) for the period	-6	-327	0	-159	731	238
Issuance of ordinary shares	3	2 104				2 107
Reclassification			-20		20	0
Dividend					-4 449	-4 449
Balance at 30 September 2024	187	14 182	0	252	13 323	27 944

CONSOLIDATED CASH FLOW STATEMENT

Consolidated cash flow statement	2024 Q3	2023 Q3	2024 YTD	2023 YTD
Amounts in USD 1.000	Jul - Sep	Jul - Sep	Jan - Sep	Jan - Sep
Cash flows from operating activities
Profit/(loss) before income tax	738	1 499	2 414	7 721
Adjustments for:
Taxes paid	0	-67	0	-240
Depreciation and amortization	575	484	1 677	1 356
Interest	0	38	80	262
Change in inventory	68	1 165	-361	2 466
Change in trade receivable	2 500	2 364	2 213	330
Change in contract liabilities (deferred revenue)	686	309	930	1 633
Change in trade payable	1 127	-1 001	-316	-2 492
Change in other current assets and other liabilities	-90	707	-466	-1 310
Interest received	1	5	3	7
Net cash from operating activities	5 605	5 503	6 174	9 732
Cash flows from investing activities
Payment for property, plant and equipment	-768	-242	-1 645	-1 585
Payment for development cost	-708	-	-1 116	-
Net cash from investing activities	-1 476	-242	-2 761	-1 585
Cash flows from financing activities
Proceeds from issuance of ordinary shares	-	-	2 107	-
Dividend paid out	-	-	-4 449	-4 391
Proceeds from new borrowings	-	393	-	393
Repayment of borrowing	-145	-156	-400	-322
Paid interest on borrowing	-57	-45	-191	-94
Repayments of lease liabilities	-194	-203	-592	-608
Net cash from financing activities	-395	-11	-3 525	-5 022
Net change in cash and cash equivalents	3 734	5 250	-112	3 125
Cash and cash equivalents beginning of period	5 089	2 918	9 321	5 660
Effects of exchange rate changes on cash and cash equivalents	140	-344	-248	-961
Cash and cash equivalents end of period	8 963	7 826	8 963	7 826

SHARE INFORMATION

TABLE OF THE 20 LARGEST SHAREHOLDERS AS 30TH OF SEPTEMBER 2024

#	Shareholders	Holding	Stake
1	Coretech AS	31 783 599	32.42 %
2	Kløvingen AS	15 850 429	16.17 %
3	K-Spar Industrier AS	13 076 422	13.34 %
4	Janus Henderson Investors	3 901 429	3.98 %
5	Handelsbanken Fonder	3 295 000	3.36 %
6	Danske Invest	3 242 164	3.31 %
7	Avanza Bank AB	2 156 565	2.20 %
8	Swedbank Robur Fonder	2 136 800	2.18 %
9	Nordnet Bank AB	2 112 381	2.15 %
10	Magnus Grenfeldt	1 857 489	1.89 %
11	Mirabaud Asset Management	1 543 354	1.57 %
12	John Even Øveraasen	1 504 600	1.53 %
13	Rasmussengruppen AS	1 500 000	1.53 %
14	Ålandsbanken Fonder	1 376 631	1.40 %
15	Schroders	1 100 000	1.12 %
16	Toluma Norden AS	1 000 000	1.02 %
16	AS Clipper	963 391	0.98 %
18	Varner AS	963 391	0.98 %
19	Nore Invest AS	537 598	0.55 %
20	Karl Thedéen	493 078	0.50 %
	Others	7 651 197	7.80 %
	Total number of shares	98 045 518	100.00 %

NOTES

GENERAL

These interim condensed consolidated financial statements for the period ended 30 September 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
Sep 30	10.50	10.62
Profit and loss statement	2024	2023
Jul	10.8038	10.2644
Aug	10.7073	10.4629
Sep	10.6121	10.7197

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	Sep 30. 2024	Sep 30. 2023
Amounts in USD 1,000
Contract Liabili ties (Current)	3 242	2 649
Contract Liabilities (Non-current)	4 251	3 099
Total Contract Liabilities	7 493	5 748

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 Jul - Sep was USD 239 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 0.8 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 7.1 million) and a non-current loan of USD 0.2 million scheduled to be fully repaid by 2026 Q2. As of September 30th 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 Q2 2024.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT SPLIT

Property, plant and equipment	Sep 30. 2024	Sep 30. 2023	Change
Amounts in USD 1,000
R&D equipment	1 483	821	555
Production equipment	235	234	1
Office & warehouse fur niture and fixtures	842	732	110
Demo pool equipment	974	773	201
Total	3 534	2 560	867

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	575	484
Right of use assets / leasing	177	185
Product development	80	77
Property, plant and equipment	318	222
Amounts in USD 1,000
Depreciation and amortization	Q3 2024	Q3 2023

ALTERNATE PERFORMANCE MEASURES (APM'S)

GROSS PROFIT

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

Gross profit	6 158	6 798	18 451	22 291
Direct cost of sales	6 835	6 805	20 183	22 381
Total revenue and other operating income	12 994	13 603	38 634	44 673
Amounts in USD 1,000	2024 Q3	2023 Q3	2024 YTD	2023 YTD

GROSS MARGIN

Gross profit divided by total revenue

Gross margin	47.4 %	50.0 %	47.8 %	49.9 %
Gross profit	6 158	6 798	18 451	22 291
Total revenue and other operating income	12 994	13 603	38 634	44 673
Amounts in USD 1,000	2024 Q3	2023 Q3	2024 YTD	2023 YTD

EBITDA

Earnings before interest, tax, depreciation and amortization

EBITDA	1 073	2 697	3 145	8 479
Depreciation and amortization	575	484	1 677	1 356
Operating profit	498	2 213	1 468	7 123
Amounts in USD 1,000	2024 Q3	2023 Q3	2024 YTD	2023 YTD

EBITDA MARGIN

EBITDA divided by total revenue and other operating income

EBITDA margin	8.3 %	19.8 %	8.1 %	19.0 %
Total revenue and other operating income	12 994	13 603	38 634	44 673
EBITDA	1 073	2 697	3 145	8 479
Amounts in USD 1,000	2024 Q3	2023 Q3	2024 YTD	2023 YTD

Smartoptics Group AS Brynsalléen 2 NO-0667 Oslo, Norway

www.smartoptics.com