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Irisity’s CEO Marcus Bäcklund and stock analyst Rickard Engberg from Erik Penser Bank discuss Irisity’s second quarter 2022

Summary of the past quarter

We have experienced substantial growth in the Middle East and South East Asia. We are very pleased about this as it has previously been slow progress. We have built up our sales team and it is great to see a return on that investment. We have seen less development in Europe and Sweden during this last quarter, but we have built a strong base for future projects.

What has driven profitability this quarter and what is the reason for the strengthened gross margin?

Increased sales together with continued cost control are the main reasons for our positive margins this quarter. We implement strict ongoing cost control. Gross margin is naturally continually strengthened in all phases after the pilot phase. It is only during the piloting phase that we experience gross margin effects, meaning that with the passing of more projects through the pilot phase gross margin will become even stronger.

What does the pipeline for new projects look like at the moment?

We are currently conducting multiple pilots in each market, particularly within Europe where several projects are ongoing.

You recently announced a partnership with Google. Can you elaborate on this, please?

This is a very interesting collaboration with Google Cloud Marketplace. Primarily this will include our IRIS offering, particularly School Guard, through Google’s marketplace. We will address schools K12 (kindergarten up to grade 12) in the US market, including around 130.000 schools. Many of these schools are already connected to Google Cloud, and we can now offer a cloud-based solution for security systems to these potential customers. There is scarcely any better partner than Google in this segment. School Guard is one of our core products that historically has been very successful in the Swedish market.

Can you describe the work that IMY (Swedish Privacy Authority) is currently conducting, and how that affects sales?

IMY is conducting a supervisory process of a Swedish municipality and its camera surveillance system. This municipality has installed cameras with IRIS Anonymization, which is an extremely safe, pixel deconstructing algorithm that immediately after analysis, in the processor, destroys pixels to make identification impossible. This is a non-reversible, highly secure process and we are therefore quite surprised to see that IMY is investigating this in such depths. The question of whether permits are required for these cameras has already been decided by the regional office of Västra Götaland, who years back deemed that this is not necessary when IRIS Anonymization is installed. This investigating process has of course created an uncertain environment for our other municipal customers in Sweden, some of which have paused planned delivery. We believe that as soon as this process is finalized, rollout will continue as planned.

How is the global component shortage affecting your end customers at this stage? 

Everyone is continually experiencing component shortages which affect the supply chain of cameras and other hardware. This is true in particular when it comes to more advanced chips such as GPUs and TPUs. These are units we have developed our embedded solutions towards. So this of course affects sales in the present, even if we believe that this current shortage will create a higher demand when hardware will again be easier to come by.

Lastly, can you comment on any effects on cash flow? 

We are currently experiencing some late customer payments. We are of course conducting thorough follow-ups on these in search of credit risks. An example of this is a project adjacent to the US treasury worth 1.3 USD, where they are very late with payment but where the credit risk of course is regarded as close to nonexistent. Late payment affects our cash balance. However, this is a consequence of our strategy of selling big deals to huge, long-term projects and a risk we have to take. Our part in these projects is usually a small part of a much bigger project. It is a matter of evaluating credit risks and nurturing good customer relationships.