Irisity AB (”Irisity” or ”the Company”) published its Q4 report for 2024 on the 25^th of March 2025. The following are key events that we have chosen to highlight in the report:

• Revised Timing of Revenue Recognition and One-Off Effects Put Pressure on Financials
• Strong commercial activity in Q4-24 is expected to carry over into Q1-25
• Invoicing Grew 24% Y-Y – Collections Still Lagging
• MRR Decline Attributed to Delayed Renewal of SUP
• Q-Q Reduction in Personnel Costs
• Credit Facility (SEK 15m) and Rights Issue (SEK 21.1m) Aimed at Addressing Near-Term Liquidity
• Growth in Collections: a Key KPI to Monitor Going Forward

Revenue Deferrals and One-Off Charges Weigh Heavily on Q4 Performance

Considering delayed projects and postponed customer payments, Irisity has revised the timing of revenue recognition for several partner contracts, leading to a reassessment and reversal of previously reported net sales amounting to SEK 13.7m. As a result, reported net sales for the fourth quarter of fiscal year 2024 amounted to SEK 4.7m. Adjusted for the revised revenue recognition, net sales would have reached approx. SEK 18.4m, compared to SEK 27.6m in Q4-23, materially below Analyst Group’s estimates of SEK 34.2m for Q4-24. The deferred revenue of SEK 13.7m has been added to the order backlog and is expected to be recognized as revenue in 2025.

Solid Finish to Q4-24 with Over SEK 10m in New Project Orders

Irisity highlights that the quarter concluded on a positive note, with several project agreements totaling an incoming order value exceeding SEK 10m, which Irisity expects to convert into net sales during the coming months. The new projects include, among others, the first project in India for a Diamond Bourse, a municipality in Tel Aviv, a papermill in UAE, an airport in Honduras, and a US Government agency support contract renewal.

Invoicing Surges 24% Y-Y – Collections Lag Highlights Working Capital Pressure

Invoicing amounted to SEK 38.7m in Q4-24, representing a robust Y-Y increase of approx. 24%. However, collections declined by around 23% compared to Q4-23, totaling SEK 23.5m (30.3), highlighting a notable gap between invoicing and actual cash inflow. Given that the majority of sales stem from project-based revenue, typically associated with longer cash conversion cycles, this discrepancy exerts pressure on near-term cash flows. Project revenues generally exhibit a higher Days Sales Outstanding (DSO) compared to service-based revenues, inherently leading to a temporary buildup in working capital. Analyst Group views the strong invoicing growth as a positive indicator of underlying business momentum. However, improving the level of collections will be crucial going forward, as it will strengthen operational cash flow and provide greater financial flexibility to support the Company’s ongoing growth initiatives.

Short-Term MRR Decline Driven by Delay – Recurring Revenues Set to Accelerate

The MRR amounted to SEK 4.1m during Q4-24, down from approx. SEK 4.3m during the last quarter. The decline in MRR Q-Q is attributed to delayed renewal of a US government agency software upgrade plan, which is expected in early 2025, paving the way for solid MRR growth during the coming quarters as many large projects will go into production throughout 2025. Analyst Group believes that the expected MRR growth will be important not only for increasing the predictability of long-term sales and cash flow generation, but also due to the shorter cash conversion cycle associated with SaaS revenues, which contributes to a reduction in overall DSO.

Moreover, the Company launched IRIS+ Professional in Q1-25, a significant milestone in scaling Irisity’s AI Products segment. The launch is expected to play a central role in shifting the product mix away from large-scale projects with high customer acquisition costs (CAC) and long sales cycles, toward smaller, more scalable projects that support a shorter cash conversion cycle.

Cost Base

Examining the OPEX more in detail, the personnel costs amounted to SEK 25.0m (27.0) during Q4-24, an improvement of 17% compared to Q3-24 when the personnel costs amounted to approx. SEK 30.1m. As the acquisition of Ultinous was consolidated during 2024, comparing the Y-Y numbers is somewhat misleading. Analyst Group believes it’s encouraging to see that the streamlining activities, aimed at reducing the headcount for both R&D and service personnel, are bearing fruit. Moving ahead, Irisity expects additional savings in the range of SEK 1-2m per quarter starting in Q1-25, with annual cost savings of SEK 15-20m for the full year 2025.

The EBITDA-result for Q4-24 was negatively affected by a total of SEK 40.7m in non-recurring items, including the SEK 13.7m revenue reversal, a SEK 14.7m provision for doubtful accounts receivable, and an additional SEK 12.2m provision due to delays in three major projects. Consequently, the reported EBITDA came in at SEK -63.6m, and adjusted for these extraordinary items, EBITDA amounted to approx. SEK -23m, which could be compared to the same period last year when EBITDA amounted to SEK -12.7m. It is worth noting that the above-mentioned effects are non-cash accounting adjustments and therefore do not have a direct impact on the Company’s liquidity position.

Liquidity Measures: Credit Facility and Fully Secured Rights Issue

To address the near-term liquidity needs, Irisity has secured a SEK 15m credit facility from the Company’s largest shareholder, Stockhorn Capital AB, following arm’s-length negotiations. The facility carries an annual interest rate of STIBOR 3M + 4 percentage points, with no additional fees.

In parallel, Irisity has announced the intention to carry out a fully secured rights issue of approx. SEK 21.1m at a subscription price of SEK 0.40 per share. Irisity recently completed a rights issue in Q4-24, which generated net proceeds of approx. SEK 56m before off-sets and issuing costs, with off-sets amounting to approx. SEK 15.3m. The proceeds before transaction costs totaled SEK 41.2m, and after the repayment of the bridge loan (SEK 21.9m), Irisity retained approx. SEK 19.3m before transaction costs. Despite the recent capital injection, the delayed projects and weaker-than-expected cash flow have placed further pressure on liquidity. The upcoming capital raise is expected to support operations until collections begin to accelerate, while also providing financial flexibility to execute on the Company’s strategic initiatives.

Cash flow

During Q4-24, Irisity reported cash flow from operating activities (OCF) of approx. SEK -16.2m (-15.2), corresponding to OCF of approx. SEK -5.4m per month. Taking the investments of SEK 11.3m during Q4-24 into account, the negative free cash flow amounted to SEK -27.5m (-17.7), as strategic initiatives across all business segments weighed on cash flow. These included the advancement of generative AI capabilities and the launch of IRIS+ Enterprise (self-service Personalized AI), as well as the rollout of IRIS+ Professional and the introduction of a new partner portal for reseller partners. While the elevated investment level temporarily burdens free cash flow, these initiatives are seen as critical to supporting long-term growth.

Although Q4’s burn rate stands out as a negative, the growing discrepancy between invoicing and collections in H2-24, along with a rise in accounts receivable to SEK 35.3m (from SEK 26.8m at year-end 2023), suggests significant potential for improving collections. Strengthening this area will be key to reducing the burn rate and enhancing cash flow efficiency going forward.

Key KPIs to Monitor Going Forward

As the Company navigates short-term challenges, Analyst Group highlights the following KPIs as particularly important to track in the coming quarters:

• Growth in Invoicing: While revenue recognition is subject to timing differences, invoicing serves as a more immediate indicator of the underlying business momentum, as it reflects progress prior to collections and cash conversion.
• Growth in Collections: Larger project-based contracts have contributed to longer DSO, which has weighed on overall cash collection. As such, an improvement in collections will be essential to strengthening cash flow and driving more efficient working capital management. The notable gap between invoicing and collections observed in 2024, combined with a high accounts receivable balance at year-end, suggests that Irisity has strong potential to accelerate cash collections in 2025.
• Monthly Recurring Revenue (MRR) Growth: Recurring revenues provide a more stable and predictable cash flow base. Given that MRR typically exhibits a shorter cash conversion cycle, i.e., lower DSO, continued growth in this area will support an overall improvement in cash flow dynamics. A key catalyst in H1-25 will be the conversion of the delayed renewal for a U.S. government agency software upgrade plan into recurring revenue.

Concluding Remarks About the Report

In conclusion, Irisity’s Q4-24 performance was marked by temporary setbacks stemming from revenue deferrals, delayed collections, and one-off provisions, which weighed heavily on reported results. However, underlying business momentum remains intact, as evidenced by invoicing growth of 24% Y-Y and new project wins exceeding SEK 10m by the end of Q4-24. Analyst Group believes that consistent operational delivery, improved working capital management, and enhanced transparency around revenue timing will be essential to regaining investor confidence. As 2025 unfolds, key KPIs to monitor are continued progress in project execution, increased collections, and sustained MRR growth, factors that will ultimately determine the Company’s financial trajectory, capital efficiency, and potential for a valuation re-rating.

Irisity AB (”Irisity” or ”the Company”) announced, on the 28th of November, the outcome of the rights issue of units which was announced on October 1st, 2024 (the ”Rights Issue”). The subscription summary shows that approx. 56.8% of the issue was subscribed through unit rights (4,773,602 units), and an additional 2.1% (178,579 units) was subscribed without unit rights. Guarantee commitments account for the remaining 21.1% (1,770,813 units), bringing the total to approx. 80% of the rights issue being fulfilled through subscription and guarantees. Hence, the Company initially receives approx. SEK 56.5m before off-sets and issuing costs, and upon full exercise of all included warrants of series 2024/2025:1 within the framework of issued units, the Company could receive an additional maximum of approx. SEK 10.1m. The exercise period for the warrants runs from May 27^th, 2025, to June 10^th, 2025, with a subscription price of SEK 1.50 per share.

Analyst Groups view of the Outcome

“The outcome of the rights issue means that Irisity will receive approx. SEK 56m before off-sets and issuing costs, with off-sets amounting to approx. SEK 15.3m. Consequently, the proceeds before transaction costs total SEK 41.2m, and after the repayment of the bridge loan (SEK 21.9m), Irisity will retain approx. SEK 19.3m before transaction costs.

The secured funding through the rights issue enables Irisity to capitalize on the Company’s strong market position and the growing demand for AI-driven video analytics solutions. Apart from repaying the bridge loan, Irisity intends to allocate the net proceeds to support growth initiatives toward market expansion, including new generative AI applications, as well as general working capital needs. Irisity can now shift focus towards the execution of the strategic initiatives, which include a stronger emphasis on a partner-based go-to-market strategy aimed at shortening the working capital cycle, reducing the opex cost base through streamlined R&D operations, as well as a clear focus on expanding the recurring revenue streams.

The abovementioned initiatives are estimated to drive cost reductions, including operational optimization and resource reallocation for the R&D units. Analyst Group projects that these measures will enhance efficiency and reduce the burn rate going forward, aligning with Irisity’s broader strategic objective of achieving profitability and positive cash flow.

In light of challenging market conditions, where many smaller companies face difficulties in raising capital under favorable terms, Analyst Group considers the outcome of the rights issue reasonable, particularly given the significant amount of capital raised.

In summary, the completed rights issue enables Irisity to execute on the growth initiatives ahead, leveraging the scalable AI platform and the advanced AI capabilities of the Company’s subsidiary Ultinous, thereby advancing towards profitability, step by step. With the Company’s global footprint, diversified customer base, strong portfolio of AI-driven video analytics solutions, combined with a clear roadmap towards profitability, Irisity is well-positioned to capitalize on the expanding AI market ahead.”

Irisity AB (”Irisity” or ”the Company”) published its Q3 report for 2024 on the 4^th of November 2024. Irisity reported a solid performance, with strategic initiatives now fully implemented, bringing the Company one step closer to becoming a profitable growth entity generating positive cash flow. The strategic initiatives include a more commercially oriented organization, a stronger emphasis on a partner-based go-to-market strategy aimed at shortening the working capital cycle, reducing the opex cost base through streamlined R&D operations, as well as a clear focus on expanding the recurring revenue streams. Overall, these activities are expected to create a solid foundation for further growth. With a more efficient cost structure in place, Analyst Group believes that Irisity is making significant progress toward profitability.

Robust growth in invoicing and collections Y-Y

Irisity’s net sales came in at SEK 30.3m (32.3) in the Company’s third quarter of fiscal 2024, marking a Y-Y decrease of -6.3%, but a 17% increase Q-Q. It is worth noting that the quote-to-cash process varies substantially across different segments, as the level of complexity is reflected in the sales cycle. Additionally, Irisity generates both one-off revenues and recurring revenue streams through pre-payments and accrued income. Therefore, analyzing the invoicing and collections provides a more comprehensive view of the underlying business development, as it offers a more nuanced perspective of the full quote-to-cash process. The invoicing amounted to SEK 35.4 MSEK during Q3-24, a solid growth of 11% compared to the same period the previous year, while collections demonstrated a 53% growth Y-Y, reaching SEK 26.2m during the third quarter. In light of the strong invoicing during the previous quarter (Q2-24), which stood at SEK 39.3m, it is positive to observe the conversion into collections.

Solid Pipeline Exceeding SEK 180m

An additional factor to examine further is the sales pipeline, including 650 opportunities with a total value exceeding SEK 180m. This KPI could be derived from potential deals that Irisity is currently processing, spanning various stages of the sales funnel. Analyst Group believes that the pipeline serves as a testament to Irisity’s strong customer offerings, indicating robust demand and a solid growth runway ahead.

Concerning recurring revenues, the MRR amounted to SEK 4.3m (4.5), representing a flat sequential development Q-Q. The Y-Y decrease was attributed to FX-effects as well as delays in enterprise customer project installations. The Company expects that investments made in 2024 will yield results in terms of MRR growth during 2025, as Irisity plans to place stronger emphasis on central monitoring stations, enhance its Security as a Service offering in Sweden, and focus on increasing Software Upgrade Plans (SUP) for existing customers.

Strong Gross Margin and Short-Term Increase in Personnel Costs

During Q3-24, the Company achieved a gross margin of 85.2% (82.4), which is an improvement both Y-Y as well as Q-Q, where the gross margin reached 82.4% and 75.2%, respectively.

Examining the opex cost base, personnel costs amounted to SEK 30.1m (24.1), where the Y-Y increase is attributed to the acquisition of Ultinous being fully consolidated during the quarter (SEK 2.2m), as well as one-time effects stemming from layoffs, impacting the personnel costs with additional SEK 2.8m. All in all, comparing the numbers with a normalized Q2-24, the personnel costs in Q3-24 were SEK 5m lower, indicating that the streamlining activities are bearing fruit. For the full year 2025, Irisity expects that the reduced headcounts should yield annual cost savings of SEK 25m, related to both R&D and service personnel.

Regarding R&D, the Company has optimized and reorganized the development hubs into three leaner and more focused teams, specialized on specific customer business segments. Apart from shifting personnel from Tel Aviv and Gothenburg to Budapest to reduce costs, the focus on generative AI is expected to speed up innovation and improve the reliability of product delivery, which in turn is expected to yield a greater ROI on future investments. The impact of these streamlining activities is also seen in the reduction of capitalized work for own account, which stood at SEK 4.2m during Q3-24, down from SEK 9.6m during Q3-23.

Other operating income, as well as other operating costs, represent non-cash related line items which is attributed to currency revaluation of the loan to Agent Vi, which is unrealized and varies, depending on the exchange rate. During Q3-24, the net effect of the FX-effect amounted to a negative SEK 4.2m, hampering the EBITDA result in the P&L. The Company are planning on converting the loan to Agent Vi into equity, which will reduce the fluctuations stemming from the currency effect, and thereby increase the predictability of the cost base.

All in all, the EBITDA for the third quarter amounted to SEK -14.3m (1.4) and adjusted for capitalized work and currency revaluation effects, the EBITDA result amounted to SEK -14.2 (-8.2).

Rights Issue will Strengthen the Balance Sheet

Following the end of the third quarter, Irisity announced a rights issue which, if fully subscribed, is expected to raise SEK 70.6m before transaction costs and set offs. The rights issue is guaranteed to approx. 80%, and the net proceeds are intended for the repayment of a bridge loan (SEK 21.9m), working capital needs (SEK 20.7m), as well as SEK 5m allocated for market expansion initiatives, including a focus on generative AI. Additionally, approx. SEK 15.3m are intended for set offs, from Stockhorn Capital AB and Anders Trygg, via company.

During Q3-24, Irisity reported cash flow from operating activities (OCF) of approx. SEK -17.5m (-10.9), of which SEK -9.4m was due to changes in working capital, corresponding to OCF of approx. SEK -5.9m per month. Given the cash balance at the end of Q3-24 of SEK 3.8m, along with available credit lines of approx. SEK 3m, the rights issue is essential for reinforcing the balance sheet and providing additional financial flexibility to support growth initiatives. As the Company ramps up growth efforts in segments with shorter sales cycles, such as AI Products and AI Services, Analyst Group anticipates a shorter quote-to-cash process, thereby reducing the working capital cycle.

Concluding Remarks About the Report

In conclusion, Irisity’s Q3 report highlights the effective execution of strategic initiatives implemented over the year. With a streamlined cost structure, more efficient R&D teams, and a clear partner-driven go-to-market strategy, Irisity is well-positioned to leverage the Company’s scalable platform and gradually move towards positive cash flows as the strong pipeline of potential deals converts into revenue. The current rights issue is expected to further reinforce the Company’s financial position, providing a solid foundation for continued growth.

Analyst Groups view of Irisity

Irisity is a leading provider of AI-driven video analytics solutions, specializing in advanced software that transforms conventional security cameras into intelligent detection systems, all while upholding stringent privacy standards. With a presence in more than 90 countries, Irisity addresses a global market through the Company’s three primary segments: AI Solutions, AI Products, and AI Services. With the strategic acquisition of Ultinous in H1-24, Irisity has enhanced its AI capabilities, integrating cutting-edge generative AI technologies aimed at capturing opportunities in the mid-market segment, which paves the wave for substantial growth potential in the coming years. Additionally, the consolidation of R&D units is expected to yield a more efficient cost structure, which is estimated to reduce the opex cost base. With a highly scalable AI platform and a clear roadmap towards positive cash flows, Irisity is well-positioned to capitalize on the expanding AI market. The Company has implemented several key initiatives with the objective to drive profitability and achieve positive cash flow, including the appointment of a commercially focused leadership team, a strategic shift towards faster-to-market segments to expedite the quote-to-cash cycle, and an increased focus on recurring revenue streams.