• Sales continue to be affected by a challenging market
• 2022 sales guidance lowered by 11% - well below our estimate
• Strategic review: currently focusing on several alternatives

Sales continue to be affected by a challenging market...

Napatech delivered Q3 sales of DKK 37m, down 22% y-o-y. This was 19% below our estimate of DKK 45m with enterprise pipeline orders continuing to be affected by customers' buying behaviour. The gross margin was also soft at 49%, vs ABGSC at 70%, driven by temporarily fluctuating component costs as well as lower enterprise sales with higher gross margin contribution. Operating costs were, however, lower at DKK 31m, vs. ABGSC at DKK 40m. This resulted in an EBITDAC of DKK -12.7m vs ABGSC at DKK -9m. Furthermore, capex was significantly lower than expected at DKK -7.8m vs our estimate of DKK -14m. Consequently, EBITDA-capex came in fairly in line with our estimate. However, with negative effects on WC (we had expected a small positive contribution),FCFF came in at DKK -22.8m vs our estimate of DKK -13m.

...2022 sales guidance lowered by 11% on a midpoint basis

Due to the challenging market, Napatech lowers its 2022 sales guidance by 11% (on a midpoint basis) to DKK 170-200m (DKK 195-220m), which compares to our estimate of DKK 204m. The company also lowers its gross margin guidance to 57-61% (69-71%), which compares to our estimate of 70%. In addition to the effects mentioned above, a part of the negative revision on gross margins is explained by the software-only order which now is expected to be delivered during 2023 (we had expected Q4 2022). Note that the relatively low gross margins are expected to be temporary.Operating costs are now expected at DKK 140-150m (DKK 145-155m), vs our estimate of DKK 155m. This results in an updated 2022 EBITDAC guidance of DKK -36m on a midpoint basis, which compares to ABGSC at DKK -12m.

Cons '22e-'23e EBITDA to come down following the Q3 report

In the Q2 report, the company highlighted that it has been approach