Enea AB (publ)

Thank you very much. This is Jan Hägglund and I'll be joined in this call by Ola Burmark, our CFO. We thank you for listening to this summary of the interim report January to March 2023. We will in this call, as usual, summarize the key events of the quarter, go through the financial results, Ola will do that, and then towards the end we'll point at a way forward, trends in our industry, and also give an outlook of our business. That will be a Q&A session at the end. So to summarize the quarter from a financial point of view, we came in at net sales of 248 million SEK in the quarter with an EBITDA margin of 38%. Two good and strong results. where a license deal in our legacy business operating systems had a significant contribution. Net debt at the end of the quarter was 263 million SEK, which is lower than previous quarters. Earnings per share was positive at 0.47. And here there was an impact of, of course, higher interest rates that we all experienced. But we also had some special effects on revaluations of the debt in foreign currency, as well as uneven distribution of profit between our different legal companies. Operating cash flow came in strong at ninety seven point five million SEC expected. Also, as we communicated in the fourth quarter and the R&D ratio was twenty six percent. And that's the R&D spend. uh in total in the company versus our net sales so looking back at an eventful quarter i think a key key news that also contributed to our financial results was the fact that we have now closed multi-year contracts with both our key customers in our legacy operating system business that provides stability and predictability in recurring revenue for years to come which of course is good for us to plan the business another key news recently in fact after the quarter was the disappointing news that a customer in 5g cloud network data layer decided to communicate to us that they will stop the project and therefore we see a risk that the contract will be terminated. This is of course disappointing, but we continue to work with other lead customers and even this project has helped us to have the market leading solution in network data layer. Quarter one in our industry is heavily influenced by the trade show Mobile World Congress. We increased our participation and saw a lot of activity including security. Security is a key area growing in terms of attention in the industry. And we also have made good progress and see our business developing well. One of the external events we had here was as a speaker in the Mobile World Congress Security Conference. And I'll be also coming back to the fact that at Mobile World Congress, several of the hyperscalers, so those are providers of cloud platforms, including Microsoft, taking steps into telecom industry and we're proud to be a partner in the microsoft program that they called nexus which hopefully will for them and for us open doors into other customers at t was a key proponent and endorser at the mobile world congress so a bit more details about the operating system business as mentioned we closed contracts long-term contracts with both our key customers they are a little bit different in nature with one key customer it's a three-year contract valued at 60 million sec or corresponding 20 million sec per year and that replaces previous contracts that terminated in december last year that last year generated around 25 million sec so As seen, it is a declining part of our business where we now have more long-term predictability. The other contract has a different nature. It is also over three years. It is valued at a total of 6.6 million euros, of which 4.8 million euros is licensed revenue that contributed to the first quarter of 2023. The remainder will be booked during a three-year period. Now, while the security part of our business develops well, we do see challenges in kind of the telecom market in general. We see also that that has affected not only now, but during the last two years that our network solution business has not developed as we expected. Part of the reason that we have talked about before is that 5G investments are delayed. In particular, 5G investments in the central parts of the networks called the 5G standalone core networks. And we do see examples of operators continuing to sweat the assets, continuing with old systems and traditional suppliers. And it does make it harder in the short term for companies like INEA to break in. And at least we believe that the stopped project in network data layer that I just talked about is an example of this. Now, during the second quarter, we will be carrying out a strategic review of our telecom business to assess the market development and also the potential of our investments. It's too early to say what the results will be, but we will, of course, as usual, prioritize growth areas and take necessary steps to secure profitability also in this area. I mentioned Mobile World Congress. All of us did not have the chance to be there. I was there together with a strong team from Enea. 90,000 visitors were at the conference. It's almost at the same level as before the pandemic started. And to share, there were a number of trends that I think were quite visible. One was the fact that big hyperscalers or cloud providers are stepping into telecoms industry. That will create a new dynamic and also more competition. I regard that as positive for us being a cloud native software provider. I think another key was energy efficiency. It's on everyone's agenda and we had strong messages and solutions to help service providers on rationalizing and being more efficient on energy. And then perhaps finally, I'd like to mention security where many people, not only not only vendors, but also service providers, governments and authorities are talking about security and how that part of our industry needs to have more attention and how mobile industry, in fact, is a national concern in terms of security. We had a higher participation than previous years. We had significant media attention. We had a lot of customer meetings and we launched a few new products. One of the key things that was public at Mobile World Congress was in fact an initiative by Microsoft. We all know Microsoft from enterprise business and from our computers, but Microsoft also have taken significant steps into telecom industry and they launched a program now called Nexus, which is essentially taking their Azure cloud operating system into telecoms industry. They're creating an initiative now whereby vendors can certify or pre-certify their software on this platform. And we're proud to say that we are one of the first to be on that platform. And we can do that and we could do that thanks to being cloud native, thanks to having products really adapted not only to one cloud environment, but several. And as you see here on the picture, this was endorsed at the show by AT&T. And we're proud members of a select group of partners in this program. And what this means is that we will be part of kind of a marketplace that will be offered also by Microsoft for other telecom service providers that want to take the steps into using this environment and ecosystem of applications. A lot has happened in security during the quarter. I will not be able to go through all of them, but some of the highlights includes the security conference at the Mobile World Congress, where we were one of the keynote speakers. A lot of attention and audience at that one. Another interesting event during the quarter was a parliamentary hearing at the EU Parliament. It's called PEGA, an inquiry into the use of spyware. and again we were called as experts into that public hearing it can be seen and read about in on the web australia have taken initiatives to strengthen their national security also there were we invited as contributor to their long-term strategy there are numerous conference going on and we were invited to for speaking spots at two different conferences of the mobile ecosystem forum and There is industry activity also around awards, and we have during the quarter won no less than three awards. So all of this in one quarter is pretty impressive to see. And as mentioned, we do see a good development of our security business and on the back of investments we have done and previous acquisitions in this space. So with that said, we should go a little bit more into details of financial results and I'll hand it over to our CFO, Ola Burmark. Ola, please go ahead.

Thank you. Net sales in the quarter increased by 13% currency adjusted versus the same quarter last year. We reached 248 million, which is growth of 18% in floating currencies, but 13% in comparable currencies, as I said. We have total revenues of 254 million. The difference here between net sales and revenues are mainly explained by currency effects and currency gains. If we look into our two products, segments we see network solutions which had a weak first quarter where we declined by 13% organically and currency adjusted while the deal within OSE very much contributed to a strong quarter for our operating systems. So if we look in depth into these two areas, within network solutions, we had sales of 164 million. It is a decline by 8% versus last year. And then, as I said, 13% in organic and fixed currencies. It is split in three different revenue streams. License being 58. versus 81 last year and this is where we see the decline. Those of you that followed up last year know that we did announce a large deal in the first quarter last year and which was very much then we have a strong comparable figure here in license 2022. Support and maintenance, 71 million. It is very much growing. This is, of course, recurring revenues compared to 53 last year. And then professional services, which is a decline then versus last year. Network solutions, this quarter represents 66% of the net sales in the total quarter. That's very much driven on the deal with operating systems. Going forward, network solutions will now, if it was the lion part before, it will be even bigger going from second quarter and going forward. If we look into the operating systems, which then had a positive, quite significant impact in the quarter, we did have sales of 83.6 million compared to 33 10 quarter last year. So it's a hefty increase with 153%. And as mentioned, it is driven by licensed revenue from one of our key accounts. And those key accounts, of course, in the quarter stands for a very high part of the revenue in the in the product segment. On the profitability side, we report an EBITDA percentage of 38 in the quarter, corresponding to 94.4 million. It is an increase versus last year, where we reported 56 million in excluding non-recurring. including non-recurring 32 million. So it is definitely a strong quarter in terms of profitability. There are no non-recurring items in this quarter. EBIT, which is basically EBITDA, but less depreciations and amortizations. also came in stronger than last year, where we report 47 million in the quarter versus 14.6 last year. Earnings per share 4.7 compared to minus 0.38 last year. And we're still having sort of two different EPS scores since we divested our software development business in the second quarter last year. So looking at the continuous operations last year, it was a minus 061 in EPS to be fully comparable with the 047 in EPS. We continue to delivering strong cash flow. So the cash flow before the changes in working capital was almost 70 million, much stronger than the same quarter last year. And also after a change in the working capital, we actually report working capital of ninety seven million. We have invested about 32 million or 33 million in our operations. It's mainly contributed to product development. Slight increase versus last year. Financial activities is mainly that we actually use the surplus cash either for investments and the remaining part to reduce our interest bearing debts. That means we have a net cash flow for the quarter of 24 million. The financial structure is still healthy with interest bearing bank loans amounting to 520 million, which is a decrease versus last year where we have almost 700 million. We report cash of 260 million almost in the quarter. So that means we have a net debt of 263 million. And as you see, that was 554, same quarter last year. We still have unutilized credit facilities amounting to approximately 350 million by leaving the quarter. Our equity ratio is 68.9%. And the sort of leverage KPI net debt to EBITDA is 0.74.

Thank you very much, Ola. So wrapping up and looking a bit ahead, we have during the quarter published published a book. In fact, it's a physical book, but it's also readily available on the web. And I'll use the opportunity here to point everyone at this. I encourage reading about this. We have written about seven trends that we believe are highly relevant for our industry, but also very much relevant for our business. You'll find a lot of details about security, security from different angles. security in terms of signaling security into networks, messaging security that hits us as providers, security from an IoT, so Internet of Things angle, because IoT devices in fact is a new and growing security threat. You'll also see how we believe that the Internet of Things Markit will develop after some hype that has been during the more recent years, but we believe that that will still be an interesting market that will create business opportunities going forward. And finally, you'll be able to read also how we see data as an asset, how important it is to to think about, to be able to and prepare for making data an asset and the exposure of data is a key thing for anyone that wants to monetize in a world of AI and automation. So again, I point out the link here for more details. Our strategy stands firm. We are a software specialist where we have from the start focused on providing products that are cloud native. which means that they are prepared for many or any cloud environment. And the proof point now during the first quarter in the announcement among the first with Microsoft Nexus is a clear example of how we have benefited from that. We aim at leading positions to be really good at what we do. We specialize and are best of breed in areas like mobile core and security for mobile networks and we have several leading customers that we're working closely with in the development of new and market leading products and global presence is another cornerstone of our strategy we have since last year significantly increased the presence in markets by growing selectively our sales and go-to-market organization We believe that we now have stronger presence in many of the key markets with many of the key customers. And we also do see a growing opportunity funnel coming out of that. So to summarize into our guidance, into our view of the business, our goal remains that in the coming years, generate double digit growth in network solutions. an EBITDA margin over 35%, and strong cash flows. Over time, we also aim to make complementary acquisitions to further strengthen our market position. In the short term, we do have significant uncertainty in the global environment, and we do see challenges in the telecom market, and they do affect our business. However, our objective for 2023 is to achieve a turnover and an EBITDA result in line with the previous year. With that, I thank you for listening and hand back to the moderator.