Enea AB (publ)

Thank you very much, good morning everyone and thank you for giving me this opportunity to walk you through our Q3 numbers. With me here I have the CFO of the company Ulf Stigberg and him and myself will take you through the slides. We have a very simple agenda that we will follow. and we'll do a small short intro to where we are at this point we'll go through the financial results and we will discuss way forward and outlook and this slide those of you who are following ania will recognize I think the important piece here is that to note again that we're back delivering EPS posted EPS. We have a stable sales. in the quarter, and we have an R&D percent that has changed a bit compared to the nine-month figure, and that is due to the changes we did and to having automated quite some of our processes within our R&D operation. And you see also a fantastic cash flow and a really strong EBTA margin. So pretty solid quarter from that perspective. So I've been in this role now for 90 days, in this new role, and I worked on a couple of things that I would like to discuss on this slide. So very important for me is the simplification of processes. We are a mid-sized company, some would call us a small company, and the unique selling point and the unique from an Enea perspective compared to many of our competitors is that we are flexible, we are quick, we have sense of urgency and the processes and the behavior in the organization need to mirror that advantage. The only way we can win is to be more agile, more flexible and from that perspective beat the competition. Also very important in a company like Enea, a public company, every quarter we need to deliver results, we need to deliver products to customers and we need to satisfy our board with information and material that they can take decisions on, is to have solid plans. And this is something that is important both from a sales perspective as well as from an R&D perspective. We have a quite wide portfolio or broad portfolio in Enea, but within that portfolio, we have some really strong products. And one of the things we're working on is to accelerate and enhance the established products the products that we're winning the most business with and that goes from a sales perspective as well as from a product management and product development perspective winning is something i've been discussing i have been discussing a lot within the company for the last 90 days it is really important for a company our size not to spread our efforts too thin trying to win everything it's more important to focus our efforts on winning a few things and be sure to satisfy the customers, the needs of the customers, the expectations of the customer, be better than the competition and win those deals. In a company with this big operating gross margins of Enea, the difference between winning and losing is not 100%, but you will see later we have 76% gross margin. So the difference between winning something that we're bidding on and not winning is enormous. So it's key for us. security and ai security is a big portion of our business we need to make sure that that comes across in every aspect of the company ai is important not only for you know the world and not only for us as a marketing perspective we're delivering products that have you know ai capabilities inside It can also be important for us as a company. And we're step by step starting to use AI in our own internal processes. And then to be clear on why we are here, we're here to create value. This is an outcome business. We need to do that for our customers. It needs to be a big difference being a customer of Enea. And that difference should be a big positive difference to have Enea as a supplier and to not have Enea as a supplier. From an employee perspective, we still need to attract and retain the best talent out there, and for sure also from a shareholder's perspective. We're a public company, and one of our biggest and most important things is to create shareholder value. That takes us into the Q3 numbers, and let me start with a few slides before I'm joined here by Ulf. So sales in Q3. was 216 million. That's lower than the same quarter last year, but it's an increase over Q2 this year. Revenues, we have some FX impact that takes us to 221 million Swedish in revenues. So as you can see on this slide, our net sales in the quarter is stable. And what I mean with that, I would like to take us to the next slide, is to look at the recurring revenues. So clear is that we have, compared to the same period last year, not won new license sales as much, but we have a growing recurring revenue base. On the right hand of this slide, you can see the development of support and maintenance within our network solution business from 2020 to 2023. And you see that that's a significant growth year over year, which is really the effect of adding new customers, having a small churn in the base of customers and also changing contracts to become more and more term-based contracts, even though, of course, not all of our contracts are term-based. An incentive on sales and an incentive of the company is to increase the term-based contracts. You can also see on the professional services part of the business that we have had a good development of that over the last couple of years. We split our revenues on network solutions and operating systems. That is something that might change going forward. And the reason for that is that operating systems are now a pretty small number compared to the total. And one reason for that is the one-off deal we did in Q1, where we sold the rights to that particular software to one of our largest customers. Which is now starting to impact the comparisons and of course will impact that also in the years to come. But the flip side of that or the good side of that is that we are now having an even more predictable business and you can see that it's very stable. quarter over quarter and the reason I have quarter over quarter on this slide is because that one off in Q2 is skewing the year over year numbers. But small numbers, predictable and very much according to plan and very much the reason for the strategic changes we've done in the company over the last couple of years. So with that Ulf, I would like to invite you to discuss our margins and profits.

Thank you Anders. Quarter three presents us a 34% EBITDA margin, which is compared to the last year's quarter three a little bit less, but compared to the previous quarter, quarter two, it's a good increase. This margin excludes the non-recurring items of four and a half million. Anders talked about the gross margin. In Q3, we achieved 76.7%, which is a little bit lower compared to the last year's Q3. And the reason for that is the share of licensed deals are less this year. What we see here also affecting the EBITDA is the result of our right-sizing initiatives. We have operational expenses that are down 15 million amounting to a number of 142.9. But the underlying spend is even higher as we also decreased the amount of capitalized R&D with 17 million compared to the last year's quarter three. So a quite big impact on our operational spend helps us to achieve the improved margin compared to last quarter. This can also be measured in EBITDA less capex. If we compare EBITDA less capex with quarter three last year, we can see an increase from 22% to 26%. And in absolute numbers, 55 million compared to 51 million. And this is a very important measurement for us to see that we are back on track and we are getting closer to our EBITDA targets for the long run. Over nine months, we have EBITDA less capex of 146 compared to 122 last year's nine months. EPS reached an amount of 0.95 kroners compared to last year 1.69. One other area that we are proud of for the quarter is the cash flow The overall operational cash flow was 108 million compared to 92 million last year. This also can be shown as we have amortized bank loans. We are going down from 546 to 479 and our cash equivalents is reaching 333 compared to 264 last year. And this results in a net depth for the group of 146 compared to 282 last year. And net depth to EBITDA was 0.64 compared to 1.1 last year. So this is really important for our going forward of the company and development, of course. As a result of the strong cash flow, the board decided also to continue with the buyback program. In Q3, or since the last decision, the company have purchased 374,000 shares amounting up to 17.6 million for the buyback program. And this will be continued in Q4. with the same framework.

All right, thank you for that Ulf. So then I would like to finish this call with talking a bit about our way forward. So we have a wide portfolio. Being Swedish native, I struggled a bit with the word here. So we have an impressive telecom and cybersecurity portfolio. We have an ambitious telecom and cybersecurity portfolio. Or we have a very interesting telecom and cybersecurity portfolio. This portfolio takes us into a large number of conversations with telecom operators around the world. from South America to Southeast Asia. And in this portfolio, we have some real winners. For example, traffic management, we're a number one player in the world. You can clearly measure the performance of this product. So having this performance increases the speed in your network with 10 to 25%. compared to not having this product. We have, of course, competition, but we feel that we're very strong compared to the competitors in this space. And it's really about taking the investment to add this to your network. Then you come to us or being satisfied with what comes out of the box from the large players. Also on the DPI library side, meaning we're selling our DPI functionality to people building solutions and selling to customers. We are the go-to company when it comes to that type of product. From a network security perspective, we are one of the leaders and we're handling trillions of transactions every year. We're looking at messages and trying to detect threats to people that are entering into the operators and helping operators and consumers to stay safe. So we have a very interesting portfolio and that portfolio we're taking forward. And I would like to to talk a bit about what we have done in the quarter and how we look at all this going forward. So AI and cybersecurity here combined in the report that we sponsored during the quarter done by cybersecurity insiders shows that Of the survey, it's 457 people that were interviewed. So it's not the world, but from a statistical perspective, it has some validity. 77% are concerned with artificial intelligence. And I guess most of us are, because this is not only improving much, it can also be a danger. The emails, the text messages we're getting as citizens from people trying to fraudulently get access to our bank accounts or to our private details. is clearly increasing and what's happening with AI is also that voice will start to increase. 41% have plans to address this and 68% expects a higher budget for this over the next two years. And that is good for us, being the provider of software to help protect people from these types of threats. And clearly, if you're trying to protect people, companies and citizens from threats that are enhanced through artificial intelligence, also your software needs to be enhanced by artificial intelligence. Otherwise, you will be a step behind rather than a step ahead. So from our perspective, there are two key things in this report or on this slide. The one thing, there is no question about the fact that cybersecurity and AI are two very important aspects for our customers. And the second thing, people will spend more money on this going forward. And that gives us some confidence in our long-term ambition here. So in this space and the space we call network solutions, where cybersecurity is one important part, we do expect double-digit growth over the coming years. The market will grow. We have the products. It's just for us important to get our internal act together so that we can be there where we can win and win these projects to continue to support customers around the world. From a margin perspective, already in this quarter, we did 34% EBITDA margin. And this quarter, from a top-line perspective, was stable, but not thrilling. It's a fairly slow quarter. But even with that top line number, we delivered 34% operating margin. And in this quarter that was boosted by some payment from large customers, we had 100 million in operational cash flow. That's 13 Swedish per share in cash flows. So for us to stay behind, Double-digit growth, 35% operating margin and strong cash flows. Doesn't feel very aggressive. So we're sticking to this and we're also sticking to the lines that we added after Q2. We have found ourselves in a fairly difficult economic environment. We had a weak first half year. So from a top-line perspective, 2023 will be challenging. But from a cash flow perspective, we do expect a good 2023. So with that, I would like to say thank you and open for questions.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

All right. Thank you for that. And again, thank you for this opportunity. And if not before, see you after our Q4. Thank you and goodbye.