Enea AB (publ)

I will give a short intro to the company, then we'll walk you through the financial numbers, and then we will discuss our way forward and outlook for a few minutes. So, INAEA is here to make the world's communications safer and more efficient, and we're backing that statement up with a world-class portfolio in telecoms and cybersecurity. Telecoms has not been the greatest place to do business in for the last couple of years, but I would say that that's not really a fair description of how it is to work in telecoms. First of all, during the last decades, there's been enormous investments in telecoms. There's been enormous innovation in telecoms, and it's really the foundation for the way we're living our lives today.

Without telecoms, There wouldn't be hybrid work policy in many companies. You wouldn't be able to remotely connect to your house, to your car, to your bank. And you wouldn't be able to do the type of online activities So, Telecom is really an exciting place to be. for the life we're living today. And also to the people living in this society I brought your car. Shifting them online. Open your house. Your security system. your bank details and unfortunately this is also since many years now but it is accelerating being understood by people with less good intent. So the security aspect is really booming, and is placed not only in the accelerating mobile traffic in the internet, but also in the midst of the security aspects of making the communication safer.

We have a year behind us that has been pretty tough on Enea. A lot of great things have happened, but it's been a tough year for us, for our shareholders. And when a large project was canceled in Q2 last year, at the end of Q2, we had to make a plus half a billion Swedish write-down, non-cash impacting write-down. And that's what's carrying forward for the year into a negative EPS.

But beside that, the EPS is now positive and has been so for the other three quarters of 2023. Not only positive, we actually operated with a 38% EBITDA margin, adjusted EBITDA margin in the fourth quarter. The full year we operated on a 34% adjusted EBITDA margin, which is very close to our long-term goal of north of 35% EBITDA margin. That wasn't stunning. We had a 2% decline on the full year numbers. So it's not sales driving our profitability. Are we generating high... We are also generating very strong cash flows. we generated, sorry, for the full year, we generated 259 million Swedish of cash flow. That's more than our EBITDA result. north of 25% of our total revenues. So the cash flow is very strong. We have a strong business model. We have 79% gross margin, 35%-ish EBITDA, and we generate a lot of cash flow. And we invest a lot in R&D. So during 2023, we invested 25% in R&D. So we will continue to do that and it is a strong company that you're looking at.

With that, I would like to hand over to Ulf for the financial numbers. Thank you.

So for Q4 last year, net sales ended up 241. And compared to last year, which was 271, it's a 12% growth over Q3 last year, but an 11% decline over Q4 2022. The total revenues for the quarter was 243 compared to 273, including currency gains. And the currency impact last year for the quarter was 4.6 million.

Full year, we reached 913 million compared to 928 for 2020. which is minus 2% growth. Looking into the segment, Network solutions, we have strong recurring revenue growth over the year. The license revenues increased compared to previous quarters in 2023 uh reached 88 million in quarter four compared to quarter four last year and we had a 17 decline And support maintenance reached 72 million compared to last year's 67, which is an increase of 6%. And this actually concludes three years of stable growth within this water maintenance category. Professional service increased compared to previous years, previous quarters in 2023. And looking as a comparison with quarter two last year, we had 53 compared to 64, which is 17 percent decline. Over to the other segments we are reporting on, operating systems. We have solid numbers. as predicted, and the expected drop in license revenues amounts to minus 19% from 21 to 15 million SEK. We have still good support and maintenance revenues.

a stable level of 12 million compared to 11 last year which is a increase of four percent and we have a small part which relates to professional service at one million compared to two last year so going over to the EBITDA development in the quarter we reached 38 which is in line with the previous quarter for previous year. We had non-recurring items in Q4 affected EBITDA with 4.3 million.

On the gross margin, we reached 79% compared to 76.4%. which is a positive impact of 2.6 units, percentage units, and related to reduced cost of sales. expenses in total was 144 million compared to 150 last year and that's related to operating expenses with excluding depreciations and amortizations to $100 million compared to $105 last year. And the explanation of that is that decreasing the capitalization of R&D costs, but we have at the same time reduced R&D spend with approximately 18 million over the quarter. that's that takes us to the calculation and we reached 73.4 in the quarter and compared to last year, quarter four, we have an increase compared to 71.5. This is the effect of the efficiency programs that we have performed over the year. And this results in measurement. Over the year, for the full year, we reached 220 almost compared to one last year which correspond to 24% EBITDA less capex margin compared to 21% last year EBITDA

reached 47 million compared to 57 last year or at 20% margin compared to 21%. The EPS earnings per share reached 0.6 compared to 1.81 for the last year. Looking at cash flows for the quarter. Cash flow before changes in working capital amounted to 53 million compared to 70 last year. And that turns out into operational cash flow minus 24 for the quarter compared to minus two last year. We had investments of 21 million compared to 34 last year.

This results in a net cash flow for the quarter of 56.8 compared to minus 35 last year. The cash flow generated over the year have taking us to a interest bearing bank loans to 470 compared to 551 for a year ago. and cash equivalents for amounted to $261 this year and $231 last year. This results in a net debt of $2. compared to 2020. So we have reduced our debt with approximately 120 million over 12 months. Equity rate was 65% compared to 2016. last year. And the net debt to EBITDA was 0.97 compared to 1.10 last year. All in all, the cash flow generated over the year, and also the cash position have led to the board taking a decision that people repeat the buyback program starting tomorrow. Running to the next quarter report. Looking at the program in 2023 we purchased 570,000 shares to an amount of 27 million and this

new decision will be within the 10 mandate that was given by the agm last year and also the program will be carried out by a credit institution following the safe harbor regulation

Thank you, Ulf. We'll come back to questions after the presentation. Now I wanted to discuss our way forward here. And when you look at INEA, you need to think global company. We have operations on the west coast of the US, in Canada, in Latin America.

in North Europe, Southern Europe, North Africa, South Africa, Middle East, and Asia Pacific. 12 new logos during last year. And actually, if you would add some of the wins with through partners, we have won 50 new logos in the telecom industry during 2023. So we're winning. And we're winning business on a global scale with high margins. The gross margin was 79%. The margin was 34%. from rather these margins, we're generating strong cash flows. The cash flow for the full year 23 is a little less than 100 million over full year 22. to your operating cash flow, and it's more than 25% of our revenue in 2020. So that's a good thing to go forward with. our strategy on 4-20-24. Going forward, we're building plants on solid grounds. We have a strong business model with great leverage. We have great products in the portfolio, winning products. And what works for us is grouping these products in business groups. So the business groups, or what we call 23 business units, is what works the best for us also in 2020 working on an international market is still so that we can't be everywhere we can't bid on every project

And during 24, we'll focus more on win rate, i.e. winning the projects we're bidding for. And with that, also to try to improve our predictability. equally important going into next year is simplification by not bidding on everything we're making life in the organization more simple by focusing the organization we're strengthening our efforts and chances to win so it is things that are very much in sync here so performance simplification And also artificial intelligence will be very important for us in 2024 and going forward.

Artificial intelligence, not only part of our product, but also used within our organization to simplify life. life and to speed up the output of what we're producing within the company. And we are going to establish what we have during the last year. We're going to strengthen that position in the security space and find growth within the telecom industry in that security area. But what our efforts in 2024 and from an investment perspective and from a shareholder perspective, you should appreciate that what we're doing is really based on the portfolio we have. To simplify this portfolio a bit, we can group it in four areas, four planes. fields, traffic management, embedded security, network security, and service provider Wi-Fi and data management applications. So within the traffic management space we are going to expand what we have today which is very much optimizing and accelerating video and also expand this portfolio into DPI or deep packet inspection from a telecom perspective and monetization. So that the operators with our product, with traffic management you can help operators to better monetize traffic, to make sure that calls are ended in the right way, that you're getting paid for them in the right way, and to manage the traffic from that perspective.

For us, this opens a market bigger than the video optimization and video acceleration market. So it's a very important step for us. I want to lead you to the far right bottom corner here of the slide, where we're saying we're expanding our DPI solution. This is a product that we're not selling to the telecoms industry. We're selling it to enterprises, to hyperscalers, to the defense industry. And here we're moving up the value chains to also add an application that you on top of our DPI engine can detect threat or

So, we're adding another revenue opportunity for the company while moving or expanding the product in this direction. DPI engine, the embedded security product, it's the Cosmos IX engine, the product is called in our traffic management solution. And here we are now starting, we started already last year, joint product to use AI to be able to future proof these two products when and if the traffic in the networks becomes fully encrypted. Today, we can identify 4,000 different types of traffic, but there are trends to further encrypt traffic, and we try to stay ahead of this using AI. Our network security portfolio will expand from pure signaling firewalls to better addressed voice fraud protection, better address spoof calling. Also in the messaging side, where we have a messaging firewall, we will use AI to enhance the functionality and the detection of unusual traffic or unusual messaging in the networks. and the data management products. Here we have our UDR or stratum product 2024 to 2025 is the time where we're going to expand production

usage of our UDR product and on the other data management products we're going to try to find better ways of cooperating with a pretty large partner network we have around the world where other companies are taking our products to market. Jan-Willem Wasmann, So in 2425 there are significant opportunities within the portfolio, we have, and we will continue to invest significant amount of money to expand products in the direction I just described. Jan-Willem Wasmann, This. portfolio is also the way we're going to segment our revenues for the investor community from Q1 and onwards.

So we will divide our revenues on the network side and on the security side. And thirdly, on the OS side. So you can argue this is just a change of the telecom segment. And to some extent, it's right. But from another perspective, it's not correct. Instead, look at this coming from the product portfolio that we have and the way we're doing business and the different aspects in this different It's also how we organize our company in 2024. So we have a new organization. a dramatic change, but it is a change. I want to highlight a few things. First of all, the business group that owns product development and owns sales of these products They are also grouped according to the portfolio and the revenue segmentation I just discussed. And here we have some wonderful mix of people with vast experience from the different segments. John Hughes working out of our Dublin office. He has 17 years of experience within network security. Trumpia Curry working out of our Paris office, he has 15 plus years experience within embedded security. Roland, working out of Vienna office, has a decade of experience from telephone. telecom companies, both bigger and smaller companies. So it's a very seasoned group of people that's been with us for a long time, which I'm also very happy for.

We're forming two corporate operations, and that is to make sure that we use the same processes and we're learning between the different business groups. Here we have a woman called Emma Berval who's been with us for a couple of years, taking a lot of sales operations experience from other companies to Enea. And we have Osvaldo who's been with us also for I would say three years now, who is taking vast experience from one of the largest and most successful telecom companies in the world to Enea. Osvaldo is also appointed chief technology and product officer, which is the new role.

I had it before when I worked as a CEO in this company. And for a technology company like INEA, I find that super important. And I think that Osvaldo is very much the right person to do this very challenging job. Anna and Stephanie have also been with us for a couple of years that are staying in their roles. And Ulf who I'm sitting with here in this meeting has been with Enea for now four-ish, some years. But he's been in the industry and with the product portfolio is coming with for almost 20 years. So the combination of new blood and vast experiences is what makes this team very strong. If you want to join us in, you know, we have a recruit pencil. ongoing, you can contact our people and culture organization. I think the new values we are implementing in the organization is not there only to attract new recruits. but it's also very much to drive business growth. As I said before, we have an organization. We have an individual sitting in San Diego. We have another couple of individuals in Mexico City, in Dubai. and in Singapore as well as in Tokyo. And to run this type of global organization in this space, it needs to be value driven. And if you, you know, you need

to appreciate that customer focusing in what we're doing quality in our processes quality in our products is not something we can just talk about in these types of calls or in head office it needs to be in the everyday work of our you know individuals around the globe as well as taking a responsibility for what we're doing and taking action even if you can't find the find the exact black or white, you know, clarity, you need to be able to take action in the gray zone. Traveling around the INEA organization is like walking in the Olympic Village. I haven't walked in the Olympic Village myself, but my brother did, and a couple of my friends have done that, and they're also talking about the

It's an unbelievable sight when you go into the village, seeing people from all kinds of the world, from all corners of the world, together. in this village, taking part in the games. If you travel around Alina, you will find the same. As I said before, it's an international company with people from all corners of the world. world, what unites them is the fact that they are super capable in the cybersecurity and telecom space. And we share the vision of making the world's communication safer and more efficient. Our long-term ambition is unchanged. We are focusing on generating double digit organic growth in our focused business. Our goal is to and our long-term ambition is to generate over 35% EBITDA margin And clearly we want to generate strong cash flows. And with the business model we have and the scalability we have, we feel confident about that. why we are going into this year even though we are not immune to the general macroeconomic environment. We're not immune to the fact that

that our customers are careful with their investments, we still think that we will generate strong cash flows and we still think that we will generate EBITDA margins above 30% for the full year 2024. With that, I would like to say thank you and open up for questions.

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