Enea AB (publ)

Thank you so much. Good morning, everyone, and welcome to this presentation of our Q4 numbers and our annual results. And thank you for giving us this opportunity to walk you through what we think is a very special year. So we will follow the agenda that we normally follow, which is a short intro to the company, a bit more discussion about the financial results and then look at the way forward. So if we start by talking about the vision of Enea, so we want to make the world's communication safer and more efficient. And with that vision, I don't think there is a better place to be than being in 2024, 2025 and the market that is evolving in front of us. AI has been the talk of the town for, you know, for quite some time and in different industries for many, many years. But it certainly has accelerated in the eyes of the ordinary citizen. The last couple of, I would say, the last couple of years or maybe even singular the last year. And from a financial perspective, obviously, during 2024, there's been a huge raise in an interest in AI. For Enea, AI is very, very important. And I will come back to that later during the presentation. Following AI, security is very key to everyone. And AI is helping to drive the bad side of security and increase threats. 5G, satellite and initiatives within the industry is all driving our business and making this market very, very interesting. We have a unique portfolio to deliver the mission we're trying to pursue here. And so we want to make the communication safer and more efficient by delivering both innovative and robust solutions. And there is no other company on the planet Earth that has the portfolio that Enea have. And that portfolio has been built over the last decade through organic innovation and complementing this organic innovation with strategic acquisitions. I also want to mention here the next slide. So we are also transforming the business. We are moving into more of

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term-based revenue model where we're signing term-based contracts with customers. We're also moving into a situation where we're selling a lower sized deal, but more of them. And sometimes this is not visible to the market during the quarter. But during 2024, we won 22 new deals on a global scale. And new deals for us is defined either a totally new logo, new customer or a new product from our portfolio into an existing customers. And what you can see here is that we're not only winning in Europe. We're not only winning in North America. We're not only winning in South America or Asia. We're actually having these wins around the world and in both areas. Both are focused areas being the security side of our business and the network side of our business. Going into 2024, we said that our ambition is double-digit growth in our focused areas. But when we guided the market, we weren't sure at the beginning of the year if we could be bold enough to say that this is also a guidance. So we kept it as a long-term ambition. But the delivery in 2024 is double-digit growth in both areas. The security side of the portfolio and the network side of the portfolio. And I would argue that this is even more impressive in the market that we're in because we are selling, especially the network portfolio, 100% into the telecom operators market. And I'm really pleased with this development during 2024. So with that, let me take you into our financial results. With me here, I have, as the speaker said in the beginning, Ulf Stigberg, our CFO. But I will start with some overview slides. And these are the key numbers. And those of you who have followed Enea for some quarters or for some years will be pleased with these numbers. It's not fair to compare EPS with last year because last year we did a write-off after the second quarter. So the 6.96 Swedish per share is just so much better than 2023. But what you could do is to compare the Q4 number, which was below one Krona in Q4 2023, and it's now 4.70 in 2024 Q4. Cash flow, we had 100 million, over 100 million Swedish in operating cash flow in Q4 alone. And for the year, we had 279 million Swedish Kronor in operating cash flow for the full year. That is more than Q4 revenues, which were 4% growth over the same period last year, meaning 2023, and close to 252 million Swedish for Q4. If you look at the 904 million Swedish in annual revenues, that is 6% adjusted organic growth compared with 2023. And I will come back to that adjustment in a bit. EBIT margin, 34 for the year, 37% EBIT margin for the quarter. And that margin is not created by not investing in R&D. Instead, we keep the high numbers in R&D investment with 21% for the quarter and 23% for the year. And the only reason that it's 21 in the fourth quarter is that revenues are higher and the fixed R&D investment is spread out on more revenues. If we look at the revenues on the quarters in a bit more detail, I think this slide stays more or less the same. But what you can see here is that there is a nice solid pattern with seasonal variations that are very visible with a stronger Q4, slightly slower Q1 and the Q2 and Q3 in the middle. And it's the same in 2024. So growth in Q4 over Q3, obviously, and growth in Q4 with 4% over the same period in 2023. If we break these revenues on first, the focus areas we have. So here we're only looking at our security business. And in the next slide, we will only look at our networks business. And then we break the revenues or net sales on the three revenue streams we have for each product area, which is license sales, professional services or implementation or post sales services and support and maintenance. And without going into all details here, because you can certainly read the slide, what comes away from a security perspective is again a very strong year with 10% growth in the year compared with 2023, but also a very solid year. With the Q4 in line with Q4 last year and with the Q4 stronger than Q3, stronger than Q2 and stronger than Q1. So stability, good recurring revenues, stable base of customers, renewing support contracts, very low churn and all the good things established within this focus area of OVNIA. Looking at the network side, we had a strong Q4 with more than 10% growth. And here you can see that both on licenses, professional services and support and maintenance, you can see double digit or close to double digit growth in all three revenue streams. When you look at the license side on the left side, we had a big deal in Q4, the biggest deal in modern history of OVNIA of 27 million US dollars signed and sealed business in a term contract that will be recognized over the coming three years. And you can see that the impact in Q4 of this deal from a license perspective was very limited, which is really good news for OVNIA and for the investors in OVNIA because the rest of the lion part of that revenue will come in the coming years, which was exactly what we communicated in the press release about this deal. So that's how the contract is signed. With the same product in Q2, we did another fairly big license deal in North America. And that's what you can see here in Q2 24 with a spike in the license sales. But stability was in professional services, stability in the support and maintenance revenue stream with little churn and a good year also for our network's business in 2024. What one might think when you look at OVNIA revenues from an optic perspective is that the top line has been on a very similar level the last couple of years. And there are good reasons for that. And one being the issues we had during the first half year 2023. That's a long time ago. And the only reason I'm talking about that now is because at that point, we had the project canceled and that revenue was not coming back. Also, in the beginning of 2023, we sold the royalty rights for our OS product to one of our major accounts. And with that, we took a 60 million revenues away from 2024 and put them in the first quarter of 2023, which again should be nuanced a bit because all of that didn't come into the first quarter of 2023. But again, that's a bigger conversation. So when you look at the reported top line, you will see, you know, lukewarm growth for the business on net sales. But if you look underneath that and if you look at the focus areas again that I've just walked you through, and if you also look at the recurring revenues and this picture here shows recurring revenues since 2021, you see instead a really impressive growth of that so important base of recurring revenues. And of course, this is what creates the The leverage in our business and the EBITDA margin and the stability of our EBITDA margin quarter after quarter, year after year, even though the top line might vary a bit. So we now have in for full year 2024, 69% of our total revenues being recurring and recurring revenues being defined as support and maintenance, term based licenses and recurring service deliveries. And this is also without in 2024, that big chunk of OS business that we sold the rights for in the first quarter in 2023. So even without that, we have increased the percentage of recurring revenues of total revenues, and we're now close to 70%. Same as we were in 2023 with 68%. So strong base of recurring revenues. Of course, I'm also very pleased with the 37% EBITDA margin in Q4. Our long term ambition is 35% annual EBITDA margin and being very close to that in the situation we were coming from, I'm super pleased with. But with that, I would like to hand over to Ulf to take you through the numbers in a bit more detail.

Thank you Anders. As Anders says, speak out here, the EBITDA margin reached 37% and it is in line with the previous years Q4. And it's simply a growth in revenue in combination with good cost control and that creates a good foundation for a great margin. So we are very pleased with the 37% in the quarter. Also mentioning the gross margin at above 80%. This is a result of the revenue mix and in the quarter we have a high share of software license revenues, which is a good scalable business for INEA with extra license revenues on top of the foundation in recurring revenue and so on. Operational expenses, a bit of an increase compared to Q4 last year. Behind that we can see some one-off items. But at the same time, the remaining increases refers to normal inflation adjustments in the business. So a bit more operational expenses, but going forward, we are in line with our budget. Going down to the EBITDA margin in Q4, we reached 20% and also in combination a significant EPS growth. EBITDA less capex reached 28% and this is a good measurement for us to include also what we invest in into the products in terms of capitalization, but including that we reach a 28% margin. The significant growth in EPS is due to a number of improvements. We have improved our financial net. We have lower net interest and we have contributions from currency nets. The net interest is of course a result of our good cash flow in the quarter in combination with good capital utilization. Also, we have some good contribution from tax income and this is a result of carried forward tax benefits from our companies in the group that supports and give contribution in terms of tax incomes. We also have continued with the buy back program for shares and less outstanding shares contributes with a positive EPS on the bottom line. And of course, an increased EBITDA is also contributing to the increase of the earnings per share. I mentioned that the cash flow also we have a strong cash flow from operations ending at over 103 million for the quarter. The total cash flow though is negative with 126, but the explanation is that we amortized our term based or our term loan in the quarter with over 180 million SEC. And that was possible due to the good cash flow and the net debt situation going from 209 in the last year to 117 million this year. Our KPIs improves compared to last year. Our equity ratio is above 72 percent and the net debt to EBITDA is now 0.40 compared to 0.97 last year. I mentioned that we have restructured and improved our loan facilities. So in on December 16, we signed a three year loan facility of 25 million euro that will be amortized with 50 percent over three years starting in December 2024. At the same time, we amortized the previous loan facility with 40 million and that left us with a total net amortization in Q4 with 16 million euros. And in combination with that, we also increased our overdraft facility from 70 to 150 million SEC. The buyback program continues and in quarter four, we bought back over 199,000 shares with a total consideration of 20 million SEC. For the full year, we have under this program bought back over 1 million shares and for the total consideration 73 million SEC. And authorization from the AGM in May last year with up to 100 million, we have utilized 56 million until today. And the program is carried out under the following the safe harbor regulation. And the board also decided to have no dividend or proposed for the AGM with no dividend for this year.

Thank you. All right. So let me close off with discussing our way forward and outlook for a few minutes. So I first wanted to discuss the market outlook for 2025. So we in EIA, we have the greatest respect for the big portion of our customers that are telecom operators. They are living in a world where they are giving us all the infrastructure to live the lives that we've gotten used to live. Still in many countries, we're not prepared to pay more for that. So the growth for these customers are single digit at best. Still, they have to invest a lot in the new technology that we all are expecting to further improve the qualities of this life that technology is offering us. So we have the deepest respect for that. And we are operating in a market where there is single digit to low double digit growth numbers. The mobile packet core part of our business, 3.6 percent, according to Deloro, the telecom security side slightly faster growth predicted or quite a bit faster growth predicted at a bit over 8 percent. Double digit growth in the IT security side, which is a bit more than 20 percent of our revenues or our customer base goes into that market. And then there is plus 10 percent growth in the the SaaS market, the edge computing market and in the C-Pass market. And C-Pass again, being a growing part of our portfolio that we explain to the market at our capital markets day in Q4. This is one way to look at the market. The other way is to view to look at the trends and how INEA sits in this market, because we are a small fish in this big pond. So when there is a 3.8 percent predicted growth for the whole industry, obviously we are only addressing a part of that. And the better we can address that part, the more we can accelerate our own growth numbers. But for INEA today with the portfolio we have, we couldn't have looked at a more interesting prospect for the coming years. So AI is totally booming everywhere we sit, both from an internal perspective and from a customer and market perspective. And it is being used by our customers in their customer interfaces, in their network optimization and in their security work. Also, AI is driving deepfake and helping the bad actors to improve their threats to customers and society in a way that has never been seen before. So deepfake is now happening in all kinds of communication channels from old school voice, telephone calls to the new RCS type media that is being introduced in a bigger fashion and in a larger fashion now as we speak. 5G has been the talk of the telecom industry for a long time. It has to some degree disappointed a number of people. But on the other hand, many people on the other side are very optimistic about how 5G now will accelerate going forward. Whether you are in the more negative side on 5G or the more positive side on 5G, the fact of the matter is that 5G is happening. And 5G is creating new type of B2B services, accelerating private networks with network slicing, again, underlining the importance of security and opening doors for new type of market with managed service providers. Satellite is another argument sometimes against operators. We see operators cooperating with satellite providers like Starlink to improve performance in rural areas. And we are being able, we can deliver our software to these partnerships between traditional operators and satellite operators. And also there continues to form initiatives within the industry and those types of initiatives like Open Gateway is opening new markets to Enea. Being active in such a booming market require us to spend a lot of effort, time and money in our innovation process. And we break our innovation process in three E's. The main or the lion's share of our R&D investment goes into enhancing the existing products to the existing customers who are in the existing market. But we also work to expand our existing portfolio into adjacent market by developing features that broadens the scope of our product and the DPI functionality in our traffic management product is part of that. In the long run and a smaller piece of the 23% goes into evolving the offering with disruptive technologies like AI to drive new offerings and complement the existing portfolio with organic innovation of new offerings. This is not something that you will necessarily see when we discuss our product. We're not sitting here behind the desk and developing a completely new product, but improving products that we have or adding new features, disrupting the technologies to the existing products to be able to drive new offerings. That's what we're doing. In the quarter, we launched our new traffic management product with new features for DPI, which would be the second step in the earlier slide. We have new AI based classification in this version of traffic management. We also launched our messaging firewall 10.1 again with AI functionality or powered capabilities this time, read time URL analysis and much more non AI powered capabilities in these two product launches. We're taking AI also internally in India to improve efficiency. And we view AI, not as a replacement technology, but as a tool for employees to be able to do more and to develop better quality and to be more creative. And one example of this is something that we have developed internally in India. That's an internal chat bot for our global sales organization. We call it Enhanced Learning and Lookup Assistant. We launched it in January 2025, and it is for our sales organization to wherever they are from whatever type of device they're using. Ask Ella, OK, I'm meeting this customer this afternoon and I would like to be advised on an elevator speech or I'm meeting this customer for the fourth time tomorrow. Can I please help understand the technical details of this product better? And for this, as you know, as I discussed in the beginning of the call, we have a global sales organization. We're doing business all over the world and we have a salesperson in Chile or in Peru meeting a customer to make that sales call efficient. We need to make our own internal processes more efficient and AI is a great way to do that. Come meet us in Barcelona. We will talk about this in more detail or come talk to us any time of the day. We will discuss this in more detail as we are every day, every hour of the day in all parts of the world. We are running out of time and I would like to end this with discussing the financial ambition for the year. It's the same. The long term ambition for Enea is to generate double digit growth numbers in our focused areas and EBITDA margin of 35 percent and strong cash flows. For 2025, there are some signs in the industry from competitors, from customers that things are lightening up. But we continue to be a bit conservative and we say that we will achieve EBITDA margins in the range of 30 to 35 percent strong cash flow and growth in our focused areas. So with that, thank you very much. And let's open up for questions.

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So we have a question.

There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Thank you for that. So we have a number of questions here that are written. And the first one is how big of a cost are you to your customers offering products? And to answer that question, we need to break down our portfolio. So our network products are being sold into our customers network. And so they are part of our customers fixed cost investment to run their networks. And you would be difficult to make them or to say what is the percentage of the offering to customers that are coming from our products. And if we would do that, it would be a very, very, very small percentage that comes from us because we are a small supplier to our customers. Very big customers. But if we look at our our DPI engine, which is an embedded software product or our operating system, which is another embedded software product. They are often priced as a portion of the customers sale to our customers, sale to their end customer. But also here, that percentage is very, very small of the the price that these customers are charging to to their customers. So so that's my answer. When it is the case, it's a very, very small percentage. The other question is, do you know the upsell opportunity within the existing businesses in in money terms? And the answer to that is that there is a huge upsell opportunity to our existing accounts. So during the last eight years, we put together a portfolio and we've been carefully integrating this without destroying the different individual portfolios and companies that we have acquired. So we're starting to see this these cross sell opportunities and out of the 22 deals we did, new deals we did in 2024, a handful of them, less than a handful of them were actually cross sell wins. But this means that the whole sort of upsell opportunities more or less still untapped and something we're working on. And the reason that it's happening or going to happen is that the sales cycle in our industry is is very long. The churn is the positive thing of this because the churn is very low. But also to come into a brownfield operation where there already is an existing supplier to replace them and sell your own product is a long cycle. But there is over the coming years, there is definitely more than half a billion cross sell opportunity for Enea into the existing base. With the improved balance sheet and business stability, do you think acquisitions will be high on the new CEO's agenda? And the answer to that is I would say so. Absolutely. You will have the opportunity to talk with the new CEO in the three months after our Q1. But certainly the conversations we have in the board and what you can read in my CEO letter and in the Q4 report that we just released, we're mentioning acquisitions in a couple of sentences. So certainly it's higher up on the agenda today than it was 12 months ago. In what way will you leverage the turmoil among your competitors? Well, I think there are two things. One, we are just answered on the acquisition side. And secondly, I think it's really important to appreciate the situation our customers are in, to be sure that we continue to invest a lot of our revenues into product development, to have top quality products and to deliver a robust solution that is innovative, but still very trustworthy. And also being the supplier, that's very trustworthy in turmoil situations. So that's how we're trying to take advantage of that. If there are any more questions, please send them in. We cannot see any more written questions at this point in time. Okay. So there are no more questions at this point in time. Thank you for this opportunity. Thank you for being able to the organization, our customers, for being able to present the great Q4 and a great 2024. And look forward to being able to see Enea developing and delivering a great 2025. Thank you for this and goodbye.