Enea AB (publ)

all right good morning everyone and welcome to this interim report q1 2025 from Enea speaking is Temo Salmi a newly joined president and ceo of Enea as of april 1st and i'm really happy to be here today to take you through together with Ulf Stigberg the cfo of Enea our result and a way forward The agenda for today is very slim and short and straight to the point. We will have a short introduction of myself and a bit on the business situation. We will go into the details of the financial results where Ulf will take us through that. And I will conclude the presentation with a short term way forward and also our outlook before we move over to questions and answers at the end. So first of all, I'm very happy to be here now after a process of recruitment started first of April now as the CEO of Enea. Myself, I have been working 30 years in predominantly IT, telco, forestry and cybersecurity. I spent almost 20 years with Ericsson during my career and five years with Stora Enso as group CIO and head of digitalization there. And then now my last three years, I've been leading a cybersecurity company listed at Nasdaq Helsinki that was actually sold during that process before I now joined Enea. My focus will be on driving a profitable growth agenda for Enea. I'm super happy and proud to be part of this great company. I think that Enea for me there's a couple of reasons why I chose to join Enea. One is of course a great vision to make the world's communication safer and more efficient. And of course, other reasons are great product portfolio, good future outlook, I would say, and relevant product portfolio for the market. And also coming back to telco, I have always enjoyed working in the telco space, even though that Enea imposes more than just telco as a business, but a predominant part of Enea business is within the telco space. Good. Enea in a brief. I think and I hope most of you who are on the call know a little bit about Enea, but if not, we take a short recap. Of course, we are listed at Nasdaq here in Stockholm. And 3 billion people every day rely on Enea technologies in order to make sure that they can communicate. And that's an impressive number, almost 50% of the world's population. Not really, but almost. We have over 200 customers in different segments where we are selling our relevant portfolio. And our latest report now actually shows that we have now broken into 100 countries with our products and offerings in 41. And the 100th country where we came in was actually in Bermuda, where we sold a AAA solution in that country. Some highlights from quarter one. We participated in the world's largest mobile event or telco event, I would say, Mobile World Congress in Barcelona that usually takes place at the last week of February, but this year is the first week of March. We had a great present there with an own big booth where we held many customer meetings. We had more customer meetings than we've ever had during Mobile World Congress. We were also participating in some of the events during Mobile World Congress, where we're sharing our thought leadership in the messaging ecosystem forum by participating in panels and doing presentations. And we also communicated some new very important wins for us during quarter one. And I will take you through three of the wins that we were communicating in Barcelona. First customer case and first win that we communicated was together with Extreme Networks. Extreme Networks have decided to integrate our embedded deep packet inspection engine that we call Enea Cosmos IX engine within its SD-WAN solution. This will help extreme networks to improve the security posture by enabling a very precise application specific rules encrypted traffic in order to also know how to steer and control the traffic in their network. Very important win for us and showing that our IX engine product is having good traction on the market. Second win was together with beyond one beyond one is a digital service provider and owner of merging mobile operations across Latin America and Middle East. They have decided to deploy our traffic management solution to fulfill a hyper personalized offering capability towards their end customers. So with our traffic management solution, they will be able to offer just that to their customer base, just showing that also our traffic management, which actually had a very good development during quarter one as a product and a solution is super relevant for the market. the final win that i would like to communicate very shortly here in this presentation is with the stc in saudi arabia stc is the largest mobile network operator in saudi arabia and and has become one of the few telco operators in the world to achieve 100 compliance using an AI adaptive signal firewall to secure the messaging, signaling messaging, so to say. And that is also a very good win for us and showing that we are committed to work with securing cybersecurity and increasing the security in the telco sector. Then I will round up with a couple of slides of the current realities. I think that no one of us will be surprised that the current global macroeconomic environment is very volatile. And we have also seen now in quarter one that macroeconomic volatility also have impacted currencies and currency fluctuation has also impacted Enea during quarter one. You will see that when we go through the financial results with Ulf in a moment. But having 60% of our income in US dollars and less than 20% of our cost in US dollars, of course, causes a bit of an impact on our P&L when the volatility is as high as it has been during the first quarter of this year. However, of course, also the volatile geopolitical environment actually fuels the needs for our solutions. Our security solutions will continue to play a very important role and our network management solutions will also continue to play a very important role for the future. So we have a relevant product portfolio that will answer for many of the challenges that we see now in the geopolitical environment. So the underlying demand in telco and cybersecurity will support the continued growth of Enea. That's how we see it. And then finally, before I hand over to Ulf for more of the details of our result in quarter one, just a short summary of what happened in quarter one. And here you can see that we had a great quarter for our networks business, which grew with 12%. And the security business stayed flat year over year. And in total, we have a 6% currency adjusted growth in quarter one for the whole company. So we are on a growth path, growth journey. We are committed to ensure that we continue this profitable growth journey throughout 2025. And with that, I will now hand over to Ulf and I will come back in the end to wrap this meeting up before we go into questions and answers. So please, Ulf.

Thank you, Teemu. So into the financial results. In a brief, our key numbers for quarter one twenty five is first of all, we reached a net sales of two hundred and fourteen million SEK. We report an adjusted EBITDA of twenty five percent. And we report end of the quarter net debt of 145 million. As a result of effects of currency fluctuations, we have some effects on the earnings per share. We come back to that, but we report the minus 0.94 EPS for the quarter. Operating cash flow in the quarter, 36 million SEK and we spent 27% of net sales in R&D for the quarter. uh net sales growth compared year over year is seven percent and with the currency adjustments we calculate six percent growth for the quarter and uh we follow the path with seasonality over the year so uh we can see that quarter one usually are the lowest quarter and uh that will pan over the year and this is expected for this year as well Looking into the different product areas, we can see that security year-over-year has similar volume in licenses, professional service, and support and maintenance. This is based on a stable customer base with recurring revenue and additional orders in each of the quarters, of course. Looking into the networks, we can see quite a big increase in license sales. This relates partly to the new large order we signed the previous year with also some recurring revenue for license. professional service has a slight growth but when looking into support maintenance we can see decline and this relates to expiration of one of the contracts that has been with us for for a while The recurring revenue for licenses compensates partly the decline of the support maintenance recurring revenue. So we will see that in the next slide here. As a whole, we report 68% of recurring revenue on the rolling 12 months measurements and our definition of recurring revenue streams are coming from supported maintenance term-based license and also recurring services deliveries so all in all a high level of recurring revenues and as a result of the volatile market the volatility on currency we have updated our adjusted EBITDA definition so our adjusted EBITDA is calculated after adjustments of translation differences and in the bridge to the right you can see the effects of the adjusted EBITDA changes We reported last year 58 million EBITDA, but we had a gain of 4 million in translation differences. And this year reported the EBITDA is 44 million, and we had a loss of 9 million in translation differences. Cleaning those translation differences, we can see that the adjusted EBITDA is almost on the same level as previous year in Q1. So this new definition will be used for the reporting going forward in this year. That takes us into the slide of EBITDA margin for quarter one. We report an adjusted EBITDA of 52.6 compared to 53.2. six previous year that correspond to a margin of 25% compared to 27% previous year. And we can also see the seasonality effects over the year here that goes directly down to the bottom line. We have some cost increase but partly explanation of that cost increase is related to one-off items and half of the cost increase can be booked or has been booked as a one-off items. Going down to EBIT margin, we can see the same pattern here. We report 12.3 million in the first quarter. And compared to last year, we had 11.8. So it's a slight increase with adjusted EBITDA margin. This represents a margin of 6% on total compared to 6% last year. uh what uh stands out a little bit here is earnings per share which is minus 0.94 and this can be explained by this bridge uh it's a lot of numbers here but basically what has been uh affected in ER-result this quarter is the translation differences as well as the financial net in the quarter one. And this relates mostly to revaluation of balance sheet items based on the change in the US dollar Swedish krona relation. So taking away all those currency effects, we can report an adjusted a bit on the slight increase compared to last year. Cash flow for the quarter, we report 35.5 compared to 120.1 last year. Net cash flow was 46.6 compared to 51 last year. We have a net debt of 144.7 compared to 133 last year. And our equity ratio is 69% compared to 65.8. And our net debt to EBITDA 0.52 compared to 0.40. In the quarter, we bought back some 342,000 shares with a total consolidation of 32.2 million. And this is repurchased under the mandate we got from the AGM last year. And since then, we have bought back shares of the value of 83.6 million. And this program is carried out under the Safe Hard Harbor Regulation.

Good, thank you Ulf for that. To wrap up the presentation and to go into questions and answers, I would just like to take you through a little bit about the short-term way forward. and of course i'm three weeks into my job so i'm still very humble about that and and also very proud of being part of the enea family and one thing that i have already started and that we will continue to do is to make a strategic overhaul of our product portfolio and not only product portfolio from the product perspective but make a more strategic review over the commercial situation the market and have a bigger outside-in perspective on how we can take Enea to the next level. We will also look at what are the opportunities for us to grow into adjacent markets, into adjacent industries from where we are today. And we will also look at how we can complement the current product portfolio of Enea with potential white spots that could also take Enea to the next level. More about the result of this strategic overhaul will follow later, exactly when I will need to come back to. But it's a process that we have started and we will not linger on for too long with that. But more information to follow, I say, later on. couple of other things that we will focus on as well is commercial excellence anything anything that has to do from lead to order and all the activities within that process will be under review and to see how we can expedite and and improve the way we work with commercial excellence And then last but not least, always operational efficiency will be part of improvements that needs to be ongoing, so to say. But these are three focus areas that I will start executing now with the team as soon as possible. And like I said, the first one there is already ongoing. It will actually also contain the commercial excellence part. Operational efficiency we will handle in a separate activity internally. so when it comes to our long-term financial ambition and the outlook for this year we remain stable and same we communicate exactly the same as we have communicated before so our long-term ambition is to generate a double-digit growth in our focus areas an EBITDA margin exceeding 35 percent and a strong cash flow Our guidance for this year is continued growth in our focus areas and EBITDA margin in the range of 30 to 35% and a strong cash flow. This is exactly what we have been communicating before and we remain stable with that position. With that, I would like to thank you for listening to me and Ulf and we are ready to take any questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad.

Question here to the moderator. Do we have any questions from the line or should we go to written questions?

There is no phone questions so I hand the conference back to the speakers for any written questions or closing comments.

All right, then thank you for that. We have at least one written question, or actually a question that contains many questions from the audience. I will read them through and come back to that, the answers there. And first question is, how will you, Teemu, plan to drive the profitable growth for Enea? Well, I tried to explain that in the last slide, but I can repeat that. We will do a strategic overhaul of our product portfolio to see how we can accelerate the sales basically of that in adjacent markets, in adjacent industries. We will also look at products and solutions that could complement what we have today. And obviously connected to this, we have an organic and an inorganic journey ahead of us that we're looking into. and we will also take help from the outside to guide us through this strategic update and so on but we have just started this journey and there are a lot of ideas and a lot of thoughts around this but i will not go into that right now but rather come back later with a comprehensive message about what we aim to do in order to take the next steps for Enea as a company Exactly when that will happen, I am not sure yet, but it will be later in this year. There are other questions. Could you expand on the tariff comment in the CEO letter? What behavioral changes have you noticed among your customers since the US tariffs? Very important question. Ulf, do you want to comment on the tariff situation?

Well, Enea is predominantly or to the whole extent selling products based on software and no hardware is included. So we have been been in contact with tariff specialists in the US and as of now no signs of any tariffs on software and intangible deliveries so but who knows that could change but as of now we are not directly impacted by the tariff situation of course if the hardware cost increases for our customers that could impact us indirectly

Yeah. But I think that the underlying, like you said Ulf correctly, and I think that to our best of our knowledge, I mean, software is not included in the tariffs, which is a good situation for NEA to be in. Yes. We continue with some of the questions that we have here. What investments are you making to stay competitive? Well, of course, I mean, first and foremost, the underlying fundamental investments we are making is, of course, in our own R&D, right? And making sure that we have relevant and strong products that our customers find suitable for their business obviously that's one thing and and of course the other investments you know like i said in the strategic overhaul we will look at potential other investments and we'll need to come come back to that then finally of course like i said as well one of the most important things that we are doing now that you can consider as an investment as well is that we will have a deep dive into our own commercial excellence to see how we are selling stuff uh how we how we could accelerate our sales and and and the whole commercial excellence from lead to order and i i'm pretty certain that we can find elements there as well to to work with let's see uh We have some other questions here. Could you comment on what drove the lower gross margin versus last year? Ulf, do you want to comment?

Yes, and the main change compared to quarter one is the translation difference and that's booked under the cost of goods and services sold. So nine million additional cost for translation differences is now reported in quarter one 2025 and that's the main reason why the gross margin is lower in the report.

Thank you Ulf. A couple of more questions still remaining here. How should we think about network versus security in terms of growth and mix? Of course, when we report a quarter like this, there might be a deal that falls in or falls out of the quarter, right? So I think that, like we said in the guidance, we stick to our guidance and we see no reason for changing that at all. We had a very strong quarter for the network segment in quarter one, and we see no reason for changing anything of the view on the security either, even though we had a flat growth in quarter one. So we remain positive with our guidance for the year there. We have another question here. What sticks out positively in Q1? Of course, in Q1, our growth is very positive and our growth in traffic management in particular, that has very good momentum. That is a very positive thing for us. Another positive thing is that our adjusted EBIT goes in the right direction. Our profitability is improving percentage-wise on the same level, but in absolute terms, obviously growing. That's another positive term I would like to lift from Q1. You said help from the outside. Will you take in management consultants to help you to be better? Sounds very strange. Well, I think to answer that question, I would say that any company, I think, always need an outside-in perspective on how they are performing. And I think that Enea is no different in that perspective. So yes, we will take some help from the outside. Who and how, we have not decided yet, but that will come later on. We are in the middle of that process as we speak, I would say. We have another one here, maybe for you, Ulf. Did you recognize any revenue in the quarter from the record order announced late last year, roughly 25 million US dollars?

And the answer to that is yes. Part of the license increase within networks is related to recurring licenses related to that order. And that will continue for the whole term of that deal. So yes.

Yes. I think those are the questions that we have in the chat. We will wait another couple of minutes if there are more questions coming in. All right then, if no further questions, then I will leave this back to the moderator, please. And with that, then I would just say thank you all for listening and look forward to talking to you again soon and have a great day ahead. Thank you from me and Ulf.

Thank you.

Bye bye. Bye.