Enea AB (publ)

Welcome to the Enea Q2 presentation 2025. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the CEO Teemu Salmi and CFO Ulf Stigberg. Please go ahead.

Good morning, everyone. This is Teemu Salmi speaking and welcome to this interim report for Q2 for Enea in 2025. We have an agenda for today where we'll go through a bit of our numbers for the quarter and some market developments before we'll dive straight into the financial results. And we will end up with a way forward, our guidance and of course also questions and answers at the end. But let's dive straight into the result of the second quarter of 2025. Summary of the quarter can be stated in that we've had some currency headwinds. Being a company who have a majority of our revenues in US dollars and a big part of our cost in euros is not a good match for Enea. We see on top line a currency impact of 11 million SEK and we are reporting 224 million SEK in net sales for the quarter. And currency adjusted, we report 235 million, which would mean that we are flat year over year in second quarter currency adjusted. We are reporting 33% EBITDA margin for the quarter, comparability number 35 from last year. And we have a slight increase in our net debt from 145 to 187 million in the quarter. Earnings per share, heavily impacted by financial net items and the currency headwind that we are facing, ending at minus 0.43 Swedish krona per share. And we'll come back to that a little bit later on in the presentation when it comes to the details of our financial net situation. Operating cash flow ending at 5 million for the quarter and our R&D spend stays stable at 24%. And of course, to the right hand side, you have the comparability numbers for the full first half of the year. We should also bear in mind that in the second quarter, comparability wise, we have had last year in the second quarter a major contract with a North American customer, slightly skewing the net sales numbers with some 31 million SEK comparability wise. Right, that's a summary on the financials. We'll come back to the details a little bit later on. Some market developments that we have been seeing in the second quarter. Like said, we see that the macroeconomical turmoil is creating financial pressure for us in the short term. We will come back to shortly describing a little bit about how the currency development has been and how we see a direct correlation between that and the results that we have for Enea. Obviously there's a big uncertainty as well when it comes to the future development of the macroeconomics. However we have a plan for how to at least work with minimizing the exposure for Enea when it comes to the financial development on the market. The geopolitical developments, however, they are fueling the need of increased security solutions in communication and also visibility in network traffic. We have in the quarter, we'll come back to that shortly as well, a decline in our security business in the quarter itself, isolated. However, important to remember that when looking at Enea numbers, we might have a deal in one quarter that skews that. So we should look at the business over a longer period of time. Our underlying business is good and our current opportunities are supporting our ambitions which we will also communicate later on when it comes to our guidance for the rest of this year. In the quarter we have added seven new customers and we have three of them in our deep packet inspection business. One in US, one in UK and one South Korean customer. We have added one new traffic management customer and also in the firewall business we have added two customers and we have a new customer in the data management application for AAA in Norway. And like said, we see that the increased network intelligence is driving our traffic management business, which is up quite heavily in the quarter, and it's a trend that we've seen for the past quarter that that continues. We also have a good traction for our messaging firewall in North America where we are replacing competition and our deep packet inspection is also developing well with the latest additions to large language models and AI related signatures. And speaking of that we are have we have during the quarter released new signatures for our deep packet inspection solutions which we call cosmos. and we see of course that the development of generative ai and large language models is requiring new and improved cyber security needs on the market and here in the quarter we have now developed signatures that are able to detect traffic that is generated by generative ai and communication between llms And of course that is helping our customers to stay cyber secure and it's also helping us to fuel our business when it comes to our DPI solution. Regulation is also tightening up. We see a new regulation coming into verifying communication and ensuring that there is an identity verification on senders of messages, making sure that you can actually know who's behind a message that has been sent. And our firewalls have the capability of actually singling out and securing that the messages that are being passed through our firewalls are legit and we can block illegal and non-valid traffic for our customers. So those regulations are also playing us very well in hand for the future. A couple of announcements and press releases we've had in the quarter. We have communicated an extension with a leading US-based software-defined wide area network vendor. who is integrating our deep packet inspection in their SD-WAN solution. It's an existing customer. We are extending the contract both in scope and in time. And the new value of that commercial agreement is two and a half million US dollars over the period of 2026 to 2027. Another significant communication we've done in the quarter is a cooperation with Akamai. Akamai's finger bank is containing signatures when it comes to devices, mobile phones, laptops, etc. That in combination with our Cosmos DPI will give a more broader and deeper visibility of network traffic for our customers, increasing their ability to stay cyber safe and to find fraudulent traffic in their networks. And we also continue to stay relevant on the market by being close to our customers and sharing our thought leadership in the ecosystems where we operate. In the last quarter, we have participated in the flagship event in Latam when it comes to GSMA, which is called M360. It can be stated as the Mobile World Congress of Latin America. We have also continued to show our presence in Europe by being participating in the Ignite event, which draws together all the big players in the mobile communication and fixed communication ecosystems. So of course we continue to stay relevant, sharing our new developments and our new products with the markets and staying close to our customers by that. Then finally, before I hand over to Ulf when it comes to the details of our financials, looking at our net sales for the quarter. As I said in the beginning, we have a decline in our security business on 7% currency adjusted in the quarter. And we have a growth in our networks business with 5 million in the quarter. And we also actually show a growth of 5% in our legacy OS business. Should be stated that OS is still something that is in structural decline, but we are very happy to see that we are defending our positions very well there year over year in the second quarter. All in all, we report a flat business development in constant currencies and reported then 5% decrease in reported result to 224 million Swedish krona in the second quarter. A couple of things that are driving the security business negatively is that we see a transition more from perpetual license models to SaaS license models, which means that we, in the beginning of a contract period, get less revenues. But of course, over a period of time, it increases our recurring revenue. And we also see a slight delay in decision making with our customers in certain parts of the world. Not necessarily that we are losing more deals, but our customers take a bit longer time to close and make decisions on the way forward. Networks business is fueled, like I said earlier on, by a good tailwind in our traffic management solution. And we actually see a good future moving ahead in the coming quarters as well. And that development should remain. Looking at the second or the first half of the year, comparability wise, we also hear numbers are currency adjusted. We see the same trend. We have a slight dip in our security business, but we have growth in our network business and we report now 2% growth in our core business on total level. And the reasons I just went through as well, the same reasons for the first half as for the second quarter when it comes to the business development rationale. With that, a tough quarter for us. We are very happy still saying that we had a tough comparability quarter in the second quarter to report a flat growth, currency adjusted, given that we had a big one-time customer contract signed in the second quarter of last year. With this, I will hand over to Ulf to take us through the financials in a little bit more detail. So please, Ulf.

Thank you, Teemu. Net sales, as Teemu stated, we are on a flat development, currently adjusted organic compared to the Q2 previous year. We have an increase in software sales in Q2 versus previous year, as we will see in later slides as well. And we show a 3% growth currency adjusted for the half. years looking into the security business per revenue type we can see an evenly distribution of revenue types between licenses professional service and support and maintenance and we are slightly behind previous quarter and it's very dependent on one or two deals more or less in the quarter so this is something we work on for the coming quarters with a great pipeline coming ahead. In the networks business per revenue type we can see a shift to more licenses and that's depending on first of all a reclassification of SaaS business that was reported as a professional service in the past but They're now reclassified and properly booked as a license. But on top of that, we also have closed good deals that contribute with a big license values for the quarter. When it comes to support the maintenance, we can see an increase compared to previous quarter in Q1 2025, but a lower figure compared to Q2 2024. The EBITDA margin made a jump from quarter one this year. We are now reporting 73 million for the quarter adjusted EBITDA compared to 83 million for the quarter two last year. which represents 33%, which is in the middle of our guidance between 30-35% for the year. Reported figure for the quarter is 30% compared to 32% quarter two last year. And the gross margin reporting in quarter two, 79% compared to 80% last year. uh our operational expenses have declined compared to last year with about 5 million and the operational expanding excluding in the dna is slightly behind or lower than previous year finally when the result we show an ebit margin of 13 percent reported figure which is in line with previous year and i think this this point is is we're quite happy to show this result based on the tough headwind we have the currency and so on so reported a bit more than 30 percent The adjusted margin 15% compared to previous year 17%, so a little bit of a decline there, but all in all 13% compared to previous year. And as Timo mentioned earlier, the earnings per share minus 0.43. And we will come back to that in a short while here. Cash flow for the quarter shows 5 million compared to 37 Q2 last year. uh in the cash flow analysis we can see that we have made some investments we have reduced the od utilization quite heavily in this quarter affecting the total net cash flow and we also made amortizations and we have bought back shares for 13.8 million so In the quarter, we have a negative total net cash flow, but very dependent on the reduction of the UD utilization. Net debt 187 compared to 144. And the equity ratio is 71.5% compared to 66.5. And the net debt EBITDA 0.69 compared to 0.50. So one of the big items we report in this quarter is a financial net. And we have two components in the financial net. First of all, the net interest, which shows a reduction compared to Q2 last year. we're going from six and a half to 1.9 million sec for the quarter and that's a result of our optimization our loan structure for the for the group the next one the currency net is very dependent on the the currency fluctuations on the market and this we report the 37 million negative impact on the financial net this quarter and this is dependent on revaluations of bank balances but also as a result of revaluation of intercompany loans by 11 million And to get in a better position, we are taking some actions. We are actively working with our cash pool. We are optimizing our intercompany loans, and we are also secure to optimize our global treasury, to optimize our bank balances for the operational liquidity. And as you can see to the right in the graph, the development of the Swedish krona against the US dollar. We had a big change in quarter one, but that has continued in the quarter two and that affects us negatively. Finally, The buyback program, the previous program was closed after the AGM or before the AGM in May. and in Q2 we bought back 191 000 shares for 13.8 million and since AGM last year we bought back shares for 97 million and yesterday the board decided to continue this buyback program and for the time up until AGM 2026 the board decided to buy back shares for up to 50 million and this is carried out under the safe harbor regulation all right that was the financials and over to you Timo

Thank you so much Ulf, and we have a couple of more slides before we open up for questions at the end. When we look at our short-term actions and activities that we are doing, we are doing a strategy update, a process that is fairly normal in any company. We are trying to look at the acceleration of Enea for the future where we should invest and what we should do more strengthen in the company as well. And that is an activity that we started during Q2 and will continue throughout Q3 as well, which we do every year. Part of that strategy update was working with commercial excellence and operational efficiency, ensuring that we optimize the way we are both set up to carry out our commercial activities, but also the way we structure our agreements and making sure that we optimize the way we set up our commercial structure with our customers. In the operational efficiency, Ulf mentioned a couple of things that we are doing now on the financial structure to optimize both the liquidity but also the total financial structure for the company. We will also look at how to better integrate and take out synergies from the total group. We are right now looking at global processes, deploying global processes supported by a global ERP solution that will help us in the coming period of next year to take out some synergies as well and optimize the way we operate within the group. So those are the short-term activities that we are working with currently. And finally, our financial ambition and our outlook for 2025, in short, I can say they remain as stated before. And just to reiterate what they are, our long term ambition is to generate a double digit growth in our focus areas, in our core. and with an EBITDA margin exceeding 35% supported by strong cash flows. And our guidance for this year is exactly the same as we communicated in quarter one, continued growth in our focus areas, an EBITDA margin in the range of 30 to 35% and a strong cash flow supporting that. So no changes in our guidance in either long or short term. With that we conclude our presentation for now and are ready to take some 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. The next question comes from Simon Granath from ABG. Please go ahead.

Hi, and good morning, Timo and Ulf, and thank you for the presentation. Initially, I had a question on recent customer feedback lines. How would you say that recent discussions have, if so, changed, particularly throughout the quarter, as one could argue that macro turmoil has increased since beginning of the year? Thanks.

So if I understand your question, how the discussion with our customers are going, I have now spent quite a lot actually of my time out on the market meeting customers. And I say that the positioning of our solutions is very relevant for our customers. And of course, if you look at the macroeconomical situation, it looks very different from different parts of the world. So it's obviously not one picture. I would say that from my recent trips in Middle East and Africa, And the customers I met there, they are very eager to continue investing in, I mean, fueled by both regulatory but also monetization possibilities of our solutions. So we have a good tailwind there, I would say. Obviously, another discussion that comes up quite frequently with customers, especially in Europe, is now with the geopolitical development, how can we actually rely on our partners in America to actually deliver critical infrastructure and software solutions for the future? Who knows what kind of regulations will come that might actually hamper that? so we see also a discussion i see i see a discussion a trend going towards how can we do more in europe for europe that's one trend definitely seen and discussed with many many of our customers and then like i said also in certain areas i would say predominantly in our security business i there is also a tendency to go from perpetual license models into source license models which is not necessarily bad at all for Enea. It might put the short-term pressure on our top line because obviously perpetual licenses come with bigger deal values in the beginning, while SaaS comes with good revenues, but over a longer period of time, right? So I would say it's a mixed picture. Overall, the sentiment, I would say, is positive and that we still stay relevant with the product portfolio that we have. Hope that answers the question.

It certainly does. Thanks for a very colorful answer. And I'd like to dive in a little bit deeper on the SaaS transition. Which products does it relate to? When did this begin? And could you also give us some ball-plank figure on the impact on growth in Q2? And then, of course, as you do highlight, it has a short-term impact on sales and profitability, but tends to be positive over time. Would you be able to give us some indication on when these short-term headwinds might abate?

No, I think it's too early. First of all, I've had myself a quarter in the company, so my reference is a little bit too short. But I definitely see that the discussions are going in that way. And I cannot disclose any numbers right now because of the simple fact that I don't have them on top of my head. But in the quarter, we have signed a couple of deals. Where we were looking at perpetual license deals, but going into SaaS model. And of course, those discussions and that shift is a trend. And if that will prevail, I think, but how fast and how much, I don't know. I cannot answer right now.

That's very fair. I will probably come back to that in later quarters. And I also have a final question for you, Timo. You have now been the CEO as you do highlight for your first 100 days. Do you see any need to increase investments in the medium term to deliver on the organic growth targets set by the board? You do highlight stable OPEX levels in 2025, but beyond that, are more investments needed to reach the targets? So I am essentially wondering how we should view the operational leverage in that period. Thank you.

Well, I think the obvious answer to that is probably yes. And of course, I think you need to invest in order to accelerate for sure. And coming back a little bit to the strategy work that we are doing, of course, we are looking there at what are the opportunities we have. And any strategy execution comes with certain level of investments, right? But having this said, nothing has been decided, nothing has been set. I would say that right now we're in the middle of a strategy process and we have an ambition to close that well during Q3, Q4. And after that, we will also look at, you know, where are the areas where we are wanting to accelerate our business development and then comes the questions how do you do that you know of course there's many different there's inorganic organic etc questions on how to accelerate that so uh i think that uh yes and you said midterm if we see an investment in in the midterm in accelerating our business and i think that yes we will see that

Thank you so much. Looking forward hearing more about that going forward as well. Thanks for letting me on.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Thank you for that. Yeah, we have some written questions. I will try to go through them as good as we can, and we will start with the first one from Mathias. The shift to SaaS model in cybersecurity is new to me. When was this announced? Can you elaborate on the effects you're going for? I think I answered that already in the previous section, so I'll not comment on that further. Can you elaborate on your opportunities in defense? Yes, obviously an area from a strategic perspective that we are looking into and that we are discussing quite heavily and where we already are also engaging to a certain extent, right? So the defense area, I would say not only defense, but I would expand it to say national security area where defense is one part of that area. It's a very interesting and important area where I think we have very relevant solutions being traffic management, being DPI. helping those segments to reach their objectives and targets. So definitely a strategic objective for us to look into further. Then we have questions from David. You talk about the strategic focus to bring existing solutions to new industries. Can you please give examples? For example, what is the potential for NEA in defense applications? Well, yes, same question. The new NATO spending target is 5%, of which 1.5% is for industries and cybersecurity. Is this an opportunity for you? And the answer is exactly the same as I just gave a minute ago, so I will not repeat that. And there's a second. When did you start the shift to SaaS model in cybersecurity? Can you quantify? Yeah. Since this is coming back many times now, we see a small trend here. I would not say that this is not something huge yet. for Enea, but we see that the discussions with our customers are going in this direction, specifically in certain regions, I would say North America, and certain product segments as well. It's not a major shift yet, I have to stress that, but we see, I was asked for trends, I was asked for tendencies, and this is a discussion topic that keeps on increasing right now. So that's how I would end my answer on that. You are reiterating long-term targets of plus 10 top line growth and 35% EBITDA many years since you reported on this level. Please provide some tangible evidence to make these targets credible. Yes, and I think that the credibility behind those targets, we will come back to later on this year when we have gone through our strategic positioning as well. So I will come back on that later on. Rasmus, many questions here. Let's start with the first one. Describe the current sales pipeline, not just by its total value, but by its composition. What proportion is at an early stage versus late stage and what are the conversion rates telling you about its overall health and quality? Right. Well how to start it and also in this question I don't have all the detailed data in front of me right now but I mean let's talk from a trend perspective Rasmus I think if you look at what we're talking about right now in what we're reporting for quarter two we are reporting that our networks business fueled by traffic management is accelerating and going well That's a trend I see will continue. The necessity and the need for those products are there. The same goes for our DPI business as well. Where we need to accelerate a little bit more is in our firewall business. There we need to push the pedal to the metal and ensure that we accelerate our sales perspective in the short term. What have been the one or two most significant shifts in customer buying behavior or market dynamics over the past six months? What specific actions has the business taken to adapt to these changes? I think I have already answered that and I have nothing more to add to that question at this point in time. The SaaS transition, I've also commented. I don't think I will comment that any further either. When you complete head-to-head on a deal, what specific tactics are your rivals deploying to win? Where are they being most aggressive? Is it on price, contract terms, service levels, and product features? How was this evolved? And here I think Our product portfolio is very diverse, I would say, and we even have different customer segments that we are selling to. So it's a bit of a different dynamics in these different segments, I would say, right? So we don't have a one-time answer on that. We see in certain areas, we see new entrants coming in, of course, going aggressively with price and price pressure is on for certain segments of our business. But we stand strong with having very strong solutions, world leading solutions, both DPI, traffic management and traffic management combined with DPI as well. But price pressure is coming in certain segments. And then, of course, technology-wise as well. We need to continuously ensure that we stay ahead of competition when it comes to technology and technology development. And of course, competition is not standing still there either. But in certain segments, we definitely see a bit of price pressure coming in by new entrants. Could you elaborate on the cash flow and help bridge the gap between EBITDA and operating cash flow?

Yes, the single explaining item here is the currency impact on our balance sheet and revaluation. We report an EBITDA at the same level at Q2 last year. So this is the single explanation that the currency impacts our valuation of balance sheet items and that affects our operating cash flow. So going forward, We hope to minimize this and also we hope that the fluctuations reduces but it's very hard to forecast in the market today of course.

Good, I think those were the questions at least as I could see in the call. Sorry, there's one new here coming. Can you elaborate from David? Can you elaborate on the Akamai partnership? Do you see this as an incremental opportunity and is the ambition to make more such deals to build a stronger ecosystem? Yeah, well, elaborating on the Akamai partnership is a referral partnership at this stage. So basically, we bring the Akamai Finger Bank with us when we sell our solution and offering, making it stronger to competition. We offer a broader and deeper visibility of traffic for our customers in their networks. And do I see more... opportunity to to an ambition to make more such deals to be absolutely right i i definitely think that that you know we are strong on our own but we're even stronger in ecosystem with bigger larger players where we can leverage that in in many directions so so absolutely i think this is a step in the right direction and i think it's only the first step in our relationship and i think we can also deepen our relationship from where we stand today and yes more partners in different setups to strengthen our position in in the total security cyber ecosystem as we talk about here in particular yes i hope to see that going forward as well good With that, I think I want to thank you all for listening in. Thank you for your questions and stay safe until the next time. Thank you and bye bye.