Enea AB (publ)

Welcome to the Enea Q3 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 Temu Salmi and CFO Ulf Stigberg. Please go ahead.

Thank you so much and good morning everyone. This is Temu Salmi speaking, CEO Enea. And with me in the room I have Ulf Stigberg, CFO as well. Today's agenda is going to be very similar to the way we have presented the previous quarter since I joined Enea after Q1 this year. A short introduction and summary of the quarter. We will do a more deep dive into financial results and then we will talk about the way forward and our outlook as well at the end of the presentation. And obviously there will be time for questions and answers as well at the end of the presentation. But let's get straight into it and talk about the key numbers of third quarter, where we are reporting a net sales of 213 million Swedish krona, which in reported currency is a decrease with 1.8% from last year, but in constant currency is a growth of 3% year over year. Our margin is coming in at 33%. Our net debt is at 212 million Swedish krona. And our cash flow coming in a little bit increased year over year at 21 million Swedish krona. and what i would say that we have spent quite a lot of time on the last two quarters is to clean up our balance sheet to ensure that the items that are impacting the financial net in our result is being handled so they the exposure from those are have been taken down and we can also see a clear improvement on our earnings per share with 1.77 Swedish krona as a result in the quarter compared to 0.18 Swedish kronas in quarter three last year. We're going to cut back to these key numbers in depth when Ulf takes you through the financial summary as well. Obviously, at the most least, we continue to invest in R&D, which is the key fundament for making sure that Enea stays relevant and ahead of the curve and competitive on the market. So 25% of our turnover is invested back into R&D. Some highlights from the market and business development in the quarter. I think that we see the continued trend that we reported in the second quarter as well, that the geopolitical developments are fueling the need of increased security solutions in communication. And that has accelerated, I would say, in the quarter. And I'm going to come back shortly to tell you about a couple of incidents in the quarter that actually are also fueling the need for DNA solutions. We also see a good continued momentum for our traffic management business. The need for increased network intelligence is there and it's accelerating as well. So that's good. So fundamentally we see traffic management business continue to grow. And then in the short term, at least in this year, year to date, the continued strength in the Swedish krona with more than 16% stronger currency or exchange rate today compared to the beginning of the year is creating pressure on us when it comes to our top line. So I'm actually very pleased to say that we show 3% growth in constant currencies in the quarter, even though this strengthening of the currency is impacting our reported top line result. On the business side, we have good underlying business and we have also good and solid pipeline, which gives us confidence that we are well positioned to reach our ambitions. We see also from a market point of view that the business in Middle East and North America is developing well from a regional perspective. And those are also the regions where we made two press releases of new deals during the quarter for two different tier one operators, respectively, and also for traffic management solutions. On top of that, we also see our deep packet inspection developing well in the security core area according to plan or maybe even a little bit ahead of the same. When we look at the new customers that we have acquired in the quarter, we have five in total and they are all in the security area. We have three new customers when it comes to firewall solutions and we have two new customers when it comes to deep packet inspection and they are spread across the world as you can see on this slide. Then if we continue to look at, as I said on the previous slide, of course, the geopolitical development is just continuing to accelerate, not always in the most positive side, but on the other hand, it's good for Enea and our solutions become even more relevant than they have been before. I'm highlighting here three examples of incidents or happenings in Q3 where we see an increased trend. For instance, when it comes to massive sim farms, there are more and more of those out in the world that are being revealed. And of course, these pose a big threat to national infrastructure from many different perspectives and is used for fraudulent activities. Here, our firewalls can counter such threats by detecting and blocking fraudulent traffic in real time. Another thing that we see developing as well is that there's a lot of leaked location data that's been exposed and where users' movements into sensitive areas and private movements can be tracked. And then these movements are tracked by different apps that we all of us download from App Store or from Google Store and where we just accept the terms and conditions. And our location data is being saved when it comes to how we move and how we act. And that data is then in turn being sold to different actors in the world. The third, I would say, trend that we see and that we hear more and more about escalating is, of course, the increased drone traffic and threats in general. I think that we've seen in the quarter, we know the warfare that's happening all around the world. And of course, on that also the hybrid warfare with in the Nordic countries, many drones being, so to say, disturbing traffic around major airports in major cities in the Nordics and in Europe. And here we at Enea, we are right now developing fingerprints so we can actually help our customers track drone traffic in mobile networks to make sure that we can help secure those threats in the world that we see emerging. Two other press releases that we've done in the quarter that is not related to new deals. We have renewed our partnership with Suricata. Suricata is an open source rule-based framework where we contribute with our expertise from Enea, but we also use the Suricata framework for the development of our own solutions and products. We believe strategically and strongly that open source is a good way of developing and contributing to our product development for the future. We have also announced a new customer win with a French AI-based network detector response supplier called Custasy. Custasy is using our deep packet inspection engine in their solution. And they have also announced a win with the French region, Haute-Garonne. It's a major department council in France and they have chosen Custosys NDR technology to secure their asset base that consists of more than 25 different thousand assets and 1500 subnets in their operations. We're very happy and proud to be part of that journey from an Enea point of view. Last but not least, before I hand over to Ulf and we dive deeper into financials, we continue to be very active on the market, sharing our thought leadership. This slide shares you four examples, and I will only comment one of them. I think that we focus very much on together with the GSMA to impact and help the development of both existing and future standards when it comes to mobile communication. And we are very proud to be part of that and to help that. And of course, also making sure that the products that we develop for the future also support the new standards that that are being brought out into the market. We want to stay at the edge. We want to be relevant and we want to make sure that our thought leadership is seen in different parts of the ecosystem out in the world. With that introduction, I would like to hand over to Ulf, who will take us through the more details of our financials. Please, Ulf. Thank you, Timo.

3% growth in fixed currency for the quarter and we report a 2% decline in reported net sales for quarter three. Over nine months, we also report a 3% growth in fixed currency and we are in line with the nine months net sales previous year. We report a 33% adjusted margin for the quarter and for the nine months result, we report a 30% adjusted EBITDA margin. And this is partly thanks to, of course, the net sales development, but also that our operational expenses are declining compared to previous year. And if we exclude DNA, we are in line with the cost base that we had previous year in quarter three. We report a 16% EBIT margin for the quarter. Compared to last year, the reported EBIT margin was 13%, so it's a slight increase. But the major difference compared to last year is the development of the earnings per share, which is reported now in Q3 1.77 compared to 0.18. If we look into our product area security solutions, we report similar revenues in the different revenue categories. We have licenses almost at the same level. We have professional service almost at the same level and support and maintenance almost at the same level as previous year. For network solutions, we can see an increase compared to Q3 previous year and a substantial decrease actually in support and maintenance. But giving the increased number of new deals and solid recurring revenue, we foresee a good development of license sales going forward as well. If you look into the different product areas, we can see a growth of 9% within the network area compared to Q3 previous year. And we are having a slight growth in the security area, all in fixed currency. And we have a currency impact for the quarter of 10 million. Looking at the nine months report, we see a slight decline for security and a 7% growth in networks, all in fixed currencies. And if we sum up the core, putting security and network together, we report a growth of 3% in fixed currency for the nine months period. Over to cash flow. We have an operational cash flow that's in line with the Q3 previous year or a slight increase. We also can see that the investments and the buybacks are also in line. However, we have done some amortizations higher than previous year and we are utilizing some of our credit facilities. That gives us a net cash flow that's better than last year but mainly driven by financial items. We report a net debt of 211.9, equity ratio of 71.1 and a net debt to EBITDA of 0.78. Coming back here to the improved financial net that Timo mentioned initially. In the quarter three this year, we report the financial net of 87,000. And this needs to put in perspective of that we had quite negative items in the beginning of the year. And an explanation to that is that we have a total impact for currency net of positive 4 million this quarter. It's a combination of bank revaluation, bank balance revaluations impacting us with 1 million and impact from intercompany loans revaluations of positive 5 million. And in the quarter we have been active in reducing our dollar positions. We have optimized our cash balance. We also have worked harder with our global treasury to secure optimized operational liquidity. And also we are reviewing, as we speak, our balance sheet to optimize our currency exposure in all different items in the balance sheet. And this will lead to reduced exposure when it comes to currency fluctuations in the future. We continued with the buyback program and in the quarter we bought 232,000 shares for a total consideration of 17.7 million. And this is part of the program that was decided by the AGM in May. We are executing on this decision that gives us or that is on a plan of buying back up to 50 million shares or 50 million SEC of shares until the next AGM 2026.

Good. Thank you, Ulf, for that. We will conclude the presentation with a bit of a short-term outlook. We see that the market for us remains stable to moderately positive. And we also say our portfolio is highly relevant for the markets and the segments that we serve. I have myself spent quite some time on the road meeting quite many of our customers in Middle East and the North American region in the past quarter. And I can confirm that we are seen very strong as a partner to our customers serving both network intelligence, but also security solutions. We also expect to deliver on short-term targets for the full year, as we have stated since the beginning of the year. And also, as I mentioned from the first day when I started at Enea, we have been doing updates to our strategy and we will communicate them now in quarter four, as promised. And that content will be focusing on an accelerated growth agenda for us as a company. So we will come back with that message later on in quarter four of this year. So finally, our guidance stays exactly the same. We have not changed our long-term guidance or our short-term guidance. So in the short term, our guidance for the year is that we will see continued growth in our focus areas, network and security. with an EBITDA margin in the range of 30-35% and a stable cash flow for the conclusion of 2025. And obviously we're going to come back also with a strategy update with more information later on in the fourth quarter. That actually concludes our presentation and we are now ready to take some questions. Operator, please.

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

All right. Thank you for that, operator. We have actually a couple of written questions. We will take them now as we speak. We will start with the first one. How much of cost improvement is driven by FX? Ulf, do you want to comment?

Yes. And the round figure for this quarter is that the change in FX has improved our cost level by roughly 5 million SEK.

Thank you, Ulf. We continue with the next question. Could you please comment on the organic growth and the weakness seen despite late quarter deals? Has there been any deterioration in end markets since Q2? Are deal closing extending further? Thank you. I would say, well, I mean, our business is very volatile when it comes to kind of single deals that we're signing. They might come in a quarter or they might slip out into the next quarter. I would say that we actually see a stronger market, like I also shared in the presentation, that we see a slightly moderate positive market development. That's kind of my and our assessment of where we stand right now. Then if a deal lands in one quarter or another, that can be depending on days, right? So we still report in constant currencies 3% growth. Under these circumstances, we are not happy, but it's an okay result, I would say. And we have a strong and mature pipe that we are currently working on turning into sales as well. so i would not see that we see say that we see a weakness in in the market slightly on the opposite actually um then we have another question with 25 r d investments why are you not able to deliver better growth for the last couple of years now is 25 r d needed to stand still Well, I think that the answer to the question is that we have a mixed portfolio, right? We don't only have a growth portfolio. We also have a part of our portfolio that is in instructional decline that we have discussed and presented many times. I think showing our core areas that we are growing in those not to the speed that we want and that we that we hope to see moving ahead that that i should be clear about but we see a nine percent growth of our network business in in uh in the quarter which is one of our focus areas And then in the security business, we see a bit of slippage when it comes to signing contracts and closing deals, not necessarily that we are losing. So I think definitely we need to spend those money to stay relevant and to continue to grow. And the ambition is, of course, to have an accelerated growth further than we've had over the past couple of years. we have any more i think those are actually the questions that we have in the chat so with that then i would like to thank you for listening and thank you also for your questions and i hand it back to you operator thanks for today