Enea

Second quarter highlights in figures

• Revenues from the network business increased by 25 percent compared with the same period last year and amounted to SEK 117.9 million (94.5).
• Revenues from the security business increased by 15 percent compared with the same period last year and amounted to SEK 100.0 million (87.0).
• Revenue from operating systems decreased by 31 percent to SEK 18.2 million (26.2).
• Adjusted EBITDA amounted to SEK 83.1 million (48.8), corresponding to an EBITDA margin of 35.2 percent (23.5).
• Profit after tax amounted to SEK 34.0 million (-594.2).
• Earnings per share amounted to SEK 1.63 (-27.51).
• Cash flow from operating activities amounted to SEK 37.1 million (77.1).

Period highlights in figures (Jan-June)

• Revenues from the network business increased by 18 percent compared with the same period last year and amounted to SEK 208.4 million (176.7).
• Income from the security business increased by 12 percent compared with the same period last year and amounted to SEK 189.3 million (169.1).
• Revenue from operating systems decreased by 65 percent to SEK 38.6 million (109.8). The decrease is explained by the one-off transaction worth SEK 54 million that was made in the first quarter of last year.
• Adjusted EBITDA amounted to SEK 141.0 million (143.2), corresponding to an EBITDA margin of 32.3 percent (31.4)
• Profit after tax amounted to SEK 44.7 million (-584.0).
• Earnings per share amounted to SEK 2.14 (-27.04).
• Cash flow from operating activities amounted to SEK 157.1 million (174.6).

CEO’s Statement
A really good quarter
The second quarter developed into a really good quarter, from several perspectives. Let me start with growth and results. Our organic growth was 14% over the same period last year. Our security business grew by 15% and our network business by 25%. This is remarkably good given the market climate we are in and therefore very gratifying. Although the basis for this growth is a stable development of our recurring revenues, the effect of the larger software deal we made on our product group Network at the end of the second quarter is clear. I have written many times about the return on investment in our business model and given it, a deal like this immediately has a major positive effect throughout our income statement. With a gross margin of 79% (76) and good cost control, we delivered an EBITDA margin of 35% (23) and an adjusted EBITDA of SEK 83 million (49) for the second quarter, which is more than 1.5 times better than for the same period last year. During the quarter, we had an EBIT margin of 17% and an EPS of SEK 1.63, which is many times better than the same period last year. However, it does not make sense to compare these key figures between the years this quarter, as we made large write-downs in the second quarter of last year.

Trust in the market
The larger deal we won in the second quarter of this year is a volume expansion of a contract we signed in 2020 for our 5G database (Network Data Layer), which we call Stratum. This product has undergone significant development over the past year and can now handle the many millions of subscribers on a modern mobile network. It is also a product with open and standardized interfaces that enable the open 5G network architecture that the telecom industry envisioned when 5G was planned many years ago. The confidence exhibited through this deal is in every way very gratifying and reflects the competence and ability of our product development.

During the quarter, we communicated how Telecom Egypt is protecting their subscribers with the help of our Voice Firewall. Telecom Egypt, which is Egypt's leading operator, had assessed that 8% of all connected calls came from false identities (spoofing). With our product installed, the number of calls with false identities has reduced by as much as 90% over time, and is a crucial piece of the puzzle in the company's work to protect its customers against call-based fraud. There are many more examples of customers who achieve critical improvements in their business with our products, but not all of them are available to be made public. On the contrary, we operate in an industry that, for understandable reasons, is cautious about publicly discussing in detail how to protect its communication networks from fraud.

It is clearly satisfying when our products win evaluations and deliver lasting results around the world, in the fight for a more efficient and safer connected world. We are proud of our products and their competitiveness is of course essential for our continued growth. We therefore continue with significant investments in product development; in the first half of the year we reinvested 25% of our revenue. As society becomes more aware of the threats to our cyber security and the how AI can accelerate security risks, this is money well invested. If you also look at the possibilities of AI applied in our business, this becomes even more interesting.

In parallel with the above, we are also working to restore the financial market’s confidence. Over the past year, we have been able to strengthen our financial position through stable cash flows, while at the same time repurchasing own shares to a value of SEK 62 million. Our operating cash flow in the second quarter amounted to SEK 37 million (77), while our net debt decreased from SEK 220 million in the same period last year, to SEK 144 million at the end of the second quarter of this year. Based on the company's strong financial position, the Board of Directors intends to continue with the buy-back program within the framework of the renewed mandate given at the Annual General Meeting in May 2024.

Quality is our commitment
Quality is a central part of our daily work, from how we develop our products to our collaboration with customers around the world. For us, quality is not just a goal; it is our commitment. Enea was quality certified for the first time in 2006, within the framework of ISO 9001. Key aspects of ISO 9001 are that quality management systems have a risk-based focus and promote continuous improvement. These are also important aspects for our customers and are almost always part of their procurement criteria. We have therefore also chosen to ISO 27001 certify our cyber security operations, as this framework has an additional focus on information and IT security. To maintain these certifications, the business undergoes annual external audits. During the second quarter, we carried out a recertification of our ISO 9001 certificate. The audit found that Enea has taken significant steps in becoming even more value-oriented and customer-focused, and how our processes are not there for the sake of the processes themselves, but to ensure quality all the way from product development until our customers experience the value of their investment in our products. The audit was also clearly positive about how our organization has embraced our company vision and strategy. During the quarter, we also conducted our annual employee survey. There too, we could note significant improvements, from in many respects good levels already the previous year. These internal results are not only gratifying for me as CEO, they importantly create good conditions for a sustainable, positive development of the company.

Outlook
Enea has a strong market position in exciting areas both within and beyond the telecom industry. Our product portfolio is well positioned in a world where mobile communication and cybersecurity are crucial for development. We have a global organization with very competent employees and just as importantly, many successful customers and competitors, who constantly challenge and develop us. These factors, combined with our proven earning capacity, make us cautiously optimistic about the future. For some time, the macroeconomic climate has had a dampening effect on demand, especially in the telecom market, and I cannot comment today on how this will develop in the second half of the year. But our goal for the coming years remains unchanged; we want to achieve double-digit growth in our focus areas and an EBITDA margin above 35 percent with strong cash flows.

Our growth will continue to be affected by how the willingness to invest develops in our market. However, for the full year 2024, we expect a strong cash flow and an EBITDA margin of over 30%.

Anders Lidbeck
Acting President and CEO

The full Interim Report is attached to this press release and has been published on the Enea website (see references below).

Presentation
Enea invites investors, analysts, and media to a presentation of the second quarterly report of 2024. The presentation will be conducted in English by Anders Lidbeck, President and Chief Executive Officer, and Ulf Stigberg, Chief Financial Officer, and will be concluded by a Q&A session. It can be attended through a webcast or teleconference.
 
Details 
Date: July 18, 2024 
Time: 8.30 a.m. CEST 

If you wish to participate via webcast please use the link below. Via the webcast you are able to ask written questions.
https://ir.financialhearings.com/enea-q2-report-2024

If you wish to participate via teleconference please register on the link below. After registration you will be provided phone numbers and a conference ID to access the conference. You can ask questions verbally via the teleconference. 
https://conference.financialhearings.com/teleconference/?id=50048639

References 
Webpage for Enea financial reports 
https://www.enea.com/investors/financial-reports/ 

Webpage for Enea financial presentations 
https://www.enea.com/investors/presentations/ 

Contacts 
Ulf Stigberg, CFO
Phone: +46 8 507 140 00
E-mail: ir@enea.com