Interim Report January–June 2019

“Our strategy was established in the knowledge that we must develop our business through new products and sales to new markets. Our focus is now on more rapid implementation of this strategy” Karl Thedéen, CEO Edgeware

Second quarter of 2019:  

  • Net sales totalled SEK 30.8 million (50.0), a decrease of 38.4 percent.
  • Net sales totalled SEK 27.6 million (50.0), excluding newly acquired Cavena Image Products AB, a decrease of 44.9 percent.
  • Gross profit amounted to SEK 18.0 million (32.3), corresponding to a gross margin of 58.5 percent (64,5).
  • Gross profit amounted to SEK 15.7 million (32.3), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 57.0 percent (64.5).
  • Operating income (EBIT) was negative SEK 21.3 million (neg:15.2 corresponding to an operating margin of negative 69.1 percent (neg:30.4).
  • Profit for the period amounted to a loss of SEK 16.4 million (loss:11.2).
  • Cash flow from operating activities totalled negative SEK 19.7 million (neg: 28.6)*.
  • Cash flow for the period of negative SEK 26.2 million (neg: 30.7).
  • Earnings per share for the period before and after dilution were negative SEK 0.5 per share (neg: 0.4).

First half of 2019:

  • Net sales totalled SEK 83.9 million (98.5), a decrease of 14.8 percent.
  • Net sales totalled SEK 77.4 million (98,5), excluding newly acquired Cavena Image Products AB, a decrease of 21.4 percent.
  • Gross profit amounted to SEK 56.7 million (64.6), corresponding to a gross margin of 67.7 percent (65,6).
  • Gross profit amounted to SEK 52.1 million (64.6), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 67.3 percent (65.6).
  • Operating income (EBIT) was negative SEK 22.0 million (neg:26.7) corresponding to an operating margin of negative 26.3 percent (neg:25.7).
  • Profit for the period amounted to a loss of SEK 16.0 million (loss:20.5).
  • Cash flow from operating activities totalled SEK 0,1 million (neg: 21.8)*.
  • Cash flow for the period of negative SEK 20.7 million (neg: 28.6). This includes the cash-flow effect attributable to the acquisition of Cavena Image Products AB of SEK 9.1 million.
  • Earnings per share for the period before and after dilution were negative SEK 0.5 per share (neg: 0.7)

Significant events in the second quarter

  • Edgeware won a strategic order from Chinese cable operator.
  • Edgeware secured new customer in Eastern Europe for combined IPTV and OTT CDN solution.
  • Edgeware launched Cloud Service for delivery of origin solutions including subtitling.

Comments by the CEO

As we previously announced, we are currently experiencing a decline in our CDN (Content Delivery Network) business with telecom operators in Western Europe. This had a major impact on sales for the second quarter, which closed at SEK 31 million, in the middle of the anticipated range that was communicated. The gross margin was negatively impacted by this decline in sales since it is based on variable and fixed costs and thus amounted to 59 percent. Total EBIT amounted to a negative SEK 21 million.

Naturally, I am not at all satisfied with this result and we are now fully focused on restoring profitability. If I look beyond our CDN business in Western Europe, there were two positive events in particular during the quarter that are worthy of note. We received a strategically important CDN order from a Chinese cable operator, which shows that we have a competitive CDN offering and that there are new opportunities outside Europe. Sales of the subtitling product from the acquired company Cavena are also growing and we received a major order from an existing Mexican customer during the quarter, which demonstrates the sales-related acquisition synergies that we can now achieve. It is also worth noting that our important support and service business grew during the quarter.

Global investments in CDN networks are continuing to increase, but, unfortunately, I see no sign of an improved market situation for our CDN business in Western Europe in the short term. The need for investments is being fueled by a growing number of subscribers and increased traffic related to the use of new video-related functions such as time-shift. However, this trend has been in progress for a number of years in Western Europe and, as a result, the increase in these markets is currently more limited. Nonetheless, we are seeing more robust growth in emerging markets, such as Asia and Latin America, where we are also securing new business. We will continue to invest in Latam and APAC in terms of sales, but we will also invest in products in order to leverage the investments being made in CDN in pace with the build-out of broadband to reach increasing numbers of customers.

As well as focusing on developing our CDN business, we are investing in product and business development in order to increase our product sales, mainly to broadcasters and content owners. At the beginning of the second quarter, we launched our origin solution as a cloud-based service through Amazon Web Services, which marked a key milestone on our journey to creating a new type of software business. We will also launch new, innovative products at the IBC trade fair in September and will continue to assess suitable acquisition candidates. I am satisfied with the way in which Cavena has been integrated and how the business has developed in the short time it has been a part of Edgeware, which shows the importance of continuously assessing acquisition candidates to facilitate well-considered acquisitions.

Although we cannot simply save our way back to profitability, we are continuously looking for ways to become more efficient and free up resources for the strategic activities we need to implement. During the second quarter, we implemented a number of such measures, which were also charged to earnings in the form of non-recurring expenses.

Despite the weakened CDN market in Western Europe, the company has a relevant strategy, excellent customer relations, a strong product portfolio and a motivated team and is active in a market that is basically characterised by growth as a result of increased consumption of streamed video. The conditions for both growth and profitability are therefore favourable in the long term. Edgeware also has a strong financial position and my focus moving forward will be to accelerate the implementation of our strategy.

Karl Thedéen
CEO Edgeware

This is a translated copy of the Swedish version. In the event of inconsistency or discrepancy between the English version and the Swedish version of this publication, the Swedish language version shall prevail.

Contact:

Annika Norin, CFO
Tel: +46708856774, E-mail: annika.norin@edgeware.tv

This information is inside information that Edgeware AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and information that Edgeware AB (publ) is obliged to make public pursuant to the Swedish Securities Market Act. The information was submitted for publication, through the agency of the contact person set out above, at 7:30 a.m. on 19 July 2019.

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