Interim Report January-June 2020 for Edgeware

“ A quarter that demonstrates that our new software products are in demand among our customers.” Karl Thedéen, CEO, Edgeware

April-June 2020:

  • Net sales totalled SEK 38.6 million (30.8), an increase of 25.3 percent.
  • Gross profit amounted to SEK 26.2 million (18.0), corresponding to a gross margin of 67.8 percent (58.5).
  • Operating income (EBIT) amounted to negative SEK 11.9 million (neg: 21.3), corresponding to an operating margin of negative 30.9 percent (neg: 69.1).
  • Operating income (EBIT) adjusted for restructuring costs and currency effects amounted to negative SEK 7.1 million (neg: 19.0).
  • Loss for the period amounted to SEK 11.6 million (loss: 16.4).
  • Cash flow from operating activities totalled SEK 5.8 million (neg: 19.7).
  • Cash flow for the period was SEK 76.1 million (neg: 26.2), which included the sale of the short-term interest fund of SEK 75.0 million.

January-June 2020:

  • Net sales totalled SEK 80.0 million (83.9), a decrease of 4.6 percent.
  • Gross profit amounted to SEK 54.8 million (56.7), corresponding to a gross margin of 68.5 percent (67.7).
  • Operating income (EBIT) amounted to negative SEK 17.6 million (neg: 22.0), corresponding to an operating margin of negative 22.1 percent (neg: 26.3).
  • Operating income (EBIT) adjusted for restructuring costs and currency effects amounted to negative SEK 14.4 million (neg: 20.3).
  • Loss for the period amounted to SEK 18.6 million (loss: 16.0).
  • Cash flow from operating activities totalled SEK 21.6 million (0.1).
  • Cash flow for the period was SEK 86.9 million (neg: 20.7), which included the sale of the short-term interest fund of SEK 75.0 million.

Significant events during the second quarter

  • The corona pandemic continues to have an impact on all of society and the global economy, resulting in people working from home and the cancellation of customer meetings and of events, including sporting events, which has significance for Edgeware’s business. Sales in APAC remained at a low level as a result of the corona pandemic, with an absence of product orders.
  • Edgeware installed a new cloud-based elastic CDN solution in a large-scale commercial trial.
  • Edgeware launched StreamBuilder – a platform to process video and create the next generation of Web TV.
  • The Finnish customer DNA selected Edgeware’s StreamBuilder for its new TV service.
  • Edgeware StreamPilot in live production at the Norwegian TV 2 Sumo.

COMMENTS BY THE CEO

First important business for the future

Edgeware’s sales for the second quarter of the year increased 25 percent to SEK 39 million, despite the pandemic continuing to have a negative impact on our market. Cancelled sports events reduced many of our customers’ investment requirements and we also saw an increased level of caution regarding new ventures, as well as reduced investment budgets. For this reason, it was positive to see that the sales in EMEA grew during the quarter. A large order from one of our major customers in Latin America contributed to Americas reporting healthy growth. However, in APAC, sales declined because China and Hong Kong, in particular, continued to be strongly impacted by the ongoing pandemic.

Our gross margin was 68 percent, which is approximately in line with the figure we usually report at these sales levels. EBIT for the quarter was negative SEK 12 million, which was negatively impacted by FX effects of SEK 2.5 million and restructuring expenses of SEK 2.3 million.

Cash flow for the period, adjusted for the sales of short-term interest fund, was nonetheless SEK 1.1 million and our net cash amounted to SEK 153 million at the end of the quarter.

To create scope for our strategic investment to develop new software products and reach new customers, we have streamlined, centralised and reduced our sales and administrative expenses during the past year.

Initial successes for our new software-based platforms

To address the trend toward OTT streaming, we have invested in the development of software products and deliveries via cloud services. This also requires changes to the way we develop, sell and deliver our products.

The change has begun and I am very satisfied that we have gained confirmation during the quarter that we are on the right track.

  • Firstly, our new cloud-based and elastic CDN solution became part of a large-scale commercial trial at a Chinese service provider, which has several cable TV operators as customers. The solution comprises a function to easily scale cache resources up and down in the cloud and to stream TV content to customers. In combination, this helps CDN owners to more easily manage dynamic peaks in video consumption, such as during major live events or launches of popular TV content. It is also an important order in terms of taking further steps to become established in the expanding Chinese market.
  • We also launched StreamBuilder, which is a platform to prepare video for distribution over the Internet and to be able to merge content from various video sources and thereby create new channels for OTT-TV. The product has already been integrated by a global provider of TV streaming services to content companies and is now part of their cloud platform. StreamBuilder is also in operation at several of Edgeware’s existing customers, including Finnish company DNA, as part of their platform for creating next-generation TV services.
  • During the quarter, we also received our first order for StreamPilot. This is our control platform for the monitoring and control of the delivery of TV content when this occurs across several CDN networks and is now used in live production at Norwegian TV 2 Sumo. This is a key step in our ambition to become a SaaS company and comprises the basis in a technical platform and organisation for delivering services over a cloud solution. Furthermore, the combination of Edgeware’s new cloud-based CDN solution and StreamPilot offers a unique opportunity to manage and ease traffic peaks, both in a customer’s own CDN and in a multi-CDN environment.

Overall, our sales for the first six months of 2020 were approximately on the same level as during 2019, despite the pandemic. However, we have advanced our positions in line with our new strategy and our recurring software and support revenues increased by 15 percent in the first six months. Our product portfolio was strengthened, we are working more efficiently and, above all, we secured new types of business during the quarter. We have gained confirmation that we are on the right track and the organisation is working hard to ensure that our strategic change will result in an innovative and profitable Edgeware.

Karl Thedéen
CEO, Edgeware

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