“The earnings reported in the first quarter of 2018 show that we must take measures to return to growth” Karl Thedéen, CEO Edgeware
First quarter of 2018:
- Net sales of SEK 48.4 million (68.7), down 29.5 percent.
- Gross profit of SEK 32.3 million (52.4), corresponding to a gross margin of 66.7 percent (76.2).
- EBIT of SEK -11.5 million (pos: 13.0), corresponding to an EBIT margin of -23.7 percent (pos: 18.9).
- Loss for the period amounted to SEK -9.2 million (profit: 10.3).
- Cash flow from operating activities of SEK 6.8 million (4.7).
- Earnings per share for the period of SEK -0.3 (pos: 0.3) before/after dilution.
Significant events during the first quarter and after the reporting period
- Karl Thedéen assumed the role of CEO on 13 February 2018.
- One of Europe’s largest telecom operators chose Edgeware’s TV CDN to deliver live sports content.
- Edgeware launched Ad Enabler for personalised dynamic ad insertion.
- Edgeware launched the upgraded software CDN Selector with support for all leading CDN providers.
- For the ninth year, Edgeware participated in the NAB trade fair, the largest broadcasting show in North America and received the TV Technology Best in Show Award for its Ad Enabler product.
Comments by the CEO
Sales in first quarter lower than expected
We under-delivered on our growth target and sales declined by 29.5 percent. The reason for this was lower investments by major customers in all markets and the fact that the new customers we secured over the past few quarters have taken a longer time to develop. During the quarter, the gross margin fell to 66.7 percent, due partially to a provision for an exptected bad debt. The underlying gross margin was 70.4 percent. While we noted continued strong growth in the TV and Video industry, we were unsuccessful in capitalising on this momentum in the first quarter, which is something we are endeavoring to change.
We also experienced success during the quarter, both in terms of customers and products. The quarter contained a number of major and strategically important orders from customers in the process of building up services for OTT live TV. For example, we secured a deal with one of Europe’s largest telecom operators: a customer that is expanding its offering in live sport supported by Edgeware’s TV CDN. For us, securing this transaction was a matter of prestige, given that Edgeware was thoroughly evaluated against other operators in the market. Furthermore, we were commissioned by one of our major IPTV customers to deliver live sports content over the Internet. This is just one example of how Edgeware is helping IPTV customers to make the jump to OTT (Over-The-Top, TV over the open Internet).
The market sentiment in all regions is cautious and there was a general lack of major orders from our largest customers.
Diversified product portfolio
During the quarter, we launched a range of new and competitive products, primarily in the software area. We are broadening our offering with Ad Enabler, which provides ad precision between programs and advertising material, and launched an upgraded CDN Selector that now offers support for all leading CDN providers. By combining the best of hardware and software solutions, we create flexible and attractive solutions that set Edgeware apart in the market. We noted significant interest among our customers for the above products.
Despite the absence of anticipated additional business from our major and global customers, we have high hopes that we will be able to grow our business moving forward, both in relation to existing customers that are continuing to grow and modernise their offering and to new customers that are growing with services and expanding audiences.
As the recently appointed CEO, I will – together with my management team – be taking a number of measures to return the company to a situation of healthy growth and strong earnings. A number of key initiatives have already been decided. For example, a new sales organisation have been launched to develop our way of driving the sales process, strengthen us internationally and grow our addressable market. In the new sales organisation, Luis Beute will be responsible for sales in Emea and LATAM, while Magnus Larsson will take responsibility for APAC and North America. The purpose of the new organisation is to create a stronger link between sales representatives and product development. This will enable Edgeware to be more receptive to customers’ needs. We are also reviewing the addressable market and will develop more distinct product offerings and sales strategies for the various markets. Further more we are reviewing our cost scenario to ensure continued strong and healthy earnings. With these measures and other changes, we are creating the prerequisites to enable us to leverage underlying market growth in TV and Video Content distribution.
Despite already approved and planned measures to strengthen our growth opportunities, and taking the prevailing market situation into account, I have recommended that the Board revise the financial target for sales growth. This should not be taken to mean that we do not see potential in the market, but rather that I am fully aware of the time it takes to secure new business and scale this up in terms of volume. Based on my recommendation, the Board has decided that the new target for sales growth should be as follows:
Edgeware´s long-term organic sales growth is to exceed 10 percent on an annual basis (Edgware’s goal is to achieve organic annual sales growth exceeding 20 percent.). The company´s target for EBIT margin, capital structure and dividend policy will remain unchanged.
Steeve Fuhr, CFO
Tel: +46702177512, E-mail: firstname.lastname@example.org
This information is information that Edgeware AB is obliged to make public pursuant to the EU Market Abuse Regulation Act. The information was submitted for publication, through the agency of the contact persons set out above, at 7:30 a.m. on 4 May 2018.