“Corona epidemic will have a negative impact on our results during the year. However, we have a clear strategy and our customers have an investment requirement, which means that we foresee favourable possibilities to emerge from this period as a stronger company.” Karl Thedéen, CEO, Edgeware
FIRST QUARTER OF 2020:
- Net sales totalled SEK 41.4 million (53.0), a decrease of 22.0 percent.
- Gross profit amounted to SEK 28.6 million (38.7), corresponding to a gross margin of 69.0 percent (73.0).
- Operating income (EBIT) amounted to negative SEK 5.7 million (neg: 0.7), corresponding to an operating margin of negative 13.8 percent (neg: 1.4).
- Loss for the period amounted to SEK 6.9 million (profit: 0.4).
- Cash flow from operating activities totalled SEK 15.8 million (18.2).
- Cash flow for the period was SEK 10.9 million (5.6).
SIGNIFICANT EVENTS DURING THE FIRST QUARTER:
- Corona epidemic had 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 sports, which has significance for Edgeware’s business. Sales in APAC declined as a result of Corona epidemic, with an absence of product orders.
- Edgeware added an auto-pilot function that enables an automated quality optimisation for its Streampilot platform for multi-CDN control.
- The key NAB trade fair that was to be held in Las Vegas in mid-April was cancelled.
COMMENTS BY THE CEO
The outbreak of the Corona epidemic pandemic in recent months has dramatically changed how we live our lives and the conditions for conducting business. At Edgeware, most employees are now working from home and as a result of our established modern work methods, there is still a high degree of efficiency. We continue to develop new products, we are delivering services and products to our existing customers as usual and we are employing new ways of reaching new customers as the quarantine rules are making physical meetings impossible. However, we saw an impact on our sales in the first quarter. China and Hong Kong were the first countries to be affected and which applied strict quarantine regulations. In these countries, it has been essentially impossible to conduct new business during the quarter, although the service business continued to generate revenue. This is reflected in the low level of sales in APAC in the first quarter. In Europe, some of our new customers were negatively impacted by declining advertising revenue as a result of reduced business activity in society in general. We have also seen that cancelled sports events, such as the European Football Championships and the Tokyo Olympics, are having a negative impact on our business, since some network investments are determined by the peaks in network capacity generated by major sports events.
We anticipate that the pandemic will continue to affect us in the short to medium term. It is still too early to foresee the end of the pandemic and how it impact will be in the longer term. At the same time there are some positive signs. China and Hong Kong have now begun to ease their restrictions which will mean that we can again start to address the business opportunities that we see there. Traditional telco operators, which form a large part of our customer base, have also generally been less affected by the pandemic. The television business has become even more important in their offerings in a world where social distancing currently is the new norm.
With a clear ambition of reducing our costs, we continue to execute our plan towards a strategy that is relevant to the highest degree:
- growing our recurring support and software revenue.
- focusing on winning new CDN customers, primarily outside Western Europe.
- launching new software products to strengthen our offering toward new customer groups such as broadcasters and content owners.
In total, sales for the first quarter were SEK 41 million, corresponding to a decline of 22 percent compared with the year-earlier period. As already mentioned, sales in APAC were strongly affected by the effects of the pandemic in China and Hong Kong. For the reasons we reported earlier, the investment levels among the larger customers in Western Europe remained at a low level, but in the first quarter, we secured a major supplementary order from one of them. In EMEA, sales were therefore considerably higher than in the corresponding, relatively weak quarter of last year. We have small number of customers in Latin America and there can be strong fluctuations in sales between the quarters. The first quarter of last year was very strong and sales for the first quarter of 2020 were significantly lower.
Our recurring support revenue rose by 20 percent in the quarter, but the total service revenue, including professional services, was on a corresponding level to the comparison quarter overall. Our gross margin was 69 percent and EBIT for the first quarter was negative 5.7 million. Given the short-term market prospects, we have a continued focus on our operating expenses, which decreased by just over 10 percent in the quarter after adjustments for FX effects compared with the first quarter of last year. Cash flow for the quarter was SEK 10.9 million and our net cash flow, including short-term investments, amounted to SEK 152 million at the end of the quarter.
During the quarter, we also added a new function to our Streampilot product. “AutoPilot” gives broadcasters and content providers, who deliver video content over multi-CDNs, the possibility to optimise their distribution quality fully automatically. The function was developed as a direct result of the customer dialogues and tests we have had in relation to Streampilot. This new function has resulted in new customer dialogues that we expect will lead to field tests with more customers once the market has normalised.
The start of 2020 was undeniably dramatic. There is great uncertainty in the short to medium term, but we have strong cash flow, strict cost control, a clear plan, dedicated employees and are working tirelessly to emerge from the Corona pandemic as a stronger company.