Interim Report January–September 2019

“The company is on a journey of change and the successful launch of our new product, StreamPilot, was an important station on this journey” Karl Thedéen, CEO Edgeware

THIRD QUARTER 2019:

  • Net sales totalled SEK 43.1 million (54.5), a decrease of 21.0 percent.
  • Net sales totalled SEK 40.5 million (54.5), excluding newly acquired Cavena Image Products AB, a decrease of 25.7 percent.
  • Gross profit amounted to SEK 28.8 million (39.0), corresponding to a gross margin of 66.9 percent (71.7).
  • Gross profit amounted to SEK 27.2 million (39.0), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 67.1 percent (71.7).
  • Operating income (EBIT) was negative SEK 3.6 million (pos: 3.0), corresponding to an operating margin of negative 8.4 percent (pos: 5.5).
  • Loss for the period amounted to SEK 2.4 million (profit: 3.3).
  • Cash flow from operating activities totalled SEK 5.9 million (13.0).
  • Cash flow for the period was SEK 2.0 million (7.0).

JANUARY-SEPTEMBER 2019:

  • Net sales totalled SEK 126.9 million (152.9), a decrease of 17.0 percent.
  • Net sales totalled SEK 116.4 million (152.9), excluding newly acquired Cavena Image Products AB, a decrease of 23.9 percent.
  • Gross profit amounted to SEK 85.6 million (103.6), corresponding to a gross margin of 67.4 percent (67.8).
  • Gross profit amounted to SEK 76.4 million (103.6), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 65.6 percent (67.8).
  • Operating income (EBIT) amounted to negative SEK 25.6 million (neg: 23.7), corresponding to an operating margin of negative 20.3 percent (neg: 15.5).
  • Loss for the period amounted to SEK 18.4 million (loss: 17.2).
  • Cash flow from operating activities totalled SEK 5.9 million (neg: 8.8).
  • Cash flow for the period was negative SEK 18.6 million (neg: 21.6). This includes the cash-flow effect attributable to the acquisition of Cavena Image Products AB of SEK 9.1 million *.

SIGNIFICANT EVENTS IN THE THIRD QUARTER

  • Edgeware launched StreamPilot for unique multi-CDN control.
  • Edgeware’s customer GO is using Edgeware’s technology to transform TV viewing in Malta.

COMMENTS BY THE CEO

Sales for the third quarter totalled SEK 43 million, which is 21 percent lower than the year-earlier quarter. The decrease was primarily due to a decline in Latin America, where our business typically depends a lot on revenue from a few customers. The current decline in our CDN business with telecom operators in Western Europe, which we have referred to earlier, has however continued to impact us and we noted an ongoing low order intake from these customers during the quarter. Lower sales had a somewhat negative impact on our gross margin, which amounted to 67 percent for the quarter. Total EBIT was a negative SEK 3.6 million.

We can see continued growth potential for our CDN business in China, where we are focusing on opportunities with new cable operator customers and in Latin America, where we have one major key reference customer. We additionally noted a positive trend for our revenue from services which grew and amounted to SEK 19 million for the interim period. During the quarter, we also communicated that one of our existing customers, Maltese GO, is using our CDN and Origin products to provide its subscribers with a flexible TV experience on smartphones, tablets and  computers in addition to the television service provided via a set-top box for home appliances. I can see similar business opportunities for many of our existing customers. The acquired company Cavena reported a stable performance and increased sales compared with the year-earlier period.

The most important event in the quarter was the launch of our new StreamPilot platform, which took place at the IBC trade fair in Amsterdam. StreamPilot enables customers to monitor, control and optimise the delivery of streaming video across several different CDN networks in real time, which is currently difficult but crucial in the delivery of a high-quality user experience. Our platform is unique as it is completely independent of CDN networks and requires no change to software installed in mobile phones, iPads or TVs. We held meetings with more than 100 companies at our booth at IBC who confirmed that StreamPilot addresses a major problem and enables new revenue from both our existing and potential new customers. StreamPilot also expands our cloud-based offering, Edgeware Cloud Service, in addition to the previously launched products within the Origin solution.

The investment in cloud-based services is a critical element for us. Cloud-based services are particularly suitable for customers in the broadcaster segment and also offer us an opportunity to increase our share of recurring revenue. In the fourth quarter, we will conduct pilot projects with StreamPilot, which, if successful, can be converted into customer orders in the first half of next year.

However, I expect the low business volumes with our largest customers in Western Europe to remain at lower levels going into fourth quarter 2019. Subscriber growth in these networks is limited and the use of new services, such as time-shift, is not increasing significantly. Taken together, this means there is no great need for investments in additional capacity. However, there are a number of events next year that could change the market situation. These include the UEFA European Football Championship and the Olympic Games in Tokyo as well as a general increased focus on video in 4K resolution. These types of events have previously driven investments, though it is still too early to see how they will impact our business in 2020.

To summarise, Edgeware is in the midst of a major commercial process of change. We have one major business that has declined at the same time as we can see new opportunities for the CDN business in growth markets, for services and for new products targeting new and existing customers. We will retain a strong focus on costs and on controlling and freeing up resources to invest in new products and in new business. During the quarter, for example, we restructured our sales organisation and established closer relations between the regions and headquarter functions. We appointed a dedicated business development resource for broadcasters and focused marketing on sales support activities. Even if I see no improvement in the European CDN business in the near future, our steady progress in new areas is creating very positive energy in the company and particularly in discussions with customers. New business and new ways of working are emerging and taking form and the building of the base for recurring revenue has started.

Karl Thedéen
CEO Edgeware

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 24 October 2019.

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