Year-end Report 2017 for Edgeware

Fourth quarter 2017:

  • Net sales of SEK 68.4 million (84.6), down 19.2 percent.
  • Gross profit of SEK 50.5 million (59.8), corresponding to a gross margin of 73.8 percent (70.7).
  • EBIT of SEK 5.8 million (10.0), corresponding to an EBIT margin of 8.4 percent (11.8).
  • Adjusted EBIT of SEK 5.8 million (17.9), corresponding to an adjusted EBIT margin of 8.4 percent (21.1).
  • Profit for the period of SEK 3.3 million (7.4).
  • Cash flow from operating activities of SEK 16.0 million (38.0).
  • Before/after dilution, earnings per share for the period of SEK 0.1 per share (0.3)

January-December 2017:

  • Net sales of SEK 236.8 million (252.3), down 6.1 percent.
  • Gross profit of SEK 176.3 million (175.6), corresponding to a gross margin of 74.4 percent (69.6).
  • EBIT of SEK 11.8 million (19.1), corresponding to an EBIT margin of 5.0 percent (7.6).
  • Adjusted EBIT of SEK 11.8 million (34.3), corresponding to an adjusted EBIT margin of 5.0 percent (13.6).
  • Profit for the period of SEK 7.5 million (15.7).
  • Cash flow from operating activities of SEK -2.7 million (45.1).
  • Before/after dilution, earnings per share for the period of SEK 0.2 per share (0.6)

Significant events during the fourth quarter and after the reporting period

  • Karl Thedéen was appointed as CEO and will assume the position 13th of February 2018.
  • A fully software-based alternative to Edgeware’s hardware appliances with software origin was sold to the first customer in the fourth quarter of 2017.
  • Edgeware published preliminary results for the fourth quarter of 2017 on 11th of January 2018.

COMMENTS BY THE CEO

Sales in the fourth quarter lower than expected

As communicated on 11 January, we underachieved in the fourth quarter of 2017, with lower sales than expected. In comparison with the fourth quarter of 2016, sales were down 19.2 percent, thus closing the full-year 2017 with sales down 6.1 percent compared with 2016. Some of our largest customers did not make the investments we had anticipated and forecast for the fourth quarter. Two major customers in particular did not reach their anticipated spending levels with Edgeware, which hurt our topline. In addition, year-end budget flushes have been much lower than in previous years.

Healthy and improved margin

However, the gross margin for the fourth quarter improved to 73.8 percent, compared with 70.7 percent for the year-earlier period. This proves our competitive edge, and despite the decline in sales, we increased our gross profit for the full-year to SEK 176.3 million, compared with SEK 175.6 million for full-year 2016.

Geographical differences

Although we were successful in growing our business in APAC, sales were below expectations in parts of AMERICAS and lower than last year in EMEA. In Latin America, our largest customer was among those customers that spent less than expected in the quarter, partly due to regional political and financial uncertainties. The other customer that came in lower than expected is one of our largest in Europe. While we certainly need to secure more orders from other existing or new clients, preferably operators and broadcasters on a steady growth path, it is not a sign of weakness when large customers temporarily slow down their investments. This is a normal pattern for our large recurring customers.

We will continue to grow with successful customers

Since we are still a small company with a high customer concentration, our quarterly fluctuations remain high. This is something we need to address going forward, but these quarterly fluctuations will remain for the foreseeable future. Large customers have historically been a success factor for us, and large clients continued to invest in our products in the fourth quarter. Our aim is to help operators and broadcasters grow their streamed TV and video market penetration and improve their services, which will result in Edgeware’s continued growth. We have a number of new, interesting accounts showing the promise to become significant customers over the coming years.

Our market is healthy and growing

The market for streaming TV and video is growing. This growth is strongest in the OTT/Broadcaster market, where we have been successful with big clients both in Asia and Eastern Europe. We see good opportunities for operators to invest in the OTT space with OTT services, for example, with respect to sports events.

Competitive products and a growing sales team

In 2017, we released a software alternative to our hardware appliances with software origin and software streamer. This gives our customers the flexibility to mix and match with hardware appliances, or go fully software-based when desired. Both the software streamer and the software origin were delivered to the first customers as part of our commercial roll-out in the fourth quarter. During the period, we continued to invest in our sales capacity globally, a strategic expansion that has not yet reached its full potential. To a certain extent, this is natural. It takes 12 to 18 months for new sales personnel to become efficient. However, we need to ensure the effectiveness of our sales teams and the support from the rest of the organisation. This will be a focus area going forward.

Healthy margins promising for the future

We have a strong competitive edge and healthy gross margins. We reaffirm our long-term financial targets, which were established by our Board at the time of our IPO. However, as we stated previously, quarterly fluctuations will remain likely in the foreseeable future as a result of the nature of our present customers.

Finally, after taking Edgeware from a three-people start-up in 2004 to a global, listed company, I will now hand over the helm as CEO to Karl Thedéen, presently a member of the Board. I am very pleased to welcome him onboard in a well-planned transition and I wish him continued success in taking Edgeware to the next level. I would like to take the opportunity to thank everyone in the team for great work and dedication throughout the years.

Joachim Roos
CEO Edgeware

Contact:

Gunilla Öhman Wikman, Investor Relations Manager
Tel: +46707638125, E-mail: gunilla.wikman@edgeware.tv

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 12 February 2018.

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