“We are continuing our journey of change and demonstrated in the fourth quarter that our existing customers are continuing to invest and that we are generating major interest in our new projects.” Karl Thedéen, CEO, Edgeware
FOURTH QUARTER 2019:
- Net sales totalled SEK 57.4 million (79.0), a decrease of 27.3 percent.
- Net sales totalled SEK 52.3 million (79.0), excluding newly acquired Cavena Image Products AB, a decrease of 33.8 percent.
- Gross profit amounted to SEK 39.5 million (56.6), corresponding to a gross margin of 68.8 percent (71.7).
- Gross profit amounted to SEK 35.4 million (56.6), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 67.5 percent (71.7).
- Operating income (EBIT) amounted to SEK 0.4 million (14.6), corresponding to an operating margin of 0.7 percent (18.4).
- Loss for the period amounted to SEK 6.1 million (profit: 10.6).
- Cash flow from operating activities was negative SEK 2.7 million (pos: 20.7).
- Cash flow for the period was negative SEK 7.6 million (pos: 16.6).
- Net sales totalled SEK 184.4 million (231.9), a decrease of 20.5 percent.
- Net sales totalled SEK 168.8 million (231.9), excluding newly acquired Cavena Image Products AB, a decrease of 27.2 percent.
- Gross profit amounted to SEK 125.1 million (160.2), corresponding to a gross margin of 67.8 percent (69.1).
- Gross profit amounted to SEK 111.7 million (160.2), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 66.2 percent (69.1).
- Operating income (EBIT) amounted to negative SEK 25.2 million (neg: 9.1), corresponding to an operating margin of negative 13.7 percent (neg: 3.9).
- Loss for the period amounted to SEK 24.5 million (loss: 6.6).
- Cash flow from operating activities totalled SEK 3.1 million (11.6).
- Cash flow for the period was negative SEK 26.2 million (neg: 4.9). This includes the cash-flow effect attributable to the acquisition of Cavena Image Products AB of negative SEK 9.1 million *.
COMMENTS BY THE CEO
Sales for the fourth quarter were SEK 57 million, which is a decrease of 27 percent compared with the year-earlier period. The primary cause of the decline is the decrease in CDN business in Western Europe, which we have mentioned before. Sales in Asia and Latin America increased during the quarter, on the other hand, though from relatively low levels. Our gross margin was 69 percent, which all in all resulted in a positive EBIT of SEK 0.4 million. Cash flow for the quarter was a negative SEK 8 million, due primarily to the lower invoice volume in preceding quarters, but our cash position remains strong at SEK 142 million.
Though we experienced a sharp decline in our CDN business in Western Europe, our IPTV networks are still handling large volumes of traffic and the business is important to our customers. As proof of this, all our major CDN customers in Western Europe renewed their support contracts during the year and all of them except one invested in CDN products from Edgeware during the quarter. We are also in discussions with them regarding modernisation and new investments for managing television services on several screen types. Our development and marketing activities for Streampilot, our cloud-based service, have continued and we have a number of established pilot tests with our customers. The positive feedback we are receiving reinforces our conviction that we have a strong offering that could result in orders for Streampilot in the first half of 2020. During the quarter, we also announced our sales and technological collaboration with ENENSYS Technologies to better address cable operators, primarily those in Latin America.
Sales for the full year came to SEK 184 million, compared to SEK 232 million for the preceding year. The gross margin, however, was 68 percent – in line with the preceding year. EBIT for the year amounted to a negative SEK 25 million, including SEK 5 million in restructuring expenses. Cash flow was a negative SEK 26 million, of which SEK 9 million pertains to the acquisition of Cavena Image Products AB. Despite a negative performance and cash flow, our cash position remains strong at SEK 142 million and we have no interest-bearing liabilities.
The operating loss for the year can be explained by the changes taking place in the Western European market as a result of the switch from IPTV to “Over the top” (OTT) television (i.e. television streaming services that consumers can view from any device), and the fact that our customers are no longer experiencing increases in IPTV subscribers. As a result, our major customers in Europe have cut back on their purchases of our CDN products for IPTV. With this shift in the market as our starting point, we have embarked on a journey of change in which we are transforming the company from a hardware-centric business to a more service and software-based one with an increasing share of recurring revenue. Our strategy is threefold:
- 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.
That is why we acquired Cavena during the year and reoriented our product development toward new cloud and software-based services and products – for example Streampilot, the cloud service for CDN control launched during the year. We also continued to enhance the efficiency of our operations, made changes to Executive Management and created closer dialogue between our customers and product development. Through product development and a successful integration of our acquired company, Cavena, we have strengthened and expanded our offering and won new customers. It is therefore gratifying to see that our service business grew in 2019 by nearly 25 percent, to SEK 70 million.
To better reflect the changes our operations are now undergoing, we have also adjusted our financial targets. We have a new target: increasing our recurring revenue by 15 percent per year. The long-term profitability target is reduced to 10 percent EBIT margin, but in the next two years we will need to continue investing in product and market development. This is why our short-term profitability goal for the next two years is to improve our EBIT annually.
In summary, while it has been a tough transitional year for us at Edgeware, we have thoroughly analyzed the issues and have adjusted our strategy and investments accordingly. We have embarked on our journey of change, and with the support of a strong cash position and numerous interesting customer dialogues, we will continue to execute our plan. We look forward to the new decade. However, we are entering into 2020 with continued low sales volumes with our largest customers in Western Europe and we foresee top-line fluctuations between the quarters as we build our new business.
Annika Norin, CFO
This information is inside information that Edgeware AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 07.30 CET on January 24, 2020.