Net sales revenue was SEK242m, -11% y/y. This was 3% above our estimate of SEK234m. Both segments performed better than expected. Considering that FX effects were more beneficial than we had thought, the underlying performance was in line with our estimates.

EBITDA was SEK88m while adjusting for restructuring costs it reached SEK92m. With investments in intangibles reaching SEK19m, the underlying cash flow (adj. EBITDA-CAPEX) reached SEK73m, well above our estimate of SEK58m. Higher revenue and better gross margins than expected explain the beat.

Enea expects an EBITDA margin above 30% for 2024 and will initiate a new buyback program within the 2023 annual meeting mandate. Overall, the report supports stabilization and the turnaround narrative.

Network Solutions accounted for 88% of sales in the quarter. Sales decreased by 10% y/y. Currency-adjusted organic growth for the quarter was -12%. Support and maintenance grew y/y while licensing and professional services decreased.

Management will update its reporting starting in 2024 to reflect Enea’s security, networks, and other portfolios. We expect this to improve visibility for the cyber security segment.

Due to the seasonal pattern in Network Solutions, with Q2 typically being bigger than Q1, Q3 bigger than Q2, and Q4 bigger than Q3, we provide a quarterly comparison diagram below.

Licensing revenues landed at SEK87.9m, down from last year's SEK105.5m. Support & maintenance grew 7% y/y. Sequentially, all segments grew between 2% and 19%, as expected from the seasonal pattern.

The revenue mix of the included parts of Network Solutions can be seen below:

Sales from Operating Systems continued to decline. Sales came in at SEK28.5m, corresponding to a y/y drop of 16%, or -17% currency adjusted. This continuous drop is expected as customers introduce open-source software for new products. The decline was however smaller than we had anticiated.

The gross margin landed at 79% (excluding “other operating income”), compared to 75% for the full year 2022 and 76% in the last quarter. Enea has completed its cost savings program of SEK60m annually on a cash basis. Part of the savings affect COGS. Thus, we expect gross margins to be higher going forward.

The seasonal pattern of license revenues being stronger the farther into the financial year implies that Q1 will have a much higher share of service revenue (with a lower gross margin) than all other quarters, especially compared to Q4. To illustrate the seasonality, see the below diagram for the same figures:

Reported OPEX, incl. D&A, was SEK147.5m, and “clean” OPEX (excl. D&A) was SEK101.7m. “Other operating income” consists of revaluation of the incentive program and FX-related revaluations of accounts receivable, meaning that we consider this a one-off. Adjusting for the "one-off" write-downs and restructuring costs, EBITDA was SEK92.2m, with an adj. EBITDA margin of 38%, comfortably above the EBITDA target of 35%. According to management, efficiency implementations have improved cash savings to just over SEK60m annually. Thus, we view the restructuring as essentially complete.

Enea reiterated its financial targets of double-digit sales growth in its focus areas and an EBITDA margin above 35%. The EBITDA margin was 37% in Q4 2023. The full-year EBITDA margin was 24%. EBITDA margin adjusted for non-recurring expenses was 38% in Q4 2023. The full-year adjusted EBITDA margin was 32%. While Enea expects growth to be constrained by customers’ willingness to invest, it expects to achieve strong cash flow and an EBITDA margin above 30% for 2024.

Total debt decreased SEK9m sequentially while cash decreased by SEK71m. Thus, net debt increased by SEK62m sequentially. The main reason is higher working capital and cash outlay for buybacks. Working capital increased due to seasonality and increased accounts receivables in the quarter.

Enea has extended its buyback program for a third time. The extended program allows Enea to repurchase ordinary shares for up to SEK25m but not more than 10% of the shares outstanding for the period up to and including 24 April 2024. This translates to about 2% of the shares outstanding at the current share price.