INTERIM REPORT

JANUARY - JUNE 2023

April - June 2023

  • Net sales amounted to SEK 126.3 (110.1) million, an increase of 14.7% year-on-year. In comparable currencies net sales increased by 7.4%.
  • Operating earnings amounted to SEK 9.9 (9.4) million, corresponding to an operating margin of 7.8% (8.5%). Excluding foreign exchange rate differences of SEK -1.7(-0.2) million, operating earnings were SEK 11.6 (9.5) million.
  • Net income for the period was SEK 10.9 (11.8) million.
  • Earnings per share diluted was SEK 0.03 (0.03).
  • Total cash was SEK -12.4(-23.8) million. Excluding the cash impact from repurchase of own shares, the cash flow was SEK -7.7(-23.8) million.

January - June 2023

  • Net sales amounted to SEK 252.9 (219.8) million, an increase of 15.0% year-on-year. In comparable currencies net sales increased by 6.6%.

Q2 in brief

  • Continued strong growth in media
  • Pilot order in time synchronization from major US operator
  • First units of new time synchronization product Zyntai delivered to customers
  • Upgrade doubles Nimbra capacity
  • Operating earnings amounted to SEK 21.9 (20.1) million, corresponding to an operating margin of 8.7% (9.1%). Excluding foreign exchange rate differences of SEK -3.0 (0.4) million, operating earnings were SEK 24.9 (19.7) million.
  • Net income for the period was SEK 21,3 (19,9) million.
  • Earnings per share diluted was SEK 0.06 (0.05).
  • Total cash was SEK -42.2(-25.0) million. Excluding the cash impact from repurchase of own shares, the cash flow was SEK -29.1 (11.7) million.

FINANCIAL HIGHLIGHTS

Apr-Jun

Jan-Jun

Jul 2022-

Jan-Dec

SEK millions

2023

2022

Change

2023

2022

Change

Jun 2023

2022

Change

Net sales

126.3

110.1

14.7%

252.9

219.8

15.0%

508.2

475.1

7.0%

Operating earnings

9.9

9.4

5.7%

21.9

20.1

9.1%

62.3

60.5

3.0%

Operating margin

7.8%

8.5%

8.7%

9.1%

12.3%

12.7%

Net income

10.9

11.8

-7.7%

21.3

19.9

6.9%

55.4

54.0

2.6%

EBITDA

28.5

24.6

16.1%

58.1

50.1

15.9%

130.7

122.7

6.5%

EBITDA margin

22.6%

22.3%

23.0%

22.8%

25.7%

25.8%

EBITDA-2

3.2

1.4

123.8%

8.1

6.4

25.8%

36.7

35.1

4.7%

EBITDA-2 margin

2.5%

1.3%

3.2%

2.9%

7.2%

7.4%

Net Income

10.9

11.8

-7.7%

21.3

19.9

55.4

54.0

2.6%

Net margin

8.6%

10.7%

8.4%

9.1%

10.9%

11.4%

Total cash flow

-12.4

-23.8

-42.2

-25.0

-64.3

-47.0

For definitions and calculation of KPI's, see pages 16-19.

Net Insight AB (publ) corp.id.no. 556533-4397

"First delivery of
Zyntai and important breakthrough on the US market."

CEO´s Statement

A quarter with continued stable growth

A stable start to the year was followed by another strong quarter, with continued steady growth in the media business, despite the more challenging macroeconomic environment. The development of Zyntai, the new time synchronization product for 5G, continues according to plan. We have delivered the first units and received the first pilot order in the US.

Active marketing efforts, coupled with the introduction of new products and functions in recent quarters, have ensured favorable conditions for continued growth, and the growth trend remains strong in APAC. In the quarter, the market has been somewhat more cautious as a result of macroeconomic conditions, which has meant longer sales cycles, mainly in Americas.

Sales in the second quarter were SEK 126.3 million, an increase of 14.7% year-on-year (7.4% in comparable currencies). Operating earnings totaled SEK 9.9 million, compared to SEK 9.4 million in Q2 2022. A favorable mix of revenue,

alongside successfully offsetting cost increases, resulted in an increased gross margin for the quarter (62.1% compared to 60.8%). However, continued investments in developing and strengthening the time synchronization organization, together with inflation-driven cost increases, generated higher year-on-year costs in the quarter.

A strong quarter in the media business with

currency-adjusted growth of 11% in year-on-year terms. Revenue from time synchronization was lower than in the comparative period as customers are waiting for delivery of our new product in Q4. The order book for time synchronization exceeded SEK 160 million at the end of the second quarter, an increase of some SEK 10 million on the previous quarter.

Upgrade doubles Nimbra capacity

In order to meet growing demand for increased capacity, we are doubling capacity for Nimbra 1060. The upgrade, which will start delivery in the fall, saves space and energy, and makes the platform more scalable. Already installed Nimbra 1060 units can also be upgraded.

Delivery of first Zyntai units

Following the launch of our latest generation of 5G time synchronization products, designed for

large scale installations in mobile networks, the first units have now been manufactured. We were able to deliver the first units to selected customers for initial tests as early as in the second quarter. This is a milestone. The commercial release of the complete Zyntai solution has been scheduled for Q4 this year.

Pilot order in the US and strengthened sales

organization

Our hard work aimed at growth in synchronization on the North American market is beginning to pay off. In the quarter, we received our first pilot order from a leading US operator. In

order to satisfy growing customer interest in Zyntai, we have established a local sales team in the region, initially focusing on the US and Canada.

Increased interest in Europe

We are also seeing growing interest in our time synchronization products from adjacent industries in Europe, such as power utility networks. We have also initiated tests alongside a European power company.

Stable foundation for growth

I am very satisfied with our sustainable growth and key product launches in media during the first half-year. The time synchronization pilot order in the US, plus the start of three new PoCs (Proof of Concept), indicates that we are on the right track. Our continued rapid technological progress and commercial advances provide us with a stable foundation for achieving our long- term financial goals.

I would like to extend my sincere thanks to all my colleagues for their substantial commitment and drive.

Crister Fritzson, CEO

Solna, Sweden, July 18, 2023

2 | Net Insight

REVENUES

Net sales in the second quarter of 2023 were SEK 126.3 (110.1) million, an increase of 14.7%. In comparable currencies, sales increased by 7.4%.

In comparable currencies, the growth in the media business amounts to 11% compared to the same period last year. A certain caution, involving, among other things, longer sales cycles in the Americas, which has been compensated by continued strong development in the APAC region. Previously implemented launches of new functionality have contributed to increased sales volume of our newest media platform Nimbra 1060, which also affected the margin positively as the software share on this platform increased. Recurring revenue from software license and support also contributes to the growth in the quarter. Revenues from time synchronization for 5G amounted to SEK 8.9 million in the quarter, compared to SEK 11.4 million the previous year. The previous year's first quarter included higher revenues linked to delivery of the existing product. The first units of the newly developed time synchronization product for 5G (Zyntai) were shipped during the quarter, but a general commercial launch and larger sales volumes are expected to begin only in the fourth quarter. While waiting for the new product, the revenue from the existing product decreases. As mentioned earlier, however, we can state that the order backlog is growing ahead of a broad launch at the end of the year.

Net sales for the six-month period of 2023 amounted to SEK 252.9 (219.8) million, an increase of 15.0%. In comparable currencies, sales increased by 6.6%.

For the first six-months period, growth in comparable currencies for the media business amounts to 10% year-on-year. Revenue from 5G time synchronization during the first half of the year amounted to SEK 17.4 million, compared to SEK 22.7 million the previous year. The decrease in sales compared to the previous year is, as previously mentioned, a consequence of broad commercial delivery of the new product by end of 2023.

The company has no direct seasonal variation, however there is a certain variation in revenue between quarters due to the concentration of larger deals in certain quarters.

EARNINGS

April-June

Gross profit for the second quarter was SEK 78.4 (67.0) million, an increase by 17.1%. The increase is partly due to the increased revenue, partly due to an increased share of license and support revenue. Gross profit included amortization of capitalized development expenditure of SEK -14.4(-11.6) million. Gross margin excluding and including amortization of capitalized development expenditure was 73.5% (71.3%) and 62.1% (60.8%) respectively. The increase in license and support income as well as implemented price adjustments in combination with a scale effect, since part of the costs are fixed, have contributed to the increased gross margin.

Operating expenses in the second quarter of SEK -67.6(-57.5) million, an increase of 17.5% compared to last year. The increase is driven by strengthening of the organization (primarily in time synchronization for 5G, but also in the areas of IP and cloud). The increase is also due to cost increases driven by inflation, increased sales costs linked to the increased sales and the weakening of the Swedish Krona.

Sales and marketing expenses were SEK -38.5(-31.4) million, and administration expenses to SEK -16.2(-13.3) million. Development expenses were SEK -12.9(-12.8) million and the total development expenditure, i.e., before capitalization, were SEK -38.2(-36.0) million. The increase in sales and marketing costs relates primarily to building up the organization for the offer within time synchronization for 5G as well as increased costs for customer and marketing activities. The sales and marketing costs in the quarter are also affected by a negative currency effect as a significant part of these costs are in USD. The increase in administration costs is partly due to an ongoing project regarding the implementation of a new ERP system.

Other operating income and expenses were SEK -1.0 (0.1) million, of which foreign exchange rate differences of SEK -1.7(-0.2) million. During the year, the parent company received a government electricity subsidy of SEK 0.6 million (-).

Operating earnings amounted to SEK 9.9 (9.4) million, corresponding to an operating margin of 8.8% (8.5%). Excluding foreign exchange rate differences of SEK -1.7(-0.2) million, operating earnings were SEK 11.6 (9.5) million. See also table Material profit and loss items on page 20.

Net sales

140

580

120

540

100

500

80

460

60

420

40

380

20

340

MSEK

0

300

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2021

2022

2023

Net sales

Net sales rolling 4 quarters

Earnings trend

30

15%

20

10%

10

5%

0

0%

-10

-5%

MSEK

-20

Q4

Q1

Q2

Q3

Q4

-10%

Q1

Q2

Q3

Q1

Q2

2021

2022

2023

Operating earnings

Operating margin rolling 4 quarters

30%

Target follow-up

30%

25%

25%

20%

20%

15%

15%

10%

10%

5%

5%

0%

0%

-5%

-5%

-10%

-10%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2021

2022

2023

Organic

growth target R4Q (Target 15%)

Operating margin R4Q (Target 20%)

Financial targets 2023-2027:

  • an organic average annual growth of at least 15%
  • an operating margin (EBIT%) that within the period will reach 20%

3 | Net Insight

EBITDA and EBITDA-2 (including reversal of capitalization of development expenditures) amounted to SEK 28.5 (24.6) million and SEK 3.2 (1.4) million, respectively, which corresponded to an EBITDA margin of 22.6% (22.3%) and an EBITDA-2 margin of 2.5% (1.3).

In the second quarter, net financial items amounted to SEK 4.4 (4.5) million, of which foreign exchange rate differences of SEK 2.6 (4.7) million and net interest income of SEK 1.8 (-0.1) million. The increased net interest income is due to increased interest income due to higher market interest rates.

Profit before tax was SEK 14.3 (13.9) million, and net income was SEK 10.9 (11.8) million, corresponding to a net margin of 8.6% (10.7%).

January-June

Gross profit for the first six-month period was SEK 153.2 (135.0) million, an increase by 13.5%. The increase is due to the increased revenue and a favorable revenue mix. Gross profit included amortization of capitalized development expenditure of SEK -27.8(-22.8) million. Gross margin excluding and including amortization of capitalized development expenditure was 71.6% (71.8%) and 60.6% (61.4%) respectively. During the first half of the year, the increase in license and support revenue has not fully compensated for lower event-base services revenue compared to the previous year. In the first six-months period, we also had costs of one-off nature of some SEK -1.8 million linked to purchases made on the spot market.

Operating expenses in the second quarter of SEK -129.4(-115.4) million, an increase of 12.1% compared to last year. The increase is also due to cost increases driven by inflation, strengthening of the organization, increased marketing related expenses and the weakening of the Swedish Krona against the USD.

Sales and marketing expenses were SEK -74.0(-62.4) million, and administration expenses to SEK -31.3(-26.8) million. Development expenses were SEK -24.1(-26.2) million and the total development expenditure, i.e., before capitalization, were SEK -74.2(-69.9) million. The increase in sales and marketing costs as well as development expenditure relates primarily to building up the organization for the offer within time synchronization for 5G as well as increased costs for customer and marketing activities. The sales and marketing costs in the first six-months period are also affected by a negative currency effect as a significant part of these costs are in USD.

Other operating income and expenses were SEK -2.0 (0.5) million, of which foreign exchange rate differences of SEK -3,0 (0,4) million.

Operating earnings amounted to SEK 21.9 (20.1) million, corresponding to an operating margin of 8.7% (9.1%). Excluding foreign exchange rate differences of SEK -3.0 (0.4) million, operating earnings were SEK 24.9 (19.7) million. See also table Material profit and loss items on page 20.

EBITDA and EBITDA-2 (including reversal of capitalization of development expenditures) amounted to SEK 58.1 (50.1) million and SEK 8.1 (6.4) million, respectively, which corresponded to an EBITDA margin of 23.0% (22.8%) and an EBITDA-2 margin of 3.2% (2.9).

In the first six-months period, net financial items amounted to SEK 5.9 (4.4) million, of which foreign exchange rate differences of SEK 2.6 (4.6) million and net interest income of SEK 3.3 (-0.2) million. The increased net interest income is due to increased interest income due to higher market interest rates.

Profit before tax was SEK 27.7 (24.5) million, and net income was SEK 21.3 (19.9) million, corresponding to a net margin of 8.4% (9.1%).

4 | Net Insight

Apr-Jun

Jan-Jun

Jul 2022-

Jan-Dec

Key Ratios

2023

2022

2023

2022

Jun 2023

2022

Net sales, SEK millions

126.3

110.1

252.9

219.8

508.2

475.1

Net sales YoY, change in %

14.7%

17.1%

15.0%

27.8%

18.6%

24.8%

Gross earnings

78.4

67.0

153.2

135.0

315.9

297.7

Gross margin

62.1%

60.8%

60.6%

61.4%

62.2%

62.7%

Operating earnings

9.9

9.4

21.9

20.1

62.3

60.5

Operating margin

7.8%

8.5%

8.7%

9.1%

12.3%

12.7%

EBITDA

28.5

24.6

58.1

50.1

130.7

122.7

EBITDA margin

22.6%

22.3%

23.0%

22.8%

25.7%

25.8%

EBITDA-2

3.2

1.4

8.1

6.4

36.7

35.1

EBITDA-2 margin

2.5%

1.3%

3.2%

2.9%

7.2%

7.4%

INVESTMENTS

The investments in the second quarter were SEK 25.6 (24.2) million, of which SEK 25.4 (23.2) million related to capitalization of expenditure for development. The investments in the first six-month period were SEK 51.7 (45.6) million, of which SEK 50.1 (43.8) million related to capitalization of expenditure for development. The increase in capitalized development expenditure relates to the investment in 5G time synchronization.

Depreciation and amortization in the second quarter totaled SEK -18.7(-15.2) million, of which SEK -14.4(-11.6) million related to amortization of capitalized expenditure for development. Depreciation and amortization in the first six-month period totaled SEK -36.3 (- 30.1) million, of which SEK -27.8(-22.8) million related to amortization of capitalized expenditure for development. Launches of new products have increased the amortization.

Net value of capitalized expenditure for development was SEK 220.4 million at end of the period, against SEK 198.2 million as of December 31, 2022.

CASH FLOW AND FINANCIAL POSITION

Cash flow from operating activities in the second quarter amounted to SEK 20.0 (0.9) million and for the first six-month period to SEK 27.3 (59.7) million. The increase in inventory during 2022 and the first six-month period of 2023 is a consequence of securing components with longer foresight than normal due to the prevailing component shortage. The continued growth, especially in the APAC region, has led to increased accounts receivable in 2022 and 2023. During the first quarter 2022, SEK 28.2 million was received for the second half the NRE (non-recurringengineering)-fee from the 5G time synchronization business with Türk Telekom, a prepaid revenue that is recognized as revenue during the development of the new products for 5G synchronization.

The total cash flow for the second quarter amounted to SEK -12.4(-23.8) million and for the first six-month period to SEK -42.2(-25.0) million. The first six months increased investments in development projects compared to the previous year are offset by a reduced repurchase of own shares. Excluding the cash impact from repurchase of own shares, cash flow fort the second quarter was SEK -7.7(-23.8) million and for the first six months to SEK -29.1 (11.7) million. More information about the buyback program can be found on page 12.

Cash and cash equivalents were SEK 266.3 million at year-end, against SEK 308.3 million as of 31 December 2022.

The remaining tax loss carryforwards of SEK 12.9 million that the group companies had as of December 31, 2022, has been used during the year. For more information, see the section Tax on page 12.

Equity was SEK 614.1 million at end of the period, against SEK 605.1 million as of 31 December 2022. The equity/assets ratio was 72.2%, against 71.6% as of 31 December 2022. That equity did not increase in line with the earnings during the year is due to the repurchase of own shares. For information about warrants, share repurchases and share structure, see the section Contributed equity on page 12.

EMPLOYEES

The average number of employees and consultants at Net Insight during the second quarter and for the six-month period was 189 (175) and 186 (171), respectively, of which 154 (141) and 152 (139), respectively, in the parent company Net Insight AB (publ.). The increase is

5 | Net Insight

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Net Insight AB published this content on 18 July 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 July 2023 05:33:07 UTC.