Welcome to the Enea Interim Report January to September 2021. For the first part of this call, all participants will be in a listen only mode, and afterwards there will be a question and answer session. Today I'm pleased to present CEO Jan Häglund and CFO Ola Burmark. Speakers, please begin.
Thank you very much, operator. This is Jan Häglund, CEO of Enea. We're here to present to you the interim report of January to September 2021. We will be summarizing the key events of the quarter, going a bit more into financial details, and then wrap up with a way forward and outlook for the future. On page three, we summarize our financial results. Behind this is Enea's significantly stronger position in 5G and cybersecurity, with net sales of SEK 257 million in the quarter, which constitutes a 26% increase year-over-year. We have since last year done two successful acquisitions, one of Wi-Fi specialist Aptilo and the other of security specialist company AdaptiveMobile Security closed on the 17th of July this year. They both contributed in a positive way to the quarter.
We came in with an operating margin of 23.6% thanks to a strong performance, both of the acquisitions and the previous business, good mix of software business versus other parts, and continued cost control. This corresponds to an operating profit of SEK 61 million for the quarter. Net debt to EBITDA was 1.76%, an increase relative to last year following the financing of acquisitions during the recent four quarters. Earnings per share came in at SEK 2.33. Operating cash flow was SEK 28 million, lower than last year, following a higher ratio of large projects in the quarter. We continue to invest significantly into innovation and R&D with continued around a quarter of our revenues going back into R&D investments, both expensed and capitalized.
For the period, we have net sales of 696 million SEK, an operating margin of 24%, earnings per share of 6.76 SEK, and an operating cash flow of 191 million SEK. Let me summarize a bit of the key events for the quarter. They are summarized on page four, where the acquisition of AdaptiveMobile Security was a significant event and a significant step for Enea. We have also closed important deals, a traffic classification deal for software-defined wide area networks worth $3.5 million, a significant contract for secure authentication with a central European tier 1 operator. We also announced some product innovation, both on the core network side for improved resource and energy efficiency, as well as on the radio access network side for improved network capacity. Let me on the following slide give a little bit more details on these news.
Page five, the acquisition of AdaptiveMobile Security is a significant step for Enea. As I think we all know, threats on cybersecurity are increasing, telecom is a part of national infrastructure and thus a significant target also for these kinds of threats. Also, telecom infrastructure is vulnerable to specific threats, for example, around messaging and signaling. That's exactly where AdaptiveMobile Security has a leading position on the market, helping operators, governments, as well as enterprises in securing of both messaging and signaling. It brings a strong portfolio and a customer base, especially with tier 1 customers, with focus on telecom security to Enea. AdaptiveMobile will have sales of approximately EUR 17 million for the first full year of 2021, the third quarter then was a strong quarter with sales of SEK 47.3 million.
This contributes to the largest product group in Enea that we call Network Solutions. In terms of profitability, we have previously said that AdaptiveMobile Security will be EPS accretive from the fourth quarter, and we maintain that forecast. On the next page, we summarize a contract that we took with a North American vendor of cloud networking solutions for large data center and campus environments. Enea has a leading position in traffic classification based on deep packet inspection technology. This is a significant contract for us. It is worth $3.5 million over six years, and the revenue model here is entirely based on recurring revenue. It gives us stable revenue for a number of years to come.
We're happy to see then that our software, being the leading software in the industry, will be embedded in intelligent SD-WAN solutions for providing granular traffic information for both WAN optimization, quality of service, firewalling, and reporting. Firewalling again shows that cybersecurity is again, then an area where we contribute significantly with our technology leadership and our software portfolio. On page seven, is also a summary of another key contract in the quarter. We closed a contract over five years with a central European tier 1 mobile operator. Our software will there be part of an authentication solution. Again, authentication, you can see is part of security in mobile networks, making sure that the right users are allowed into the network.
It's an area where we have technology leadership, and this is an existing customer to us, but it signifies a new business with this customer, so we're really happy about that. Again, it's a proof point for our leadership in cloud-native software for 4G, 5G, and Wi-Fi networks. Finally, among the news for the quarter, that's just touch on some of the product innovation that we continually do. We have areas like data management and Traffic Management, where we have leading positions and where we continue to invest and break new ground. One of the announcements this quarter is how our data management solutions help customers to not only save data in a secure way, but in fact, also save resources.
Through an intelligent way of handling data and storing data through collaborations with operators shown how we can actually reduce the hardware utilization as well as energy utilization by up to 50% compared with competitors' solution. A significant part, especially in an area where data center utilization continues to grow in the world. Similarly, on the radio access network side, as everyone knows, spectrum and radio resources is a limited resource, and thanks to our Traffic Management solutions, we've been able in operator studies to show how we can increase, just through software, the capacity in these radio networks by up to 15%. That capacity can be used to increase the quality of service for end users and to reduce spend, for example, on new expensive sites or on equipment. We're really happy about this innovation and the confidence that our customers give us in this area.
Now, with that short summary of the key news in the quarter, I'll leave it over to Ola Burmark, who is new CFO since 1st of October for Enea. Welcome, Ola, and please take us through some details of the financials.
Thank you, Jan, and hello, audience. We're moving into page number 10 and look at the net sales for the quarter amounted to SEK 257 million, to be compared to SEK 206 million last year. This is a growth of 24% and adjusted for currency impact, the growth is 26%. The growth is mainly driven by the two acquisitions, Aptilo, that was acquired and incorporated in Enea as from fourth quarter 2020, and the AdaptiveMobile Security that was incorporated in July this year. Next slide, please. This slide very much show the transition of Enea and the focus on Network Solutions. The total revenue, as I said, has grown with approximately SEK 50 million since last year, and all that growth is shown in the Network Solutions.
Network Solutions sales for the quarter amounted to SEK 198 million compared to SEK 137 million last year, which is an increase of SEK 60 million.
The Operating Systems had a net sales in the quarter of SEK 32 million compared to SEK 38 million last year. Also worth noting, it's a decrease of 15% versus the same quarter last year, but it's fairly stable versus the second quarter this year. Finally, we have the Software Development Services with a total net sales of SEK 27 million compared to SEK 32 million previous year. That is also very much in line in what we saw in the second quarter this year. All in all, Network Solutions generated a growth of 46% and today accounts for approximately 80% of the total sales of the group. Next slide, please. Profitability in Enea has grown despite the relatively modest growth on top line. What we see here is that we have been very good in optimizing our cost structure and maintaining a high EBIT margin.
The EBIT margin for the quarter, excluding non-recurring items, is 23.6%, or SEK 60.5 million, compared to SEK 47 million third quarter last year. I think we can move to the next one. Looking at our financial position, it's a very cash flow generative company, Enea, and the cash flow before changes in working capital amounted to SEK 86 million in the quarter, compared to SEK 68 million same quarter last year. Cash flow from operations amounted to SEK 28 million compared to SEK 82 million same quarter last year. As mentioned by Jan in the introduction, this is a temporary effect of some larger projects that are in delivery.
If we look at the cash flow for the group up until September for the year of SEK 191 million and compare that to the EBIT of SEK 141 million, we see that the cash ratio versus EBIT is about 1. Well above 1 even.
The financing structure, it has changed a bit since last quarter, all driven by the acquisition of AdaptiveMobile Security, which was mainly financed through external loans. The net debt, as per end of September, amounted to SEK 614 million, spread down by SEK 790 in external debt and SEK 176 million in cash equivalent. If we look at the financial KPIs, the equity ratio is about 57%, slightly lower than last year, but that's of course driven by the fact that our financial position has allow us to increase external debt for acquisitions. The net debt versus EBITDA on a reported EBITDA is 1.76% per end of September. I must say the financial position makes us well-positioned to further invest in our portfolio and in organic growth and it will give us some room for potential non-organic opportunities moving forward. Thank you.
Very good. Thank you, Ola. Let me wrap up then on slide 15. Also summarizing that Enea continues on our path as a software specialist with focus on 5G and cybersecurity. With the acquisition of AdaptiveMobile Security, we have significantly strengthened our position as a specialist in cybersecurity for telecoms. As this slide shows, we have several assets, in fact, that play into this position. As mentioned before, mobile signaling security, mobile messaging security. We already have a leading position in secure authentication, which is important also in the world of 5G and the Internet of Things. We have a leading position in securing data management, in particular, the secure Network Data Layer, which is so important for telecom service providers. We have leading software for embedded deep packet inspection, which by many customers is used for cybersecurity applications, both in telecoms and in enterprise.
Traffic management and content filtering is also part of securing traffic, both to individuals and to enterprises. There will be new threats emerging from 5G. Concepts like network slicing and Internet of Things will open up for new threat vectors towards telecommunications infrastructure. That's why we are proud to be serving a broad customer base here, and we will continue also to use our expertise to serve customers and to innovate. Looking forward, the growing markets of 5G, cybersecurity, virtualization, and IoT make us confident that we're playing in an interesting area, and that to our position as a software specialist gives us the opportunity to challenge established players and to increase our market share. We have the ambition to significantly grow revenues organically and through acquisitions during coming years. In particular, as Ola mentioned also, Network Solutions is our focus area.
We believe we can do this like we have proven during the recent years by maintaining an operating margin above 20%, and we have set a goal to surpass an annual turnover of SEK 1.5 billion by latest end of full year 2023. In the short term, we do see a return to more normal business situation following the COVID pandemic. Having said that, there are, as everyone knows, still restrictions that remain in significant parts of the world, and we do anticipate that this will cause some issues in terms of project delays and barriers to new sales, which is what we have seen during the last 18 months. Having said that, we retain our outlook to increase revenues compared to previous years and to achieve an operating margin above 20%.
With that, I thank you for listening, and I'll leave it back to the operator should there be any Q&A.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, it's zero one on your telephone keypad to register for a question. There will be a brief pause whilst any questions are being registered. Our first question comes from the line of Simon Granath from ABG. Please go ahead. Your line is open.
Thank you, operator. Good morning, gents. Initially, could you comment a bit on how sales efforts and customer dialogues are developing in different regions, given a different patterns in terms of vaccination? I know that you're a global company. Any color is helpful on the changing customer sentiment post the summer.
Thank you, Simon. Well, I think the business continues through all regions, and have continued also during pandemic. I think both Enea as a software company, as well as our customer, have quickly changed to more remote working, using digital tools, et cetera. I think that goes without saying, and that will also be part of the future. Having said that, the personal meeting and the possibility to, especially as a challenger, to meet with key people, individuals, is an important part of our business, and we see that now coming back, especially in Europe. North America, still more challenging. Also Asia, more challenging for personal meetings. Another key measure is also trade shows and trade fairs, where there have been some activity now during the recent months, and we expect more of that to come.
As I said, some of that in parts of the world, especially Europe, some also in North America, more limited in Asia. This will be a step-by-step process where personal meetings will hopefully then increase the dynamic and increase also the possibility for positioning ourselves, not with established relations, but also new customers going forward.
Thank you. I calculate on EBIT margin for AdaptiveMobile about 20% here in this quarter. Is this some extraordinary strong quarter for the company, or should we expect relatively similar margins going forward? I remember that you mentioned that the company should see a margin in line with the group for 2022, you have not made any comment for 2021.
We're happy about the first quarter of AdaptiveMobile Security. They're off to a good start. As you mentioned, the corresponding margin in the quarter was around 20%. What we've said was that we, in general then, as with also previous acquisitions, expect margin in the beginning slightly lower than Enea, but that we will, through synergies on the cost side and obviously on the sales side, work to near Enea's margin ambition. So far, we've said that we expect that towards the end of 2022 for AdaptiveMobile Security. At this time, I think we leave it at that, but we're happy with the first strong quarter.
Thank you. As a follow-up question on that, did you make any significant underlying cost change in the quarter here, or did you see OpEx increase as societies are even starting to open up here?
We did some restructuring during last year, as was announced, and we benefit from some of those restructuring and efficiencies that we did during 2020. We're happy about that. That was the right thing to do. Some of the lower OpEx is, as you point out, also due to lower sales and marketing costs. Trade shows, for example, being canceled. We expect that to come back. We want it to come back, and that will bring some increase in sales and marketing costs, which is completely normal. I think those are some of the effects, some planned and some due to outside circumstances.
As a final question from me. As of now, one year after the acquisition of Aptilo, I was wondering if you're starting to see any synergies with the group starting to kick in. Here I primarily refer to sales synergies.
No, thank you. We have definitely worked on synergies with the Aptilo group. The customer base for Aptilo is, to a large extent, similar to what the rest of Enea has, including large operators, tier 1 operators. There are long sales cycles in telecommunications, typically 12-18 months. We are definitely using both contacts and competence to find sales synergies on both sides.
Thank you so much.
Thank you. Our next question comes from the line of Frank Maaø from DNB. Please go ahead.
Yes, good morning. Do you hear me?
Yes. Good morning, Frank.
Hi. Great stuff. Okay. Just diving into one item which was mentioned previously, which was the working capital movement. Where the CFO mentioned that there were some large projects that are in delivery causing that. What revenue timing implications would those deliveries have? Are we talking about Q4 impact here? Do you expect any delivery that would impact the top line short term? That's my first question. The second question, if I may, is more related to these product innovations that you've been talking about, especially the RAN optimization and the green 5G core innovations. If you could give some color on, obviously, to what extent these are more public relations kind of rehashes or small tweaks and rebrandings and stuff, or actually more significant breakthroughs in terms of how customers actually respond to these innovations. Thank you.
Okay. Thank you, Frank. Well, I can quickly touch first on your question on working capital. The operating cash flow, as you know, or anyone knows that follows Enea, it varies between quarters and it varies with different things. We have a few larger projects going on, due to the revenue and payment structure of those projects, we had a variation in this relative to last year. Over time, we see that this will even out with expected profits according to plan. We see this more as a quarterly variation. In general, we can say that some of these large projects that we have, for example, on 5G, are making good progress, and we have passed significant milestones during the quarter, as I also point out in the CEO statement. We're really happy about that progress.
That also touches on some of the product innovation that you asked for. Now, I think you can say that some of our product innovation, for example, in data management, is quite groundbreaking. We enable them through our software to open up interfaces, to open up, for example, storage of data between applications from different vendors towards our back end, which has never been done before. In that mechanism, and that's what we point out here, not only then do we open up interfaces, which creates the freedom of choice for customers, but in fact, the solution as such is also more resource effective because we don't have to store data many times. We don't have to store data in locations where it's not needed. We can have mechanisms for securing data that are more flexible than competition.
All of that, in fact, adds up to higher resource efficiency and energy efficiency. We really wanted to point out that aspect of our innovation. It's a bit the same with the Traffic Management. There you can see that we've been working on that many years. There is more continuous innovation where the add-on in this recent product release is more that we can do this on a per user basis. There, I think you can see it more as gradual and continuous product innovation.
Great. Thank you.
Thank you. Once again, to register for a question, it's zero one on your telephone keypad. Our next question comes from the line of Jesper von Koch from Redeye. Please go ahead. Your line is open.
Hello, gents. From both today's report and judging by the recent orders, it seems that you're entering a phase of the 5G rollout where you will take a more active role. Could you elaborate on where you see customers at in regards to your 5G related products portfolio?
Yeah, thank you, Jesper. Yeah, Enea has focused on 5G and cybersecurity, and in particular then, we have a portfolio for 5G core, which is part of what's sometimes called a standalone 5G deployment. And as a smaller challenger, we target the market of best of breed, and we believe that that market will continue to expand as customers then open up for more freedom of choice going forward. Having said that, it's also noteworthy then that the 5G market has been delayed during COVID. Operators have slowed down some of their 5G plans. Some of 5G standardization has in fact been delayed, also noteworthy. It's a mix of those things, but we believe that the direction for the future is pretty clear. The direction is based on software, it's based on cloud deployments, it's based on 5G, and in particular then the new 5G standards.
This is a step-by-step approach by Enea, where we're really happy about the reference contracts we took last year. We're happy about the continued contracts we take here this year also with significant tier 1 operators, and we will continue this effort. These are long sales cycles and also long industry cycles, where 5G step by step will be deployed across the world during several years to come.
Good. A question for Ola. The gross margin was slightly lower during the quarter due to higher D&A. Could you just elaborate on what made D&A increase and how sustainable that is?
There are two things that make D&A increasing in the quarter. One of them is of course related to the acquisition of AdaptiveMobile Security, where the preliminary PPA is in the quarter report, but part of that comes with some amortizations. In addition, as has been stressed during this call, we are heavily investing in our future products related to 5G and cybersecurity. Currently our sort of CapEx on R&D spending, or the CapEx part of our R&D spending is approximately 2x the depreciation, which gives us a higher depreciation quarter-over-quarter.
All right, good. Regarding AdaptiveMobile Security, how much of the SEK 47 million sales was consolidated into Q3 numbers?
You can assume that the full number was consolidated into the Q3 numbers.
Okay, great. Thank you. That's all for me.
Thank you. As we have no more questions registered, I'll hand back to our speakers.
Thank you very much for listening. We continue on our path as a software specialist. 5G and cybersecurity are certainly exciting areas, and there is definitely more for us to do. We continue our focus with a combination of organic investments and inorganic opportunities, and hopefully we've been able to prove through successful development and innovation as well as successful acquisitions that we know how to do this. We're confident to continue to execute on our strategy. With that, I thank everyone for listening.
This now concludes our conference. Thank you all for attending and you may now disconnect your lines.