Restructuring shows result, increased efforts in Sye
Sales totaled SEK 129 million in the second quarter, up 7% year-on-year. Operating earnings were SEK 3 million. The positive earnings figure shows that the savings program implemented in the first quarter has yielded results. Operating expenses adjusted for restructuring costs and exchange rate effects decreased by SEK 10 million, or 13% year-on-year. In general, the quarter was good business wise. We signed several promising agreements, including a remote production solution for the FIFA World Cup in France, two deals with NEP and one ScheduALL transaction with the EU Commission. Sales of Nimbra 1060 were very good.
For Sye, we’re continuing our important partnership with our Fortune 500-customer according to expectation, i.e. Sye is used for smaller events. As previously communicated, a more extensive launch is not expected until the end of the year at the earliest. We’ve also signed another agreement with a CDN (Content Distribution Network) provider, which means that Sye now has the support of three CDN providers. The Primetime live quiz app continues to grow, and the concept is being licensed to six countries.
Towards the end of last year, we started the process of modernizing the ScheduALL solution. The new solution was launched in connection with the NAB Show in April, and responses from new and existing customers have been positive. We anticipate a large-scale roll-out and the first deals towards the end of the year.
Over the past 12 months, we’ve implemented several positive actions: new management, new organization with increased customer focus and clarified operational responsibilities, and an extensive savings program. The savings program, which involved personnel cutbacks in sales, management and administration, has now been completed and we expect the full effect to be reached in the second half-year.
To improve the understanding of the company’s results of operations, we’ve estimated each product area’s contribution to operating earnings, based on estimates of common group costs. In the second quarter, Nimbra returned strong positive earnings, while ScheduALL and Sye made a negative contribution in line with expectation. For more information, see our commentary under Earnings below.
During the spring, we carried out a strategic analysis of our three product areas Nimbra, Sye and ScheduALL. We concluded that Nimbra, our core business, is a stable and profitable area that has generated positive earnings and cash flow which have financed development and acquisitions in other areas in recent years. Nimbra is a very strong brand amongst service providers and broadcasters around the world and is known for its leading and high-quality solutions. Nimbra has a very strong customer base, a modern technology platform and a clear product plan. Given the changes made over the last year in the form of rationalizations and an improved customer intimacy, we’re starting from a position of strength and we see a potential for increased growth and improved margins looking ahead.
Sye is our solution for internet-based live streaming. Sye is unique because it combines four key characteristics: high picture quality, low latency, perfect synchronization and massive scalability. This has attracted considerable market interest, and we had a breakthrough in the form of a license agreement with a Fortune 500 customer at the beginning of the year. This, together with the support from so far three CDN providers, confirms the strength of the Sye solution.
The market for live internet-based streaming services expands rapidly and is expected to grow by close to 50% annually over the next few years.
The strategic analysis indicates a strong potential for Sye based on the unique combination of characteristics, the market growth and the support from major global operators.
We assess that Sye has a technology advantage that will create a window in the market in 1-2 years’ time, when we’ll be able to establish Sye as the industry standard and gain significant market share, with solid profitability in the long term. To do this, we need to approach and onboard major customers to a significantly greater extent than today, which necessitates increased commercial and development resources. We therefore intend to increase our focus on Sye, which will require a capital contribution in the fall. We are currently evaluating the size and potential forms of the capital contribution.
ScheduALL is our software solution for resource optimization, which was acquired in 2015. We appointed a new management in fall 2018, who was given the task of producing a clear plan for ScheduALL’s operations. The plan includes modernization of the solution, with a focus on major customers. The new solution was launched at the NAB Show in April and was very well received by new and existing customers. We see interesting opportunities and are therefore evaluating different strategic alternatives for how to optimize the potential in the ScheduALL business.
Overall, the quarter demonstrates that we’re on the right track. We foresee considerable potential for all product areas looking ahead.
Solna, July 19, 2019
Henrik Sund, CEO