Net Insight AB (publ) (NETIB) Earnings Call Transcript & Summary

Hello, and welcome to Net Insight AB 2020 call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Interim CEO; Anders Harrysson; and CFO, Pelle Bourn. Please go ahead with your meeting.

Okay. Hello, and welcome to this webcast, everybody. It's -- here in Stockholm is myself and Marcus Sandberg. And calling in from the U.S. is our CFO, Pelle Bourn. And we will be covering today's event. So I think we should just go ahead and go to the first slide. What we'd like to do today is just to elaborate a little bit about on our Sye divestment, and also talk a little bit about how we see Net Insight after this divestment and open up for Q&A at the end of the session. So next slide. So as you all have probably read and seen from the press releases and the reports is that we have divested our Sye business to Amazon and -- for approximately SEK 350 million. And this means that all shares and the wholly owned Sye subsidiary with all relevant IPRs, contracts and around 30 employees and consultants have been transferred to Amazon as a part of the deal. The estimated net profit of the transaction for Net Insight will be some SEK 200 million in Q1 2020. And this transaction will allow us to increase focus and investment into the core B2B media networks business, also known as Nimbra. We already have a business plan for 2020 in place, which we are executing on. We also see opportunities here to accelerate growth into some attractive market segments, and where we see things are moving pretty fast is the Internet-based transport. A lot of people talk about remote production, distributed production and also moving our products to the cloud. This transaction closed just a couple of days ago, which means that we are very new into this new situation and cannot expect us to have a full new strategy and business plan in place. So the future direction for the company is something we will be working on now in the near future and share with the market during the first half of 2020. So we will get back to that. Next slide. So the Sye divestment. While Amazon is paying us approximately SEK 300 million in cash for the Sye business, and the Streaming Solution business area, just to remind you, had an operating earnings on negative SEK 37.5 million for the first 9 months of 2019. And to date, we have invested in this business area around SEK 250 million. And as I just said, the profit -- Q1 2020, the net profit will be roughly SEK 200 million. And the rationale for the divestment is that by working closely with a company like Amazon, we have come to understand how complex the ecosystem around this business is. Consumer live streaming, very complex business system -- business ecosystem with large and powerful stakeholders. And while we were looking into the future and evaluated our options, we came to the conclusion that the offer we got from Amazon was the best way forward for this business area, this business unit to Net Insight. Hence, we accepted the offer and divested Sye outside business. The good thing about this is that the divestment will allow us to increase the focus on what Net Insight's always been known for, which is our media networks business, also known as Nimbra. So we will now have all the capabilities to invest enough in that business to accelerate growth. And the Nimbra business is a very profitable business that we're very proud of. What you can also say is that the profitability in the Nimbra business and also the cash we got on the bank now, you can rest assure that we are not in need for new financing. So we are in a pretty stable ground, and the balance sheet looks good, and we are ready to move forward. Next slide. So Net Insight after divesting in Sye. There will be, of course, a new organization. We have a new organization. As you've seen, we have now started in Q3 with segment P&L reporting. We are seeing a cost base reduction of about SEK 25 million, around 10% of the total. As you all know, I'm the Interim CEO and the new CEO is coming in, in April. The accelerated Nimbra product development and modernization of the ScheduALL platform is something we're working on. And not just to accelerate Nimbra for its development, but also the modernization of the ScheduALL platform, which I think is important. And also, what we have done in the last 12 months is divested Sye. So here's where we stand right now. And...

Yes. So...

And by that, I will hand over to Marcus.

Yes, next slide. So what we've talked briefly about, and we're going to -- as we say, we'll come back to this in next early -- kind of in the first half of this year. But I think what is important to kind of tell a bit about kind of this is how the Nimbra business. And on a very high level, the value chain of the Nimbra business looks as follows: we have the live production. We have the live transport, which is part of the contribution side and the consumer distribution. And the Nimbra business is primarily related to contribution, and it's also involved partly in the production side. What we are seeing is key -- 3 main trends in these markets. And all of those are positive that can actually help us grow this business going forward. The first trend is to move from on-site to remote/distributed production. From the traditional way of producing where the full production teams were present at the event side, we're increasingly now seeing productions being done remotely. Example being the Alpine World Championship in Åre that we talked about a couple of times. And what this means is that the transport becomes more important. In a traditional way, you produce one -- you transport one feed. And in the case of Åre, for example, we had up to 80 cameras' feeds being transported independently. The transport becomes more important. And as a result, we see the growth in network capacity from this one. From Net Insight, this means that production company and broadcasters will take a bigger role in the transport side, which means they would become increasingly interested potential customers for us as a company. So that's trend #1. And trend #2 is the continued growth of Internet-based transport. Increasingly, we see that live video content is being transported over Internet-based networks. And this is a market that is growing at least 12% -- 15% year-on-year. We have been present in this market for a long time with our Nimbra 400, which was used to call Nimbra VA. And we're going to continue to push that solution, we're going to improve the competitiveness of that product going forward. The third area is a key trend around cloud. Cloud is a key trend in this market. We see more and more content being ingested and transferred over cloud infrastructure. And this is clearly an attractive growth market for us and other players in the market. We are present here. We have launched a product called Nimbra Edge that is targeting this cloud market. What's interesting about this one is it leverage our existing capabilities, capabilities that we have developed over the years with Nimbra and also with Sye. This will help us to grow with existing customers but also to target new customers in the market. And finally, the attractiveness of this business is that it can help us to introduce new business model, more paper usage and recurring revenue models. So these -- on a high level, we see these 3 trends being positive for our Nimbra business going forward. And this leads us then into what is the key growth areas for the Nimbra business in 2020. We're going to, as Anders highlighted, continue to improve competitiveness of our solutions portfolio. We are -- we have done a lot of investment in R&D in the past. We're going to continue to do that to ensure we have a highly competitive solutions portfolio. We're going to grow with our existing core service provider customers. This is -- has been for a long time, a key customer group for us. We're going to target and continue to develop these customers with existing and new products, both in Nimbra Edge, we have new features that are coming to market. We see production -- growth opportunities related to production. The remote production trend will help us to grow with production companies and broadcasters over the next years. Internet-based transport continue to push our Nimbra 400 solutions. And of course, cloud, the whole cloud, the new emerging segments around cloud networking solutions, where we have a Nimbra Edge product that we will establish with existing and new customers. So on a very high level, this is what we are envisioning for the media networks business in the short to medium term.

Okay. Thank you, Marcus. So with that, we would like to move to the next slide. We have, over the last period of time, we're seeing a number of questions. And we have also seen that people are debating a few things. And we just would like to cover them upfront.

So first question, as you can see has been -- we've been asked, "Why are you selling the Sye business?" And the reason we're selling it is that this is a very complex industry that we're trying to get into. And we are at heart a B2B company, not a B2C company. Therefore, the option to accept the offer that from Amazon, we decided it was the best for the company. And we have evaluated that very thoroughly. So we think we know exactly what we are doing. Then, what is the link between Nimbra and Sye? Will Amazon now need to buy Nimbra equipment? The short answer is no. Nimbra and Sye have very little to do with each other. So there's no drag here. And how does this impact the financing need? Will there be a dividend? Well, we have just closed the transaction. We have no immediate financing needs. However, we will now -- in the next period of time, we will evaluate our options going forward. And in case the company's strategy requires cash for some reason, there may be no dividend. But in case the company strategy won't require cash, there may be a dividend. But this is too early to tell. We will have to get back to you on that. Will the Sye transaction impact the early-announced plans for ScheduALL? Now as we said before, we are evaluating our options for ScheduALL where divestment is an option, and the Sye divestment has nothing to do with that. And when is Crister Fritzson joining? Well, he will join mid-April at the latest. So what happens now, with the transaction completed, the Sye business is now fully separated from Net Insight, and we will continue execute on our business plans for both media networks and ScheduALL. And during the first half, we expect to come back with additional information on our business, our future plans and how we are performing. So with that, do you have anything you would like to add here, Pelle?

Yes. We have -- hi, guys. We have received a couple of questions this morning and during this call. One issue is regarding the new incoming CEO, Crister Fritzson. What that is -- that's -- your aim is to taking this position and what he wants to do. And obviously, that's something that he will need to answer himself once he is aboard. I can only tell that he is showing great commitment and interest in this company and want to be part of growing it. That's very clear. Other questions related to, as you just mentioned, on just the impact of this on the other businesses. You touched that, there's no impact on the ScheduALL. A question, for instance, and we have -- do you have a business plan for Nimbra already? As for -- the financial target is also a question that has come up, but we're going to present the financial targets of the company. We did have financial targets for Net Insight up until 2018. Those were scrapped because they were not relevant. Since then, we have reorganized the company into 3 business -- separate business areas and segments, one of which we have divested now. So this is a new situation for us, and we will have to come back after Crister is aboard regarding what kind of financial targets are we going to have and what are we going to disclose to the public in form of targets, et cetera. So that's a question for the next few quarters for us to look into. I think that covers the questions I could relate to. Marcus, is there anything that you've seen other questions that come in that we could touch at this point?

Yes. I think one question is around Nimbra Edge versus Sye, and I think it's important that Nimbra Edge and Sye are different products and they are not, in any sense, kind of offering the same things, right? I think that that's important to know that they are separate. They're targeting separate part of value chain and part -- target different use cases. So there's no overlap of competition there. I think that's an important one.

Okay.

Thank you, Pelle. So I guess, there is -- this is the time to open up for questions.

[Operator Instructions] And it seems like we have no audio questions. I will hand the word back to the speakers.

Okay. In case there are no questions, we appreciate that. We've been clear on everything you've been wondering about. So thank you for that. And I also want to thank you for calling in and show interest in Net Insight, and we will do our best to be transparent and communicate to you as shareholders as well as we can going forward. Thank you for calling in. And I guess, the call is over. Bye-bye.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.