Ekinops sees Q3 success in optical and software amidst challenging economic environment
The first nine months of 2023 were characterized by what Ekinops said was growth in Optical Transport, up 23%, with sales notably doubling in France since the start of the year and increasing by 19% in North America.
Driven by the success of network virtualization solutions and services, Software and Services posted robust third-quarter growth (44%), accounting for 20% of the Group’s total quarterly revenue. As of end-September, Software and Services revenue rose 13%, representing 15% of the group’s total revenue.
Sales for Access Solutions declined 10% in the third quarter. In addition to an unfavorable basis for comparison, this decline results from a depressed economic environment, marked by what Ekinops said were three main factors: the slowdown in demand and a growing reluctance among customers to make investments; more complicated and expensive access to financing for operators; and cautious inventory management by major operators who had overstocked in response to the electronic components shortage in 2022.
From an overall revenue perspective, Ekinops reported third-quarter consolidated revenue of $27.8 million, down 15% year-over-year. At constant exchange rates, quarterly sales declined by -13%. However, revenue was up over 3% to $104 million for the first nine months of fiscal year 2023.
The company said its performance was impacted by a less buoyant market environment, marked by declining demand and a macroeconomic slowdown. Access equipment sales were notably affected in France and Asia-Pacific.
For the first nine months of 2023, consolidated revenue was $103.4 million, representing a total growth of +3% versus last year, representing an exceptionally high basis for comparison (+28% growth). At constant exchange rates, change was up +4% over the period.
Didier Brédy, Chairman and CEO of Ekinops, said various factors impacted its third-quarter results. "Given last year's particularly challenging comparative figures, Ekinops' third-quarter performance was penalized by the market environment, higher financing costs and large inventories at our operator customers,” he said. “The health of enterprises impacted access activity – our equipment end-users – and therefore by the economic conjuncture.”
He added that “optical transport maintained strong momentum, with revenue expected to top our 2023 targets, driven by sustained demand for bandwidth.”
Regional differences
Besides its product portfolio, Ekinops saw varying results in the regions it serves.
North America was one of the leaders, growing over 22% during the quarter. Driven by strong demand for Optical Transport equipment, North America reported sales of €25.0 million, up +18% year-over-year.
EMEA also saw growth. The EMEA region (Europe, excluding France, the Middle East and Africa), which represents 39% of Ekinops’ revenue, recorded solid growth of over 11% over the first nine months, with an increase in all business lines (over 7% for Access equipment and over 17% for Optical Transport solutions).
However, it saw varying results in its home market and Asia-Pacific.
Ekinops reported that sales were down 3% year-over-year in its domestic market. Due to extensive inventories among key accounts for Access equipment, the primary source of revenue in this market, the downturn was 24% in France.
However, Optical Transport sustained its vigorous momentum, doubling sales since the beginning of the year. Ekinops generated 34% of its nine-month revenue in France.
Meanwhile, Asia-Pacific revenue–which remains highly concentrated and reliant on just a few key accounts–declined 64%. Over nine months, the region accounted for 2% of Ekinops’ total revenue.
A challenging outlook
Looking towards the second half of the year, Ekinops warned investors that because it is operating in a complex economic and market environment where visibility is weaker, it has lowered its revenue targets.
The company expects to report single-digit revenue growth versus the earlier 12% target. Likewise, Ekinops expects an EBITDA margin between 13% and 17%, versus a previous target range between 15% and 19%.
Regarding external growth, Ekinops maintains its ambition to complete a transaction in the months ahead, favoring a non-dilutive source of financing.
Despite its near-term challenges, Brédy said he expects access equipment sales to rise alongside ongoing contributions from optical transport, software, and services. “We remain optimistic for the future as the Group will benefit from the rebound in access equipment sales as the economy recovers, from the growth of Optical Transport sales, which continues to outperform the market, and from Software and Services contribution to revenue,” he said.
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Sean Buckley
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